Bitcoin vs. Dollar.

Karl Whelan over at has posted a follow-up to his article concerning how Bitcoin is different from the dollar.

In that first article, Whelan made some good points about the spotty history of private money, but he seemed to fail to grasp some of the big-picture aspects of Bitcoin.

Commenters on the first piece made two points. First, Bitcoin as a digital form of private money has none of the issues of physical production and storage issues of, say, gold coins, so no government is needed to reassure users of the currency’s worth and security. That’s all just baked in.

Second, calculation of the Bitcoin algorithm limits the total number of Bitcoins available — there can only ever be 21 million. This both ensures anonymity and keeps price and demand in a pretty linear relationship.

Whelan argues that having just an algorithm does not insulate the currency at all from competitors. There is Litecoin, he points out. And someone could just create a better algorithm.

So, why Bitcoin over the other cryptocurrencies? What’s going to make one the VHS and all the others Betamax?

That uncertainty is the big difference between Bitcoins and the dollar. Confederate dollars aren’t going to be revived anytime soon to usurp the Greenback. And the fact that dollars are legal tender means creditors will have to accept them. No one is forcing anyone to accept Bitcoin.

These are all valid arguments. The FAQ even admits that it has no protection against a competitor other than network acceptance and the ability to swipe the competitor’s superior features.

But Bitcoin has one thing the dollar doesn’t have: A fast means of global transaction. The dollar still relies on a big, cumbersome banking infrastructure; Bitcoin is free of all that.

So even if the monetary value of Bitcoin approaches zero, the platform itself will always have value (at least if it resembles its current incarnation).

What needs to be considered here is the intention of the Bitcoin investor/holder/speculator. If you’re buying up Bitcoin right now at $800 apiece, hoping they’ll hit $1,000 or $2,000 … well, good luck.

But if you’re a wealthy Chinese person who needs to diversify your holdings, Bitcoin lets you get your CNY (RMB) out of the country and into various holdings.

Or if you have a shoe company in Iran, Bitcoin lets you sell internationally.

Sure, countries are going to throw around their weight; it’s the same thing that guarantees their currencies’ value, after all. Regulation will factor in somehow.

But they’re playing catch-up right now. Bitcoin was outfoxing the dollar when it was worth $15, and the fact that it’s worth 50 times that now is but a detail.