Report gives 5 lessons gleaned from the Bitcoin phenomenon
Edward Hadas, an Economics Editor at Reuters Breakingviews, predicts that Bitcoin is already close to dying, going the same way of all speculative bubbles. Before that happens, he gives five economic lessons that can be gleaned from the Bitcoin phenomenon.
The first lesson is that money not backed by the government only appeals to people without law. The government has the necessary power to ensure that currency is kept reliable by regulating lending institutions, prosecuting fraud and creating new money when it is needed. Bitcoin does not have this kind of protection, with most governments either not very friendly to it or taking a hands-off approach to the currency. Those working in the legal economy should see this dearth of official support as a negative against Bitcoin.
The second lesson is that speculation can affect most anything. The digital currency's unstable value makes it unfit as a store of value like other currencies nor does it become a helpful unit of account. Although Bitcoin can be and has occasionally been used as a medium of exchange, speculators would do well to avoid any money that is not accepted by banks.
Bitcoin also highlights the fact that something is wrong with the current banking system. However, Bitcoin is not the right answer to the problem. Instead of the digital currency, Hadas writes, "The only practical right answer is to improve the government-run monetary system."
The fourth lesson that can be learned from Bitcoin is that ignorance about money can be a dangerous thing. This realization will come to Bitcoin investors at their own personal cost. Hadas writes that the economy paid a huge price for similar misunderstandings by regulators who did not think about the risks of speculation and the creation of wild credit by nongovernmental financial institutions.
The final lesson learned is that Bitcoin wasted too much entrepreneurial energy. Hadas acknowledges that those who made the Bitcoin and its related products were all very good. "But it is a bit discouraging to see so much of what is good in our economy directed to something so misguided," he concludes.
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