That's a pretty good summary of how it works and a few of the things that can go wrong.
But this flaw is a bit over-wrought:
<The flaw then is that most Bitcoin owners are hoarding something which they expect to become a widely-used transaction currency, and if everyone holds on to their Bitcoins, then it won't become a transaction currency. Eventually, enough participants will look around the room, see that nobody is spending anything, and head for the exit, seeking to cash out. This will crash the price of BTC, and destroy any confidence in it as a transactional currency, taking it to zero - worthless bits on a disk. At least with Gold you can turn it into jewellery or use it in electrical contacts, and it is shiny. Don't ask us to predict the timing of this; avalanches cannot be predicted, but right now, the entire stock of Bitcoins is valued at about US$2.6bn - that's an awful lot of snow on the mountain.>
Bitcoin is in fact already a transaction currency and not just a hoarded speculative wishful thinking.
The only reason people would "look around the room" is if they thought there was something going wrong. In fact, just like gold, it can be nothing other than a hoarding security stash, which has been the main function of gold, with most of it just sitting immobile in bunkers for decades and centuries. If it's also a useful transaction mechanism for some things, that adds to its value.
My main criticism of bitcoin years ago, when it first came out and I first read about it was the waste of energy to run the system. Since heat is needed for other things, such as heating igloos in Finland, people there might as well run bitcoin mining as a means of generating heat, so the "waste of energy" argument is limited.
But that leads to my main criticism, which is that bitcoin is not the only Cybermoney which can be invented. My prototype is coming along nicely, out in the shed. No doubt other people have been pondering what's doable too. Admittedly, mine has been under development for a decade and there are still some details to be resolved, so competition is not looming too quickly.
Also, while it's unlikely, the government-run currencies could become competitive too and give up the dilution business in the interests of maintaining their competitive position. More likely, they would simply use the NSA to hunt down anyone having anything to do with bitcoin and murdering them [maybe even passing laws to enable such "self-defence" against "terrorists" but maybe not bothering with laws].
Another problem is that somebody can apparently "tweak" the rewards for bitcoin aka "transaction fees".
The number one problem with money systems is the ability for those in power to do swindling of the people using the money. That swindling seems always to get the better of somebody who thinks "carpe diem".
So far, bitcoin is the best bet of all, even with energy burning, "tweaking" and the rest.
Until there is actually something better, bitcoin might actually win with superior network effect, which, as demonstrated by the hideous morass of english language, can be more important than efficiency and rationality.
Mqurice |
