Read him here for a discussion of the revolutionary P2P properties of the system.
Here’s a way to restate my worry. Many people tell me, or write to me, about how great the transactions system is for its anonymity, invulnerability to governmental shutdown, and so on. Let’s put aside the social desirability of this and just focus on the predictions. I personally, would much rather have lots of dollars in the Cayman Islands (which is fairly anonymous already) than lots of assets in the Bitcoin system. I just don’t see why the Bitcoin assets are supposed to be so attractive compared to dollars, euros, Swiss francs, and so on. I would rather hold diamonds, for that matter, or a Picasso print. If I suddenly had a large stash of Bitcoin assets, from a heroin sale, I would work very hard to convert them into something else (p.s. I know they don’t call them “Bitcoin assets” but I wish to, to make the point).
Imagine that I can convert Bitcoin assets into other, non-Bitcoin assets quite easily. Then I will, and many other people will (there is a lot more wealth tied up in the Cayman Islands than in Bitcoin), and the velocity of Bitcoin assets accelerates. That encourages even more conversion out of Bitcoin assets. Why hold Bitcoin assets?
Alternatively, imagine that I can’t convert Bitcoin assets into other, non-Bitcoin assets easily. Then I would say the system fails as an alternative money, virtually by definition. Arguably Bitcoin is still at this stage right now, and what I am pointing out is that further development, and a move to the former scenario, isn’t going to work either.
To convince me on Bitcoin, you need to discuss the store of value function more explicitly, not just its (possible) efficiency as a transactions medium. If something is a good transactions medium — let’s grant that for the sake of argument –, but not a good store of value, its velocity will accelerate and sooner or later that spells trouble. Here are Girton and Roper on currency substitution.