I'm a fan of bitcoin in many ways, but this is fanboy fiction with no understanding of money.<p>> Fractional reserve banking entails the creation of new money that is fungible with already preexisting money, i.e. it can be used interchangeably within the currency’s payment systems. This is impossible with Bitcoin.<p>Not true. Currency can easily be issued against bitcoin. When USD was backed by gold, there was plenty of fractional reserve banking and no-one could issue more gold. In fact, there is already debt-based money backed by BTC issued on the Ripple network.<p>EDIT: I should add, that fractional reserve banking does not mean infinite money supply. Depending on the amount of reserves required (by customers, government, etc.), as long is it's greater than 0%, there is a limit on the supply. E.g. if the reserve is 20%, only 80 BTC can be loaned against 100, and only 64 against wherever the 80 is deposited, and on-and-on until it approaches 0. Fractional reserve is not necessarily a bad method to allow for risk assessed expansion and contraction of money supply.<p>> ...blah blah... make it certain that ... Bitcoin will be adopted as the global currency<p>Oh really? It's certain that the globe will adopt a currency because of it's asymptotic money supply and proof of work algorithm? That makes no sense at all.<p>The world will adopt bitcoin because it's an efficient means of exchange and safe as a value store / investment from dilution by central banks.<p>Also, the "security" row in the currency comparison chart is misguided. Bitcoin is far less secure than bank maintained fiat currency networks, because in the latter, fraudulent transactions and electronic theft are generally reversible.
The von Mises Institute interpretation of economics, which is actually a Rothbardian interpretation, dislikes inflation. A lot. They miss gold.<p>The problem is that gold is not like bitcoin, and bitcoin not like gold.<p>Suppose we all switch immediately to a gold standard. When the value of the currency rises too high, more people will go and mine it. When the value of the currency falls, fewer people will mine it. So in actual fact a gold standard resembles the behaviour of an Australian-style (yes, <i>Australian</i>) monetary policy, which is having money supply governed by a central bank who have an explicit inflation target.<p>Meanwhile, the supply of bitcoins is fixed. For all time. And they are destructible in a way that gold is not.<p>Bitcoins will always be irreversibly leaking from global supply. People throw their harddrives away. Delete the files accidentally. A high energy particle strikes some cheap RAM and flips a bit, rendering a bitcoin worthless, and so on.<p>While in theory the supply of bitcoin is meant to reach a fixed limit, over the long run it will peak and thereafter always be shrinking.<p>Not expanding. Not even holding constant. <i>Shrinking</i>.<p><i>Nobody's</i> economics says that a shrinking monetary base is a good idea.
The paragraph that starts "First, it is rational for economic agents to hold as many bitcoins as they can afford to lose" is so poorly argued that I decided the rest of the article wasn't worth reading.<p>There are several steps missing between the statement "Bitcoin will go up in value" and "I should invest all my investable assets in it". One big missing step is, what is the optimal way for one to allocate one's portfolio, given some set of expectations, uncertainties and correlations?<p>There's been a lot of work in this area (optimal portfolio construction), some of it very good. My favorite starting point for this field is the Kelly Criterion. <a href="https://en.wikipedia.org/wiki/Kelly_criterion" rel="nofollow">https://en.wikipedia.org/wiki/Kelly_criterion</a><p>While I sympathize with the article's enthusiasm for Bitcoin, I wish people would shut up when they have no idea what they're talking about.<p>EDIT: if you want to get deep in the weeds you can read more about Modern Portfolio Theory here: <a href="https://en.wikipedia.org/wiki/Modern_portfolio_theory" rel="nofollow">https://en.wikipedia.org/wiki/Modern_portfolio_theory</a>. I don't endorse every idea you'll find there, but they are all better than the notion that you should invest 100% of your investable portfolio in whatever asset has the strongest forecast, as the OP apparently believes one should.
All of this makes me wonder how long currencies themselves will last. Effectively a monetised market is using currency exchange to compute a function where the currency serves as a variable to store the current state of the computation.<p>From this perspective, money is one of the first distributed computation networks, however given the mass of networked computation available there may be other ways of solving the distribution problem that have even less friction than a currency.
The full reserve nature of Bitcoin is often overlooked (or misunderstood - more below):<p>"<i>The [Bitcoin network] enforces the strictest deposit regulations in the world by requiring full reserves for all accounts. This is the digital equivalent of the Chicago Plan or the Austrian 100% reserve gold standard. Under this regulatory regime, money is not destroyed when bank debts are repaid, so increased money hoarding does not cause liquidity traps, instead it increases real interest rates and lowers consumer prices. This is a self-stabilizing cycle as higher interest rates incentivize hoarders to invest, while deflation increases consumption due to the wealth-effect on hoarders. The BCB prevents lending out of deposits so that it can properly target money supply and avoid the destabilizing effects of commingling the credit and payment systems.</i>"<p>Others have argued[1] that fractional reserve Bitcoin banks can exist, but the point is that the Bitcoin protocol itself is full reserve. Yes, intermediaries may try to convince consumers to entrust their Bitcoin wallets with them, but that hasn't gone so well[2]; Bitcoin "banks" that fool around with fractional reserves are playing with fire.<p>UPDATE: Coinkite, which describes itself as a "Cryptobank", addresses[3] the need to have verifiable, full reserves: "<i>You should also be wary of bitcoin startups which claim some percentage of your coins will be in cold storage. If you do not know the details of the public keys used, it will be impossible to know if this is true, or if they are using those amounts as play money. With Coinkite, you can audit where all your funds are at any time.</i>"<p>[1] <i>Of course you can have fractional reserve Bitcoin banks</i> <a href="http://www.cnbc.com/id/101048897" rel="nofollow">http://www.cnbc.com/id/101048897</a><p>[2] <i>List of Bitcoin Heists</i> <a href="https://bitcointalk.org/index.php?topic=83794.0" rel="nofollow">https://bitcointalk.org/index.php?topic=83794.0</a><p>[3] <i>Coinkite FAQ</i> <a href="https://coinkite.com/faq/money" rel="nofollow">https://coinkite.com/faq/money</a>