
Bitcoin and positive vs. normative economics - the_economist
http://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/
======
paul
I'm most bullish on bitcoin when I read articles such as this one, and most
skeptical when I read the thoughts of the bitcoin believers. It's truly the
most interesting technological development in years, if only because it
reveals how little anyone really understands money or economics.

Here's another interesting (though imperfect) way of thinking about bitcoin:
it's a decentralized corporation, where bitcoins are ownership shares and the
business is money transfer, like a decentralized Western Union. And for
further thought, could other types of businesses also be structured in this
way?

~~~
rokhayakebe
It is amazing how one word "COIN" added to this word has shaped everyone's
thinking. Would we treat it the same if the guys behind it named it "Bitcard"
or "Bitpoint?"

That one word is what set apparently most people to speak of it, and treat it
as money.

BC is nothing like Money. BC is a card trading game where the players make the
cards, the difficulty to make cards increases , and the value of the cards is
decided by the market. It's a fun geek game. Awesome.

BC is everything money as we know it today is not. Money followed value
creation (something made, something done).

Bitcoin was created, valued at X, AND THEN looking for value to replace.

~~~
brownbat
> It is amazing how one word "COIN" added to this word has shaped everyone's
> thinking.

Yeah, Bit-distributed-public-ledger doesn't have the same ring, but I feel
like there are a million problems that can be solved with this technology that
are barely being explored.

Namecoin is one example, a distributed DNS system, but it feels like that's
just scratching the surface of problems that require allocating sparse control
over many decisionmakers.

~~~
EGreg
Why is namecoin even useful?

~~~
my_username_is_
Because you can circumvent the centralized authority of DNS registrars. Look
at the Pirate Bay, who keeps having its domain names revoked by central
authorities. Namecoin's ledger allows people to agree on who has what domain
name without using a standard registrar

~~~
EGreg
But why do you need to sell a name like akqbajauwbzjxu7163jebej? Can't people
simply claim names the same way they claim bitcoin wallets?

~~~
maxerickson
The goal of Namecoin is to manage meaningful names.

I guess a service that provided free names like the one you made there might
be an interesting addition.

~~~
EGreg
In that case I don't get it... do I basically get a random name when I mine a
namecoin? And then I try to buy names I actually want from someone who has the
name I want? And if no one has the name yet then I have to wait until someone
mines it?

~~~
maxerickson
I don't know the details, but you do still mine coins into a wallet and all
that stuff, there are just special types of transactions where you post a bit
of data to the blockchain and that data is the domain name you want
registered.

------
smtddr
_> >BitCoin looks like it was designed as a weapon intended to damage central
banking and money issuing banks, with a Libertarian political agenda in
mind—to damage states ability to collect tax and monitor their citizens
financial transactions._

So basically it brings an ability to the middle-class that normally only the
top 1% have. We know wealthy people use tax loopholes(and a few of them,
laundering) and... why do the states need to monitor financial transactions?
Don't tell me because terrorism. I'm sick of that being the reason for
everything when we have this kind of nonsense[1] happening.

I translate this to: _" Bitcoin is designed to free non-rich people from the
restrictions, fees & surveillance placed upon them by the wealthy elite"_

I don't know if crypo-currency will succeed long-term, but seeing how hardcore
scared/doubtful some people are about it makes me think a nerve has been hit.
I just hope that if btc fails, it fails naturally/organically/mathematically
on its own... not because someone arbitrarily makes it illegal.

1\.
[https://news.ycombinator.com/item?id=6954341](https://news.ycombinator.com/item?id=6954341)

~~~
username223
"why do the states need to monitor financial transactions?"

I hate the "terrorism" BS as much as you, but money laundering and large-scale
scamming (
[https://news.ycombinator.com/item?id=6972139](https://news.ycombinator.com/item?id=6972139)
) are actual threats.

~~~
smokeyj
> but money laundering and large-scale scamming are actual threats.

Yes, banks launder drug money for cartels. Without the state, who would slap
their wrists?

~~~
username223
I guess you're trying to be snarky or clever here, but I don't get your point.
Maybe you can walk over to your local BofA branch, slap someone's wrist, and
feel good about yourself?

~~~
MarkPNeyer
HSBC knowingly laundered billions for violent drug cartels, and were fined a
mere 5 weeks of revenue. None of the executives involved in this went to jail.

Meanwhile, people's lives are ruined for selling or even possessing small
amounts of harmless drugs.

[http://www.bloomberg.com/news/2013-07-02/hsbc-judge-
approves...](http://www.bloomberg.com/news/2013-07-02/hsbc-judge-
approves-1-9b-drug-money-laundering-accord.html)

------
mortenjorck
Krugman is to Bitcoin as Ebert was to video games.

The central failure of Krugman's understanding of cryptocurrencies is in the
value of mining. It's not simply throwing energy away into solving useless
math problems; it's spending energy to create infrastructure. That
infrastructure is the part that _does_ have intrinsic value, that _can_ be
used for something else in the same way gold can be made into useful things.
Look at Bitmessage or any of the other projects built on top of Bitcoin. These
form the floor Krugman can't seem to find.

~~~
ansible
_It 's not simply throwing energy away into solving useless math problems;
it's spending energy to create infrastructure._

I don't see how it is not the case that mining Bitcoins is throwing away
energy.

If someone had made a crypto currency based on, say, protein folding [1], I
could get behind that.

We could just create a crypto currency where we just hand out 100 units to
every person. That certainly wouldn't require ASIC farms and such.

[1] Yes, I realize that the whole 'hard to do, easy to verify' bit is not
completely obvious in the case of protein folding or SETI signals.

~~~
SectioAurea
This has actually been done. You can now do protein folding and SETI (and a
bunch of GMO research) while mining. Gridcoin is working with the full
cooperation of the UC Berkeley BOINC project and is compatible with your
choice of dozens of research projects:
[http://gridcoin.us](http://gridcoin.us)

~~~
aaren
But not for ASICs mining bitcoin, unless they have a BOINC implementation that
somehow uses sha256 as its core.

~~~
SectioAurea
Correct.

------
natrius
Ignore the flamebait headline. The distinction Krugman makes between positive
and normative economics is a useful one.

On the positive side, I think Krugman and DeLong are overestimating the
strength of the floor for the value of a dollar. Hyperinflation would make it
impossible for the Federal Reserve to buy up enough dollars to stabilize the
value of the currency. Sure, you can pay taxes with them, but the government
collects taxes to buy things, and if people no longer have faith in the
dollar, the government won't be able to buy things with those tax dollars.
There's no floor on the value of Bitcoin, but there's no floor on the value of
the dollar either.

On the normative side, I don't think one's position on the utility of central
banking matters when it comes to Bitcoin. If blockchain currencies are the
future, central banking is over, and our society will have to figure out how
to make the economy work with endemic deflation. I think central banking is
useful, but I don't see a future for it.

~~~
mapgrep
>Hyperinflation would make it impossible for the Federal Reserve to buy up
enough dollars to stabilize the value of the currency

Even if this is true, where is the evidence that we're in imminent danger of
hyperinflation? Despite mounting public debt, U.S. inflation has remained
incredibly low since the start of the financial crisis four years ago, as has
the interest rate that must be paid by the government to issue new debt.

From what I can tell, we have on the one side a dollar that has endured as a
value store and medium of exchange for hundreds of years, and which has proven
remarkably resilient (valuable) by any objective measure throughout the worst
economic implosion since the Great Depression (which the dollar also
survived). On the other hand we have Bitcoin which is intriguing in many ways
but which has demonstrable volatility even just in the short span of its
existence. And which, as a feature, is not backed (in the hard economic sense)
by any nation or bank. I mean it's cool and all but I see where Krugman is
coming from.

~~~
natrius
We weren't in imminent danger of hyperinflation. I think mass adoption of
Bitcoin will _cause_ hyperinflation.

