As many technically savvy experts predicted, the crypto house of cards is collapsing.
There are technical reasons why the crypto bubble is bursting, including the fact that theoretically unbreakable encryption schemes like those underpinning blockchain have proven to be less than impermeable in practice, as users of Coinbase discovered upon losing fortunes. Attackers go after the weakest link in the chain, usually the way in which the algorithm is implemented. Perhaps more ominous, the emergence of a new class of devices called quantum computers threatens to eat the algorithms that underlie crypto for lunch.
However, no technical expertise is needed to understand the historic and economic reasons for the impending demise of crypto—and its bastard offspring, NFTs (non-fungible tokens). They are the biggest speculative bubble since Dutch Tulip mania. Like tulips, bitcoins and other forms of cryptocurrency have no intrinsic value. They are not gold or pork bellies, nor backed by the good faith and credit of any government. A sane person should be wary when multiple prominent economists, including multiple Nobel prize winners, say cryptocurrency has no intrinsic value whatsoever. Angus Deaton’s assessment:
“It’s better if you’re a criminal, I don’t know why else. The only advantage as far as I can see is you can be a crook [referring to the anonymity that cryptocurrencies allow]. It’s not an accident that people who demand ransoms demand them in bitcoin. I’m not sure anyone else does.”
Crypto is the most serious current example of the Greater Fool Theory. It’s based on the idea that you can make a profit even on a worthless asset, if you can only find someone stupid enough to take it off your hands. As noted by someone who should know, crypto and NFTs are “100% based on greater fool theory.”