It boggles my mind that Krugman continues to fail to see the point. I am not the only one who has noticed his blindness [4]. Or is he deliberately avoiding discussing certain aspects of Bitcoin (notably as a payment processing platform)?
"Underpinning the value of gold is that if all else fails you can use it to make pretty things."
This is a very weak and in fact invalid argument. I can't believe Krugman is quoting this! "If all else fail" then gold would lose 90%+ of its value overnight. Look: roughly 45% of the world's gold production is used for financial speculation, 45% for jewelry, and 10% for industrial purposes [1]. In other words, 90% of gold buyers are buying mostly because they believe gold will preserve its value. And "if all else fail" (if speculators exit the gold market), prices will drop, and jewelry buyers will redirect their desire to other precious metals [2], leaving only industrial demand as buyers. Suddenly the world would be producing 10 times more gold than the demand, leaving the prices depressed.
And again, Krugman completely misses the point of Bitcoin having value not as a currency, but as a payment processing platform. Overstock CEO Byrne said it beautifully:
*"You’re getting rid of the interchange fees. We’re paying credit card companies around 2%. For a company whose margin is 1%, picking up 2% on that is quite attractive." [3]
[1] http://www.gold.org/investment/statistics/demand_and_supply_...
[2] For the same reason people prefer expensive diamond over cheap cubic zirconia, even though both are practically indistinguishable to the naked eye. Yes they CZ is less hard, but most jewelry buyers don't care about hardness. They buy diamonds because they are expensive, that is all.
[3] http://www.coindesk.com/overstock-unveils-more-details-bitco...
[4] http://www.washingtonpost.com/blogs/the-switch/wp/2013/12/23...