Nov 2, 2018 · 39m · a16z
Debating Crypto: Katie Haun vs. Paul Krugman
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Organized by Versus by KIO Networks, this debate features a16z crypto General Partner Katie Haun and Nobel laureate economist Paul Krugman discussing the economic viability, regulatory landscape, technical scalability, and real-world utility of cryptocurrencies. Moderated by Rodrigo Pacheco, the discussion contrasts traditional financial mechanisms and economic skepticism against decentralized blockchain innovation and financial inclusion.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. How this is scored →
The host as informed peer 2.2 Guest teaching 6.0 Guest disagreement 3.9 The host pushing back 2.2
speaking balance: gold is the host, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 30:40 Krugman compares crypto adoption to Pets.com
Krugman directly rejects the premise that crypto represents a new technological age, predicting that in 15 years most of it will look like the failed dot-com bubble collapse of Pets.com.
Hardest push from the host ▶ 33:25 Host forces binary choice on regulatory tendenciesModerator Rodrigo Pacheco presses Katie directly with a concise binary question on whether the overarching regulatory tendency is to resist or promote cryptocurrency.
Biggest teaching moment ▶ 8:20 Katie corrects Krugman on Secret Service counterfeiting realitiesKatie draws directly on her professional career as a federal prosecutor to refute Krugman's assumption that the Secret Service actively deters counterfeit currency, noting their severely limited resources.
The host holds their own ▶ 17:20 Audience member provides empirical Mexican micropayment dataAn audience member working in Mexican digital currency presents precise market data on unbanked citizens and $10 cross-border micropayments, presenting a practical use case that Krugman later admits he must study.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | The host as informed peer | Guest teaching | Guest disagreement | The host pushing back | Why |
|---|---|---|---|---|---|---|
| Evaluating Cryptocurrency Trustworthiness and Government Controls | 2 | 4 | 3 | 2 | Rodrigo Pacheco introduces government controls in Venezuela and asks Krugman about early internet comparisons. Krugman politely counters that early internet had immediate utility like email and ARPANET, whereas crypto utility remains unproven. | |
| Intrinsic Value, Price Volatility, and Stablecoin Innovations | 2 | 5 | 5 | 2 | Katie highlights stablecoins as a hedge against volatility, but Krugman pushes back with specific financial metrics showing Bitcoin daily transaction volumes are tiny ($500M-$1B) compared to the foreign exchange market ($1T). | |
| Scalability Solutions, Layer-2 Networks, and Energy Costs | 3 | 5 | 5 | 3 | Katie explains scaling solutions like the Lightning Network and Bitcoin Cash, while Krugman argues that energy efficiency gains are self-defeating because they consume real resources for validation. | |
| Fiat Validation vs. Blockchain Security and Counterfeiting Realities | 2 | 7 | 6 | 2 | When Krugman asserts that the Secret Service deters dollar counterfeiting, Katie explicitly disagrees using her firsthand knowledge as a former prosecutor, explaining that Secret Service resources are severely strapped and rarely investigate minor counterfeiting. | |
| Blockchain Forking, Proof of Stake, and Institutional Trust | 3 | 5 | 4 | 3 | Katie breaks down technical shifts from Proof of Work to Proof of Stake and Delegated Proof of Stake, while Krugman warns against discarding established institutional trust and explains government seigniorage revenue. | |
| Mobile Phone Adoption and Financial Inclusion in Developing Regions | 3 | 6 | 5 | 3 | Katie illustrates mobile phone leapfrogging in developing nations and references millennial distrust in banks, while Krugman points out that centralized crypto exchanges remain vulnerable to hacks. | |
| Audience Q&A: Financial Inclusion and Cross-Border Micropayments in Mexico | 2 | 7 | 4 | 2 | An audience member from Mexico provides real-world statistics on unbanked citizens using crypto for cross-border $10 micropayments, prompting Krugman to question whether regulations are merely being sidestepped. | |
| Audience Q&A: Central Bank Reputation, Network Effects, and Currency Coexistence | 2 | 6 | 3 | 2 | Krugman details currency network effects and attributes consumer preference to the power of laziness, while Katie agrees that 1600 cryptos won't survive but defends coexisting alternative stores of value. | |
| Audience Question on Cryptocurrency Value and Backing | 2 | 6 | 3 | 2 | In response to an audience query about coin valuation, Katie openly acknowledges that the majority of initial coin offerings (ICOs) are fraudulent or scammy crowdfunding campaigns. | |
