Bitcon (as I call it), otherwise known as “Bitcoin” is all the rage it seems. These days it is “flying”, going up and up in alleged “value.”
But Bitcoin not a currency – and as long as it lacks the fundamental qualities that define a currency it will not be one. It is, at best, a digital commodity much like Farmville land or “level ups” for various online games – a series of bits that may have a price to some people, but utterly lacking inherent value.
Let’s go over what defines a currency. To be one you need:
- It must be a store of value. That is, if I put some amount of value into it today that value should be reasonably stable over time. Nothing that is fluctuating in purchasing power by 5, 10 or even 20% in a day can be said to have such a quality, irrespective of whether it is going up or down.
- It must be a medium of exchange. In order to perform this function people must accept it in trade for other goods and services – real goods and services. You need to be able to buy a gallon of gasoline, a basket of food, a car, a computer and similar with it. The problem is that until it is astore of value it will not be a medium of exchange because the people who produce things would be insane to widely accept it when they cannot reasonably expect the value you give them to be constant for enough time for them to obtain more raw materials and similar with what you tendered to them.
- It should be self-verifying, at least for reasonably-small transactions. I should be able to know if the “coin” you intend to spend is valid (and not a counterfeit) by trivial examination. This is almost-impossible with digital currencies since one of the largest risks is that you can theoretically spend them more than once, but only the first such spend is valid. A credit or debit card partially solves this problem via central clearing where serialization takes place. A decentralized currency attempts to solve this by publication, but that requires a fair bit of time to insure that your “spend” is not duplicated. For face-to-face transactions any sort of “online” requirement presents a material problem and for small but frequent transactions any sort of delay is unacceptable. The credit card industry solved the “online” problem decades ago through the use of paper transaction imprints and receipts; there is no similar way to resolve that problem for purely digital currencies.
- It would be nice if it was reasonably anonymous, at least without valid legal process. Digital currencies that operate by publication have an inherent issue here in that the transaction is not only indelibly recorded by cryptographic signature but it is available for everyone, everywhere, to see on a permanent basis. The fact that you transacted with a given entity for a given amount is not only available to the merchant in question and potentially exposed to whoever they might sell the data to, along with a government with a subpoena in hand it is inherently exposed to everyone worldwide on a permanent and irrefutable basis. While you may not think this is a big deal for many common transactions it is in fact ridiculously stupid as the highest value is not found in the identification of specific individual transactions but rather In pattern analysis over long periods of time. Anyone with access to this data has the ability to build extremely-detailed and accurateprofiles of exactly who you are, how you live, and what you do in your daily life. Perhaps you’re ok with this not only being sold by merchants you transact with but with any random person or business being able to compile this on all of your transactions. I am not.
The mania currently being found in digital commodities is amusing to watch but none of these are in fact “currencies” since they fulfill neither of the primary requirements of same nor either of what I consider to be the two most-important secondary characteristics.
Instead these fads are more akin to tulip bulbs.
In the 1630s
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