Nobel Laureates in Economics Jean Tyrol, Joseph Stiglitz and Paul Krugman Criticize Cryptocurrency Risks But Ignore Its Possible Positive Uses On, economists Nicolas Hoy and François Legrand.
stands. In an op-ed published in the Financial Times on November 30, Jean Tirole judged Bitcoin to be a pure financial bubble with no utility. Before him, other Nobel laureates in economics had expressed the same direction: Joseph Stiglitz reckons in a Nov. 29 interview with Bloomberg that the U.S. government is doing a good job of trying to “kill” Bitcoin, and Paul Krugman in 2013, the “New York Times” judged “Bitcoin is Evil” (” Bitcoin is Evil”).
What is Bitcoin? Bitcoin is the name of a protocol, that is, a set of rules and standards that allow computers (and those who control them) to understand each other. The main success of Bitcoin is to guarantee exclusive property rights in units of account that are recognized by all.
These units of account are “the” bitcoins (without the capital B). To achieve this feat in a network of digital data — which can be replicated a priori infinitely without any cost — Bitcoin mobilizes from cryptography, game theory, and incentive theory in a situation where no one can trust each other concept.
Mining is the core of blockchain construction
If Tirole is apparently legitimate on many economic and financial topics, his column on Bitcoin reveals a certain ignorance of the topic, especially its technical aspects. An instructive example is his description of the “mining” process as a new seigniorage forfeited by private entities.
Mining is not just about the currency creation process, it is at the heart of the Bitcoin protocol and the construction of the blockchain. In short, to record a Bitcoin transaction and write it to the blockchain, several steps are required. First, the transaction is verified by the first miner, who is the fastest. This first verification is then confirmed by other minors.
Finally, when miners agree on the validity of a transaction, it is recorded in the blockchain. The initial verification process for the competition of miners will be compensated in Bitcoin. This reward is an essential incentive for the mining process, and it guarantees a consensus on the property.