Re: [tlug] Finance regulators to recognize Bitcoin as "money"

[Benjamin Kowarsch <trijezdci@example.com>]

On 13 October 2016 at 14:11, Stephen J. Turnbull wrote:

I still don't understand the theory of value for Bitcoin.  AFAICS it's
a pure bubble.

The problem with bitcoin is oversimplification. It aims at a single aspect of a rather complex problem. The idea is that all problems of our financial system ultimately stems from the fact that whoever is in charge of currency can arbitrarily increase the money supply without regard for the actual wealth in the economy. Based on this idea, the system is designed with an upper limit for the total amount of money that can be created in the system.

Not only is it wrong to assume that having a fixed limit for the money supply will solve any of the problems in our financial system. As an economy grows and shrinks, money supply should grow and shrink with it. Fixing the money supply will lead to assets becoming overvalued when the economy grows and they become undervalued when the economy shrinks. This is not different from the problems we already face in our current system.

But even if fixing the money supply was the cure that bitcoin proponents would have us believe, then we would still have a problem: There very fact that bitcoin is a DIY currency that can easily be copycatted means that the money supply is not actually fixed because anyone can start their own digital currency and thereby increase the money supply again. The limit within one such currency system means absolutely nothing as long as there is no limit on creating other such currency systems. Bitcoin would need to be imposed as a monopoly for its limit to actually be a real limit. The whole scheme is thereby self defeating.