If every merchant you patronize today accepted Bitcoin, would you rather have
Bitcoin in your bank account or dollars? I'd rather have Bitcoin. They're
easier to transfer, they can't be counterfeited, and their supply can't be
manipulated.

If every merchant accepts Bitcoin and every consumer agrees with my logic,
hyperinflation of the dollar would occur. Coinbase and its 0% transaction fees
will lead to rapid adoption of Bitcoin on the merchant side. I'm less
confident about the consumer side, but I see that happening as well.

~~~
slurry
Inflation is a function of money supply and velocity.

If everyone adopted bitcoin, the velocity of the dollar would approach zero.
Which means that inflation would go down, not up.

And yes, I would rather have my [savings] account in a hard, non-inflationary
currency. On the other hand, I can only earn interest when someone is willing
to take a loan in the currency and pay interest on it. And I am not about to
take out a loan in a hard currency when perfectly good inflationary currencies
are easily at hand. So, you're going to have a hard time finding a bank that
pays interest on bitcoins. This is why "bad money drives out good", aka
Gresham's law.

~~~
roblev
>I am not about to take out a loan in a hard currency when perfectly good
inflationary currencies are easily at hand.

Sadly it is not so easy to make money this way, the forward exchange rates
will cancel out any gain from the interest earned in the inflationary
currency. Otherwise everyone would do this.

You can make money doing this but really you are just taking a bet on exchange
rates, you can easily lose money as well if the fx goes the wrong way during
your investment period.

There are very few risk free ways to make more money than investing in US
Treasuries.

~~~
Canada
If you plan to spend your investment on rent, food, or fuel then Treasuries
are a losing investment for sure. At best they reduce the amount of loss
compared to holding cash.

~~~
lmm
30-year government bonds grow faster than inflation, at least over here. (This
is possible because economic growth is a thing)

------
tlrobinson
I was not disappointed to find this as the top comment (at the time I viewed
the article):

 _1998 - Another "evil" prediction from Mr. Krugman:

\---

The growth of the Internet will slow drastically, as the flaw in "Metcalfe's
law"\--which states that the number of potential connections in a network is
proportional to the square of the number of participants--becomes apparent:
most people have nothing to say to each other! By 2005 or so, it will become
clear that the Internet's impact on the economy has been no greater than the
fax machine's.

\---

But hey, the future of the dollar might be the same as that of the fax machine
???_

~~~
swalsh
Maybe as an economist, his predictions about economics will be more accurate
than his predictions about technology?

~~~
mike_hearn
The two cannot really be unentwined, especially not now.

------
Aqueous
I'm a liberal, a Keynesian, but my interest in BitCoin is completely non-
ideological. And I resent being painted with an ideological brush by Krugman
because I can see the elegance in BitCoin, and I can see the possibility that
one day, in spite of my ideological beliefs that unregulated markets are
susceptible to bubbles and destructive volatility, BitCoin or something like
it might still be able to function as a stable, useful world currency.

Ideology is never an accurate or complete description of the world. It is
false awareness. What might be true under paradigm A might no longer be true
under paradigm B, but at no point will an ideologue change his world-view to
fit paradigm B. He will try to cram paradigm B into his ideology in order to
preserve his ideology, rather than adjust his ideology to describe paradigm B.

For instance a fiat currency heavily regulated by state monetary policy might
have been the best idea in the 20th century, during which for the most part
there was no Internet. But in the 21st century, where the Internet enables
markets that can function more efficiently, a virtual currency with a self-
regulating monetary policy might be a better replacement. The jury is still
out on that. BitCoin is an experiment, and that's the best thing about the
Internet - it is a laboratory for experiments, where we can try new and
different monetary policies really quickly, whereas in the wildly inefficient
20th century we were locked into one monetary policy at a time. We're just
figuring out what works the best, but Krugman calling BitCoin "evil" suggests
to me that he is afraid of what we might find out.

~~~
atmosx
You seem pretty accustomed to economics. Can you explain how exactly or why
would anyone buy any items (that's what currencies are for after all) using a
deflationary currency?

Then again, it's not a design a flaw - as I once thought - it's a clear
choice: Why would anyone would want to own a non-deflationary asset? :-)

So actually, in my view, BTC as a currency is already failed. No one will be
eager to buy online (perform an actual exchange) when he can buy the same
items using USD, because BTC will _possibly_ have a higher value tomorrow.
While the USD almost certainly will not.

Best Regards,

ps. FIAT currency is regulated by the FED and you know who runs the FED. BTC
market is run by those who have huge amounts of BTC and you don't have a clue
about who they are. Not sure which one is more _secure_ for a society.

~~~
yummyfajitas
_Can you explain how exactly or why would anyone buy any items (that 's what
currencies are for after all) using a deflationary currency?_

Why would anyone ever cash out of any position with a positive rate of return?

By this logic everyone should stop consuming and put all their money into SPY,
or similar market tracking indices. Yet they don't.

~~~
saosebastiao
Exactly. The traditional keynesian definition of rationality (wrt
inflation/deflation) is so far removed from reality that it should be a joke
by now. Nobody actually behaves the way their mental model says they should.

~~~
gnaritas
Except that's not what Keynseian's say, and people do behave the way
Keynseian's say, deflation does curb spending and inflation does encourage it;
Keynseian's don't claim people will stop spending, they claim they'll spend
less.

~~~
saosebastiao
None of them seemed to act like that was their view when we were looking at 0%
inflation. The general attitude of mainstream Keynesians was that we were on
the verge of an unstopable downward spiral if we didn't act in that very
moment...which I remind you was driven by housing prices crashing back down
after their biggest bubble ever. In reality, people don't sense inflation or
deflation as it is reported by the CPI, PPI, or any other price index. They
sense it locally on a product by product basis. And it is still entirely
uncertain as to the relative attribution of reduced income vs deflation as a
cause of reduced spending.

------
ashray
This title of this post does a disservice to its contents. "Bitcoin is evil'
makes it sound like it's a propaganda piece. I went in expecting some of the
usual poorly researched allegations that we've been seeing over the past few
weeks. But surprisingly, the post does make a few good points.

> _Placing a ceiling on the value of bitcoins is computer technology and the
> form of the hash function… until the limit of 21 million bitcoins is
> reached. Placing a floor on the value of bitcoins is… what, exactly?_

However, the analysis fails again because he wants to decouple bitcoin's role
as a store of value from it being a medium of exchange. To which I would like
to ask: What's the point of a store of value if ultimately it cannot be
exchanged for something else ?

That's like saying that the energy inside an atom's nucleus has no value.
(prior to the discovery of controlled nuclear fission) Of course it had value
but we couldn't use it without accessing it and tapping into it somehow.

Bitcoin's value is closely coupled with its utility as a medium of exchange,
which is based solely off some pretty excellent technology and principles.

Now, don't get me wrong, I don't think its current value in terms of
USD/Euros/etc. is necessarily linked well to it's current utility. However,
there is value in being able to transfer something (a bitcoin or parts of
it..) that no one else can transfer to someone across the world securely and
almost instantly with little to no centralized control.

This ability is what places a floor on its value, whatever that hypothetical
floor may be.

This is what excites the 'technical people' he mentions in his article. I
don't expect non-technical people to 'get it' immediately, but people will get
it, eventually. No one understood why email was important in the beginning
either.

~~~
pdonis
_What 's the point of a store of value if ultimately it cannot be exchanged
for something else?_

One can also turn this point around: what requires the store of value to be
the same thing as the medium of exchange? The store of value must be
_convertible_ into the medium of exchange, but that doesn't mean they have to
be the same thing. Yet Krugman blithely assumes that they must be: "To be
successful, money must be both a medium of exchange and a reasonably stable
store of value." He doesn't even consider the possibility of, for example, an
economy based on Bitcoin as a medium of exchange and, say, gold as a store of
value. For that matter, he doesn't even bother to mention that very few people
actually use dollars as a store of value: people don't keep their retirement
funds in cash under the mattress.

~~~
notahacker
If Bitcoin _isn 't_ a relatively stable store of value then there is no sane
reason to use it purely for exchange. If you're able to send dollars to
Coinbase or MtGox and the end user is able to receive dollars from Coinbase or
MtGox, chances are you can cut out the middleman and the liquidity risk by
sending them direct, at similar or lower transaction costs. The equation looks
a bit different if you're holding non-trivial Bitcoin balances, but you won't
do that if it doesn't reliably store your value.

