As Mainstreet.com phrases it, "kids love collecting." Think Beanie Babies and Cabbage Patch Dolls. Adults, of course are the ones actually doing the buying of would-be collectible toys. Left to themselves, we – guys, anyway – lean towards baseball cards, comic books and hand tools. Among the monied class the list includes wine, cars and mechanical watches. For them BitCoins are the latest fad. There's a bit of mystique, because the technology behind them is complex, so it appeals to technophiles. There's good marketing, with claims that Bitcoins will be secure, anonymous, and free of any government hand. Ideal for that arms shipment? And above all, there are limited numbers, a function of the mathematics of the system.
There's also a whole make-believe world to go along with them. Markets work perfectly. Ah, maybe not so perfectly - you've got a chance for monopoly! There's a romantic storyline, celebrity twins in the Vinkelvoss brothers and Austrian intrigue over monetary systems in a story that's sufficiently convoluted to permit wild flights of fancy.
...BitCoins are virtually harmless...
Then there are the marketing links that give a modicum of respectability, and give hypsters a way to cash in, or cash out. So far though, there's no offering on Nickelodeon. Fads come and go, in ways unpredictable. Cabbage Patch dolls have never gone away; you can still buy Beanie Babies on eBay.
Could BitCoins ever be something more that a toy? I think not. To serve as money, they have to be widely acceptable. With a maximum geologic reserves of only 21 million, diminishing returns have already set in to mining - Bloomberg reported in April that "miners" used $174,000 of electricity a day, enough to power 31,000 homes; that amount is now surely greater. But we in the US live in a society of 315 million people, and in a world of some 7 billion. Even finely subdivided, there will never be enough BitCoins to support the daily transactions of even a middling city. Furthermore, we live in a dynamic world, one that on average is growing. BitCoins by design can't grow with it. Or shrink, if an economy moves into recession. Their value, in terms of goods and services, could never be stable.
Stable they are not. When BitCoin prices are going up percentage points a day, who would want to spend them? When they fall at a similar clip, who would want to keep them? As a virtual entity there's no firm foundation to their value, and there's no central bank (or, for diamonds, no de Beers) to try to set a stable price. This isn't just hypothetical: so far today [December 7, see here] prices have ranged from a low of $780 to a high of $860 and as I write this have fallen to $820. That's an upswing of +10% followed by a drop of 5%, all within a few hours. Over the past month the range is from under $400 to a high of $1200. How can you use this as your daily currency when you have no idea whether you need 1 BitCent or 3 BitCents to do your shopping? Even arms dealers will shy away from them!
Nor would transactions remain cheap. Bitcoins are subject to theft by computer hackers and can be lost if a hard drive crashes. Setting up systems to use them requires being a nerd. For them to be widely used, they'd have to be built into the software used by the local grocery store, tied into payment by cards that could be swiped and automatically cleared against bank accounts to settle bills from suppliers and make payroll. All of this is tied to the ability to borrow and lend. Credit cards aren't cash, they provide loans backed by banks who in turn provide assured payment to stores while bearing an assortment of risks. The idea that a virtual currency could somehow eliminate the costs associated with a financial system is ludicrous. It is based upon a utopia in which "hard coin" is all that exists, where consumers carry around in their pockets all the cash they might need for the week, and where they need neither borrowers nor lenders be. Outside such a utopia, bitcoin transactions will carry fees. (For wonks, they already do: look at the bid/offer spreads on BitCoin exchanges!)
As for me, I've accumulated a modest number of Chinese scrolls and Japanese woodblock prints, of minimal resale value. I've a few potentially collectible books, such as an account by a German visitor to Japan, published in 1888, replete with hand-tinted engravings, and a signed first edition of Tom Wolf's first book, The Kandy-Kolored Tangerine-Flake Streamline Baby, my copy for reading when I assign his seminal story in Economics 244, my Spring auto industry seminar. My copy shows use, and on a rotating basis my scrolls and prints hang on the walls of our house.
In April 2014 Tom Wolfe spent 90 minutes with my Econ 244 students. What a delight!! As a W&L alumnus he was on campus once or twice annually, until his health began failing. That turned out to be the last opportunity I had to spend an extended period with him. ... note added Oct 2019
Reading isn't an expensive hobby, but taken across the globe, people spend a goodly chunk of money on it, and by and large benefit from it. Children got playtime with their Beanie Babies, at least as long as their moms didn't lock them up to keep them in pristine condition. I'm not sure what sort of psychic pleasures billionaires get. In any case, let them play with BitCoins; they are virtually harmless.
mike smitka
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