Bitcoin changes prices too quickly to be a currency and processes transactions too slowly to be a payments system, but it is juuust right for teaching libertarians everything they don’t know about economics.
If you look at what bitcoin actually does, though, it’s more like digitized nostalgia for a pre-modern past where money was discovered rather than printed, economics was a simple subject where markets never failed, and you never had to trust anyone you didn’t know.
The first thing they don’t understand is that money isn’t just a store of value…You’d just hold on to it as long as you could in case, like bitcoin, it went from being able to buy $900 worth of stuff one year to $19,000 the next. Which, if it ever did replace the dollar, would bring the economy to a halt while everyone stopped buying anything other than the essentials and waited to become bitcoin millionaires.
The second thing they don’t get is that trust makes economies more and not less efficient.
The number of transactions bitcoin can process is extremely limited by the fact that it’s chosen not to put much memory into its system. Indeed, bitcoin can only handle a maximum of seven transactions a second compared to the 56,000 that Visa can. That means that even though bitcoin’s transaction line isn’t very long — not many people use it, after all — it still takes a long time to get through it. Unless, that is, you’re willing to pay the $28 it now costs to skip to the front. But what’s the point of using bitcoin then?
So just like anything else, specialization would make bitcoin work better, but at the cost of having to trust the specializers.
But even in a world where bitcoin actually did work, it still might not be worth using. At least not from a societal perspective. That’s because it’s not just a matter of how much bitcoins cost people to use, but also how much it costs everyone else when they do — which could be quite a bit.
Bitcoin, in other words, is one big negative-externality machine. That’s what economists call a cost that someone else has to pay for something you did.
Bitcoin is a revolutionary technology built on reactionary economics. That first part has blinded people to the second — how could something so clever be so useless? — but it’s true. Bitcoin’s strictly limited money supply harks back to a time when money was a shiny rock you dug out of the ground, not a piece of paper with a dead president (or treasury secretary) on it. And its attempts to insulate miners from the forces of economic rationality are akin to nobles’ old feudal protections.
Bitcoin is only the future if you think 1789 wasn’t in the past.
Eulogy made by Matt O’Brien
