Bitcoin is bullshit.
Remember Adam Smith? That's the dude who wrote The Wealth of Nations, published first in 1776. Perhaps you recall a central parable. The exchange of money for goods. A customer goes to a baker and exchanges money for a loaf of bread. The customer values the bread more than the money, and the baker values the money more than the bread, so both people are made better off by the transaction. Hurray for capitalism! (Fuck you, Bernie Sanders, you illiterate twit! Sorry, that kind of thing just slips out every once in a while...)
Transactions like this, though, work most effectively, with units of currency that are standardized. Money. What makes a currency useful? Lots of stuff. There is, in fact, a bunch of economic theorizing about the nature of money because of course there is. This is the point at which a bitcoin enthusiast thinks that I am going to bash bitcoin for being phony and made up and isn't all money really made up and I'm just a stuffy, old fuddy-duddy who doesn't get it, and what really makes money money is people accepting it so bitcoin will work when people accept it so fuck me!
Yeah, been there, done that. That's not where I am going, nor where I ever had been going.
So, let's get into what makes something useful as currency. A unit of currency has to be a stable "store of value." Basically, everyone needs to know that it will be able to buy the same thing, roughly, today that it will buy tomorrow and the next day, and the next, and so on.
Um... inflation is bad, m'kay? (So's deflation! hint, hint...)
What happens if I think that I'm going to be able to buy more with the same unit of my currency tomorrow than I can buy today? I shouldn't spend it. I should wait until tomorrow. On the other hand, if it is going to be worth less tomorrow, the business shouldn't accept it. Expecting that price change, they should either decline the transaction, or raise the price now.
A currency can't be used, in any practical way, unless it has a stable value.
Bitcoin's price, relative to anything else, is...
To put it mildly. Bitcoin's price, if you have been following it over the last week or two, has been marked by occasions on which the price can drop 20% or more in a matter of hours. Yes, really.
Holy fucking shit!
This is the point at which you think I am going to pull an Adam Smith line, and say that no store can rationally accept a currency with the potential to drop 20% in value within hours.
I can very well do that, as that is an absolutely legitimate argument.
But, I'm not even going to bother with that. I'm going to use bitcoin enthusiasts' favorite argument against them. Let's ignore the wild up-and-down swings. We shouldn't, because they are vitally important from the perspective of economic theory, and they fundamentally demonstrate the utter uselessness of bitcoin as currency. Moreover, since bitcoin has no other value in the way that stocks do, being tied to the assets of publicly traded businesses, and no other value the way that conventional commodities do (e.g. oil, precious metals), its only potential value is as currency, so its lack of stability in value undercuts its only potential use. We really shouldn't ignore its wild up-and-down swings. But I'm even going to do that, just to show how fucking stupid bitcoin is.
Let's give bitcoin enthusiasts their favorite observation. The price is going up! Way, way up! Doesn't that mean it's the coming thing?
No. That means it is stupid as currency, which is its only potential use. Why? See above observations. If the price of bitcoin is expected to go up, you shouldn't buy anything with it! You should hold, the same way you hold a stock on the rise! Any expected movement, in any direction, means lack of stability in a currency. That means uselessness as currency.
Expected upward movement in the value of a currency is deflation. Right now, bitcoin is deflating. The price of goods, relative to bitcoin, is going down because the price of bitcoin, relative to any other currency, is going up. If you have bitcoin, and are thinking about spending bitcoin on goods (not that you can, at most businesses) with the expectation that bitcoin will continue going up in value...
You are stupid.
Mathematically, you are stupid.
You are throwing money away. (Assuming your expectation is correct, anyway...)
Now, bitcoin isn't necessarily going to keep going up in price. But, if you think that bitcoin is going to keep going up in price, and you spend it as though it won't, then you can't do math.
But let's be blunt about this. Most businesses don't accept bitcoin. And the people exchanging their dollars, euros and other currency for bitcoin aren't doing so in order to conduct their normal economic transactions in bitcoin.
The price of bitcoin is going up, relative to other currencies. And it isn't going up as currency traders attempt to figure out the correct exchange rate of dollars to bitcoin. What is the correct exchange rate, after all, when it is an actual news story every time a business decides to accept bitcoin? (See my occasional posts on "the paradox of news") People are buying bitcoin as they watch the price go up, hoping to sell at a higher price to someone else who is doing the same thing.
Asset bubbles, pyramid schemes... these terms should be coming to mind. Why? Because the same principles are driving up the price of bitcoin.
What is the proper exchange rate of dollars to bitcoin? Fuck if I know, but the price is not being driven up by people trying to figure that out. It is being driven up by speculators, and that upward movement itself makes bitcoin useless as currency.
That's right. The fact that the price is going up makes bitcoin useless as currency in a functioning economy.
At some point, the price of bitcoin will stabilize somewhere. However, stabilization can only happen once the speculators are out of the market. How are exchange rates established? With government-backed currency, it's pretty easy. With something like bitcoin? Establishing a stable exchange rate... That's gonna be really fucking hard. And without that, bitcoin is utterly useless.
Funny thing, though. Governments can stabilize currency! More to come. Why? Because bitcoin is bullshit.
