The trouble with Bitcoin
In the 19th century and until the 1930's there were big monetary
instabilities. Economists found ways to stabilize the money by
central banks. However the Bitcoin community still never heard about
that problem and solution, and keeps blindly believing that the
instability of the value of the bitcoin is just due to the fact it
is not popular enough and it will naturally become stable by the
magic of being popular, just because, as usual currencies are now
relatively stable since a few decades, the very existence of the
problem remains completely ignored by people who specialize in
cryptography and have no clue about finance.
So, what is their belief ? That there would exist a stable amount of
needed currency in circulation.
This is ridiculously false : whenever someone has a piece of
currency, there is no reason to keep it, since, at best if we
assumed its value to be stable, it would just follow the world's
economic growth, which is lower than the average real interest rate
one can get by investing this money somewhere, thus having in hand
no more that piece of currency but something else : some stocks, an
amount in a bank account which reflects a loan being done to a
productive company... so, some convention of asset that is not
itself the object of ownership like a piece of gold would be, but
that is the ownership of something else, a share of real productive
thing or company. These more productive forms of value ownership
have the property that the expected total sum in circulation is
zero, as positive amounts are the counterpart of some negative
amounts, usually debts that companies will have to pay to the owners
of positive amounts.
Now the expected virtue of a digital economy is that it will provide
people more fluid means for anyone to immediately exchange any
unproductive currency they would hold (with low expected real
interest rates), into productive values (following the market-stable
real interest rate). In these conditions, the limit of ideally
needed amount of total value of unproductive currencies in
circulation, such as bitcoins, is... Zero !
So, the ideal stable value of a bitcoin, as defined by the ratio of
the total needed value of currency (ideally zero) by the number of
units in circulation (some total number more or less determined by
the bitcoin system), is, logically, zero too. In such conditions,
expectations of stabilization of value in % per period of time, are
Not only this, but also, consider the question : what do you think
should happen every time someone creates a new online currency
working a bit better than the previous one, in a way or another ?
Some Bitcoin 2.0, working independently of the current Bitcoin. How
can all the people now owning Bicoins, exchange them all into
Bitcoins 2.0 ? Of course, the answers is that if all bitcoin owners
try to exchange their coins into a new currency, they cannot do it
but will just lose all the value they owned, because, with whom will
they do that exchange ? nobody will buy them ! You can contrast this
with the case of central banks which, no matter how ugly it looks to
think that our money is controlled by central institutions, still
have the remarkable advantage that, every time we need an update in
the currency (such as switching from former national currencies into
euros) they politely accept to collect all the old stuff and provide
the new one in exchange. Something that won't happen with bitcoin
since it is so wonderfully decentralized that nobody will be there
to guarantee that its value does not fall to zero. Apart from this,
well, experts in computer security are confident, they can guarantee
to you : Bitcoin is absolutely secure. If you have bitcoins and you
keep them carefully in your smartphone, if you do not accidentally
break it nor put it into your bath, you do not forget it in a cloth
that you put into the washing machine, no pickpocket takes it and it
is not infected by any virus, then you can be sure, your bitcoins
will remain yours. Oh yeah.
Now, just think about it : is it really serious to expect the world
to adopt a system with the remarkable feature that, once widely
adopted, it will require the whole world economy to collapse every
time it will need a little update ?
Not that I like the idea of central control of anything ; actually
I have my own solution of a decentralized online currency, without central banks.
But the point is that it needs completely different foundations than
Bitcoin in order to avoid that trouble. Bitcoin is worthless. It is
not a step in the right direction. It is a step 1 century backwards.
We cannot build any serious online currency if trying to keep any
concept in common with that shit, just like the light bulb was not
invented by improving the candle.
This was written as part of a long exposition on the topic : On humanity's failures to steer itself properly