~~~
pdonis
You're ignoring transactions where Bitcoin is exchanged for actual goods or
services, or for non-monetary financial instruments like stocks. In such
transactions Bitcoin doesn't have to be a store of value; it only has to be a
medium of exchange. The same applies to traditional forms of money, which was
my point.

It's true that there aren't many ways to exchange Bitcoin for actual goods or
services or non-monetary financial instruments right now, but that's not due
to any inherent inferiority of Bitcoin: it's due to the fact that governments
and central banks have a huge incentive to either outlaw exchanges of Bitcoin
for goods, services, or financial instruments like stocks, or at least impose
artificial costs on such transactions that are high enough to discourage most
people from making them. In other words, Bitcoin is not competing on a level
playing field with other forms of money.

~~~
notahacker
People won't accept Bitcoin for actual goods and services if they don't
believe it will hold its value. Or more precisely, they will require you to
pay x% _more_ in Bitcoin (at current exchange rates) where x is a premium to
account for the expected loss in value over the period they expect to hold the
Bitcoins, plus a margin for risk. If that premium happens to be higher than
the cost of transacting in an alternative currency, Bitcoin is useless as a
means of exchange.

Personally I'd see "governments have a huge incentive to outlaw it" as a
pretty major inherent inferiority in something purporting to be currency
too...

~~~
pdonis
_People won 't accept Bitcoin for actual goods and services if they don't
believe it will hold its value._

The same applies to any type of money. Google "hyperinflation".

Also, how much of an effect this is depends on how long people expect to hold
money in between transactions; see below.

 _they will require you to pay x% more in Bitcoin (at current exchange rates)
where x is a premium to account for the expected loss in value over the period
they expect to hold the Bitcoins, plus a margin for risk._

People do the same thing with dollars and other currencies based on the rate
of inflation they expect, i.e., the rate at which they expect dollars to lose
their value.

Also note that qualifier: "over the period they expect to hold the Bitcoins".
In other words, people need enough cash to cover current expenses for some
period of time; but that amount can be pretty small compared to their total
wealth, and it gets smaller as technology advances and economies evolve.
People used to get paid quarterly, so they needed enough cash for a full
quarter's expenses. Then the payment cycle became monthly, and now many people
get paid biweekly or even weekly, so they need to hold less cash to cover
expenses. (More precisely, they need to hold less as a fraction of their total
wealth.)

 _I 'd see "governments have a huge incentive to outlaw it" as a pretty major
inherent inferiority_

It's "inherent" only in the sense that we're not likely to get rid of
governments any time soon. Is that a problem with Bitcoin, or a problem with
governments?

------
kybernetikos
I'm glad this article makes the distinction between positive and normative
economics.

I have no problem with paying taxes and obeying almost all laws in a
democratic country, and I am persuaded that inflation in sensible times and
amounts is a good thing for the world. The paranoia and anti-society feelings
that run so high in the bitcoin community actually put me off it. (Although I
also dislike the fact that the Credit Card companies have the power to extract
rent from nearly all transactions in the economy too - the fact that the price
is the same regardless of whether the merchant is paying a fee or not means
that cash transactions are subsidising credit cards).

But I don't think bitcoin has much chance of becoming a state currency, and I
think it would go horribly if it did, so most of that anti-state rhetoric is
irrelevant.

However, up until now, neither the government, nor the banks nor the credit
card companies have provided me with an easy, cheap and safe way to make tiny
transactions with my friends (and untrusted acquaintances) across the world.

Bitcoin is currently _useful_. I can take a picture of a QR code with my phone
or fill in a simple form on a web page and safely transfer tiny sums of money
with no or minimal fee reasonably quickly anywhere in the world. That is
wonderful and creates a floor on the value of bitcoin, until better options
are available.

Anyone who really doesn't want to see bitcoin succeeed (and that goes for
Stross and Krugman) should make it a priority to work on making sure that
dollars and pounds and euro balances are just as convenient, cheap and safe as
bitcoin balances.

------
bdcravens
1) Bitcoin mining has a pretty horrible carbon footprint. ("but so does ..."
doesn't eradicate this argument)

2) similar to the author's point that advocates can't tell the difference
between "store" and "medium" of value, I can't tell you the number of
arguments I've gotten in with people who equate a "store of value" to be the
same thing as the "increase in value"

3) It's a 1% wet dream. Make money, potentially hidden income, avoid taxation?
No money paid into the welfare state? WIN!

~~~
hendzen
Actually, for your first point, you have to compare the carbon footprint of
bitcoin to the carbon footprint of the alternative. What is the carbon
footprint of all the different transaction processing systems run by
Mastercard, Visa, Amex, etc? What about if you add in the cost of the massive
mainframes that handle ACH transfers? The cost of printing millions of archaic
paper checks?

I'm not saying bitcoin replaces all those things (it certainly doesn't), but
it aims to.

~~~
seiji
The other systems aren't based around grinding CPUs at 100% power utilization
for days/weeks/months doing worthless busy work. Unless your power comes from
a zero-carbon-footprint renewable resource, it's pretty ugly.

~~~
asciimo
The Bitcoin network doesn't require CEOs to burn jet fuel to visit their
associates for catered meals; it doesn't require metal to be pressed into
little discs, or trees to be pressed into little rectangles, and then
distributed via combustion engine; it doesn't require receipts to be printed,
duplicated, stored, and finally destroyed; it doesn't require millions of
humans to commute to HVAC supported cubes to keep the system running.

~~~
seiji
So we're all back to hoarding money under our mattresses?

There will always be central banking infrastructure controlled by billionaires
who are more socially important than you. We can't just "go decentralized." An
average person is too busy to even remember their password to gmail is
"password456" and not "password123."

------
JumpCrisscross
I love rule-based central banking. It injects predictability and stability
into a monetary system and has had fantastic results in the developing world.
Cryptocurrencies allow for rule-based monetary systems without the risk of a
central bank failing to adhere to its rules prescription. A world of competing
crypto currencies would be fascinating - various rule systems being adopted
and phased out as (a) critical flaws are discovered, (b) more competitive
rules are introduced, or (c) the global economy's needs and hence optimal
rules system change.

The downside of discretionless rules-based central banking is it makes
learning, and thus evolving, very expensive, requiring a rerooting of the
currency and thus monetary system. This is why developed countries do better
with discretionary central banks - their economies are too complicated for any
known rules systems to work reliably and their central banks trusted enough
not to be stupid.

