When the facts change, I change my mind. What do you do? -- John Maynard Keynes

Monday, January 6, 2014

Bitcoin, medium of exchange yes, but not a reasonable store of value

Bitcoin, as I've said before, is something you don't want to waste your time and money on -- Nobel Economist Paul Krugman (with  help from Brad DeLong) explains it in a recent column (link below, excerpt follows):

Bitcoin Is Evil - NYTimes.com: " . . . So far almost all of the Bitcoin discussion has been positive economics — can this actually work? And I have to say that I’m still deeply unconvinced. To be successful, money must be both a medium of exchange and a reasonably stable store of value. And it remains completely unclear why BitCoin should be a stable store of value. Brad DeLong puts it clearly:
Underpinning the value of gold is that if all else fails you can use it to make pretty things.
Underpinning the value of the dollar is a combination of (a) the fact that you can use them to pay your taxes to the U.S. government, and (b) that the Federal Reserve is a potential dollar sink and has promised to buy them back and extinguish them if their real value starts to sink at (much) more than 2%/year (yes, I know).
Placing a ceiling on the value of gold is mining technology, and the prospect that if its price gets out of whack for long on the upside a great deal more of it will be created. Placing a ceiling on the value of the dollar is the Federal Reserve’s role as actual dollar source, and its commitment not to allow deflation to happen.
Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 million bitcoins is reached. Placing a floor on the value of bitcoins is… what, exactly?..."

The Big Picture

Financial Crisis - The Telegraph

JohnTheCrowd.com | The Sailing Website

Craig Newmark - craigconnects