Bitcoin Forum

Over the past few months a number of people have asked what I think of Bitcoin, an attempt to create a sort of private cybercurrency. Now Alexander Kowalski at Bloomberg News directs me to this Jim Surowiecki article on Bitcoin, which is very interesting.

My first reaction to Bitcoin was to say, what’s new? We have lots of ways of making payments electronically; in fact, a lot of the conventional monetary system is already virtual, relying on digital accounting rather than green pieces of paper. But it turns out that there is a difference: Bitcoin, rather than fixing the value of the virtual currency in terms of those green pieces of paper, fixes the total quantity of cybercurrency instead, and lets its dollar value float. In effect, Bitcoin has created its own private gold standard world, in which the money supply is fixed rather than subject to increase via the printing press.

So how’s it going? The dollar value of that cybercurrency has fluctuated sharply, but overall it has soared. So buying into Bitcoin has, at least so far, been a good investment.

Continued...

http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfetters

Paul normally is a good author.. but in this case it wasn't "everyone go into bitcoins"  ...  so far it's been a good investment if you put 1000 bucks into it in 2010 when it was a penny ...  and cashed out when it was 35 ...  

We have a long way to go ... more software.. more options.. more trading.. we need to widen the reach other than the people on this forum or on the IRC room... 

I agree.  I'm really excited about the conference coming up this weekend in NYC.  It'll be nice to see somebody from bitcoin interacting with non-bitcoin related enterprises.  Hopefully bridges are built.

I'm curious as to his outlook on regulation for Bitcoin.

Awesome to have Krugman with his Nobel clout discussing Bitcoin.

Will this appear in his New York Times column, or only on his NYT blog?
Either way, this should bring visibility in a very big way compared to other mentions.

Let's hope more big names pick up the ball and challenge his viewpoint.

Deflation of the value of Electronics as brought on by Moore's law could be brought up as a counter argument.

For Krugman, he likely sees Bitcoin as a means of launching the next alien invasion to save the economy:

http://blog.acton.org/archives/25518-krugman-aliens-worth-more-to-economy-than-men-and-women-video.html

Quite the economist... That said, I agree, he is a loud voice among investors for some bizarre reason.

Just read the rest of the article as well as another; the headline isn't so positive.

Paul Krugman Explains Why Bitcoin Is A Stupid Currency:

http://www.businessinsider.com/paul-krugman-on-bitcoin-2011-9#ixzz1XI9uT8aB

1. "What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich."

Bitcoin *is* facilitating transactions. The Bitcoin economy is growing, slowly. There are a lot of people, including funded startups, working on making it useful in more cases. It's far, far too early to say that Bitcoin isn't facilitating enough transactions.

2. Bitcoin hoarding is not due to the fixed total supply, but due to the expectation that the Bitcoin economy will grow. If there was built-in inflation at 3% and the economy was growing at 20%, hoarding would still happen.

3. No matter how much hoarding is happening, there will be some exchange rate from Bitcoins to dollars. The existence of a traded exchange rate is proof that some people think Bitcoins are not undervalued. These people will be willing to spend their Bitcoins.

4. The claim that Bitcoin is worthless because of guaranteed deflation is self-contradicting.

5. Volatility is bad for a currency, but this is an addressable problem. Bitcoin-priced marketplace The Silk Road offers its sellers currency-hedged escrow.

I wish that was happening,  what we have is inflation at 50% and growth at 1%

he is saying bitcoin is more as a commodity than a currency and it is failing as a currency in terms of transactions between peers, he could have been much more harsh... i agree in what he said. as of right now bitcoin is an investment vehicle speculated on rather than an alternative currency

The Atlantic Wire - Bitcoin Cyber Geeks Outraged at Paul Krugman:

http://www.theatlanticwire.com/business/2011/09/paul-krugman-incites-bitcoin-cyber-geek-infighting/42188/

Yay, drama.  8)

Krugman is an idiot, Nobel or not. His latest scheme to float the US economy is to borrow more money so we can hire more public workers so those few thousand or even 100 thousand will then have cash to go out and buy things. This in turn generates more demand which makes factories hire more people and thus you end up with a rebound.

What's wrong with that whole concept other than it has already been tried?

First off the small number of direct hires through Federal or State spending is a drop in the bucket as seen by the first stimulus which tried this. Even 100,000 new hires won't do anything when you have millions unemployed. Second let's say those folks do go out and buy new products just how much demand can so few cause? Next many of these jobs he wants to create are construction labor jobs, not skilled $150k/year jobs and of those labor jobs just how many road crews are made up of mainly illegals who send most of their earnings back to South America. Lastly that "demand" all that spending created was in factories based in China, now here. Case in point the California San Francisco-Oakland Bay Bridge which is MADE IN CHINA, shipped to the US and then much of it shipped back to China for inferior steel and welds but paid for by your tax dollars and so called stimulus money that was to put American back to work!

