At EconLib I have an article on Bitcoin. The first half is based on the article I already posted here with Silas Barta, but the second half has new stuff, sure to enrage half of you:
Economically, the chief attraction of Bitcoin is its mathematically guaranteed scarcity. Even a pure commodity like gold could eventually flood the market if a vast new stockpile—perhaps on the ocean floor or an asteroid—were discovered, or (more fancifully) if the “replicator” technology of Star Trek ever became reality, such that a machine could turn baser matter into gold bars.
Bitcoin has no such vulnerability. No external technological or physical event could cause Bitcoin inflation, and since no one is in charge of Bitcoin, there is no one tempted to inflate “from within.” If the computers in the Bitcoin network endorsed an illegitimate creation of new money, it would be akin to a majority of grammar teachers suddenly agreeing that “ain’t” is acceptable usage.
Some critics rely on the work of Ludwig von Mises and his “regression theorem” to argue that the world will never embrace Bitcoin as a true money. According to this argument, Mises demonstrated that all money—even today’s fiat money—must have been, at some point in the past, linked to a commodity that was useful in the days of barter. Since Bitcoin has no such history, the critics argue, we have the authority of Mises himself to show that Bitcoin will never be more than a fad.
This article won’t address the question of whether this is a valid interpretation of Mises’ writings. Instead, I will make the modest point that if Mises is used to rule out Bitcoin’s acceptance as money, then it seems that Mises has already lost. If this logic is correct, then Bitcoin should never have been adopted as even a medium of exchange because it served no useful role as a regular commodity. (Recall that money is simply a medium of exchange that is accepted by everyone in the community.) But Bitcoin has already surpassed that hurdle, as there are websites on which people from all over the world exchange their bitcoins directly for goods and services.
Note the part in bold above (which I bolded here, not in the original). I am NOT saying, “Bitcoin blows up Mises.” What I’m saying is that the people who are deploying the authority of Mises to blow up Bitcoin, are taking a big gamble because what they think is impossible has already happened.