Paul Krugman: Bitcoins Would Have Been Considered Foolish By Adam Smith

04/13/2013 12:59 pm ET

Though there are many enthusiasts cheering the rise of the virtual currency, bitcoin, experts already declared similar products foolish as early as 1776, according to Paul Krugman.

The Nobel Prize-winning economist wrote in a blog post Friday that famed economist Adam Smith would have “scorned” bitcoins because “mining” them requires expending real resources. Smith criticized the use of gold and silver currency in the 18th century, arguing that valuable resources were being expended to create something that was simply symbolic. Krugman writes that the same can be said of bitcoins.

“Now here we are in a world of high information technology -- and people think it’s smart, nay cutting-edge, to create a sort of virtual currency whose creation requires wasting real resources in a way Adam Smith considered foolish and outmoded in 1776,” he wrote in the Friday post.

Bitcoins are a form of internet currency accepted by some websites to purchase actual goods. The internet money isn't backed by any national government, though. The coins popularity have grown in recent weeks and the total value of outstanding bitcoins surpassed $1 billion earlier this month. Users can buy the coins or “mine” them by running high-level computer programs that take up a lot of memory space and have a slim chance of producing any actual coins.

Despite skepticism from Krugman and others, the currency is gaining traction among investors and internet geeks. The Winklevoss twins, best known for their legal battle with Mark Zuckerberg over Facebook, claimed last week to own about 1 percent of all the bitcoins in existence -- a sum reportedly worth about $11 million. In addition, a family in Texas claimed they sold a Porsche for 300 bitcoins earlier this month.

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