Cryptocurrencies face skepticism despite mounting interest in blockchain

A number of major names have called out Bitcoin, while interest in blockchain gains legitimate interest and commercial applications 

Last month, JPMorgan Chase CEO Jamie Dimon called Bitcoin a “fraud” and said “it’s worse than tulip bulbs. It won’t end well.” On Monday, Prince Alwaleed bin Talal, the billionaire Saudi investor, joined the chorus of anti-cryptocurrency skeptics on CNBC’s Squawk Box, predicting that “it’s just going to implode one day. I think this is Enron in the making.”

While it comes as no surprise that multinational banking executives and authoritarian political leaders reject the very premise of a currency and payment system they cannot directly supervise, tech thinkers are growing frustrated by this critique for two reasons. The first is that this institutional skepticism often lacks a substantive factual basis—and at their worst, these critiques rely on misinformation. Dimon’s reference to the Dutch Tulipmania that roiled Europe’s first futures markets in 1637 and Prince Alwaleed’s allusion to the biggest case of accounting fraud in recent American history, tend to obscure more than they illuminate. For starters, both the tulip bulb bubble and Enron’s collapse are traceable to the same lack of transparency that cryptocurrencies were created to address.

The second reason why tech leaders bristle at the dismissive attitude toward cryptocurrencies is that criticisms like Dimon and Alwaleed’s tend to respond only to the most overheated hype around the technology rather than the more measured claims about what cryptocurrencies and blockchain will actually be useful for. It’s tempting, and easy, for bankers and princelings to ridicule wild prophecies about how Bitcoin and Ethereum will revolutionize all of our most familiar institutions… it just doesn’t advance the conversation, or the public’s understanding of the issues.

Adam Ludwin, the founder and CEO of Chain, a provider of blockchain technology to financial institutions, wrote an open letter to Jamie Dimon in response to Dimon’s “fraud” comments. Ludwin admits that cryptocurrencies and the decentralized services they enable come with inherent shortcomings and disadvantages—they’re slower, more expensive, less scalable, and sometimes have worse user experiences—but says that those drawbacks are more than offset by what cryptocurrency users are really after: uncensorable, unstoppable transactions.

As Ludwin wrote, “If Bitcoin is capitalism distilled, it’s also a kind of freedom distilled.” By listing the drawbacks of cryptocurrencies, Ludwin is able to clarify the kind of businesses and users who are actually willing to deal with the inconvenience to get the freedom and privacy they want. So, no: Bitcoin will never make sense for most people and most payments, but it has an undeniable advantage for specific applications.

The final problem with the unsophisticated dismissal of Bitcoin by figures like Dimon and Alwaleed is that it can end up conflating cryptocurrencies with the underlying blockchain technology, which has many applications that don’t require tokens like Bitcoin at all. Established industries are already developing blockchain tools to better trace food products as they move from farm to processing facility, to harden personal information against identity theft, and to streamline the creation, sharing, and use of medical records. And BiTA, the Blockchain in Trucking Alliance, is creating a forum for standards and education for blockchain tools in the freight industry—the first meeting of BiTA’s executive council will take place in November in Atlanta, GA.

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John Paul Hampstead, Associate Editor

John Paul writes about current events and economics, especially politics, finance, and commodities, and holds a Ph.D. in English literature from the University of Michigan. In previous lives John Paul studied Shakespeare in London and Buddhism in India, but now he focuses on transportation and logistics in the heart of Freight Alley--Chattanooga. He spends his free time with his wife and daughter herding cats, collecting books, and walking alongside the Tennessee River.