If something looks too good to be true, it probably is. So when I heard that the price of bitcoin had doubled, overnight, it seemed likely to me that it was a scam. Not because bitcoin is a fraud or a scam — it’s not — but because it’s real money, and real money has gone through two or three big price crashes in the last few years.
As a long-time reader and occasional contributor to various prestigious business magazines, I’ve wrote about cryptocurrency before. I don’t like most of them. (The idea, for example, that free will could be harmed by bitcoin holders’ willingness to put a value on the happiness of strangers who gave them money for it only makes my head hurt.) But I also have questions about the financial system that led to an era in which easy access to even the tiniest chips made Bitcoin the world’s best-known new money — and yet I was not very surprised by the monster price rise.
And I still haven’t quite figured out what the implications are. Bitcoin has been exceedingly fast moving on this price front, and some of its underlying claims — though the latter seem still not terribly coherent — seem undeniable. It is a worldwide currency, it allows us to buy real things, and a few years ago someone (perhaps Satoshi Nakamoto, the former code-creator?) came up with a new technology that was really good for conducting business but not that easy to understand (the blockchain). So I have some sympathy for its claim that it’s new, and that old financial paradigms are unworkable. This is, after all, a weird new currency.
And yet: I don’t think that the problem is that bitcoin is as new as it is. It’s that if you keep changing your rules, you’re going to change your outcomes. (I’ll do a comparative analysis of cryptocurrencies in another article.) But if you change your rules, you change your outcomes. I think I really have a fair understanding how bitcoin works. That also mean that I can come up with a reasonable way of working out how it is evolving. But having the world’s largest economy blockchains drive prices wildly is just not entirely logical, and not entirely possible.
Perhaps it’s an idea whose time has come. But you can’t say that it’s smart. Or can you?