Bitcoin Boon | Alex Smith

Full Disclosure: I do own some bitcoin (<100 BTC at any given time). I also mine some BTC. My motivation here is not to drive the price up, but rather to demostrate that bitcoin is a suitable replacement for “bad” money.

Today things hit a breaking point. Bitcoin prices are hovering somewhere north of $800 at most US exchanges. Hacker news has tracked a 194 thousand bitcoin transaction for most of the day. Richard Branson announced that Virgin Galactic will accept bitcoin. There may still be some detractors for bitcoin, but one thing is certain, it has the attention of the world. We’ve used banks, vaults, and caves to hide our fortunes for thousands of years, isn’t it time for something new?

Bitcoin has all the makings of a superior form of money, a form of money based around communal knowledge rather than little slips of paper or bars of precious metal. The world can crumble around you and as long as you still have your wallet somewhere you can probably spend your bitcoins in another country. The same certainly cannot be said about money deposited at a traditional bank. To this effect bitcoin has vast potential to do good in the third world, or any country suffering from bad money.

Sudan has a monthly inflation rate of almost 40%, Iran is not far behind at 32%. People in Kenya are already using cell phone minutes as money, isn’t bitcoin a better fit? It is in places like this where bitcoin has the most potential to do good. And the good it does here is very simple, it prevents slippage and lowers barriers to commerce.

Bitcoin works as a global hedge, because it truly is a global currency. Someone, somewhere in almost every country must have at least a little bitcoin. This global hedge gives the currency incredible resilience. Anything bad that happens in the world will drive sovereign currency into bitcoin, thus further inflating it’s value. This is like being the house at a roulette table where people can only pick a single number at a time.

Recent volatility is ~~almost entirely~~ [There are many financial and political factors at play here.] related to external market factors or externalaties, and not underlying changes in valuation. When the exchanges do something unexpected, such as pausing buy or sell orders, the market reacts with a tantrum of misplaced fear and frustration. This is mostly a learning curve that we as end users need to learn to deal with

Damen & Armitage, Chicago, IL
Damen & Armitage, Chicago IL

Hacker News discussion

EJ

How is something that is a currency undergoing massive inflation a viable replacement for Sudan’s currency, experiencing the same thing?
- http://alexsmith.io/ Alex Smith
  
  Correct me if I’m wrong here but I think Bitcoin is currently experiencing deflation (good currency) while the Sudanese pound is experiencing inflation (bad currency).
  
  http://en.wikipedia.org/wiki/Inflation
  http://en.wikipedia.org/wiki/Deflation
  - BTC Geek
    
    Bitcoin is currently in an inflation stage, not deflation. Deflation in Bitcoin will not occur until 2140, although due to lost coins, it could come sooner.
    To answer the original question, what Sudan is experiencing is a one-way inflation alone whereas Bitcoin could either go up or down. That being said, I don’t think Bitcoin with its current volatility is a good currency replacement for Sudan or anywhere else really. However, it is an emerging technology and in a few years’ time, it should be there.
    - http://alexsmith.io/ Alex Smith
      
      Inflation would mean a loss in terms of PPP. Think you may have your terms backwards here?
  - EJ
    
    Heh, you’re right. Neither is great as a currency since inflation prevents you from saving and investing, and deflation prevents you from spending.
    - Jessica Darko
      
      The idea that deflation is bad is a myth. You say it “prevents you from spending” but we know that’s not true. Computers have doubled in performance every 18 months, thus when considering a computer purchase, the dollar is deflationary. If this myth were true, people would never buy computers, instead holding their money for 18 months letting it double in value relative to the cost of computers. (and then again, and again). But they do buy computers, because computers are useful, and people would rather have a computer now than wait 18 months for a better one.
      - http://alexsmith.io/ Alex Smith
        
        @jessicadarko:disqus Agree here, it certainly hasn’t stopped me from liquidating. If anything the deflationary aspects of bitcoin have encouraged early adopters to “cash in” and provides some market liquidity.
      - EJ
        
        With bitcoin, you can chose to spend them today or use an alternative currency instead. With your computer analogy, you only have a choice between buying the computer and getting useful work out of it or not having it at all.
- crasch
  
  The value of Bitcoin is increasing, so the price of goods denominated in Bitcoin is falling. For example, a book that would’ve cost 1 BTC a couple years ago, now only costs 0.01 BTC. This is [price] deflation. By contrast, a book priced in dollars that cost $20.00 a year ago, might now cost $21.00. This is [price] inflation.

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