| Regulatory Enforcement and Cleaning Up Crypto Scams | 3 | 7 | 6 | 3 | Krugman dismisses crypto's future by predicting it will resemble Pets.com in 15 years, whereupon Katie offers a thorough global breakdown of regulatory responses in Dubai, Malta, Japan, and the U.S. | |
| Government Perspectives and Responsible Innovation | 3 | 7 | 3 | 3 | Katie outlines her background founding the U.S. government's first cryptocurrency task force and cites SEC crypto leadership and Coinbase's state-by-state compliance strategy as examples of responsible innovation. | |
| Audience Inquiry and Panel Defense of Privacy Coins | 2 | 7 | 3 | 2 | Addressing privacy coins like Zcash and Monero, Katie explains that financial privacy is essential for commercial enterprises and points to JP Morgan's partnership with Zcash despite Jamie Dimon's public anti-Bitcoin stance. | |
| Paul Krugman's Concluding Reflections on the Debate | 0 | 6 | 1 | 0 | In this closing monologue, Krugman concedes that the audience member's evidence regarding unbanked populations using crypto for payments was a compelling anomaly and far and away the best defense of crypto he had heard. |
Statements from this episode (35)
Katie Haun says most of the 1,600+ cryptocurrencies are untrustworthy
“I think, you know, it's not just governments that could create untrustable cryptocurrency. I think there are a lot of untrustable cryptocurrencies out there right now. Obviously there are over 1600, I think maybe even more, but at 1.1600, and I certainly would…”
Paul Krugman says crypto offers no unique utility over traditional methods
“It's not at all clear even now that there's anything that you can do with crypto that you can't do other ways. But, you know, obviously if something comes along that I, I'm happy to see it, but I don't see it now.”
Katie Haun argues Bitcoin price volatility is lessening over time
“I think now what we're seeing is the price is, the volatility is lessening, and I grant you, there's still a lot of volatility.”
Katie Haun says stablecoins are important for hedging crypto market volatility
“I think things like stable coins are really interesting and really important to this ecosystem to hedge against that volatility.”
Paul Krugman estimates daily Bitcoin transaction volume is under $1 billion
“It looks like there's something like five hundred million to a billion dollars worth of transactions, ah, a day in Bitcoin.”
Paul Krugman notes Bitcoin daily transaction volume peaked in early 2018
“As best we can tell, the dollar value of bitcoin transactions peaked at the beginning of this year, and that's actually fallen substantially since then.”
Paul Krugman sees no sign Bitcoin is becoming a widespread payment method
“There's very little sign that it is becoming any kind of widespread means of payment, and that's 10 years on.”
Katie Haun concedes Bitcoin's main use is not peer-to-peer payments
“Satoshi's white paper says it's an electronic peer-to-peer cashless system for payments. Right. For payments, and I would grant you that it's right now, it's main use is, it's certainly not that.”
Paul Krugman argues Bitcoin mining energy efficiency gains are self-defeating
“Bitcoin is what people are owning now in large value, and any gains in energy efficiency just gets swallowed up very quickly. You just push further into that margin, and it, ah, it, it's, ah, it's a self-defeating form of progress.”
Paul Krugman says Secret Service enforcement prevents high-quality currency counterfeiting
“Mostly the main obstacle to people producing high quality counterfeit, ah, dollar bills is the fact that the Treasury Department, the Secret Service will track you down”
Katie Haun says Secret Service lacks resources for $100,000 counterfeiting cases
“The Secret Service in particular is an agency so strapped that I can't tell you how many counterfeiters we could never prosecute. You know, it's such a small fraction of cases that you really have a Secret Service agent. It has to be a mass scale counterfeit. …”
Katie Haun notes Ethereum is transitioning to proof-of-stake
“Ethereum is migrating to what's called a proof of stake, so it won't be doing proof of work mining and using all of this energy.”
Paul Krugman says crypto will struggle to surpass traditional institutional trust
“We developed this, you know, socially ingenious thing, which is enduring institutions that have a reputational stake in, ah, in safeguarding the value of the, ah, of the tokens they create, and, we're throwing all of that out, and it's gonna be really, really …”
Paul Krugman says US currency expansion yields tens of billions annually
“The gradual expansion of currency in circulation gives the US government some tens of billions of dollars of revenue.”
