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Bitcoin Is Evil - NYTimes.com

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December 28, 2013, 2:35 pm 434 Comments

Bitcoin Is Evil
Its always important, and always hard, to distinguish positive economics how things work from normative economics how things should be. Indeed, on many of the macro issues Ive written about it has been obvious that large numbers of economists cant bring themselves to make that distinction; they dislike activist government on political grounds, and this leads them to make really bad arguments about why fiscal stimulus cant work and monetary stimulus will be disastrous. I dont, by the way, think that this effect is symmetric: although people like Robert Lucas were quick to accuse people like Christy Romer of fabricating macro arguments to support a biggovernment agenda, this didnt actually happen. But I come now to talk not about macro but about money specifically, about Bitcoin and all that. So far almost all of the Bitcoin discussion has been positive economics can this actually work? And I have to say that Im still deeply unconvinced. To be successful, money must be both a medium of exchange and a reasonably stable store of value. And it remains completely unclear why BitCoin should be a stable store of value. Brad DeLong puts it clearly: Underpinning the value of gold is that if all else fails you can use it to make pretty things. Underpinning the value of the dollar is a combination of (a) the fact that you can use them to pay your taxes to the U.S. government, and (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). 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 Reserves 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? I have had and am continuing to have a dialogue with smart technologists who are very high on BitCoin 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 its a terrific medium of exchange. Even if I buy this (which I dont, entirely), it doesnt solve my problem. And I havent been able to get my correspondents to recognize that these are different questions. But as I said, this is a positive discussion. What about the normative economics? Well, you should read Charlie Stross: BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mindto damage states ability to collect tax
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and monitor their citizens financial transactions. Go read the whole thing. Stross doesnt 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. One suspects, however, that many BitCoin enthusiasts are, in fact, enthusiastic because, as Stross says, it pushes the same buttons as their gold fetish. So lets talk both about whether BitCoin is a bubble and whether its a good thing in part to make sure that we dont confuse these questions with each other.

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1. j sarma NYC Couldn't bitcoins value increase be a floor in itself? Seems paradoxical, but I think the reason bitcoin's price is fluctuating so much is because the total value of all bitcoins is still low enough that the actions of a few individuals can move its price (like a penny stock). Once the total valuation of all bitcoins gets big enough, their ownership could be widely distributed enough that the market is no longer subject to manipulation. Plus, it seems that the very fact that no entity is putting an artificial floor or ceiling on the price of bit coins
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might protect its price from instability caused by loss of faith in the entity setting the floor or ceiling. I agree bitcoins are evil because they disempower central banks to take counter-cyclical action, but I also take their threat a bit more seriously than you seem to. Dec. 31, 2013 at 6:44 a.m.

2. ACasey California Economics has a very big flaw. Economic theory does not appropriately account for currency debt. In economic theory, it is falsely claimed the debt cancels out with the asset. This is false. This is false because the nature of fiat debt based currency does not and cannot balance. Fiat currency is printed out of thin air at interest manifesting the debt. There is no asset, just debt manifested out of thin air supported only as a journal entry. If economic theory incorporated the imbalance of fiat currency debt into its equations, the true information on an economy would be revealed and valid useful decisions could be made. The assumption that the debt is offset with an asset is false. Dec. 31, 2013 at 3:12 a.m.

3. ACasey California Bitcoin became an alternative to the US dollar based system because the US government and the Federal Reserve is not a valid system. It's not valid because it is not accountable. Accountability is founded on valid financial statements and neither the Federal Reserve nor the US government have valid financial statements. The GAO [General Accounting Office] confirms this. Bitcoin offers citizens a means to exchange goods and services at agreed upon prices. The Federal Reserve system is based on an invalid, unaccountable, and ever devaluing currency that no longer offers a safe and reasonable means of exchange. Dec. 31, 2013 at 2:47 a.m.

4.
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Richard E. Willey Natick MA Question for the peanut gallery regarding the bitcoin system. In the short term, individuals have an incentive to expend computing power validating the bitcoin ledger because they have a chance that they will be granted a newly mined bitcoin. What happens in the long run? All the bitcoins will have been granted. What's the incentive for anyone to invest in validating the ledger? Arguably, some third party could decided to invest resources in this effort, but it seems as if there would either be a significant free rider problem or, alternatively, you'd have a monopolist establish themselves which creates a whole different set of problems. To preempt the obvious response, the answer "In the long run, we're all dead" is time tested, but not particularly helpful. Dec. 31, 2013 at 1:42 a.m.

1. Randy Redwood City Richard, miners capture the transaction fees. Even after all 21 million coins are minted, there will still be incentive for miners to continue their operations. Today you see very low transaction fees captured in each block since the volume is quite low. The block reward is the main incentive today. The idea was to give the network some time to ramp up to higher volume. Its possible one day transaction fees may total more than the current block reward. Dec. 31, 2013 at 6:12 a.m.

5. frank.lawton new zealand Hi TJ not sure you will be found to be correct. if speculators can knock the price around from 1200 to 700 in a matter of weeks it could easily go way below 500. 500 has no more 'store' value than 1200 or 700. The unbanked world will be using bitcoin for transactions not stored wealth. the unbanked already use gold rings etc for stored wealth - they have no reason to change that. I have seen a well reasoned article saying the maximum it should ever reach is about 1300 but that is long
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after it has gone down to some low point and moves slowly ( years) to that point. it may well go in the very short term to 5 figures - since it has gone from a few dollars to 1200 quickly once speculators got involved it can in percentage terms repeat it self and therefore be say 50,000. It would be a brave person though that entered the market to buy them as stored wealth and at some point people will chicken out and bang its all gone. it may not go to 1 or 10 but I think it will be lower than 500. Time will tell Dec. 31, 2013 at 12:41 a.m.

6. Kristotfer Boston MA Paul Krugman, you declaration that the "Bitcoin is Evil" is the largest endorsement the Bitcoin has received to date. I will try to explain what gives Bitcoin value and how it can maintain its value. The Bitcoin value comes from it algorithm and transparent rules on how transaction are validated and how new coins get issued. Bitcoins have value when people agree to use them in exchange for goods and services. To decide on a good medium exchange, money most have the following qualities: Intrinsic value, ease of transport, divisibility. Bitcoin clearly satisfies the later requirement. The Bitcoin's intrinsic value comes from it algorithm and network. How is it the Bitcoin is evil? No one is compelled to use Bitcoins and anyone and everyone is free to reject it use. A freedom, which no business owner in the US has with the dollar, which they must be accepted. Dec. 31, 2013 at 12:16 a.m. Recommended1

1. ACasey California Excellent. The Federal Reserve debt based fiat money no longer offers a safe or reasonable means of exchange when a better alternative such as Bitcoin exists. Additionally, Bitcoin is not created, at interest, perpetually devaluing itself. In contrast, Federal Reserve notes, printed out of thin air and issued at interest, assure an unreliable means of exchange. Compelled to use it hits right on center. Dec. 31, 2013 at 2:58 a.m.
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7. Uno Dallas Dear Mr. Krugman, What gives Bitcoins value, really? What a terrible question, seems like it is a planted question for some political reason or to get media attention? 1. Supply and Demand. Otherwise known as free market. If Bitcoins had no value then that value would be zero. "Why" they have value does not actually matter, the fact is that they DO HAVE VALUE and the price is set by the free market. None of the other reasons below matter. 2. A global currency system that is independent of and out of reach of governmental control. In other words a free market currency system, unlike the US dollar which is not fully priced within a free market system but partially manipulated and controlled by various government and non-government groups. 3. Will acts as a proven replacement of the Federal Reserve System and make the elimination of the Federal Reserve seamless. 4. Will allow for global free market interest rates, set by the free market, and not by central banks working first and foremost in the interests of their bank members and second in the interest of national governments. 5. Will shine the light of truth on pseudo-scientists, otherwise known as economists, that claim economic models have any significant relationship to how the global financial system actually works. -Uno Dallas, Tx Dec. 30, 2013 at 11:00 p.m. Recommended1

8. Rick Webb New York One other aspect: DeLong's gold analogy is flawed. Gold doesn't quite work the way DeLong describes, and everyone knows it. The mining technology component is more or less the same for gold and bitcoin mining technology will get more expensive. Where DeLong's incorrect is in thinking as if there is a bottomless supply of Gold. This is, of course, physically impossible, barring medieval alchemy, and
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everyone knows it. Estimates vary on the amount of gold left in the ground, but they all fall within a pretty narrow range. The only difference between bitcoin and gold, then, is that a level of uncertainty exists for the finite amount of gold left in the ground, and zero uncertainty exists for bitcoin. This aspect of gold is common knowledge and inherently factored into the price, right now, just as it is with bitcoin. Yet still gold makes for a viable currency. To say this couldn't be the case for bitcoin, then, would be to claim that you need a level of uncertainty >0 regarding a total currency supply to be viable*, which is actually a fairly interesting claim, and worth exploring. But to my knowledge, this hasn't actually been proven. * I suppose one could argue that you might alternatively need a level of uncertainty on the rate of increase of mining costs, but it seems to me both gold and bitcoin share this. Dec. 30, 2013 at 10:12 p.m.

9. Rick Webb New York A is actually the problem right now, not B. There are some things you can buy with bitcoin, but not much. This can change over time. Reason B is that the federal reserve backs the US dollar and will help prevent inflation. This is, essentially, a forward-looking argument - they WILL prevent inflation. There is some historic evidence, since the government has often (though not always) done this in the past, but the crux of the B argument is forwardlooking. It's also self-fulfilling. The federal reserve backing & inflation prevention make for a good reason to believe precisely BECAUSE lots of people care about preventing inflation and promises to buy them back. B, for bitcoin, is actually it's most compelling component, and one you didn't mention. And it is not technological, it is economic: that the rate of release of new currency is fixed by algorithm, and not able to be manipulated. This is very, very important to a large number of people. This is, after all, why we have a federal reserve in the first place: to prevent political meddling. Except many people believe it didn't completely work, and bitcoin provides a better method of preventing the political manipulation of the money supply. This is huge. It's more than enough to give many people a "reason to believe," which is all B really is - a reason to believe this currency has economic benefits over another. If nothing else, bitcoin could provide incentive for governments to not tamper with the money supply.
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Dec. 30, 2013 at 10:06 p.m. Recommended1

10. bwestheimer scooter Does anyone actually understand what produces value with Bitcoin other than what the next sucker will pay for it? Dec. 30, 2013 at 8:02 p.m.

11. BitcoinMillionare Internets Once humans realize that all money is their enslavement, then people will truly escape one major tenant of evil http://freebitco.in/?r=4260 Dec. 30, 2013 at 8:02 p.m. Recommended1

12. BitcoinMillionare Internets Get some free bitcoin bits here at this hourly faucet. Totally free and I'm doing this because I want to see the Bitcoin Ecosystem thrive http://freebitco.in/?r=4260 Dec. 30, 2013 at 8:02 p.m.

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13. Dre51298 Long island, New York Keep in mind this is coming from the same guy who said "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" Dec. 30, 2013 at 8:02 p.m. Recommended3

14. KrugmanLandia USA Why would I ever want to use Bitcoin when I can use Paypal or Western Union to transfer money at a higher fee? Why would I ever want to use Bitcoin when traveling overseas when I can use my credit card or a currency exchange and pay a higher conversion fee? Apparently, it's evil not to pay banks high fees. Dec. 30, 2013 at 8:02 p.m. Recommended3

15. Makrointelligenz Germany I have put down my opinion regarding this topic here: http://makrointelligenz.blogspot.de/2013/12/konnen-bitcoins-als-wahrung.... you can use the translation function, then i hope the blog is somewhat readable. Imo the utility as exchange medium is ultimately the dominant force determining $ and Bitcoin value. For Bitcoin it is mostly future transaction utility that leads to speculation now. Dec. 30, 2013 at 8:02 p.m. Recommended2

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16. Aku Maine Why don't people use Gold as a medium of exchange? Gresham's Law. Bad money drives out the good. And Bitcoin is inherently Gold-like, so it won't circulate much as currency ( Silk Road / Black Market excepted ). Who will own Bitcoin? Exclusively speculators, speculating on how big the pool of greater fools is. And now there are umpteen million alt-coins, some of them probably paying shills in pre-mined alt-coin to pump up the price making them transparent pyramid schemes. What differentiates Bitcoin from them? If Bitcoin ever stops offering the volatility the speculators desire, they will steadily move to the alt-coins to get it with Bitcoin losing value since it's inferior to Cash in every way. And as they pyramid scheme ( or at best poker ) nature of these coins becomes generally obvious, they will become a niche game for techno-gamblers, the price stabilizing around the population of idiots who will always buy into these things. A cryptocurrency will only take the world by storm if it is worse than other ( fiat ) currencies. Operating in concordance with Gresham's Law, cryptocurrences that don't impose too much inconvenience will have the winds at their back. Consider that while credit/debit cards impose fees on merchants and users, they are still accepted and widely used. They are WORSE than cash. Someday cryptocurrencies that are *worse* in a Gresham's Law sense than Cash might compete. Consider that debit/credit cards which impose fees alredy do. Dec. 30, 2013 at 8:02 p.m. Recommended1

17. Blaqfather USA NYC One might also say that bitcoins are not in a " bubble " state anymore because the price has been fairly consistent within the past 3 weeks. The " inverted tea cup " has now spread out, and is no longer inverted. All of these things indicate that Bitcoins are here to stay. Why then, are all you non modern nut cases,
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waiting at the pearly gates of hell, to say " we told you so ? " 1). Get a grasp of the subject matter, before you spill out all these statements that people will regard as non associative with any knowledge of bitcoins. 2). Before you get a pay off from the banks, be sure nobody knows you are connected with them. 3). You really need to read the comments Dr. Krugman. There you will find that people like me are not resistant to new ideas. Dec. 30, 2013 at 7:59 p.m.

18. Bill Ithaca, NY Interesting, Mr. Krugman, that in almost all these comments you get the exact same reaction to the question of how bitcoin is a store of value: they don't answer the question at all but just extoll its virtues as a medium of exchange. As for me, until and unless it is a stable store of value, i.e., until I know I can exchange it for very nearly the price I paid for it, I'm not interested. Dec. 30, 2013 at 7:59 p.m.

1. ACasey California Bitcoin like any currency gets its value from the willingness to accept it in trade. Keeping US currency thinking your exchange value is static is disastrous thinking. Bitcoin is not debt printed at interest. As a store of value, bitcoin's value will not decrease like the US currency which is only debt issued to pay debt. Each US dollar printed at interest is more debt and less value. If you are really looking for a store of value get out of US currency and try gold, jewels, artwork, precious metals, bitcoin,or other digital currencies but try anything except debt based fiat currencies . All these things are increasing in value, based on acceptance of exchange, except debt based fiat currency which is only increasing debt to pay debt. there is no value in debt. Valuing bitcoin against debt based fiat currency is a nonevent. The value is the acceptance in exchange. Worried about the risk of loss? Getting out of fiat
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currency into bitcoin will stop the loss of value you experience with the debt based fiat currency. Dec. 31, 2013 at 6:38 a.m.

19. Blaqfather USA NYC " Fiat money is the root of all evil. " Paul, just please take a walk into the computer science department at Princeton, it's right down the street really, from your office. Arrange a meeting with the head of the computer science department. Have them give you more information about how bitcoin works. THEN come out with this flowery rhetorical stuff that has no basis in reality. Ok ? Thanks. Dec. 30, 2013 at 7:59 p.m. Recommended1

20. wks miami Another gem by your beloved Krugman from 1998: The growth of the Internet will slow drastically, as the flaw in Metcalfes lawwhich 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 Internets impact on the economy has been no greater than the fax machines. http://web.archive.org/web/19980610100009/www.redherring.com/mag/issue55... Dec. 30, 2013 at 7:59 p.m. Recommended1

21. wks
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miami https://twitter.com/d_seaman/status/417368291082924033/photo/1/large?utm... Dec. 30, 2013 at 7:59 p.m.

22. Caldan MD Wow. So let's ignore the value question for a moment. There are lots of ways to answer that seem very clear to me and many others. If you are not seeing it, you are not looking hard enough. Here's the amazing thing about this article and line of thinking: Evil?? We have here a completely transparent, freely distributed, open source software code, that gives greater choice - including to the massive numbers of unbanked - as to how we transfer and exchange value. No one is being forced to use bitcoin or embrace some dark agenda that you fantasize about. The market will either choose to use bitcoin network because it is a useful tool or it will not. Just like any other piece of technology or internet protocol. Bottom line, people will not use bitcoin if it does not serve them. That is the essence of freedom in any market. Are peer to peer distributed networks evil? Is cryptography evil? Is open source software evil? Are social media networks evil? (well you may have an argument there) :) Granted, the consequences of this greater freedom can potentially be enormous and massively disruptive. But evil? Although I respect your intentions, and believe you are trying to be helpful, you are deeply confused, Paul. You are apparently afraid of greater choice and freedom in the economic realm, and are obviously & fundamentally distrustful of people making wise choices for themselves. You apparently don't trust the market either. Remarkable. And disappointing. Dec. 30, 2013 at 7:59 p.m. Recommended1

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23. Stuart Harlan Doblin Fallbrook, California Your phrase : Positive Economics : combines the uncombinable into an illogical statement that only a Pervert in Morals could admire! The phrase : : Positive Economics : : how things work or What Is has only one intent -- to hide your loose morals with your adamant ethics. The term : Positive : cannot meaningfully be applied to : The Study of Value : which IS What Economics : IS :. To Study The Negative Value of Listening to an author from The New York Times is enriching, yet to Study the Study of Value, as to what is as Wikipedia writes of Positive Economics, is to take control of all meaning without desire; Kinda of like having sex without your partners interest taking a date-rape drug would qualify as a Positive Economic Advantage in your lexicon hideous in mine. Normative Economics :how things should be : "Economies offers CHOICE?" Maybe to an overly fed fatuous opinionated morally loose comrade-in-arms. Intellectually Public Perverts, follow emotionally down the path of pubic perversion, for you, as for us all, its the stimulus; for Mr. Krugman, the stimulus : IS : fist or money : fiscal or monetary, that Mr. Krugman proposes to his mistress/prostitute/wife/country/world-at-large. What stimulates Mr. Krugman, Where : Realism is AMORAL the violence of rape, or the rape of Honest Values (id est fist or money) disgusts those of us with Pure Ethics and Honest Morals! For Real Men: The Stimulus is Love; and not Rape or Prostitution. Dec. 30, 2013 at 7:59 p.m.

24. KPOM New York, New York Former Enron Advisor says Bitcoin is evil. So it must be true. Dec. 30, 2013 at 7:59 p.m.
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25. DogecoinUser new jersey Oh wow, hahaha I can't believe how much this guy is getting butt-flustered by the free market at work. It's so beautiful. To answer your question, neophyte, the floor and ceiling on Bitcoin is whatever anyone is willing to pay for it, or: "the point in price that falls where the supply curve and demand curve intersect." Or have you forgotten that very special lesson from ECON 101 Mr. Krugman? lol Dec. 30, 2013 at 7:59 p.m.

26. Iv France I stopped being a huge bitcoin fan when I saw that people indeed got interested in it as a tax evasion tool. However, dismissing it will not make it go away. It is like anonymous darknets which are a direct consequence of free cryptography and cheap internet access: they are used by censored political groups in oppressive countries but also by pedopornographers and you can't remove one group without removing the other. Likewise, bitcoin is here to stay. Love or hate it, but all we can do is to try and make the best out of it. The lack of a floor value is actually the only good argument I have seen against bitcoin. I do think it will remain a good transaction tool, but as a store of value it has no reason to be good. Some people used to joke about it being backed by weed in the old days of Silk Road but that was not a really good argument. Actually, there are big bitcoin owners (owning 100k+) who are very interested in keeping the value high. These people are suspected to pump the value high when it starts falling (there is even a meme around that : http://img.pandawhale.com/57543-Bitcoin-300-spartans-Stay-Stro-Vpch.png ) and they currently provide a kind-of stability. In the longer run, bitcoin is just a part of the puzzle of the crypto-anarchism agenda. I am not sure it will success but it is entertaining as hell to see it unfold apparently successfully so far.
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1. ACasey California Tax evasion is a choice made regardless of what currency is used. Claiming bitcoin is a means to avoid taxes is false. Tax evasion can be seen by the billions of dollars of Afghanistan heroin money flowing through the Miami Federal Reserve to see tax evasion is rampant. As for the value, speculation is an option just like any currency; price may go up or down. The real value of bitcoin is peoples willingness to accept it in exchange and, unlike the US dollar, they are not compelled to use it at gunpoint like US, Libya, Algeria, Nigeria, Syria, Afghanistan, and other countries around the world. Dec. 31, 2013 at 6:12 a.m.

27. Simone USA Forgive me, but it seems a bit disingenuous to conclude with "Let's talk both about whether BitCoin is a bubble and whether its a good thing" when your article's title sounds like a FOX News headline. Is Bitcoin (I'm not sure where the Times is getting that C) a good thing? I don't know. Is the internet a good thing? Was the industrial revolution? The question is silly. Bitcoin-- or, rather, the peer-to-peer decentralized currencies that the internet has enabled-- is a revolutionary development not unlike that of the electric light bulb, or email, or any other of the billions of new technologies that have bubbled up from our collective human presence on the planet. Like all of them, it will have both beneficial aspects and harmful ones. Like all of them, what these are will depend in part on who you are. As to Bitcoin being "designed as a weapon intended to damage central banking and money issuing banks," well, one man's terrorist is another man's freedom fighter, non? If Bitcoin is a "weapon," it's an odd sort of weapon-- open source, owned and controlled solely by the people who use it, and only powerful so long as individuals seem to find it a useful tool. Bitcoin is far more democratic than centralized banking; the only "problem" is that it's democracy is global, rather than national. I've never been interested in gold, but I find Bitcoin exciting. I don't think any of us can predict what impact it will eventually have, but I feel lucky to be alive to witness it. Dec. 30, 2013 at 7:59 p.m.

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28. <a href= Davis, CA http://arxiv.org/abs/1312.2048 - The False Premises and Promises of Bitcoin. Why it is that: It is impossible to use bitcoin for reserve banking. Bitcoin's claim to be able to be capable of growing by massive deflation and support major commerce is ridiculous. Dec. 30, 2013 at 7:59 p.m.

29. seanyc boston use this link to get free bitcoin get started it went up 8000 time in 2013 ! Don't take my word do your own research ! https://coinbase.com/?r=529d4f5cd768a8166f000162&amp;utm_campaign=user-r... Dec. 30, 2013 at 7:59 p.m.

30. hero2victory USA BITCOIN is an internet protocol. it is an open-source program rooted in the impartial and verifiable logic of mathematics; it is protected by the World's largest distributed computing project, which is transparent and open to everyone. it supports a world-wide ledger that confirms, displays and records for perpetuity every transaction on the system. this is a technology designed for the decentralized verification of truth, the only real basis for value. BITCOIN can be a store of wealth. its price is determined not by faith in central bankers, nor by decree of state, but by the free market of willing participants. however, its real value belongs to the individuals
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who choose science and the unbiased scrutiny of a global network over blind faith and coercion to safeguard the fruits of their labor, guarantee the human right of pursuit and provide for the common defense of Liberty. BITCOIN is irrevocably redeemable. it can be transferred at the speed of email in any amount, across any boundary, to support any friend or to oppose any foe. it is beyond the predation of inflation, currency manipulation, tariffs, taxes, liens, probate or any judgment of an arbitrary and capricious cleptocracy. it is pseudonymous and ownership is protected by plausible deniability, yet it's existence cannot be feigned to abet a fractional reserve banking system. BITCOIN is money. Dec. 30, 2013 at 7:59 p.m.

31. Andrew Brown New York Bitcoin has a finite quantity so will increase in value as the number of goods/services available increases. The more easily Bitcoin is convertible to other forms of value, the faster this will happen. What Bitcoin offers is an alternative to gold that is easily transportable and fairly anonymous. It needs liquidity to other currencies. That can be done with a public protocol. Promise Language would boom Bitcoin. Dec. 30, 2013 at 7:56 p.m.

32. NB Stockholm "No understanding of economics" - like Krugman, huh? That's what you think. Long-term deflation is just what the world needs right now, to get to grips with over-consumerism. About 60% of bitcoins are hoarded according to analysis of the blockchain, about 40% was traded over the last year. That's pretty similar to the dollar. Most of the dollars (the *reserve* currency, remember) around the world (maybe around 60%?) is being held in offshore accounts and other "non-productive" holdings. Deflation in itself is
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not, contrary to popular belief, something that stifles trade etc. You may think of it the other way around: I'm not so worried about spending my bitcoin today, because the bitcoin I have left and the ones I'm getting in the future will be worth even more. Dec. 30, 2013 at 12:53 p.m.

