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A Rebuttal To Charles Stross About Bitcoin
New submitter buddha379 writes "Over the holidays we discussed a story from SF author Charles Stross called 'Why I Want Bitcoin to Die in a Fire,' just as Bitcoin's price collapsed on news of the Chinese government's cautious approach to the fledgling internet currency. Well known economist Paul Krugman quoted the piece in a NY Times blog post called 'Bitcoin is Evil'. Now, with U.S. regulators reaffirming their hands off approach, U.S. companies embracing it and prices surging again, Bitcoin Magazine returns with a rebuttal called 'Why Charles Stross Doesn't Know a Thing about Bitcoin.' The article notes that like many other popular pieces, Stross' story seems to 'completely miss the point on why Bitcoin is a revolutionary concept.'"
No. The power that Bitcoin may or may not have is not at all related to using it as a payment processing network.
People obsess over Bitcoin's price (in dollars, yuan, whatever) because a Bitcoin only has value if people agree it's worth an exchange for goods and/or services, and can reasonably expect to exchange a received Bitcoin for other goods and services.
Right now if I get 100 dollars, or 100 euro, or 100 yuan, or 100 yen, in payment for some services I render or product I sell, I can reasonably expect to go down the street and exchange that currency for hookers (services) and/or blow (goods), within a reasonable timeframe (say 1-5 years in the future.) Right now if I get 100 Bitcoin, I might be able to buy Michael Jordan's $16 million mansion in Chicago in 1-5 years - but it's equally likely that I won't be able to exchange them for anything in 1-5 years.
Most government-backed currencies (with the recent notable exception of the Zimbabwe dollar and several other currencies over the last 50 years) pass this test. Bitcoin, as of yet, does not. Many people would have to choose to use Bitcoin over a government-backed currency (think 60-80% of the population in your local country - in the US, that would be around 200-230 million.) In order to get that many people to switch, there would have to be a significant compelling reason for them to hold their wealth in Bitcoin instead of the government-backed currency. I have yet to see a compelling reason to switch. Not only that, there are high barriers to overcome yet: security, convenience of exchange, and relative durability all spring to mind as specific examples.
Given the above, coupled with the fact that the Bitcoin exchange rate is being manipulated by speculators, and the number of knock-off alternative currencies floating around, why would any rational person think about holding their wealth in Bitcoin at any given moment?