Bitcoins - currency or crackpottery?
Bitcoin is an interesting project which shows worrying signs of madness.
I’ve recently been following the story of Bitcoin, the alternative electronic currency. I find it interesting, partly because all the stuff about cryptography and the nature of money reminds me of a Neal Stephenson novel. However, the more I find out about it, the less I like it.
So far Bitcoins have been incredibly volatile in value, rising from being worth just a few cents to more than $200, then crashing to less than half that. As pointed out by the ever excellent NPR Planet Money show, you’d hardly want to pay the rent - or have any sort of contract - in a currency with such a wild exchange rate. In fact at this point it isn’t really accurate to describe Bitcoin as a currency, it’s a commodity like gold or shares or tulip bulbs, a thing that you can buy in the hope that it will appreciate in value.
Fair enough, if you’re brave enough to invest your cash in them. But some of the tweets I’ve seen coming out of today’s Inside Bitcoins Conference betray a more disturbing side to the whole scene. For a start, you’ve got basic failures of Economics 101 like this:
Now it’s true that savings play an important role in economic growth - certainly that’s what Hayek argued. Ordinarily savings can be productively invested, lent to businesses or homeowners, or used to provide share and venture capital. But burying gold bars in your backyard doesn’t produce any growth, and that’s what Bitcoin is more akin to. That’s not saving, it’s hoarding, something which the inbuilt deflationary bias of Bitcoin strongly encourages.
Then you’ve got these astonishingly ignorant remarks:
Presumably he’s referring there to the blocking of donations to Wikileaks by the credit card companies. Talk about first world problems! Jaw-dropping lack of perspective aside, I’m fairly sure that there are more prosaic things you are unable to spend your money on in the Islamic Republic of Iran, like beer.
I’m beginning to fear that Bitcoin is primarily designed to appeal to nuts. Goldbugs. People who think that inflation is the government’s way of stealing our money. People who derive their understanding of economics from Fox News. People who think they’re on The Man’s ten most wanted list. People who keep machine guns in the garage.