This is why I think a lot of VCs are investing in the Bitcoin space, and I why I think there is an extremely bright future for the currency. Many economists (i.e., Paul Krugman) can't get past the idea that a currency needs to be backed by a state to be a real currency. That's the most ridiculous claim ever...currencies existed long before nation-states ever did. Events like this are proving those economists wrong.
> can't get past the idea that a currency needs to be backed by a state to be a real currency. That's the most ridiculous claim ever...currencies existed long before nation-states ever did.
I think if you examine those economists' arguments further, you'll see it doesn't have as much to do with "OMG where's the state???!" as you seem to think.
As you yourself point out, economies have worked since long before nation-states have existed, so maybe the Bitcoin evangelists might want to recognize that being "like gold but with bits" doesn't change all the economic rules.
FDR took the larger U.S. international economy off the gold standard in 1933, so if "bank-controlled fiat" isn't exactly "new". And even that is a highly American-centric POV; other economies have worked on bank controls and fiat long before the U.S. even existed, including China in the 11th century and England starting from the 12th century.
I agree with you in that this is an excellent and demonstrably valuable use case for Bitcoin - we saw the same thing happen in Cyprus with the protests there.
I don't think I agree about this meaning there will be a bright future for it. Venezuela and Cyprus are unstable, extremely corrupt governments. Bitcoin thrives in that environment. A bet on Bitcoin seems to be a bet that those kinds of environments will endure and are inevitable, which is vaguely reminiscent of 2nd Amendmenters and the way they want their guns because it'll help them defend against the "corrupt, evil police state".
The problem is that America isn't actually a corrupt, evil police state and neither is it truly on the verge of imploding. I would bet against Bitcoin, at least in America, for this reason.
A currency just has to be backed by something. Money laundering is something. Drug trafficking is something. The fact that Venezuelans are using it to launder money is not "proving those economists wrong", it's making those economists wrong.
And the more mainstream it gets, and the more tracked it gets, and the harder it gets to buy what you want with it without leaving some sort of record, the more it reverts to its natural value of zero.
One use for Bitcoin is "Paypal replacement". There are situations where that use being traceable is not a problem; for instance, I have no problem making public the fact that I pay for a LWN.net subscription, and in fact, the LWN.net site itself reveals it every time I post a comment there.
Therefore, if what you are saying is valid, Bitcoin's natural value is above zero.
Krugman hasn't been that clear about why he doesn't like bitcoin. Apparently he mostly does not like it because it is favored by Libertarians. He has endorsed the views of Brad Delong (an econ blogger with similar views and style) that a currency needs to be backed by a taxing authority and/or central bank (i.e. a government):
You're not reading very carefully. The argument De Long makes in the excerpt that Krugman endorses is not that "a currency needs to be backed by a taxing authority and/or central bank", it is that, for a commodity (currency or not) to serve as a stable store of value, it must have something providing both a ceiling and floor for its value, and one of those (the floor) is not immediately apparent for bitcoin.
This is very different from your argument about government, as is evidenced by the fact that his two counterexamples of things where the ceiling/floor combination are available and specifically identified are the US dollar (a government-issued currency) and gold (a commodity which is not backed by a taxing authority and/or central bank.)
Actually I think he is right and you are wrong in this case. The section of DeLong's essay that Krugman quotes in his article though is the claim that Bitcoin was designed as a weapon against government central banks and their ability to tax, and to monitor citizen financial transations. The article "Bitcoin is Evil" was written not to ask "does bitcoin work" but "is bitcoin morally bad or good?" And Krugman says "bad" because he believes it would undermine the government's ability to use monetary policy to achieve various goals.
> The section of DeLong's essay that Krugman quotes in his article though is the claim that Bitcoin was designed as a weapon against government central banks and their ability to tax
No, the section of DeLong's writing that Krugman quoted didn't deal with that, it dealt with the ceiling/floor issue I described; this was in the section of Krugman's piece discussing the postivist evaluation of bitcoin's ability to function as a stable store of value.
What you seem to be describing is the excerpt of Charlie Stross's work that Krugman quotes in the shorter bit at the end where Krugman is discussing normative evaluation of bitcoin's purposes.
Charlie Stross and Brad DeLong are two different people, and Krugman cites them for very different purposes. (One about bitcoin's purpose and one about bitcoin's functional properties.)
Agreed. This is where bitcoin matters. It isn't that big a deal to those of us who live in a free country with a stable government, a stable currency and a readily available banking system. But to people who don't have those things, bitcoin offers freedom and prosperity.
