The Grumpy Crypto-guy

Almost daily we can find an article asking why cryptocurrencies -more specifically Bitcoin- haven’t been massively adopted, there is a list of usual suspects (i.e. price instability, lack of merchants, the block size fight, etc.) but I have always argued that the value of a currency comes from its ability to allow the creation of money through fractionally backed credit (The Law of Credit and Competition), this is an argument many people doesn’t like because moves crypto-currencies to the realm of the almost-impossible, even though higher capital radios for banks seems to be moving the system into that direction, i.e. a world where banks must use their own money to do business.

So it was obvious to me that the economic theory of crypto-currencies must be based in a school of thought or economic movement based on very-low or non-existent capital ratios, the Austrians and Hayek gave good initial ground -even though they’re borderline utopian- but it was far from enough.

Enter John H. Cochrane -a.k.a the Grumpy Economists- I’ve been following his blog since 2014 and he seemed to have what I needed, to illustrate my point I’ll use Planet’s Money Jacob Goldstein’s description of John Cochrane’s stance on Dodd-Frank:

So Cochrane looks at this world, and he says, you know what? Let’s do something that’s actually way more radical than that. Let’s do something, in fact, that banks themselves really do not want to do. He says, let’s tell banks they cannot use so much borrowed money because that’s the problem. So let’s say, banks, you cannot do that one thing. In the most extreme version of his pitch, he says, you know what? Let’s not let banks use any borrowed money at all.

So, the good news is that there’s academic work that can be used as a framework for solving perhaps the main challenge crypto-currencies face, the bad news is that John Cochrane’s opinions are far for mainstream in his more extreme version, and not enough in his more moderate. In any case, I’ll keep reading his blog while thinking about the future of decentralized monies.