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News Link • Currencies

The Problem With Crypto-Currencies

•, Dmitry Orlov

Orlov is one of our favorite essayists on Russia and all sorts of other things. He moved to the US as a child, and lives in the Boston area.

He is one of the better-known thinkers The New Yorker has dubbed 'The Dystopians' in an excellent 2009 profile, along with James Howard Kunstler, another regular contributor to RI (archive). These theorists believe that modern society is headed for a jarring and painful crack-up.

He is best known for his 2011 book comparing Soviet and American collapse (he thinks America's will be worse). He is a prolific author on a wide array of subjects, and you can see his work by searching him on Amazon.

He has a large following on the web, and on Patreon, and we urge you to support him there, as Russia Insider does.

His current project is organizing the production of affordable house boats for living on. He lives on a boat himself.

If you haven't discovered his work yet, please take a look at his archive of articles on RI. They are a real treasure, full of invaluable insight into both the US and Russia and how they are related.

There is a lot of attention currently being paid to cryptocurrencies. On the one hand there are those who claim that their rise in value is actually a symptom that conventional, fiat currencies are crashing. This begs the question as to why precious metals aren't skyrocketing, and the usual answer is that their prices are being manipulated using the futures market that keeps "paper" gold cheap while "physical" gold is growing scarce; at some point these manipulations will stop working and gold will shoot up to $10,000 an ounce. (Sounds good to me!)

This also begs the question as to why, if fiat currencies are crashing, there isn't much inflation at all. Even in countries that have been plagued with high inflation for decades, such as Russia, this is no longer a problem; there, inflation is now under 3%. There isn't much inflation in the US either, provided you exclude from it all of the local extortion rackets: real estate, health care and education. (Armed robbery usually isn't part of the basket of products and services used to compute inflation.) Hyperinflation is not hard to find (in Venezuela) but this is not commonly seen as a worldwide, systemic problem.

On the other hand there are those who think that cryptocurrencies are another type of tulip mania or South Sea bubble: just another irrationally exuberant event that will end with a resounding crash. The standard retorts are "Bah, humbug!" and "This time, it's different!"

A more thoughtful retort is that Bitcoin (and other cryptos) are works of genius, based on the innovation of the blockchain (a sort of distributed ledger where every anonymous participant gets to verify every transaction) and the "proof of work" principle by which Bitcoin is "mined" using computers. In essence, instead of putting their trust in governments (which print money) and central banks (which really print money), Bitcoin users put their trust in algorithms, which are open source and defended through lack of public acceptance of any modification that might compromise them.

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