Bitcoin and other cryptocurrencies are useless

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AN OLD saying holds that markets are ruled by either greed or fear. Greed once governed cryptocurrencies. The price of Bitcoin, the best-known, rose from about $900 in December 2016 to $19,000 a year later. Recently, fear has been in charge. Bitcoin’s price has fallen back to around $7,000; the prices of other cryptocurrencies, which followed it on the way up, have collapsed, too. No one knows where prices will go from here. Calling the bottom in a speculative mania is as foolish as calling the top. It is particularly hard with cryptocurrencies because, as our Technology Quarterly this week points out, there is no sensible way to reach any particular valuation.

It was not supposed to be this way. Bitcoin, the first and still the most popular cryptocurrency, began life as a techno-anarchist project to create an online version of cash, a way for people to transact without the possibility of interference from malicious governments or banks. A decade on, it is barely used for its intended purpose. Users must wrestle with complicated software and give up all the consumer protections they are used to. Few vendors accept it. Security is poor. Other cryptocurrencies are used even less.

With few uses to anchor their value, and little in the way of regulation, cryptocurrencies have instead become a focus for speculation. Some people have made fortunes as cryptocurrency prices have zoomed and dived; many early punters have cashed out. Others have lost money. It seems unlikely that this latest boom-bust cycle will be the last.

Economists define a currency as something that can be at once a medium of exchange, a store of value and a unit of account. Lack of adoption and loads of volatility mean that cryptocurrencies satisfy none of those criteria. That does not mean they are going to go away (though scrutiny from regulators concerned about the fraud and sharp practice that is rife in the industry may dampen excitement in future). But as things stand there is little reason to think that cryptocurrencies will remain more than an overcomplicated, untrustworthy casino.

Can blockchains—the underlying technology that powers cryptocurrencies—do better? These are best thought of as an idiosyncratic form of database, in which records are copied among all the system’s users rather than maintained by a central authority, and where entries cannot be altered once written. Proponents believe these features can help solve all sorts of problems, from streamlining bank payments and guaranteeing the provenance of medicines to securing property rights and providing unforgeable identity documents for refugees.

Nothing to lose but your blockchains

Those are big claims. Many are made by cryptocurrency speculators, who hope that stoking excitement around blockchains will boost the value of their related cryptocurrency holdings. Yet firms that deploy blockchains often end up throwing out many of the features that make them distinctive. And shuttling data continuously between users makes them slower than conventional databases.

As these limitations become more widely known, the hype is starting to cool. A few organisations, such as SWIFT, a bank-payment network, and Stripe, an online-payments firm, have abandoned blockchain projects, concluding that the costs outweigh the benefits. Most other projects are still experimental, though that does not stop wild claims. Sierra Leone, for instance, was widely reported to have conducted a “blockchain-powered” election earlier this year. It had not.

Just because blockchains have been overhyped does not mean they are useless. Their ability to bind their users into an agreed way of working may prove helpful in arenas where there is no central authority, such as international trade. But they are no panacea against the usual dangers of large technology projects: cost, complexity and overcooked expectations. Cryptocurrencies have fallen far short of their ambitious goals. Blockchain advocates have yet to prove that the underlying technology can live up to the grand claims made for it.

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Lessons for the EU from the Austro-Hungarian Empire

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A GOLDEN late-summer light filters through the windows of the Café Landtmann. Bow-tied waiters move among towering hot-house plants. Officials huddle around a table. They are fretting about fragmentation: Europe’s north is peeling away from its south; easterners feel like second-class citizens; outside powers are trying to divide and rule. This might be a scene from the final days of the Austro-Hungarian empire in 1918. In fact it is today, 100 years later. For once more the spectre of European fragmentation haunts Vienna.

It haunts other capitals, too. In Berlin, Angela Merkel urges her ministers to read “The Sleepwalkers”, an account of the political failures that led to the first world war. Political Brussels is rediscovering Stefan Zweig’s tales of post-Habsburg Austria. In Rome a populist government is preparing to battle the EU institutions over budget rules and to seed a new nationalist block in the European Parliament. Emmanuel Macron, France’s liberal hope, is losing his sheen; his proposals for euro-zone reform have been diluted. Autocracy is gaining ground in Warsaw and Budapest. Meanwhile China, Russia, Turkey and America are interfering ever more in European affairs. The geopolitical centrifuge is spinning European states away from each other, like dancers at a ball.