I love the future Bitcoin portends - a world of competing and overlapping
rules-based and discretionary monetary systems. I am fairly confident,
however, that Bitcoin is not competitive for that world. Still, it's a great
introduction and has its social value as a stepping stone.

~~~
nhaehnle
I would argue that the rules of Bitcoin are not very useful for economic
development.

Perhaps the most important lesson in the history of money is that the amount
of money needs to flexibly adjust to economic circumstances.

The existing fiat system achieves this, because banks create and destroy money
in a decentralized, market-controlled fashion by giving out loans and having
them paid back. When a firm invests using bank loans, then the money supply
and economic activity increase in lock-step. The result is an economy that was
so stable in historical comparison that many economists declared the "macro
problem" to be solved (the so-called "Great Moderation"; obviously, 2007
showed that they were hilariously wrong).

Metal standards do not achieve this, and they fail in two ways: The economy
can grow faster than the supply of metal; that's the more usual failure mode.
But the supply of metal can also grow faster than the economy, which is just
as bad (i.e., Spain and the in-flux of metal from America).

Bitcoin can only fail in one of these modes, but since that's the more usual
failure mode anyway, it's just as bad as a metal standard.

So that belongs to the normative discussion that Krugman talks about: An
economy based on Bitcoin as money is going to suffer through the same problems
(gratuitous recessions and mass unemployment) that economies based on metal
standards used to suffer from [0]. We already know that, so let's just not go
there.

[0] Similarly, economies based on the Euro suffer the same problem via the
exact same mechanisms, as do economies where politicians implement unnecessary
austerity.

------
atmosx
Krugman is right, I agree with him 100% on this, but almost every time I tried
to make any sensible argument about bitcoin with people actually holding
bitcoin, I hit a wall.

Most people confuse currencies with assets, storage-medium with exchange, etc.
While at the same they are just hoarding.

I think that BTC will stick around because it has some unique qualities that
are _requested by the market_ such as partial anonymity, speed and size (a USB
can contain whatever amount of USD).

But it has some serious flaws and as a currency is clearly failed. It is a
libertarian's dream, but I don't think that the US or DE or RU government
can't monitor whoever moves money in and out of the BTC blockchain.

~~~
Malician
I dealt with virtual game currency before I really started messing around with
banks.

There was a ton of, "What do you mean I can't do this", and "What do you mean
this takes longer than five seconds.. four DAYS?!", and "they're closed? So I
can't? What? You're joking with me, right?"

I understand that dealing with money is incredibly hard due to regulation, but
I would like something to use as a medium of exchange which doesn't leave me
constantly infuriated.

~~~
yxhuvud
Most of that probably has more to do with horribly bad legacy systems at the
banks than it does with what currency is used. A little bit of competition
will do well in showing what is possible, but shouldn't automatically replace
the reigning currencies.

~~~
SectioAurea
Definitively solving the problem of "closed on Sunday" would seem to
constitute more than a little competition for legacy financial institutions.

------
Articulate
It is deplorable that he used the word "evil" to describe Bitcoin. He fails to
point out that Bitcoin is a system and of course it is possible for
individuals to use this system to achieve some personal nefarious goals; but
we have literally watched banks knowingly gamble huge sums of money in the
centrally banked system and the whole system came crashing down. The
decentralized nature of Bitcoin will not allow a few major players to crash
the system, and then use the government to bail it out... and as a side note
the government doesn't ever bail anyone out, it leverages its authority to
force taxpayers (today and future generations) to bail out a system so that it
can maintain the status quo.

~~~
wdr1
> It is deplorable that he used the word "evil" to describe Bitcoin.

Krugman is clearly an intelligent man, but in his public writing he has a
habit of declaring things he doesn't like as "evil."

Given we know he's not stupid, I assume it's to increase the attention he
receives. Based on the re-shares from my left-of-center friends, it tends to
work.

~~~
Articulate
A few minutes after I posted that, I regretted that my comment focused on
that. Krugman wrote another article implying that Bitcoins were "barbarous"
and likened them to digging up mostly useless gold. I feel like he must think
Bitcoin is serious because he is writing about it regularly- I wish I had
focused more on his economic theory in my comment... maybe next time.

~~~
SectioAurea
Like many technology and finance pundits, he seems to be currently in a
love/hate relationship with Bitcoin.

See also Business Insider's recent turnaround and subsequent breathless
tabloid-style coverage of cryptocurrency news.

------
vijayboyapati
There is perhaps no compliment greater than a criticism from the
econostrologist in chief, Paul Krugman.

He is right about one thing tho. Bitcoin IS a bubble. But that is not a
pejorative. Any good that becomes money will have a price that is far higher
than is warranted by its use demand. It doesn't matter whether the floor price
is 10% of the monetary premium, 1% or 0%. The monetary premium is based not on
the good's use value, but its serviceability as money. I.e., is it fungible,
divisible, transportable, verifiable etc. And along all these attributes
bitcoin shines - even more than gold.

The best explanation of this so-called "bubble theory of money" is proffered
by Moldbug. To wit:

[http://unqualified-reservations.blogspot.com/2011/04/on-
mone...](http://unqualified-reservations.blogspot.com/2011/04/on-monetary-
restandardization.html)

and

[http://unqualified-
reservations.blogspot.com/2013/04/bitcoin...](http://unqualified-
reservations.blogspot.com/2013/04/bitcoin-is-money-bitcoin-is-bubble.html)

------
etjossem
Three cheers to the mod who changed the title from "Bitcoin is Evil", even
though that's what NYT wants to call it. The author spends most of the piece
explicitly telling us that he will not be making a morality judgement about
the currency.

One quote in the article caught my eye:

> _BitCoin looks like it was designed as a weapon intended to damage central
> banking and money issuing banks, with a Libertarian political agenda in
> mind—to damage states ability to collect tax and monitor their citizens
> financial transactions._

Fun thought exercise: replace "BitCoin" with "cash." Businesses across the
country choose to have a cash-only policy (or destroy receipts, avoid use of
electronic records, and so on) to avoid paying taxes and having their
transactions monitored. That's not to say this is wise or ethical behavior,
but it certainly happens, even without cryptocurrency. So why do critics
describe BTC as a libertarian threat and in-person cash transfers as normal?

~~~
A_COMPUTER
I don't know enough about economics to know if it's possible to "de-
politicize" it, separate a theorist from a particular type of government. But
I perceive that Krugman, master of his intellectual domain, becomes deranged
in the presence of the name "bitcoin" because technological innovations don't
go in reverse, and disruptive ones change the facts on the ground. In those
circumstances all government can do is either accept it or go full-on North
Korea. In his world, the state must have at least the power, even if it must
only judiciously decide when to apply it, to direct all human activity to
maintain stability and order. If bitcoin really does threaten the power of the
state to tax, the government's reaction is going to turn his utopian social
contract "we're-all-in-it-together" paradise into a dystopian surveillance
hell-state. and he, as the cheerleader of the State (if anyone remembers him)
goes from being a good guy to a bad guy. I can understand how then that
bitcoin presents a scary proposition.

I don't know how closely he's been paying attention to the rest of the news on
how the government has been reacting to things on the Internet it can't
control, like encrypted communications, but the government isn't taking the
"acceptance" route, it's going the North Korea route. If he wrote a "PGP is
evil" article about how it destroys the ability of the State to keep tabs on
pedophiles and terrorists and tax cheaters, it would be derided here with a
lot more force.

------
salient
I've never agreed much with Krugman's theories, but at least he understands a
thing or two about economy. However, what I've always found him to be _always_
clueless about is - technology. You have a better chance finding a more
insightful tech article from a random tech blogger than from Krugman. He
_always_ misses the point. Without exception. I don't know even why he keeps
doing this to himself. He just ends up embarrassing himself.

How can Bitcoin, a technology, that has shown so much promise, in many other
ways besides being "money" (which some still disagree it is), be "evil"?

Also, as someone else has mentioned, he says FIAT money is backed by men with
fun, and Bitcoin by "nothing" (another point where he shows just how little he
understands technology in general), yet Bitcoin is the "evil" one?

~~~
CamperBob2
_However, what I 've always found him to be always clueless about is -
technology. You have a better chance finding a more insightful tech article
from a random tech blogger than from Krugman. He always misses the point.
Without exception. I don't know even why he keeps doing this to himself. He
just ends up embarrassing himself._

Yes, a textbook example of the Dunning-Krugman effect. He doesn't know what he
doesn't know, and he's OK with that, because hey, Nobel Prize.

------
etjossem
It's great that Krugman is trying to to make a purely positive analysis of the
potential impacts of Bitcoin. He's entirely correct in saying Bitcoin has zero
inherent value, as opposed to gold and USD. But that's missing the point.

Most of us don't think about owning gold in terms of how readily we can make
pretty things out of it, or dollars in terms of how easily we can pay our
taxes. We hold onto them because both have a reliable history of being easily
traded for other goods and services. Ease of exchange trumps inherent value as
soon as a currency's users regard it as stable, and Bitcoin hopes to be there
in a few decades (presumably starting with the sort of people who follow
interesting tech developments, rather than those who care about inherent
value).

As a side note, the headline is ridiculous linkbait and someone really ought
to change it. Krugman spends most of the article _explicitly stating_ that he
doesn't want to muddy the discussion of how well BTC will actually work with
normative/political arguments (i.e. the word "evil"). I can't help but feel
like someone other than the author titled this article.

