[majika]

Thanks for writing this. I agree with everything you said.

I'd also add the concern of Bitcoin lacking an inflationary mechanism. I can't see it ever becoming a currency without that. If it's lucky, it may be a transactionary vehicle before the next technology displaces it. But, like you pointed out, it doesn't have much of a utility for that purpose anyway - taking transaction fees, security and usability into account.

Emin Gün Sirer wrote [0] an excellent survey of the Mt. Gox scandal, and a measured evaluation of the problems with Bitcoin. I loved this part:

> What Nigerian scams are to your grandfather, Bitcoin exchanges are to the 20-30 semi-tech-savvy libertarian demographic.

He ends by recommending Dogecoin because the community doesn't take itself too seriously.

> If one must pick a cryptocurrency, the lowly dogecoin, of all things, is doing everything right. It's based on economic principles that provide the right incentives for a healthy economy. The community does not take itself seriously. Most importantly, no one pretends that Doge is an investment vehicle, a slayer of Wall Street, or the next Segway. No one would be stupid enough to store their life savings in Dogecoins. And people freely share the shiba goodness by tipping others with Doge. So, young people who are excited about cryptocurrencies and want to get involved: Dogecoin is where the action is at. Much community. So wow.

I just hope the hoardes of Bitcoin speculators don't ruin it for them.

> What can I do with bitcoin that I can't with paypal or even a bank account (many let you instantly transfer money these days for no/low fees to pay friends, landlords, etc.)?

For all its faults, the cryptocurrency renaissance (based off the Bitcoin protocol) is enabling the Silk Roads to flourish. You can't run those on Paypal. You can't donate to Wikileaks with Paypal either, for that matter.

[0]: http://hackingdistributed.com/2014/03/01/what-did-not-happen...

[hft_throwaway]

I'm not an economist or an expert on monetary policy, but I don't think a currency necessarily needs to be inflationary. Humans have used currencies such as gold which has a relatively fixed number of units in the past, which may have been less flexible but still worked. A currency does need to have some broad base of customary use and pricing, whether that be through social agreement or government fiat. People need JPY because their suppliers need JPY to pay their employees who have contracts in JPY or who need it to pay taxes to the government. They won't take any other currency outright, and if they do, they will peg their prices such that they'll be able to meet their obligations in JPY. This drives demand for the specific currency which helps set its value in the market.

For Silk Road type uses, people need a cryptocurrency or other pseudonymous way to transfer value, but do not need BTC specifically. Any sufficiently liquid crypto currency would work as a short-term transient store of value. I think that is an interesting use case and something neat about these protocols, but it doesn't explain why BTC is worth more than LTC, for example.

[majika]

> Humans have used currencies such as gold which has a relatively fixed number of units in the past, which may have been less flexible but still worked

It worked, horribly. Europe didn't industrialize until it embraced fiat money. They had a few false starts because they didn't fully understand how to handle it - "The Moneymaker" [0], a short biography of John Law, is an enjoyable read and survey of the history of this economic development.

[0]: http://www.amazon.co.uk/The-Moneymaker-Janet-Gleeson/dp/0857...

A currency should have an inflationary mechanism, because trade is the basis of wealth. In general, inflation encourages trade, and deflation discourages trade.

Anyway, that's just the belief of the field of economics.

> it doesn't explain why BTC is worth more than LTC

Momentum and confidence.