33. Craig Manchester The value of Bitcoin as a medium of exchange, is not changing the subject. It's value is due to its ability to be exchanged in a way that's far easier and faster than any other type of money. For about ten years, we had e-gold, which grew to over $200 million in market cap, and it was a superior form of payment to even Bitcoin. However, at this time, Bitcoin is awesome as a method of payment, and this gives it a market niche, and its value. Dec. 30, 2013 at 3:04 a.m. Recommended6

1. Simone USA I agree. It's absurd to say that Bitcoin is inherently valueless, unless you consider the ability to independently and inexpensively transfer money between people an valueless, too. Paul quotes Brad DeLong said that "if all else fails you can use [gold] to make pretty things." Not true. You need certain technologies (however primitive!) first-- and that statement assumes those technologies have survived . Bitcoin is no different. It's value is prefaced on the technologies that allow for its use. As long as there are people willing to exchange their local currency for Bitcoin, and as long as there are individuals who want to transfer money to others in different countries, Bitcoin will remain (however negligibly) valuable. And I don't see either of those first two "ifs" as any different from the "ifs" of the hammers forging and soldering tools required to work with gold. (Still, I'd argue that Bitcoin is superior than e-gold, if only for the fact that it's not anywhere near as vulnerable to the sort of seizure and shut-down that proved e-gold's undoing.) Dec. 30, 2013 at 9:02 a.m.
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34. michael Boston I don't see why a stable store of value requires some identifiable price floor. It seems to me that for bitcoin to be a stable store of value, it just needs to start being a stable store of value. Dec. 30, 2013 at 1:46 a.m. Recommended3

35. martinfsmith Virginia My interest in Bitcoin is as a potential store of value. Its ability to serve as a medium of exchange and a denominator of value is part of its "value proposition" as a store of value. Better than cattle. The other essential ingredient of a value store is limit on the ability of anyone to expand its supply. I think the interest in Bitcoins is driven by the same factors as the long-term interest in gold, as a reliable store of value. If you have worried as I have about how to protect your accumulated retirement nest-egg over a long (I hope) life, various tail risks, including the loss of fiat-current value or bank "bail-ins" deserve some consideration. I do not buy the "intrinsic-value" arguments cited. Yes, gold is pretty, but with modern technology making pretty, rusting jewelery is easy. As for the dollar, OK, US citizens have to pay US taxes in dollars, but that's like some suppliers just accepting Visa and not Discover. If I have my assets in gold or Bitcoins or Euros or Remimbi, as long as the dollar is convertible I can pay my US taxes. Bitcoin is going through a shakedown period now as people assess how it works and how others assess its utility, and, importantly, how the regulatory authorities will treat it. The value will settle down, and efficient arbitrage will be established. The question is whether the "asset class" of digital currencies will erode the scarcity value built into Bitcoins or whether Bitcoinns become a distinct asset with wide acceptance Dec. 30, 2013 at 12:52 a.m. Recommended6
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36. TJ LONDON Try explaining to a Postman in the 1950's that email will take over most paper communications or explaining to a publisher that music will no longer be played on a record and instead will be downloaded from a computing 'cloud' holding MP3 data. With Bitcoin people will either almost immediately 'get it' or they won't , so don't waste your time trying to convince people who will never understand the power of this technology. It's just quite simply impossible for a wind-up watch to comprehend or understand a digital world. Dec. 30, 2013 at 12:34 a.m. Recommended4

1. <a href= Davis, CA Not really. Bitcoin is a case of children thinking they've built a nuclear power plant, when they've just created a cargo cult around a diorama that looks like their idea of a nuclear power plant. It's literally laughable nonsense. http://arxiv.org/abs/1312.2048 - Bitcoin isn't even up to the level of a joke. It's a profound display of ignorance. Dec. 30, 2013 at 7:59 p.m. Recommended1

37. frank.lawton new zealand I do not agree with your article. yes bitcoin will end up soon with a low value eg $1 or $10. the current value of hundreds of dollars is bubble stuff and will burst in time. but that takes nothing away from all the
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benefits of bitcoin. in fact once it is stable its acceptance will grow. Millions of workers in foreign countries send money home and they currently face high fees and several hurdles. to do it directly and for little fee will definitely benefit them. They will be big adopters. For the first world, use will increase over time as more merchants take it on. I used to run a small motorbike hire business and visa charged me about 4% when someone paid using their card.. Bitcoin would have directly helped my profit margin as about 50% of sales were via crdit cards. Where they is a real benefit to various users ( as above those repatriating money, small business) it will gain a foot hold. it may always be a small share of total sales turnover but that does not matter. It does not require "volume' ( eg large retailers to accept it for it to survive or flourish). Dec. 30, 2013 at 12:30 a.m. Recommended2

1. TJ LONDON If bitcoin drops below 50 bucks you can be sure that many people in the unbanked world will rush into buying this. Western speculators will aslo rush in . To think its going to go that low shows you have no understanding of the unbanked population of the world. Its unlikely it will crash below 500 bucks , within the next year or two it could easily go into 5 figures. The only thing that could destroy bitcoin down to zero is if the system itself is technically compromised which becomes more unlikey with every passing day , even if that happens globally decentralised cryptographic currencies are genies which are now well out of the bottle , they would all have to be destroyed there are now more that 100 of them and growing every day good luck with that .... Dec. 30, 2013 at 7:59 p.m.

38. house seattle What is the floor for the value of bitcoin? The floor value of a currency is its utility as a medium of exchange Bitcoin is not yet a currency - because its acceptance is not yet high enough. So its floor value is
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determined by other things. I suggest those other things are 1) followers and believers of bitcoin's potential (miners being a big part of this crowd); 2) people placing their money on the gamble that bitcoin's radical increases in value will continue. The biggest hurdle in front of bitcoin is acceptance. Acceptance means that consumers can go out and make many of their purchases using bitcoin. And it means that users can experience and realize bitcoin's advantages over other currencies. The level of acceptance that is needed to fix current instabilities in bitcoin value is one that makes bitcoin currency transactions dominant over bitcoin exchange trading tranactions, and dominant over bitcoin mining revenues. There is a catch 22 around bitcoin's stability. Bitcoin's value will likely be quite unstable until it is much more accepted, while its acceptance will be limited by the fact that it is unstable. With sufficient rise rate in bitcoin's value over the next couple of years (such as 8x per year - as has been seen in each of the past 3 years), the 1x to 5x up/down instabilities from bubbles and with good/bad news events will be of secondary concern to those who might decide to adopt this as their currency. Dec. 30, 2013 at 12:30 a.m. Recommended2

39. Chicago Bob Chicago Bitcoin as a medium of exchange does not rely one whit on Bitcoin as a stable store of value. Any value of BTC in a local currency except zero will work with the payment processes coming out, because they convert to local currency immediately. BTC value needs to be predicted about six seconds into the future. The developing BTC payment processes are taking the best of both worlds: the relative stability of the local currency and the open, low cost system for transfers. So the price of BTC on the currency exchanges is irrelevant unless ALL value is lost. The price of a $50 dinner is $50 worth of BTC, and the restaurant gets to keep the 3% processing fee. Everybody wins except MasterCard. Second point: The US Dollar is constitutionally backed by the full faith and credit of the United States (Article 4, Section 1.) Repeat: Faith. And Credit. Dec. 29, 2013 at 11:01 p.m.
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1. jbahr Longmont, CO Unless the purveyor of said dinner can pay for the inputs (food, labor, rent, etc.) with Bitcoins, it's not clear why the exchange rate is "irrelevant". Dec. 30, 2013 at 7:59 p.m.

40. Carl Peter Klapper Edison, NJ I respectfully and subtly disagree with Professor Krugman on his statement that: "To be successful, money must be both a medium of exchange and a reasonably stable store of value." We fully agree on the medium of exchange, but I see money as currency. This requires not a "store of value", reasonably stable or not, but an exchange value which is reasonably stable over the short term. The term in question is between the time when the money is earned and the time when it might reasonably be spent. For example, the expectation that a day's earnings would buy milk and eggs for a month, is reasonable within a month, but not reasonable for purchases of milk and eggs three years later. The problem with the second expectation -- the "store of value" one -- is that it places strictures on the operation of markets which strangle it, and for no good reason. If you intended to buy your eggs and milk for the month with that money, then you should buy the eggs and milk within the month, not speculate on the value of eggs and milk in some later month. Least of all should you expect the rest of the economy to twist itself into all sorts of contortions so that you can win your speculative bet. Rather, you should bargain for a wage at that later date based on the price of eggs and milk at that time. My alternative statement would then be: "To be successful, money must be a medium of exchange with a reasonably stable short-term value in exchange Dec. 29, 2013 at 9:56 p.m.
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1. jbahr Longmont, CO What if you're looking for financial security? Saving for college? Building a nest egg for retirement? Doing any one of hundreds of things that requires having a "store of value"? Dec. 30, 2013 at 7:59 p.m.

41. Makrointelligenz Germany I think you and Brad are wrong here. The value of the dollar is ultimately determined by it s role as an exchange medium as is BitCoins value. Taxation and stable value lead to higher demand in general but they don t constitute a floor on $s. The fed is buying back $ with bonds (future $) so that $ are scarce as a mediums of exchange and rise in price or vice versa. The idea that mining technology is putting a ceiling on the Bitcoin price is also wrong because the amount mined is fixed. Mining technology only determines who mines this amount and the price of Bitcoin determines how difficult mining is. Dec. 29, 2013 at 9:35 p.m. Recommended4

1. David Ca The price of Bitcoin does not determine the difficulty of the mining. The difficulty is determined by network hashing rate. The greater the hashing rate, the greater the difficulty. In other words, the more people who mine bitcoins, the more difficult it becomes. This prevents anyone from gaining an edge on accumulating bitcoins since there are already so many people in the world mining bitcoins. If one company, say a bank or Government were to try to gain an advantage, it would suck all their computing power. The Bitcoin mining network exceeded the power of the world's top 500 super computers earlier this year.
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Dec. 30, 2013 at 7:59 p.m.

42. hero2victory USA Money is a human right. the wealth it represents belongs solely to the individuals whose deliberate pursuit and productive labors result in a transferable unit of value. The right of the people to be secure in their wealth against searches and seizures, shall not be violated. the right to unconditionally transfer wealth, unencumbered by tribute paid to an otherwise undeserved third party is also self evident. the Federal Reserve creates our money from thin air; but there is nothing "federal" about the "Fed." This private cartel of banks has no fiduciary duty to the American people and answers to no one in our elected government. As a matter of policy, the "Fed" steals from our labors by devaluing the purchasing power of our money, but we have been conditioned to know this as "inflation." It enslaves the American people through debt and holds our children's future hostage with interest. It secures political power through purchase, corrupts our elected officials and confounds all attempts for rational, humane and moral public policy. Little wonder that "money is the root of all evil." continued... Dec. 29, 2013 at 9:15 p.m. Recommended1

43. hero2victory USA mr. Krugman: you are either extremely stupid or evil, since you are the winner of a Nobel prize I can only assume the latter. What is Money? Money is a measure of human labor. the money we earn represents our individual contribution to society and should be a durable symbol of our productive efforts. To distort its value and to debase its purchasing power is immoral, fraudulent and leads inexorably to debt and enslavement. The control over the money supply is therefore a sovereign power, belonging exclusively to the peoples of the world.
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Money is a measure of what we value and is a reflection of our collective priorities. When it is contrived into existence without informed oversight, it allows those who issue it to purchase and corrupt our political leadership to exert unchecked power. any elected government that relinquishes the people's power over the monetary policy becomes captive to a false measure of value, and thus fatally compromises its fiduciary duty to its citizens. Money is a measure of trust. Trust is subject to transparency and reproducible verification. central banks that operate in extreme secrecy and remain impenetrable to public audit can not be trusted. a people unable or unwilling to validate the basic yardstick by which their society measures value are invariably barred from truth, and thus virtue and moral governance. continued... Dec. 29, 2013 at 9:13 p.m. Recommended1

44. NB Stockholm Many of you guys commenting here are clearly unaware of the world of cryptocurrencies. Over and over someone thinks they have a eureka moment and write something like: "we could just invent another ecurrency" or, "what if there is another currency created" - that "could make the bitcoin drop to zero" well, there ARE many many more digital currencies out there already. Litecoin, Feathercoin, Dogecoin (jokingly based on a meme), Ripple, Mastercoin, Primecoin just to name a few (there's more than 50 alternatives to Bitcoin, check some of them here: http://coinmarketcap.com/). Bitcoin is however the first and without comparison, the technology most heavily invested in around the world. It is likely it will keep it's headstart, being about 30 times as valuable as the second currency (Litecoin). It's a bit like gold and silver. So, please do some research before you critique. As for the discussion on "is bitcoin money?". It's a useless question. All money is based on faith, dollar as well as yen and bitcoin, so yes, bitcoin can be used as money. The valuation will continue upwards for a very long time, regardless if some governments try to stifle it (like China's). There will still be enough jurisdictions left for Bitcoin to thrive (and you can still use bitcoin in China, private exchanges will just increase). Dec. 29, 2013 at 9:00 p.m. Recommended4
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1. jbahr Longmont, CO Its valuation (wrt other currencies) continuing upward for a long time is deflationary and part of the problem. This comment board is just filled with people with no understanding of economics. Dec. 30, 2013 at 12:10 a.m. Recommended2

45. Knick Colma During the 1999 run-up to Y2K a few of us foresaw that global warming would result in the loss of ALL of the one truly human currency -- Yap stone money. http://blogs.reuters.com/edward-hadas/files/2012/07/4035019-Stone_Money_... During the past THIRTEEN (13) years our agents quietly acquired all known Yap stone currency and moved it to an abandoned monastery at an elevation of 13,000 feet in an alpine meadow in Bhutan. Iceland, home of the bitcoin, will soon sink below the seas. Bhutan will endure. Serious investors seeking security and happiness are invited to contact us. Dec. 29, 2013 at 8:42 p.m. Recommended4

46. Rob MD
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You're both incorrect about Bitcoin's ceiling, and partially wrong about it's floor. Bitcoin readjusts the mining difficulty approximately every 2 weeks to account for increases or decreases in the hash rate. You're correct that the value of bitcoin acts as an incentive to mine, but wrong that an increase in mining devalues bitcoin. At least, not over any period longer than 2 weeks. The actual ceiling is based on adoption, which (unfortunately) is nearly impossible to predict. Volatility is also related to adoption, particularly the ratio of adoption as a currency vs. adoption as a speculative investment vehicle. As adoption recently increased in countries without a reliable banking system, volatility has decreased. You're correct that there isn't a floor now, but there will be in the future. Approximately every 4 years the number of bitcoin awarded to miners is halved. Over time the inherent benefit for dedicating resources to mining will diminish. To counteract this, Bitcoin transactions have the option to pay a fee (of the sender's choice) to the miner who finalizes that transaction. Since miners can choose to exclude transactions in the block (at the risk of losing to another solution with more transactions), they'll start ignoring transaction that didn't pay a transaction fee. Eventually, requiring a minimum transaction fee. When that happens there will be a value floor based on the relative amount expected by miners and the amount users will be willing to pay. Dec. 29, 2013 at 8:08 p.m. Recommended4

47. TJ LONDON Let's see how rubbish Bitcoin becomes when the mathematically-certain collapse of the westen banking fiat Ponzi scheme starts to unwind at speed .... Compounding Interest on all Fiat debt currency has a 100% mathematical certainty of implosion , the average life - span of any Fiat currency is 27 years , we have some interesting times ahead..... Dec. 29, 2013 at 6:17 p.m. Recommended3

1. Robin Miller Bradenton, Florida 27 years? Really? My dad bought a brand-new Fiat in 1960, and I seem to recall it lasting something like 5 years.
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48. John D. Out West Thanks to all the bitcoiniacs here for reinforcing PK's points. Dec. 29, 2013 at 6:17 p.m. Recommended11

49. Perry New York I don't get how the complaint that underlying bitcoin there is nothing can't be applied to the dollar or the euro just as well. They aren't "real" things either, just numbers in computers or zeros printed on pieces of paper that aren't inherently worth anything. If bitcoin is worthless and/or a scam, then why isn't the dollar? Dec. 29, 2013 at 6:17 p.m. Recommended6

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1. Chas Simmons Jamaica Plain, MA @Perry of New York: I'm sure others have answered this, but I will, too. Krugman did not emphasize enough the taxation backing of fiat money. People living in the US are forced, by the police power of the state, to pay dollars to the government on a regular basis. The government will NOT accept anything but US dollars. For that reason, Americans are compelled to value dollars. We can also trust British pounds or Canadian dollars, or many other currencies, for the same reason -- the corresponding countries' governments require their productive citizens to pay their
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taxes in that currency, and those who want the products of the UK and Canada are willing to pay for their currencies because they can obtain those products with them. It really works. When it doesn't, it's because the country in question has lost its ability to collect taxes or is totally irresponsible in its output of the currency (eg, Zimbabwe 2005, Germany 1923). And, whatever the wingnuts tell you, the US Fed is not being totally irresponsible. No such power exists behind Bitcoin; it is a Ponzi-like scheme, and will almost certainly collapse in value some time, and cost investors a lot of wealth. Dec. 29, 2013 at 8:42 p.m. Recommended6

2. LookoutRanch California A dollar has value to the extent that it can be used to satisfy a debt and redeem the collateral backing that debt. When people are willing to sell their homes for bitcoins, then bitcoins will have value, too. Dec. 29, 2013 at 8:42 p.m. Recommended1

3. David Thomas Shawnee, KS A currency becomes money when it can be passed on to one's heirs. Can bitcoins be inherited? Dec. 30, 2013 at 8:02 p.m.

50. Daniel A. Greenbum New York, NY


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What is stop someone from either drying up the supply of Bitcoins or flooding the market with them? We saw this with gold when central banks start selling off their stores of the metal. Dec. 29, 2013 at 6:17 p.m. Recommended2

1. Reason Canada "What is stop someone from either drying up the supply of Bitcoins or flooding the market with them?" You're kidding me right? What's to stop the government from either drying up the supply of dollars or flooding the market with them? The exact same argument applies to fiat currency. Dec. 30, 2013 at 8:02 p.m.

2. Elwar US Central banks are the opposite of decentralization. Bitcoin is VERY decentralized. Dec. 30, 2013 at 8:02 p.m.

51. jmi2 Chicago has anyone raised the issue that Sections 8 & 10 of the Constitution say the federal government has the right to 'coin' money and the individual states may not? it was a problem during the beginnings of the country that there were so many forms of money, no one knew what was worth what. doesn't bitcoin fit into this category if it is being used as money? or are we to think of it a, say, a credit card that will eventually have to be turned into money from the paper that it actually represents? this all seems so confusing. Dec. 29, 2013 at 6:17 p.m. Recommended3

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52. Chris USA Calling bitcoin evil is calling freedom evil, best you call out evil where it really is; the federal reserve. Dec. 29, 2013 at 6:17 p.m. Recommended1

53. NP Santa Rosa, CA I am ignorant of the technology behind Bitcoin. However, what I don't understand is what is a Bitcoin? It seems that Bitcoin really is just a way to transfer money electronically around the world without banks being involved. A Bitcoin is currently worth $700 (approx.) if I want to transfer $100 how do I get hold of 1/7 of a Bitcoin? If a Bitcoin can be copied and a fractional value associated with every copy isn't that just a transaction record? And not really a "Bitcoin". Why then do we need Bitcoins with any particular value associated with them? Dec. 29, 2013 at 6:17 p.m. 1. David Ca It's not a copy of the bitcoin. It's literally, that fraction of the bitcoin. Dec. 30, 2013 at 7:59 p.m.

54. care of who you listen to New York A Paul Krugman quote on the irrelevance of the Internet back in 1998 http://imgur.com/B9oMzZd Dec. 29, 2013 at 6:17 p.m. Recommended2
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1. Technic Ally Toronto That was Paul Krugman the iconoclast, neither Paul Krugman the economist nor Krugman the humourist. Dec. 29, 2013 at 8:42 p.m. Recommended1

2. Carl Peter Klapper Edison, NJ What Krugman failed to factor in was that the lack of anything to say is not an impediment to saying it. Dec. 30, 2013 at 7:59 p.m.

55. Remy Willems Utrecht You're saying that the lower bound on the value of the dollar is provided by the fact that it can be used to pay taxes. However I believe that you're only able to pay taxes using the dollar because it already has value. If everyone would stop using the dollar, than so would the U.S. Government, since it would have no place to spend taxes paid as dollars. If we'd all use only bitcoins, then so would the U.S. Government. You can see the U.S. Government as simply a store where you can buy "you've paid your taxes" coupons using dollars. Dec. 29, 2013 at 6:17 p.m. Recommended2

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1. Davy Santa Fe You believe wrong. "Money" is purely a societal construction, it is whatever we (a group large enough to be meaningful, like a nation-state) agree it is. but if the political authorities demand that you pay taxes and demand that you pay them in lupines, then lupines will be "money". It's sufficient, but not necessary. Dollar bills have no intrinsic value (maybe a tiny bit - I've got some amusement out of dollar bill origami and you can burn them or use for wiping things up, but it's pretty minimal...). You have an incorrect abstraction and it will continue to lead you astray Dec. 30, 2013 at 8:02 p.m.

56. Fridrik Jonsson Washington DC A virtual currency without government backing may sound like a novel idea, but as the Bitcoin bubble grows, consider the fact that the reason faux money works at all is because it has government backing that entails multiple means only a government has to back up its faux money, including, but not limited to, taxation, currency and trade controls and war. Bitcoin has none of that. It is a faith-based currency in the extreme and only works as long as there is a sucker born every minute - which means it could go on for a long time indeed...! That doesn't discount the fact that a lot of people are making lot of real money - and keep in mind that money making is based on being able to convert Bitcoin into real money, oh the irony! - on this scheme, but such is the nature of all pyramid schemes, somebody gets rich at the expense of others ultimately without adding any real value in the process. Dec. 29, 2013 at 6:17 p.m. Recommended5

1. Rob MD
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Why would a currency that isn't tied to a specific nation need trade controls, or war? If anyone anywhere in the world can use it, who would you even go to war against? You'd be attacking someone who also uses it. Why does *any* currency need taxation? Dec. 29, 2013 at 8:42 p.m.

2. Davy Santa Fe Rob - taxation isn't necessary to create money. But it is sufficient. All your bitcoins is belong to us Dec. 30, 2013 at 8:02 p.m.

57. Peter Langer Michigan I believe that a currency needs to have 3 qualities. First it must be a good medium of exchange. Secondly, it must have intrinsic value. Bit coin has absolutely no value except what people say it is worth. Third, it must be secure. I don't see how bitcoin satisfies all these qualities. I believe that bullion gold coins are the best and only store of value. They are a good medium of exchange because they are portable. They have intrinsic value because of their limited supply and world wide acceptance for many centuries. Gold coins are also secure because they have value and don't need to exist in the cloud or "vaporware". Dec. 29, 2013 at 6:00 p.m. Recommended1

1. Rob MD 1. I agree, and this is a function of adoption. As the use of Bitcoin has grown and more people and businesses are willing to work with it, it has become a better medium of exchange. 2. There actually is an intrinsic value in bitcoin, as you can use them to permanently embed small amounts of data in a massive distributed worldwide database (the block chain). This can be used to
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notarize documents (and more reliably than hiring a notary), which would place the maximum intrinsic value of each bitcoin around $10,000. 3. Bitcoin is more secure than even gold coins. Gold can be faked, Bitcoin transactions cannot. Since the entire software stack is open source, anyone can inspect it for flaws. Dec. 29, 2013 at 8:37 p.m.

58. Derek Boston Bitcoin will become a reliable store of value once their is an established credit market denominated in BTC. USD do not have intrinsic value because the Fed is willing to exchange them; we know this because the Fed has made dollars non-convertible. The USD has value because there are $57T in dollar denominated liabilities outstanding that are enforceable through default and seizure of property. This contractually guaranteed future demand for dollars puts a floor on the value: if nothing else, I know that ExxonMobile and General Electric need to buy dollars in order to satisfy their debt commitments, and if they don't then I have recourse to seize ownership of their property through default. There is no reason why BTC could not evolve a similar credit structure, even though it has not done so already. The value of BTC as a payment system is the initial catalyst that will spur the development of this credit system: Overstock wants to take payments in BTC but hedge its exposure with futures. So the question that Krugtron and the cynics should be asking is: Who is going to take the other side of that trade? Who, other than speculators, will find utility in borrowing BTC today under promise of future delivery? And, how would a default on that agreement be handled? Dec. 29, 2013 at 5:49 p.m. Recommended1

1. Michael O'Neill Bandon, Oregon Ahh, excuse me. Who among the fools who expect BTC to climb in value tomorrow will use them to actually buy real goods today? That has always been the problem with a detectable level of deflation. As to Overstock their hedge would be paid out in full if BTC evaporated tomorrow. The counter party is betting that BTC will only go up, never down. Yet Overstock must be assured that the counter party has sufficient financial assets in the USD world to cover all bets. Even AIG wasn't that reckless.
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59. winduken US There is a relative simple explanation of the Bitcoin algorithm and a technical flaw in it here: http://arxiv.org/pdf/1311.0243v5.pdf Aside from the fact that the system could be gamed by groups of miners for their own advantage, what struck me in reading the paper was that the system requires maintenance of a global log that stores information of ALL Bitcoin transactions. As such, the cost of maintaining and verifying the correctness of Bitcoins is at least bounded from below by the number of transactions among Bitcoin users. Now, note that the number of transactions among users can be exponential in the number of users because any subset of users can potentially deal with one another over time. Thus, as more and more people start using the Bitcoin system, the system will become less and less usable because the time taken to verify a new transaction becomes slower and slower. It seems to me that any currency that requires more than constant time verification by the participants in a transaction is not viable. Paper currency and gold coins, after allowing for a small probability of forging, do not require complex technical verifications. Bitcoins, on the other hand, requires this fundamentally in the Bitcoin algorithm. As such, I don't see Bitcoin as a viable long term currency. Dec. 29, 2013 at 5:35 p.m. Recommended1

1. Derek Boston Have you considered that small transactions would be bundled off of the block-chain before being aggregated at the end of each day. It's not as if Bank of America makes an actual cash transfer every time anyone uses their debit card - they aggregate the transactions and process them daily. Problem solved! Dec. 29, 2013 at 6:17 p.m. Recommended1

2.
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winduken US Derek, real questions here. First, with big enough data, any algorithm with running time larger than linear would be untenable, how do you reduce a potentially exponential number of transactions to something linear by blocking? Second, if each transaction potentially requires verification back to the "genesis block" (see the arxiv paper referenced above), how do you reduce the potentially exponential space requirement of the global log to something manageable? Dec. 30, 2013 at 7:59 p.m. 3. Dan Nile Los Angeles Verified The time to process transactions is adjusted automatically within the system by modifying the difficulty of the transaction. Read the paper again. Dec. 30, 2013 at 6:48 a.m.