Paul Krugman predicts governments may issue state cryptocurrencies to protect seigniorage
“You can imagine the governments, if they start to see the seniorage eroded by crypto, will say, okay, well, we'll offer you government-validated crypto, ah, which, not sure at some point why that's any better than government-validated other stuff, but, ah, The…”
Paul Krugman argues government interest in blockchain is driven by trendiness
“Government officials are as, ah, ah, you know, they read the same magazines, they, ah, no one reads magazines. They read the same social media as everyone else, and, ah, and want to be trendy. And, ah, you know, the trendiness is a very big factor in all of th…”
Katie Haun cites study claiming one in three millennials prefers cryptocurrency
“There was a study I saw and I can't cite you the source, but it said that one out of three And this is in the United States. One out of three millennials would rather own Bitcoin or cryptocurrencies than stocks.”
Katie Haun asserts the underlying blockchain has never been hacked
“The blockchain has never been hacked.”
Paul Krugman says 2000s financial innovation was mostly regulatory arbitrage
“The high tide of financial innovation in, in, in other respects, non-crypto financial innovation, was in a period roughly, you know, 2000 to 2007, and the great bulk of that innovation was essentially just doing an end run around regulations.”
Paul Krugman predicts only one or two cryptocurrencies will survive
“There will not be 1600 cryptocurrencies out there. There will be one or two.”
Paul Krugman predicts blockchain will not undermine Amazon or tech incumbents
“I don't believe that blockchain is going to undermine Amazon or any of these people, because The reason I use Amazon is not because of power, or the, not the power of Amazon, but the power of laziness.”
Katie Haun predicts several cryptocurrencies will succeed long-term
“I don't think there would only be a couple cryptocurrencies that succeed. I do agree with you that it will not be 1600. I think you might see, I don't want to put a number on it, but I think you'll see several emerge as ones that are going to stick around.”
Katie Haun predicts cryptocurrency will not replace major fiat currencies
“I don't think, though, to answer your question, that it's going to replace all of the other currencies. I'm not saying that, oh, it's going to replace the dollar and replace the euro. I actually don't believe that, ah, is likely to happen.”
Katie Haun predicts crypto will develop as an alternative to gold
“I also don't believe it's going to replace big, ah, gold as a store of value entirely, and if I suggested that during my presentation, all I meant to suggest was that I think it will develop as an alternative store of value.”
Katie Haun admits the majority of ICOs are frauds or scams
“Look, initial coin offerings or ICOs, I'll be the first to tell you, there is a tremendous amount the majority of them are, seem to be, Frauds or scams.”
Katie Haun estimates ICOs raised $7 to $8 billion in 2018
“It was, what, seven billion dollars in ISEA initial coin offerings. And my number might be outdated because, you know, the year's gone on since I looked. But it's something like seven, eight billion dollars already this year alone.”
Paul Krugman says uninformed retail investors are getting ripped off in crypto
“My barber actually did ask me if he should put all of his money in Bitcoin. So this is not, this stuff is not hypothetical, it's for real, and there's a lot of, Uninformed people getting ripped off.”
Katie Haun predicts wave of government enforcement actions against fraudulent ICOs
“Well, much like Secret Service, they can't do every case, number one, so a lot of those scams are gonna get a pass, but number two, I predict we are gonna see a lot of enforcement actions against fraudulent, scammy ICOs, and good because they bring down the na…”
Paul Krugman predicts most crypto projects will look like Pets.com by 2033
“My guess is, however, that I think I don't actually believe that we're at the dawn of a new age. I actually believe that we're at the that that most of this 10 years back, 15 years, 15 years from now, it will look a lot like Pets.com.”
Katie Haun notes she founded the first US government cryptocurrency task force
“I founded the government's first cryptocurrency task force and it was the Justice Department”
Katie Haun says Coinbase fired its law firm in 2012 over licenses
“When they were just starting out that company in San Francisco in 2012, they were told by their lawyers, big law firm, don't worry about getting those licenses, you don't need them. They fired those lawyers”
Katie Haun notes JPMorgan partnered with Zcash despite Jamie Dimon's comments
“JP Morgan was inking in a huge deal with Zcash. Zcash the privacy coin. So it's not that JP Morgan completely thought cryptocurrency, there was no there. They were doing a partnership with Zcash.”
Katie Haun argues commercial enterprises require financial privacy to protect data
“There needs to be financial privacy, especially in the case of businesses, right? One business doesn't want its competitor to see what it's paying or charging customers, and that's where Zcash comes in for that really commercial use.”