Last week in The Case against Bitcoin I examined some of the flaws with Bitcoin that may prevent it from becoming a mainstream currency. I received some very intelligent comments and had a series of thoughtful conversations with many Bitcoin advocates who promoted Bitcoin’s value and efficacy as a currency. While I believe there is value in peer to peer financial transaction systems, I remain, however, unconvinced that Bitcoin will be a widely used digital currency of the future.
Greater Adoption Should Mean Lower, Not Higher Prices
If, Bitcoin’s advantages lie in using a crypto currency system one would think that the cost of using it would decrease over time, not increase exponentially. The argument that more people will be using Bitcoin and more convenience and security features will be added to the Bitcoin system to justify higher Bitcoin prices runs counter to market principles. With competition, prices should drop.
The price of cars did not go up exponentially as more roads and bridges were built, motels and restaurants were added to the sides of the highways and more people used automobiles as a mode of transportation. Competition ensured that Fords would not be the only cars on the road and that prices for cars would remain affordable. Similarly, there will be additional competing crypto currencies, many superior to Bitcoin, that will keep a lid on the price of Bitcoin.