The article is fairly balanced, indicating the recent (and trust me on this, ongoing) problems with BitCoins. The idea of the app is fairly neat, using camera, display and barcodes to effect transactions. Then I read:
“Right now, Bitcoin appeals mostly to the hacker types,” said Android developer Brandon Iles, the app’s creator. “Down the line, though, it could gain traction between friends. There’s an advantage over credit card companies because there’s no fees involved in the transaction.”
Now this is a quote so I can hardly blame the journo, but the utter blindness of those involved with Bitcoin continues to astound me.
Yes, it may be easier to transfer bitcoins between friends than credit card transactions. However, after the transfer one of the parties is left with bitcoins that still need to be converted to something useful. Like real money perhaps. Bitcoins aren’t a unit of account, they aren’t a store of value and they are a means of transacting outside of a tiny handful of people who think it’s cool.
Bitcoin is a speculative fad.
But again, the worst thing that could ever happen is that it could actually become “money” since it shackles monetary policy (in a not dissimilar way to how the gold standard magnified the Great Depression and how not being on the gold standard made our current problems easier to deal with (pdf)). A hint – we produce more goods all the time, a limited currency means deflation, which is bad for economies (see Japan over the last, uh, 20 years?) and limits policy responses to economic downturns.
Update: Thanks to @RiaanSingh for a link to an article from the economist magazine’s website asking whether economists agree with the excitement expressed by geeks for Bitcoins. Unsurprisingly, they give the same message and the same flaws as I’ve expressed (albeit far more eloquently and with better pictures). However, while they go as far to state that Bitcoins will likely lead to deflation, they don’t go far enough in outlining the dangers of deflation for an economy.
As an aside, US average hourly wage decreased according to the latest employment statistics (pdf) (see page 3). This in the face of many talking heads freaking out about inflation and what loose monetary policy has done. US Long term interest rates are still barely above 3%. So yes, inflation in the US should not be first priority – jobs jobs jobs is what is needed. (An easier job in the US since this is still primarily cyclical unemployment rather than South Africa’s more-difficult-to-fix structural unemployment.)