There has been so much tumult in bitcoin and crypto currencies over the past few days! Interest and concern extends beyond online communities. Motives vary.
Decentralized and anonymous
There are two conceptual pillars of trust that uphold bitcoin as being superior to fiat currency. The first is decentralization. The fiat currency of reference is primarily the US dollar, for the time being. Why? Because the $US is the world’s reserve currency, for now. It is highly centralized. As ideological (but not market) confidence in the $US has diminished, the appeal of an apolitical, alternative currency increases, especially one that is a fungible, stable store of value.
The second conceptual pillar of bitcoin is anonymity. US dollars held as cash will be anonymous until one wants to use them for exchange for commercial transactions of size. Bitcoin has some anonymity shortcomings, but there may be tractable remedies. That is a detailed discussion, widely covered elsewhere.
Centralization of bitcoin
All markets are game theoretic. Bitcoin is more transparently so. I really wish we could ask Professor John Nash what he thinks of bitcoin! Nash wrote a pleasant, accessible article that described bitcoin-like currency, titled “Ideal Money” a few years ago. (more…)