The "problem" with Bitcoin (well, one of the imaginarily many) is usually something like
The economic assumptions underpinning the Bitcoin ecosystem are laughable, and ignore hundreds of years of accumulated understanding of how currencies work with each other.
Econ lesson time! Deflation is the phenomenon where cash grows in value relative to everything around it (that is, prices go down). More specifically, deflation occurs when people expect the value of cash to grow in relative value to everything around it, and prices trend down consistently.
Question: if your money is getting predictably more valuable, why would you want to spend it? Answer: marginally speaking, you wouldn't.
Let's briefly point out that "econ lesson time" and "hundreds of years of accumulated understanding" are nothing but woefully unwarranted presumptions. There's no such "hundreds of years" and there's no such "accumulated understanding". There is Kensyanism, which is a post-WW2 affair (not quite one century ago yet), and which is pretty much the only significant school of thought (aka church, faith, religion etc) that seriously proposes inflation as a solution to anything. Yes, it is currently popular. No, it is not sound (in the same way neopaganism is not sound) nor is it scientific (in the same way psychoanaysis or more generally "social sciences" aren't scientific) nor is it valuable or proven. It is widely held, which makes it fashionable, and that's all. Some uninteresting faggot going around speaking affectedly about "fashion lesson time" and "for hundreds of years bellbottoms and disco hair have been shunned by people everywhere" is not much different (and not different in any significant way) from the uninteresting faggots that go around hewing and hawing about deflation. But let us set that aside.
One of the major problems our society faces today is the exponential consumption curve. We are rich, much richer than our antecessors, because we've become so good at manipulating the physical world.i
This means we can afford stuff. The stuff we afford comes at an expense to the environment, and soon enough our principal limiting factor isn't the difficulty of doing something (such as carving out a chair or mixing some sugar in the collected juice of two lemons) but the difficulty of finding raw materials to do that something to. Back in the 1600s the difficulty of feeding yourself in Fort Nassau had to do with the difficulty of hunting and cooking a turkey. All you need were one gun, a few bullets, some tinder. You went out, found a turkey, shot it, found some dry wood, started a fire, plucked the bird, spitroasted it and there it was, food.
These days the difficulty of feeding yourself in Albany has nothing to do with you being able to kill a turkey with a gun and a limited supply of bullets, nor is it you being able to find dry wood or start a fire because there's no turkey, there's no dry wood and it's not even legal for you to try and live off the land in Albany. These days the difficulty of feeding yourself has everything to do with you finding a restaurant and then finding a seat and then their having some food to serve you. The resources are so scarce that you need to have everything imported from miles and miles away. The burden you've put on your immediate environment is so great that there's not even a shadow of a hope of survival on your own. Should these supply lines fail for as much as a couple of days you are doomed.
Given the constant improvements the US Gov't is bringing to your cash supply, all those difficulties promise to significantly mount in the future. For instance, starting with the first day of 2013 the Quantitative Permaeasing Ben Bernanke (a keynesian) is pumping into "the economy" will reach something like 85 billion US Dollars. The value of one turkey in those dollars, should they be 1.672 grams' worth of 9:1 gold-copper alloy wouldn't much pass the one dollar mark, and so we could say Bernanke is pumping 85 billion turkeys into "the economy". Or, if we consider the effects of inflation "accumulated over hundreds of years" and count today's Dollars at a tiny fraction of what Dollars were back in the day people could actually feed themselves around Albany/Fort Nassau, we're still talking about hundreds of millions or tens of millions of birdsii.
Well guess what... there aren't millions of turkeys. Not hundreds of millions and not tens of millions. The terrible success of the human species accumulated over hundreds of years ensures that you wouldn't find even one single million turkeys in the wild in the entire state of New York (even if you count Vermont as part of it).
The same goes for oil, the same goes for seats at the restaurant, the same goes for cod around Cape Cod and in general the same goes for everything. Do you know why rents are high and living conditions horrible in New York ? Well... because there's not enough turkey to go around, that's why. Not enough oil, not enough Parmezan, not enough fine Romanian wine. Certainly not enough leather couches or goose down pillows. And so everyone gets what's plentifully available : bits of plastic. There's nothing to do locked away in a concrete jail ? O, have an iPhone, go check into JailSpaces. One slice of actual cheese can't feed fifty turkeys ? Have some McKentucky King. And don't forget to use the subway, cause we're running out of both oil and metal to make more cars, and don't forget to floss (and to recycle that used floss, we gotta make the new hamburgers somehow).
These are all problems of ecology : everyone being a consumer, and everyone being driven into a consumptive frenzy by the inflationary nature of currently used scrip puts some serious pressures on the environment.
And I'm to somehow believe that replacing the gunky US Dollar with a non-inflationary currency is going to cause "problems". What exact frigging problems is it going to cause ? People coming out of consumerism, is that it ? In what sort of parallel universe of hundred-years' worth of accumulated stupidity would this be a problem ?
Let's make a simple mental experiment. We both sit down at a table in your favourite fast-food-joint-masquerading-as-an-eatery. I wouldn't eat there more than I'd eat at the gas station, but you're you. I place in front of you a complete menu of whatever they have on tap and a note, which says "Redeemable tomorrow for two complete menus". You get to pick one, and just one. Either the note or the "food". So what do you do ? Do you eat the shit or wait till tomorrow ? Depends on how hungry you are, right ?
Tomorrow comes, and here we are again : me stuck nine feet under the biofilm, disgustedly mingling with the lower classes and you in your natural element. I place in front of you two complete menus of their crap, and two notes. Each note says, "Redeemable tomorrow for two complete menus". Do you eat the shit or wait another day ?
One thing's for sure : you will not be waiting forever. So, does a deflationary currency prevent all spending ? No, it does not. Does it prevent useless, meaningless and ultimately stupid spending ? Yes, it does. That's incidentally why welfare and big governments will be the first to go : because they are stupid expenditures. That's why it will be soon impossible to collect any sort of taxes whatsoever : because in their current incarnation taxes are stupid expenditures.
Will all this force absolutely everyone trying to make money to come up with actual, legitimate, functional and valid value propositions ? Yes, it will. From the government to the last street vendor, including whores, university professors and absolutely everyone. The old gimmicks are indeed useless in a new, non-gimmicky economic environment.
This is such a sad state of future affairs it makes corcodiles cry. Seriously now.
I for one am looking forward to hundreds of years of accumulated piles of crocodile tears. I think it will be a lovely world to live in. Actually, scratch that : I don't think any other world is worth living in.
Enjoy your McBurger Fried Chicken.———
- I don't mean "we" in the sense of me + anyone reading this. I mean "we" in the sense of those people who actually do something useful, such as research, or such as top management with Apple. I specifically do not mean idle grad students with WoW accounts and vague misrepresentations about "hundreds of years of accumulated" whatever. Think about it in sports terms, "we have won" does not mean anything about a barfull of losers equipped with beer bellies and stained t-shirts. The team won, and most everyone isn't on the team. [↩]
- In this later case we're also saying today's dollar is worth much less than a tenth of a cent back then, but since everyone's born stupid who's to know and who'd complain ? [↩]