From Tim Worstall:
"Bitcoin isn’t secure as the thefts have shown, it’s not liquid, as the various price crashes have shown when one single large order goes through an exchange, it’s not widely accepted so it’s not all that good as a medium of exchange and as we’re now finding out, it’s not a good store of value either."
For most of you, I'm going to be preaching to the choir, but for the sake of the Bitcoin novice who might take Tim at his word, let's break down this paragraph:
"Bitcoin isn’t secure as the thefts have shown..."
That is analogous to saying, "the dollar isn't secure, as the bank thefts have shown." I'm not going to bother elaborating any further on that one.
"...It’s not liquid, as the various price crashes have shown when one single large order goes through an exchange..."
Bitcoin is the most liquid currency that has ever existed. Any quantity of Bitcoin can be moved instantly around the world, by anyone. You can't do that with cash, you can't even do that with digital representations of cash. You definitely can't do that with gold or silver. Your proof is a non-sequitur.
"...it’s not widely accepted so it’s not all that good as a medium of exchange..."
In 2004 you could have said, "Facebook is not widely used so it's not all that good as a social network." You would have been right... at the time. Was October 18th, 2011 the deadline for Bitcoin? Was that written down somewhere?
"...it’s not a good store of value either."
Neither was Apple stock... in March of 2000.
Regardless, this is not your parents' currency, and doesn't necessarily have to possess the properties of a traditional currency in order to succeed. Bitcoin doesn't have to store value to exist as a medium of exchange. Any ability to do so is merely icing on the cake.
Tim Worstall, your proof of "The End of Bitcoin" is only proof of your lack of foresight and inability to appreciate the most important development that the Internet has seen since email. I'd like to see a follow-up to your article this time next year, but I have a feeling you're not going to want to write about the taste of crow. I hear it's good with mint-sauce.
Actually you are incorrect in all of these cases. Bank robberies are a non-sequitur when it comes to the security of money. If I have $200k in a bank and that bank gets robbed, my money is insured and is therefore secure. Cash is very unsecure, as you wouldn't want to be wheeling a cart of $200k worth of bills around town. Bitcoin sitting on your computer is only as secure as your computer. For most people, that is not very secure. Encryption has helped here, but poses its own set of problems.
ReplyDeleteRegarding the liquidity of bitcoin, I don't think you know what liquidity means. Educate yourself on wikipedia on this topic. Basically the ease of transfering funds is a minor component to liquidity. The volatility of the market due to a single purchase is the major factor.
The argument "well its not good now but it will be later" is a poor argument. Bitcoin has a great potential to be the currency we want it to become, but we can't know with certainty that it will get there. It still has some growing pains to go through.
I love Bitcoins and hope that it becomes the standard for payment on the internet. But to get there we need to be honest with where bitcoin is today.
I don't see Bitcoin as either currency (money), or as a store of value (commodity).
ReplyDeleteI see it as a value transfer agent.
There is no cheaper way to transfer value - independent of currency - around the neighborhood or around the world.
And essentially instantaneous transfer is now here, with the introduction of MtGox's new Green address option. It just needs a useful front end.
If the above wasn't true, the bank-paid trolls wouldn't be increasing their anti-Bitcoin tirades around the 'net, as the USD/BTC exchange rate plummets. If they really thought Bitcoin was dead, they'd be moving on to the next plan to extract yet more wealth from the 99%.
But the exchange rate doesn't matter - does it? - if value can be transferred without time delay, and potential exchange rate loss.
@laxisosous,
ReplyDeleteBitcoin is secure, as in, the code is secure. Thefts from exchanges and individuals are not examples of Bitcoin being unsecure, but of exchanges and individuals lacking proper security measures. I do not see that as a Bitcoin issue.
With the new client, users can now secure their wallets quite easily; I agree that it was an issue until recently. As far as the exchanges go, they've come a long way toward ensuring their security measures are up to snuff. MtGox and Tradehill, as the two biggest exchanges, have not had a security issue since the big fiasco in the summer. I feel that that is behind us now. Growing pains, in you will. We're getting smarter about this.
You're right, I did not do a very good job of addressing the liquidity issue. For large amounts of Bitcoins, there is definitely a liquidity problem. This is a symptom of us still being in the early stages of adoption and not having a very large economy. I don't see this as a reason to write-off Bitcoin. It's something that will go away as the economy grows.
Yes, we have to be honest about where Bitcoin is today, but Mr. Worstall's article is entitled "The End of Bitcoin." His arguments do not prove that Bitcoin is dead, only that Bitcoin is still young and developing.
I'd like to take a quote from a great article that just came out (http://spectrum.ieee.org/computing/networks/the-worlds-first-bitcoin-conference/)
"But what exactly is Bitcoin? That was the first question Jeff Garzik, a developer for Bitcoin and Linux Kernel, asked when it was his turn at the podium. 'You’d be surprised at how difficult that is to answer,' he said. He began to poll the audience. Is Bitcoin a currency? A commodity? A security? Hands went up and down with each term, and the only time the room agreed affirmatively was when Garzik asked whether Bitcoin is a 'distributed digital notary service.'"
To even question Bitcoin's viability because it does not possess the properties of a currency is to not understand Bitcoin. "A distributed digital notary service." One that appears to take on the form of a currency every once in a while. Those times when it does not succeed as such, perhaps we shouldn't get too worked up about it.
The Forbes writer is wrong about the security. (We all know bitcoin hasn't been broken. It's the sites in the BTC economy that have been hacked. "BTC is the most secure currency in an unsecure economy.")
ReplyDeleteBUT...he is absolutely correct about all other points.
Regarding liquidity, if you're not an investor in the real world, let me explain it this way. The USD dollar market is the most liquid market in the world. It's huge and just about anyone will take USD in exchange for goods and services. It's so big, Warren buffet could sell all his stocks and then 'sell' every dollar he has in exchange for another currency or something else of value and the USD's value wouldn't move much. It's a multi-trillion dollar market. Going further. the USD market is more liquid than the Euro. Which is more liquid than the Mexican peso, etc. And so on down. And they are all a hell of a lot more liquid than BTC, where the market is so small with so few bids and asks that any one individual with a big BTC bank roll could move or manipulate the market substantially at the present time. He's precisely correct to call BTC illiquid presently.
I love BTC too, but let's be real.
@ the commenter above:
currency = medium of exchange used to aid transactions, but not something of inherent real value in itself (e.g. USD, EUR, all fiat currencies, even BTC crypto*currency*.)
money = medium of exchange AND something of inherent value (e.g. Gold, Silver, & arguably some other precious metals.)
Mike Maloney has a good book "Guide to Investing In Gold and Silver: Protect Your Financial Future" that explains the difference b/twn currency and money. And goes way beyond it's title to provide a historical account of fiat currencies. Definitely recommended.
@Michael -
ReplyDeleteI am neither an economist nor an economist wannabe. I use terms like 'commodity' and 'money' the way regular folks use them. They all know what I mean, and you do too.
Yeah, yeah - I know: somebody on the internet is wrong. Whatever.
@Anonymous
ReplyDeleteChill. You should recognize it as an opportunity to learn something and grow, not to be defensive.
But since you were, I'll be clear. You didn't use currency or commodity even the way regular folks use it. You used them *wrongly* and contradictorily: "I don't see bitcoin as a currency....I see it as a value transfer agent." lol That is a currency.
Learn and grow. Don't defend being wrong.