Adam Smith Hates Bitcoin

It is being used as a currency, and any metric on this far exceeds where people thought it would be a few years ago. It's also having massive adoption from a wide number of people. The reason the price is moving is not "speculation" as people seem to assume, but adoption.

MtGox said they were getting 20,000 new accounts a day recently. By definition, new accounts are not "speculators" putting in trades to manipulate the price, they are people putting in trades to acquire their first bitcoins.

People rushing into a currency, right after the EU forced bank depositors to lose %40-%60 of their money in a state run bank (which was only insolvent because they were forced to buy greek debt by the very same EU) is not "speculation" -- it is seeking a safe haven.

A lot of people hope bitcoin will be a safe haven away from these increasingly manipulated and untrustworthy national currencies.

That's a huge level of success, given the limited expectations for bitcoin only a few years ago.

Suddenly it's actually considered a viable store of value for some segment of the population. Sure, it's a small percentage, but still, it's massive.

Prove it. Also, using the word "mainstream" is equivocation, you'll just say anyone who doesn't agree with this position isn't "mainstream".

Further, in support of your claim that he's not being partisan, you name a partisan spectrum of "economists". Both democrats and republicans are partisans.

> The computing power expended on mining is used to secure the Bitcoin network.

Could you expand on this? I'm not sure I understand it. Thanks.

A bitcoin faq would give you more details, but the short answer is that bitcoin is built on cryptography. Every transaction in the system is stored in a chain of blocks. These blocks are created whenever someone discovers the answer to a very hard mathematical problem. When they do this, the new block is created, and that block contains all the transactions that were done since the last block was created. To make the next block, you have to have the previous block, so the entire chain of blocks can be authenticated, thus the entire history of transactions can be authenticated.

As a reward for securing the system in this way, that is, providing a secure distributed transaction history, the miners are rewarded with some bitcoins whenever they discover a new answer and create a new block.

Thus they are providing the security of the system and as a reward are given bitcoins. To keep the rate of new blocks contstant, the difficulty of the mathematical problem is adjusted up and down. Over time, the number of bitcoins you get for finding a new solution will diminish to zero.

To keep miners finding new answers, even after the reward in BTC hits zero (in the year 2140) the system has transaction fees. These are an incentive to keep finding blocks, and the person who finds the next block gets the fees for the transactions that go into that block.

Since blocks are discovered once every 10 minutes, you'd get 10 minutes worth of fees for the whole system-- which could be quite a bit in the future.

Maybe, just maybe, it's not Adam Smith who hates bitcoin like this misleading title suggest, but Krugman.

The guy may have a nobel prize, but his strong leftist views seems to be clouding his judgement.

Never before in history was there anthing like bitcoin. It's not a commodity like gold - is is pure fiat money, fully based on trust. Hoarding gold or silver or any metal or rare thing was a bad idea because of the alternative uses which where then prevented.

There is nothing inherent to bitcoin that may hamper a "country to convert a great part of this dead stock into active and productive stock".

In fact, by reducing friction, making transaction costs almost negligible, it will help this very thing!

How could Adam Smith may have hated something that did not exist back then, and that many economists had previously advocated for - a single worldwide fiat currency.

The only real problem is for governments, who won't be able to use the seignorage tax anymore, ie inflation, ie printing money out of thin air at the detriment of currency owners, to coerce people to do things or lose money.

Bitcoin is a game changer, the end of a tyranny - the use of force to make people work, instead of being able to live with what they have without the fear that the government will decide to reduce the purchasing power of what one owns by 20% overnight, through inflation or plain just stealing (as in Cyprus) to "transfer that wealth", reverse Robin Hood style, to their well connected and too big to fall fat-cat friends.

Also, it's quite fun that a system based on trust, of the people, by the people, is not trusting the government. It's something the founding fathers would certainly be quite proud of :-)

EDIT: And to those who argue the amount of computing power and electricity to run the bitcoin network is insane, just think for a second about Moore law, or how much GDP goes to the finance sectors. IIRC it is around 10%. That sure is a whole lot of money for the simple job of allocating resources (currency, saving, investment, transaction, etc).

It seems ripe for disruption.

A bitcoin economy will be able to do the same job for a fraction of these cost, thus allowing capital to be best spent on other uses (say actually advancing technology, or building real stuff) ie human capital and physical capital, which according to mainstream economic growth theory (from Solow to Romer) is essential for economic growth - real economic growth.

If you have some data and some time to spend, draw a graph of the log of gdp per capital and the percentage of the gdp spend on the finance sector. You'll see a strange recent trend - less growth, and more gdp for the finance sector. I'm not arguing a causation, but that's some food for throughts.

Just like Gandhi say - first they ignore you, then they fight you, then you win. We are currently at step #2. I expect the heat against bitcoin to raise in the next weeks. It's a big threat for the current establishment cash cow. It's a blessing to anyone who can provide value.