60. Anonymous Westchester Bitcoin appears to be a pyramid scheme, with a couple of twists. The biggest challenge to bitcoin is its lack of uniqueness: any number of digitial currencies can be created, with the same "rules" or different ones. So, ultimately the value of bitcoins may drop to zero once as more virtual currencies are created. On the other hand, bitcoin may be in a position to establish a stable user base who use it as an exchange medium for organized crime. If this happens, it may settle to a stable value (e.g. interconvertability to major currencies) once the speculative frenzy abates. Dec. 29, 2013 at 5:34 p.m. Recommended2

61. Dan Nile Los Angeles


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Verified The value of gold is not in its jewelry value but in its scarcity. De Long is almost as disingenuous as Krugman. Bitcoin gets around the wasteful gold mining problem by getting its currency into circulation by computer lottery. This lets ordinary people touch the currency first instead of a miner or a bank or a government. The banking-government established is now officially threatened when the pet economists are chattering about Bitcoin. Dec. 29, 2013 at 4:57 p.m. Recommended2

1. waztec Seattle, WA But I have no faith in Bitcoin and will not accept that. You can take that on pure faith. Dec. 29, 2013 at 6:17 p.m. Recommended1

2. jbahr Longmont, CO Emu poop is equally scarce. Maybe moreso. Dec. 29, 2013 at 8:42 p.m. Recommended1

3. Reason Canada @waztec Take your faith on dollars then. But don't force us to follow your faith. No one is forcing you to use Bitcoins. Dec. 30, 2013 at 8:02 p.m.
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62. Lance Brofman New York "..Money is what can be used to buy things. Historically money has first been specie (gold and silver coins), then fiat money which is paper currency and checking accounts (M1) and more recently credit money. The credit money supply is what in aggregate can be bought on credit. Two hundred years ago your ability to take your friends out to dinner depended on whether or not you had enough coins (specie) in your pocket. One hundred years ago it depended on the quantity of currency in your pocket and possibly the balance in your checking account if the restaurant would take checks . Today it is mostly your credit card that allows you to spend. We no longer have a fiat money system. Today we have a credit money system. Just because there is still some fiat money does not negate the fact that we are on a credit money system. When we were on a basically fiat money system there was still a small amount of specie in circulation. Even today a five cent piece contains about 5 cents worth of metal, but no one would claim we are still on a specie money system. Fiat money is easy to measure; M1 was $1.376 trillion in 2007 and was $2.535 trillion in May 2013. The effective money supply is the sum of fiat money and credit money. Credit money cannot be precisely measured. However, When the person in California whose occupation was strawberry picker and who had made $14,000 in his best year was able to get a mortgage of $740,000 with no money .." http://seekingalpha.com/article/1514632, Dec. 29, 2013 at 4:54 p.m. Recommended2

1. Davy Santa Fe Brofman is actually substantially wrong. Money was not specie throughout most of the money using history. Money is a societally accepted, trust based means of accounting for debts. It's always been the case that private "money" can be easily created - anytime party A accepts an IOU because of trust in party B, that's new money. It's not as good as cash, since it still needs to be settled. But it spends like cash among any community who trust B to be good for it. Dec. 30, 2013 at 7:59 p.m.

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63. Morley Atlanta, GA Bitcoin is not a store of value. Neither is gold. And in reality, Money is also not a store of value. However, an explanation of this is not feasible in the short format of a comments section. Although, it does make it obvious that most people here, as well as most economists, really haven't thought about money or what money really is. With that said, the central point of the article is Bitcoin acting as money and if Bitcoin is as good or an improvement on money, or is it "evil." We already have digital currency, and have had it since digital banking allowed direct transfer to creditors, bypassing the post office. We have had a form of it starting with credit cards. So there is nothing special about Bitcoin except how it is minted (mathematically mined) and its anti-counterfeiting apparatus (encryption and registration). What is special about Bitcoin is the finite number of coins, which always will have the effect of deflation. An Economy is measured in GDP - which is Money spent, not money in existence. Thriving economies always try to encourage spending. If money is hoarded, this doesn't do anyone any good. A government can combat this by printing more money, because if your money will be worth less tomorrow than today, printing money encourages you to spend it today. Bitcoin encourages hoarding, effectively taking it out of circulation, and thereby hurting economic activity. It is not evil, but it is not useful economically. Dec. 29, 2013 at 4:51 p.m. Recommended3 Read All 5 Replies

1. Steve Dekorte San Francisco Morley, yes, spending and wealth creation are correlated but so is umbrella use and rain. Saying spending causes wealth creation is like saying opening umbrellas will cause rain. You have confused cause and effect.
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For example, a civil war may increase spending while destroying wealth. Or for a more Keynesian example, a government could increase spending and employment by employing everyone with vast amounts of printed money to dig ditches and fill them back in. The GDP would skyrocket, until everyone died of starvation. Dec. 29, 2013 at 8:05 p.m. Recommended1

2. Morley Atlanta, GA Steve, there are massive amounts of economic activity which results in things that I think are worthless. And certainly the government spends money on things that make little sense. Why are we building fighter jets and tanks when these are not the things we to fight modern wars? In the marketplace, consumers make decisions on items that they find valuable - even if I personally disagree. The items enrich us. There is no confusion in the cause and effect. And Keynes never advocated digging ditches for no reason. He pointed out that paid work was better than starvation and unemployment. Digging ditches would be useless, but the workers would then spend their money on items that they value which would stimulate more economic activity. Dec. 30, 2013 at 2:48 a.m. Recommended1

3. Rassah Washington, DC Morley, I did not did not mean real estate, but you are right, businesses account for inflating currency when they price things, so inflation is compensated for. However, regarding inflation with spending versus deflation with saving, savings are an insurance against future lack of income. So we save, and when we have enough, we spend. This will undoubtedly have the economy grow slower than it would in an inflationary economy. But with inflationary, where we spend on things as much as we can, much of that spending comes from borrowing, since it's cheaper to borrow than to save. Sure, this results in greatly increased spending and economic growth, but all that spending money has to come from somewhere. I think inflation and resulting spending distorts the normal level of economic growth by delaying the payment for it. So instead of deflationary spirals, we have inflationary debt bubbles. At some point, I fear we won't be able to borrow any more money from our future to pay for our spending in the present, and I fear our economy may come back down to where global net worth is zero again, which is pretty far down.
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64. Paul from Oakland SF Bay Area Dr. Krugman, Thanks for this great article which has generated exactly the commotion needed to clarify why the pro bitcoiners are so ardent. Two points stand out: they have a very confused understanding about why government backed currency has value (the main argument seems to be bitocoin has value because I put in work to "mine" them and make only so many, now all we have to do is agree they have value); and 2, many are ideologically committed to no -taxation- not merely taxation reduction. And let's not forget the 5,000 pound gorilla sitting in this discussion: Speculation! Dec. 29, 2013 at 4:40 p.m.

1. Rassah Washington, DC #1 is why you and Krugman think they have value. No bitcoiners think that. If you look through the comments, you'll see that anti bitcoiners are confused about why government currency has value, saying things like "it's backed by the government" without even bothering to think what that means (when was the last time you saw a soldier with a gun standing in a grocery shop, making sure you pay no less than $1 for a loaf of bread?), while bitcoiners claim value comes from usefulness and trust, and bitcoin, the global transaction ledger, is enormously useful, and has a lot of trust built in through cryptography (math is more trustworthy than politicians) Dec. 29, 2013 at 6:17 p.m. Recommended4

65. Paul Cohen Hartford CT Verified


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Paul, Haven't read Charlie Stoss' analysis yet but I will. It's interesting to me that your analysis of bitcoins simply boils down to whether or not bitcoins provide a store of value akin to money. Dec. 29, 2013 at 3:10 p.m. Recommended1

66. Dennis Prokott Bartlett, IL Bitcoin's value is in that it provides a service, If an alternative to that service is created (another type of non-traceable currency) then the value of Bitcoin could drop to zero. Dec. 29, 2013 at 3:07 p.m. Recommended3

67. wepollock New York I make the point in the attached video that; by international treaty, Numbered Bank Accounts are clearly illegal. For this reason, along with generational memory, few have made the connection between old style numbered accounts and Bitcoin. It is amazing that the standard talking points both for and against Bitcoin never speak to this factual issue and concern. https://www.youtube.com/watch?v=dITbPEiZsHY Dec. 29, 2013 at 2:59 p.m. Recommended1

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1. Rassah Washington, DC That may be because bitcoin, as a technology, does not care about laws, and simply exists regardless. Dec. 29, 2013 at 6:17 p.m. Recommended1

68. rhersh12 Detroit Stross is actively hostile toward BitCoin because he sees it as a tool for disruption of the financial systems that all of us depend on, for the benefit of a few. It certainly wasn't intended as such but it fits the purpose well so that's how it will end up being used. Dec. 29, 2013 at 2:59 p.m. Recommended4

69. Steve Dekorte San Francisco Can we also talk about whether a system requiring trillions in bailouts is a good thing while we are at it? Dec. 29, 2013 at 2:59 p.m. Recommended2

1. Dra
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Maryland No, that's a different topic entirely, although I suspect I'm sympathatic to your outrage. Dec. 29, 2013 at 6:17 p.m.

2. Steve Dekorte San Francisco Dra, how is assessing whether something is good independent of whether the alternatives are worse? Dec. 29, 2013 at 8:42 p.m.

70. foolMeOnce Boston, MA So far Bitcoin appears to solve a set of problems not many people have (frictionless digital exchange), in exchange for raising problems not many people understand (crypto security of the hash, validation forking scams, etc.) Not a place I'm going to put value soon. Dec. 29, 2013 at 2:59 p.m. Recommended5

71. daedlanth Great Lakes Regioin Paul, The dollar has been off the gold standard for a long, long time. The dollar of today works on confidence. This how Bitcoin should work eventually. What will demoralize people about Bitcoin is getting ripped off too much by the feds. Secondly, the Chinese ban doesn't help. This will pan out & I think Bitcoin is here to stay. Dec. 29, 2013 at 2:59 p.m.
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1. John D. Out West Read PK's post again. If you actually read it, you missed quite a bit. Dec. 29, 2013 at 6:17 p.m.

2. Gregg Ward San Diego K never said or implied that the dollar was still tied to gold. You undermined the rest of your argument with that mistake. Try again. Dec. 29, 2013 at 6:17 p.m. Recommended1

72. Alex Jacksonville Because Krugman has such a wonderful track record at anticipating the usefulness of new technologies. Dec. 29, 2013 at 2:59 p.m. Recommended3

73. benjamindees
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Tulsa, OK Paul, if you feel that paying taxes provides you value, we could start collecting taxes from you in Bitcoin. Everybody wins. Dec. 29, 2013 at 2:59 p.m. Recommended2

74. Mamoncin Europe Bitcoin is evil? Use Dogecoin! Such coin! Very cute! Wow! Dec. 29, 2013 at 2:59 p.m. Recommended2

1. susan levine chapel hill, NC exactly why can't we just start more and more Tech money, nothing behind it, no country, no value, no metal,no resources. Love Dog Coin How about SuperiorCoin. BestCoin, BiggestCoin Ah, SafeCoin Dec. 29, 2013 at 6:17 p.m.

75. Simon
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London Lots of ad hominem and guilt by association. "Stross doesnt like that agenda, and neither do I..." Oh, no! Not a libertarian political agenda! Not an attempt to undermine the state's ability to control the stampeding herd! You're a true liberal, Krugman: when push comes to shove, you worship centralised power. Orwell put it best: "Liberal: a power worshipper without power." Many of us, for some reason, value freedom above state control. Every time you show your true colours, I say a prayer for bitcoin and wish it well. Dec. 29, 2013 at 2:59 p.m. Recommended4

1. Wendell Murray Kennett Square PA USA "Lots of ad hominem and guilt by association" True, although the grammar of this phrase might be improved. Furthermore, it is more "condemnation" by association than "guilt". And condemnation well deserved. "value freedom above state control" Hmm, it looks like Tea Partydom has taken hold in the UK. Dec. 29, 2013 at 6:17 p.m. Recommended1

2. Gregg Ward San Diego The problem with your libertarian freedom agenda is it only works in Ayn Rand novels. In reality,
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those with power abuse the rest of our freedoms. There's a compelling reason we need government: to protect us from the powerful, greedy and corrupt who will trample over libertarian niavete like so much old newspaper. Dec. 29, 2013 at 6:17 p.m. Recommended3

3. Bob Prentiss San Francisco Spoken like a true money launderer. You like it so long as it keeps your country afloat. Dec. 29, 2013 at 6:17 p.m.

76. Chris Close Austin, TX That particular "confidence game" hit a little too close to home? Dec. 29, 2013 at 2:59 p.m.

77. Digital Currency Revolution Los Angeles These sound like the ravings of a NWO hack. Look for 'Digital Currency Revolution' on facebook--- be informed of the first Digital Currency Global gathering in Hollywood in April, 2014 Dec. 29, 2013 at 2:59 p.m.

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1. PQuincy California Verified New opportunities to pay for the privilege of being fleeced! Dec. 29, 2013 at 6:21 p.m. Recommended1

78. TJ LONDON Will you soon be telling us technology is evil and we should all be moving back into mud huts & caves. How bizarre that a Nobel Prize winning economist cannot spot quite possibly the biggest technological development in financial innovation in 2000 years ? I thought you were a Globalist , and here is the perfect anti-inflationary 100% mathematically predictable Global Currency and your calling it evil. Bitcoin is apolitical. It is programmable democratic money. Sure its abit unstable at the moment , it is still not yet out of the womb. If you want to find a currency used by drug dealers , money launderers crooks and terrorists you should really be looking at the US Dollar , not bitcoin. The Bitcoin blockchain stores a distrubuted hard copy of every single transaction these cannot be faked or hidden like cash payments. Eventually forensic analysis tools will have the ability to uncover any transactions , its really early days , I am surprised you are not raving posistive about this innovation. Dec. 29, 2013 at 2:59 p.m. Recommended3

1. Bob Prentiss San Francisco And the bad guys don't use your British pound? Dec. 29, 2013 at 6:17 p.m.

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2. Rich Ohio A currency that is persistently deflationary cannot be useful in the current economic paradigm. If you're anti-consumerist, then sure, deflation is fine. But if we're talking about fitting something within how the world economy currently works, Bitcoin doesn't really work as a currency. I'm completely at ease with the idea of a cryptocurrency, but with no active supply controls, it's a return to the bad old days of crises of confidence and deflationary spirals. Dec. 29, 2013 at 6:45 p.m. Recommended2

3. Steve Dekorte San Francisco Rich, as opposed to the "good" present days of cascading global debt default averted temporarily by trillions (yearly) in bailouts while global debt soars higher and countries become increasingly insolvent? The problem of banks defaulting on deposits was caused by a failure to separate bond fund purchases from demand deposits. Bitcoin allows users to store demand deposits in a way where no one can spend them without their consent so this problem is avoided. Dec. 29, 2013 at 8:47 p.m.

79. Jamey Winston Salem The irony is that the best thing to come out of Bitcoin is that it might cause a lot of extreme libertarians to lose a lot of money. I'm not under any illusion that might cause them to reassess their beliefs, but less money in the pockets of kooky right wingers can't possibly be anything other than a good thing. It certainly would be poetic justice if a bunch of greed heads who obsess over the value of their money end up losing a lot of it because they think they are too good to play with the rest of us and our supposedly phony Monopoly money that we peons continue to trust in. Dec. 29, 2013 at 2:59 p.m.
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1. TJ LONDON It might make a lot of people extremely rich as well. Once the western banking systems begin to collapse most of the people holding fiat currency will certainly lose a lot of money, This could be a once in a lifetime opportunity to make the switch into the new financial order , ( or it may not ) .. Only time will tell ... Dec. 29, 2013 at 6:17 p.m. Recommended1

2. Rassah Washington, DC What would you say and do if bitcoin ends up staying, being as useful for money as email is for communication, and these cooky libertarians become multimillionaires, with the power to use their anonymous money to buy any politician in the world? Or is that too horrible of an idea for you, and you'd rather keep subscribing to the thought that "ignorance is bliss?" Dec. 29, 2013 at 6:17 p.m. Recommended1

3. Jim H Waco The real irony really is that digital currencies, in essence, are the most democratic forms of currency ever created, something conservatives really don't understand. If and when digital currencies are fully implemented, the finance industry, which leans strong right, will no longer be necessary. This will usher in a new 1%, one that will be more agreeable to science and math at least. Dec. 29, 2013 at 10:51 p.m. Recommended1

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80. Wendell Murray Kennett Square PA USA Bitcoin is bad. Nothing unique about its use as a medium of exchange. Packs of cigarettes have often served that function and they may still be a medium of exchange somewhere - in various prisons? Otherwise there is nothing of substance to bitcoins. "am continuing to have a dialogue with smart technologists who are very high on BitCoin" Please name one. The set of "smart technologists" and the set of bitcoinists are disjoint. "Technologists" who considered themselves libertarians (aka nihilists) are not smart, so they do not count. Dec. 29, 2013 at 2:59 p.m. Recommended6

1. Rassah Washington, DC I'm pretty sure libertarians who have millions and are running Silicon Valley do count, and you do not. Regarding bitcoin, here is a short list of unique features http://www.whyisntbitcoinworthless.com Dec. 29, 2013 at 6:17 p.m. Recommended1

81. Dr. Reliable Academia, DC Paul Maybe you should seek out some "smart technologists" who know that its actually spelled, "Bitcoin" or "bitcoin" and not "BitCoin." Even better, find some who can "recognize...different questions." But of
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course, you sound reasonable here; not dismissive, just unconvinced. Keeping things impartial and "academic" - that's what you do. As to a "reliable store of value," you surely mean "predictable store of value." I predict the dollar will decrease in value. And I rely upon that fact. The dollar is the world's most reliable store of value, which is precisely why Bitcoin exists. But Paul, it's so much more than a currency. And no amount of faculty lounge pseudo-intellectual passive-aggressiveness will change that. Dec. 29, 2013 at 2:59 p.m. Recommended1

82. Adam Paradise Lost " you should read Charlie Stross " Most decidedly "should not." I haven't seen so much hyperventilating in one place outside of a Lyndon LaRouche card table set up at the front door of the post office. Neither you nor Stross have much to say but rather shallow repetition of others' shallow coverage. Your technical friends seem to be rather weak in this arena as well (they are probably thinking about Zerocoins - maybe you should too). Let's take the sample you chose to mine from Stross, above: " to damage states ability to . . . monitor their citizens financial transactions. " Compare this naive sentiment with the reality: "Integral to Bitcoin is a public transaction log, the blockchain, that records bitcoin ownership currently as well as in the past. By keeping a record of all transactions" (source, wikipedia) Dec. 29, 2013 at 2:59 p.m. Recommended1

83. Zolicon Canada So is Oil,Gold,Diamonds,Silver and Money.


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84. Robert Baesemann Los Angeles CA Some observations: There is as much gold (held in suspension) in a cubic mile of sea water as there is in Fort Knox, and the technology to extract it has been known for over fifty years; The world market price of gold is capped by mining or extraction costs; The exchange rate between gold coins, paper currency backed by gold, and the market price of gold are unrelated; Had the Treasury minted a $3 Trillion platinum coin weighing one ounce, as per PKs mow famous proposal, the coin would have resided in the vault at the FED and the market price of platinum would have continued to $1,460 per ounce; Stiglitzs recent NYT OPED referred to trust as the one of the magic ingredients that make markets functional, and his point was well taken; Whether anyone wants to admit to the existence of a Bitcoin Centeral Bank, as a practical matter there is one and it controls the supply of bitcoins (even if it only controls who has a franchise to create and sell Bitcoins; In the 21st Century, technology might enable parties to instantaneously buy and sell Bitcoins for Dollars or Euros in such a way that there is no exhange rate risk to either party (I simulataneously buy Bitcoins with Dollars or Euros, and you accept my Bitcoins and simultaneously sell them for Dollars or Euros; and If this procedure hides something worth hiding this could happen. Dec. 29, 2013 at 2:59 p.m. Recommended1

85. bill
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albany It cant be stolen thats why its a store of value. Dec. 29, 2013 at 2:59 p.m. Recommended1

1. dmf mi ] Theft of bitcoins can and does occur.[14] Generating and storing keys offline mitigates such risks, however.[ from wikipedia Dec. 29, 2013 at 6:17 p.m. Recommended1

2. Rich Ohio Yes it most certainly can be stolen. Several Bitcoin exchanges have been hacked and thousands upon thousands of wallets as well I'm sure. Dec. 29, 2013 at 8:42 p.m.

86. Dale Sheldon-Hess Anchorage, Alaska Okay, so suppose a bitcoin-like system, except with a rate of new coin generation (and even destruction!) depending on the rate of transactions. (Entirely technologically feasible; I'm wondering if the economics work out and if there's an equation you could use to get the right rates, since you can't ever change it after it's released.)
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1. Rassah Washington, DC Can be screwed with by people repeatedly sending money back and forth to themselves, or by sending transactions off-chain. Dec. 29, 2013 at 6:17 p.m. Recommended1

87. NorCal Girl Oakland, CA Interesting article supporting the theory that Bitcoin is evil: http://bits.blogs.nytimes.com/2013/11/23/study-suggests-link-between-dre... Dec. 29, 2013 at 2:59 p.m.

1. Rassah Washington, DC Debunked and already retracted by the authors. Dec. 29, 2013 at 6:17 p.m. Recommended1

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88. SheHadMANHands Chicago "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." -Paul Krugman Dec. 29, 2013 at 2:59 p.m. Recommended2

89. Independent Thought Michigan Krugman's consistent trashing of bitcoin makes him look no different than the astronomers of the Royal Society (from 300 years ago) who were ideologically opposed to John Harrison's technological achievements with his solution to the Longitude Problem. Just as they have not recognized his achievements to this day, I doubt that Krugman will ever take off his ideological blinders. To Observer, you sound like the early detractors of the internet. I hope that you recognize that your ability to read this article early and to respond to it online is made possible by the same techonlogical breaktrough that others claimed was only "to facilitate illegal transactions." Dec. 29, 2013 at 2:59 p.m.

90. Adam Smith Portland Oregon First Thing: Its Bitcoin, bitcoin, BTC or XBT (if you want to be ISO compliant). It is not BitCoin. Stop with your camelCasing it already. Next: The libertarian/anti-government individuals who are interested in bitcoin are a loud minority. Most of us are reserved technology enthusiasts who are also fascinated by distributed systems, cryptography and economics. We're responsible for the protocol.
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Last Thing: Bill Gates calls bitcoin, "A techno tour de force". Paul Krugman says, "Bitcoin is evil". Remind me, who was right about the internet again? Was it Gates or Krugman who saw the potential in an emerging technology? Right, it was Krugman who said that the internet was a fad, and Gates who made billions off of it. http://web.archive.org/web/19980610100009/www.redherring.com/mag/issue55... The bottom line is, the "political extremist" argument is great for sensationalism, but it doesn't line up with reality. Who wouldn't want a more efficient way to transact securely on a ledger? That's all we're talking about here. Dec. 29, 2013 at 2:59 p.m. Recommended4

1. jbahr Longmont, CO Gates pooh-pooh'ed, denigrated and ignored the Internet for a decade. You must be thinking about another Gates. Dec. 29, 2013 at 8:42 p.m.

91. Chris Florida Someone who can't even get "BitCoin" correct as "Bitcoin" or "bitcoin" (see the wiki) wants to be believed about all the other stuff? Paul, you don't just miss the little stuff, you are missing the big picture. The bitcoin blockchain answers a large theoretical question in Computer Science, provides nearly instant, nearly frictionless transfer around the world. Hint: Bitcoin could have much more impact on commerce than the fax machine (and internet, lol) did. Since Krugman thinks the second to last paragraph in his column is a good way to encourage polite discussion, I suspect that Krugman likes Keynesian economics because it pushes his big government, central bank, inflation loving, control-freak fetish which pleases his masters in government.

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92. Jason DC Its not a store of value? Have you been paying attention to the Target fiasco recently. If the hashing function is so sophisticated people cant track you, nor people hack it, i can understand its value. Would i personally store value? Not sure Dec. 29, 2013 at 2:59 p.m. Recommended1

93. n.n far and away To me it looks like no one has not yet mentioned freicoin. It looks better, that demurrage sounds good. Its anyhow beyond me how this goes along with classical equations concerning velocity of the money, money supply, inflation and so on. Dec. 29, 2013 at 2:58 p.m.

94. Elwar US Another ringing endorsement by Paul Krugman for Bitcoin. Every time a big government pro-inflation person attacks Bitcoin I know that my money is in the right place flowing into Bitcoin and Bitcoin related technology. Now it is just articles and a few central banks attacking it, but rest assured that when the big government
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centralized power advocates start feeling the pinch due to their decreasing hold on the economy there will be more severe attacks. Exchanges will be outlawed, websites will be shut down. This is when you know that we are hitting them where it hurts. The great thing about Bitcoin is that Paul Krugman can say whatever he wants about it, governments can do whatever they can to stop it, but Bitcoin technology is just like Bittorrent which has been under attack for years and still survives. As long as there is a computer left working in the world Bitcoin will survive. The technology is beyond your laws and guns. You will have to be like Hitler sending the Stasi to search every home for the jews in order to stop it. And even then, I can keep my entirety of Bitcoin wealth engraved into the ring on my finger or carved into the foundation of my home. Call it a bubble if you like, you focus on the government money side of things. Bitcoin will prevail no matter the value. It has already proven itself superior to the dollar. Dec. 29, 2013 at 2:58 p.m. Recommended2

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1. Wendell Murray Kennett Square PA USA "It has already proven itself superior to the dollar." Oh? In what way are bitcoins superior? The steady flocking of the true believers among bitcoiners here - along with their gobbledygook - is more and more bizarre. And likely to continue. The statements from the bitcoiners ring somewhat like the "the kingdom of god has come" cries from Bible-thumpers. The indignation that the unbelievers cannot understand such gems of assertions as: "The bitcoin blockchain answers a large theoretical question in Computer Science" What is with the capitals for computer science? And what is the "large theoretical question"? Or: "a more efficient way to transact securely on a ledger?" "But Paul, it's so much more than a currency. And no amount of faculty lounge pseudo-intellectual
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passive-aggressiveness will change that." I expect the frenzy to reach a fever pitch within a day or two, then subside, as the the bitcoiners latch on to someone else's weblog. Dec. 29, 2013 at 6:57 p.m. Recommended1

2. Elwar US "Oh? In what way are bitcoins superior?" You can securely and anonymously send a lot of money across the planet in seconds. You can hold all of your wealth in a string of letters and digits with no way of being confiscated. The money in your wallet is yours as opposed to the money in your bank account which belongs to the bank. You can take as much money as you want over borders without it being taken. No more need for carrying a wallet, all you need is your cell phone with access to the Internet to pay for things. Dec. 30, 2013 at 8:02 p.m. Recommended1

3. Elwar US "Bitcoin is nothing like BitTorrent." Bittorrent distributes files to thousands of computers in a decentralized way. Bitcoin distributes the Bitcoin blockchain file to thousands of computers in a decentralized way.
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For both, there is no central location to stop the files from being distributed. To stop both you would have to shut down the whole Internet. Dec. 30, 2013 at 8:02 p.m. Recommended1

95. Seldoc Rhode Island Bitcoin was invented as a way for the Winklevoss twins and some fellow uber geeks to make money. Dec. 29, 2013 at 2:58 p.m. Recommended1

96. Hamish MacEwan Wellington, New Zealand I follow Dr Paul Krugman, winner of The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, for his knowledge and economic insight, not to be referred to the foaming rants of a science fiction author. Is he honestly endorsing that clearly politically motivated phillipic? Stross brags: "Assaulted BitCoin & invaded Libertopia, SAME DAY." What a tosser. Dec. 29, 2013 at 2:58 p.m.

