Last April I wrote that we should care about Bitcoin because it represented a new conception of currency, one untethered by traditional restrictions like state monetary policy. Nine months later, I must confess I’m scratching my head as to the point of it all.
I’m not saying that Bitcoin is necessarily a bad thing, though the last couple of weeks have produced a flurry of articles to that effect, generally from people a lot better-versed in economics than I am (do read Alex Payne, Charlie Stross, Brad DeLong and Paul Krugman).
What I am saying is that I’ve realized I can’t actually see the point of Bitcoin, as in “why should anyone use it?” Last April, I wasn’t dealing with the “why” aspect enough. The arguments in favor of Bitcoin’s use – in real life, not speculative cashing in and out — are way too easy to shoot down. So let’s go hunting:
- Bitcoin is elegant: This is true – it’s smart how the mining process and the “blockchain” ledger system are interdependent, and its deflationary aspect is fascinating – but it’s not an argument for using the stuff. I’ll stick by my original thesis that it makes Bitcoin worth watching, though.
- Bitcoin’s use is anonymous: In theory, perhaps, but not in reality. The blockchain is public and can be mapped, and regulated exchanges demand ID verification as an anti-money-laundering measure, which is good, because money-laundering and tax-dodging are bad.
- Bitcoin can be used for cheap international transfers: Undercutting those money-for-nothing banks is admirable, and probably the best potential argument for Bitcoin. Except there’s already a new breed of international transfer services such as CurrencyFair and TransferWise that manage to drastically undercut the banks without requiring a new, hyper-volatile, unpredictable currency as the medium of exchange.
- Bitcoin can be used for micropayments: Like Chris Dixon, I would really love micropayments to become a thing, mainly because online content and the open web desperately need a new business model. However, I’m not very clear on why a new virtual currency would make this happen where previous efforts have failed. If anything, the success of in-app purchases points towards a future of platform-specific tokens such as Amazon Coins, rather than decentralized, pay-anywhere crypto-currencies.
- Bitcoin provides a financial system outside of state control: This is where ideology enters the picture. Personally, I’m not convinced that fiat currency is a tool of mass oppression. Sure, central banks mess up, but at the end of the day they effectively underwrite the money they issue. That may be a shaky business, but it mostly works. Also, if consumers are to use Bitcoin with the same confidence as they use regular money, it needs to be regulated to a degree for their protection, and who’s the regulator? The state. Sorry, no escape.
As for why not to use Bitcoin, just ask the vast majority of those who currently hold it. Because that’s what they’re doing: holding or trading it, not spending it. Why? Because it’s very unpredictable, so big retailers won’t price their wares in it, so it’s hard to spend. And even if it was easier to spend, would you spend it today in the expectation that it will be worth less tomorrow, or rather use fiat currency because your bitcoins might double in value over the next week? Buying stuff on a day-to-day basis really shouldn’t require a gambling mindset.
So in summary, I get that Bitcoin is a potential “disruptor”, but I honestly don’t know what advantages it’s supposed to bring — particularly considering the major downsides around volatility and security. I’m not even sure why virtual currencies in general are useful.
Last April I used the analogy of Napster to explain why Bitcoin could have an important legacy even if it fails, but in retrospect that wasn’t the best point of comparison. The early file-sharing engines were addressing a clear and valid need – sure, people wanted stuff for free, but they also wanted to bypass manipulative and exploitative region- and time-based restrictions, and to access works not available in-store.
Today, file-sharing appears to be in decline because those earlier problems are solved by the predictable, legitimized likes of Spotify and Netflix that probably wouldn’t exist without the pressure exerted on the content industry by their riskier forebears.
I simply don’t see what situation needs Bitcoin/Litecoin/Dogecoin/whatever like digital content needed Napster. If you can enlighten me, please do.