What Bitcoin shows us about how money works
Overall I like the article, but a few points of disagreement:<p>1. The US dollar has intrinsic value. That intrinsic value is that the US government accepts it as payment for taxes. Regardless of what currency you conduct your business in, the USG accepts its cut only in dollars. That creates intrinsic demand for dollars, and links that intrinsic demand directly to the US GDP.<p>2. Bitcoin also has intrinsic value. That intrinsic value stems from transaction fees. It costs bitcoin to move bitcoin. International value-transfer is a service that has been around for a long time, and there is a market in it, so we can derive its value (or at the very least, that its value is non-zero) from the existence of demand for that service. Global value transfer has value, the Bitcoin network offers that service, and accepts payment only in Bitcoin. That is intrinsic value.<p>3. &quot;Yes, this check could fail, but that possibility is still better than Bitcoin’s complete absence of any check on inflation.&quot; Bitcoin&#x27;s core problem is not inflation. It&#x27;s deflation. A fixed-supply currency is likely to suffer from deflationary spirals and subsequent crashes. I suppose you could call those crashes &#x27;inflation&#x27;, but that&#x27;s not generally how the word is used.<p>4. &quot;So here lies the fundamental difference between the dollar and Bitcoin: The supply of bitcoin is fixed, but the demand is beholden to uncontrollable market forces and speculator whims. That means that unlike the dollar, the value of BTC can never be stable, because there is no means regulate the supply to keep the value consistent from moment to moment.&quot;. Yes, that is the standard econ. argument in favor of central banks. It&#x27;s not a new idea. But the actual evidence for its truth is surprisingly weak. Economies existed long before central banks, and indeed, they did have boom and bust cycles. However, it&#x27;s not all that clear the central banks have really helped matters much, despite what they would like to think. Now, i&#x27;m not a total skeptic of central banking. I think its possible that they&#x27;re adding some value, but i&#x27;m skeptical that it&#x27;s as much as they think, and that the economy wouldn&#x27;t find a way to function smoothly without them.