We have covered many reasons why bitcoin is unsound and not money. It’s a ledger of unbacked liabilities. It is designed to have finite quantity but therefore indeterminate and hence volatile value. This makes it unusable for borrowing or lending and hence savings, but a great a vehicle for conversion of one person’s wealth into another’s income. It is not a commodity – discussion of the usefulness of the network notwithstanding – nor is it backed by a commodity or any asset. It is a perfect, cryptographically secure record – of itself. People use it to get rich quick. In other words, it’s the very model of a (post)modern monetary marvel (OK, Keith is not the next Gilbert and Sullivan).
And bitcoin has a questionable feature. Transactions are irreversible.
First it should be addressed that irreversible transactions have an appeal to merchants. Everyone who sells on eBay knows the frustration of shipping merchandise to a customer only to have the customer claim it was never received. Merchants would surely love the idea that once payment is made, it cannot be unmade.
However, there are good reasons why our payments system was designed as it is. Sometimes there is a clear mistake. No one has an interest in allowing the payee to keep $100,000 when $10,000 was the purchase price of the used car. No one wants to see Jon Schmidt get the money that was intended for John Smith. There is also the occasional case of fraud. If someone breaks into your account, you want recourse to recover the lost funds. Irreversible transactions are not a dream come true for consumers who are defrauded by merchants.
This post was published at GoldSeek on Monday, 2 October 2017.