Friday, April 12, 2013

Bitcoin is ludicrous, but it says something important about money

There was a great piece in the satirical news source The Onion a few years ago in which it “reported” that Fed chairman Ben Bernanke experienced a moment of existential panic during a congressional hearing as he paused, shook his head, and said, “It’s just an illusion . . . Just look at it: meaningless pieces of paper with numbers printed on them. Worthless.”

Sayeth the Onion headline: “U.S. Economy Grinds to Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion.”

Which brings us to bitcoin. It is a digital currency, which a certain variety of techno-utopian futurist crowd views as a form of money unencumbered by the shackles of privacy-reducing international anti-money laundering laws and inflation-tolerant central banks. Its value has been extraordinarily volatile over the last several weeks, rising from $20 a couple of months back, to over $250, to around $60 on Friday, with a couple of trading halts in between.

Bitcoin really is a tiny market in the scheme of things, and its recent gyrations mean that the dollar, euro and yen have nothing to fear from the competition. If a currency can lose 75 percent of its buying power in two days, it may not be the best store of value. But it also an important window into the strange and uncomfortable mystery of “What is money,” which is a harder question to answer than one might think.
Read the rest here.


Anonymous said...

Of course money is an illusion. That's been known for aeons. Why should anyone, especially the rich, think that they can escape it?

Michael said...

I became aware of Bitcoin about a year ago. Back in the 1990's, I had actually worked on a couple of "alternative currency" projects, but nothing workable resulted from any of these.

It seems that Bitcoin is the first such currency that is workable on any level. I still don't see this as a real currency. However, as a secure transactional system, I think it holds a lot of promise.

So, what do I think off Bitcoin? I answer, "compared to what?" If we compare it to silver or gold, I'll take the gold coin. If we compare it to the US dollar or the Euro, both of which are in the process of "going Zimbabwe" as we speak, then I'll take the Bitcoin, thank you very much.

The one attractive feature of Bitcoin, is that criminal banksters cannot just go in and steal money from your Bitcoin wallet to cover their bad bets, as they are now doing in Cyprus. That, I think, is what is driving interest in Bitcoin to levels beyond the intrinsic merits of the system itself.