Excerpted from Anthony Migchels:
“Bitcoin’s existence is very useful for all monetary reformers as it will allow us to gather information about the strategies that the adversary will use to disable it.
Notwithstanding these revolutionary breakthroughs, Bitcoin does suffer from a basic flaw. It’s designed to behave like Gold. Nakamoto clearly believes Austrian Economics to the last word, including the idea that hyperinflation is the main threat to the system.
As a result Bitcoin suffers from the same problems as Gold: it is deflationary and expensive. There is never enough of it. True, Bitcoins can be divided in ever smaller denominations, so ‘physically’ there will never be a shortage, but it means Bitcoin is designed to appreciate for ever and this is the definition of deflation.
Worse still, Bitcoin does not address the interest issue. There is no possibility for cheap credit and if the unit matures, a banking system will be necessary to provide credit based on deposits.
Not only will this exacerbate the scarcity of money, it will also lead to very high cost for capital.
Yet another problem is that with a full reserve banking system as required by bitcoin (and Gold too, by the way) would allow the Money Power to mop up the money supply through compound interest within one or two decades, as you can find out here..
The basic conceptual flaw is, that Austrian Economics believes a currency should be a good store of value first and foremost. This is the fatal mistake: money is a means of exchange, and it is the agreement to use it as such that gives it value, not the other way around. This is even true of Gold today: the reason Gold is now expensive, is because many investors are speculating it will be currency again.
Because of this design flaw, Bitcoin is being hoarded by its users. They prefer to have it sit in their ‘account’, instead of spending it, hoping it will appreciate. As a result turnover is lower than it could be. The unit is already an object of speculation, hindering its primary function: to finance normal trade.
Bitcoin is a revolution and a badly needed bit of fresh air. Peer to peer and independent of banks and Government it is an example for all of us. Yes, we should press for reform at the Government level, but no, we should not await it. There is a free market for currencies and it is ours for the taking.
However, it is not credit based and it does not allow for interest free credit. It’s deflationary by nature, which is very problematic.
Its decentralized peer to peer nature and its convertibility mechanism are its main strengths. If these can be harnessed in interest free credit based units, the Money Power would be really hard pressed.
Bitcoin is a shot heard far and wide, but it is only the proverbial first shot across the bow.”