The two categories of Bitcoin skepticism (and why I'm not impressed by either)

Things are much more complicated than your article makes them look...

To begin with, you should keep in mind that Bitcoin is really two very different things. Most people think of it only as a form of currency (which they often confuse with money). But it is also a payment method. For instance, the US dollar is a currency, but paying US dollars via Paypal is a payment method.

Now, personally, I do not think that Bitcoin as money has any significant future. Issuing money is a privilege of the governments. I don't like it that it is so, but it is so and the governments will do everything in their considerable power to keep it that way. I also think that money should be backed by something tangible. Naturally, I prefer gold, which is backed by the effort necessary to fetch it from the ground and refine it. Any other commodity-based currency would have similar benefits. Even purely fiat currencies are backed by the power of the corresponding government to tax its citizens. The best you can say about Bitcoin is that it is backed by the electricity needed to mine it - but that is only temporary, since soon mining new Bitcoins would become uneconomical and it will essentially stop.

However, as a payment method Bitcoin (or, more exactly, trustless decentralized transactions based on a public or semi-public blockchain) - I think that has a very bright future. It is a great idea and will doubtless find many interesting applications in the future. It is certainly cheaper and more trustworthy than the currently used money transfer systems.

There are some other problems with Bitcoin, although I am not sure whether they are conceptual or implementation problems. I'll list them here in no particular order:

1) Difficult to scale. The whole blockchain is way too big. Confirmations take way too long. And that's so even now, when virtually nobody (yes, on a relative basis that's virtually nobody) uses Bitcoin. Imagine what will happen if we have trillions of transactions per day, as we currently have with fiat money. Yes, I am aware of the counter-arguments. Off-chain transactions, lightweight wallets, not waiting for confirmations for small amounts of money and just taking the risk and so on. But these are just band-aids even now. They will be totally unaplicable on a world-wide scale and most of them break the spirit of Bitcoin anyway.

2) No full anonymity. All transactions are visible to everyone. While the parties cannot be easily identified in all cases, for a really wide-scale adoption this is not acceptable. Imagine the US government doing payments via Bitcoin. The size of many parts of the US budget are classified. But if the payments are done via the blockchain, everyone would be able to see what sums of money the US government is transferring. It's easy to eliminate the public ones, thus revealing the sizes of the classified ones.

3) It's too anonymous. Yes, I'm aware that this contradicts the previous argument. But it is way too easy for criminals to use it for transferring large amounts of money unchecked. Yes, criminals can transact in cash, too, and that's no reason to ban cash. However, you can't send cash via e-mail across borders and banks and governments are putting very serious restrictions on large cash transactions too. Now, this is not an ideological objection from my part. I do believe that every individual should be free to use the product of their work as well they damn please, provided that they don't harm anyone else. If you want to buy some poison on-line and inject it in yourself, that's your goddamn right, provided that you are using your own money. But that's not how governments think and they would do everything in their very considerable power to prevent it from happening.

4) It's deflationary by nature. Now, that's a somewhat specious argument. Personally, I think that the money supply should scale with the population and the productivity. However, there is no objective way to measure productivity and once arbitrary expansion of the money supply is allowed, it inevitably leads to inflationary busts; that's just human nature. Also, the century of highest economic prosperity (per capita) in the USA had mildly deflationary prices. Still, a deflationary currency puts severe pressures on lending and hampers economic activity.

5) Non-reversible transactions. Basically that means no customer protection. The currently used system of credit card payments befits the customer at the expense of the producer. The customer can always deny the payment and the credit card company will take it from the producer. Bitcoin reverses that - once you pay with Bitcoins, the producer can refuse to deliver the goods and there is nothing you can do about it. Of course, this problem is solvable with trusted escrow parties, multi-sigs and so on - but that again breaks the spirit of Bitcoin as a trustless payment method. Not saying that it's a bad thing - just pointing out that Bitcoin isn't good enough "as is".

6) The price is way too volatile. No business in their right mind will hold Bitcoins. You have to be crazy to keep your savings in Bitcoin. Now, I have seen some claims that the volatility will subdue with wider adoption. I don't think that these claims hold water. The volatility is economically mandated by the character of Bitcoin as a deflationary currency. There is no easy way to arbitrage it - I mean, you can't easily increase its supply when the price rises or decrease it when the price falls. It is suitable mostly for speculation or hoarding. Hoarding reduces the supply (enhancing the volatility) and speculation causes the volatility as the mood of the speculators swing to extremities.

I don't think that "it's too difficult to use" and "people don't understand it" arguments hold water. The easy-to-use will come with the wide adoption. It's perfectly possible to make it as easy to use as swiping a smartcard or waving a smart phone. And 99% of the people do not understand how the fiat money system works, either.

So, personally, I'm in a "wait and see" state. I really like the idea of Bitcoin; I find it fascinating. It holds a lot of promise, it's a great innovation. I am sure that we'll see some really cool things in the future based on it. However, I am not willing to invest any money in it, and I am 100% certain that the governments will not allow it to flourish in its current state. Although it is not possible to eradicate it completely, it is certainly possible to confine it to niche use (after all, even cigarettes are used as money in some environments) and I think that this is where it will remain as "money". All the major innovations I expect in the future will be based on the blockchain idea; not on the "Bitcoin as money" idea. In fact, governments could introduce their own form of electronic currency based on the blockchain idea. But it won't be Bitcoin.