Bitcoin Bubble 2.0: “From A Monetary Standpoint—It’s On Par With The Stuff You Find At Chuck E. Cheese’s”

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Publisher’s Note: One of the hardest working young college graduates I’ve met in recent years, Patrik Korda, was kind enough to contribute an essay shown below regarding the issue of “Bitcoin”.

For context, Bitcoin is a newly formed digital currency which has rapidly grown in popularity (as well as in price) following the Cyprus banking system collapse. The chart below is the price performance of Bitcoins, which have seen a market cap expansion of almost 20x—from about $50mm to roughly $1B where it stands today—in less than one year. 

(click to enlarge)

Bitcoin Bubble 2.0

By Patrik Korda

‘It is also important to make certain that our efforts are directed at the decisive core of the problem and not on distracting side issues. The more complex the difficulties we face, the more important it becomes to bear this in mind, for it is human nature to try to evade what we cannot cope with‘
- Bernard Baruch, My Own Story

A conversation with a typical bitcoiner usually leads into a whole series of ignoratio elenchi after ignoratio elenchi revolving around technological jargon. Thus, I think it would be useful to start this article off with a parable set in the past. Suppose that during the 1970′s, when consumer price inflation was an actual problem, someone went ahead and developed an alternative currency. Of course, there were no computers in the average household, no internet, and no peer-to-peer during that stagflation.

Coinstamp Parable

An entrepreneur named Wei Boyang sets up to take advantage of the situation. His proposal is to print a total of 1,000,000 units of what he calls coinstamps. He goes through great measures to insure that there would be no coinstamp counterfeits in the future, using various methods such as signing each stamp, classified materials, codes, et cetera. For the sake of argument, the coinstamp truly is counterfeit-proof. The only entity that could create more coinstamps is Wei Boyang. However, Boyang just happens to be a really nice guy, and having read Lord Acton, he even goes so far as to cut off his hand in order to make sure he cannot make more coinstamps.

Some may cry aloud that coinstamps have no intrinsic value or that they are not backed by anything. Wei Boyang, having also read his Carl Menger, points out that there is no such thing as intrinsic value.
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