Every real world economy is filled with real people, and there are all kinds of people in the world. There are always criminals, grifters, scammers, market manipulators, thieves, frauds, and tax evaders. There are always financially ignorant monomaniacal idealists: people who don’t grasp the difference between reality and their beloved simulations and fictions; people who believe that messy human authority and fallibility can be dispensed with and replaced by machines. There are always substantial numbers of naive gamblers and bagholders, lured into getting fleeced by their own avarice and ignorance.

Cryptocurrency exchanges may represent a natural economic evolution, nature’s way of attracting many of these elements out of the real economy and into a buggy, hackable, scammable, get-rich-quick speculative open source video game.

You can think of cryptocurrency exchanges as a heat sink. A heat sink is a large thermal mass which carries destructive waste heat away from the parts of a system where that waste heat can do harm.

Cryptocurrency exchanges are like a heat sink, except for stupidity and vice rather than heat: they are economic stupidity-and-vice sinks. The real economy is doing very well at present, despite what is technically a very long running bull market. I wonder if that isn’t at least in part because a lot of the insanity which typically accompanies bull markets has voluntarily walled itself off in its own video game world. A lot of the craziness that we saw in the dot com era has literally locked itself away from reality inside an electricity-wasting computer game, at a cost of less than six billion dollars taken out of circulation.

Some people predict that the price of cryptocurrencies will soon go to zero; that they will shortly be left behind in the dustbin of financial history. Personally I have my doubts. I think society produces enough stupidity and graft to keep cryptocurrencies running indefinitely. They may well stick around for a long time, as the economy’s evolved way of avoiding sepsis from what amounts to an intestinal blockage of greed and stupidity.