N.B.: This is a response to http://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/
I can't help but think that it's unproductive to classify things as ‘good’ or ‘evil’ if you can't ultimately control them. Bitcoin isn’t good or evil, it just is.
On the question of “backing”: what it’s backed up by is the fact that some people are willing to spend their own assets and labor to acquire BTC, in the belief that so will other people and thus that BTC is and will remain liquid and valuable. It’s a Keynesian Beauty Contest (KBC), a concept I would expect Krugman to be more than familiar with.
My beef with Bitcoin is that it has proven itself to be a shitty medium of exchange and a shitty store of value—neither of these hold ‘rapid, unpredictable changes in valuation’ as a desirable trait, yet the KBC nature of the technology ensures that this trait will hold for Bitcoin, because minor fluctuations in individuals’ confidence are magnified and become rapid swings in price.
The irony of Bitcoin is that its value is tethered to its liquidity with regards to fiat currencies. When China announced that financial institutions were to be barred from having anything to do with Bitcoin, its value (as measured in all major fiat currencies) dropped by nearly 50%. For a currency that techno-agorists are pushing as an alternative to the fiat system, shouldn’t its value be more independent of the friendliness of the very system it aims to displace?
I’m not entirely bearish on Bitcoin. I would just rather wait until all the necessary institutions have made clear their positions on the technology (regarding legitimacy and willingness to cooperate) before putting any money/effort into it. To do otherwise would be speculation, and I’m not a gambler.