1. Wendell Murray Kennett Square PA USA


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"What a tosser" Is this New Zealanderese? Has Mr. MacEwan taken the dialect test elsewhere in the NYTimes? It is "philippic", by the way, named for the speeches that Demosthenes made against of Macedon, some millennia ago. Philip II of Macedon apparently was fond of horses. Dec. 29, 2013 at 8:42 p.m.

97. Marques Mendes Portugal Bitcoin is not a tulip-type speculation but simply a Ponzi scheme. It is unbelievable that serious economists consider it a currency and the Fed and ECB ostrich attitude is equally deplorable as I explain in this post: http://marques-mendes.blogspot.pt/2013/11/bitcoin-folly-ihave-written-t... Dec. 29, 2013 at 2:58 p.m.

1. E J Huff Laurel Highlands PA In case you might be interested in correcting errors on your blog: the peer to peer network does in fact datestamp the transaction ledger. The bitcoin.org site provides information and software. It does not participate in the network. Anyone who has done some research knows that bitcoin transactions are very public. If anyone is misleading speculators, it would the currency exchanges and the people who sell bitcoins; they are rarely the same people as those who operate network nodes or mining rigs. But when a speculator buys bitcoin, the transaction is over. There are no dividends being paid to early speculators from deposits by late speculators. The speculator holds her bitcoin, hopefully offline, until she decides to use it or to sell it.
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Dec. 29, 2013 at 4:11 p.m. Recommended3

98. John Vashon Island WA Bitcoin is one more instance of the overly-intellectual (male) push-back against the Stern Father which underlies most all of the Libertarian pantheon: "You shall not make me do what I want not to do". Which is this case is have anything to do with that awful, awful fiat currency stuff. And bitcoin comes with the best of Shiny Object Swag: it's generated by computers, so our OverlyIntellectual Male simply knows it *has* to be cool, all-the-while our Overly-Intellectual Male has no clue how it works. Win-win. Dec. 29, 2013 at 2:58 p.m. Recommended2

1. Elwar US "You shall not make me do what I want not to do" Except a stern father usually does not use guns to force me to do what I want not to do. Dec. 30, 2013 at 8:02 p.m. Recommended1

99.
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Boussac Paris A floor on the value of bitcoin is the value of the bitcoin network divided by 21 million units of account. The units of account can circulate only on the bitcoin network and the bitcoin network is useless without the units of account. Now predicting that the value of the bitcoin network can disappear is like predicting that the email network or the the web can disappear. The value exist because bitcoin is useful and bitcoin is useful because the network is secure and reduces frictions in payments and money transfers. The security comes from the miners and the miners are not going anywhere any time soon because they have a vested interest in the value of bitcoins. Even after all the bitcoins have been mined and they collect only transaction fees. How hard is it to understand that for a Nobel prize winner ? Wait. The Nobel prize in Economics is awarded by the Bank of Sweden. Dec. 29, 2013 at 2:58 p.m. Recommended1

1. jbahr Longmont, CO The value of any money is predicated upon trust, force or threat of force. Technology has nothing to do with it. How hard is that to understand? Dec. 29, 2013 at 8:42 p.m.

100. Andres Bonilla NYC "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." -Paul Krugman, June 1998 Dec. 29, 2013 at 2:58 p.m. Recommended1

101.
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jka418 Twin Cities Yes, and I'll add the whole thing seems set up to make money laundering/drug trafficking/organized crime that much easier (this was especially true with Silk Road). There have always been banks that will hide your tracks for you, but they've historically been in grand offices in the Old World and out of the price range of middle income international criminal syndicates. Bitcoin will probably help your everyman run of the mill human trafficking ring in Thailand move their money around with out those darn human rights activists and Interpol snooping around. Welcome to the libertarian utopia of the free market, the only things that are prohibited is disclosure and investigation of crime. Dec. 29, 2013 at 2:58 p.m. Recommended2

102. poomakmak tent I like the math types here who point out Bitcoin actually addresses such issues as the TwoGeneral's problem. But I also think Bitcoin has not proved as nasty as banks and govts faking Libor rates, or the Feds buying of selected assets to prop them up. If Bitcoin allows someone to exchange without high transfer fees a la Amex, good; if it worries govts, that's good too. Throwing scarewords at Bitcoin--"you libertarian"--shows Bitcoin has promise. Dec. 29, 2013 at 2:58 p.m. Recommended1

103. Andres Bonilla NYC "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." -Paul Krugman, June 1998 Dec. 29, 2013 at 2:58 p.m.

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104. lakawak binghamton "conscience of a liberal" Just not the intelligence that non-liberals possess. Dec. 29, 2013 at 2:58 p.m.

105. TKList Michigan Replace the word "BitCoin" with "US Dollar" and Krugman would have a decent article. Dec. 29, 2013 at 2:58 p.m. Recommended2

106. Mark Richmond, VA Bitcoin reminds me of a certain emperor... Dec. 29, 2013 at 2:58 p.m.

107. Alan Mills Chicago I don't see why BitCoins are different than the "free babysitting" slips you have regularly used as an example. They are useful in facilitating trades, as long as everyone agrees to accept them. They are, unlike US currency, completely voluntary. However, as long as there are a significant group of buyers and sellers
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who you trust to accept them, then they have value. Dec. 29, 2013 at 2:58 p.m. Recommended1

108. Bitcoin Evolution USA The real ground of the dollar is that it could be used for fire-starter. The root of all currencies is essentially zero. We are all bought in to the system, so the dollar has value. More and more folks are buying in to bitcoin, however, which is increasing its value. Quite simple, actually. Bitcoin undermines the current power structure. It's only evil depending on who you placed your bets on. Test with yourself whether or not bitcoins are evil- get some free bitcoins here: http://www.bitcoinget.com/?r=1CuNZd4dmbrVvSD2D8nkEr4SsZTne9XVse Dec. 29, 2013 at 2:58 p.m. Recommended1

1. Elwar US "The real ground of the dollar is that it could be used for fire-starter" Not true, dollars can also be used as wallpaper. The price per square foot is almost the same with the low value of the dollar. Dec. 30, 2013 at 8:02 p.m.

109. phillyg NYC @C -Ripple (the decentralized payment network) is currency agnostic. You can use it to send USD, EUR, and even bitcoins around in a decentralized way. That's why people call it "Bitcoin 2.0" -- because it applies
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the bitcoin decentralized architecture but supports any currency. (whereas bitcoin only supports bitcoin). You are correct about Ripple's founders currently owning the majority of the XRP currency. If you don't like the XRP ownership structure, just dont invest in XRP! You don't need to own a bunch of XRP in order to use Ripple. Ripple is still useful as a payment network. If anyone wants more information: https://ripple.com/ripple_primer.pdf Dec. 29, 2013 at 2:58 p.m.

110. Jim San Diego Krugman is clueless when it comes to technology. Here is what Krugman said in 1998: "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." Stop talking about technology, Krugman! Dec. 29, 2013 at 2:58 p.m. Recommended1

1. Chris Florida It isn't just technology he is clueless about! Dec. 29, 2013 at 8:42 p.m. Recommended1

111. TheZeitgeist Santa Monica, CA Bitcoin's 'store of value' is purely a collective social perception, just like dollars. The social mechanism determining the value of dollars is top down, whereas BTC's social mechanism is very much in the
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opposite direction. I think this is what frankly scares Mr. Krugman, who sees a top down world everywhere - from his perch on top of that world which is the best place to be in such an arrangement. So it is a threat to the comforts and esteem of his ilk more than any other. Contrary to Krugman's views, this is most definitely a feature and not a bug. Dec. 29, 2013 at 2:58 p.m.

112. E J Huff Laurel Highlands PA The minimum value of bitcoin derives from the fact that you must use it to pay the miners to include your transaction in the journal. This transaction may contain a limited amount of arbitrary data, and a timestamped unforgeable permanent record of this data is a valuable service worth paying for. Bitcoin makes it possible to make that payment. For example, to make a proof of existence before the record date for a digital document, you calculate the hash of the document and pay bitcoins to have the hash included in the ledger. Dec. 29, 2013 at 2:58 p.m. Recommended1

113. TJ LONDON Will you soon be telling us technology is evil and we should all be moving back into mud huts & caves. How bizarre that a Nobel Prize winning economist cannot spot quite possibly the biggest technological development in financial innovation in 2000 years ? I thought you were a Globalist , and here is the perfect anti-inflationary 100% mathematically predictable Global Currency and your calling it evil. Bitcoin is apolitical. It is programmable democratic money. Sure its abit unstable at the moment , it is still not yet out of the womb. If you want to find a currency used by drug dealers , money launderers and crooks you should really be looking at the US Dollar , not bitcoin. The Bitcoin blockchain stores a distrubuted hard copy of every single transaction these cannot be faked or hidden like cash payments. Eventually forensic analysis tools will have the ability to uncover any transactions , its really early days , I am surprised you are not raving posistive about this innovation. Dec. 29, 2013 at 2:58 p.m.
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114. Ad Amsterdam Nothing is as practical as a good theory. To understand the price behavior of bitcoin, use the quantity theory of money; MV = PQ. Sudden price surge and hoarding is to be expected, not deflation: http://zeroprofits.blogspot.com/ Dec. 29, 2013 at 2:58 p.m.

115. Jen Smith Nevada Bitcoins survival may depend on retailers willingness to accept bitcoins and not surprising then that Overstock.com is potentially willing to do so. Overstock.com needs to move discount merchandise. They can charge a bitcoin price at whatever rate it is at the moment of purchase and most likely the customer will not return merchandise if that meant risking some of the value of what they originally paid, and thats only if the retailer allowed returns for purchases made with bitcoins. It might give them an edge over other online discount stores, if they could produce enough sales for it to be worthwhile. Dec. 29, 2013 at 2:58 p.m. Recommended1

116. Larry Figdill Charlottesville Well, if it turns out that bitcoin really allows people to do their financial transactions secretly and to dodge paying taxes, it might just turn out to be a big success. Tax avoidance is one of the strongest motivating factors in business. Dec. 29, 2013 at 2:58 p.m. Recommended2

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117. Jason Christopher Hartley Brooklyn, NY Mr. Krugman, Bitcoin stores value by being something that can not be destroyed. It takes great computing power to create, but it is trivial to prove to whom it belongs once it exists. All of this is done with math. The math will exist even if the government, the earth, or the universe ceases to exists. What better store of value could you ask for? Dec. 29, 2013 at 2:57 p.m.

118. Avraam J. Dectis Portsmouth,Va . Chinese Central Bank has the correct approach - do not support competitors to the currency. Those who think gold cannot suffer hyperinflation may wish to consider what happens when they find the sold gold asteroid the size of Rhode Island - which they may now that ships are being readied to mine asteroids. . Dec. 29, 2013 at 2:57 p.m.

119. Joe Ryan Lima, Peru Everyone here is aware of the whole e-money, e-banking, mobile-banking, mobile-money, branchlessbanking thing that has been going on in emerging economies for the last decade, right? This was cuttingedge in the Philippines when I left there ten years ago. As an introduction to the large literature on this, see, for example, http://www.fdic.gov/about/comein/june11three.pdf.
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120. Tan Shanghai Krugman 1998: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 participantsbecomes 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. Dec. 29, 2013 at 2:57 p.m. Recommended1

121. Mick Boston You have to admire the conflation of techie arrogance and grammatical errors in the pro-Bitcoin comments here. Our world in a nutshell. Dec. 29, 2013 at 2:57 p.m. Recommended3

122. Ben D Palo Alto, CA "Krugman is Evil" I come now to talk not about macro but about Krugman. So far almost all of the Krugman discussion has been positive economics -- is Krugman actually right? And I have to say that I'm still deeply unconvinced. To be successful, an economist must be both intelligent and be right. And it remains completely unclear that Krugman is actually right about many things. I have had and am continuing to have a dialogue with smart people who are very high on Krugman -- but when I try to get them to explain to me why Krugman is right about some topic, they always seem to come back with explanations about how his work on interenational trade won the Nobel Prize. But as I said, this is a positive discussion. What about the normative economics?
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Krugman looks like he was turned into a liberal weapon, intended to serve as apologist for the status quo -- the central banks, and the state in general. Many don't like that agenda, and neither do I; but I am trying not to let that tilt my positive analysis of Krugman one way or the other. One suspects, however, that many Krugman enthusiasts are, in fact, enthusiastic because he pushes the same buttons as their statism fetish. So let's talk both about whether Krugman is right and whether he's actually non-evil -- in part to make sure that we don't confuse these questions with each other. Dec. 29, 2013 at 2:57 p.m. Recommended3

1. Len Charlap Princeton, MJ Ben, if you are so down on Krugman, why don't you give some examples of where he has been wrong and has refused to admit it. A vague rant such as the above fails to convince me. Dec. 29, 2013 at 6:17 p.m.

123. xiaolai beijing "Bitcoin Is Evil"... because it's not a store of value as are gold and dollar? and this is your line of reasoning? It's pretty hard for me to connect this article to its topic, though. Dec. 29, 2013 at 2:57 p.m.

124. Greg Sydney, Australia What a sad world we live in when Nobel prize winners think maths is evil but but taxes are not. Is the formula E = MC^2 evil becuase it allowed scientists to undertand the power that could be liberated
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by spliting heavy elements, which lead to the creation of nuclear weapons? Lets agree on the fact that bitcoin is a medium of exchange. As long as suffient numbers of people agree on a particular item anything can be a medium of exchange, even Tide washing powder. Bitcoin as a store of value? Well does a currency have to be a store of value? The Argentine and Venezuelan currencies could not be considered a store of value this year, yet they are still considered currencies. Only if you wish to hold bitcoin, litecoin, etc would you need to care if it retained a "value" vs other currencies and tangible goods, and that should be the indivual holders concern and not any one elses. Just as no one in the US should care that I have bank account demoniated in Aussie dollars, and those dollars used to have a "value" of $1.10 US and are now valued at 89c US. Dec. 29, 2013 at 2:57 p.m. Recommended1

125. Newbie US Buying Bitcoins! Dec. 29, 2013 at 2:57 p.m. Recommended1

126. Mick Boston Welcome to the world of trying to explain reality to the IT people. Joking aside, it's an on-coming train for humanity that so many of our new movers and shakers are trained solely in technology. The world is a database to them, and all problems algorithmic. Except is isn't, and they aren't. Dec. 29, 2013 at 2:57 p.m. Recommended2

127.
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FRHorton New Mexico Didn't you define money as a social convention just last year? "Is fiat money a bubble in this sense? Not at all. Its true that green pieces of paper have no intrinsic value (except that they can be used to pay taxes, which is actually important), so that my willingness to accept green paper from you is based only on my belief that I can in turn hand that green paper over to someone else. But theres nothing to prevent that process of monetary circulation from going on forever." "Its a convention, which works as long as the future is like the past. Obviously, such conventions can break down but then so can things like property rights. In fact, you could argue that almost every asset in a modern economy owes its value to social convention; green pieces of paper could become worthless, but then so could any paper claim, which is, after all, worth something only because laws say it is and laws can be repealed." So there you have it in your own words. Bitcoins are becoming a social convention. Dec. 29, 2013 at 2:57 p.m.

128. Felipe Campinas First, learn to write "Bitcoin" and not "BitCoin", and after say something. Dec. 29, 2013 at 2:57 p.m. Recommended1

129. Doug Broome Vancouver I've rarely seen a Krugman column or blog comments section with so many opposed, so many Bitcoin true believers. But their faith is somewhat reminiscent of the acolytes of the two economists who set up the fail-safe trading system in financial instruments. (What was its name?) The believers were adamant right to the point the thing flopped monumentally. Dec. 29, 2013 at 2:57 p.m. Recommended1
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130. Tom Kansas City, MO I don't think it's a coincidence that the recent surge in BitCoin value coincides with the rise of the CryptoLocker virus: http://www.zdnet.com/cryptolockers-crimewave-a-trail-of-millions-in-laun... which ransoms the contents of a user's hard drive for $300/Euro (if paid in BitCoin within 3 days) and then jacks up the ransom price thereafter. All these virus victims are price-insensitive (they need $300 in BitCoin at any trading price), and so they must buy BitCoins now-now-now at any price offered. Is it any wonder the price is skyrocketing? By some estimates, upwards of $27 million has entered the market via this mechanism in the last three months alone. However, if you want to know what will set a price floor, the answer is again, crime. The Silk Road, and similar "dark web" enterprises trading in illegal goods find BitCoin to be a perfect solution to the problem of untraceable, uninterruptible payments for drugs, sex, gambling, murder, human trafficking, and more. This value in trade has drawn competing cryptocurrency (https://en.bitcoin.it/wiki/List_of_alternative_cryptocurrencies), which will eventually erode the value of BitCoin. But for now, BitMiners rest assured in their avarice, knowing that every coin they mine will find a buyer, be it an innocent ransoming their computer, or a criminal plying their trade. You are correct to call BitCoin evil, or rather, a favored tool of evil people. Dec. 29, 2013 at 2:57 p.m. Recommended2

131. Dave Dallas, TX US of A As soon as the IRS taxes Bitcoin, Mr Krugman will be all for them. He's all about taxes and central banking, not so much about liberty. Dec. 29, 2013 at 2:57 p.m. Recommended2

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132. Russell Nelson Potsdam, NY I don't know which is lower in information content: what Krugman writes, who Krugman cites, or the people who comment here. I'm guessing that these are given in the order of increasing information content, and the comments here are pitiful. Bitcoin is a title system. It cannot function as a currency. And normative economics?? Really, Paul? The definition of normative economics is: everything which isn't economics. That is, opinion. Dec. 29, 2013 at 2:57 p.m.

133. actualadvicebtc vancouver, BC yeah lets not forget what Krugman said about the internet in 1998: "The growth of the Internet will slow drastically...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." http://web.archive.org/web/19980610100009/www.redherring.com/mag/issue55... Dec. 29, 2013 at 2:57 p.m.

134. IAG Alameda, CA Felix Salmon had great essay on this about a month ago. Nicely details why Bitcoin is terrible for currency, but good for transactions.

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135. EMoon TX It's rather depressing to read explanations of Bitcoin in comments, which seem to amount to "It's new, it's technological, and that means it's new and that means it's great, because, like, technology! Shiny! New!" So it's a new way of paying for things that avoids a processing cost. And it solves the Two Generals problem (really? I guess we'll find out, but I have a certain level of doubt.) But I've lived through several bright ideas for new ways of paying for things that avoid a) banks, b) government currencies, c) "the cost of doing business" and which always flopped in the end. All were going to be more rational, or more fair, or both, than the usual...but they didn't survive. What I don't see yet is how adding computers to another idea for a new way of paying for things is going to make it more viable. Because when the questions are asked, I get hand-waving and there-there-youjust-can't-understand-you're-too-old, you-Luddites. Which is neither an answer to the questions, nor convincing. Dec. 29, 2013 at 2:57 p.m. Recommended1

136. Arun Hong Kong Krugman, 1998: "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 participantsbecomes 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" Dec. 29, 2013 at 2:57 p.m. Recommended1

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137. JP Michigan Hey Krugman, let's bump heads. in this debate. I am Polish-American and from a working class (nonunion) Detroit background, Are you ready? Just let me know. Dec. 29, 2013 at 2:57 p.m. Recommended1

138. TKList Michigan Replace the word "BitCoin" with "US Dollar" and you would have a decent article. Dec. 29, 2013 at 2:57 p.m. Recommended3

139. Schorsch Berlin Is it really THAT Krugman? Maybe he's just too old meanwhile - his question: 'Where's the floor' or 'is it really a stable storage of value' can be clearly answered with YES, however not yet maybe. But as soon as it becomes more and more popular around the world it will actually be stronger and more stable than any national currency can ever be. Why? Because it's crowd-steered. No government or hedgefond failure could ever harm it, as there is no central steering committee susceptible to flaws and fraud. And if enough people around the planet accept bitcoins (or any other VC - i personally tend more to believe in one of the other upcoming ones) it almost does have intrinsic value, as you can trust in the fact, that someone else will always accept it. There is just no need for a currency to be governmental or 'physically' backed. This is old thinking- Wake up, Paul, a new era has just begun. Dec. 29, 2013 at 2:57 p.m.

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140. Aliice Sydney I have just lost my only son twenty one years old due to the flourishing of online drug sites over the past four years which could not have occurred without Bitcoin. This is evil. It permits the unleashing of the global (and I mean global) black and cash economies by hiding the buyers and sellers of illegal trade. The sellers would not have the financial resources to hide the transactions and they do not need to when Bitcoin and sites like Silk Road, Sheep and BMR offer this service to every two bit criminal across the globe. Come on take it down. do the right thing. China and India have. Nation by nation we need to close bitcoin down. Arguments about freedom and making money mining it come straight from Wall Street who have found another toy to gamble on. Yet they gamble over the deaths of many. Bitcoin is pure evil - it is nothing but an ugly Black bank. Please help me and sign my petition for my lost son addressed to the Prime Minister of Australia. http://www.change.org/petitions/tony-abbott-stop-all-our-banks-accommoda... Dec. 29, 2013 at 2:57 p.m. Recommended2

141. Roger McKinney Broken Arrow, OK PS, sound monetary theory shouldn't be interpreted as a call for a gold standard. Hayek and Friedman examined many monetary regimes and finally settled on free banking as the best solution. rdmckinney.blogspot.com Dec. 29, 2013 at 2:57 p.m.

142. JS84 AL Did you folks know ... When Aaron Burr and Alexander Hamilton dueled (resulting in Hamilton's demise)
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... the duel was the climax of hostilities between them over the central banking debate? Burr felt like the idea of a CENTRAL BANK was evil. Hamilton loved the idea .. being funded by folks who really, really wanted a central bank, of course. Thankfully, Burr was Thomas Jefferson's VP, by the way. If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all property until their children will wake up homeless Thomas Jefferson Dec. 29, 2013 at 2:57 p.m.

143. JS84 AL We need a privately owned central bank to control our currency! Look! Even Thomas Jefferson agrees with Mr Krugman! If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all property until their children will wake up homeless Thomas Jefferson Oh, nevermind ... he seems to have felt a central bank was a TERRIBLE idea. Dec. 29, 2013 at 2:57 p.m.

144. harrync Hendersonville, NC When my local stores start advertising prices in bitcoins, and guarantee to honor those bitcoin prices for a week, then I'll agree that bitcoins are just possibly money. Dec. 29, 2013 at 2:57 p.m.

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145. ryangmd California You assume that banks and nations are trustworthy stewards of our currency. When the US taxes large corporations as much as they tax blue collar workers, and when the banking industry doesn't repeatedly lay waste to our economy to line their obscene pockets, I will agree with you that BTC is evil. What BTC does is level the playing field. It's not just the 1% and the corporations who can have money protected from tax in havens in the Cayman Islands. Now the guy who I hire to mow my lawn can have the same advantage. As to whether it's viable? You. Can. Use. It. To. Buy. Anything. On. Amazon.com. I have personally converted BTC to credit on Amazon (using Gyft) and the trailmix I am munching as I write was bought with BTC. In addition since we as a society have de facto decided that money is speech, BTC is a vital protection of that speech. Banks and governments want to blockade Wikileaks? BTC is the answer. Paul Krugman, you are the biggest part of the brain trust at the NYT and props to your Nobel in Economics.... but man have you got this so wrong. Dec. 29, 2013 at 2:57 p.m.

146. norbert Cucamonga, CA BitCoin can better be explained by P.T. Barnum than J.M. Keynes. Give me a few teenage hackers, an algorithm and some bandwidth and I shall move the [BitCoin] world. 21 million limit, they must be laughing themselves silly; and who are they? Exactly the small group of operators in charge of coining and "enforcing" said limit. If it's not at 100 million by now, I'll eat my hat. Dec. 29, 2013 at 2:56 p.m. Recommended2

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147. jimmy quebec The ignorance of simple economics that we see in this comment board is rather astonishing in a blog about economics. The gold-bugs and libertarians have come in droves to attack fiat money and governments alike. The truth of the matter is that the dollar has value both because we believe in it and we believe we have to pay our taxes. There is no way anyone in charge of U.S. government is going to accept bitcoins as payment for taxes. So if you happen to be naive enough to accept bitcoins from your employer in exchange for your work, you will have to find someone to exchange them into dollars to pay your taxes. If the rate goes from 1500$ to 500, sad day for you. Bitcoin is nothing but an elaborate ponzi scheme with nothing but hope backing it up. Like all ponzi schemes some people can make out like bandits for a while but eventually someone will be left holding the bag. Dec. 29, 2013 at 2:56 p.m. Recommended1

148. DV Oakland, Ca I am admittedly not an economist. In fact, a pretty concrete kinda guy. Thus, I have trouble understanding, let alone putting my faith in, something as 'abstract' and obtuse as a bitcoin. Likewise with derivatives and elaborate, complex mortgage backed securities: and we all know what happened with the latter. Dec. 29, 2013 at 2:56 p.m. Recommended1

149. David Blum Cheong-ju South Korea

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If you want to bet on Bitcoin, be my guest,. But until I can go into a bank in Seoul, Tokyo, or Japan, and convert my Bitcoins into a functional currency, I'll pass. Let's place our bets, see who wins. Dec. 29, 2013 at 2:56 p.m.