~~~
greyman
> He's entirely correct in saying Bitcoin has zero inherent value, as opposed
> to gold and USD.

No, no, he is NOT correct on that. Bitcoin's inherent value is in the Bitcoin
technology. Inherent value of USD is that government declared it has value (by
fiat). You can actually create "pretty things" with bitcoin technology, the
same way you can create pretty things with gold - those are just other things.

~~~
prostoalex
> Inherent value of USD is that government declared it has value (by fiat).

Wait, what? Definition of fiat currency is the one that has no intrinsic
value.

USD's intrinsic value is the paper and the metal used to manufacture it.

~~~
greyman
Ok, but I think the point is clear. USD has value because U.S. government said
so and people trust that government, and Bitcoin has value because some people
trust the Bitcoin network as the "currency issuer".

If we imagine a scenario, where a majority of businesses will accept bitcoins,
and people will be able to buy bitcoins and use either dollars or btc for
payments, and both methods will be legal, we will see that dollar doesn't have
any more "intrinsic value" (whatever that means) as bitcoin. It will be just
two competing payment systems with different attributes.

~~~
prostoalex
Right, the trust in the future spending power makes a currency not only a
medium of exchange, but a medium of store.

It seems that as far as alternative currencies are concerned, altcoins have a
better chance of being spread. What's to prevent Amazon from coming up with
AmazonCoin, pre-mining an entire AmazonCoin set for themselves, and then offer
this altcoin with a liquidity guarantee on largest retail site. Nothing to
prevent them from accepting BTC, but I think any US retailer would be prone to
quickly trade in BTC for USD after the transaction is completed, as there's
volatility risk, and payments to merchants and the tax man are due in USD
anyways.

~~~
XorNot
Amazon gift cards are already this.

------
j2labs
This is an easy one to understand.

Krugman was a proponent of mass inflation, aka. helicopters of money, as a
solution to the credit crisis. Bitcoin makes it basically impossible to
manipulate the money supply the way the Fed has done to navigate the 2008
crisis.

Krugman sees Bitcoin as a threat to the central banks ability to stabilize the
economy.

~~~
seiji
Also see: the euro crisis.

It isn't a "threat" so much as just foolish.

------
captainmuon
> Placing a ceiling on the value of bitcoins is computer technology and the
> form of the hash function… until the limit of 21 million bitcoins is
> reached. Placing a floor on the value of bitcoins is… what, exactly?

Doesn't he get that point wrong (like many others)? The mining rate, and
eventually the limit of 21 million bitcons places a limit on the _supply_ of
bitcoins, not on their value. If bitcoin is successful, it will only keep
getting more and more valuable. Its hard to estimate how much, but the total
market capitalization will probably that of a commodity like silver, or that
of a nation state's currency.

Also, I think bitcoin is not really _supposed_ to be a store of value. Its
main purpose is to pseudonymously buy and sell stuff (drugs, cough, cough).
It's good enough if it can hold its value for a few hours - if someone builds
a nice way to deposit dollars or euros, convert them, and immediately pay with
the bitcoins, milliseconds would even suffice. In a market with such a high
turnaround, of course, the value represented in bitcoin at a given time will
be lower than for e.g. silver or gold, which are supposed to store value for a
longer time (and also have applications as a material).

Finally, I don't think bitcoin can replace "real" money. It might have worked
a few decades ago when there was a kind of self-carrying growing economy. The
only way todays econonmy is still running is because of massive state
intervention, which is impossible if bitcoin in the main currency. I mean, we
gave up the Bretton Woods system and the gold dollar for a reason...

------
pixelcort
One capability of bitcoin not often addressed is the ability for the majority
of its users to change the rules.

If you can get the majority of users to agree to a change in the rules, then
they will fork off the block chain in a direction that follows those new
rules. Of course, you will have some percentage of users who like the old
rules, and could theoretically continue on the old block chain.

One rule change, for example, is to have miners vote on the reward for new
blocks found. Then, every so often take the medium or a random vote and award
that amount for new blocks mined. This would allow miners to regulate the
amount of new coin being mined, which could level off the exchange rates
between bitcoin and the world currencies.

------
EGreg
I am an on again off again fan of Krugman in some respects. In this case he
has managed to clarify the discussion, which is good!

The truth is that bitcoins derive most of their value from being a great
medium of exchange and enabling things (smart contracts are ahead) that
otherwise wouldn't be possible. Things like making no recourse payments online
for the first time ever.

Bank of America did an analysis on the value of bitcoin and concluded that one
of the components is the payment network. If PayPal's market cap is billions,
why not bitcoin?

So I see this as giving a "floor" to the value of bitcoin via demand the same
way as the US government's demand for dollars from its citizens (or the
controversial petrodllar warfare theory and other shenanigans) boosts demand
for the dollar. There is definitely a lot of demand boost in that.

And for now there is alsothe speculative bubbl. I don't know what the value of
bitcoins should be, but it's certainly not zero - there will be demand for it
by chinese millionaires trying to get their $ out of the country and bypass
currency controls, and other things like that. And if the market cap is high
enough, moving a few million dollars in bitcoins at a time won't move the
market. Demand drives the price up.

~~~
XorNot
If you couldn't turn Bitcoins into USD, would you accept them as payment for
something?

That's your floor price. It's 0.

~~~
EGreg
Yes, if I can trade them for something else I need. Cashing out is a hassle
anyway.

It's true that dollars are more liquid. Does that mean you wouldn't accept a
ton of free stuff if you couldny trade it for dollars but only other services?

~~~
XorNot
Then why am I getting it for free?

That's the point - it's not free. You don't need a currency for "free". You
need a currency for things which have value.

------
forgottenpaswrd
" I try to get them to explain to me why BitCoin is a reliable store of value"

I don't believe that BitCoin is a reliable store of value like the dollar is
not a reliable store of value. I went to the US after a year to visit family(I
live in Europe) and was surprised how much prices had gone up. Probably you
don't see that when it is incremental, but you get to see after some time out.

The same happens with civil liberties. US was one of the countries with higher
freedom in the world, but the tendency is so bad, compared to countries that
were really bad in the past, but the tendency is so good.

Paper money, or digital money by the way is a medium of exchange. And there
lies their utility as Mr Krugman knows..

I am biased about Mr Krugman, for me he is a puppet of central banks that
create money and compete against bitcoin. He was awarded the Nobel Memorial
price paid by a central bank and he owes his position from defending Wall
Street against Main Street.

~~~
azernik
For the last 30 years inflation (drop in buying power/value of the US dollar)
has been between 0.1 and 4.6%; before that, during a period of record
inflation, its value fell bye an eye-popping 10-13% a year. By comparison with
Bitcoin's volatility, that is an _astounding_ store of value.

~~~
james1071
I think you will see rather bigger falls than that with Bitcoin, once the
early investors sell out.

------
novalis78
What's quite interesting in this piece from Krugman is that for the first time
I hear hime doubt his previous outright negative stance. He slips in some
"clues" how he is actually "not trying to be swayed one way or the other" when
everything else I have read or heard from him regarding Bitcoin was entirely
negative. Maybe he is just trying to keep the door open in case Bitcoin's
success will prove him similarly wrong as his funny predictation in 98 where
he mentioned that "the Internet is going to disappear in 2005".

