The BitCoiners Strike Back


I cannot say I'm surprised that my piece about BitCoins provoked a strong reaction. The idea of a private, crypto-currency inspires a lot of passion among its advocates.

But so far I've found their arguments unpersuasive. Let's run through a few of them.

Even if hypothetical where a "hacker" could create fraudulent Bitcoins, how in the world is that potentially more inflationary than our current fiat system with a "discretionary" monetary policy?

It might not be more inflationary than every real or imaginable monetary policy of central banks. But it certainly has the potential to be more inflationary than the fiat money of the United States has proven to be. We have a long history of Federal Reserve notes. We know that the Fed has used its power to consistently create inflation over time, decimating over time the value of our money. But this inflation is well-understood and predictable.

There is no similar history for BitCoins. We simply do not have the ability to predict the rate of inflation. The very mechanisms by which BitCoin inflation can happen are obscure.

What's more BitCoins exhibit far more volatility than dollars. We've never seen a day when the value of a dollar fluctuated the way the value of BitCoins did on Sunday.

Sunday's hacking took place on an exchange—a better analogy would be blaming grain growers for a faulty product if there were a problem at the commodity exchange.

Actually, the best analogy would be a stock traded on an exchange. While it might not make sense to morally "blame" a company if the stock exchange were flooded with counterfeit shares or if accounts at the exchange proved unsecure or if prices were unreliable, investors would certainly shun a stock traded on exchanges they didn't trust. The compromised exchange here was the largest trading platform for BitCoins. This is a major problem.

Why would you say it isn't a currency?

It doesn't behave like a currency. It's nothing like gold. It's not even like a fiat currency. It's more like a speculative virtual commodity.

Look, money is mostly useful for exchange purposes. The extreme volatility we see in BitCoins makes it virtually useless for planning future exchanges.

It's clear that you just don't understand the math/coding/mechanism behind BitCoin.

Maybe not. But I've read an awful lot about BitCoin. If I cannot understand it, this is a bug not a feature. It's a problem for anything that aims to be a currency. Why should I trust something so novel and so difficult to understand?


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