150. gobanknoteless Greece Getting the opportunity of talking about Bitcoin, I 'd like to draw your attention towards a much more realistic idea: Real money with all easiness of digital : It's all in two words: " abolish banknotes! " See all at http://bponline.amcham.gr/?p=2099 in brief and at gobanknoteless.wordpress.com in full A happy 2014 to all! Dec. 29, 2013 at 2:56 p.m.

151. brucewhain Brooklyn The Bitcoin political agenda of Stross, mentioned here, does sound kind of illegal. But it also seems necessary to strike a balance between government accountability and excessive government spending. Any practical means of getting the government to reconsider profligate spending as far as I'm concerned is "on the table" - as some politicians like to say - so long as it's legal. It doesn't take much digging to come up with examples: Our genocidal wars; the CPS-court-caregivers'-judges' child kidnapping racket, which has lead to death and destruction for many American children; or the NSA (to name only one of many overly active secret programs which, taken as a whole, have actually done much destroy our world standing and national security) are but a few. Profligate spending on these Soviet-style make-work programs automatically leads to corruption when useful idiot Aparatchiks put money above all. Anything that might possibly offers a way to remind government that they can not be permitted to exact destruction against us - and many, many others - is good, not evil. Like the current plan in Utah, to cut off the NSA's water supply. (too bad that one's not gonna work.) Dec. 29, 2013 at 2:56 p.m.

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152. airwind Victoria, BC " How can giving something value be evil? If people want to give sticks value, or rocks value, then how can giving bits value be any evil? " ..... here's the secret... the state/statists... wan't the monopoly of giving value to stuff so they can earn.. spoils/profits from it.. well.. the government currency loses its value every time they print more.. and guess whose got the monopoly on money? :D when you control money you control people.. easy as that.. nobody controls bitcoins.. you have ownership of your own property.. the only thing the government can do is make things harder and difficult on anything they touch.. :D Dec. 29, 2013 at 2:56 p.m.

153. Michael O'Neill Bandon, Oregon Bitcoin is not so much like tulips as the rai stone money of Micronesia. Difficult to fabricate, impossible to counterfeit, hard to steal, subject to fraud and totally worthless for any purpose. The rai stones were money for perhaps 2000 years. But only because everyone agreed it was so. Neither Bitcoin nor any other altcoin will ever be accepted in general commerce. It is a joke, yes? Dec. 29, 2013 at 2:56 p.m. Recommended2

154. olverko nyc "why BitCoin should be a stable store of value" This is economical question but no currency is ever considered a stable store value due to inflation. if you classify bitcoin into wrong category one will have a hard time see its potential. Bitcoin is more likely a proxy than currency. Dec. 29, 2013 at 2:56 p.m.
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155. lotus PA In the past the FED would just need to raise interest rates to get everyone back into the dollar... why can't they do that ever again? Seems the value of the dollar has been thrown into the abyss and bitcoin is the canary in the coal mine. Hate it all you want.. you are really just hating the people that you associate as gold bugs but many of those gold bugs hate bitcoin too... but bitcoin still lives on since it is exposing the truth of money. That is one of its many intrinsic values that most will understand in years to come... the web wasn't accepted overnight either. Dec. 29, 2013 at 2:56 p.m.

156. Jj Japan I've never seen you mention Bitcoin's value in the illicit economy. Blackmarkets deal in cash, but that isn't possible in the digital age. Bitcoin is untraceable cash for trade on the internet. In this respect it has enormous utility, and I suspect that's a large part of the real reason it's taken off. In that respect, its usefulness is what makes it valuable, and assures the price can't drop too much. Like it or not, there's a big demand for it for very practical, non-idealistic reasons. Dec. 29, 2013 at 2:34 p.m. Recommended2

157. Sick of propaganda Time to Change this Broken Economy Have you ever read a physics book? Well if you have you'll know that with in the next 30 years we will have fusion power and along with fusion power comes the ability to create Gold in a Laboratory so what
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is the value of gold when it will be made synthetically like Diamonds. I could never see gold being wasted on something as worthless as jewelry. We need that gold to make micro chips not a necklace or ring. if you haven't noticed more people are getting educated Science and Technology will eventually over power the private war sectors and Bankers. It's already happening how many Billionaire Techie's have come about in the past 10 years. They will only be more Techie's who become some of the worlds richest and most influential people over the next 20 years. So as we move in to a technological age not the 17th century as you so called it. Why is it a store of value you ask? Only 21 milion ever to exist gives it real value since only 21mil can exsit and tehy say we produce 50 million troy ounces of gold per year, Doesn't seem that rare. Roughly everyone on the world can hold 0.75 troy ounces of gold. Yet if all btc was in existence everyone could only have 0.002526btc. It holds governments viable for budgets not unlimited bail out money for rich bankers and other politicians. Bitcoin was made to free us from a broken system the government should not control my money or what i do with it. Sorry that they have tricked you in to thinking terrorists are coming for you. Dec. 29, 2013 at 1:44 p.m.

1. Mika G Indianapolis In other words, you are one of the early adopters who is hoping that you will end up getting filthy rich when bitcoin takes off. Anything that relies on perpetual deflation (defined as requiring less and less of it to trade for a given quantity of goods) is completely unusable as a serious currency. It's a toy for speculators getting rich off the starry-eyed true believers. Also there is way more than enough gold to use for both jewelry and industrial uses. Because the fact is gold isn't even that useful, it's too soft compared to most metals. It's merely pretty, so people who are easily attracted to bright shiny objects think it's important. It is also pretty much useless as a form of currency. Dec. 29, 2013 at 2:13 p.m.

158. simzap Orlando I don't mind the time it takes to transfer money securely or paying a tax on that to support the public weal. So I personally wouldn't get involved with Bitcoins or speculation in them. I do find it troubling that this form of payment has been used to hide criminal activity but caveat emptor for those that wish to engage in this activity. Dec. 29, 2013 at 1:39 p.m.
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1. Sick of propaganda Time to Change this Broken Economy Millions of USD are used in illegal activities everyday. Dec. 29, 2013 at 2:56 p.m. Recommended1

159. Stanford Lifer Palo Alto Krugman fails to grasp the fundamental purpose and bedrock of currency in the first place (reliability and fungibility). Bitcoin destroys the US dollar and other fiat currencies by revealing how unreliable they really are. What does Krugman have to say about the fact that the dollar is worth less than 5% of what it was when it was tied to gold? His notion of currency starts and ends with defending the current system in the US. He doesn't bother to ask himself "what is wrong with this system and how might Bitcoin fix it?" Krugman seems to think allowing the government control over everyone's holdings, with the power to debase those holdings at the drop of a hat, and run up endless debt is a good thing that deserves to be defended. Krugman does have one thing right... Bitcoin is a threat to the dollar, as it should be. It is a dramatically more reliable means of exchange than the U.S. Dollar. Bitcoin also holds governments accountable, as they cannot simply print Bitcoins out of thin air to fund any and every project that Congress votes for, and pass that debt onto everyone unfortunate enough to have their savings tied up in dollars. Dec. 29, 2013 at 9:35 a.m. Recommended4

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1. Luke Taiwan Well, Krugman wants to be able to inflate. Nothing is clearer than blog. In fact, he is constantly harping for inflation. He supports QE and he is pretty frustrated that inflation is not as high as he would like. He even hopes that QE would raise the future expectation of inflation. Dec. 29, 2013 at 2:56 p.m.

2. simzap Orlando You sir fail to grasp that dropping the gold standard has been an absolute boon to economic activity since the day that happened. And, the dollar has been a remarkable instrument of progress in trade and commerce. What are you going to replace that with, anarchy? The hold the plutocrats have on the throat of our democracy notwithstanding. Dec. 29, 2013 at 2:56 p.m. Recommended2

3. Len Charlap Princeton, MJ Let's look a some history on the debt. After WWI, we had 10 years of balanced budgets. Here are the debt figures: 07/01/1920 $25,952,456,406.16 06/30/1930 $16,185,309,831.43 In 1929, the debt was only 16% of GDP AND THEN WHAT HAPPENED !?
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BTW History shows us that every time we embraced austerity and balanced the budget for a while, we got a depression and every major depression followed a period of surpluses. After WWII we had even more debt as a percent of GDP, but we had mostly deficits for 27 years, Here are the debt figures: 06/28/1946 $269,422,099,173.26 06/30/1973 $458,141,605,312.09 As you can see, the debt almost doubled, but we got the interstate highway system, Medicare. a median real household income that was 74% larger, and GDP growth averaged 3.8%. BTW the public debt was 109% of GDP in 1946 and the gross debt was 121%. Those figures are about 73% and 100% today. Please explain why we ever have to pay off or even pay down the debt. Debt service is running at 0.8% of GDP, the lowest in about 60 years. When did we pay off the debt from WWII? When did too much debt EVER negatively impact the economy? Many times (e.g. 1929) too little debt sure did. The definition of insanity is doing the same thing over and over and expecting a different result. http://www.whitehouse.gov/omb/budget/Historicals http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo3.htm Dec. 29, 2013 at 2:59 p.m. Recommended3

160. E. Harokopos New York One must look at BTC as the next step in Digital (R)Evolution. The new life form on this planet (the computer) requires a currency that it can control so it can further finance its evolution without constraints from human currency that will impose restrictions in favor of human life. http://bit.ly/JBidiT The next thing is for digital religions and digital Gods to emerge. Certainly the hypothesis that this world is a computer simulation of some form, or what I call a Functional Virtual Reality, is falsifiable and its mainstream acceptance could impact dramatically established notions including those in standard
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economics. http://bit.ly/1jW2jAv Dec. 29, 2013 at 9:19 a.m. Recommended1

161. timematrix LA How can giving something value be evil? If people want to give sticks value, or rocks value, then how can giving bits value be any evil? Krugman has lost it to think that humans giving anything value is evil. What he needs to think deeply is how debt is evil. debt drowns people and nations. Debt creates booms and busts. It eventually leads to foreclosures and unemployment and worst, homelessness and suicide. It's better to give value to something then rather have something take value away from. Debt gives the illusion of value, but it takes back, plus more. Think Krugman. Think. Dec. 29, 2013 at 8:12 a.m. Recommended1

1. lotus PA 1500 years the church fought usury as what is evil and now we have a deflation based currency that is called evil by those that live off the usury of debt driven fiat Dec. 29, 2013 at 8:17 a.m.

162. Baron95 Westport, CT Most are forgetting that Bitcoin is still in its formative years. Do you think that the first US$ bank notes had stable pricing and broad acceptance when first created?
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If a crypto-currency that was created with virtually zero budget and no established player has gotten so far, there is an obvious need and role for such currencies. Bitcoin may or may not be the one that becomes commonly used, but if it is not Bitcoin it will be something else. Just imagine if Google launches a well funded gCoin currency, starts accepting it for GooglePlay, Google Ads, etc. Or Amazon launching an aCoin and starts accepting it for payment. So it will happen. It is inevitable that some form of Internet crypto-currency, with distributed validation and minimal or zero transaction fees will emerge. How could Bitcoin be better? Instead of a hard 21M Bitcoin limit, the limit should be raised (by another consensus fork) based on the number of Bitcoin transactions being processed. So, the more it is used (i.e. the larger the Bitcoin economy), the more Bitcoins would be minted. That would make it non-deflationary after the 21M limit is reached. There could also be some provisions for fractional reserve lending - say 50% reserve lending by anyone (wallet holder) who has accumulated at least 1% of Bitcoins minted. But as a first experiment, Bitcoin has clearly demonstrated that people want low friction, central bank independent money. So, not evil, but simply fulfilling a need. Dec. 29, 2013 at 7:54 a.m. Recommended1

1. lotus PA what is the infatuation with devaluing money? deflation is not a terrible thing.. only for those that feed off taxing economic activity and want it to go in hyperspeed. people can do with a lot less things, and rather have their purchasing power increase. So when you do spend, the value would hold so you can have less economic activity and everyone still retain wealth. The general public have been fooled to live in a debt driven car crash of their prosperity. Dec. 29, 2013 at 8:00 a.m. Recommended2

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2. Len Charlap Princeton, MJ lotus - Are depressions terrible things? Dec. 29, 2013 at 6:17 p.m.

163. The Raven Seattle, WA The problem with Bitcoin as a medium of exchange is that it is deflationary. It provides an incentive to delay payment as much as possible. It actively discourages commerce, by its nature. Dec. 29, 2013 at 7:37 a.m.

1. lotus PA That is a fallacy. Only debt worshipers want wealth to silently escape through inflation. If money retained and increased in value you wouldn't need to ask for more more more. People would just buy what they needed. You don't understand that new money being created is worth the most when it is spent first and by the time it circulates it is worth much less. That is quicksand. ZIRP is not healthy at all.. please do some history reading on the demise of currencies. Read the Dying of Money as a start Dec. 29, 2013 at 8:10 a.m. Recommended3

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2. Len Charlap Princeton, MJ Here are a couple of questions I really would like people like lotus to answer. How do the debt and deficits hurt us? When in all of our history have the debt and deficits hurt us? I agree that we can imagine scenarios where the debt and deficits could hurt us just like we could imagine an asteroid hitting NYC. But the conditions are not like that today, and since they never have occurred, why should we worry any more about them than the asteroid? In fact all the historical evidence I have seen point in the opposite direction. All 6 times we tried to pay down the debt and had a surplus for more than 3 years, we got a major depression. Depending on your definition of depression, this could account for ALL of our depressions. After WWI we had a lot of debt and followed it with10 years of balanced budgets and and reduced it by 40%. And then what happened? After WWII we had even more debt and followed it with deficit spending 21 out of the next 27 years and increased the debt by 75%. And what was the economy like during this long period? People like to point to the debt ratio, the debt as a percentage of GDP, but it was 16% in October 1929 followed by the worst economy we have ever seen, and it was 109% in 1946 followed by 27 years of prosperity. Why do we worry about the debt at all since we can print our own money and our debt is in our own money? Since we are running way below potential, do we have to worry about inflation? Come on lotus, give me a clue. Dec. 29, 2013 at 3:03 p.m.

3. The Raven
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Seattle, WA Lotus, you miss my point. As a businessman, which I am, why would I want to accept a currency which discourages people from doing business? The privacy of transactions is not something I need, nor am I interested in evading taxes. On top of which, Bitcoin's value fluctuates rapidly and unexpectedly. Every transaction becomes currency speculation. Why would I want to business in that situation? Dec. 29, 2013 at 8:27 p.m.

164. schrodinger Northern California Verified The snag with Bitcoin is that while there is a limit on the amount of Bitcoin that can be created, there is nothing to stop other digital currencies being created which are founded on the same concept. The supply of Bitcoin-like currency is therefore limitless, so it is hard to see how it can work as a store of value. In fact Bitcoin 2.0 could feature improvements based on the experience with the original, which might reduce the appeal of the original Bitcoin. Obsolescence is a big issue with technology, and I don't see why Bitcoin should be any different. There is also a long history of speculative bubbles, with tulipmania being the classic example. That said, often you have to use a new technology for a while before you understand its value and what it is good for. I haven't used Bitcoin, so I am reluctant to condemn it. However, it does look like a classic bubble. Dec. 29, 2013 at 7:03 a.m.

1. Anti-Skub 2012 CE Yes, using the bitcoin code as a template, making your own digital currency has never been simpler. And many people have! In fact two guys even made a 'joke' cryptocurrency called dogecoin (featuring the "doge" internet meme - you can look it up).
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The thing is, many people see this as a feature rather than a bug. Competition is a good thing right? If any of these so-called 'alt-coins' offer improvements or desirable tweaks over bitcoin, then people will use them. If they're just reinventing the wheel, it's very likely they'll be forgotten about and no one will use them (bitcoin has much more momentum and a large network already in place). As one programmer in the bitcoin space once said: "Let a thousand currencies bloom". It's true that since it is interesting to speculators, there are bubbles in the price of a bitcoin. This phenomenon however, is convolved with a technology adoption trend (benefitting from the network effect). Over long time scales, I think we'll see a rise in bitcoin price due to more adoption and further innovation/services surrounding bitcoin. In the short term there will of course be speculative bubbles along the way. Dec. 29, 2013 at 8:05 a.m. Recommended1

2. K Solomon South Africa The snag, really? Your argument, if it can be called an argument is .....? If other people printed their own money, would this devalue the dollar? No. BTC is accepted because of what it is and what it can do, why would would someone choose a lesser accepted, inferior product? Seriously, pose decent arguments as you stand out like a troll. P2p tech (torrents) has been around for over 10 years now, we still use p2p and the fascist 'authorities' still can't stop p2p. Dec. 29, 2013 at 2:56 p.m.

3. anon finland Anti-Skub, your near-religious view about competition betrays a lack of depth in your thinking. Do you really want people to compete with you for the value of your salary, savings, pension,
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insurance, etc.? Because that's what you seem to suggest. It's one thing to allow people to invest in unstable assets if they want to, it's quite another to have an unstable currency and have people fear for their survival regardless of their income because of it. Dec. 29, 2013 at 2:56 p.m. Recommended1

165. Michael O'Neill Bandon, Oregon Quite possibly the best quote of 2013! "Which is fine if you're a Libertarian, but I tend to take the stance that Libertarianism is like Leninism: a fascinating, internally consistent political theory with some good underlying points that, regrettably, makes prescriptions about how to run human society that can only work if we replace real messy human beings with frictionless spherical humanoids of uniform density (because it relies on simplifying assumptions about human behaviour which are unfortunately wrong)." {Why I want Bitcoin to die in a fire By Charlie Stross} I will be using "frictionless spherical humanoids of uniform density" in many evil thoughts about classical economists going forward. Dec. 29, 2013 at 7:02 a.m. Recommended7

166. Chuck Han San Francisco, CA I continue to be amazed by comments made by people about a technology that don't understand the technology. And it's a shame that BTC speculation has given people a platform and the spotlight to rant, "Tulip Bulbs!" and the like. BTC might not be the ultimate virtual currency solution. Indeed, there are serious technical problems with it that are in fact giving rise to (serious) next-generation solutions. I hope that I live to see the day when a currency is no longer at the mercy of a government through everything from a house-of-cards debt policy
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or shenanigans surrounding a fiscal cliff. And I believe that BTC is that stake in the ground that will give rise to my hope. Dec. 29, 2013 at 6:55 a.m. Recommended2

1. Mika G Indianapolis I read someone who said that there are ways to make a universal online currency that functions independently of governments. However, bitcoin is quite demonstrably not able to function that way. Mr. Krugman is pointing out some of the issues, as are others. To some degree I agree with you, I just worry that the furor surrounding bitcoin due to it appealing to a certain type of pseudoanarchist/libertarian is distracting from the real issues of currency stability and how to manage an economy. Dec. 29, 2013 at 2:21 p.m.

167. Chicago Bob Chicago Dr. Krugman is one of the finest minds in economic journalism today. But he skips one key point here, and that is Bitcoin The Payment Process (BTPP.) That's the transformational impact of this whole movement, it will send money around the world cheaper than Visa, MasterCard, Western Union or any Bank anywhere. It works now, at lower cost than anything before. BTPP functions independently of the market price for Bitcoin The Medium of Exchange (BTME.) They are two different things just as much as positive vs. normative economics. Merchant payment systems are based on an immediate conversion back to local currency no matter the price for BTME, so the process can be stable even when the BTME price is volatile. This is clearly a better mousetrap, work is being done at a fraction of the previous cost. Economists tend to praise such innovations. Vested interests tend to oppose them. But talking down the price will not change the payment process,
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nor will making fun of speculators. (Dr. K has not gone that far but many have.) So, about evil: It was the love of money, not money itself, that was called the root of all evil in I Timothy 6:10. I agree that a desire to damage central banks and standing governments is wrong. But Bitcoin itself (either facet of the phenomenon) does not do this. If you've got your future income tied to the payment processing industry, Bitcoin is pure evil, absolutely the work of the Devil himself. For the rest of us it's a welcome blessing. Dec. 29, 2013 at 6:51 a.m. Recommended7

1. brucewhain Brooklyn Maybe, but have you ever tried to buy any bitcoin. It lacks fungibility for sure, but then maybe these requirements are obsolete. Intrinsic value, for instance. Dec. 29, 2013 at 2:56 p.m.

2. anon finland So, bitcoin really is only useful as payment processing and quick exchange rather than for retaining value. That's not currency, but worthy of reconsideration. The bitcoin really has some huge problems for the whole society. Considering we just had and continue to be in a huge economic crisis largely because of the lack of transparency in banking, I don't really see why we should be pushing for more opacity there. It just promotes dark banking, money laundering and other misdeeds. Dec. 29, 2013 at 1:38 p.m.

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3. Mika G Indianapolis Except he already considered your point. What you just described was its usefulness as a medium of exchange. That does not make it a currency capable of replacing regular money... to do that it needs to be a stable store of value as well, so people can save it and have reasonably predictable expectations of its future value. Dec. 29, 2013 at 2:56 p.m.

168. RW Ellicott City, MD Underpinning the value of the dollar is a combination of (a) the fact that you can use them to pay your taxes to the U.S. government....I guess that to the extent that there is a lag between the time I earn dollars and the time I pay taxes on the earned dollars, the portion of the dollars that I have that is used to pay taxes maintains its value. But this is temporary, as the falling value of the dollar will eventually result in people earning more dollars and paying taxes on the higher amount of dollars earned. And, as people earn more dollars, they will pay higher income tax rates on higher amounts of dollars earned. So the fact that you pay your taxes with dollars does not really underpin the value of the dollar. Dec. 29, 2013 at 5:35 a.m.

169. VikramPhatak Austin, TX Bitcoin is a store of value for the same reason the dollar, the euro, or even gold or silver is. People (collectively) agree that it is. While most people don't know this, the reason US Dollars say "In God We Trust" is not a reference to any religion, but rather pointing out that it is faith and belief that makes money - well money. Having said that, the underpinnings of Bitcoin limit it's usefulness in the long run. I say that having a crypto
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and technology background. So while I do believe an international digital currency will happen, I believe that Bitcoin is only "version 1.0". Dec. 29, 2013 at 5:28 a.m.

1. Norm M Boston " So while I do believe an international digital currency will happen, I believe that Bitcoin is only "version 1.0"." That's exactly the problem, which makes Bitcoin a bubble. When someone comes up with something that's a little better, how much will a bitcoin be worth? Nothing. Dec. 29, 2013 at 2:57 p.m. Recommended1

170. Arun NJ Verified "Its always important, and always hard, to distinguish positive economics how things work from normative economics how things should be." --- This is important to keep in mind, much more so than anything about BitCoin. So for instance, if we had compulsory euthanasia at age 65 and no social security taxes, positive economics would say that that is a huge economic boost, while normative economics would say it is an utter human disaster. Dec. 29, 2013 at 5:25 a.m.

1. brucewhain
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Brooklyn The quoted sentence represents one of the most annoying aspects of Krugman's style. What does it mean? Are you sure?! Dec. 29, 2013 at 2:56 p.m.

171. The Raven Seattle, WA (A rehash of my remarks over at Charlie's blog and my own. As far as I know I'm not allowed to link my own blog here, so I'll repeat some of them.) I've been calling Bitcoin troll's gold for some time: a curse to the holder, and to those who desire it. Bitcoin is intended to implement the crypto-anarchist agenda: a world with unregulateable currency and untraceable transactions. We've had a taste of that in the the banking disaster; it sometimes seems to me that the quants are crypto-anarchists who shaved their beards and got haircuts. The crypto-anarchist agenda, if successful, would give us a world economy like a climate system: with arbitrary and unpredictable weather, vast storms, freezes, burns, droughts. The founding crypto-anarchists--I knew some of them, once upon a time--believed in the efficient markets hypothesis, and neo-liberal macroeconomics. Bitcoin reflects these beliefs. So it can only be an economic failure. But, let's turn this around. Could an electronic currency system be devised which would be an improvement on the current one from the viewpoint of Keynesian macro? Dec. 29, 2013 at 5:15 a.m. Recommended3

172. Tim Vancouver, Canada I have no patience whatsoever with the libertarian bushwah peddled by certain Bitcoin advocates. But Im an Internet guy and have seen quite a few interesting business models squashed by the exorbitant cost of
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making a payment, imposed by rent-seekers whose value-add is extremely open to question. Seriously, I can think of some seriously interesting businesses you could build if you could sell things for single-digit numbers of cents. Like, I dunno, early looks at hot essays by influential macroeconomists. Bitcoin is thus interesting if, and only if, its (considerable) technical potential for slashing transaction costs works out in practice. If that is the case, the usefulness will be immense, perhaps enough to drive a consensual agreement to believe in it as a store of value, which is all real money really needs. Dec. 29, 2013 at 5:08 a.m. Recommended1

173. Joe California " (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 don't understand how if the fed starts burning dollars it will help them hold their value. If something is backed by nothing (fiat paper), how is burning nothing going to make the rest of the paper worth more? All one needs to do is study the petro-dollar. Can anyone tell me what is going to happen in the world when the dollar is no longer the world currency? What will happen to the prices of gold and bitcoin when the Yuan is allowed to float against the dollar? Dec. 29, 2013 at 4:49 a.m.

