The first misconception covered in this series is Felix Salmons’ notion of trust in general and trust in the interconnected world. The next misconception I want to address is Felix Salmons’ assertion on money as a commodity. In ”The Bitcoin Bubble and the Future of Currency” Felix states:
… bitcoins are an uncomfortable combination of commodity and currency. The commodity value of bitcoins is rooted in their currency value, but the more of a commodity they become, the less useful they are as a currency.
In reality, then, bitcoin doesn’t really behave like a currency at all. In terms of its market value, it looks much more like a highly-volatile commodity. That’s by design: bitcoins were created to be the most fungible commodity the world had ever seen – to the point at which they would effectively erase the distinction between a commodity and a currency.
Felix is arguing that bitcoins are both commodity and currency as if these are two different things. Felix assertion is that a bitcoin is part of the subset “currency” and the subset “commodity” where these two do not overlap. He even asserts:
…but the more of a commodity they become, the less useful they are as a currency.
Currency though is a subset of the set “commodity”: money is a commodity! (NB not all commodities are money!) A very exceptional one; but a commodity all the same. What sets money apart from other commodities is that it can be (ex)changed with any other commodity and back!
The immaterialisation of money and our dependency on trust started a long time ago. As I explained earlier money has evolved in a series of steps into an immaterial commodity. With crypto-currencies like bitcoins we now make a (final?) conceptual leap towards money being an immaterial virtual commodity. But looking at the 5 steps we as humans made in the development of money this with hindsight is the inevitable outcome. Bitcoin as a crypto-currency is the ultimate commodity!
Secondly Felix compares the behaviour of the bitcoin (i.e. in its infancy being highly volatile as it is) to high-volatility commodities and not as a currency. Au contraire: bitcoin does behave perfectly like a currency (equals a commodity) according to the conditions it is in (i.e. infancy, speculation, limited amount of coins), only it does not behave in a way we would like if we compare it to the mental picture (phantom?) of a rock solid established and well embedded currency.
Felix again:
Currencies need a modicum of stability; indeed, one of the main selling points of bitcoin was that it couldn’t be destabilized by government institutions. But that comes as scant comfort to people watching the value of a bitcoin behave like some kind of demented internet stock during the dot-com bubble.
For more on Bitcoin at Red Planet Dust:
