Wednesday, December 11, 2013

Digital Currency II

This post retracts a key point in the previous post and collects several relevant tidbits.

Retraction:  the Frequenter retracts the claim that a rise of bitcoin could plausibly hurt the dollar.  The Federal Reserve has the tools to contract the supply of the dollar.  If the dollar becomes less valuable (at least domestically) for any reason, including a bitcoin craze, the Fed will most likely contract the money supply enough to avoid inflation.

Tidbits:
  1. The need for economy of scale in bitcoin mining may mean that an extremely small number of players will end up collecting the vast majority of new bitcoins.
  2. If bitcoins were to take over a large fraction of commerce, wealth inequality would take on a whole new meaning.
  3. The "experts" seem to have trouble agreeing on exactly how to value the bitcoin:  high, low, high, low.  The current valuation remains well below the peak, and it's looking mighty frothy.
  4. The Assassination Market is one of the most flamboyant illustrations of the bitcoin's potential as the currency of choice for the dark underworld of web-based crime.  How hard must it be for the secret government agencies to resist using such a market to destabilize its worst enemies?
  5. This sloppy rant by a brilliant young reinventer of the internets is perhaps the second most likely scenario for how the bitcoin will disappear (the most likely being that it goes poof spontaneously, or due to animal spirits).

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