Vienna is the pivot. Austria is two months into its six-month presidency of the EU Council under Sebastian Kurz, the darling of the continent’s conservatives. To his critics he has cosied up to the far right by bringing them into his government, and indulged Islamophobia. To his fans, he is the smooth diplomat staking out a middle ground between liberalism and nationalism and building bridges between east and west. He will host Europe’s leaders in Salzburg on September 20th and get them talking about the things pulling Europe apart: Brexit, the next EU budget, trade and immigration. “We need to get everyone on board again,” says Alexander Schallenberg, the co-ordinator of Austria’s presidency.

It is also in Vienna that the memories of the old Habsburg multinational order reside. “Our history shows how quickly things can change for the worse,” cautions one Austrian intellectual. The empire once run from here had a larger budget and more power than today’s EU, not least its own army and tax-raising powers, but both stand as triumphs of liberalism over nationalism. Ten languages were once spoken in the Habsburg parliament. Following its annexation of Bosnia, the empire was the first western European state to recognise Islam.

Like the EU, the Habsburg empire seemed to suspend history. Germans, Hungarians, Slavs and sizeable Muslim and Jewish populations mingled in cosmopolitan cities like Vienna and Prague, Trieste and Lviv. Paul Lendvai, a Hungarian-Austrian writer born in Budapest in 1929 recalls: “My father always said peace was not having to show your passport.” The old order’s full value became clear only after it collapsed, when the dark energy of them-and-us took hold and the region succumbed to petty hatreds, economic disintegration and the whims of outside powers.

One lesson above all lives on: do not take the loyalty of a multinational block for granted. The Habsburgs charmed their subjects by giving them relative freedom, material benefits and protection under the law from the whims of local barons. “They created a situation where ordinary people could see their own interests in institutions of empire,” explains Pieter Judson, a leading historian of the empire. But when tough times came with the start of the war, he explains, it turned out that these loyalties had been contingent: “The state didn’t provide what it promised to provide. There was no food and no fuel. Men went to the front, women to the factories and children were left on the streets. Loyal nations—the Ukrainians, the Serbs, the Czechs—were persecuted without foundation.” When the empire was dissolved after its defeat, it was not greatly mourned.

Today’s EU is even weaker, fears Mr Judson: built on good living but without deeper roots. His home country, America, is a multinational, federal state that survives on common feeling. “But as an American living in Europe I feel that the stakes of belonging to the EU are not understood at all.”

Hearts and minds

European leaders can learn from the weaknesses of Austria-Hungary. Europe’s citizens today may have no affection for the bureaucracy, but like the subjects of the old empire they will tolerate it for as long as it generates wealth and preserves their freedoms. Yet complex institutions, second-rate European commissioners, wasteful policies like the common agricultural one and incompetent national governments across much of the continent all undermine that goal. To survive, the liberal European order, of which the EU is a pillar, must become leaner and more capable. Margrethe Vestager and Cecilia Malmström, the European commissioners taking on the digital giants and forging massive new trade deals for the union, are two of the better examples.

But the fate of Austria-Hungary also showed that multinational units cannot survive times of hardship without a sense of common purpose. Thanks to the rise of English, budget airlines, the internet and university exchanges, today’s young Europeans live much more “European” lives than previous generations. But politics is not keeping up. Nurturing a clearer European identity is not just a romantic goal; it is the only way to make the project sustainable in the long term, hard though history shows this to be.

So Europe’s leaders must face the balancing act that defeated their Viennese predecessors. They must show the pragmatism needed to keep their union afloat in the short term, while cultivating the vision needed to build common feeling in the long term. Mr Lendvai sums up the landscape: “Social democracy is a shambles; liberals are arguing with each other; Christian Democrats are losing their Christian feeling.” They’d better get their act together, he reckons: “For the ghosts of the past are coming back.”

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A disaster leaves a European infrastructure giant on edge

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PROSECUTORS are still investigating what caused Genoa’s Morandi bridge to collapse on August 14th, killing 43 people. Autostrade per l’Italia, the company which manages the bridge—as well as half of Italy’s toll roads—has until early September to prove that it had performed proper maintenance. If it misses the deadline, it could lose all its road concessions in the country.

