Talking Points Memo has an interesting article entitled Bitcoin Bursts: Hacker Currency Gets Wild Ride. Bitcoins have been in the news lately and, as an investment vehicle, have undergone a speculative bubble. I’ve been dimly aware of Bitcoin for awhile. I don’t know if its model as a currency is fundamentally sound or not; but it seems plausible.
It’s a decentralized currency, not issued by banks or governments. New coins are created through computing power applied to (I think) an encryption problem. As supply of bitcoins grow, the problem gets more difficult and, therefore, requires more computing power.
As a currency, I don’t know that it’s any more or less arbitrary than using gold or fiat money. A currency will work or not depending on whether people can and do trust that the currency will enable them to store value such that they can later receive value for the currency that is comparable to the value they supplied to obtain it in the first place.
The big problem with Bitcoin is that the total number is capped: there’s a finite supply. This means it’s ultimately deflationary, which, as Japan can tell you, is not so great. It’s certainly interesting from a nerd perspective, and it has some ability to aid commerce that governments consider unwelcome (that’s a feature or a bug depending on which government is offended), but I think it’s main use will be speculation.
I thought I’d read something about a cap, and that seemed like a bad idea for the reason you indicate. Obviously the increase in supply needs to be limited in some fashion. I think the supply needs to roughly keep pace with the increase in economic activity. My thought was that the increase in computing power is a rough proxy for economic activity, so making each successive encryption problem (I’m sure there is a better term for this) harder to crack seemed like a decent idea for moderating the supply.
“I think the supply needs to roughly keep pace with the increase in economic activity.”
Dear Heavens, Man. In a free market, the supply of currency ALWAYS keeps up with demand (economic activity). If gold is too dear, we’ll trade in silver. If that still be too dear, we’ll trade in gasoline receipts. Grow your mind. You’re a prisoner of your reality.
Then why have formal currency at all?
Who’s saying we should?
Most times throughout history mandatory currencies were imposed to allow the government to inflate the currency and dilute the citizens’ wealth.
For the uninitiated, Planet Money did a bitcoin episode.
http://www.npr.org/blogs/money/2011/07/13/137795648/the-tuesday-podcast-bitcoin
I recommend subscribing to the Planet Money podcasts. One of the best podcasts out there.
You don’t like Bitcoins, Doug, as they can’t be inflated.
They’re not the fiat money you so desperately need to conjure a massive government that meddles in others’ lives.
Sovereign domination of subjects predates fiat money.
http://krugman.blogs.nytimes.com/2013/04/12/adam-smith-hates-bitcoin/
Krugman quoted Adam Smith and Smith’s support of fiat currency and rejection of the gold and silver standard.
And?
It is documentation of a more credible source than you unmedicated mind.
What could conceivebly links fiat currency with a “government meddling in others’ lives?
What? You do get sloshed on Friday nights, I see. By the way, the 20:16 response was to Doug, not your risible cite.
The 13th is Saturday, not Sunday. Have you ever heard of a calender?
Saturday, not Friday.
Adam Smith risible? What irrationality and arrogance must come with borderline personality disorder.
A thousand pardons, oh unsupported and unreasoning one.
Carlito, in skimming over your blatherscat, it emerges that you’re just not very intelligent.
Perhaps not, but offensive trolls are an easy target.