I’m no fan of BitCoin. The idea of a digital currency is fine as it already exists to a certain extent. I carry little because I use a card for most purchases. That’s an electronic version of my home currency, which happens to be USD.  This is made possible by the vast digital network that allows me to engage in commerce digitally. Specifically, it allows me to convert my currency into a digital format for transmission around the globe. One of the primary attributes of currency is portability. cash and coins are more easily transported than  sheep or bales of hay.

Another primary attribute of currency is it is not easily destroyed. Coins are hard to destroy. If one is damaged, it can be exchanged at the mint for a new one. Similarly, paper money is quite durable. It does not decay over time if properly cared for by the holder. I have paper money that is 200 years old and it looks great. if I have some paper money that is damaged, I can exchange it for new money. This is the bulk of what the US Bureau of Engraving and Printing does every year. In other words, currency is durable and the replacement of that which is destroyed is predictable and orderly. This avoid wild fluctuations in value and unexpected changes in supply.

That last bit is what gets lost in discussion about BitCoin. A cryptological currency has a finite supply. The cost of getting the first “coin” is X. The next coin is X plus some amount. The next coin is X plus a slightly larger amount. This continues on at a predictable rate until the final coin is minted. The cost of minting, however, increases with each coin so the cost of minting coin X is less than the cost of coin X+n. This means the coins increase in value over time. A single currency unit of labor, for example, will increase in value. Put another way, the amount of lawn work I can buy with a currency unit today will be less than I can buy tomorrow. That makes the currency deflationary by design. In times of great technological progress, it will be wildly deflationary.

Now we have another big problem with BitCoin. It is easily stolen. The QR code *is* the money, not the bit of paper on which it was printed. Try stealing a coin on paper currency through the television and see how that works for you. For better or worse, stealing hard money, so to speak, means physically taking to from the holder. There are no special precautions one need take to keep their money safe when it is physical coin or paper. Like any other bit of property, you keep it in a safe place. With BitCoin, there’s no truly safe place. Worse yet, you don’t know it is stolen, in this case, unless you try to use it.

Now, this raises two other issues. One is the currency is not self-validating. I can examine a coin or paper and determine if it is real. I do not require a third party. BitCoin requires validation of each transaction. The guy on TV had no idea if he held money or just bits of paper. He needed someone else to be a party of his transaction to tell him that he was holding worthless paper. That someone else is a network of computers, but they are not anonymous. To work, they must keep a record of every transaction of every coin. That means the third party tracks your every move in order to function as a validating authority.

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