Asked about Bitcoin last week, economics Nobel laureate and Columbia University professor Joseph Stiglitz said, among other gems, “It ought to be outlawed. It doesn’t serve any socially useful function.”
His views have been widely panned by supporters of cryptocurrency, of course, and this post will be another example.
Stiglitz’s statement illustrates a subtle but very important slippage in the function of economics and economists, from students of human action to dictators of human behavior. The slip happens with concepts like “utility” or, as Stiglitz says, “socially useful function.”
Things are useful if they promote certain ends, and they are not useful if they don’t. The question is always what the ends are. Sometimes, economists switch from embracing the ends people seek, as exhibited by their actions, and they adopt a different set of ends.
It’s understandable when economists do that, because each person’s ends are their own to decide—they’re often known only to themselves, and sometimes they’re not known at all. Economists tend to aggregate real humans’ ends into things that are easily measured.
Gross Domestic Product is an example. Most people want to be, or have to be, productive in order to pay for things they want. So GDP is a decent measure of people’s success with pursuing their ends.
But what happens when “leisure” comes along as a suitable aim for many people? Suddenly, a slowdown in GDP growth might signal that people are getting what they want. Most economists reflexively treat it like it’s bad. But it’s less and less clear that it is.
Economists or economic thinkers can get things wrong other ways. They can steer utility toward group rights and against individual liberty. They can model human behavior badly, undercutting political outcomes they might prefer. The opportunities for error grow with the things economists claim to know.
So it is with Stiglitz, who seems certain about Bitcoin’s lacking “social utility,” even while people buy and hold enough to make it a top-20 global currency. There may be some over-enthusiasm, of course, but people around the world see hundreds of billions of dollars’ worth of present and potential value in Bitcoin and cryptocurrency. Who are you going to believe, Mr. Stiglitz, “socially useful,” or the actual society around you?
There’s little likelihood that Stiglitz and others in elite positions will absorb these ideas and approach Bitcoin with renewed humility and open-mindedness. Rather, seeing society’s interests as they define them, they will regard Bitcoin as a threat. They will move against it, possibly even trying to outlaw Bitcoin as Stiglitz suggests.
That’s why it’s so important for new holders of Bitcoin take actual control of it.
Many people who have recently purchased Bitcoin leave it with services like Coinbase. That company has shown a laudable willingness to defend its customers, such as from the IRS’ dragnet effort to collect its users’ data. (We participated in that dispute as a friend of the court.) But centralized services like Coinbase are where the government will go if and when the time comes to grab the Bitcoin.
It’s often said in the Bitcoin community that you don’t own your bitcoins if you don’t control your keys. That refers to the private key in the public-private key pairs that make Bitcoin work. You don’t have to be a cryptographer to do that, but it does take a little time and effort.
I don’t recommend large investments in Bitcoin, and one should only invest funds in cryptocurrency that they would be comfortable losing entirely. But if you have any serious quantity of Bitcoin, you should secure it against seizure from a third-party service by taking control of it yourself.
The best way to do that is to use a hardware wallet, such as Trezor or Ledger. These are specially designed devices for storing the private keys to Bitcoin and other cryptocurrencies. A hardware wallet is like a Bitcoin safe because it protects the codes that control your Bitcoin. When your Bitcoin is stored on a hardware wallet, it is truly in your control. Someone trying to seize it has to find you or your wallet and your codes in order to get it. (Likewise, if you lose a hardware wallet and the recovery “seed” used to create the private keys in it, you lose your Bitcoin.)
It’s a fascinating new world of personal responsibility for those who care to live it. It’s not guaranteed that the careless talk of Joseph Stiglitz won’t turn into careless and wrongheaded action by government officials. So it’s a good time to secure yourself from the depredations of economists who’ve lost their way and no longer serve any socially useful function.