Bitcoin as money

BITCOIN Screen Shot 2016-01-29 at 10.04.16 AM

The following is a note found on Facebook.

Random ideas on what makes money money
by Kermit Kefafel,  Friday, January 29, 2016

Is money a public or private good? It is a private good imbued with public interest. The public goods that attach to money are the safety of the banking system and price stability, as conventionally promised by a central bank.

What are cryptocurrencies? They act as substitutes for the use of cash in untraceable transactions, the idea of Bitcoin. You can even buy bitcoins at your local 7-Eleven.

The market for Bitcoin has lately been shaken with the arrest of one of its principals; there is talk that it could collapse. Will other cryptocurrencies have the same problems?

I suspect that for a cryptocurrency to become viable, it must hurdle the trust problem — its users and holders must be assured that its supply and valuation are, in some sense, sacrosanct. That its price could bubble up and down like a financial asset is a negative. Even fiat-currency central banks pay some kind of lip service to exchange stability under the current system of floating exchange rates.

Because of the public-goods aspect of money, a stateless currency requires an enforcement mechanism that is private but viable. Does such an enforcement mechanism exist?

Or, are cryptocurrencies just another Ponzi scheme?

*******

For reference, see Lawrence White’s article in the Cato Journal.

The central bank (Bangko Sentral ng Pilipinas) has issued an advisory regarding the lack of regulation on virtual currencies.

A recent assessment predicts continued growth of Bitcoin in the Philippines.

 

 

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