Mr. O'Brien sees a parallel between Segway and Bitcoin. It's true that people have made big claims for both. True too that Segway hasn't revolutionized transportation. And it may be true that Bitcoin won't revolution the money system.
We don't know. Neither does Mr. O'Brien. But he believes he knows:
Now, it's nice to be able to get your money back if things go wrong, but that's not free. The middlemen take their cut. Bitcoin, though, has no middlemen. It's just a decentralized peer-to-peer system. So you can't get your bitcoins back if things go wrong, but there won't be any transaction fees. The question is whether non-enthusiasts will think this trade-off is worth it.
...The people who have bitcoins still have no reason to spend them, and the people who don't still have no reason to get them. They don't want a currency whose value you can't predict from one hour to the next. They don't want to buy things anonymously. And they don't want transactions to be irreversible (and certainly wouldn't want that if they got hacked).
Every big idea starts out sounding crazy. But not every crazy-sounding idea ends up being big. History is littered with Segways. But for all its majestic dweebiness, at least the Segway was kind of useful. You really could zoom across sidewalks without anything resembling effort. I don't know why you'd want to, but you could. But what can you do with Bitcoin? Well, it's good for real and fake gambling. Since it doesn't have any actual fundamentals, it can be worth anything: Bitcoin 36,000 and 36 are about equally plausible. That's good for making money at the expense of people who get in the game later, but little else.
At first, the value of any new innovation is unclear. Its price should be volatile. Its immediate usefulness, too, will be limited.
Most innovations fail. But some don't. We're not saying that Bitcoin will be one of the successes. It could crash and die tomorrow for all we know. But the promise of virtual money...cryptocurrencies...is, like the telephone, revolutionary.
Here's Joel Bowman - the first Bitcoin miner we ever met - writing for the defense:
I suspect you'll receive a lot of emails - both love and hate - on the subject. If nothing else comes of the experiment, it will have invited us all to challenge some unexamined "truths" regarding what we thought we knew about money...
One of the mental roadblocks I encounter from the "hard money" crowd (to which many of your Dear Readers belong, I suspect) is that bitcoin is, by nature, intangible. This they see as necessarily negative, a priori.
The glitch lies in conflating the concept "fiat" with "intangible." It is assumed that the latter is synonymous with the former, which is simply not the case. It is, rather, classic deductive fallacy: All fiat monies are intangible, therefore all intangible monies are fiat.
It's a bit like the old example, "All thumbs are fingers...therefore, all fingers are thumbs."
Not all intangible monies are fiat, as bitcoin demonstrates. Fiat means a money that is declared to have value simply because the state says so. (From the Latin, "it shall be.") Bitcoin is nothing of the sort. It relies solely on subjective value, which is to say, value assigned to it by voluntary individuals who, after weighing up its characteristics, determine its utility as a medium of exchange in a given context (a digital context, for example). It is the very opposite of value by decree...by coercion...by violence. It is value by voluntary market determination.
The hard money crowd is right to distrust the state, given its abysmal track record of destroying purchasing power through inflation. But they are wrong to throw the potential value of intangibles out with the putrid, fiat bathwater.
There are many intangibles to which we attach immense value. Math... language... logic... ideas... love... You can already think of a dozen more, I'm sure...
The fact that bitcoin is intangible is, perhaps counter intuitively, considered by many to be one of its most appealing characteristics. It virtually eliminates storage costs, for one. Same for transport costs. And transport time. And, despite what the Feds say, it is more or less impossible to outlaw (unlike, say, private ownership of gold...) They could write the rule, of course, but enforcing it would be like enforcing a ban on the English language...or algebra...or naughty thoughts about your neighbor's wife...
In some ways, bitcoin is very much the "Language of Money:" It is egalitarian, in that it is available to anyone and everyone equally. (There is no central authority first issuing bitcoins to a preferred few...unlike, say, every fiat currency on earth.) It can evolve and adapt (the Open Source protocol allows for this.) It is democratic, in that its price is set by millions of freely associating individuals - the market - who each "vote" with their btc wallet. (This is a refreshing contrast to the phony price of money as determined by the over-degreed blowhards at the Fed.) It is entirely transparent, as anyone who downloads the btc client can view the entire transaction history...but it is also private, as users can fairly easily shield their identity from prying eyes.
It performs much like a language, communicating information both from individual to individual, and from discrete transaction to the entire, distributed network. It is a digital currency for the digital age.
Of course, nobody knows where we go from here...except into unchartered waters. As someone said recently, bitcoin will either go to zero...or many, many zeros.
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.