Dear Dr Krugman and the New York Times Editors,
Always keen to consider a diversity of viewpoints on complex topics, I was excited to read your perspective on Bitcoin and other digital currencies underpinned by open blockchains. I do not know your work well, Dr Krugman, but I understand that you are quite a strong establishmentarian, deeply embedded in the prevailing economic mindframe. And so I was disappointed, but not surprised, at your flippant and condescending disregard for the nascent technology that we are early in the process of discovering.
Of course, you can be forgiven. Why fix what isn’t broken? Why overcomplicate things? Why waste effort understanding what is fundamentally a new way to trust people? Why explore a digitally native form of one of the most precious things that make us human — money?
I am a millennial — I do not have a strong economics background, and only have a basic grasp of how the global financial system functions. But more and more I tend to think that what we have is not working. Despite our ability to produce more than enough, human suffering persists on vast scales. Legions of the most intelligent people on Earth spend their time designing better ways to capture value, rather than create it — whether that’s by finding minute inefficiencies in markets or conceiving more effective ways to exploit our attention. And while I do value financial and price stability (which in my understanding is the raison d’etat for most central banks), something about the idea of the “an infinite amount of cash at the Federal Reserve” seems to undermine the entire premise of what money is.
The spaces we occupy affect the quality and tone of our interactions. This is true of digital spaces as much as physical ones. It is becoming clear that money and finance are primarily information technologies —your dismissal of cryptocurrencies shows that you fail to grasp that they are part and parcel of a potent new computing paradigm that is consciously re-architecting our digital spaces so they can better support people and society. Your newspaper, and you yourself, Dr Krugman, very often criticize a system optimized for the elite at the expense of the many. How can you so casually write off the first true alternative to the incumbent financial system, which plays an outsized role in perpetuating these inequalities, that we have seen emerge in generations, perhaps in history?
As for the value propositions of open blockchains (as opposed to closed, permissioned ledgers), you’re looking in the wrong place. Bitcoin is very interesting — it is a digital asset that purely exists in the informational domain, a unit of digital currency that I can hold without a counterparty owing me anything, money (with a verifiably fixed supply) controlled by the private key that only I possess. But Bitcoin was the first blockchain and consensus network, its design deliberately restricted to securely serve the function of money. Ethereum allows developers to write smart contracts — permanent, pay-per-use computer programs that can own money and therefore underpin a wide range of financial applications. This is the true innovation that is emerging to show radical improvements over incumbent systems.
Smart contracts are an even younger technology than Bitcoin — the comparison I heard last week is that consensus technologies are a bit like electricity in the 1800s. For someone to claim “The fundamental principles of electricity were discovered 8 years ago — but it hasn’t been adopted at scale so it’s obviously useless” is at least a bit shortsighted. This is especially true given the inertia of the global financial system and entrenched interests, along with the natural, healthy conservatism with which people approach their systems of money. Still, to write off open blockchains without even mentioning smart contracts shows that you have not done your homework.
Get your hands dirty
Dr Krugman — in my view, only once you have explored the true value of Web3 for yourself will you have a leg to stand on in writing it all off. It might take an afternoon, and due to network demand may cost a few hundred dollars (which is a problem a dedicated number of the most intelligent cryptographers, computer scientists, game theoreticians and designers in the world are actively solving). Give it a whirl. Learn by doing.
Create your own accounts by installing the Metamask wallet on your browser and generating a seed phrase. Write this seed phrase down and store it safely! This encodes a random number that is used to generate your private keys, and there is no one to call if you lose this information. With this seed phrase you can create any number of accounts on multiple blockchains, even if you lose the device you created it on. Consider the meaning of “permissionless”: you did not have to request authorization to create these accounts. You have a right to participate just for being a living human.
Transfer some ether to the address you created — you’ll need to get some from a friend (I’ll send you some if you like), or from a centralized exchange like Coinbase. Learn about automated market makers like Uniswap, where you can swap one token for another without a counterparty or order book. Instead exchange rates are determined by a transparent mathematical formula. Exchange some of your ETH for another currency — maybe Dai, a smart contract-based stablecoin pegged 1:1 with the US dollar. Deposit some Dai to Compound or Aave, lending protocols, to earn interest. Register an ENS domain to create a human-friendly identity for your account. (paulkrugman.eth is currently available.) Browse the wild world of cryptoart and NFTs on Zora and OpenSea. Buy an option on Hegic — I imagine you might go for a put option. Privately view your account using a DeFi interface like Zerion — or, if you don’t like it, switch to Zapper without needing to ask anyone or transfer your money anywhere. Donate to a Gitcoin grant to help fund public goods that support the ecosystem. If you want to get really funky, peruse the growing array of decentralized autonomous organisations (DAOs) on DAOhaus and consider applying to join one like LexDAO, a non-profit association of legal engineering professionals.