I would also add that this whole concept of getting Americans to buy more stuff so it generates more demand which generates jobs is BULL CRAP! Most of everything is made overseas, Americans buying more crap from S.E. Asia doesn't create jobs in the US, ok sure some more bull smocks at $7/hr maybe, but instead just drains away more dollars from the US.  Dollars leaving the US without more dollars coming back in is what is with the economy in this country, ask Greece.

if you start off a 5 paragraph diatrive where your thesis is "nobel laureate x is an idiot" you're probably gonna seem like a tinfoil hat afterwards... thats what i get out of that post.

nobel laureate? he's a human being buddy. something you obviously don't know anything about being.

Krugman is the absolute worst. Ever since I had to write a college paper about one of his articles in freshman year lit class he has incessantly bothered me. every article he writes is manipulative garbage. full of logical fallacies and intellectual bullying. a sophist if there ever was one.

Paul Krugman wants to start a fake alien invasion to stimulate the economy.

That is all.

Correct the logic then. How does spending billions to employ workers in China do anything to boost the economy here?

Second off the so called "nobel laureate" list has a number of names on it that in no way impress me. They may not be idiots but certainly having won a Nobel gives them no claim to intelligence. Obama, Al Gore, Theodore Roosevelt, Jimmy Carter, George Marshall, any number of authors that had no business winning, some Chemist who if didn't outright steal their ideas sure did some heavy borrowing without giving credit, etc, etc, etc...

As to Krugman let's not forget that many feel his award was politically based as his work is not exactly stellar or break through and probably stands in direct contrast to Milton Friedman, another "nobel laureate" in economics.

I would have probably quit the class. I can't stand to hear him speak on anything and can rarely get past the first paragraph of anything he writes and yes I do try to listen to him as well as read what BS he has put down this week.

Oh my. Did it not occur to you that he was making a joke to drive home a point?  :)

Alas, it was my first experience with Krugman so I was taken totally by surprise. Rest assured, though, I was one of the few who wrote scathing indictments of the flaws in the man's prose. I called him duplicitous.

Krugman's a bum face it dude.

As an example of how wrong this man is how many of you agree with this statement from his blog?

"Bear in mind that dollar prices have been relatively stable over the past few years – yes, some deflation in 2008-2009, then some inflation as commodity prices rebounded, but overall consumer prices are only slightly higher than they were three years ago."

Only those without families and living with mom and dad could even start to agree with those statements. Have you bought chicken lately or pork? Pork Loin which sold for $1.99 last year was $5.99 at the store this week! London Broil hasn't touched sub $4 in a year and don't get me started on hamburger at $3.50 and higher. Pet Milk over $5/gallon. Gas $3.60 if your lucky, College tuition, doctors bills, shall I go on? You know it cost us over $1000 to get a 1 inch cut in my son's head stapled at the hospital. One staple, no medicine just a simple wash of the wound and 3 minutes of a doctors attention and this man says things are only "slightly higher"?

Has Krugman even looked at the Dollar Index or various USD vs. other currencies for the past few years? Obviously not or he is willing to flat out lie by making the above statement that the dollar "have been relatively stable over the past few years".

I am a huge fan of comments and will try to skim through the useless garbage post in hopes of finding a gem here or there. In Krugman's blog there is one comment that did catch my eye:

19.
Bill Jencks
Philippines
September 7th, 2011
5:45 pm
Dr K criticizes gold and Bitcoin because of the hoarding. How very surprising -- isn't that what the banks have been doing with their own QE fiat dollar handouts? They have also all invested -- not in America -- but abroad to get out of a fast devaluing dollar. All plain to see for those with eyes willing to see it.

Get some rest Dr K, your arguments against using both Bitcoin or a gold standard are pretty feeble to say the least.

In my opinion, this is specious.

First, it's not at all that bitcoin doesnt facilitate transactions. It does that quite nicely, without the cost, risk, and inefficiencies of centrally managed currencies...it's that people's actual behavior at this point in time in bitcoins history differ from his stated ideal.  The ability to facilitate transactions is pretty well proven and if measured from only as far back as say March or so of this year, has grown considerably. Measured from say June, not so much, but I dont think plummeting.

Given the looming threat of renewed recessions in multiple world economies, I'd wager that measuring transactions in any currency over similar periods show significant declines. Especially given that the range of things you can purchase with bitcoins at this point are essentially discretionary spending. Wasnt the recent US consumer confidence measure at some historic low? It's not bitcoin, Mr. Krugman.

Secondly, in what currency is it true that people holding money arent by definition richer than those who dont? Hoarding can and does happen with any currency or commodity, especially in tough economic times. What about bitcoin makes that a uniquely condemning problem?  What about the trillions of dollars banks via QE2 and many major corporations are currently holding, instead of investing in jobs or loaning it out to drive the economy?

