Here’s a nice post by Krugman on Bitcoin. As noted on many occasions, I share many of the same concerns.
Furthermore, I am yet to hear a convincing argument as to why this isn’t just another attempt to extort money from the gullible for the purpose of forging a new elite.
A comment came my way on Twitter suggesting Bitcoin is liked because it represents freedom. I couldn’t disagree more. Bitcoin represents the reconstitution of a hierarchal system that directs wealth into the hands of a small elite — and maintains the oppression of the masses. This is delightful to anyone who is losing hierarchal privilege (as opposed to real tangible wealth) on account of the tech-induced supply shock we are going through.
Given that, one way or another, (whether through QE or self-imposed negative interest rates) the relative wealth of those who have accumulated deferred redemption claims is going to be debased on relative grounds (NOT absolute grounds), it stands to reason new value systems and bubbles will be invented to concentrate wealth synthetically.
These attempts, however, will fail. For one thing Bitcoin is far too easy to replicate. As I’ve written before, once Bitcoin’s value grows to unreasonable levels, people will prefer to pump up alternatives than be the last man to the Bitcoin party, where early entrants are now millionaires.
Like with all commodities, substitution begins to make sense when it’s too pricey.
But once everyone is claiming purchasing power with a self-created currency, that leads to a system of total economic disorder — one which could very realistically lead to problematic inflation and/or the dissolution of money out right (since by that point everything is basically free).
I know I advocate abundance theory but even I don’t think we’re at the free point yet.
Meanwhile, the one aspect of Bitcoin which is truly innovative and socially useful — the open ledger, decentralised block chain and anchoring in energy use — can be applied to any alternative value unit (one backed by real value). This can be applied to all forms of money, but most notably to government money in a way that undermines the private participation of banks in the money industry.
That said, Bitcoin itself could have value if its supply was open ended and limited by energy availability rather than intensity, i.e. Bitcoins could be produced ad infinitum until resources became so depleted that the cost of encrypting, mining or sealing Bitcoin transactions became prohibitively expensive to the extent that transaction velocity was slowed down.
But this is a cumbersome way to create an energy-backed unit, and one which leads to unnecessary energy exploitation to arrive at a value point.
The only other value Bitcoin really has is in convincing the most suspicious, nefarious and unsocial types in the world that digital currency doesn’t necessarily infringe on one’s freedoms.
More specifically, in convincing them that cash isn’t necessarily king, and that digital currency can be private if not anonymous.
This is a huge coincidental feat for central bankers who — in a secular stagnated world — may one day wish to abolish cash outright, and shift the world to a cashless digital money society.
It’s what you might call conditioning through reverse psychology.
I mean, imagine how much easier the Bitcoin prelude makes introducing digital cash and abolishing banknotes to god-fearing end-time types ( the sort that fear the mark of the beast ) as well as criminals?
Indeed, Bitcoin — a totally digital currency — has instead of oppressing freedom come to represent freedom to these same people, due largely to the currency’s digital cryptographic credentials and cool.
The other thing to consider is that if and when the currency does blow up — and it’s pretty likely that it will given that it’s been specifically designed to blow up due to its inflexible supply base — it will take a government saviour to re-establish value and order in the digital currency world, and in so doing either de facto nationalise Bitcoin (mutating Bitcoin into digital fiat currency) or let it fail, allowing superior digital fiat currency to come to the rescue instead.
Either way, what a nifty way to introduce cashless digital money to society?
After all, if rejection of cash started anywhere other than the criminal black market and/or the freedom loving anti-government sector, it would be much, much harder to roll-out.
But given that it’s anonymous enough for criminals and free enough for Libertarians, what’s not to like, eh?