Description:

This paper tries to demystify Bitcoin's value proposition. First, we note that the word "Bitcoin" refers to both a digital collectible, as well as to a peer-to-peer computer network. The collectible is required to make use of the payment network -- even for transactions denominated in USD (not BTC). The payment network is of enormous general utility, particularly to criminals and victims of political oppression worldwide. Bitcoin has the ability to maintain its useful properties, even under harassment by wealthy or violent adversaries. It can process more transactions than VISA, and can perfectly imitate the properties of rival crypto-currencies -- eliminating competition. Bitcoin can be both scarce and digital, because coins are owned by cryptographic passwords, not by possession of a particular digital file. Worldwide adoption of Bitcoin is not as unthinkable as it may first appear -- historically, mankind has migrated to a new form of money whenever technological improvements make an older form obsolete. In the future, certain groups (criminals, international travelers, freelancers, the underbanked, welfare loafers, and the young) may prefer Bitcoin to their local at currency, and the remainder of society may be indifferent between the two (as most individuals have net currency investments which are microscopic in comparison to the value of their labor, real estate, and equity investments). Very little prevents Bitcoin from becoming the dominant form of money worldwide.