The value store

January 22, 2014

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This week Marc Andreessen, whose VC firm has invested almost $50 million in Bitcoin-related ventures, writes in the NYT that we should take Bitcoin seriously. Google, for one, is. Andreessen says there’s a gulf between the conventional wisdom on Bitcoin and what “technologists” believe it to be. Bitcoin, Andreessen writes, is a breakthrough in computer science and cryptography that allows truly secure internet payments:

Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer.

In a fascinating and sprawling Twitter conversation, Izabella Kaminska took issue with Andreessen’s post, arguing that even if Bitcoin represents a technological breakthrough, that doesn’t make it a good currency. On her personal blog, Kaminska argued that Bitcoin isn’t a good store of value because it’s a “synthetic asset that has no utility, or mutual interest holding users together other than its capacity to be pumped & dumped”.

Andreessen says that Bitcoin’s value is in its ledger system, which allows people who don’t trust one another to exchange money securely. Quartz has a good explainer on how that works. Kaminska doesn’t argue that point, but notes that all altcoins — including those based on dumb memes – have the same properties, so the only thing keeping Bitcoin valuable now is its popularity. She thinks e-money can truly work only if it is controlled by a central bank.

Miles Kimball is another proponent of central bank-backed e-currency as a monetary policy tool. Kimball argues for pushing interest rates negative, which he thinks could give the economy the jumpstart it needs. A central bank-controlled e-currency in this negative rate scenario, he writes, would be a way to stop savers from hoarding dollars.

One of the reasons given (by Andreessen and others) for adopting cryptocurrency is that transaction costs are low. But Matt Levine notes that while neither the buyer or the seller of Bitcoins are charged transaction fees, Bitcoin miners inevitably get a system-wide seignorage, or the difference between the value of a Bitcoin and the cost to produce and sell it. Guan Yang clarifies Bitcoin transaction costs (which do exist, but are relatively low).

Then there’s the problem of state recognition of a stateless currency. Bloomberg reported today that Sweden will probably tax Bitcoin heavily as an asset, like art or antiques. — Shane Ferro

On to today’s links:

The Fed
The best way to help the unemployed is for the Fed to ignore the unemployment rate - Matt Yglesias

Tax Arcana
Want to help the middle class? Don’t cut corporate taxes - Juan Carlos Suarez Serrato and Owen Zidar

Desperation
Argentina is restricting online shopping, in an attempt to stop its currency from falling further - BBC

FYI
“Capitalism did not eradicate smallpox. It just doesn’t know how.” - Bill Gates

Master Of Your Domain
The Internet’s biggest land rush ever is about to begin - Leo Mirani and David Yanofsky

Wonks
The poverty of minimum wage “facts” - Arindrajit Dube

Data Points
58% of Bloomberg terminal users polled think inequality is bad for the economy - Bloomberg
“Around 50% of the S&P 500′s earnings are generated overseas” - Arnold Kling

Charts
People are starting to quit their jobs, which could be a good thing - Planet Money

Correlation of the Day
“There is a statistically significant relationship between being college-dense and car-light” in cities - Derek Thompson

Alpha
I would like to buy Hong Kong nightclub IPO shares, says guy pouring $600 bottle of vodka - WSJ
“Trust me, after eight or nine years, you will want to commit suicide” – on the private equity business - DealBook

Charts
Forecasting #fail - Andrew Gelman

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