Cryptocurrencies mirror some of the most famous failed currency experiments throughout history, according to Nobel-winning economist Robert Shiller.
Enthusiasm around the thousands of existing cryptocurrencies, including bitcoin, remains strong despite warnings from investors such as Warren Buffett that they're worthless. That mania and attempts to launch new units of money have existed in different forms since the 1800s, Shiller said.
Shiller, best known for warning about the housing and dot-com bubbles, pointed to the early 19th century, when merchants tried to replace the gold standard with "time money." The "Cincinnati Time Store" for example sold merchandise in units of work and closed just three years after it launched. 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.
Here is the full post by Shiller.