How 2024 became a crypto election

Backstage at the Fiserv Forum in Milwaukee, June 16, 2024, on the second day of the Republican National Convention. “I didn’t anticipate the political twists and turns of the past few weeks, but then, who did? One thing I do blame myself for not seeing coming, however, is the extent to which this has become a crypto election,” writes The New York Times columnist Paul Krugman. (Damon Winter/The New York Times)

By Paul Krugman

I didn’t anticipate the political twists and turns of the past few weeks, but then, who did? One thing I do blame myself for not seeing coming, however, is the extent to which this has become a crypto election.

Six years ago, I argued that bitcoin and other cryptocurrencies served no useful purpose, that their market value rested on nothing but “technobabble and libertarian derp.” I stand by that judgment, which has actually been reinforced by the passage of time.

But I didn’t foresee how big a deal crypto would nonetheless become — not because it would fulfill its promise of replacing conventional money, which it hasn’t and never will, but because it has become a powerful force that is, among other things, warping our politics.

What is crypto? Donald Trump recently said, “Most people have no idea what the hell it is.” Indeed. Even now, it’s hard to explain exactly what bitcoin and other crypto assets really are.

But maybe this will help: Who guarantees that the money in my bank account belongs to me? Why can’t the bank tell me, “Sorry, we used that money to pay other people”? The answer is that doing so would be illegal.

What bitcoin and its emulators try to do is sidestep the need for a legal framework with a technological fix that doesn’t depend on banks’ centralized record-keeping. You “own” a bitcoin if you have access to a code that effectively turns a seemingly meaningless string of ones and zeros into a message that says, in effect, “I am a bitcoin,” in much the same way that numerical keys can unlock encrypted communications.

These keys are generated by “mining,” which means using banks of computer servers to solve extremely complex computational problems (a process that is costly and consumes huge amounts of electricity, generating lots of greenhouse gases).

It is, I’m told, a very clever system. But what problem does it solve that can’t be handled more easily and cheaply in other ways? I’ve been in many meetings over the years in which skeptics have asked crypto advocates that question and have never heard a clear answer.

And crypto has never shown any signs of supplanting conventional money. In the years since bitcoin was introduced, digital payment systems that skip the hocus-pocus, like Venmo and Apple Pay, have become ubiquitous. But for most of us, crypto assets have few uses other than the purchase of other crypto assets; notable exceptions are money laundering, extortion and scams.

El Salvador delighted the crypto faithful in 2021 when it made bitcoin legal tender, but three years later the cryptocurrency is barely used in commerce.

Still, isn’t a claim that crypto is basically useless refuted by the fact that crypto assets are now worth more than $2 trillion? No. This wouldn’t be the first time — or the hundredth! — that fast-talking operators with a good story line have persuaded investors to pay large sums for ultimately worthless assets.

If anything, what’s surprising is crypto’s durability, the way bitcoin and its emulators have managed to come back from repeated market crashes and scandals.

My guess is that crypto’s robustness has a lot to do, perversely, with its incomprehensibility: It’s hard to conclude that someone was misleading you when you never understood what was being said in the first place. Also, crypto isn’t like a company with a well-defined bottom line: “Hey, this company is still losing money” is easier to understand than “Hey, these so-called currencies still aren’t being used for everyday transactions.”

Finally, crypto has been heavily marketed to small investors — remember those Super Bowl ads? — who normally wouldn’t and shouldn’t be buying highly speculative assets.

But what does this have to do with politics? Support for crypto doesn’t break down along purely partisan lines; some Democrats still have positive things to say about the technology. But the Biden-Harris administration has in general advocated regulating crypto assets the same way we regulate other securities, like stocks, and regulating crypto institutions that are effectively banks the same way we regulate conventional banks.

And the crypto industry has reacted in much the same way as fossil fuel industries after Democrats began to take environmental concerns seriously: by throwing their support overwhelmingly behind Republicans. They seem to be getting results: The 2024 GOP platform says, “Republicans will end Democrats’ unlawful and un-American Crypto crackdown” — by which they mean, stop regulators from treating crypto assets and institutions the same way they treat stocks and banks. Trump has promised to turn America into a “bitcoin superpower,” which apparently means having the government buy a lot of bitcoin.

All of which raises the disturbing prospect that an industry initially driven, seemingly, by libertarian instincts but which has never delivered on its economic promises will nonetheless be able to buy itself a huge government bailout.