Slashdot Mirror
Why Bitcoin Is Doomed To Fail, In One Economist's Eyes
Hugh Pickens DOT Com writes "Economist Edward Hadas writes in the NYT that developers of bitcoin are trying to show that money can be successfully privatized but money that is not issued by governments is always doomed to failure because money is inevitably a tool of the state. 'Bitcoin exemplifies some of the problems of private money,' says Hadas. 'Its value is uncertain, its legal status is unclear, and it could easily become valueless if users lose faith.' Besides, if bitcoin ever really started to take off, governments would either ban it or take over the system says Hadas. The authorities might be motivated by a genuine concern about the stability of a shadow monetary system or they might act out of self-preservation because tax evasion would be too easy in a parallel economy. 'Part of the interest in virtual currencies like bitcoin is that their anonymity can provide a convenient cloak for criminal activity. Part is technological — this is a cool idea. And part is speculative — gamblers bet that bitcoin's value will increase,' concludes Hadas. 'Truly private money is an inferior alternative to the money that comes with the backing of a political authority. After all, no bank or bitcoin-emitter can be as public-minded as a government, and no private power can raise taxes or pass laws to unwind monetary excesses.'" Could be there's something good about money that can't be manipulated by law. Some people at least think there's plenty of value in Bitcoin and similar currencies, despite the risks. And those risks at present probably aren't enough to comfort the unfortunate Welsh fellow who (HT to reader judgecorp) "has realised he threw out a hard drive containing 7500 bitcoins, worth £4 million at today's prices. It is now under four feet of garbage in a landfill site the size of a football pitch."
He's just pissed he didn't mine bitcoins when it was still practical.
Everything described here is what makes bitcoin a superior form of money, not inferior.
Liberty in your lifetime
Seems like this economist is too fond of governments to be really objective. The last quote in the summary was specially awful. No bank or financial institution will ever be able to do as much harm to a population as a bad government.
That said he has a point regarding government interests in taking virtual currencies down or controlling them. The thing is, technologies evolve, and albeit bitcoin may find its end in government interventions, sooner or later other alternatives that are even harder for governments to control will appear. It was the same with file sharing and it will be always like this. People resent control and given the means to avoid it most will.
He's right, but in the wrong way. All currencies are doomed to fail. As long as people are willing to exchange something for something else, both have value. Most FIAT money has value because governments are willing to exchange it for taxes, so then it has value to almost everyone. When a government collapses, or people lose faith in it, it's currency becomes worthless. Seashells are no longer values as currency, but they once were. Gold/Silver have boom/bust cycles. BitCoin had value because of SilkRoad, and the silk-roaders were willing to accept it for... something. Frankly I'm surprised BitCoin still has value after SilkRoad's demise. If something significant replaces SilkRoad, BitCoin will remain valuable. Until then bitcoin's going on momentum. May crash soon, may not. Will crash eventually.
Here's to losing my Karma Bonus again....
"has realised he threw out a hard drive containing 7500 bitcoins, worth £4 million at today's prices. it is now under four feet of garbage in a landfill site the size of a football pitch."
dude, i want to know where this landfill is! for £4 million, you can automate the searching process or pay idiots to do the work for you! sensitive metal detectors can sure cut down the searching process. plus, think of all the other hard drives you will find and could sell on ebay as "used". ;D
Anons need not reply. Questions end with a question mark.
I'm just waiting for the first tax audits of BitCoin users who get dinged for not having paid capital gains tax. I give it a few years.
Tulips
http://en.wikipedia.org/wiki/Tulip_mania
Thanks for that AC
There is a bit of a tautology here. If a government issues it, it is defined as "money" if some other entity issues it, it is a "coupon" or whatever. What TFA misses, I think, is that anything can be used as a basis of exchange. I can buy and sell things by denominating the exchange in widgets, well there you go. If I later convert the widgets to US dollars, well that's no difference. May as well say 'world of warcraft gold' for widgets, or whatever you like, in that example. It is an excellent point that since government require protection money to be paid in their own preferred currency, there is a huge advantage in terms of acceptance in the marketplace. This does not mean, however, that other mediums of exchange cannot exist. My main point is that the word "money" is an arbitrary one unless one includes 'issued by governments for payment of protection money' in the definition. Otherwise, me trading babysitting stints with my neighbors also counts as money.
This posting is provided 'AS IS' without warranty of any kind, implied or otherwise.
Bitcoin is just alternative currency. There are plenty of that around - most of them are pegged to some other currency though, but they are, for the most part alternative currency.
Think: Gift Cards (Amazon/Apple/Steam/Google/etc), alternative store currency (Canadian Tire Money), etc. Then there's non-traditional currency, like WoW Gold.
If anyone says Bitcoin isn't a "money" they're plain old lying. It can be used to facilitate trade (which is the purpose of currency).
Of course, there are a few fundamental problems with Bitcoin, but there are problems with all currencies.
When any economist, banker, etc., says Bitcoin is doomed, the real reason is them saying is "we haven't figured out a way to make money on it yet". No currency is invulnerable to making money by doing things of little value, Bitcoin included. It just means the quants haven't sat down to figure out schemes to exploit to get bitcoins for little effort. Either it's because the entire bitcoin market is too small so the benefits of skimming 1/1,000,000th of a Bitcoin from every transaction is barely worth the effort, or other reason.
That's the real message.
You might need to look at this as a systemic issue. If losing the data on a hard drive (and related backups) can render bitcoins unusable, then over time bitcoins will be lost. I think that means the theory that underpins bitcoin is wrong because it can't be a stable monetary supply if it has a finite number of coins each of which can be destroyed or lost.
Fanatically anti-fanatical
Implicit taxation through inflation? First, inflation is extremely low on the entire western world. Second, inflation only eats away at you if you are sitting on currency as assets, which is a terrible thing to do. If most of your wealth is being productive somewhere, changes in the medium of account shouldn't matter a bit.
Now, having zero inflation, or all the way into deflation, is not a good thing for an economy. We have this fundamental problem called Money Illusion. It's been measured in a whole lot of studies, just look it up. As long as there's money illusion, in practice, economies work better when economies grow in a predictable manner, which implies some mild inflation. Without said inflation, velocity drops, and with it economic activity. We really, really, don't want a shrinking GDP. A central bank is a compromise to make sure that someone, in some way, is actually altering the money supply to achieve that objective. What we need though is a way to make sure central banks are making less decisions that look like reading entrails, and more that are empirically testable and forward looking.
Government money fails because governments can't be trusted to meet their contractual obligations. The US dollar has had a pretty good run, but once FDR stole our gold and Nixon broke the Bretton Woods treaty, its eventual demise became inevitable.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
Bitcoins are limited in number forever.
Bitcoins are infinitely divisible.