And beyond that — look a bit deeper. Notice that with most of these decentralized applications, all of the code they run on is open source, and can be inspected by anyone. See that most would continue to function even if the founding team were to disappear. Understand that the Ethereum protocol is open by necessity, and that the numerous clients that run on the consensus network’s validator nodes are open source as well. Many organizational treasuries are transparently governed; expenditures can be verified by anyone. Yes, there are many new technical terms, a necessity to accurately describe the multitude of new concepts that are being established — but just because they are confusing does not mean they don’t make sense. If you’d like a resource that presents these ideas in terms that may be more familiar given your background, I recommend a paper released earlier this year by Fabian Schär at the Federal Reserve Bank of St Louis.
As you are doing this, try to look past the sound and fury of speculation and scammers and fraudsters that turn up wherever they smell an opportunity — look past the volatile prices of cryptoassets to see the core — the kernel. At the center of the Web3 ecosystem a group of luminaries is tirelessly working to build a better Internet. They are learning from the mistakes we made building the first iterations of this global communications network, and designing an upgrade that is meant to be more just, fair and safe. This next generation of the Internet — Web3 — is designed to natively and irrevocably protect human rights that we are only just realizing we have: our right to privacy, our right to participate in finance, our right to own our personal information.
See the essence
Regarding the problems this technology solves — the answer is nuanced. Like you, Mr Krugman, I have spent most of my life in a country with strong rule of law, where I didn’t have to worry that I might not have access to my bank account due to my political views, where I could easily get a bank account. But even for me, the benefits of a transparent, unkillable, open, global substrate on which to build humanity’s critical functions and data are not lost. And that’s how I see it: public blockchains are a new form of public infrastructure. It’s tricky, because we can’t see it like we can see a highway or bridge, and because there is — by design — no owner or controlling entity. But we need to understand that the rickety, degrading legacy financial system we’ve inherited poses great risks to societal stability. I am not saying that open blockchains solve everything, but to ignore them and write them off as useless is a profound oversight. Fortunately some truly forward thinking public servants are coming to understand that this is a movement they should understand and harmonize with, British MP Tom Tudenghat being a recent example.
I spend a great deal of my time thinking about how we can evolve our institutions to secure a safe and prosperous future for humanity. I am by nature an optimist, a reform-from-within inclusionist. But more and more I am questioning whether our incumbent institutions have the ability to adapt in ways this moment demands.
Behind the facades at the Federal Reserve and the Bank of England, there are a few men and even fewer women making decisions that affect billions. I fully believe that overwhelmingly these are highly intelligent, thoughtful and genuinely well-intentioned people — I find no fault in the individuals comprising the system. But due to their structure and culture — closed, opaque, restricted to a very select few with the right education and pedigree — I am not convinced these institutions are up to the task of administering services in a way that the 21st century demands.
There is a playfulness intrinsic to the consensus economy that is easy to mistake for a lack of seriousness. Illustrations of dogs in robot costumes adorn ethereum.org — surely it all must be a toy, a joke?
Make no mistake, though: because they embody the principles of Web3, blockchain protocols do not need to act like they are something they’re not. They don’t need to convince people that something with integrity sits behind the facade: people can examine it and confirm for themselves. Rather than making these technologies confusing and complex and staid to more capably exploit “users” or “consumers”, the ecosystem is seeking to make learning fun and entertaining, so more people can learn about these technologies and join the movement. Permissionless means anyone can use these technologies (including criminals — though many illicit actors are coming to learn that it may be the worst form of money they could have chosen, as former Deputy Director of the CIA Michael Morrell recently concluded). Permissionless also means we can enroll the ingenuity and innovative impulse of the entire human race as we work together to build a brighter future.
We face an unprecedented challenge in the coming decades. We need to radically reform our systems so that we can support human existence on this planet perpetually — a great rebalancing is required, a graceful transition to sustainability. Consensus technologies have an important role to play, and the sooner we can explore them with the humility and open mindedness they deserve, the more skillfully we will be able to apply them to our collective problems.