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The success of bitcoin, in large part, relies on faith that people will support it as a currency. If its market cap and/or trade volume isn't high enough, then

The success of bitcoin, in large part, relies on faith that people will support it as a currency. If its market cap and/or trade volume isn't high enough, then a secure mining network cannot be supported, and the entire system, including all of its extra features touted by techies, will collapse. Bitcoin will succeed if enough people believe that it will succeed, and bitcoin will fail if enough people believe it will fail. Krugman is attempting to damage the future prospects of the system by spreading asinine notions about how it's not "economically viable". This really hits a nerve, because it serves no purpose other than to gain readership and to make him feel better for not investing in it. There is a risk that he, and others, could destroy bitcoin's future by convincing enough people that it shouldn't be trusted. No economic arguments (especially Krugman's) about it are valid. Bitcoin's success or failure is entirely a self-fulfilling prophecy. Two factions will form (or have already formed) - supporters and haters. The system needs enough supporters (and their investments) for it to be viable. The hope is that the supporters will grow in number or at least remain unchanged. Krugman is trying to turn supporters into haters, reducing the viability of the system.

joe_the_user 13y ago
Bitcoin will succeed if enough people believe that it will succeed, and bitcoin will fail if enough people believe it will fail. Uh, the problem is that this is not a one-time succeed or fail thing. If one fine day, enough people think bitcoin will fail (or just think it no longer serves their purpose, say, it no longer has a chance of significant value increase), the consequences for many people may be very painful - even if for many previous days, most people thought bitcoin would succeed, even if some imaginary point had reached where some commentator could say "wow, looks like bitcoin has actually succeed".
- fragsworth 13y ago
  > Uh, the problem is that this is not a one-time succeed or fail thing. I think you're misunderstanding the risk here. If the mining network reaches a point that it is no longer secure, because the market cap and trade volume is not high enough to support a large computational network, then a single widely publicized 51% attack can cause a near-complete loss of faith in the system. The damage to cryptocurrencies after such an event is probably irreparable.
  - joe_the_user 13y ago
    Perhaps I didn't phrase it right - definitely think that bitcoin working until it doesn't is a serious, probably insurmountable problem.
heurist 13y ago
I don't think it will be viewed as a currency (I agree with Krugman), but I do think it could viably be viewed as an asset backing a currency. Here's my idea: There's nothing stopping cryptocurrencies from eventually becoming centralized. Successful alternative cryptocurrencies will pop up and will be backed by governments or businesses, giving them real value. There will be a market between all cryptocurrencies and centralized currencies will be built on top of that market. Inflation will happen whenever anyone creates a new currency and people want to buy it. So crypto-assets will serve as a base for viable (inflationary) currencies. It wouldn't matter if bitcoin or any other individual cryptocurrency succeeds or fails as long as that market remains, and it will due to all of the benefits of cryptocurrencies in general. I'd be happy to hear any flaws in this idea, I haven't talked about it with anyone yet.
- fragsworth 13y ago
  It may be a mistake to assume that small alternative cryptocurrencies are automatically viable. 51% attacks may become a severe problem, especially for very small mining networks. We may eventually see enough 51% attacks on altcoins that most people revert to the few largest networks (Bitcoin, Litecoin, and maybe a couple more). Or maybe we won't, and each new altcoin inflates the system.
  - heurist 13y ago
    That's a good point, I'll have to think about that more. My initial thought is that at least exchanges wouldn't be limited to currencies with that vulnerability. Most small currencies would also have limited or no initial value and probably wouldn't be worth taking over unless it was a pump and dump scheme, but centralized exchanges might be able to mitigate that.. Interesting idea, thanks.
- wmf 13y ago
  Successful alternative cryptocurrencies ... backed by governments or businesses It seems like this could have been done 15 years ago with Chaumian digital cash (which requires no mining and is more anonymous than Bitcoin) or even earlier with plain public-key crypto if you don't care about anonymity. Why hasn't it?

joe_the_user 13y ago

Bitcoin will succeed if enough people believe that it will succeed, and bitcoin will fail if enough people believe it will fail. Uh, the problem is that this is not a one-time succeed or fail thing. If one fine day, enough people think bitcoin will fail (or just think it no longer serves their purpose, say, it no longer has a chance of significant value increase), the consequences for many people may be very painful - even if for many previous days, most people thought bitcoin would succeed, even if some imaginary point had reached where some commentator could say "wow, looks like bitcoin has actually succeed".

fragsworth 13y ago
> Uh, the problem is that this is not a one-time succeed or fail thing. I think you're misunderstanding the risk here. If the mining network reaches a point that it is no longer secure, because the market cap and trade volume is not high enough to support a large computational network, then a single widely publicized 51% attack can cause a near-complete loss of faith in the system. The damage to cryptocurrencies after such an event is probably irreparable.
- joe_the_user 13y ago
  Perhaps I didn't phrase it right - definitely think that bitcoin working until it doesn't is a serious, probably insurmountable problem.

heurist 13y ago

I don't think it will be viewed as a currency (I agree with Krugman), but I do think it could viably be viewed as an asset backing a currency. Here's my idea: There's nothing stopping cryptocurrencies from eventually becoming centralized. Successful alternative cryptocurrencies will pop up and will be backed by governments or businesses, giving them real value. There will be a market between all cryptocurrencies and centralized currencies will be built on top of that market. Inflation will happen whenever anyone creates a new currency and people want to buy it. So crypto-assets will serve as a base for viable (inflationary) currencies. It wouldn't matter if bitcoin or any other individual cryptocurrency succeeds or fails as long as that market remains, and it will due to all of the benefits of cryptocurrencies in general. I'd be happy to hear any flaws in this idea, I haven't talked about it with anyone yet.

fragsworth 13y ago
It may be a mistake to assume that small alternative cryptocurrencies are automatically viable. 51% attacks may become a severe problem, especially for very small mining networks. We may eventually see enough 51% attacks on altcoins that most people revert to the few largest networks (Bitcoin, Litecoin, and maybe a couple more). Or maybe we won't, and each new altcoin inflates the system.
- heurist 13y ago
  That's a good point, I'll have to think about that more. My initial thought is that at least exchanges wouldn't be limited to currencies with that vulnerability. Most small currencies would also have limited or no initial value and probably wouldn't be worth taking over unless it was a pump and dump scheme, but centralized exchanges might be able to mitigate that.. Interesting idea, thanks.
wmf 13y ago
Successful alternative cryptocurrencies ... backed by governments or businesses It seems like this could have been done 15 years ago with Chaumian digital cash (which requires no mining and is more anonymous than Bitcoin) or even earlier with plain public-key crypto if you don't care about anonymity. Why hasn't it?