A Bitcoin for a thought

I read a great article about Bitcoin (http://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/?_php=true&_type=blogs&_php=true&_type=blogs&_r=1&).  The article explains in simple words, what is Bitcoin and why is it interesting.

The concept of a currency free from governmental control and with reduced fees compared to the standard banking system is very exciting. When concepts from the gold rush era are twinkled in, and speculation abounds it seems clear that a Bitcoin rush era is imminent.  Beyond the philosophy, there is something about money that makes people very practical so its interesting to see how the Bitcoin saga unfolds.  One aspect people are totally ignoring is that a currency without political power is just begging for a speculative attack (https://www.khanacademy.org/economics-finance-domain/macroeconomics/forex-trade-topic/currency-reserves/v/speculative-attack-on-a-currency).  Considering the size of the Bitcoin market today, there is not much point of such an attack since the promise of gain is small.  But once the market grows tenfold or more and potential billions can be made by a coordinated speculative attack, its not clear who will defend the unsuspecting users.  The low transaction cost and unregulated markets open up another possibility to unfold in the Bitcoin market and that is a high frequency trading  (http://en.wikipedia.org/wiki/High-frequency_trading) version of Bitcoin trading.  Potentially an active high frequency trading market can serve to stabilize Bitcoin against speculative attacks.  But in case of a successful attack, this trading can be the demise of the Bitcoin economy.

Whatever the outcome, its going to be an interesting ride with plenty of money to be made and lost in the process


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