Nobel prize Shiller warns Bitcoin could be another experiment

Cryptocurrencies could be the latest case of more than a century’s worth of failed efforts to revolutionize money, according to Robert Shiller, famed for his warnings about the dot-com and housing bubbles.

The Nobel Prize-winning economist compared the euphoria toward almost 2,000 cryptocurrencies created since 2009 to the rise of “time money” in the 1800s.

Writing in a new blog posted today, the Yale professor and Nobel-winning economist wrote that enthusiasm for the cryptocurrency market remains strong despite warnings that it could be a scam. ‘One must bear in mind that attempts to reinvent money have a long history,’ he said. Yet, while new monetary innovations create excitement to begin with, they fail to last, he added.

As an example he cited Josiah Warner, who in 1827 opened the ‘Cincinnati Time Store’ that sold merchandise in units of hours of work. These relied on labour notes, which resembled paper money; however, while they were considered a sign of importance of working people, the store closed in 1830.

Undeterred by Warner’s failure, two years later Robert Owen attempted to create the National Equitable Labour Exchange in London. This relied on ‘time money’ as a currency. Yet, similar to Warner’s attempts Owen’s experiment failed as well, Shiller pointed out.

One hundred years later during the Great Depression, economist John Pease Norton proposed a dollar by electricity, which also failed to catch on.

“Each of these monetary innovations has been coupled with a unique technological story,” Shiller wrote in a blog post Monday. “But, more fundamentally, all are connected with a deep yearning for some kind of revolution in society.”

Bitcoin and cryptocurrencies are no different, he said. They were introduced by a community of entrepreneurs who, as Shiller put it, “hold themselves above national governments, which are viewed as the drivers of a long train of inequality and war.”

The mania around bitcoin today is also due in part to its mystery, the Yale University professor said.

“Practically no one, outside of computer science departments, can explain how cryptocurrencies work, and that mystery creates an aura of exclusivity, gives the new money glamour, and fills devotees with revolutionary zeal,” Shiller said. “None of this is new, and, as with past monetary innovations, a seemingly compelling story may not be enough.”

The height of the public’s fascination was also undoubtedly tied to bitcoin’s meteoric rise in price. The world’s first cryptocurrency rose to near $20,000 last year before losing roughly half of its value in the first quarter of 2018.

This is certainly not the first time that Shiller has spoken out against the cryptocurrency market. Last October, he called bitcoin a ‘fad,’ as he commented on the ‘strange enthusiasm’ for the currency. Earlier this year, he was reported as being conflicted on bitcoin and wasn’t sure whether it would fail or succeed. He’s also said bitcoin is a bubble and that it only attracts investors because it is a good story.