Businessman, investor and IT expert Karl Denninger weighs in on Bitcoin. He seems to believe in inherent value, which Gary North does not, but otherwise he makes many of the same points.

Speaking of Gary North, he has another couple of articles about Bitcoin up today. It’s all the rage! (Here’s the first of his articles on Bitcoin which I blogged about recently.)

Back to Denninger. These are just the key points. Click the link to read the entire thing (it’s short and sweet).

Let’s go over what defines a currency. To be one you need:

  • It must be a store of value. That is, if I put some amount of value into it today that value should be reasonably stable over time. Nothing that is fluctuating in purchasing power by 5, 10 or even 20% in a day can be said to have such a quality, irrespective of whether it is going up or down.
  • It must be a medium of exchange. In order to perform this function people must accept it in trade for other goods and services – real goods and services. You need to be able to buy a gallon of gasoline, a basket of food, a car, a computer and similar with it. The problem is that until it is a store of value it will not be a medium of exchange because the people who produce things would be insane to widely accept it when they cannot reasonably expect the value you give them to be constant for enough time for them to obtain more raw materials and similar with what you tendered to them.
  • It should be self-verifying, at least for reasonably-small transactions. I should be able to know if the “coin” you intend to spend is valid and not a counterfeit by trivial examination. …
  • It would be nice if it was reasonably anonymous, at least without valid legal process. Digital currencies that operate by publication have an inherent issue here in that the transaction is not only indelibly recorded by cryptographic signature but it is available for everyone, everywhere, to see on a permanent basis.
  • The mania currently being found in digital commodities is amusing to watch but none of these are in fact “currencies” since they fulfill neither of the primary requirements of same nor either of what I consider to be the two most-important secondary characteristics.
  • Instead these fads are more akin to tulip bulbs.

via Market-Ticker – The Argument Against Digital “Currencies”