Is Bitcoin Only for Crooks and Cheats?

William Luther’s short answer is no.

The long answer:

Contrary to popular opinion, bitcoin is not basically for criminals. It is barely for criminals. In that respect, it resembles ordinary cash — that is, Federal Reserve notes. As a matter of fact, the case is probably stronger for eliminating cash than bitcoin. Harvard economist Ken Rogoff has claimed more than half of all cash in circulation is used to hide transactions from tax or law enforcement authorities.

More formal estimates by Edgar Feige suggest roughly 48 percent of cash held by the public is employed in the domestic underground economy. For those interested in transacting outside the law, cash — not bitcoin — is king.

In short, most bitcoin users seem to be a lot like you and me, if perhaps a bit more tech savvy. They want to purchase legal goods and services and remit funds as cheaply and conveniently as possible. To the extent that bitcoin is more effective than traditional payment mechanisms for making some transactions, it lowers transaction costs, encouraging production and exchange.

In other words, Thaler is wrong: bitcoin has a positive social value.

 

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