In the hearing of November 19 2013 Senator Heidi Heitkamp (North Dakota) asked how much sales tax to ring of a purchase of one Bitcoin? When purchased ,it was worth $700, but by tax due date it shrinks to half of that, or swells do double? The hearing also disclosed that Bitcoin is largely held by investors, anticipating price hike, not by traders who need stability.
It’s finance 1.01 that the Bitcoin enthusiasts seem to ignore: currency instability is self promoting, and leads to diminished utility. And since there is no one to open the spigot when the currency gets red hot, or remove money from the market when the value drains from it, there is no way to humanly and wisely react to price instability.
My fellow cryptographers would argue that Bitcoin is the first step in a long experiment, and eventually the algorithm will evolve to exceed the performance of any human being central banker, much as today’s computerized chess, after many years of effort, is beating the human champion.
The difference, I argue, in return, is that the moves in chess are fixed, and known without surprises. The value of money is determined by the combined psyche of the human traders. No one is yet even close to mapping the total possibility of reactions to be anticipated from a single human being, not to speak of a society thereto. And that means that in principle any algorithm that the current Bitcoin would evolve into can only capture the insight of its writers at the time of writing it, it will not reflect insight gained afterwards, while a human central banker would be in a position to apply all the knowledge, understanding and insight of the present.
My prediction is that the elegance of Bitcoin will find excellent applications in some voting systems or others, not yet suspected, and it may perhaps last as a fringe monetary system, but decentralized currency may never mature into mainstay currency. Albeit, the scientist in me says: allow for surprises. So, how about for now, we take the list of goodies offered by Bitcoin, and build them through a centralized digital currency like BitMint, while Bitcoin is evolving and is pushed by its enthusiasts to as far as it can go. And if it becomes ready for prime time, then adoption will be quick because main street by then would be familiar with digital payment and digital banking through the centralized version.
So here is the proposed plan for now: let’s test the notion of digital currency with the more conservative idea of centralized mint. We can test security, speed, convenience, cost, etc., without throwing in the volatility and uncertainty of the Bitcoin elk. A currency that amounts to digitized dollars, is fixed-valued towards the dollar. In parallel, let the proponents of decentralized money pursue their dream, test the algorithm, accommodate the cryptographic concerns, perfect the various features, and immunize themselves from criticism by warning all traders of the inherent risks of this experiment.
Gideon Writes 
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