This week Marc Andreessen contributed a piece to the NYT, explaining why BitCoin is The Next Big Thing.
Since I have sounded off on the topic, I read through his arguments carefully.
First, let me say that this is a good of a short summary of the “case” for BitCoin as you’ll find. Andreesen was well briefed.
For instance, he quite correctly points out that BitCoin technology can be used as a useful protocol for many kinds of exchanges. I.e., stepping back from the money-without-governments rhetoric, and there is still something very useful here.
I’m afraid his belief in the supposed impossibility of fraud or theft. BitCoin avoids some of the common (and most boneheaded) current risks, but there are plenty of other lines of attack. It depends on computers and networks for goodness sake! How secure can that be?
His weakest point, understandably, is where he dismisses critics who view BitCoin as a haven for bad behavior. He does not address the facts, claiming it is propaganda from uninformed people and sensation seeking media. Not so. BitCoin is not a “haven” for bad behavior, BitCoin is designed for extra-judicial behavior. The fact that is has legitimate uses is just a bonus.
It was interesting to read his argument that BitCoin will be difficult to displace, due to “network effects”. (Just like Netscap Navigator could never be displaced as the WWW browser?) Rubbish. One of the many unstable features bout BitCoin is that it could be displaced by a clone at any time. More likely, there could easily be many competing digital coins out there, just as there have been non-digital currencies. (Fortunately that matters little to most of us, though MA’s investments might suffer if BC crashes permanently.)
At the end, he basically ignores what economists say about this. (A virtual hard currency is not likely to work any better than a physical hard currency.) He resorts to argument by authority, and picks two authorities. Milton Freidmen, who is wrong about almost everything, and Ben Beneke. Neither actually agrees with Andreesen, both say, “something like this will likely be economically important.” Duh!
His final note is a real kicker:
“Further, there is no shortage of regulatory topics and issues that will have to be addressed, since almost no country’s regulatory framework for banking and payments anticipated a technology like Bitcoin.”
This, actually, is what the “bad behavior” critique is actually about. Undermining financial regulation, taxation, and law enforcement is kind of a big problem, no? What do you think all those terrible transaction fees that BitCoin gets rid of are paying for?
In fact, the real question is, “can BitCoin survive in the real world?” When regulations and taxes are applied to BitCoin payment systems, will it still be cheap, trustworthy, and feasible?