WDonway- Good thinking.
Seems to me that Bitcoin shares the strengths and weaknesses of other currencies.
The value of gold is not constant, we can imagine technology that will substantially reduce the cost of extraction. Few want a lump of gold as dbh says, so why not something no wants at all - except for value to trade later for something we do want. In that sense it is the same as paper money or entries in the files of a bank. Similar to government 'fiat' money, Bitcoin relies on the founder not flooding the market or the algorithms not getting cracked (corresponding to quantitative easing and forgery). A unique advantage, of that class of currency, is its independence of government, but, governments will try to control or at least monitor who owns and trades it. That outcome is still open. The identity of the founder being secret makes it romantic, maybe it really is some Japanese computer and economics whizz. Maybe it is some backroom alliance of the US Reserve Bank and NSA ,.. ..

I think it is a mistake to argue that things that are luxuries, used primarily to give aesthetic pleasure, such as gold, have no "real" value. That that we enjoy for their own sake do have value--in a context. On a deserted island, luxuries may be irrelevant; even more so on a lifeboat. But that is not the test of their value. Of value to whom and for what?

Hi Walter,

I think bitcoin is one of the most interesting experiments in economics is years. At its heart money is a generalized IOU (as a opposed to an IOU that is only enforceable against a specific person). Even if I receive physical gold it likely has little value to me, unless I am a jeweler except that it represents that I gave up something of value - say a book. I don't want gold, I want something else say food or rent or the ability to purchase them in the future. Even gold is acting a a general IOU (Think bearer bond) as opposed to an IOU that is specific to one person. Gold is and always has been an awkward medium to lug around and divide, which is why the exchange bank was created. An exchange bank does back its negotiable instruments (checks, bank notes) with gold or silver, but if it works well the bank is mainly just acting as a ledger - or a computer entry in today's world. The gold and silver never actually go any where. Bitcoin has that as a significant advantage over gold and silver. It is easy to transfer and divide. I agree with the article that it is not widely accepted, but that is changing.

The article suggests that bitcoins biggest problem is that the government may attack it. Actually, I think that is its greatest strength. The harder governments attack bitcoin the higher I see the demand for it. The thing that would kill bitcoin is strong money policies and free market policies, but I don't see those happening soon.


The article makes one mistake "At the root, the base of Bitcoins is the contractual limitation of the supply." Actually supply of bitcoins is not contractually limited, it is a mathematical property of bitcoins.

Well...I dunno. Many, many things, if you are on deserted island, have no value to you because you lack the tools/technology to use it. Many things that had no value to our prehistoric ancestors are almost universally valued, today. If on the island you have no use for gasoline, DVDs, copper ingots, a printing press, it is because you have no technology/tools to to use them. That does not mean that they "have no value" in a normal context. If you do have the tools and technology, you can use the gold for lots of things. I don't think you successfully can characterize gold as useful only as a medium of exchange. It IS a luxury, which gives it high unit value, but it has value. Even if it had no "practical" use (but it does), its use in creating objects of luxury of all sorts gives it value. Indeed, such things were created and valued long before our forbears had much of anything else... Or so it seems to me. Bitcoins are different; they are not real money. Only their acceptance as a medium of exchange gives them a use, a value. And that is not true of gold.