I see bitcoin eating PayPal within a few years (which might include PayPal becoming a bitcoin wallet). It will also eat Square, then Visa and Mastercard.

Ahh, but grasshopper - do you see what you just did?

Paypal is a company.

Square is a company.

Visa is a company.

Mastercard is a company.

BTC is a PROTOCOL.

Each and every one of them could start honoring BTC tomorrow. They could move to BTC internally. They're not going to, though, because it's unstable and non-portable. They could trade in gold, too - hell, they could trade in Alcoa stock. They don't. They trade in currencies that are insured and regulated by central banking authorities.

That's the only barrier to admission for a large company like Paypal - fiduciary portability. That portability is the home court advantage of conventional currency. BTC may yet get there, but the methodology by which it shall do so is "brute force." None of the companies you mention would face a single penalty to accepting BTC other than its inherent volatility. If that volatility goes away, BTC is as good as cash. However, "that volatility going away" is more likely to be an outcome than a goal.

However, I would think a Keynesian could recognize that it might not be a matter of bitcoins as units, but the nature of the network.

The nature of the network is libertarian and outside of conventional economic theory. Granted, "conventional economic theory" has been decidedly wrong of late, which is a mark in BTC's favor. But then, it's no different than any other black market currency: subject to pressures outside of regulation, vulnerable to pressures within regulation.

As you said he is attacking the principle.

That's not what I meant to say. What I meant to say is that he's attacking the framework of BTC within conventional banking standards while the aegis of BTC is existence outside conventional banking standards. It's akin to a record exec attacking the MP3 algorithm without acknowledging the MP3 economy. Basically, he's an A&R man advising recording industry execs not to invest with the Freunhaufer Institute. He doesn't even get into the wonders of Napster.

IMO Krugman is making the faulty assumption that bitcoin will fail unless bitcoins are a real currency.

My read was that he was attacking the notion that just because it walks like a currency, quacks like a currency and shits like a currency it must be a currency. Considering how much time and effort MtGox and others put into the "WE ARE NOT A BANK" trope, I'd say he has a valid argument.

A few days ago I posted an interview a few days ago where Kevin Rose interviewed Brian Armstrong of Coinbase.

Ain't nobody got time for that, yo. 40 minutes of Kevin Rose is 39:50 too long.

David Woo of BoA sees it.

Right. BoA sure called the housing bubble correctly.

EDIT: Timothy B. Lee makes the same counterargument in the WaPo. It's no less fluffy as mine. I could be a staff writer.

Again, I disagree. The WaPo argument is that BTC mining should not be seen as the same as gold mining because BTC mining is just a way to incentivize people into providing a backbone for BTC transactions. Put into simple terms:

BTC transaction backbone = brick'n'mortar banking network

BTC mine = Brick'n'mortar bank branch

BTC miner = Brick'n'mortar bank teller

The WaPo argues that Bitcoin mining is parasitic, rather than opportunistic. It's a valid argument, and it underlines one of Krugman's (misunderstandings? Omissions? Hard to say) in the article. Your argument, on the other hand, is that an exchange is an exchange is an exchange. It's not. The transaction point between BTC and most currencies is "commodity" not "currency" which

A) makes sense

B) gives governments an incentive (taxation)

C) delegitimizes the fundamental principle of BTC (it's a currency, not a thing)

It's that discontinuity, right there, that keeps BTC volatile. There's no real way to know how portable it will be moving forward, and every government in the world has ample incentive to penalize it.

This is not Krugman's argument (in this column, at least). His argument is that it's like the Gold Standard, and to Keynesian thinking, money standards are dumb. One is reminded of the phone sanitizers in Hitchhiker's Guide, and their choice of "leaves" as currency, which led to massive deforestation in order to drive up currency prices.

I dunno. If I had money to invest, I'd put it in Square, not BTC. My wife ran $10k off a Centurion card two years ago and in one fell swoop saved $300 off what Visa or Paypal would have charged her. They're making that shit easy yo, and it's currency-agnostic. The legislation necessary to make that go happened uneventfully in 2003 or so. It's clear sailing for Square.

Bitcoin? BTC is one justice department finding away from oblivion - or worse, a burn notice. Thus I watch, but I do not invest.

I think that you are letting an aspect of bit coins pass you by. Because of the rigid quantity of bitcoins, the more success it finds the less it will circulate. It's a deflationary currency, the more widely accepted it becomes the less of it will circulate. People will choose to hold bitcoins speculatively (you could argue this is pretty much the case already) rather than use them for casual transaction.

I don't recall who's theory this is, but it's basic monetary theory. When there are two forms of currency people will horde the one that is more sound. A deflationary currency is always going to hold it's value better than an inflationary currency so people would always choose to hold their cash holdings in bit coins and spend USD or whatever else they use.

I think this is going to be a problem for bit coins.

What if James Goodfellow, instead of foregoing new shoes, borrowed a different six francs to repair the window and then never paid it back?

War has certainly fueled our economy in the past...

Also, with the exception of Zimbabwe, the newest instance of inflation mentioned in that entire Wikipedia page was 16 years old.

· Turkey's revaluation of the Lira on 1 January 2005.

· Belarus experienced steady inflation from 1994 to 2002.

· North Korea most likely experienced hyperinflation from December 2009 to mid-January 2011.

· Romania experienced hyperinflation in the 1990s. The highest denomination in 1990 was 100 lei and in 1998 was 100,000 lei. By 2000 it was 500,000 lei. In early 2005 it was 1,000,000 lei.

With so many of the examples occurring in the last 30 years, one could argue that "episodes of really high inflation have become common" rather than "rare" if that suited one's rhetorical needs.

In the context of Bitcoin serving as a possible relief, I don't see why it matters if hyperinflation is rare. It could still help North Koreans and Zimbabweans.

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. This is not a way of life at all in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.

-Dwight D. Eisenhower, April 16, 1953

Something often missed in discussions of hyperinflation is that it's a brutally effective way to eliminate foreign debt. In amongst that list of hyperinflators are Brazil and Russia, half of the BRIC countries. Hyperinflation was, arguably, a reason why Germany was able to rebuild a war machine while simultaneously avoiding reparations for WWI. Economy mismatch is a troubling problem for economists. They rarely model it correctly. The plot of Goldfinger (irradiate all the gold in Fort Knox, thereby destabilizing central banks and causing world mayhem and rocketing gold prices) was basically the plot of the Nixon Shock which ended Bretton-Woods. There was decidedly not panic in the streets.