Regarding the Charles Stross article, someone else had written a very good
counter-piece just the other day:

[http://www.ofnumbers.com/2013/12/18/charles-stross-takes-
on-...](http://www.ofnumbers.com/2013/12/18/charles-stross-takes-on-the-
bitcoin-community/)

------
mrb
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_...](http://www.gold.org/investment/statistics/demand_and_supply_statistics/)

[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...](http://www.coindesk.com/overstock-unveils-more-details-bitcoin-
adoption/)

[4] [http://www.washingtonpost.com/blogs/the-
switch/wp/2013/12/23...](http://www.washingtonpost.com/blogs/the-
switch/wp/2013/12/23/heres-what-paul-krugman-doesnt-get-about-
bitcoin/?tid=pm_business_pop)

~~~
thaumasiotes
Your numbers are badly off. Jewelry is the use referred to when Krugman says
"you can use it to make pretty things". (Gold in industrial use is generally
invisible).

Gold isn't used in jewelry because it's expensive. It's used because it's
pretty, it's soft and workable, and it doesn't tarnish. _And_ it's gentler to
your skin; my sister's ears are too sensitive to wear cheap nickel earrings.

Now, I agree with you that the statement you quote from Krugman is invalid.
But there's no reason to go around interpreting him as saying something wildly
different than what he said. Gold bars are a store of value. Jewelry is not.

~~~
mrb
You misunderstand me. I know he is talking about jewelry. My point is that
people _are_ buying gold jewelry mostly because it is expensive. Yes gold has
certain properties, but there are other precious metals with similar
properties (platinum, etc). So given the choice between similar metals with
similar properties, people will tend to use the most expensive one for
jewelry.

In other words, Krugman's argument is circular (gold has value because it has
value).

~~~
dwaltrip
It is most likely a combination of these factors, so that gives us something
between 45-90%?

------
semiel
Who changed the title from the original's "Bitcoin is evil"? I thought Hacker
News was opposed to editorial titles.

------
ChristianMarks
Krugman is somewhat like Bishop Berkeley, no fool, arguing against
infinitesimals before they acquired--in the 20th Century--a rigorous basis.
The auditability of Bitcoins distinguishes them from the inaccessibility of
the highly mathematized and virtually untraceable instruments of the financial
crisis.

------
bjornsing
Even if he's slightly off I still think Krugman is right in identifying
Bitcoin's main weakness: it's the world's "hardest" currency ever - much
"harder" than gold - and that will make it very volatile, which in turn will
make it difficult to use as a store of value or (independent) medium of
exchange.

What I mean by "hard" in this context is that its supply is constrained. If
you look a fiat currency it can (and is) produced in whatever volume necessary
by the central bank, in order to avoid a fall in prices. Gold has a similar
(but distributed) mechanism: when the gold price goes up people mine more
gold, increasing the money supply.

Note that that property of gold works even if it's the primary medium of
exchange: if there is too much deflation then an ounce of gold will buy you
more goods and services, making it more worthwhile to mine it - which in turn
increases the money supply and acts as a counterforce to price deflation.

But this is obviously a flaw in the design of Bitcoin, not in crypto
currencies generally. It should be possible to create one with potentially
infinite supply, but where the cost of mining a coin remains relatively stable
over time. Such a crypto currency would be usable as a store of value and as a
(primary) medium of exchange.

I'd love to see that "infinite supply crypto coin", but unfortunately I'm much
less optimistic that it would become as popular as Bitcoin. It wouldn't be
usable as an investment/speculation vehicle, and that's probably the main use
of Bitcoin right now.

------
brownbat
Krugman and Stross base their critique on Bitcoin's libertarian appeal, as if
they took the promises of a few cypherpunks as reliable predictions.

Those in Krugman and Stross's "libertarianism is _evil_ " camp should take
heart that some people out there think Bitcoin is a huge win for developing
economies, and will cause only incremental disruption for places like the EU
or US.

For the rich countries: Governments have many tools in their belt before they
just lie down and accept, say, universal tax fraud, or the end of monetary
policy. People interested in tax policy (sometimes very) slowly come up with
good ideas to reduce fraud, like putting down the SSN of all claimed
dependents (which made a lot of children disappear one year, but jumped
revenues), or double reporting of W-2s. They likely wouldn't just roll over if
we moved to BTC.

For the poor countries: A better medium of exchange, allowing cheaper
remittances, easier cross border trade, or a _relatively_ more reliable store
of value than local currency is an enormous win.

There are lots of options going forward. Bitcoin could be a passing fad.
Bitcoin could liberate the economically oppressed while providing little more
than a nice toy for those in wealthy countries. Bitcoin could destroy monetary
policy and lead to barricades of wealth while destroying the capacity of
governments to benefit their most vulnerable citizens.

But it's not safe to make moral approbations based on picking one of these
uncertain results and assuming it is inevitable (especially, IMHO, by picking
the most outlandish of the three).

------
Rogerh91
I had recently thought about this very topic, and having spent just a bit more
time than Krugman on it, and knowing a bit more about bitcoin, I find it
somewhat interesting that we arrived at drastically different opinions about
the morality of it. I have a rather more positive (haha, pun intended) take on
it given what has happened with the conventional monetary system, one that
Krugman and any mainstream economist would probably agree with: the system is
(largely) broken, and we must look for solutions. If Bitcoin is the
technologist's experimental solution, it is worth embracing because it
delivers on change. Krugman's solutions will focus more on government force as
a constraining framework, instead of extensions of innovation---but I believe
at the core of it all, the "libertarians" he decries are also the same people
he would agree with on the utter folly of our current banking/finance
dominated economy.

My expanded thoughts can be read here: [https://medium.com/technology-meets-
policy/fd097809f88f](https://medium.com/technology-meets-policy/fd097809f88f)

------
perlpimp
I've hit a paywall that can be disabled with real dollars. Oh the sense of
irony.

~~~
lingben
Just google the title of the article: "bitcoin is evil" newyorktimes and the
google search result link will take you to a readable version.

------
lowglow
That's why I invest only in Dogecoin.

~~~
cantbecool
Same, the it's the only alternative that seems like it could potentially take
off.

------
anoncowherd
Krugman's rants can be safely ignored. He either genuinely thinks that the
solution to problems created by printing and borrowing way too much money is..
printing and borrowing _shitloads more money_ , or he doesn't actually think
that and is a government shill instead.

Either way, he's not to be trusted.

>> BitCoin looks like it was designed as a weapon intended to damage central
banking and money issuing banks, with a Libertarian political agenda in
mind—to damage states ability to collect tax and monitor their citizens
financial transactions

So? Damaging States' ability to _forcefully confiscate_ everyone's wealth is a
distinctly good thing, here in the real world.

------
shimon
US Government taxes certainly do support the US Dollar's value, but that
support was more vital at the creation of the currency than it is today.
Today's value is secured by the many merchants who trade in the dollar at
fairly predictable prices.

Iran comes to mind as a merchant who could make a similar commitment to a
cryptocurrency. What if you could suddenly buy oil at BTC X per barrel? This
could establish enough of a link between BTC and a high-volume commodity that
it could create some stable value, and might appeal ideologically to a class
of economic actors that are already somewhat motivated to avoid trade in
dollars and euros.

------
zenocon
_Placing a ceiling on the value of gold is mining technology, and the prospect
that if its price gets out of whack for long on the upside a great deal more
of it will be created. Placing a ceiling on the value of the dollar is the
Federal Reserve’s role as actual dollar source, and its commitment not to
allow deflation to happen.

Placing a ceiling on the value of bitcoins is computer technology and the form
of the hash function… until the limit of 21 million bitcoins is reached.
Placing a floor on the value of bitcoins is… what, exactly?_

Where's the floor on the value of the dollar?

