Whom do you trust: Bitcoin or Bernanke?

For those following Bitcoin, this interview with Gavin Andresen, the 46-year-old lead software developer for the Bitcoin project in today’s Wall Street Journal should be of interest.

Bitcoin vs. Ben Bernanke

“The chief scientist for the digital currency talks about its appeal—and pitfalls—in a world of fiat money.”

Highlights:

As for the upside, small online merchants would welcome a global payment standard. For this reason Bitcoin or a similar technology could threaten the power of not just central banks, but banks, period. Unlike online payment services that give people with credit cards easier ways to transact business, Bitcoin works best when avoiding the traditional financial system completely.

And

Politicians and their appointees are entirely cut out of Bitcoin’s monetary loop. This is a significant difference between Bitcoin and government-issued fiat currencies. Federal Reserve Bank of Dallas President Richard Fisher calls the U.S. dollar a “faith-based currency.” In other words, its value rests on the belief that the government will not print so many dollars that each one becomes nearly worthless.

And

This [deflation that is predicted to be a consequence of Bitcoin’s fixed nature ] is  portrayed as a recipe for economic disaster by those who like to inflate currencies to relieve the burden on borrowers, including spendthrift governments.

It’s true that deflations have sometimes accompanied economic disaster, but also economic triumphs. For example, in “Money, Markets & Sovereignty,” Benn Steil and Manuel Hinds describe the second phase of the Industrial Revolution in the U.S. between 1870 and 1896. Prices fell by 32% over the period, but real income soared 110% amid robust economic growth, expanded trade and enormous innovation in telecommunications and other industries.

The conclusion:

It’s almost time for Mr. Andresen to get back to work. He shares some useful advice about Bitcoin: “I tell people it’s still an experiment and only invest time or money you could afford to lose.” If only investors could as easily follow that advice with fiat currencies.

Comments

  1. http://www.theregister.co.uk/2013/05/07/us_regulator_checks_out_bitcoins/

    “Watchdog: Y’know what Bitcoin really needs? A REGULATOR! –
    US derivatives commission mulls rules for e-cash”

    US financial regulator has said it’s figuring out if crypto-currency Bitcoin falls under its remit.

    Top bods at the Commodity Futures Trading Commission (CFTC) are discussing whether the cyber-cash should actually be covered by its rules, as Bitcoin gains in popularity.

    “[Bitcoin] is for sure something we need to explore,” one of the five commissioners at the CFTC told the Financial Times.

    “It’s not monopoly money we’re talking about here – real people can have real risk in these instruments, and we need to ensure that we protect markets and consumers, even in what at first blush appear to be ‘out there’ transactions,” he said.

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