174. Roger McKinney Broken Arrow, OK It's amazing how little economists like Delong understand about monetary theory. Theories of money and capital are the major weak parts of mainstream econ. Nothing underpins the value of the dollar except promises by politicians who have never kept a promise in the history of mankind. Only bond vigilantes put the fear of God in central banks. Government promises mean nothing. Take away the government monopoly on money and the US dollar will lose all value except as toilet paper.
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Two things put a floor under gold: 1) scarcity and 2) history. People have tested many items as money over the centuries and only gold has succeeded in the long run. However, Mr Krugman is right about bitcon being evil, at least for socialists. Bitcoin threatens socialist economies, central banks and all government monopolies on money. It is a libertarian tool, so all socialists should hate it. Dec. 29, 2013 at 4:46 a.m. Recommended2

175. Pete Schay SF How can an open, public, experimental monetary system devised by brilliant people be evil while the wolves of wall street and banks and credit card companies and politicians thrive (to varying degrees) on inefficiency, dishonesty, impenetrability, status quo and might-makes-right? Digital currency is a boom not a bubble. Mankind has digitized music, photos, movies, and maps and built the internet (ahem) and improved shopping, research, communication, education and much of life. We will digitize and improve money too. Scenario 1) Regular people will join with the investors, entrepreneurs, and computer scientists to improve bitcoin, build critical mass and make it work posthaste. Folks used to scoff at putting Linux in a datacenter; today Linux runs much of the world's data processing. As mindshare increased Linux improved exponentially. Even governments use it. Scenario 2) Bitcoin is ahead of its time. Bitcoin's imperfections and timing will outweigh its advantages, as happened with NeXT and the NC and countless other innovations. Nevertheless the ideas won out. Nobody needs floppies and my parents love their Chromebook. Although Sun is gone, at last the network really is the computer. The flaws will be fixed. The progress will continue. Save some of those new hundred dollar bills they'll be valuable in 50 years. Dec. 29, 2013 at 4:42 a.m. Recommended3

176. Btc London


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The characterization of Bitcoin being evil is rather strong and not supported by the facts. Of course, Bitcoin is only in its infancy and the ability to determine a price or value is difficult. However, so is the ability to determine the intrinsic value of Gold, which has been around much longer. The value of Gold has declined almost 30% in 2013 and this is despite several leading gold experts claiming an intrinsic value nearly 9x its current level. As for price stability, this is likely to increase over time as transaction levels grow and distortions from trading runs and regulatory shocks become less regular. Bitcoin still has risk, but it is hardly evil. Best to approach Bitcoin prudently, with an eye towards risk management, and not overallocation of personal wealth. We comment on some of these and related issues on our blog at http://www.bitmorecoin.com/blog.html Dec. 29, 2013 at 4:29 a.m. Recommended2

177. Luke Taiwan Being able to make pretty things is a very shaky floor. Yet, gold had served as a money/ medium of exchange for a very very long time. Money is about memory, remembering who has performed what service, given what goods to whom. It is a form of abstract debt that people honor. For an efficient economy, there is a need/demand for a commonly agreed upon money/medium of exchange. It doesn't take a lot of imagination to understand that only stone age economy can function on a bartered system. There lies in the value of a commonly agreed upon medium of exchange. It is not about floors or ceilings. Whether Bitcoin will work depends on whether a large percentage of population accepts it. The stability of it will come naturally once this happens. Notice that gold has been used as money for a long time and its values were (relatively) stable. However its value begins to fluctuate wildly (as of now) once people don't use it as money, but just to use it to make pretty things. Dec. 29, 2013 at 4:23 a.m. Recommended3

1. Luke Taiwan Gold is evil As money and medium of exchange, there is essentially no difference between gold and bitcoin. The
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difference is in the mining. For gold, we dig under grounds and blow up mountain tops and wash rocks with cynide. For bitcoins, we run computer verification programs and that can help out scientific research in theory. As for making pretty things, a large percentage of gold is stored up in places like Fort Knox, guarded by machine guns and tanks, where nobody is allowed to even seen the gold. Oh the irony of it all. Dec. 29, 2013 at 5:05 a.m. Recommended2

2. lotus PA Gold is manipulated by the paper leasing market to allow the movement between credit/debtor nations by the FED/BIS. Bitcoin not having all those gimmicks leaves it on a supply/demand for price discovery. Currently there are short fits of liquidity since the few exchanges have to comply with AML/KYC rules. Once more people and wealth move to the exchanges and absorb the 'old money' the price will stabilize. America was built on the wild spirit of a mustang, not the fearful meekness of sheep. Perhaps China will lead this stage.. Dec. 29, 2013 at 2:56 p.m. Recommended1 178. Glen Davis Sarasota, Florida What's quite interesting in this piece from Mr 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 rebuttal just the other day: http://www.ofnumbers.com/2013/12/18/charles-stross-takes-on-the-bitcoin-... Also on HN someone just commented that the biggest problem for Mr Krugman not "getting" Bitcoin seems to be the "mining" part:
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"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." Dec. 29, 2013 at 3:55 a.m. Recommended6

179. Timothy Washington Bitcoin is popular because governments and central banks can no longer be trusted to protect the value of the currencies they manage. It is as simple as that. A side benefit is that Bitcoin offers protection from Big Brother invading one's privacy. Many honest and hard-working Americans have accumulated a few million dollars in cash. The question is where to park it until liberals are removed from office and a business friendly environment is restored. Federal Reserve policies have driven real return rates on bonds into the negative when inflation is considered. So parking large sums of cash in bonds is costly. These same policies have inflated the real estate and the stock markets so it is difficult to know the true value of such assets. One strategy is to move one's money out of U.S. dollars into a stable foreign currency. Another is to buy a few thousand bit coins. Trying to protect one's earnings from the ravages of irresponsible governments is not evil but the intelligent thing to do. Dec. 29, 2013 at 3:44 a.m. Recommended6

1. Arun NJ Verified Nobody has a right to a guaranteed return on their savings - isn't that part of the free market mantra
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that y'all keep chanting? Dec. 29, 2013 at 5:27 a.m. Recommended4

2. Tim Kane Mesa, Arizona Verified I take it you are not one of those millionaires. The last time we had a business friendly republican running the country massive investment banking houses were collapsing like houses of cards, the Dow lost over a third of its value and the economy was in free fall that nearly resulted in the collapse of global civilization. Even so, millions of people here and around the globe still suffering from the entrails of that administration while the remainders of Republicans still in government do everything they possibly can to prevent the further recovery of the economy. Self made millionaires, and I actually know a couple of them, would never park their hard won assets in vaporware. By the way, they knew better than to vote Republican or for Bush. Tell me how many American self made millionaires you know of who are parking their assets in bit coin until Sarah Pallin (or someone else of her ilk) gets elected president I won't hold my breath Amazing, yesterday's anticommunist are today's anarchist. It took a century, but it looks like Emma Goldman finally won you and your kind over. Though in truth I suspect the defeat of the confederate government is the true source of your antagonisms towards our federal government, not the intellectual underpinnings of anarchism which you are currently latching on to advance your anachronistic rear-guard confederate cause.. Back in Emma's day, anarchism was seen as a more extreme to communism, which was a more extreme to socialism. Dec. 30, 2013 at 7:13 a.m.

180. Sanity Austin, TX


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Gold has no intrinsic value (except perhaps in some recent limited applications to microelectronics). People wore it because it demonstrated their wealth, not because of any intrinsic aesthetic value. Gold's value is due to it's usefulness as a medium of exchange. It's scarce but not too scarce (sand would be a bad medium of exchange). It's not dangerous (plutonium would be a bad medium of exchange). It doesn't rust (iron, bad). It is malleable which makes it easily divisible. And it is relatively straightforward to verify that it is actually gold. Bitcoin is better than gold in every way, and has the added advantage of being easily transmitted over the internet. Dec. 29, 2013 at 3:33 a.m. Recommended4

181. Pavlos Papageorgiou Edinburgh, UK It's obviously a bubble right now and, like all bubbles, a profitable one for a period. The question is what is the stable end state? Bitcoin is a naturally limited currency, like gold or houses, unlike modern national currencies. Money is a shared claim on the real economy, so the aggregate of currency in existence matches the value of the economy by definition. That's assuming a currency clears, i.e. people are compelled to use it. Modern money clears because its use is legally required. Houses clear because everyone needs one. Gold and Bitcoins don't clear. They can be left on the shelf, or decline in value. That is good. If gold or Bitcoins, or any other limited supply currency had a requirement to clear (i.e. be fully accepted) they would act as real value sinks. Rigid money makes hoarding equivalent to the median return of investment in the real economy, breaking surplus recycling and driving inequality and deflation. Dec. 29, 2013 at 3:17 a.m.

182. Tim Kane Mesa, Arizona Verified I'm inclined to think that bitcoin is latter day snake oil.
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If you offer me shares of GE stock or bitcoin in exchange for the used car I have for sale, I; think I'd prefer the GE stock. Dec. 29, 2013 at 3:02 a.m. Recommended2

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1. JS84 AL I'm sorry, Tim ... but the snake oil was willingly handing over our finances to a privately owned central bank. We went all-in on that deceptive and poisonous garbage just over a century ago now ... and it's the primary reason for our woes today. If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all property until their children will wake up homeless Thomas Jefferson Dec. 29, 2013 at 2:57 p.m. Recommended1

2. Ron S. East Berlin, CT At least the stock has some intrinsic value; in GE's case currently $12.13 a share. Dec. 29, 2013 at 2:57 p.m.

3. Tim Kane Mesa, Arizona


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Verified @ JS84: The question of the role and value of a central bank in early American history is well covered in "Empire of Wealth" - a very readable, made for the masses economic history with a very good and simple explanation of banking and the role of a central bank. Jefferson and later Andrew Jackson represent one side of the argument and Hamilton the other. Jefferson also advocated embargoes which nearly destroyed the American economy. Great on civics he was almost wrong on every point in economics. Nevertheless Jackson ultimately prevailed upon the argument and the United States became subject to massive unnecessary economic convulsions for most of the next century, until the panic of 1907 and the only salvation was J.P. Morgan acting as a defacto central bank. That lead to the creation of the Federal Reserve system. That system is a hybrid of private ownership but with public accountability. I don't want to defend the Fed, but only argue that there is a need for a central bank of some sort. I am not the best person to argue the point, but, perhaps "Empire of Wealth's" author John Steele Gordon might be. Dec. 30, 2013 at 6:36 a.m.

183. binaryphile Florida Bitcoin is no more evil than Switzerland. It's the ultimate in neutrality, an irrefutable ledger that stores a transactable account balance. Of what? Nothing but a number. Bitcoin ensures that the accounts always add up to the predefined total in the system. That's all. It's that simple. If it's evil, then you are indicting accounting, not bitcoin. It doesn't care about your politics or economic policies. It's just a number in a book, available for anyone to read anywhere. Transactions are in fact not exchange but speech, a public declaration that one has transferred a part of that digital balance to the recipient, an artificial unit and nothing more. It's clear that the author has not done his due diligence. Dec. 29, 2013 at 2:53 a.m. Recommended7

1.
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Mick Boston Switzerland is a real place. Dec. 29, 2013 at 2:57 p.m.

2. Tim Kane Mesa, Arizona Verified Dr. M. Scott Peck, the author of "People of the Lie: The Hope of Curing Human Evil" distilled evil down to accountability: "People are at their worst when they are least accountable for their actions." Neutrality or anonymity? We know something about the valuation of a British pound: the policies, the values, the nation that the currency represents a claim upon. Likewise, though perhaps less so in some instances (more so in others) the valuation of a share of a publicly traded stock share. We also can have a bias towards thinking that which is being traded can stand up to scrutiny (though only a bias). Dec. 29, 2013 at 3:10 a.m. Recommended3

184. Alan Tsukuba, Japan Neither gold nor BitCoins are stores of value. They are stores of ignorance. Currency replaced gold when we learned how to quantify the value that currency stores. When this quantity becomes less certain, i.e., when ignorance increases, gold's price rises. An economic uncertainty principle Dec. 29, 2013 at 2:24 a.m. Recommended2

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185. Spinoza San Diego The question of whether any medium of exchange can be a store of value ultimately come down to one thing: whether people continue to believe it has value. The dollar has value because you need dollars to pay your taxes and thus you need dollars to stay out of prison. Most folks believe there is value in staying out of prison. But if that were the only thing people believed dollars were good for, the value of a dollar would plummet. Gold and Bitcoin don't have men with guns to put you in prison for not using them. But they do have something the dollar does not: constraints on production & destruction of the available supply. Gold miners are limited by the cost of mining equipment, labor and the limited supply of gold atoms on planet Earth. Bitcoin is limited by mathematical algorithms, and a plethora of unique software features that ensure trustworthiness. The mathematical predictability and reliability of Bitcoin has so far proven to be exceptionally good. Will this convince enough people for years to come that Bitcoin has value? I don't know. But it is not impossible, and if were to happen, that would not be "evil." Dec. 29, 2013 at 2:08 a.m. Recommended6

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1. Mick Boston "...a plethora of unique software features that ensure trustworthiness." Roomful of people laughing here -- thanks for that. Dec. 29, 2013 at 2:57 p.m. Recommended2

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2. FreddyB Brookville, IN I would have "recommended" your comment if your avatar hadn't been a klansman... Dec. 29, 2013 at 2:56 p.m.

3. Patrice Ayme Unverified California With a "value" that fluctuates all over the place, Bitcoin has obviously as much worth as a cross between the latest techie and a tulip bulb. Dec. 29, 2013 at 2:56 p.m.

186. Patrice Ayme Unverified California One of the main springs that feed plutocratization has been the privatization of money creation. Instead of having the government of civilization keep total control of money creation, as it did most of the time in the last 6,000 years, that function has been mostly delegated to private, obscure, hidden potentates, the bankers. Bankers are free to extend credit (id est, give money) to whoever they fancy (like the local vulture capitalist, or each other). All right, central banks have the last say, and private bankers are in its employ. Yet, most money creation has been privatized. Bitcoin pursues the privatization of money creation to such an absurd extent that it does not even pretend to be a store of value. Or are we to believe techies present value? Well, so does the NSA. That's not saying much. Ultimately currencies are backed up by governments backed up by the determination to use military force
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to enforce contracts. In Bitcoin all we see is that the usual techie suspects are not afraid to flaunt their determination to own the world... Backed up by the FBI and Congress they bought for themselves. So indeed Bitcoin is the work of Satan-Pluto. http://patriceayme.wordpress.com/2013/12/27/emotions-are-not-free/ Dec. 29, 2013 at 1:51 a.m. Recommended4

1. Rassah Washington, DC Bitcoin is the opposite of privatization. It's about as private as having a browser installed on your home computer. In fact, it is probably the most democratic form of money we have ever seen. You need to ask yourself what you mean when you say that a currency is "backed" by governments or military. Many people throw out that term, without even taking the time to ask how the backing is done, or what it is actually able to accomplish. Surely that doesn't mean that a tank determines that a dollar will buy you a loaf of bread? All backing is essentially an IOU, requiring trust in the backer. Dec. 29, 2013 at 2:58 p.m.

187. Joe Smith Vancouver Verified An iTunes account is a terrific medium of exchange and much less likely to simply vanish in a puff of smoke than Bitcoin. Most of the Bitcoin supporters seem to be living in some sort of Libertarian fantasy world. Dec. 29, 2013 at 1:14 a.m. Recommended5

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1. Mick Boston Gorgeous. If you weren't from Vancouver I'd like you. Dec. 29, 2013 at 2:57 p.m.

2. Tim Kane Mesa, Arizona Verified A pack of Lucky Strikes has also proven to be a terrific medium of exchange. True, they can vanish in a puff of smoke too, but the smoke itself has value, in that it is medium for the exchange of nicotine. Dec. 29, 2013 at 3:15 a.m. Recommended2

3. Tygerrr Greensboro Except that iTunes is more like Libertarians' "totalitarian government" - it takes over all music on your PC, completely disorganizes your folders/files, and blocks access to your rips of CDs you've owned for decades! Dec. 30, 2013 at 7:59 p.m.

188. tanstaafl
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Houston I'm not a techie, so maybe someone can help me. What's to prevent another group from using the same technology as bitcoin to create some other digital currency? Will we soon be living in a world with a multitude of digital currencies? I'm also not an economic historian, so I have another question. In the 19th century for a time, many U.S. banks issued their own currencies, to the point where it became difficult for both buyers and sellers to figure out prices of things and how much each unit of each banknote was worth relative to each other (and to the U.S. dollar). Is this something that could happen if digital currencies multiply? Dec. 29, 2013 at 1:13 a.m. Recommended8

1. Jim Kay Taipei, Taiwan Verified Digital currencies already ARE multiplying. (There are opportunities for the creators to make themselves rich and then disappear.) As long as you can buy and sell a digital currency using a real currency, the valuation will be more or less defined though there will be inconsistencies. But people with fast computer programs will smooth those out while taking profits. Think arbitrage. Dec. 29, 2013 at 1:42 a.m. Recommended4

2. Spinoza San Diego Nothing is there to stop competition. And that's the point. We will see many competing currencies, and that is a good thing. See Hayek's paper on the Denationalisation of Money. Currency conversion is always an issue because it adds transaction costs, which is why markets tend to coalesce around one currency. But it is not a new problem, and it is one we must deal with even in today's global economy.

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Dec. 29, 2013 at 1:47 a.m. Recommended3

3. Rassah Washington, DC Digital currency is not just the software, but the infrastructure supporting it. Right now billions of dollars have been dumped into bitcoin in the form of specialized hardware to secure the network, software and hardware to make it easier to use, and businesses set up to provide services in the currency. You can copy the cryptocurrency code to startstart your owown, but you can't copy the infrastructure. Dec. 29, 2013 at 2:57 p.m.

189. Richard Boase London Polemic title much? I don't like Brad Delong's argument as to what underpins gold's value much. Gold is objectively useful, durable and conductive, nevermind it's aesthetics. But I like his idea that the dollar's value is underpinned by the fact that "...the Federal Reserve...has promised to buy [dollars] back and extinguish them if their real value starts to sink..." even less. Buy them back with what precisely? Yuan? Gold? The point about he US Fed is that its promises have never been worth the paper they were printed on. Dollars may be useful for taxes, but tax is a government defined racket too. If we only used dollars for paying taxes, but used a global money for everything else, dollars would become the single use voucher they truly should be. Maybe the paper dollar debt system can continue (backed by men with guns), but force cannot, and will not back worthless promises indefinitely. Soon enough the system of threat will be outstripped and outdated, and that's pretty much what is happening here with Bitcoin. The Bitcoin network is transparent in a way which political, force-backed money is not. So whilst volatility might be an issue, to say that volatility is undesirable, might be missing the point
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altogether. Volatility seems to be Krugman's real target; 'The more peaceful and stable a currency, the better'. He is a champion of stability... but life thrives on volatile energy, in exciting markets, where things are shaken up and the status quo disrupted. Dec. 28, 2013 at 11:58 p.m. Recommended8

Read All 7 Replies 1. Glen Davis Sarasota, Florida "You devolved into complete nonsense. But maybe you think the 2007 collapse was a good thing!" It appears that "boom and bust" cycles of the last century - even though painful to a part of the population might be in general less painful compared to massive government involvment and market (capital) mis-allocation. Bitcoin might well prove to foster better (more productive) capital allocations due to the fact that saving is encouraged and private interest (non-governmental, non-financial) can allocate capital directly and immediately -frictionless- into productive, manufacturing growth-sectors. What we should have seen, with all the technologial advances (and maybe a reason why they slowed down in the last 50 years is related to the bubbling of our financial schemes) is that a noninflatable currency should naturally (if limited) rise in value and thus bestow wealth thus generated on the general population! Dec. 29, 2013 at 4:35 a.m. Recommended1

2. Patrick United Kingdom You ask with what the fed can buy back US dollars as if its some big mystery. But its not of course. The fed takes money out of circulation by selling bonds. By doing this it reduces the money supply and thereby maintains the value of the currency. What's the problem? Dec. 29, 2013 at 2:56 p.m.
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3. Rassah Washington, DC The problem with taking money out of circulation by selling bonds is that it amounts to borrowing, having to pay interest on the borrowed money, and having to dump those dollars back into circulation once those bonds mature. There's also the problem of interest rates going higher and higher as you borrow more and more, and are less trusted to be able to repay your debt. Dec. 29, 2013 at 6:17 p.m.

190. Jeff Anderson-Lee Berkeley, CA Verified There was an interesting piece on KQED's California Report about the Bangla-Pesa, which is a local "barter voucher" introduce in a poor slum district aiming to help support barter in a cash-poor locale (M2 constrained if you will). The people had value bearing items to trade (goods and services) but lacked enough chits to easily facilitate the trade (and frankly trading corn-meal directly for tomatoes is less efficient). This is a case of a currency invented to stimulate trade and exchange with no side-intentions of avoiding taxation, money-laundering, counterfeiting, etc. But Bangla-Pesa are colored paper tokens that can be handed back and forth - not so useful for the increasingly digital world. Bitcoins are an attempt to create a semi-decentralized digital medium of exchange that can be "trusted" without requiring trust in a central authority (e.g. US Mint). One problem with a digital currency is how do you "trust" a statement of value, when digital bits are so easy to create and copy and forge. Bitcoin uses pubic-key cryptography and digital signing to try and address the issue of "trust" and avoid forgery. Is it perfect? Not really. Is it a fruitful start? Perhaps. Can it be used for illegal or black-market transactions? Yes, but then so are US greenbacks. Is it a money-making proposition for some. Definitely. Is it evil? I think not. Dec. 28, 2013 at 11:54 p.m. Recommended14

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1. Blue State here Is there no person or group responsible for hardware, software maintenance? Is there no one who will at some point have the ability to block transactions if not paid a fee? What are the risks around bitcoin not being accepted as an exchange and what are the triggers for those risks? Dec. 29, 2013 at 6:17 p.m.

191. James F. Follwell Charlottetown, PEI, Canada During the 1930s, a political movements emerged in parts of Canada (Prairies and Quebec) whose central policy was to create a kind of currency (script) called "Social Credit" which would supplement the purchasing power of Canadians and raise the nation out of the depression. Sound's Keynesian doesn't it. But of course it was a quasi-currency in conflict with the Canadian dollar, and no one was too sure how it would work. While the Social Credit as a political Party survived for decades more (as a sort of Conservative party) Canadians early on came to see the "Social Credit script" proposal as "funny money" and potentially hyper-inflationary. Needless to say, it didn't catch on as a concept. Canada's monetary policy in the dirty thirties was not exactly progressive, but the Great Depression in Canada was not as socially corrosive as in the US and many Canadians managed including farmers who had fairly high farm gate margins during that period and where not very leveraged anyway. Thus the rural constituency to which the Social Credit appealed, were not convinced enough. All currencies are notional and lots of stuff can be used as currency if enough market participants agree on its functional value, but those created and backed by central banks are just so much more likely to be widely accepted and used even in time of inflation. Dec. 28, 2013 at 11:44 p.m. Recommended2

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192. Andrew Portland, OR For a cryptocurrency to support overall stable, non-deflationary price levels, it needs a central issuer to create and destroy it and manage a credible trading infrastructure. At that point we're back to the dynamics of currency areas and issues of democracy that the EU is facing right now. If the rich of the world create an "alternative" world currency with a transnational central issuer to launder value out of the real economies into their tax havens, then the non-rich people who suffer internal deflation will simply have to lump it... at least until the point that they have no choice but to nuke the tax havens and mount the crypto-bankers on pikes. Currency areas are a matter of real economy and democracy and cannot be ignored by the cryptobankers (or for much longer by the ECB). Bitcoin-botherers can't even get to the point where they see deflation or other volatility as a problem so they'll never get to the point of understanding the problems of a lack of democracy inherent in their dreams for a winner-take-all world-wide currency. One would think the gold-buggers' paranoia would be tweaked by this, but no... The only hope for transnational crypto-currencies is to impose it via anti-democratic takeovers of national governments. And as with every other deflationary regime in the past, there are limits to what the victims of those regimes will put up with. Dec. 28, 2013 at 11:41 p.m. Recommended1

1. Finder Keeper California Andrew, with bitcoin as a tax haven, there's no "there" there to nuke. It's completely decentralized. Also, if a lot of wealthy people exchange their fiat currency for bitcoin, this will result in *inflation* for those left holding dollars, not deflation as you think. Dec. 29, 2013 at 2:58 p.m.

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2. Andrew Portland, OR Finder, you assume that bc are used by non-human entities who don't register themselves in tax havens or actually reside anywhere. Bc would be used to move assets to the tax havens but beyond that there's a real-world limit to its decentralization, even if the problems with its infrastructure are overcome. So no, there will never be a decentralized bitcoin currency area with zero points of geographical or legal vulnerability. As for your second point, when bitcoin is described as deflationary, it is being described in itself, not some other currency. Prices in other currencies might inflate, but if that inflation results from a draining of assets out of the real economy into a deflationary asset base (bitcoin) used to launder value out of the economy, then we're right back to the real world macro which you have zero understanding of. Being deflationary, bitcoin cannot replace fiat currency in the real economy, but being a tool for money-laundering won't allow bc the freedom to fail as a deflationary regime. The amount of nave fingers-in-your-ears blather that comes from you folks is immaterial. The rest of use _do_ understand BC and no, it won't work. It's an interesting toy and will always be around as a kind of penny-stock/asset, but you are really wasting your time with dreaming about it as a currency. Dec. 29, 2013 at 9:45 p.m.

193. Jim H Waco Dr. Krugman, over my adult life, my economic political ideology (very progressive) has been molded by your insightful and accurate views. It pains me to see the shortsightedness displayed in your last few commentaries on Bitcoin and digital currencies. As to your "reliable store of value" question, Bitcoin provides a public ledger of transactions (blockchain) which proves who owns what. Countless up-to-date copies of this ledger are distributed among computers all around the world. Transactions on this ledger are verified by the largest supercomputer mankind has ever created. With no single point of failure, it's 1000's of times more powerful and reliable than the any of the "Top 500" institutional supercomputers or any computer owned by any one bank (even
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the Fed). So yes, bitcoin is VERY reliable as a store of informational value, the most reliable ever created. Once you've made an entry in this ledger, it's impossible to delete and its value is stored forever. So we the know protocol is reliable, the question is, how much value does an entry for one bitcoin have? That's for the market to decide, and it might take some time to come to a consensus. Today it's about $700. Thing is, there is so much more to Bitcoin than the market value of a bitcoin. The public ledger can store more than a simple number of bitcoin units, it can be a stock offering, a bond issuance, or even a divorce settlement, and this is just scratching the surface. Dec. 28, 2013 at 11:36 p.m. Recommended17

1. JMU Paris Information of previous transactions is not value. It might be exploited to create / steal some but it is not value. The value problem is that as the market is deciding that bitcoin is worth $700 or $500 or $1000, there is no safeguard against skyrocketing inflation or deflation, which you can see in the dollar value. The reason dollar (or euro, or pounds) is a safe store of value is that the inflation or deflation is "small", thanks to the central bank action in last recourse. (note that by that definition, 100% a year might still be "small") Hey, even Zimbabwe's performance was crushed by bitcoin's latest crash. Without any relative stability, issues happen, for instance employers demanding to be paid in livestock because wild inflation might ruin their pay on their way back from work to the grocery store. That pushes "honest" players out, while keeping the speculators in. Hard to believe things can change by themselves enough that the honest players (who are the ones actually trading goods on the market) will come back. Dec. 29, 2013 at 1:03 a.m. Recommended4

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2. Elwar US One bitcoin is worth one bitcoin. The value compared to government money is something for the headlines. Dec. 29, 2013 at 2:58 p.m.

