Demystifying Bitcoin: Sleight of Hand or Major Global Currency Alternative?

[cryptocurrencylive]

Demystifying Bitcoin: Sleight of Hand or Major Global Currency Alternative?

http://ideas.repec.org/a/ibg/eajour/v47y2014i1-2p32-41.html

Abstract

Bitcoin, a peculiar crypto-currency has been the loudest buzzword in global finance over the last year or so, both for its spectacular and seemingly robust appreciation trend as well as for more recent equally ostentatious demise. After reviewing the history of bitcoin and specificities of its cyber-construct, this paper adds to the critical analysis of bitcoin as an international currency alternative. Lately, its volatility has been so excessive that it arguably cannot serve as a store of value. In addition, notwithstanding bitcoin's rising if bumpy credibility as a medium of exchange, since it has been immediately converted (by chief vendors) in either of the leading world currencies upon payment due to its extraordinary exchange rate volatility, bitcoin's unit of account potential appears to be dubious too. Moreover, bitcoin's next to none correlation with other major currencies' movements renders it unsuitable for managing FX risk or hedging purposes. Finally, having in mind that it lacks formal reserves or deposit-insurance scheme to back it up yet it's also prone to hacking, bitcoin resembles and behaves more like a pyramidal investment vehicle than a global currency alternative. Nevertheless, technology that made it be may still spawn an evolution in the way we posses things, transfer ownership and pay for goods and services in the near IT-ridden future.

PDF location : http://www.ien.bg.ac.rs/images/stories/Izdavastvo/Economic%20analysis/2014/ea_2014_1-2.pdf

[sublime5447]

Not sure if those are your words or if it was quoted from the link but either way I think you nailed it. The protocol is powerful but the coin itself will be a failure.

[Melbustus]

Not sure if those are your words or if it was quoted from the link but either way I think you nailed it. The protocol is powerful but the coin itself will be a failure.

You can't separate the protocol from the coin without retaining the entire reason the protocol exists in the first place: decentralization.

People are really being thick about this point recently. I think everyone's all excited because blockchain tech is cool and all, but are forgetting the core reason why it's interesting and necessary...namely, that it solves global consensus without a central body.

If you separate the coin, you've got centralization somewhere, and if that's the case, then you don't need a blockchain.

This fad, borne of ignorance, of "separate the currency from the network" will pass.

[reg]

Not sure if those are your words or if it was quoted from the link but either way I think you nailed it. The protocol is powerful but the coin itself will be a failure.

yes the protocol is powerful but the coin will be a success. What most people do not yet appreciate is that btc is not one thing -it is many. One dimensional thinkers can only regard it as a potential world currency whilst others think payment protocol. I think commodity and store of value. The underlying structure is being constructed and it will inevitably take some time with attendant failures but given the potential to voting systems, p2p contracts , wealth distribution etc: etc. I consider the future bright.   

[runam0k]

"Finally, having in mind that it lacks formal reserves or deposit-insurance scheme to back it up yet it's also prone to hacking, bitcoin resembles and behaves more like a pyramidal investment vehicle..."

Tricky to secure = pyramidal investment vehicle

Formal reserves and deposit insurance is not necessary if, wait for it, you hold the funds yourself.  Go ahead and put insurance in place for exchanges and the like, but no need for massive national deposit insurance schemes if there are no bitcoin denominated bank accounts!