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View Diary: Bitcoin - it's like exchanging Turkish Lira, without the glamour. Or security. (163 comments)

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  •  There is one advantage to BitCoin (1+ / 0-)
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    Bitcoin and other cryptographic currencies (which I do not own, nor am I involved in the use of), are called cryptographic for a reason.

    A reason that has nothing to do with being "off the grid." (Many people who use Bitcoin want to use it for ordinary commerce, not shady, secretive commerice.)

    Bitcoin is cryptographic because its security is based on extensive encoding to prevent fraud. In theory (and, at the moment, in practice), Bitcoin should be much harder to counterfeit than standard currencies.

    That defense against counterfeit currency is a potentially real advantage Bitcoin has against other currencies. I say potentially, because that doesn't really work in the world. Yes, dollars are more easily counterfeit. But no one actually cares all that much about a few million counterfeit dollars in a world of trillions. Ordinary currency also benefits from this: the amount of currency in circulation can, essentially, expand and contract. The amount of Bitcoin that exists is strictly defined.

    The other thing I'll note about Bitcoin is that it's actually very hard to make. It involves massive amounts of computer calculations by specialized equipment. Every additional Bitcoin produced by 'miners' (miners = people who own large amounts of computer hardware specifically set up to produce Bitcoin) adds to the cryptographic security of Bitcoin. That is to say, the very act of producing Bitcoin makes the currency ever more secure against being hacked.

    Though not, as your article mentions, secure against traditional currency manipulation.

    Anyway, what I was getting to for this last point is that the supply of Bitcoin is actually very carefully managed. It's easier to create more dollars or more gold (two other famous currencies) than it is to create more Bitcoin. This would be the theoretical answer of technophiles for Paul Krugman: Bitcoin is less susceptible to inflation resulting from the production of more currency than gold or national currencies or diamonds, etc.

    Of course, the benefits I've noted do not, for me, outweigh the massive downsides of using a currency with so little social power.

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