Tim Lee has an interesting and slightly odd post about Bitcoin today. He notes, correctly, that despite wild fluctuations in the price of Bitcoins, the volume of transactions has been growing at an exponential rate, then comes to an odd conclusion – he’s not going to sell his Bitcoins.
Here’s why this is odd:
1) Bitcoins are useful. This is without a doubt true. But what they are useful for is sort of…odd. They’re not so much a true medium of exchange, like USD, as much as they are a medium for a medium of exchange, which is why Lee references Western Union. They’re not so much a way to get money from one place to another as they are a vehicle to get money from one place to another. This leads to the next point…
2) Despite the weirdness of forex markets (a discussion for a later post) money is not an asset. In fact, if you ask JP Koning (and you should) money isn’t even a noun. And while Bitcoin definitely has some moneyness, it doesn’t really do what money does…if you also wanted to verb “money,” then, well…money moneys, but Bitcoin doesn’t money. What the heck does that mean? Well, look – I have some dollars in my checking and savings accounts. And while most of my savings are invested, I do want to keep some dollars as dollars even though I know they are losing value at roughly 0.1899% a day (assuming 2% annual inflation). Why do I do this? Because that rate is extremely reliable (unless you care about zerohedge, which I don’t). The Bitcoin market currently has two kinds of people – speculators and transactors, who basically seem to buy Bitcoin, make and exchange, and then on the other end sell Bitcoin. Everyone else is hoping the weird auto-deflation in the program means holding their Bitcoins will make them rich.
3) I do not think it will make them rich. Bitcoin’s ecology is extremely fragile. All it takes is one government crackdown, successful crack of its code, or some other exogenous shock and it will be instantaneously valueless.
So, in conclusion, I guess…don’t buy Bitcoins!
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02/15/2013 at 14:15
Jimm D.
“All it takes is one government crackdown, successful crack of its code, or some other exogenous shock and it will be instantaneously valueless.”
The government can’t even crack down on bit torrent. Peer to peer tech seems uniquely resistant to government meddling.
The code is open source, with many, many eyeballs going over it and tightening it up constantly.
Bitcoin dropped from $30 to near nothing a couple of years ago. Now it’s back to near its historical high.
Bitcoin will be around as long as email is. It’s a network protocol first. Useful network protocols tend to stick around longer than critics of the protocol. ; )
02/15/2013 at 14:31
squarelyrooted
I will gladly admit to not knowing and/or understanding very much about the underlying technical foundations of Bitcoin. And it is certaintly true that torrenting seems to have survived government disapproval. But note that the government itself hasn’t actually done very much to try to quash torrenting, and has actively promoted email. I think if the US Government or other major state authorities decide that Bitcoin is primarily a form of money laundering and decide to crack down, it will at the very least wreak total havoc in the Bitcoin market.
02/16/2013 at 04:43
Jimm D.
Some members of the Pirate Bat have been in jail or on the run for some time. That’s only one aspect of the crackdown on torrenting. It hasn’t slowed it down at all. Bit torrent now takes up about 50% of all internet traffic, no matter what governments think.
Hundreds of millions of people that had never heard of Bitcoin would hear about the government trying to ban some odd money that could be traded through the internet. If the government were to make a big deal about Bitcoin, it would drive the price through the roof.
What you say about Bitcoin is true:
“They’re not so much a true medium of exchange, like USD, as much as they are a medium for a medium of exchange”
But that’s just one aspect of Bitcoin.
Bitcoin is:
1.) a currency
2.) a payment processing network
3.) a triple-entry bookkeeping system
4.) a hard asset in the form of information
What gives a bitcoin (the currency) value is that Bitcoin (the bookkeeping system) assures that the coin isn’t a doublespend while Bitcoin (the payment processing network) can get the currency to anyone anywhere on the internet in minutes with little to no cost.
And that’s just scratching the surface. Bitcoin also allows the ability to create escrow transactions. In its short life, it’s also proven itself as an asset that performs as a hedge against inflation better than anything else, including gold and silver.
Bitcoin might be the greatest tool for human commerce since the invention of money itself. Time will tell….
Sorry for the blather. I hope you’ll investigate Bitcoin more rather than dismiss it before understanding it. It’s quite an amazing tool.
Cheers!
02/16/2013 at 10:55
squarelyrooted
I certainly think aspects of Bitcoin are extremely awesome, and will certainly be integrated into broader markets, especially as it related to bookkeeping and fast, cheap transfers of money. But as it stands, I think as a currency it has no support and as a method of conducting illicit business it is a threat to governing institutions. The Pirate Bay has been “cracked down” on the way that speeding has, or driving in the HOV lanes without an extra passenger – you can get fined, sure, but that’s not really a crackdown. Nonetheless I think Bitcoin can also be subject to other exogenous shocks, stuff like this:
http://arstechnica.com/tech-policy/2011/06/bitcoin-price-plummets-on-compromised-exchange/
can be a real mess.
Basically, I think the future of currency is more Bitcoin-ish, but I think the future of Bitcoin itself is dire.
04/05/2013 at 11:15
nast13
Reblogged this on World Of Bitcoins and commented:
Don’t Buy Bitcoins? Another head scratcher but it’s all about opinion and risk taking