~~~
natrius
He claims that the ability to pay taxes in dollars and the Federal Reserve's
willingness to buy up dollars to maintain their value places a floor on the
value of the dollar. I disagree. In a crisis of confidence in the dollar, both
factors would fail.

~~~
ubernostrum
In a crisis significant and widespread enough to crash the dollar or any other
government-backed currency you'd like to pick on, it seems likely that there
would also be significant disruption to electrical and communication networks,
which does not suggest BitCoin is a great thing to hold for that situation.

(a similar point is often raised against gold, in that a post-economic-
apocalypse world would not immediately have the infrastructure to verify
claims like "this is one ounce of pure gold", meaning gold's utility as a
medium of exchange would not be as high as suspected by people who buy it to
hedge against such apocalypses)

~~~
natrius
I'm not talking about a hypothetical doomsday scenario. Bitcoin _is_ the
crisis.

The idea that holding Bitcoin is a better idea than holding dollars is
spreading. The more it spreads, the higher the value of Bitcoin will be, and
the lower the value of the dollar will be. Eventually, we will hit a tipping
point. That's the crisis. That's the hyperinflation.

~~~
ubernostrum
And aside from wishful thinking, what evidence do you have to back your
hypothesis?

~~~
natrius
None, but it's important to remember that currency _is_ wishful thinking. The
value of a non-commodity currency is what people believe it's worth. Trends in
the public's beliefs about currency are incredibly significant.

------
master_shake
every article from PK:

"you see this nobel prize? yeah bitch. I AM the muthafuckin' economy. Now
worship this bitcoin opinion piece that highlights my lack of technological
understanding. I am your God."

~~~
onebaddude
Every article, huh? Krugman has much insight to offer about the world of
economics, although I know it's hip to rip on him nowadays. Oh well, stay
ignorant.

------
jessaustin
As is often my habit, I skimmed the voluminous commentary here before reading
TFA: I've got to stop doing that. I clicked through expecting a massive paper
and got four original paragraphs, along with quotes of stuff we've already
seen on HN.

I'll ignore the moralistic Stross material, both because that is wise and
because Krugman takes pains to emphasize the positive nature of his argument.
The tentpole of that is that there is no theoretical floor for the exchange
value of BTC. This is roughly true, but I don't think it entails the
disastrous consequences that excite so many BTC antagonists.

Even if it's difficult to imagine hyperinflation of USD (although I'm not
quite so confident as Krugman in the Fed's dollar sink policy: if this is not
a new policy why didn't it work in the 1970s; if it is new why shouldn't we
expect it to change?) we've seen hyperinflation of many other currencies, a
number of which were held by more investors than currently hold BTC. If such
hyperinflation was disastrous, then it was mostly for those who held the
affected currency, and mostly in proportion to their holdings. No tinpot
dictator has decreed the use of BTC; if you think they're overvalued then just
sell them.

Of course if there is eventually a giant terminal sell-off of BTC for reasons,
investors might just choose some other set of cryptocoins, some of which might
have an appropriately theoretical floor. Would Krugman care to opine on the
positive fate of those theoretically worthier assets?

------
kungfooguru
>>BitCoin looks like it was designed as a weapon intended to damage central
banking and money issuing banks, with a Libertarian political agenda in
mind—to damage states ability to collect tax and monitor their citizens
financial transactions.

What does that sound like? Maybe an earlier top post on HN
[http://blog.oleganza.com/post/71410377996/crypto-anarchy-
doe...](http://blog.oleganza.com/post/71410377996/crypto-anarchy-does-not-
require-anonymity)

------
drdeca
This seems to be mainly a reference to another article that has also been on
HN.

By approximate scroll down length on mobile, the ratio of content that isnt a
quote, to that which is, seems to be approximately 7:5 . (not taking into
account the fact the quoted text takes less horizontal space, but I did
overestimate the new text length in a few small ways as well, so I hope that
this ratio is at least approximately accurate)

Essentially the article states a difference between "positive economics" (what
is), and "nomfyvhbxgv economics" (what should be). The author claims that
their political opponents tend to get the two confused (and that despite what
people criticizing the article might think, that his political allies tend not
to make the same mistake)

They then go on to say that the other article suggests that bitcoin was
created as a weapon, connecting to the "what should be" part of economics,
quote the other article, and repeat from the other article the part about a
"gold fetish".

I personally believe that it didn't add a whole lot to what was already in the
other article, though I admit I should probably reread the guidelines for
comments and submissions. I intend to do that, and then possibly modify this
post that I am now making.

------
dgacmu
Ok. Krugman actually annoyed me enough with this one to respond. Here's an
attempt to start a slightly more technically sophisticated dialogue with
Krugman about Bitcoin. [http://da-data.blogspot.com/2013/12/to-krugman-
finding-intri...](http://da-data.blogspot.com/2013/12/to-krugman-finding-
intrinsic-value-of.html)

Now if I could find one of my economist colleagues to actually get him to read
it... :-)

------
eudox
>BitCoin looks like it was designed as a weapon intended to damage central
banking and money issuing banks, with a Libertarian political agenda in
mind—to damage states ability to collect tax and monitor their citizens
financial transactions.

And you are going to have to live with it, the same way the people who created
Bitcoin will have to live with interventionist policies.

------
generalseven
I'm a founder of PikaPay, bringing Bitcoins to Twitter since 2011, so here's
my take:

One of the most interesting social & tech experiments since the Internet
itself. We are witnessing a revolution.

The number of nodes in the Bitcoin network makes it the most secure system of
its kind. If it were used as currency, you could say technically that it was
one of the most (if not the most) counterfeit-secure currencies in the world.

If it were used as a medium of exchange, due to network effects alone it would
be extremely valuable.

I appreciate Krugman's raising the discourse even slightly above the level of
"evil hackers." I don't think he realizes that the Bitcoin movement transcends
politics and economics. With Bitcoin (as technology) you can actually even
create a system that Krugman himself would like to use.

------
mcguire
" _(b) that the Federal Reserve is a potential dollar sink and has promised to
buy them back and extinguish them if their real value starts to sink at (much)
more than 2% /year (yes, I know)._"

I had not heard thing. Buy dollars back _with what_?

------
guscost
Bitcoins can only be as evil as cars, guns, LEDs, pin-and-tumbler locks,
trusted computers, square-rigged ships, Jacquard looms, and enriched uranium.
The point is that _these are technologies, not people_.

~~~
steveklabnik
There's an assumption here which may or may not be true: technologies are
ethically neutral.

Some reasonable people disagree with this assumption.

~~~
guscost
But can technology be immoral? I'm a bit rusty on all that stuff but it sounds
like we're talking about two (subtly) different questions. I would argue that
technology can be _used_ for evil, but technology just sitting there by itself
is no more evil than rocks or sand.

If you can prove that a certain technology _can not_ or _will not_ be used for
good, then that raises different questions.

~~~
frabcus
It's pretty clear that the hydrogen bomb is, in the sense you give, "immoral".

Sure, you can come up with complex, hypothetical scenarios where it has value,
but fundamentally it has but one purpose, which is to murder millions of
people.

In most moral systems, murder of one person is immoral, never mind millions.

~~~
grinnbearit
Or maybe mutual assured destruction prevents the potential murder of millions
giving an atomic bomb positive moral value

------
josephlord
I'm not sure Krugman's understanding of normal money is that great (or at
least it is just developing):
[http://www.debtdeflation.com/blogs/2013/12/17/oh-my-paul-
kru...](http://www.debtdeflation.com/blogs/2013/12/17/oh-my-paul-krugman-
edition/)

That said I also don't see that there is any reason that the value couldn't
drop to zero or near zero. Maybe the next crypto currency could be called
BitTulip.

------
rumcajz
> [Placing a floor on the value of gold is that you can make pretty things of
> it.] Placing a floor on the value of bitcoins is… what, exactly?

The fact that the blockchain serves as a tool for global distributed
consensus. There's unlimited number of applications that can take advantage of
that, irrespective of actual price of Bitcoin as a currency.

------
darkhorn
Bitcoin is evil like book pressing machines are evil to hand written books
economy (like few centuries ago)

------
dimitar
I think most commentators here missed the point of the article. Bitcoin is
evil not because it fails at x, because the interest in it propagates bad
(Krugman POV) economics. Krugman/Stross assume this type of economics is the
'Austrian school'/Goldbug economics.

