Krugman On Bitcoin and the Gold Standard

twoallbeefpatties writes "Prominent Keynesian economist Paul Krugman has left a note on his blog at NYTimes about his view of Bitcoin, discussing its similarity to the gold standard and suggesting a drop in 'real gross Bitcoin product' as its users hoard the currency rather than spend it."

Comments

Terrible summary, decent blog post

[Baloroth]

By "discussing its similarity to the gold standard" the summary means "he points out one way Bitcoin is flawed." Specifically, that people hoard it instead of spending it (creating an unstable monetary system). Fewer transactions actually means less value, since the whole point of a monetary system that lacks intrinsic value (gold at least had that) is that it gets spent. Since the amount of Bitcoins is limited, and as time goes on the early adopters get "richer" (since less is being mined), they have an incentive not to spend. But the system will only succeed if they do spend and create a thriving system.

This is a massive gaping flaw in Bitcoin that I haven't seen pointed out yet. It means that Bitcoin will nearly always be a deflationary system. It also requires people to keep investing computing time, while their return on investment only gets less and less over time, and early adopters have no reason to spend, creating fewer transactions to be verified. And this can't be fixed: the limit to the number of Bitcoins is builtin to the system and cannot be changed.

So to everyone going "not another Bitcoin story!": read it. It actually points out a way that Bitcoin is (possibly) flawed (unlike so many of the stories on /.) And from a real economist, too.