an actual intelligent article about bitcoin

This is probably the best and smartest article I’ve read about bitcoin to date. Go read it. I don’t agree with all of it, necessarily (see below), but her criticisms are well-founded and part of what makes this experiment so fascinating to me.

As Haruhiko Kuroda, governor of the central bank of Japan, explains, deflationary economies tend to stagnate, because people defer spending decisions in the expectation that prices will continue to fall.

I don’t think a deflationary currency is so easily written-off. Admittedly, I say that only knowing of Japan’s experience but not having read Kuroda’s paper. (Just sent it to my kindle!) Deflation is bad in the context of an otherwise structurally/historically inflationary economy, as Japan can certainly attest – but I think the jury necessarily still has to be out on what an economy might look like with a dominant (or at least prominent) stable deflationary currency. Deflation is usually a bad thing because it’s unexpected. If the deflation is stable and known, what then? She frames its disadvantage in the context of it not ever supplanting government fiat currencies, which she thinks can’t happen:

… it is really not a viable alternative to state-guaranteed money. It is only accepted in payment for goods and services because it can be converted to state-guaranteed money – and in that respect it is exactly like all other forms of private sector money. Furthermore, because it is not denominated in dollars, its value in relation to the dollar fluctuates. At the moment it is doing rather well, but like all investments its value can fall as well as rise.

This is not an intrinsic failure of the bitcoin protocol or currency, but rather a transient – albeit chicken/egg – problem of adoption. Until bitcoin’s adoption reaches the level at which you can simply retain bitcoin itself for commerce, people are of course going to constantly exchange it for other fiat currencies (unless they are investing, as she points out). This is no failure of bitcoin, it just is what it is. As I mentioned to a friend of mine the other day, saying “bitcoin sucks – you can tell because everyone exchanges it back for USD” is a bit like saying “IPv6 sucks – you can tell because everyone eventually just tunnels it through IPv4”.

Go read the rest – it’s great. As ever, assume that you can safely replace “bitcoin” above with some other alt/cryptocurrency, because while I don’t believe bitcoin is necessarily doomed, if it is, I definitely want to see what grows in its place.