Topic: 2013-04-18 Forbes - Bitcoin: Good Computer Science but no Monetary Understanding (Read 1477 times)

The ultimate test is complementarity. Bitcoin has to incorporate itself into an ecosystem of wealth assets. As such, bitcoin is an asset class of its own, with unique properties.

Bitcoin is good money, we know that by now - but to be a good currency it has to facilitate some economic function where others fail. The attractive niche for bitcoin is in international trade settlement - traditionally the role of gold - recently facilitated by the USD. However, until the central banks reverse course, and let go of the idea of a world banking cartel, bitcoin will likely be seen as a thread ( and gold for that matter ). The good news is, where're half way there, with central banks becoming net buyers of gold again.

First, he is clearly a gold bug. There have been gold bugs that have come to see the value of bitcoins, but most not so much. Comparing the prices of gold and bitcoin through the Cyprus panic gives some understanding of why the gold bugs feel threatened by bitcoin. Historically, that type of financial panic has been very good for gold. This time, gold barely budged, and people moved their assets into bitcoins instead. In fact, gold recently dropped below its 200-week moving average.

Second, this quote:


The writer's understanding of Milton Friedman, alas, is not very good. I have a degree in economics, and I tutor college-level economics and finance. In my sessions, on a regular basis, I help students understand this formula:

MV = PT

That formula was created by Irving Fisher, but most of the work expounding on and popularizing the formula was done by Milton Friedman. Monetary base * velocity of money = Price level * transactions.

Actually, the success or fail of alternate currencies, such as bitcoin, relies intrinsically on how they fulfill the demands of this monetary truism. The monetary base of bitcoins is expanding at a fixed rate until 2140, and then it will remain constant at 21 million bitcoins. Velocity is a tricky issue, and I have seen a lot of discussion about hoarders: are they good or bad? The answer relies a lot on the other side of the equation. Price level is the value of goods you can receive for bitcoins, or as popularly measured, the amount of dollars you can receive for bitcoins. (Technically it would be the amount of Bitcoins you can receive per dollar, for the formula to balance properly.) Transactions are trade taking place in bitcoin. This is why people care so much about whether there is transaction demand or speculation demand. The formula doesn't care: speculation buying is part of T, but long-term stability requires stable transaction demand.

A full exposition could obviously be made, digging into the mechanics of each element and how they pertain to bitcoins, but I choose not to at this time. Suffice it to say, I think bitcoins stands up well in its design and could eventually become more stable than any fiat currency, but that time is far in the future and relies on the stabilization of velocity and transactions.

I can tell you the answer to that: you can't easily tell if gold is counterfeit, it isn't subdividable down to very small units of value, it doesn't include a mechanism to easily send it anywhere in the world instantly over the Internet, you can't spend the same gold from multiple locations, it doesn't have an absolutely known or fixed amount in circulation or that will ever be mined, you can't back up your gold to insure against theft, gold has a history of private forfeiture by governments, and gold requires strip mining the earth at the risk of environmental destruction and human life, often with the colonial enslavement of native populations.

On the plus side, it is comprised of 79 protons and 118 neutrons arranged in a way that makes the molecule shiny, and you can make gold chains out of it so you know where to stop shaving.

He doesn't explain what he thinks the essential difference is between Bitcoin and gold as a basis for currency.

Epic fail article.

I wonder if they are paid to purposely write fail article... or is it just pure incompetency?

Sounds like the complaint here is that it doesn't let central banks/governments print as much money as they want, nor does it allow them to arbitrarily destroy money.  That property is exactly what makes Bitcoin attractive to me.

I'm intrigued at the amateurish level of the smears, from name-calling ("sub-kindergarten-level") to preemptive dismissal ("just another failed experiment"). Someone (author?... gold-bugs?... Forbes?... establishment?...) is very afraid of BTC.

If nothing else, it will be fun to watch this play out. I wouldn't want to be in Bernanke's shoes over the next decade or so.

 

Looks to me it is the author who has a Kindergarten understanding. 
 
Friedman's approach would *not* be chaotic as Bitcoin, obviously. Such a fiat currency wouldn't be capped at 21 million. The public would not perceive it as a high risk investment. 
 
Bitcoin's "total chaos" and volatility comes from its uncertain future: it might be worth a lot one day, but it could also drop to zero.

 Retitle:

Good writing but no computer science nor monetary understanding.

This is good, when most of the world is against something, that something has to be something special.

I develop a smile everytime I read a peice like this, someone who is scared of the new unknown. Something that goes against decades of brain wiring, agains decades of thinking in one way only. This makes me happy, it means we are onto something.

perspective?

This is the author of the book "Gold, the Once and Future Money". WTF do you expect?

some of the forbes articles have been actually good. this guy just sounds extremely stupid

Forbes would be well advised to encourage better writing skills among their writers. Throwing some assertions together and call it an educated opinion just doesn't cut it. I want to see some coherent arguments.

Another example of Korda-like aggressively ignorant pseudo-economics woodoo brew. It can be identified as such by the phrases such as "What do WE want from a currency?"


http://www.forbes.com/sites/nathanlewis/2013/04/18/bitcoin-combines-ph-d-level-computer-science-with-sub-kindergarten-level-monetary-understanding/2/