The disaster has left Atlantia—the holding company which owns Autostrade—in a precarious position. Its share price is down by 27% since the collapse. The loss of the Italian concessions would clobber its bottom line. In the first half of 2018 Autostrade accounted for almost two-thirds of Atlantia’s profits of €1.7bn ($2.1bn).

The state sold Autostrade in 1999, to an entity that later became Atlantia, at a time when Italy was intent on reducing its public debt, a condition for entering the euro zone. In the years since, Atlantia’s shares have greatly outperformed Italy’s sleepy stockmarket. Healthy returns allowed the company to snap up airports in Italy and France; toll roads in Latin America, Poland and India; and a 15.5% stake in the Eurotunnel. In March it agreed to buy Abertis, a Spanish rival, in a deal that would create the world’s biggest toll-road operator.

But Italian motorways remain central to Atlantia’s fortunes. Once the Abertis acquisition is complete—the Genoa disaster has not yet derailed the deal—Italian assets will still contribute one-third of the group’s profits, according to Standard & Poor’s, a credit-rating agency. Were it stripped of those concessions, Autostrade could become a brake on Atlantia’s earnings, not a motor.

Autostrade says it will prove that it had fulfilled its maintenance duties before the deadline. Even if it does, the pressure on it will not abate. Luigi Di Maio, the deputy prime minister and leader of the populist Five Star Movement, has said the bridge should be rebuilt by a state-run company. He also wants Autostrade renationalised.

A return to state ownership is only a remote possibility; Mr Di Maio’s coalition partners from the right-wing Northern League are unconvinced. Taking away its concession is also easier said than done. Analysts reckon that if it were revoked, Autostrade could be entitled to around €10bn-15bn. Generous contracts entitle it to compensation equal to value of the deal, which expires in 2042, minus penalties of up to 10%—even if Autostrade is deemed to have shirked its obligations. Such a payout would be difficult to pull off politically and, given Italy’s towering public debt, financially. The scale and complexity of Autostrade’s concession—its entire network is covered by a single agreement—makes it hard to unravel, too.

It helps that, after a bungled initial response to the disaster, in which it indelicately asserted its right to compensation if its concession were revoked, Autostrade has sounded more contrite. Other bits of the government seem to have different goals to Mr Di Maio; Giuseppe Conte, the prime minister, wants four or five times the €500m Autostrade has committed to help victims’ families, rehouse the displaced and build a new bridge. Autostrade will pay a heavy price for the disaster, but it may yet keep its business intact.

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YouTube is fighting for a slice of the premium-video market

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SOME 20,000 spectators paid an average of £135 ($175) to see the bout live at the Manchester Arena in Britain. Another 800,000 or so spent £7.50 to follow it on YouTube. An estimated 1m more were glued to pirated streams. The fighters in the ring had no boxing experience. But they have plenty of YouTube fans. KSI, a British internet personality (whose real name is Olajide Olatunji), has more than 19m followers. His challenger, an American vlogger named Logan Paul, has 18m. In the fight for eyeballs, Messrs Olatunji and Paul knocked out David Haye and Tony Bellew, two British professional fighters whose heavyweight clash in May attracted 775,000 paying viewers.

YouTube did not organise the contest, which took place on August 25th; the boxers did. But the video-sharing giant took an undisclosed cut of the earnings and ran adverts alongside the stream. The event’s enormous success has revived hopes that YouTube can get viewers to pay for content.

The platform continues to rake in money from advertising (Alphabet, which owns it, does not reveal how much). But wider concerns about fake news, data privacy and extremist content have not spared it. Several big brands pulled commercials from YouTube last year after finding that they were being posted alongside offensive videos.

YouTube’s desire to convert some of its 1.5bn users into paying customers predates the ad kerfuffle. It has struggled to achieve this aim. Its subscription service, YouTube Premium, launched in 2015 as YouTube Red but was rebranded in May. It offers shows and films featuring YouTube stars (as well as some Hollywood names), plus ad-free streaming of all YouTube videos and access to music. YouTube keeps mum about subscriber numbers, but reports suggest it has attracted a few million. YouTube TV, which sells a bundle of live television channels (including CNN) to American viewers, reportedly adds another 300,000. The odd celebrity face-off is unlikely to change the picture much. Until YouTube works out a proper strategy, it will flail around to no great effect—much as the vloggers did in the ring.

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