A Rebuttal to Steve Faktor’s Ten Point Critique of Bitcoin

Mr. Faktor is a gentleman who receives criticism as warmly as any columnist I know. For this reason I wish to make it clear that I am critiquing his points. I am not, as journalists and editorializes do too often, attacking him. His article on Forbes contains ten reasons why, in his opinion, Bitcoins are doomed to fail. I thank him for raising these points and for those who contributed their insights to the article’s discussion area.

Legality is a valid concern, but Bitcoin does not pretend to be legal tender. It exists in a legal gray area, but since it would be a logistical nightmare to eliminate all coins from circulation (it would involve systematically checking every electronic storage device in the country), it seems more likely that the United States government will strike an uneasy truce with cryptocurrencies. More than likely they will be regulated and taxed just like the dollar.

 Mr. Faktor makes my second argument for me: “people don’t care.” The federal government is well aware that Bitcoins are unlikely to become popular with the general American population because the dollar is still a useful form of money and the American standard of living has remained relatively high, too high for the citizens of the United States to follow the example of the Kenyans.

2. It’s easy to shut down.  As the government proved with online gambling and offshore accounts, you can suffocate any business without banning it by cutting off money transfers.

Bitcoin is designed to be a peer-to-peer method of exchange. That is how it used now. While it would be wonderful if major financial institutions created systems to support it, it seems unlikely it will happen here in the United States. It seems more likely that a philanthropic member of a struggling nation will create a bank for the enrichment of his countrymen.

If there is a universal ban on alternative currencies then this could stunt BTC’s proliferation, but such a ban seems unlikely. One need only look at the differences in laws between states and provinces to realize that, for all practical purposes, there is no such thing as a universal law or, for that matter, an absurd one. This is not because absurdity cannot be objectively gauged, but because there are so many absurd rules. If governments attempt to ban Bitcoins, let us hope it is as successful as their war on drugs.

There is a catch-22: in order for the value of BTC to stabilize there needs to be a genuine demand for them based on more than mere speculation, but in order for this to occur a wider variety of goods must be made purchasable. However, volatility is a disincentive for wider adoption.  BTC’s volatility is less important to those living in nations with fiat moneys that are depreciating rapidly in relation to the dollar, like the Indian rupee.

The divisibility of Bitcoins, which Mr. Faktor is aware of, renders his analogy between BTC and taxi medallions moot. If the taxi medallions could be divided and sold off, surely there would be considerably more circulation.

If the deflationary nature of BTC becomes problematic then competitors with different schemes will emerge. I think a portion of the population will find it refreshing to have in their possesion a money that keeps its value over time.  In a worst case scenario the software will have to overhauled or enthusiasts will have to jump ship to another contender for the crown of the first supracurrency.

People in the United States don’t care, for the most part. Those that do are not investing in BTC out of necessity, but for idealistic purposes or financial gain. If the dollar’s purchasing power weakens or taxes become cumbersome (they almost always are in the minds of those paying them), it is possible that BTC will become an attractive option. Mr. Faktor underestimates the Second and Third Worlds in his article. Nearly 14 million Kenyans have BTC wallets.

 I have scrutinized this point from a few perspectives, but it still does not make any sense. More complex than Linux? In what way? The client can be installed on Windows within a few minutes. Linux is an operating system kernel which now can be used  by novices thanks to distributions like Ubuntu, but it is infinitely more difficult to “learn” than Bitcoin. I’m not sure how Mr. Faktor wanted his statement here to be interpreted; the BTC client is minuscule compared to a full-fledged modern Linux distro.

 The number of potential commands and uses for a Linux system vastly outnumber the few commands one can issue with the BTC client. The Bash shell and other standard UNIX utilities are absolutely esoteric in comparison to the BTC’s point and click GUI. If you can click a button you can use Bitcoin.

Unless the merchant is fairly large and pays a substantial tax, yes, the benefits are marginal. However, with the introduction of Obamacare, which cuts into the profits of many midsized businesses, it is possible that more large online corporations will explore a means of evading the burden imposed by this new legislation. When software and hardware have advanced, there will be no good reason for merchants not to accept them. It is not a matter or either or; a vending machine could accept multiple moneys.

For now. There are a number of ongoing efforts to bring them into the real world. Time will tell. Also, it’s not as though there is a dearth of financial transactions taking place over the internet…

This problem, if it is not taken care of, could become a major problem for Bitcoin. Although as Mr. Faktor himself points out, money is regularly stolen from major banks. The lack of insurance in instances of theft could be the crucial weakness of a fully decentralized monetary model. Yet teams of volunteers built FreeBSD and Linux, undoubtedly more secure systems than Windows. It isn’t unreasonable to expect free software meant to facilitate the BTC transfers will also be top-notch.