David R. Henderson  

Robert Murphy on Bitcoin

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Bitcoin is an ingenious concept that challenges the way economists have traditionally thought about money. Its inbuilt scarcity provides an assurance of purchasing power arguably safer than any other system yet conceived.

Critics argue that because of its lack of commodity backing, Bitcoin is doomed to eventual failure. Yet the popular versions of these arguments either would apply just as well to gold or have already been proven wrong by the use of Bitcoin as a medium of exchange among a small (but growing) group of users.

Having said all of this, I still think that gold remains the preeminent money for humans at this stage of the globe's economic development. If governments around the world got out of the way, humanity would (I predict) once again embrace gold, not Bitcoin, as the true free-market money. But this is just a personal judgment call. We need to let the decentralized market test tell us what is the best money, or monies.

These are the closing words of Robert Murphy's "The Economics of Bitcoin," one of June's two Econlib Feature Articles. Murphy does a nice job of explaining what Bitcoin is, why it works, how it works, and why it is guaranteed not to be expanded past a certain point. In editing this piece, I found that this was the first time I had a grasp of Bitcoin.

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CATEGORIES: Monetary Policy , Money

COMMENTS (2 to date)
billy harvey writes:

There's a nice set of introductory videos on Bitcoin that goes (just) a little way into the math at Khan Academy: Bitcoin

Jason writes:

Would a fixed money supply ultimately lead to price deflation instead of price stability? If there were only 100 units of currency, wouldn't the nominal price of goods decrease as more goods enter the market, including wages?

Bitcoin is still increasing now, but wouldn't it be infinitely divisible in the future? Ultimately, if you're late to the game, you're already poor. Is it too late already?

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