When the scandal over the large-scale theft of Bitcoins erupted, many saw in it proof that the currency was flawed because no one protects people using it from fraud and theft. If robbers break into a normal bank and leave with millions, the law ensures that your deposits are safe, but with Bitcoin being outside the jurisdiction of any state, no one will come to your rescue. This lack of a state-backed insurance scheme for users is a serious fault, no doubt. We might dislike it, but the state is ultimately our only insurance policy against organized crime. However, this is not the most serious weakness of stateless currencies such as Bitcoin. Their greatest and most dangerous weakness is that, because they are founded on the notion that no intervention in the money supply should be possible lest this intervention be manipulated by governments or bankers, it is impossible to adjust the total quantity of money in the system in response to a crisis—and this makes a crisis worse, as we have seen.
Cryptocurrency has been trending in crazy up and down movements in terms of value over the past few years. It is not hard to understand why. Amidst all the worries over privacy, especially as we are moving more and more into the world where digital transactions are the norm. There are also those who worry about the value of currency, especially when the United States will be taking on larger deficits and increasing money supply for stimulus in the pandemic.
However, as Varoufakis mentions, one key thing is that it is impossible to have central intervention if we were to rely on cryptocurrency as a source of transfer. When the “madness of crowds” happen during an economic downturn, and people no longer choose to spend, it will not be possible to stimulate the economy by increasing the money supply. It is probably unlikely that any form of cryptocurrency, in their current form, will be able to sufficiently perform the role of an actual currency in the future.