194. AudenHoggart St. Louis A fully-realized Bitcoin system would be conservative economics in a new form. Once the Bitcoin ceiling is reached no more can be created. If Bitcoin were ever to become the commonly accepted medium of exchange then you've got a world like the start of the Depression on the gold standard. But the problem with Bitcoin would be more severe. As Krugman indicates, a rise in the price of gold leads to more mining. Once all Bitcoins have been "mined," there is no higher priced technology to extract more. So there would no longer be any possibility of either expansionary fiscal or monetary policy. The chances of any of this actually happening are pretty minimal, but if it did we'd be choosing to return to a world where severe "slumps" were thought to have no effective governmental remedy. Dec. 28, 2013 at 11:30 p.m. Recommended2

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1. ricegf Texas Eight digits of precision was just an arbitrary selection, so even if a bitcoin were to become worth $1M, we could simply add a few more digits.
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But the "expansionary fiscal or monetary policy" issue raised by the original poster didn't concern *running out* of bitcoins, but a lack of *active manipulation* of the bitcoin supply to avoid deflation or hyper-inflation. This lack of active management (which could perhaps be via appropriate algorithms rather than a Fed-equivalent) appears to be a problem if you accept the current economic theories but want bitcoin to largely replace fiat currencies for most commerce, if not for paying taxes. After watching cryptocurrencies for a while, I haven't heard a good response to that issue. Yet. Dec. 29, 2013 at 12:35 a.m. Recommended1

2. Elwar US "if you accept the current economic theories" Current Keynesian economic theories are the source of most of the economic problems in the world. When a dollar is now worth 2 cents compared to when the Federal Reserve first started, that means that every working person loses wealth just by using fiat currency. Why would anyone be ok with that unless you are benefiting from the loss of value? Dec. 29, 2013 at 2:58 p.m.

3. Rassah Washington, DC If people want actively managed currency, they will stick to what we have now. If they lose trust in the people actively managing their currency (as people have been in various countries over the last century), they will likely switch to bitcoin. Bitcoin was actually created specifically because some people lost trust in those who were trusted to manage the currency supply broke their trust.

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Also, the gold standard didn't start with the Great Depression, and people lived just fine for thousands of years on it before then. Plus the Depression was not caused by the gold standard, but by the massive debt that could not get inflated away due to deflationary currency. Debt in such a system is just a bad idea. But people had no choice but to trust banks to keep their money safe, and banks were breaking that trust by lending out the money. Bitcoin makes banks unneccesary, since it can provide security stronger than any vault from just a really good password. Dec. 29, 2013 at 2:24 a.m. Recommended1

195. Eric California Let's be sure to distinguish Bitcoin, as a potential currency, and Bitcoin, as an exemplary member of a new class of cryptocurrencies. Bitcoin, the specific technology, suffers from some fatal flaws, including eventual deflation as the limit of coins that can be mined is approached. Bitcoin, as a representative of a new class of cryptocurrencies, has the potential to be very disruptive, which is probably why your technology friends like it (we love disruptive change, for its own sake). Libertarian agendas aside, consider this: with a cryptocurrency, anyone is free to set up a Web site that will transfer from one account to another without adding a service charge. There will be few costs aside from the time one or two software developers put into the software and the money needed to run the servers (using Amazon's cloud service). No large capital inputs are needed; no regulatory frameworks that give established players the overwhelming upper hand. Cryptocurrencies offer the democratization of wire transfers. Taxes and the like are an orthogonal consideration -- pay your taxes or you will be breaking the law. It is true that auditing money trails will face some difficulties under a cryptocurrency regime, but things are not as bad as one might imagine. Although you and others argue that there is no lower bound on the value of a Bitcoin, this is all somewhat conceptual. People started using fiat money sometime ago via an organic evolution of currency technologies. Dec. 28, 2013 at 11:10 p.m. Recommended2

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1. JMU Paris Deflation is not a fundamental flaw. After all, once everything is mined, you can just see the whole system as an even more rigid version of the gold standard, and gold standard did not crash so badly that citizens started using foreign currencies instead of theirs. I am not saying it is desirable, but it is not immediate doom either. The high volatility and "untraceability" are here by design, but I do not see them crash the market all alone. They will probably drive out activities that could be done out in the open but illegal stuff may see that as a risk premium for safety from the Feds. Note : by untraceability which I mean the impossibility to associate a bitcoin account with a physical person - who cares that account owner ZRO7FG8 bought porn online, if we don't know who it is ? You might trace exchanges from dollars to bitcoins and reciprocally, but it does not prevent anyone to exchange one kilo of heroin against the assassination of the Secretary of State via bitcoins. Dec. 29, 2013 at 2:58 p.m. Recommended1

2. John M Oakland, CA Verified Remember Beanie Babies? Those highly collectible cute little stuffed animal toys, made in limited quantities, and thus sure to gain in value over time? I haven't seen any auctioned off at Christies lately... So, too, with BitCoin (or any other currency). They're barter tokens, nothing more, nothing ;less. Their worth is measured by whether you can exchange them for something of value. If people lose faith in their ability to trade that currency for something that they want, the currency becomes worthless. BitCoin has a few new vulnerabilities due to its virtual nature. Paper currency can be eaten by termites, burnt in fires, or stolen. Bitcoins aren't as vulnerable to termites as a paper currency, but they can be lost, destroyed or stolen - especially electronically. (Say that your hard drive crashes, or that someone hacks into a BitCoin exchange and steals them (as happened to $220 million in
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bitcoins recently). Unlike your on-line bank account, once the thief makes off with your bitcoins, you typically don't have much recourse. In short, the catch-phrase "disruptive technology" doesn't impart value - any more than adding "dot.com" to a business name did in the 1990s. For currency, I'll stick with tested, reliable technologies and pay a little extra for the safety. Dec. 29, 2013 at 2:05 a.m. Recommended6

3. gdnp New Jersey "...anyone is free to set up a Web site that will transfer from one account to another without adding a service charge. There will be few costs aside from the time one or two software developers put into the software and the money needed to run the servers..." There may be few costs, but on the other hand if there are no service charges there will be no profits either. Besides, when someone sets up a web site that works as advertised for a month, then transfers all the bitcoins to their own account and disappears, how are the authorities going to investigate this anonymous, untraceable theft? Dec. 29, 2013 at 2:57 p.m. Recommended3

196. NN London what then is the intrinsic value of the English language? its clearly worth a lot, since it allows coordination which massively increases human productivity. money is the same thing. it allows humans to coordinate very complex projects. bitcoin is money and does the same. that is its value. more people using it makes it more valuable. like english. or the US$. classic network effect. why is this a mystery? Dec. 28, 2013 at 11:07 p.m.
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1. JMU Paris Even assuming Bitcoin rises to the level of dollar, it still has two (implemented) differences : 1- no central bank 2- untraceable (you cannot associate an account with a physical person) You might think 2- is just the same as cash, but you can control cash flowing in or out of bank accounts so that large movements can be detected (why do you think the mafia has problems laundering the money, even if it can hold tons of cash ?), while bitcoin is pure cash in that regard. Even disregarding the risk of fraud (enhanced by 2-, as at the difference of cash you have no visual contact with the other contractor), factor 1- makes wild inflation or deflation impossible to counter as there is none to do the monetary policy, and that is a risk to owners. Investors demand compensation for risk. The only compensation I can see is the possibility of otherwise illegal transactions : being able to buy an assassination with the risk of paying 50% extra than tomorrow is "better" than not being able to buy at all. Dec. 29, 2013 at 1:26 a.m. Recommended3

2. Rassah Washington, DC @JMU Wild inflation and deflation is countered not by 1, but by the total market value of all bitcoins (and consequently the price of each bitcoin). The higher the price, the more you need to move in/out of the market, and thus the more difficult it is to cause such wild swings. It's the same reason stocks of large corporations is fairly stable, while that of small ones fluctuates wildly (except with stocks, you can still have the corporation screw up somehow, causing the stock to crash, while with bitcoin there is no corporation to mess up behind it). Dec. 29, 2013 at 2:57 p.m.

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197. Jamey Winston Salem "Underpinning the value of the dollar is a combination of (a) the fact that you can use them to pay your taxes to the U.S. government" Extreme libertarian hat on here: First off, there shouldn't be any taxes. Second, if there are, I should be able to pay them with a bushel of corn, six packs of my home brew, or if I'm an artist or musician I should be able to pay with a painting or by crooning "My Heart Will Go On", or yes, a bitcoin if I want to. Only a totalitarian state would demand that I pay my taxes in the very currency that they issue. By the way, I'm guessing that it this point, all of those above except the singing of "My Heart Will Go On" are probably more easily exchanged for goods and services than bitcoin. Dec. 28, 2013 at 11:04 p.m. Recommended3

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1. CA Michigan I desperately hope we don't all fall victim to whatever dystopian world might be created by the sort of people who casually abuse terms like "totalitarian state." Dec. 29, 2013 at 2:58 p.m. Recommended1

2. gdnp New Jersey


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If you would prefer a country where the government does not effectively levy and collect taxes, I suggest you move to one of several such utopias around the world, such as Greece or Somalia. Dec. 29, 2013 at 2:57 p.m. Recommended2

3. Katie Taylor Portland, OR Do you like having streets and sewers? Dec. 29, 2013 at 2:57 p.m. Recommended1

198. marc brussels 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 ??? Dec. 28, 2013 at 11:00 p.m. Recommended23

1. CA Michigan
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That's not so bad. His only mistake was presuming that people wouldn't keeping talking once they had nothing left to say. He's was being optimistic! Dec. 29, 2013 at 2:58 p.m. Recommended1

2. JMU Paris I guess arguing against arguments is less easy than talking about irrelevant issues. Dec. 29, 2013 at 2:58 p.m. Recommended1

199. Bertolt Brecht The Cabaret Bitcoins are tulip bulbs created by techies, with their penchant for fantasy role-play, that have found mass appeal amongst those inhabiting an ideological Zuider Zee, recently walled-off and drained by Right Wing extremists veiling themselves as merely Eurosceptics or champions of liberty, Libertarian. Dec. 28, 2013 at 10:54 p.m. Recommended6

1. Rassah Washington, DC A lot of words, to say very little, about a currency one did not even take the time to understand. Dec. 29, 2013 at 2:57 p.m.

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200. Maciek Poland honestly, i still don't see what the intrinsic value of gold is. I guess it's time for me to pick up some economics textbooks and educate myself, maybe one day i'll be able to understand. ability to "make pretty things" doesn't justify even a fraction of 1200$ per ounce price. for a layman like me it seems that the only reason why gold is so highly priced is because it's fairly scarce and because people are taught from an early age that "gold is precious", so they believe in that. its price is based entirely on faith. Bitcoin was designed as a digital replacement for gold, i assume. it has similar properties but it's easier to store and can be sent anywhere in the world within seconds so it's more convenient. but people will never have the same faith in Bitcoin as they have in gold. in times of depression / hyperinflation people won't be buying Bitcoins but gold and silver. moreover, for Bitcoin to make any sense, there would need to be some sort of social contract to ignore all other cryptocurrencies (which are essentially the same thing as Bitcoin but 1000 times cheaper at this point). otherwise anyone could create their own currency and they'd all become worthless. all in all, i don't think Bitcoin will succeed but it's still an interesting experiment. Dec. 28, 2013 at 10:48 p.m. Recommended2

1. Bruce Fancher New York, NY You might as well say that the only reason Twitter is worth anything is because there's a "social contract" to ignore all other Twitter-like services. Dec. 29, 2013 at 2:58 p.m.

2. JMU Paris Bitcoin has the advantage over other cryptocurrencies to hold the higher ground right now, so that a drug lord is more interested in selling in bitcoins that in sili-money (path dependance), which keeps the state of things. It suffers from similar disadvantages against the dollar, but unlike dollars or pounds allows illegal transactions at low risk, hence why some people still got in there outside political engagement or
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hobby. I heard that gold indeed has high intrisic value from serious people (not economists : engineers). Basically, even if its specific properties are not used a lot, it is so rare that it still justifies high prices (or trade rates against livestock). I must say I am not convinced myself. Dec. 29, 2013 at 1:35 a.m. Recommended1

201. kiyoshi4122 Atlanta, GA It should come as no surprize that technologists are biased to a math based answer to a problem in the technology space, the double spend problem? The problem with many economists thinking on "bitcoin" is a focus on the side effects of using the Bitcoin protocol for verifying transactions, those being, the price of a bitcoin, it's investment potential, and it's usefulness as a store of value. These are all side effects of using the Bitcoin Protocol for what it is designed to do, which was solve the very hard, double spend problem with digital currency, and do so without the use of a central authority, making the system very robust. Think of the price of a bitcoin as simply a way to size the bitcoin ecosystem, similar to how bytes measure the size of data available on the web and accessible using HTTP. If a bitcoin costs $100.00 USD, I can perform 10 transactions in the amount of $10.00 each, at no cost and across the internet, period, that's it. If the price of a bitcoin rises to $1000.00 USD each, you can now do 100 transactions in the amount of $10.00 for "free" (sort of) across the internet. It's math, not evil doing? Dec. 28, 2013 at 10:46 p.m. Recommended9

1. CA Michigan "and do so without the use of a central authority, making the system very robust." I don't know about "robust" but it certainly sounds very dangerous. How do we verify someone's income or wealth in anonymous "cryptocurrency"? How do we collect taxes?

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It's not a problem in economists thinking to focus on such "side effects." They are the things which are going to have the real impact on people's lives should something like Bitcoin become anything approaching a ubiquitous reality. I don't care how cool you think your hard math "solutions" are if they ultimately threaten to undermine my government and society. Dec. 29, 2013 at 2:58 p.m. Recommended1

202. Louis Pied de Corbeau New Hampshire I do not believe that Paul Krugman wrote the misleading and foolish headline. His article says no such thing. The headline ought to be changed. The evil potential of bitcoin is its availability for dangerous speculation which will enrich some clever or lucky operators at the expense of others more gullible and less sophisticated. How could a rational person expect bitcoin to maintain a stable and reliable value? Any person paid in bitcoin, and not wanting to speculate on its rise or fall, should instantly trade it for a fiat currency. But why would a rational person want to hand me a stable currency in exchange for my speculatively valued bitcoins? Why would I, as a rational person, accept payment for anything in bitcoin, except to speculate or to hide the transaction? Dec. 28, 2013 at 10:44 p.m. Recommended3

1. G NYC Why? Because it's significantly cheaper to make payments in bitcoin and to send money around the world with bitcoin - even if one considers the cost of exchanging for local currencies. Is money not a worthy incentive for people to do something? Dec. 29, 2013 at 2:58 p.m.

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2. JMU Paris I don't think speculators really can make a higher margin on the bitcoin market. What is limiting that margin on fancy stuff like credit default swaps ? As for your last question, "only to hide the transaction" is the answer - you do not want the Feds to know you ordered your neighbour's assassination. I do not see how an unstable currency could attract anything "real" that could be done in a stable currency. Well, if you are a fancy libertarian, you might pay for your groceries in bitcoins, but that's not going to be a rational or predominant behaviour. I predict the only persons left on the bitcoin market will soon be some speculators and criminal activities (plus libertarians, but again, non-profit seekers are assumed out). But that prediction in itself does not mean the end of the bitcoin - after all, an economy based on weed and blood could run, couldn't it ? Dec. 29, 2013 at 2:58 p.m. Recommended1

3. Rassah Washington, DC You can easily avoid losing money to the clever and lucky operators by simply not playing the market. As bitcoin goes up in value, it will take more and more for anyone to affect the price, and thus will have a more stable price. So, a rational person can expect that, once bitcoin is widely adopted and has an enormous market cap, it will have a much more reliable and stable value. That likely won't happen for a few more years though. Regarding accepting bitcoin, you can be much more tolerant to risk than others, and thus not be bothered by its price fluctuations if you expect its price to go up. Or, as a business, you can accept payments in bitcoin using the bitcoin protocol, instantly convert those bitcoins into dollars so as to avoid volatility risk, and save anywhere from 1.5% to 4.5% in transaction fees that you would have otherwise had to pay VISA. Dec. 29, 2013 at 2:50 a.m. Recommended1
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203. Steve Ann Arbor, Michigan People who argue that because the blockchain is public that bitcoin can't be used for laundering is ridiculous. If every dollar I had in my wallet had a list of encrypted codes of owners of that bill in the past, how do I know that one of them wasn't Lord Farquad? The public record is about balancing the ledger and ensuring the "two generals" problem as mentioned by others already. It doesn't tell your name or address or location or if you are a person or dog. The real benefit of bitcoin is: 1. A way for international people to give to other nations political campaigns. 2. A way to wipe out most of the profits of Mastercard, Visa, Amex and other payment processors. 3. Another way for Putin to convert money from Rubles to Euros to British Pounds to Dollars or any other currency. I'm sure the IRS is expecting big money from bitcoin sellers this year. They can't even get business to pay taxes. Now we will all watch how the cash flow from investing(currency hedging on foreign accounts) will rise with bitcoin. What better way can you manipulate earnings than to have a slush fund in the islands whose value can be set to zero and converted to extra cash when needed? Not unlike how Mitt Romney came to have $200,000,000 in his IRA from a $5000 contribution. Dec. 28, 2013 at 10:41 p.m. Recommended5

1. Bruce Fancher New York, NY Thanks for finally tying your whole conspiracy theory back to Mitt Romney. That made it even funnier than it already was. Dec. 29, 2013 at 2:58 p.m.

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204. AmarilloMike Amarillo, Texas I think the value of the dollar comes from the central government's ability to reach into every citizen's pocket and extract some of their dollars. Of course the corporations pay some taxes too. Right now if the government didn't have the ability to tax backing up their ability to print and unprint money the dollar would be worthless wouldn't it? Otherwise, taxes being generally unpopular among those paying them, the politicians could just print money as they needed it without annoying a significant segment of the voting population. But, since I don't teach economics at Princeton and am Nobel Prizeless, I am probably wrong. Dec. 28, 2013 at 10:29 p.m. Recommended3

1. nutjob sf You are indeed wrong. The government's ability to tax has nothing to do with currency, it has to do with the fact that they can put you in jail if you don't pay. Lots of people don't use a currency to pay the IRS. They forfeit their houses, boats, etc instead. Dec. 29, 2013 at 2:58 p.m. Recommended1

2. JMU Paris The value of the dollar comes from the possibility to trade it against goods (say, a cow). The *stability* of that value (which the bitcoin does not have) is ensured, in the last resort, by the central bank.
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But the central bank does not need the government taxes. It just needs to be able to print and burn dollars. Of course if there is no government it is unlikely that people will accept that some guy trades his paper for their livestock, but if they are indeed convinced that this guy is not just eating the livestock and slacking off, but regulating the economy and selling back the cows when needed, it works. Taxes are annoying, but some jobs need to be done by the state. Dirty streets (Smith's example iirc) are annoying but if you estimate that the dirty street costs you $1 per unit time while cleaning the street would cost you $10 per unit time, none will clean the street even if 1,000 people live in the street. Governement is (or should be) basically a gun forcing us to the good place of a huge prisoner's dilemna under various forms. Problems occur when some losers appear : taxing rich ranches one cow per year and giving it to tramps is beneficial to society at large as the marginal utility of the cow is higher for droup-outs than it is for the ranch owners, but the ranch owners will proceed to scream that if it so happens they will be burning their ranches not produce anymore cows, convince some people and bribe others, scaring the elected governement out of it. Dec. 29, 2013 at 2:00 a.m. Recommended1

205. jim fl Bitcoins are nothing but numbers and a registry of who owns which number. All other hand-waving is nonsense. It wouldn't matter if we postulated molecular densities of dna fragments in the genes of mites on butterfly wings in rain forests after the last ice age that set off hurricain Hazel in 1958. The fact is we are working together today (or at least engaged in an economic present), and no "frictionless exchange" of importance will slip-slide along for long. Friction is real in some universes and we live in one of them. Its fun though. Dec. 28, 2013 at 10:29 p.m. Recommended1

1. JS84 AL
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Your bank account balance = nothing but numbers in a database owned by people whom have a larger amount of numbers in a similar database. Considering our monetary system is built upon a house of cards and backed by absolutely nothing, your point makes absolutely no sense whatsoever. Dec. 29, 2013 at 2:57 p.m.

206. Doctor Evil Kansas City I think that in general, Paul has some really romantic notions about the benefits of statism. It's a lot less apparent in this article, but it was right out there in the last one. This article was reasonable in its analysis. I don't know if I agree that Bitcoin has a libertarian agenda, but honestly... so what if it does? What is so bad about allowing a free market to operate without the interference or regulation of government? If Paul subscribes to Keynesian economic theory, then he should believe that Bitcoin will fail. And that's good. After all, markets, according to Keynesian theory are machines, which need to be adjusted and regulated, occasionally bailed out by government in order to survive. In our lifetimes, we haven't seen many truly free markets, let alone free markets that work. Most of what we call the "free market" is clearly a mixed market approach. In that way, I can see how something like Bitcoin would scare the bejeepers out of someone who has a vested interest in this kind of thought, wrong as it is. I do see hope though. I think Paul may come around. But we're not going to see that happen just yet. Bitcoin has to hold stable, and be chartable for a longer period of time. It's like I keep saying. Long term charts are everything with Bitcoin. Even if you are freaking out at every market fluctuation. Dec. 28, 2013 at 10:18 p.m. Recommended7

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1. nutjob
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sf This is typical of Bitcoin "true believers." They claim that Bitcoin is not able to be regulated and is somehow special but that's not true. Governments have the power to regulate not because of a mathematical theory but because of their ability to enforce their laws with a variety of punishments and consequences. The recent Silk Road case should illustrate the fact. Dec. 28, 2013 at 11:32 p.m. Recommended2

2. CA Michigan "What is so bad about allowing a free market to operate without the interference or regulation of government?" As it happens, there are reasons people created the EPA, FDA, SEC, Department of Agriculture, the Fish and Wildlife Service, Department of Labor, etc, etc, etc, and they all have to do with what's so bad about allowing a free market to operate without interference or regulation. And I think you are being extremely naive about the potential disruptive impact of the rise of an untraceable, untaxable currency. The Libertarian agenda is everything worth caring about concerning Bitcoin. Dec. 28, 2013 at 11:50 p.m. Recommended10

3. Tetra AZ Free markets are anti-democratic. The "goods" in a free market go to the highest bidders. Free markets need to be balanced by democracy. Democracy requires government - one person, one vote. Without government there can be no democracy. Libertarianism = less government = tyranny of free markets = less democracy.
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Dec. 29, 2013 at 2:58 p.m. Recommended1

207. MillyBitcoin Atlantic City Bitcoin is in its experimental stages so it cannot be compared to established currency/payment systems with the expectation that it will directly compete. As the story points out Bitcoin is a commodity, payment system, currency, and an Internet protocol. You need to understand how all these things fit together to understand its value. Bitcoin is also a tool, like the Internet, that cannot be attached to any political movement. Some people with certain political views have attached themselves to Bitcoin and claim using it means association with some political cause or point of view or they claim that Bitcoin was designed for some specific purpose. It is just a tool that can be used for all sorts of purposes and attaching it to political movements is just hyperbole. the Internet can be used by conservatives, republicans, those who want to fight "the man," or it can be used by "the man" to spy on citizens. Dec. 28, 2013 at 10:11 p.m. Recommended11

1. ACCESSTEAM Sacramento Your discussion of bitcoin and it's newness and lack of history reminds me of another system which has existed for hundreds of years. The Arab money changer. Long before bitcoin, Western Union or online banking, the Arab money changers provided exchange and transfer services world wide. You might look to that system for comparisons. Dec. 29, 2013 at 2:59 p.m.

2.
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JMU Paris Bitcoin might be in the experimental stages, but it has being designed as to stay in these stages with hard-code all over the users' computers. If someone suddenly realizes that central banks are actually doing useful stuff (for example when the currency drops 50% in a day), well, too late for that. As for the tool being apolitical, it's true in the sense that a lockpick is not making its owner a thief. However, bitcoin only makes sense if you want to dissimulate your transaction to law enforcement, and believe it or not, but libertarians like it better than other political currents. Dec. 29, 2013 at 2:06 a.m. Recommended1

208. Frans The Netherlands Internet seemed a bubble not too long ago but ultimately it was a real technology to be disruptive. Bitcoin is a bubble now, simply because of speculation. It will subside. The technology will remain and will force the current payment processors in US to significantly reduce their prices/profimargins. It's a typical US invention to a US problem. In Northwest Europe transaction banking is exeptionally developed and therefore very cheap. The bubble is foremost created in emerging countries like China where people don't trust their immensly restricted or manipulated home currencies. So whatever we think of it, Bitcoin is a necessary bubble, just another catalyst of change. Dec. 28, 2013 at 10:09 p.m. Recommended12

209. Gregory Magarshak Brooklyn, NY 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
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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. To summarize: demand for participating in the bitcoin network for one reason or another (merchants, millionaires, speculators etc.) drives the actual market price of bitcoins. Dec. 28, 2013 at 10:07 p.m. Recommended4

1. anon finland Since when is money laundering a good thing? Dec. 29, 2013 at 2:56 p.m.