~~~
gweinberg
Most likely Krugman didn't choose the title.

------
Thiz
"Stross doesn’t like that agenda, and neither do I"

Statists gonna hate bitcoin, no matter what.

~~~
frabcus
I'm a statist, and I like Bitcoin.

In particular, I think a mixed economy half run by the state, half free
markets works pretty well.

There is no contradiction between Bitcoin and the existence of a state. There
are lots of ways of regulating and taxing. Sure, Bitcoin might change the
details of them - that's just growing pains.

e.g. I would make it compulsory for any company granted limited liability to
register the public keys of all Bitcoin wallets it has the private keys of
with the tax office.

Or, if necessary later because that's too hard to track, tax either land or
carbon emissions directly (rather than income or exchange of goods).

------
MarkMc
> Underpinning the value of gold is that if all else fails you can use it to
> make pretty things.

But this 'floor' only accounts for, say, 3% of the price of gold. Whatever
makes the remaining 97% a reliable store of value could also provide Bitcoin
with 100% of its store of value.

A similar point comes from Tim Harford's fascinating description of the
currency used on the Pacific island of Yap:

\------------------------

Oddly enough, there is a near real-world equivalent to the Ningi, the
triangular rubber coin larger than Mars dreamed up by the humorist Douglas
Adams. It can be found on the island of Yap, in Micronesia in the West
Pacific. Their coins, the rai, are stone wheels with a hole in the middle.
Some are fairly portable a handspan or less across, and the weight of a couple
of bags of sugar. But the most valued stones are far bigger - one British
sailor wrote in the late nineteenth century of a stone wheel that was four and
a half tons in weight and over nine feet in diameter. In other words, it was
almost completely immovable.

Yap’s stone money used to be a serious business. The stones were quarried and
carved on the island of Palau, 250 miles away One Victorian naturalist
witnessed four hundred men from Yap, a tenth of the adult male population, at
work in the quarries of Palau. Getting the stones from Palau to Yap on a
little bamboo boat was a difficult and sometimes lethal affair - some of them
weighed as much as two cars. (And rai were especially valuable if someone had
died on the expedition to fetch them.) The biggest stones might have been used
for major transactions such as buying land or wives; more modestly sized
stones - a couple of feet across - were exchangeable for a pig. Even then, it
would have been a lot easier to move the pig than to move the stone.

All this meant that for purely practical reasons, the Yap islanders had to
develop an important monetary innovation: they divorced ownership of the stone
from physical control of the object. If you wanted to buy my pig, that
transaction would be publicly witnessed: I’d give you the pig and in exchange,
you’d transfer ownership of one of your stones - the one leaning against the
tree, second on the left behind your hut. Now everybody would know that that
particular stone was Tim’s stone. You and I wouldn’t have to go to the trouble
of actually moving the thing. One day, a crew from the quarries were bringing
a new large stone from Palau when they ran into a storm not far from the coast
of Yap. The stone sank while the men swam to shore to tell the tale of their
lucky escape and their loss. But of course, if the stone propped up outside
your hut doesn’t need to move around to change ownership, why should the stone
at the bottom of the sea be any different? This giant stone on the seabed had
an owner - the chief who had sponsored the expedition to get it. And now his
ownership could be transferred to another rich islander, and then to another,
just as with any other stone. It was perfectly good money, even though it was
out of sight and out of reach.

\------------------------

From "The Undercover Economist Strikes Back" by Tim Harford:
[http://www.amazon.com/Undercover-Economist-Strikes-Back-
Ruin...](http://www.amazon.com/Undercover-Economist-Strikes-Back-
Ruin%C2%97/dp/1594631409)

~~~
patrickg_zill
3% of the price of gold? Where did you get that figure from?

~~~
MarkMc
I made it up - in this case it doesn't matter whether the correct figure is 3%
or 0.3% or 30%.

------
Tycho
Sometimes I wonder if Bitcoin really is a weapon made by a nation state. Like
Stuxnet. Or alternatively could a nation like North Korea co-opt it in an
attempt to dislodge the dollar?

------
thedawn
Can't understand how it going to work. In my opinion the banks will kill the
Bitcoin before it will really start working, I don't see how they are going to
let it succeed.

------
sarreph
Does anyone else think that Paul Krugman looks a lot like Chris Parnell?
Couldn't stop thinking about it when watching Chris as Dr Spaceman on 30Rock.

------
diminoten
> Underpinning the value of gold is that if all else fails you can use it to
> make pretty things.

Is this really why gold has value? Are you kidding me?

------
droidist2
The title is pretty sensationalist. He doesn't really come close to arguing
that it's evil in the piece.

~~~
icelancer
Obviously. Krugman wields his power at NYT to troll market anarchists / public
choice theorists and not much else.

~~~
droidist2
I used to think he was so cool.

------
edward
Why does he write it as BitCoin? I'm sure he is aware that it is normally
written as Bitcoin.

------
Aqueous
Oh boy - this should get a positive reaction!

------
lcuff
The title is just link bait. Very annoying.

------
mikekij
If Krugman is short bitcoin, I'm long.

------
jokoon
Finally Krugman talks about it...

------
belluchan
The new title is much better.

------
wcummings
I have a really hard time taking a column called "The Conscience of a Liberal"
seriously, even more so when he claims: "Stross doesn’t like that agenda, and
neither do I; but I am trying not to let that tilt my positive analysis of
BitCoin one way or the other." in a piece titled "Bitcoin is Evil".

~~~
ubernostrum
How about taking seriously someone who is, you know, well-known (to the point
of receiving a Nobel Prize for his work) for being good at this economics
stuff? If a Nobel-winning physicist was writing about physics, you wouldn't
dismiss it because the physicist's politics don't agree with yours. Ditto
Nobel-winning chemist writing about chemistry, etc.; why should economics be
different?

Also, his point about BitCoin enthusiasts being unable to distinguish between
what makes a good currency and what pushes their ideological buttons may apply
to you.

~~~
theboywho
>> If a Nobel-winning physicist was writing about physics, you wouldn't
dismiss it because the physicist's politics don't agree with yours.

First of all, Physics and Economics are two different things.

Physics tends to be about facts, Economics is more about opinions, views and
theories. It's not because we're not Nobel Prize winners that we shouldn't
disagree with the author, and I'm sure there are many well-known economists
out there who won't agree with him.

>> Also, his point about BitCoin enthusiasts being unable to distinguish
between what makes a good currency and what pushes their ideological buttons
may apply to you.

Bitcoin enthusiasts are not the only users of Bitcoin. I use Bitcoin and it's
for no ideological reason. It's helping me better than any other payment
system right now and that's all I care about.

~~~
jshen
Economics is about models that are verified by past events, and further tested
through their ability to predict future outcomes. This is the opposite of pure
opinion. The fact that many pundits ignore this doesn't make it go away

~~~
icelancer
This is not, strictly speaking, totally accurate. Praxeology doesn't
necessarily agree with this viewpoint.

~~~
jshen
That's why you shouldn't follow Austrian economics.

Edit: also, Austrian economics is like pseudoscience, it isn't representative
of real economics

~~~
icelancer
Some would say that the Keynesian model is psuedoscience for having untestable
priors. I don't have a dog in the fight but neither do I think your screed
against Austrian economics is an airtight argument.

~~~
jshen
Which model fits reality better? I think the answer is clear given the
evidence.

Edit: what are the priors you are speaking of.

------
dschiptsov
TL;DR - _but when I try to get them to explain to me why BitCoin is a reliable
store of value, they always seem to come back with explanations about how it’s
a terrific medium of exchange._ (or what a clever crypto technology it is
based upon).

