Blockchains, dollarization, and capital flight
Cold War 2 could provide a use case for blockchain technology
After interviewing Vitalik Buterin, I’ve been thinking a bit about use cases for blockchain technology. In general, I’ve been somewhat favorable to the optimists here — blockchain is a new technology, and humanity's record of finding uses for new technologies is very good. In general, betting against human ingenuity is a bad idea. This is one reason why I own some Bitcoin and Ether.
But I’ve also been reading the work of crypto skeptic Liron Shapira, who argues that Bitcoin is essentially the only real use case for blockchain technology. His basic argument is that anything other than distributed payment verification could be better accomplished via a trusted intermediary like a bank or big software company. Notably, many of the “web3” use cases that had gotten a lot of people excited — distributed wifi nodes, “play-to-earn” video games, and so on — have turned out to be a bust. I think Shapira underrates the appeal of NFTs — after all, people do like collecting things — but it’s undeniable that interest in NFTs has waned enormously since the recent crypto crash. In general, the vast majority of web3 use cases so far have simply turned out to be a form of unregulated financialization.
Shapira’s argument echoes a pair of posts from fintech entrepreneur Kai Stinchcombe in 2017 and 2018. Stinchcombe argues that a blockchain is essentially just a very inefficient storage medium for information. The only way it makes sense to use such an inefficient storage medium, he argues, is if the value of the trust the blockchain generates outweighs the inefficiency of storing things on it.
By that logic, blockchains are only really useful in low-trust situations. Talk to crypto enthusiasts, and they’ll often mention countries like Venezuela that are in a state of financial and political anarchy. If trusted intermediaries simply don’t exist, then cryptocurrency might provide a substitute medium of exchange and short-term store of value. Another obvious and common use case is crime, where trusted intermediaries are legally forbidden.
But in fact, I can think of another potential important use case for blockchains. It has to do with the ways that the global financial system might respond to an increase in geopolitical tensions, conflict, and instability. Cold War 2 — whatever it ends up being — is highly likely to disrupt a number of trusted intermediaries, and blockchains might be able to step in. And that might make crypto an important player in the new geopolitical era — but not in the way its creators anticipated.
Crypto is strengthening dollar dominance
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