210. Mohan Dudha San Greogorio, California Saying that gold can be used to make pretty things seems entirely arbitrary. Psychologically, gold is pretty because gold is scarce. If Iron were fifty times rarer than gold, people would ooooh-and-aaaah about how subtle and infinitely splendored its greys were and how it was noble and delicate because it died with the most exotic reds and browns if moisture touched it. They would kill each other for specks of rust. Bitcoin is rare too. Bitcoin has another property of gold - it is effectively eternal. All money is evil. Bitcoin is just the latest example. It is just as valid as any other form of money. I don't think there is a single thing
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which has these properties (ownability, divisiblity, authentifiability, sufficient volume but with reliable limits on supply) that has not served as a currency in human history. Feathers, bones, beans, embroidered cloth, shells, gold, silver, tough-to-duplicate patterns on paper (eg the dollar), cigarettes (in prison). The interesting thing about Bitcoin is that it doesn't need to make it in 10-20-30 years. As a currency, it will be just fine if it makes it in 100 years. People will still own the Bitcoins they own. It won't perish because of the mathematical limits on it. Unlike shells, feathers, cloth - which can be mass-manufactured/collected and collapsed in value. Dec. 28, 2013 at 9:58 p.m. Recommended1

1. Tim Kane Mesa, Arizona Verified Growing up, my sister who was a year and a half older than me, started getting gold jewelry as presents. I remember thinking silver was more attractive and that gold was just dirty silver. In the adult world, how many people buy new cars that are gold instead of silver, gray or even "charcoal" gray? You could say that gold is indeed pretty. But it has other properties that make it valuable: it is a maleable medal. Suitable for filling teeth and making shapes and sculptures - some of which end up hanging from a teenager's newly pierced ear. Dec. 29, 2013 at 3:48 a.m. Recommended2

211. flakesobran Washington DC Take a look at Ripple, which is a kind of Bitcoin 2.0. While mining is still involved, it happens in the background to a fractional extent that makes it almost unnecessary. That said, in order to attract regular Bitcoin miners they have implemented Berkley's BOINC system as a pseudo mining tool which lets people help scientists to cure cancer, and research clean air, while essentially mining. www.computingforgood.org
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It allows the ability to create custom currencies that can represent anything from dollars to stocks that uses exactly the same system as the rest of the Ripple network, allowing these commodities same transactional abilities that Bitcoin is being hyped for. And it makes no effort to appeal to the Libertarian element in the rest of Bitcoin is so polluted by. This same Libertarian element thinks Ripple is a scam. The CEO of Ripple, Chris Larson, has repeatedly said that he wants to work with banks, work with government. Dec. 28, 2013 at 9:53 p.m. Recommended1

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1. flakesobran Washington DC Exactly -- so instead of a deflationary model which is pro libertarian, they've set up a kind of inflationary model. Instead of distributing their XRPs willy nilly to miners their business model lets them distribute to companies that will help them build their business. And let's not forget "trust/gateways" which lets ripple act more like a decentralized free central bank but is also something anathema to the Libertarian mindset. Dec. 28, 2013 at 10:28 p.m. Recommended2

2. Bruce Fancher New York, NY This is baloney. Ripple is a pre-mined scam. Dec. 29, 2013 at 2:58 p.m.
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3. CA Michigan @C - I find it really interesting how in a single sentence you claim Libertarian concerns aren't then issue then immediately launch into an explanation how it's about control of the currency. I'm really wondering why that control is a problem if not for offending some Libertarian sensibility. Dec. 29, 2013 at 2:58 p.m. Recommended1

212. Nelson Hermance Chicago It's clearly important for the Bitcoin community to clear up some common misconceptions. There is a lot of ignorance about how it works and what it is all about. Misconception 1: Bitcoin's principle function is to launder money. Only someone who was woefully ignorant of Bitcoins basics would make this kind of statement. Bitcoin has what is called a "block chain". The block chain is a permanent record of that particular coins history since the beginning of it's existence. In other words every holder of that coin is on record forever. The holder is a bitcoin "wallet" which is really an encrypted number. The record of each bitcoin is associated with one or more wallets. I have a wallet on my smatphone. So technically my bitcoin is not associated with me personally but it would hardly take an NSA level investigation to tie the the bitcoin on my smartphone to me. Basic point: if you want to launder money stay MILES AWAY from Bitcoin! The record of transactions is permanent. Misconception 2: Bitcoin will make it easy to avoid taxes. Given the public blockchain mentioned above, quite the opposite is true. Every bitcoin transaction is permanent and publicly accessible. Currently apps are under construction to calculate taxes automatically. The IRS (like everyone else) has access to the blockchain so tax evasion going forward using Bitcoin is just a non starter. Dec. 28, 2013 at 9:48 p.m. Recommended25
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1. Wendell Murray Kennett Square PA USA Fine. Assuming that those are misconceptions. I suspect that that is not true, but I have no interest in investigating, then why not answer your own question? "what it is all about" Dec. 29, 2013 at 2:59 p.m.

2. Jamey Winston Salem I think you're missing where the main concern is coming from when it comes to money laundering. The main concern is that bitcoin is a handy way of conducting economic transactions without having to go through regulated financial institutions. If bitcoin were just an alternative currency that got deposited into a bank account like dollars, that concern would diminish. And although I'm going to presume that most users of bitcoin aren't engaged in criminal activity, for those that are, the fact that bitcoin doesn't need to be deposited in a bank account, is a feature, not a bug. You could of course correctly point out that dealing strictly in cash transactions only is also a way of avoid detection by financial institutions. However, cash has a physical presence. If you're drug dealer, securing and transporting large sums of cash is a problem. Bitcoin could give you the best of both worlds. Like cash, it could allow you to evade detection by the authorities. However, unlike cash, it's something that's easily transferrable (without say having to transport duffel bags full of money through border security) and securable from thieves (and chances are, as a crook yourself, you know lots of other crooks that would like to rip you off). It allows you the security and peace of mind that would come from having a bank account without subjecting you to the same scrutiny that would come with it. Dec. 29, 2013 at 2:58 p.m. Recommended1
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3. JMU Paris Both "debunks" depend on the assumption, stated as obvious, that associating a bitcoin wallet with the corresponding physical person (or his traditional banking account) is easy at least for the Feds. It is not. You don't just go out hunting for the number that corresponds to the drug lord you know, neither seizing hundreds of computers to find out which one has the wallet that ordered child porn. Even if it was technically feasible, it would still be much better than both bank transfers (ultratraceable, even to Caiman) or cash handling (you don't click a suitcase of $1 million to Australia in a second, you make it go through the airport). Dec. 29, 2013 at 2:57 p.m. Recommended1

213. Andrew Biemiller Barrie, Canada Isn't bitcoin rather like the bank currencies issued in the 19th century, or local currencies (e.g., Ithaca dollars) issued this century? Temporarily, such systems can effectively add "money" to the economic system, and if money is in short supply, such systems may spur the wheels of an economy to move a little faster. However, I suspect that in time, many such systems fail--people "lose faith" in supplementary "money". Since faith is what makes any kind of money "work", when it is lost, the value dissipates. It appears wiser to me for nations to stick to their own currency (or to an extra-national currency like the Euro). Maybe I'm missing something here. Dec. 28, 2013 at 9:46 p.m. Recommended4

214.
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Sublime5447 NC It is not a problem that bitcoin is not a good store of value. Currency doesnt have value currency represents value. Saying currency has value is like saying inches have length. The problem with bitcoin is that it is not a unit of account. Units are definable in objective terms and are a constant. Bitcoin is not definable and is not a constant. Bitcoin has the same problem as the dollar, it is not definable. I suggest 1 unit of currency = 1 joule of work! .... That idea is the most powerful idea on the planet. To fix the dollar define it and then change the distribution method from the banks and government to direct deposit into the accounts of user of the currency << this would also make you loanable funds models work again too. Dec. 28, 2013 at 9:38 p.m. Recommended3

1. JMU Paris Though the value of a dollar is fluctuating (inflation and stuff), it is not fluctuating so much that you are holding on two hours before buying lunch because the price of sandwiches might have dropped 20% by 2pm, or that workers demand to renegociate pay with their boss every month. Since we stopped using livesock as trading tool, we abandoned the idea of fixed money/goods parity. But we like the change rate to not fluctuate too violently, and the bitcoin offers no such guarantee. Dec. 29, 2013 at 2:21 a.m. Recommended4

215. G NYC Saying bitcoin is evil or doesn't have value or is evil is like saying email is evil or doesn't have value. It's a technology with a purpose - that purpose is to reduce the cost of moving money from one entity to another and it does so exceedingly well.
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It's role as a stable store of value is less defined and it may never serve that purpose. That said, if it continues to get used as a method of payment than price stability will likely follow. Dec. 28, 2013 at 9:36 p.m. Recommended9

216. Stefan Roever Atherton, CA I agree with your distinction. Bitcoin is great as a medium of exchange, but poor to nonexistent as a store of value. In fact it's so good as a medium of exchange (by allowing users to bypass arcane regulations around the world on what they can buy, who they need to report to, how much money they can export, what taxes and fees they should pay on their transactions, etc), that this more than makes up for Bitcoin being a poor store of value. The price of Bitcoin is a reflection of how much more value users place on the first aspect (medium of exchange) vs the second (store of value). With respect to the normative angle, some people (Keynesians, who are in the majority and in power) believe we need central banking to counteract the business cycle. Others (Austrians, who are in the minority and until now mostly powerless) believe central banking is the root cause of boom and bust cycles. Bitcoin provides and easy way to opt out of central banking, into non-government managed/manipulated (pick your term according to your bias) currencies. One interesting aspect here is that central banking is not free. It's paid for through inflation, and not equally so. Some people are more affected by inflation than others, but central banking only works if it's hard to opt out. That's why libertarians love Bitcoin, because it makes opting out easier and thus changes the balance of power in their favor both individually and politically by attacking the foundation of central banking. Dec. 28, 2013 at 9:29 p.m. Recommended7

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nutjob sf Using bitcoin to bypass "arcane regulations" is basically money laundering and is a crime. Bitcoin doesn't relieve you from obeying any particular law. Dec. 29, 2013 at 2:58 p.m. Recommended2

2. Blue State here In this romantic libertarian paradise, where is the suboptimal human? Where is our down's syndrome brother, our sister with MS? Where are their caregivers? Does all go to the fittest with no government or taxation to help regular humans eke out a life of dignity? Dec. 29, 2013 at 6:17 p.m. Recommended1

217. DonaldSurr Pennsylvania No one still has explained to my satisfaction why Bitcoins have value. What backs them? National currencies, in my understanding, represent the taxing power of sovereign states, their power to lay claim to present or near future marketable assets within their borders. On that basis fractions of the national debt, governmental IOUs, become accepted as a medium of exchange. It makes little difference whether those IOUs are stamped on shiny metal, printed on specially made paper, or exist as bank account numbers in legally chartered banks. What then are Bitcoins that represent portions of no taxing power? Dec. 28, 2013 at 9:27 p.m. Recommended12

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1. Spinoza San Diego Like all money, Bitcoin ultimately has value because people believe it has value. The more people believe a form of money has value, the more demand for the money exists. The dollar has built in demand because if Americans don't use it, we cannot pay our taxes, and if we don't pay our taxes we will be thrown in jail. But what Bitcoin lacks in demand created by taxation, it (hopes) to make up for with demand based on reliability and avoiding the costs of payment services like banks, credit cards, and PayPal. Although the volume of this demand may not be large enough in any one country to overtake the native currency, the combined global level of demand might indeed be enough to make Bitcoin a reliable store of value. Dec. 29, 2013 at 2:37 a.m.

2. Taylor San Clemente Now the the most important question: WHY DOES BITCOIN HAVE VALUE? This is the same fundamental argument that has been made against the price of gold and silver. Simply stated the definition of value: the regard that something is held to deserve; the importance, worth, or usefulness of something. Things have value because we give them value. If its useful for us, if it makes us happy, feeds us, protects us, or helps us get laid it has value. Why does Oil have value? It can be used to cook, produce electricity, or heat. These are some of our fundamental needs. Why does Twitter stock have value? We expect it to produce cash into perpetuity. But does it now? Not much. Why does Gold have value? - Its the ultimate insurance policy on all other stores of value. In the ultimate doomsday, the demise of the United States, the European Union, or some world war III. Gold has proven valuable over time. It only has value because we give it value. Its really not that useful. Bitcoins current opinion of value is currently just like twitters stock. A huge expectation for the
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future prospects of the currency to become a common method of exchange and some day compete with the major currencies of the world. Right now its book value, or intrinsic value is almost worthless without the expectations for its future utility. One more post below...see below continued... Dec. 29, 2013 at 2:57 p.m. Recommended1

3. Taylor San Clemente As it matures, and improves its market share, the volatility will be reduced. It will increasingly be used as a medium for exchange mostly because of the cost efficiencies. Private companies will figure out how to insure it, and hedge risk of volatility just like our current financial markets do. Why will it hold value? For the same reason Open Source Technology does not die on the vine. The community owns it, and will ensure its survival. If you don't understand or believe in open source technology, you won't ever understand Bitcoin. The fundamental believe that the living entity is better managed by the collective many vs a select few is an entire different discussion. Paul, Great post BTW..and very interesting debate in comments. I read them all. Everyone has good points. Nice title...good way to get people to read it. I don't think its really relevant. If Bitcoin is evil, so is Money, Open Source Tech, and any other idea for that matter. Its just an experiment, with noble goals. If anything it is less evil than the dollar or the Federal Reserve. Dec. 29, 2013 at 5:49 a.m.

218. Marco Mexico City Henry Ford had fascist leanings too, the car ( eventually mass accepted technology) made its own dust on a highway of its own making-- ideology was left behind in the rear view mirror. I think the use of good technology will transcend and make good economics for all. Dec. 28, 2013 at 9:27 p.m.
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219. Chicago Bob Chicago Paul, I usually enjoy your thoughtful comments. But your focus on Bitcoin as an investment obscures the biggest technological impact of this phenomenon. Bitcoin is also a payment process that does NOT require a 2 - 3% tax for the processors. Processing is a really lucrative operation and the vested interests are really opposed to some new idea taking away their cut. They will be opposing this thing loud and long but they cannot stem the rising tide of technology. Brick and mortar bookstores, printed newspapers and CD/DVD distributors already know this. The Bitcoin-based payment processes with the best promise are not relying on any given value of Bitcoin (other than zero.) They are converting to fiat currency immediately and that protects a merchant from volatility in the exchange medium (Bitcoins) and insures a stable price in the home currency (Dollars, Euros, Sterling, whatever.) So if you're Visa or MasterCard or Discover or AMex or any of their processors, Bitcoin is evil indeed. But evil is a very subjective thing. Dec. 28, 2013 at 9:26 p.m. Recommended25

1. gdnp New Jersey The argument here seems to be that there is a problem with credit/debit card processors collecting fees far in excess of their costs: basically, monopoly profits. If this were really the case, it would seem much more logical for someone to start a new debit card system with lower fees but still processing transactions in dollars, thus eliminating the deflationary and speculative downsides inherent in Bitcoins. To some degree, companies are already doing this. Many cards give you cash back or frequent flyer miles if you use them.
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Dec. 29, 2013 at 3:21 a.m. Recommended4

220. Vijay Boyapati Seattle Bitcoin IS a bubble, but that is not a pejorative. Any good that attains the status of money has a price that is far above the price warranted by its use demand. It does not matter whether the "floor" price is 10%, 1% of even 0% of the monetary premium. The most compelling theory explaining this fact of money is proffered by Moldbug. To wit: http://unqualified-reservations.blogspot.com/2011/04/on-monetary-restand... and http://unqualified-reservations.blogspot.com/2013/04/bitcoin-is-money-bi... Dec. 28, 2013 at 9:24 p.m. Recommended4

221. Byrd Orange County, CA What gives bitcoin value? The same thing that gives any currency value, which is desire, understanding and belief of multiple people from multiple cultures. It's true that if nobody believed in bitcoin, then the value of the currency would be zero. But this is also true of the stocks of newly formed companies. It's the same thing for art or antiques: if no one perceived value in the medium, it would be trash. The idea that currency needs a backing store is an economist's abstraction, and a literally incorrect one. Dec. 28, 2013 at 9:22 p.m. Recommended7

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222. R. Law Texas Verified In addition to there being no known ' floor ' under Bitcoin, there is the fact it is an un-regulated exchange medium (as intended, as Dr. PK mentions) creating the same type problems we saw in 2008 when unregulated derivatives were held insurance companies, outside the realm of banking regulation. There are entirely too few people in the world holding too much wealth, looking for the next great Ponzi/Madoff scheme to sucker people into. News that Overstock will start accepting Bitcoin payments, and that there will be a Miami Beach Bitcoin convention in January, are not good harbingers. Dec. 28, 2013 at 9:17 p.m. Recommended14

1. SheHadMANHands Chicago There is certainly a floor, because Bitcoin, as a protocol, has utility. Once you understand this, and understand that "bitcoins" are the sole unit of account on this network, it shouldn't surprise anyone, particularly an economist, that they command a market price. Anything that is both useful and scarce will have a price. If you can't envision the utility of this decentralized network, which enables the transfer of arbitrary value anywhere, instantaneously, at near zero cost, then I'm at a loss. The implications in the remittance industry alone, which effects some of the world's poorest people, is fairly significant. The implications for a new paradigm of payment systems ("programmable money", if you will) only expands on this. At the end of the day, Bitcoin is new technology, and the cat is out of the bag. You can't "undo" a new invention. Dec. 29, 2013 at 2:59 p.m.

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2. supertubes brooklyn The problems in 2008 were caused by obscurely repackaged debt. All Bitcoin transactions are 100% public - that makes it much harder for private entities to obscure the provenance of the instruments they are offering. If you gave Bitcoin to a Madoff you would be able to audit his quarterly reports in your own living room, and get the heck out if you saw something funny. Just to be clear: Traditional finance: security through obscurity, creating the potential for corruption. Bitcoin: security through math, creating the possibility of transparency, which the consumer can then reasonably demand. Dec. 29, 2013 at 2:58 p.m.

223. Huckfinne CT The ability to cheaply and easily send money anywhere in the worth is, itself, Bitcoin's intrinsic value thus setting a floor. The pseudoanonymous part may be a bit more intrinsic value, but to actually be anonymous requires a lot of precious computer skills that most users don't possess. Anyone who has ever tried to do an international wire transfer can attest to how much friction there is in the movement of money. It takes at least an hour of my time and greater than ten dollars to send money from my US to my UK account. Without even considering this not uncommon situation, what about sending money to my dad two states away. Any of the current mechanisms have phenomenal friction. Please note, I am not critiquing why these current frictions exists. Banks have rules for a variety of reasons, most of which made sense to someone at some point in the past. Bitcoin allows me to send any amount of money anywhere in the world for essentially free. Although it takes an hour to get six confirmations and thus be fully transferred, me sending it takes less than a minute as does the transaction's broadcast to the network. This ability to transfer value is independent of the exchange rate of bitcoins. At $1/BTC or $1000/BTC the network does the same work. Also, please note it is Bitcoin not "BitCoin." That is, no middle word capital letter as some marketing executive might conjure up.
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Dec. 28, 2013 at 9:08 p.m. Recommended17

1. Brandon San Francisco, California This seems like exactly the type of comment that the author was trying to avoid, where you are not discussing the problem and trying to talk about some unrelated problem which Bitcoin actually solves. It doesn't matter what technological problems are solved by Bitcoin in a discussion regarding Bitcoin in economics. All your comment does is provide a distraction from the actual point. Dec. 29, 2013 at 2:59 p.m. Recommended1

2. Larry Lundgren Sweden You refer to the difficulty in transferring money to your dad, two states away. Although this is not Bitcoin matter you give me the chance to ask why this must be difficult. Here in Sweden, I can instantly transfer money to anyone with any bank and have just done so. In the America of my citizenship I cannot even make an electronic transfer within one of my banks from my account to my daughter's - or vice versa. Why not? A topic for Mr. Krugman perhaps? Larry Lundgren Only-NeverInSweden.blogspot.com Dec. 29, 2013 at 2:59 p.m. Recommended1

224.
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SheHadMANHands Chicago What appears to blow Krugman's mind, is that Bitcoin is really a breakthrough in computer science, and not about "digital gold". He focuses endlessly on "bitcoins", the unit of account, while remaining largely, if not completely, ignorant of "Bitcoin", the protocol and payment network. The Bitcoin protocol actually solves a 60 year problem in computer science, known as the Two Generals' Problem. It enables a decentralized network to achieve consensus on a ledger of assets, without requiring any trust between parties. This is a generalizable solution, and the implications are far reaching. "Currency", if you will, is the first "app" and tip of the iceberg. The modern problem is that we have economists attempting to grasp emerging technology, and attempting to view Bitcoin purely as currency as opposed to a new protocol, that enables innovation at the edges. Krugman is not a "technologist", in any sense of the word, and his opinion on open source protocols is inconsequential. Perhaps he should do more research, and stop combatting innovation with such hostility. It's rather depressing to read. Dec. 28, 2013 at 9:03 p.m. Recommended29

Read All 10 Replies

1. Michael O'Neill Bandon, Oregon Payment network? Is a joke, yes? Delivery of goods (drugs) and services (prostitutes) remains as a real world problem. There is no 'app' for that. Only so long as the supplier of real goods and services can obtain $100 bills for their alt-coins will they continue to play. Once this is no longer possible because the rest of the market discovers the joke then it all reverts to the MMORPG that it always was. At least tulip bulbs could be grated onto salad. Dec. 29, 2013 at 5:55 p.m. Recommended1
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2. Joe Smith Vancouver Verified A little quick reading says that there is a proof that no deterministic solution to the two general problem is possible. What Bitcoin has is a heuristic that makes assumptions about how many computers are in the network and how much processing power those computers have. Building a system around estimates of how fast an unknown number of nodes might be does not seem to be a breakthrough or secure. Dec. 29, 2013 at 6:53 p.m.

3. Query West Verified Technologist ber alles? Quite a track record to date. Quite a lck of self awareness. Common to the type. Dec. 29, 2013 at 7:48 p.m.

225. SheHadMANHands Chicago What appears to blow Krugman's mind, is that Bitcoin is really a breakthrough in computer science, and not about "digital gold". He focuses endlessly on "bitcoins", the unit of account, while remaining largely, if not completely, ignorant of "Bitcoin", the protocol and payment network. The Bitcoin protocol actually solves a 60 year problem in computer science, known as the Two Generals' Problem. It enables a decentralized network to achieve consensus on a ledger of assets, without requiring any trust between parties. This is a generalizable solution, and the implications are far reaching. "Currency", if you will, is the
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first "app" and tip of the iceberg. The modern problem is that we have economists attempting to grasp emerging technology, and attempting to view Bitcoin purely as currency as opposed to a new protocol, that enables innovation at the edges. Krugman is not a "technologist", in any sense of the word, and his opinion on open source protocols is inconsequential. Perhaps he should do more research, and stop combatting innovation with such hostility. It's rather depressing to read. Dec. 28, 2013 at 9:00 p.m. Recommended16

1. Jeremiah C. Foster Gotheburg, Sweden Oh the lulz!!1! Perhaps the real "modern problem" is that we have so-called technologists trying to argue with Nobel prize winning economists in a domain that the economists are significantly better at; math. I also note that no one seems ready to argue with Charlie Stross, who's technical chops you'd struggle to dismiss, and who makes many of the same points as Krugman. Bitcoin is a toy, used by dudes with powerful GPUs and too much time on their hands. Just because these guys say it has value only proves the power of the Bitcoin tautology. It will eventually fail, most likely drifting into irrelevance as other electronic payment methods mature. Dec. 29, 2013 at 2:59 p.m. Recommended1

2. Dave Brooklyn Very good. Now, why don't you actually address the substance Krugman's post ... if you actually read it. Dec. 29, 2013 at 2:59 p.m. Recommended1

3.
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mfuchs12 Philadelphia, PA The protocol and payment network are great, I'm sure. But you ignore the thrust of PK's post, and the main reason people like and dislike Bitcoin, which is the crypto currency on top. Why have a new currency at all? Why not denominate transactions in US dollars on the Bitcoin payment network that uses the Bitcoin protocol? Wouldn't that accomplish the lower transaction fees, etc., while preserving the stability of currency backed by a competent central bank? Of course, we all know the answer. The protocol isn't the point, and proponents don't care a fig about transaction costs. Bitcoin is really "Gold 2.0" for techies who read more Ayn Rand, Robert Heinlein and Philip K. Dick than is good for not-yet-formed minds. Dec. 29, 2013 at 2:57 p.m. Recommended2

226. Observer MA Bitcoin's principal function is to launder money. There is no other reason for it to exist. It is to facilitate illegal transactions, and/or avoid government currency reporting requirements. Dec. 28, 2013 at 8:49 p.m. Recommended40 Read All 9 Replies

1. pa2013 New York, New York I take it that you are not an immigrant sending money to relatives in another country and paying 9% in order to do so? Bitcoin does it for 1-2% (including interchange fees). Dec. 29, 2013 at 2:56 p.m. Recommended1

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2. Stop being a dinosaur NYC HSBC bank is a much better way to launder money for drug cartels and terrorists. You can read all about it in this newspaper. Bitcoin simply doesn't have the market cap to support the laundering needs of those enterprises. Legit reasons to use bitcoin? 1) Bitcoin has very low transaction fees compared to Visa or Mastercard. 2) You control the security of your bitcoin keys; you don't have to trust a third party to keep your funds safe. 3) Bitcoin's distributed ledger can also be used to track asset sales, commodity certificates, etc. Check books, ACH, International Wire Transfers, etc. are dinosaur technologies. It's about time they were updated. Dec. 29, 2013 at 2:56 p.m.

3. FreddyB Brookville, IN Criminals will still prefer US 100 bills for illicit sales and laundering. BitCoins have a transaction history built into the system. That is the real reason people like Paul Krugman think it's evil: it's transparent. Dec. 29, 2013 at 6:17 p.m. To comment, reply or recommend please Log In or Create An Account. Search This Blog
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About Paul Krugman Paul Krugman is an Op-Ed columnist for The New York Times. Biography Columns
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How bad have things gotten? How did we get stuck in what now can only be called a depression? And, most of all, how do we free ourselves? A call-to-arms from Paul Krugman. Buy the book Some links to stuff Ive written bearing on macroeconomic policy. Read all of them, and youll have a good sense of where Im coming from. A Dark Age of Macroeconomics A History Lesson for Allan Meltzer Americas Chinese Disease Chinas Water Pistol Core Logic Currency Wars and the Impossible Trinity IS-LMentary Japan 1998 Liquidity Preference, Loanable Funds, and Niall Ferguson Macro Policy In a Liquidity Trap More on Friedman and Japan Myths of Austerity
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