Bitcoin Q & A: Bubble or Breakthrough? Both! Cult or Currency? Both!?
As I have talked about or written on topics, I have learned that there are hot-button issues that almost always attract firestorms. Thus, when I write about Tesla, Apple or Facebook, I am guaranteed to provoke reactions, some strongly supportive and some strongly opposed, some rational and some emotional, but these reactions, for the most part, are determined by the pre-dispositions of the readers, rather than my views. In fact, my posting acts like a Rohrsbach test, with readers taking a portion of the post that is in line with or opposed to their positions, and either ignoring or discarding the rest of what I have to say. That, in part, is why I have stayed away from posting on Bitcoins, even as news stories about it, good and bad, have hit the headlines, since the world seems to be divided among the true believers in Bitcoins (who will brook no disagreement) and the cynics (who consider anything positive that is said about it to be a sign of gullibility). Since I live in a world filled with shades of grey, rather than black and white, I am going to try to look at the middle ground, though I undoubtedly will make neither side happy.
Bitcoin is a currency! And it cannot be valued!
The determinants of a currency's price
To make judgments on both the efficacy of Bitcoin as a currency, and indirectly, its staying power and pricing, I looked at three determinants of a currency's price/power: the trust you have in its issuing entity, its acceptance in transactions and how securely you can store and save it, while generating a fair rate of return while doing so.
The first factor that determines a currency's price is the trust that users of the currency have in the issuing authority to keep its supply in check, with greater trust going with greater willingness to use and hold on to that currency. With paper currencies issued by governments, the authorities are usually the central banks in question: the Federal Reserve for the US dollar, the European Central Bank (ECB) for the Euro and so on. With gold or physical currencies, the constraint is usually a physical one, insofar as the supply of these physical currencies is limited by nature. Since anything that releases that physical constraint will render that physical asset useless as currency, it is ironic that alchemists have, for centuries, tried to make gold in laboratories, because their success would have undermined the use of gold as a currency.
Bitcoin's staying power will ultimately depend upon how impervious its source algorithm is to mischief. While Bitcoin's defenders are quick to argue that its computer this article seems to suggest that there are potential flaws that may be exploited by a collusive group. I am an absolute novice when it comes to computer technology of this type and I don't know how much weight to attach to the claims in the article, but if you are a Bitcoin promoter, you want to make sure that even the slightest doubts that the algorithm can be fudged or modified are dealt with quickly and openly, since those doubts will undo its effectiveness as a currency.is impossible to breach,
2. Acceptance in Transactions
3. Security, Conversion, Storage and Rate of Return
A Comparison of Currencies
Bitcoin: To Buy or Not to Buy?