Weak conclusion, Sir. Please look deeper at what's happening here.

While I dont think these things point to the failure of bitcoin, I believe he has a point that growth in transactions is an important factor in it's success. Get out there and spend some BTC people!

Joke or no joke, the point he was making is that "destruction and war cause economic stimulus" and this is one of those great economic fallacies - as Bastiat labelled it, "The fallacy of the broken window"

Krugman is abhorrent in his economic reasoning. True, he is a Nobel laureate, but so was Hayek, and they have 100% contrasting views. One of them is wrong... and perhaps it's the one who recommends an alien invasion and war to stimulate growth. He said similar comments in the 9/11 attack (that it'd be "stimulative" to rebuild Manhattan) and again in the Japanese earthquake.  Krugman is that worst kind of economist... the kind who gives politicians the academic veneer behind which to hide as they spend and tax society into stagnation.

If you want to read more of my commentary on this guy, here's three posts on my blog dedicated to him specifically:  http://evoorhees.blogspot.com/search/label/Paul%20Krugman (http://evoorhees.blogspot.com/search/label/Paul%20Krugman)

I'm not saying this as a joke: Krugman's antagonism toward Bitcoin is the best endorsement of the protocol yet.

This has to be the dumbest argument I've seen here in a while, and there have been plenty. You are saying that the statistics must be wrong because you can find a couple of products that has increased more and some other services are really expensive. http://en.wikipedia.org/wiki/Confirmation_bias

I like to have a contrarian view from that of Paul Krugmans, simply because the guy is a dunce (Nobel prize be damned).  Go read Azizonomics for a good opinion on the financial and monetary world....

You show me one item your paying less for now than you did 3 years ago. The examples are given to reflect what the "man on the street" is seeing and being forced to pay and reflect on the economy as a whole. Current inflation rate is only being put in check because there are so many people now living on the margin, there are millions now buying only what they need to survive day to day. Even then the bogus rate reported by the U.S. Bureau of Labor Statistics is 3.6% and has been rising for a year. Given that the FEDS intentionally manipulate the reported CPI the only thing you can go by to reflect true inflation is what your paying out of your own pocket to live.

The "statistics" used by the U.S. Bureau of Labor Statistics are clearly manipulated thus the numbers reported are a lie.

Paul Krugman (http://www.youtube.com/watch?v=E1Fzzs7oVaA&t=63s) vs Orson Welles (http://war-ofthe-worlds.co.uk/war_words_buffalo_1968_1.mp3)

This is his main point, I think.

And I can't exactly disagree, mostly because I have no idea what the real gross Bitcoin product is.  Which makes me wonder where he got the numbers.

Either way, regardless of his conclusion, he understands the key issue.  I hope we are paying attention.

I would like for the bitcoin community to grow over the next year, or two, or five, so that the next time he takes a look, he'll correctly come to the other conclusion.

First of all, a good refutation of the "hoarding problem"  is here:

http://falkvinge.net/2011/08/21/bitcoins-deflationary-economy-not-a-problem-in-itself/

Second of all, I am curious how one could conclude that the value of transactions in Bitcoins has fallen.  Has anybody made the chart from the block data?     

Grinder, what JBDive has personally and empirically observed is not controversial. What is controversial is the weighted basket of goods used to calculate the core consumer price index in the United States. Headline inflation (7%) includes food and energy costs (14%). However to calculate inflation the Fed uses "Core CPI" (3%) and PSE, both of which exclude food and energy costs, due to their historic volatility, leading some to fear deflation, which because core CPI relies heavily on housing prices should not be surprising.

http://www.shadowstats.com/imgs/charts/alt-cpi-home2-mini.gif

http://www.fao.org/fileadmin/templates/worldfood/images/home_graph_3.jpg

Note that 2007-2008 was known as the World Food Crisis. What are we experiencing now?

Don't forget that if an item which is included in the CPI data shows a wild spike in price it too is tossed out so of course the numbers they come up with are clearly gamed. If true inflation rates were used first off you would have the American people in further fear that things are getting worse and second the FEDS would have to pay out billions more in various COLA tied payments.

Exactly, the fact that technology is included in the CPI but food is not is sheer lunacy.  Well corn skyrocketed in price but iPads went down so deflation is here!  Also, who gives a shit about falling home values when food prices have inflated in the double digits in the past 2 years?  Just look at the record-breaking food stamp participants shows food prices have gone up too much due to QE*.

I would love to see these charts priced in gold. If you look at crude oil, gold, and to a large extent food, they are all parallel even or in particular during the wild swings since 2008. As far as I can tell, gold is not a bubble, fiat has collapsed along with housing and stocks.