Dmitry Korzhik is responsible for product development in Rocket ICO, the first DAO startup accelerator. The pre-ICO, which is currently live, already raised 97% of the cap. https://rocketico.io

The great majority of people who are so fond of criticizing bitcoin are united by one common feature: they just do not understand what it is.

Critics offen like to repeat the following phrase: “technology can be valuable, but the currency itself does not cost anything.” This opinion is shared by Peter Schiff, Warren Buffett and Paul Krugman, Nobel Laureate in Economics, leading column in the New York Times. Recently he wrote:

“Bitcoin perhaps can be submitted as an engineering miracle, and it does offer an interesting solution to the informational challenge. Despite this, it remains unclear whether this solution has any real economic value”.

However, despite his regalia, this man has several times made absurd predictions. For example, in 1998, he showed similar skepticism about the Internet:

“By 2005, it will become clear that the Internet will affect the world economy no more than a fax”.

Old school

It would seem that economists should first of all understand what bitcoin is. But as soon as the conversation reaches the phrase “a new currency,” the supporters of the classical economy do not want to perceive the obvious facts.

Blockchain-enthusiasts called such economists luddites. In the 1800s, people called so English workers, who in every possible way tried to prevent technological changes, thanks to which subsequently industrial revolution happened.

The luddites believed that their jobs were in danger. Today some economists similarly “anticipate” that something bad will come of bitcoin. It is clear that many professionals who have devoted lives to the classical economy simply can’t fit in their picture of the world a completely new format of this discipline, which in effect will make most of their knowledge outdated. After all, because of the success of bitcoin, many existing ideas about money and the economy as a whole can be destroyed.

The vague death

So, someone says that the bitcoin technology will collapse, someone — that speculation will lead to an irreparable failure. Cost will never come to specific indicators. Governments will ban it. Some other currency will make bitcoin obsolete. Users will simply abandon it for some unknown reasons, etc.

Bitcoin is unlike any currency that ever existed, so economists are powerless to predict what will happen to it further. Despite some parallels drawn by both crypto-enthusiasts and bitcoin opponents, for example, with the stone coins of Yap Island, monetary anomalies like eGold or pseudo-Iraqi dinars, in fact, people have never seen anything like it before. Bitcoin doesn’t have a single central control: computer protocol is in charge for all the regulation. This currency does not serve the interests of an individual state, it serves the whole world. And since the source code of bitcoin is open, anyone can come up with their own version of crypto-currency and run it at any time.

This is confirmed by Steve Horwitz, economist at the University of St.Lawrence: «Economists have never thought of anything like this until it was invented, so we just started to think through the consequences. Opinions have not yet reached a single point».

Brad Delong, economist at the University of Berkeley, calls the cause of the death of bitcoin the fact that the cost of its producing is zero. His opinion is shared by Tyler Cowan of George Mason University, who adds also that deflation can occur.

Value preservation

Krugman also recently switched to the unpredictability of bitcoin cost in the future. According to him, in the classical economy, the success of money is based on two factors: they must simultaneously function as a means of exchange and at the same time remain a stable means of preserving value.

To be a reliable means of preservation savings, the currency should be based on a central authority that can redeem this currency at any time. Or based on some real value, for example, jewelry is made from gold, and therefore it is self-valuable. That’s why, according to Krugman, if the currency doesn’t have its own value or treasury, people will not believe that it will retain value over time.

However, the bad news for skeptical economists is that they are not competent enough in questions of human psychology. And there were already precedents, when people massively considered a means of preserving value something that economists did not even suspect.

In 1993, Saddam Hussein introduced his own currency. He began to print the Saddam dinar, to which the residents had to exchange their obsolete banknotes. However, people were not in a hurry to change the obsolete money for Saddam dinar because of distrust of the new government (the treasury, which Krugman insists on). At that, despite the fact that from the point of view of the state the value of the old dinar became zero after a while, among the residents of the country this currency continued to be used as a medium of exchange and even more so — it grew in price.

So, in 1993, 1 Saddam dinar (official currency) cost 25 obsolete dinars, and by 2003, despite the lack of self-worth and support from the authorities, the old dinar began to cost 300 Saddam dinars!

Real prospects

In general, it should be recognized that the adherents of the classical economy rely on a sound idea: it is difficult to make something successful when this “something” depends on the simultaneous participation of a large number of people. And this is many times more complicated when it comes to the creation of a new currency, moreover, a new economic system. However, bitcoin has already gained a critical mass of followers, and is not going to stop there.

Also, as opposed to skeptics’ doubts, some blockchain-evangelists suppose that bitcoin, possible, may not be obliged to be a stable means of saving: in the age of the new economic system it will be quite common to monitor prices, discounts and shares for the required goods and services on the Internet and the desire to buy them at the best price (the ratio of today’s price of the goods to today’s bitcoin price).

And, finally, the strongest argument of the adherents of the crypto-currency in the discussion with Krugman and other skeptics: the mere fact that the currency is increasingly used as a medium of exchange, gradually leads it to become also a means of saving.

If the technology is known, knowledge about it and the desire to take advantage of it is growing rapidly, and the base of potential currency holders is a whole world, doesn’t this make bitcoin the most likely candidate for obtaining the status of the world currency?

Each currency is based on the belief of a large number of people that it has a certain value. And, as the Economist magazine noted aptly, — «all currencies imply the existence of some collective hallucination, but Bitcoin … includes it more than the others …»

And what do you think about these fears of economists? Do you agree with any of them, or do you think that bitcoin really will become a world currency? Share your opinion in the comments!