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Commenting on the commenters: Bitcoin

Mark Scott

I've been getting a fair number of comments on my Bitcoin post from a few days back, itself a response to Fred Wilson's Bitcoin post. Most think I'm completely wrong about Bitcoin and its future as a form of currency. Some commenters are particularly upset by my assertion that Bitcoin is illiquid — by which I mean its value isn't predictable enough for it to function as a ready medium of exchange (although it's not that simple because liquidity is a cryptic concept, used commonly in finance in a sort of metaphorical sense, but ill-defined and misunderstood, really reverse-engineered from its features, one of which is predictability of price).

Here's a sample, from MoonShadow:

The true irony of this article is that Bitcoin is nearly perfectly liquid, even though it's ultimately deflationary. I know what liquidity is, liquidity is the ability of economic actors to engage in exchange rapidly and with as few intervening steps as possible.  This is why cash is very liquid and real estate is not.  Bitcoin is very much like cash in this respect.  Go try and tell Bitcoin users that Bitcoin is illiquid, and they will laugh at your ignorance. The only people for whom Bitcoin is not liquid are those who don't have any.

So Bitcoin is liquid if you have some bitcoins. Fair enough, in a closed system consisting of you and the rest of the Bitcoiniverse. But if you need to ascertain Bitcoin's actual exchange value, you have a problem, largely because Bitcoin has become a speculative instrument, with a value that can be manipulated due to the immaturity of the computer technology that defines. It's a traded derivative of other currencies, worth something perhaps on its own exchanges, but unstable in the wider world.

I'm not suggesting that a technologic currency can't someday come along. I just think it will be difficult, absent a transformation of our current political and economic systems. Some commenters seem to be calling for just that.

Here's Logical Thinker:

Viewing Bitcoin as money is missing the point. It's a paradigm shift. It has the potential to stir up and shuffle whole sectors of economy. It's fundamentally changing how things work, similarly as email or the printing press did before. You can't fit it into existing mental frameworks, so you try to compare it with what you know. Like the pundits didn't get Linux in the 90s, they don't get Bitcoin now.

Of course, we don't know what the future holds, Bitcoin could fail for one reason or other. But it's evolving and affecting the way we work and think. That's what's important.

What I've learned from writing about Bitcoin is that...Bitcoin has some passionate advocates! It's been debunked in the popular media. But clearly, there's a thriving subculture of Bitcoin enthusiasts. They've got my respect, even if they haven't convinced me that Bitcoin — or another type of currency not backed by a central government — will ever work

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