If Kudlow investigated a little further he'd learn that bitcoin's volatility has actually been on the decline as adoption spreads.
It has no central-bank regulation,
One would think Mr. Kudlow could understand that this means there is no central bank that can manipulate the total supply of bitcoins. That is by design.
network operations,
The entire currency is a decentralized network of transaction verification nodes. Why doesn't he at least investigate the basics of the system he is attempting to criticize?
or even centralized issuance.
Issuance is decentralized to encourage the creation and maintenance of the verification nodes that are the bitcoin network. Issuance is regulated and ultimately fixed by the protocol itself. The protocol itself is the 'central bank authority' he wants. This is further proof no one has explained to him how bitcoin works, and he hasn't found out himself. He just has an inkling of who doesn't control it - does he speak on their behalf?
And because of its wild price fluctuations, bitcoin can never be a reliable payment system.
"Bitcoin is still about ten times more volatile than, say, the Euro priced in US dollars. But if Bitcoin’s volatility kept falling in half every three and a half years, it would be as stable as the Euro in less than 15 years." link
The virtual currency originally offered a way to make transactions across borders without third parties like banks. But the collapse of Mt. Gox -- with 850,000 bitcoins unaccounted for, summing to $425 million of losses, according to many reports -- illustrates the grand failure of this digital experiment.
Mr. Kudlow's initial observation has nothing to do with the failure of MtGox. Bitcoin is a way to make transactions across borders without third parties. But MtGox is not bitcoin. MtGox was an exchange that you could register an account with. If you registered an account with MF Global and Jon Corzine took you money out of your account and gambled it on Euro bonds - is that proof that dollars are a failure? Or is it proof that MF Global was mismanaged?
People are pouncing on the MtGox story and using it to spread FUD about something they obviously haven't taken 30 minutes to investigate. If you want to see a brief video explaining what bitcoin is, how the network functions, and how it manages transfers this youtube is a good intro.
I find your argument is unpersuasive, because bitcoin value relative to commodities fluctuates wildly, making it useless as an exchange medium between my work and my compensation.
The purpose of money is to give me a way to work now for some purpose, and later to receive product or service that I need that is an appropriate value for the work I did.
Prior to money, we’d have to do this directly, which is inefficient. With money, if I want a TV set, I can clean your house even though you have no idea how to make a TV set; instead, you give me money, and then I can take it to a store and get a TV. I know how many hours I need to work cleaning people’s houses to get that TV. And while the dollar changes value, it is by such a small percentage of the price I am going to pay that I am much more concerned with the mentality of the company selling the TV, meaning that company might change the value they place on that TV relative to my work. But not relative to my dollar.
So, I decided to look at bitcoin price. And learned that you can’t even figure out what a bitcoin is actually worth.
Is it currently worth $580 dollars, or $620 dollars? What will it be worth in another hour? In another day?
I went to the bitcoin store to price a home theatre. I find this: Bitcoinstore $571.29
But they don’t sell a TV, just cheap home theater systems. Darn. I kept looking, but found a story about a bloomberg TV reporter having his bitcoin stolen:
“The guy that is hosting the series gave bitcoin gift certificates to the other two hosts. One of them opens up the certificate to reveal QR code of the private key,” he wrote. “They then proceeded to show a closeup of the QR code in glorious HD for about 10 seconds. Hilarious.”
I wonder if that is even a crime. After all, it isn’t real money that was stolen.
Then I found a link that said “Bought a TV with my bitcoin”. But it turns out they SOLD their bitcoin for CASH, and then used the CASH to buy the TV. I could do that with my old beanie-baby collection, but that doesn’t make beanie babies a currency:
“I cashed in some Bitcoin I had saved when I was mining them a couple of years ago. I took the money and bought a nice TV for my family. I went back and forth about buying one using BTC or just cashing some out and going traditional.”
But to be honest, someone commented that the guy didn’t have to cash out. Unfortunately, the commenter says he could go to the bitcoinstore, which as I noted doesn’t sell TVs.
“You do not have to go through the extra step of cashing out. There are online retailers that accept bitcoin as payment (like bitcoinstore.com) our you can purchase gift cards to use at local retailers (download the gyft app).”
Of course, a gift card is just a plastic card used for cashing out.
Then I find out that most places that sell you things in bitcoin have a no-return policy. Which makes sense, imagine offering a 30-day money-back guarantee, when your “money” could double or half in value.
I mean, so I spend 1 bitcoin on a nice TV, and then 3 weeks later I want to return the TV, but that bitcoin is only worth half of what it was before — I guess the company would be happy to take the return, and then sell the TV for 2 bitcoins. But if bitcoin doubled, then they won’t give me back one bitcoin for that TV.
Which is the problem. I work one day to earn enough to buy a nice dinner, I wait 2 weeks for my bitcoin paycheck but the bitcoin they give me is worth half, and then I wait for the weekend to take my wife to dinner and it drops another 20 percent.
That’s not money, I might as well get paid in company stock, except company stock won’t change price as much as bitcoin.