Is bitcoin a viable currency? It’s probably too volatile — Jonathan Parker

MIT Sloan Professor Jonathan Parker

MIT Sloan Professor Jonathan Parker

From The San Francisco Chronicle

While bitcoin remains a hot-button issue, most of the talk has centered on the technology of this virtual currency. There are lots of questions: Is bitcoin really secure? Is it truly anonymous? Can it be counterfeited? Are transaction costs actually lower?

I have a more fundamental question: Is bitcoin a viable currency?

My answer is no, and not just because of the wild fluctuations in the value but because these fluctuations are destined to continue. A good currency serves three purposes. It is:

A unit of account, used to measure and write contracts for income, wealth and goods.

A means of payment, used to avoid barter.

A store of value, held to be able to make future transactions.

Of these, the third historically has been the most important. People will be wary of accepting something that might lose lots of value, and something with a volatile price makes a bad unit of account.

Basically, bitcoin lacks a mechanism for setting the supply equal to the demand. That is needed in order for bitcoin to maintain its value.

History is replete with examples of what happens to currencies with fixed supplies. When governments tie their hands in the supply of their currencies, much like bitcoin has done, the value fluctuates.

Read the full post at SFGate

Jonathan A. Parker is the International Programs Professor in Management and a Professor of Finance at the MIT Sloan School of Management.

Reflections on Bitcoin — Irving Wladawsky-Berger

MIT Sloan Visiting Lecturer Irving Wladawsky-Berger

MIT Sloan Visiting Lecturer Irving Wladawsky-Berger

From Irving Wladawsky-Berger’s Blog

Ever since I joined Citigroup as a strategic advisor in March of 2008, I’ve been spending a lot of time thinking about the ongoing transition toward a global digital money ecosystem.  For over 2,500 years, money has played a central role in the rise of civilizations and in human affairs of all kinds.  As a result, the historical transition to digital money is among the most exciting and important societal challenges in the coming decades.  Its impact might well be up there with that of other major technology-based societal transformations, including electricity, radio and TV, and the Internet and World Wide Web.

The evolution to a digital money ecosystem involves a lot more than the transformation of money – cash, checks, credit and debit cards, etc, – from physical to digital objects that we will carry in our smart mobile devices.  It encompasses the whole money ecosystem, including the global payment infrastructures, the management of personal identities and financial data, the global financial flows among institutions and between institutions and individuals, the government regulatory regimes, security and privacy issues, and so on.

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