In an editorial written yesterday, Steve Forbes argues that BitCoin is not a currency.
I’m actually willing to reserve judgement on whether or not Bitcoin is a “real” currency for now (although I’ve personally made a number of small transactions in BitCoin in recent months). Maybe it is something else entirely – a value store, a speculative instrument of some kind, some other kind of animal. I don’t believe this is the case, but I’m willing to wait and see how things pan out in a few years.
I’ve also written far too much about BitCoin lately, and I’m going to switch topic entirely in the very near future. However, before I do, I wanted to point out why Mr Forbes’ arguments about BTC are not at all correct.
The editorial basically makes two points: that exchange rates between BTC and fiat currencies are extremely volatile (true, but irrelevant), and that BTC is somehow lacking in transparency (false, and also irrelevant), and that those two points somehow automatically preclude it from being considered a “real” currency.
There are many countries in which large transactions (i.e. property purchases) are always denominated in US Dollars, regardless of whether the local currency is actually used in payment. This is because those local fiat currencies are too volatile themselves to use for this purpose.
Similarly, most people using BitCoins agree on a price in the local fiat currency, and then use a calculator to determine the quantity of BTC to hand over at the point in time that the purchase is completed. Most people have calculators on their phones these days (editorial aside: sarcastic statement).
Anyone in the world can look up (in enormous detail) exactly how BitCoins are created or used. The code itself is open source, well defined, and understood by millions of participants. Transactions themselves are as simple and “transparent” to conduct as physical cash, with the added provisions that BTC cannot be forged, and that a transaction cannot be recalled once it has been made (unlike with credit cards or PayPal for that matter). You know exactly what you are getting, every single time.
I understand where Mr Forbes is coming from. He believes in the gold standard. I happen to disagree vehemently with the gold standard, and I’ve written about why in the past (here, for example). Both of us are obviously entitled to our opposing positions, and neither of us are likely to change them.
I do wish though that he would check his facts first; there are enough negative statements that one could make about BTC that are actually true – starting with the poor quality of existing exchanges.
I debated whether to put this part in. I’m not a confrontational guy. I’d like to issue a small challenge to Mr Forbes. If you know him, feel free to send this to him.
I own a small amount of gold. I don’t believe the gold hypothesis at all, but I’m always willing to allow myself to be proven wrong.
I’d like to challenge Mr Forbes to purchase a small amount of BitCoin – say a few hundred dollars worth.
If I’m wrong, the worst case scenario is that he’d be out the price of a nice dinner for two. Basically no real risk at all. Heck, I’d even make it up to him personally. If I’m right though, he’d make a lot of money, and would probably be quite happy about being wrong.