Why Bitcoin Will Fail As A Currency

There are natural limitations to how much people will save:

* When you're dead all your savings are worthless (to you), so your likely to spend most of them before then.

* Some consumption cannot be postponed: you need food, a roof over your head, transportation, etc.

* Time has value. For example, if you wait another 6 months the same amount of money (bitcoin or not) will buy you a better computer. This is likely to hold true in the foreseeable future. Still people do but computers (and phones, etc).

* There's opportunity cost: even if your savings increase in value over time, investing them in something could increase them even more.

Hoarding is relative. Whatever commodity has the highest velocity (most trades per day) is generally not considered hoarded.

Relative to dollars, nearly all commodities are hoarded, but that's because the entire money supply changes hands nearly 3 times a day on the currency markets (or at least used to). As bitcoin is backed by as much thin air as the other currencies, there is nothing to stop it's velocity from attaining the levels of the dollar.

Being as bitcoin is relatively new, its velocity is low; furthermore, as many vendors have not started accepting it, its velocity is further hampered.

The author suggests that it is mainly being used as a store of value, which is true. Any money that is not controlled by a government is generally a good store of value; and stores of value have their uses. Velocity is not everything.

It is worth noting, however, that throughout history "good money" (good stores of value) have always beaten "bad money" (bad stores of value) in the competition for velocity, all other factors being equal. The only place bitcoin has to catch up is in redeemability, otherwise it's suitability as a money is equal to the other fiat currencies. When it catches up there (and it will, since it obsoletes many taxes), expect it to really take off, unless governments start to get jealous and shove guns in everybody who tries to use it's faces.

Otherwise, most of his arguments are beaten by the infinite subdividability of digital currency.

I think what most of the critics of bitcoin don't realize is that soundness of a money is not dependent on it's backing or even how much is in circulation at any particular time. Who/what controls the issuance of the money is the most important factor; and the numerous hands on bitcoin assure things do not get out of hand.

Every single criticism of Bitcoin I've seen is based on the assumption that it will fail because it's not a fiat-based currency. They list Bitcoin's features as the reasons it will fail. They talk about the past 200 years of central banking and seem to forget the thousands of years of human economy before governmental central banking, when money was actually backed by a scarce resource.

Exactly. Inflation prevents (in fact promotes the opposite of) hoarding. Hoarding dollars would be just as irrational as spending Bitcoins.

An example of something being hoarded today? Anything that is having its price run up. Gold, for instance.

The average human was far, far poorer 200+ years ago, in relative terms.

The fact is, modern banking and capitalism have created massive amounts of wealth for a vast proportion of the population. Evolution of our economic system has led to where we are now for a reason. It's not perfect, but we aren't going back to the days of measuring your net worth on a stick.

Every time we have a crash or downturn, people begin to under estimate how much we actually know about economics. It's a lot.