Bitcoin is pretty neat. Anonymous, peer-to-peer, mathematically sound, non-deflationary, and controlled by no-one.
There’s one huge problem that Bitcoin enthusiasts are overlooking: It’s not a currency.
I mean, it was designed to be a currency, though a unique currency, and it’s used as currency, but it doesn’t behave at all like a currency.
Look at the graph I included in this post. What does that look like?
Even assuming that the values aren’t exactly correct, what you’re seeing in Bitcoin’s value rising and falling against the US dollar. Mostly rising right now, which makes it look like there’s a bubble.
A Bitcoin bubble. But currencies don’t typically have bubbles. They rise and fall in valuation, yes, but not like this. The typical trajectory for a currency experiencing massive price changes id down, due to things like hyperinflation, etc.
Instead, Bitcoin is bouncing all over the map. It may fall tomorrow, massively, or it may not.
But you know what this graph looks like? It looks like a graph of the price of gold. Gold, which is not exactly a currency, but has been used as one because of its massive fungibility and liquidity.
Bitcoin is perhaps the most fungible and (one hopes) liquid thing ever invented. And so it’s behaving like a commodity, not a currency.
This is a problem, because the price of an individual Bitcoin is fairly unstable, and therefore you’re never really sure how rich you are in this virtual commodity. Which makes it hard to use for its nominal purpose, which is to buy things. One of the reasons the US dollar is used as currency all over the world is because of its stability. Yes, devaluation and inflation have been a problem for some years now, but you will probably never see a graph like the one above charting the US dollar against some other more stable currency.
You can, of course, argue as goldbugs do that the US dollar is in fact fluctuating wildly but we only notice it in the price of gold, but the reality is that the US dollar has roughly the same purchasing power from day to day. Gold and Bitcoin does not.
And I don’t see any way to solve this problem. Bitcoin is the ultimate commodity. Even though it’s entirely virtual, like gold, it has a very limited supply. Like gold, it is easily traded for another commodity. And because of that, it’s fluctuating like a commodity does, based on demand and speculation. Which makes it hard to figure out exactly how many Bitcoins or fractions of a Bitcoin to use to buy the thing you want to buy. (I would imagine this also increases hoarding and decreases the number of people actually transacting with Bitcoin, but that’s just speculation.)
All of this makes using Bitcoin a lot like bartering, and though bartering can be anonymous and is massively peer-to-peer and decentralised, there’s a reason we stopped bartering: It’s a pain in the ass.