Bitcoins Are Digital Collectibles, Not Real Money

I predict a lot more of these bubbles, but over the long term, unless it's displaced by a better system (which is certainly possible) or regulated out of existence, the trend will be upwards and greater stability.

But this is only temporary, a necessary evil when a currency is starting out.

However it is arguably a good thing though, because all the attention and people buying it hoping it will increase in value, is exposing a lot of people to it that otherwise wouldn't have been. It's helping it grow much faster.

>To replace our entire dollar base money with Bitcoins would require that each Bitcoin be valued at more than $370,000.

I'm confused by what he means by this. Bitcoin is infinitely divisible. Even if there was only one bitcoin in the economy it could still be used perfectly fine as a currency.

>In contrast, a good monetary control system would fix the value of the currency unit (in terms of gold or something else real) and then adjust the size of the monetary base on a moment-by-moment basis in order to maintain this value in the markets.

This doesn't really make too much sense either. It takes a long time for arbitrary changes in the currency supply to have any effect. And all they can do is print more money, which makes everyone else's money worth less and therefore makes them worse off.

One interesting thing I've been thinking about is that since it's digital currency inflation and deflation can be corrected for a little. People could have their sites change prices based on the current inflation or deflation rate (if they really care about it so much.) This was harder to do with real world price tags. It's not a solution of course but it might help a lot. Usually the criticism of changes in a currencies value is that prices don't adjust fast enough to deal with it. But with the internet information is transmitted and changes can be made instantly.

>No modern economy could survive the constant, grinding deflation that having a fixed monetary base would eventually produce.

So this is more controversial, but I don't see why not. A currency that actually increases in value rather than decreases would have a huge advantage over everything else. Because if you had a choice what would you store your money in? It also insures that bitcoins can never artificially be devalued by any central organization. Sure new bitcoins can be mined, but that's heavily limited and a necessary evil to distribute the first bitcoins fairly.

As for them being collectibles that may be true for some people, but they have a few very good advantages to them that can't be beat by other currencies and that insures they will always have a use as a currency with some people. Mainly that they are anonymous and don't have transaction fees. I have seen a lot of interesting uses for them that would be unfeasible in real world currencies. Like people giving each other small tips over the internet.

Even without deflation I think there would still be problems with high variance of BTC just from the psychological aspects of the currency. With central banks you can at least say that there are persons whose job it is to watch currency exchange rates and take one or more of many available actions to curb both inflation and deflation. As far as I can see you just don't have that with BTC (and by design). You can't increase the money supply, any action to decrease the money supply is permanent, and how can you change interest rates for loans when all of the money is already issued?

I just can't imagine BTC being useful for transactions in general (especially important stuff like payroll) when the inherent variance in value seems to require systems akin to what a high-frequency trader would use. It might be useful as a commodity for similar reasons that gold is (but with the improvements that come from its high divisibility).