You might think that economist Edward Castronova, who basically innovated the study of virtual world economies from an academic perspective, would be enthused about Bitcoin, the virtual currency some have proposed as a transformative new money that will remake whole economies and bring down governments (at least the theory goes.) Turns out, however, Professor Castronova is quite skeptical, because here are three attributes of a stable virtual money:
- You get money only by doing things that can be interpreted as "productive work." No freebies or handouts, and nothing abstract. You don't solve puzzles to get coin, you run FedEx quests.
- Mild inflation. As in the real world, mild inflation makes people happiest. Small enough to be unnoticeable in the short run, yet gives people a sense over time that their wealth and power is rising (even if it isn't).
- It assumed that the currency will be hacked and exploited. A strong central authority is in place to seize illicit funds and roll back damage.
Since Bitcoins has none of these things (especially the last one), color Castronova skeptical. And since Castronova knows more about economies (real and virtual) than I will ever know, I follow his skeptical lead. This isn't to say all virtual world pioneers are jaundiced about Bitcoin; just last weekend, I had a long talk with a well-known virtual world developer who was still hugely enthused about the concept. Me, I go where the money goes. When I see Bitcoin being used to buy actual goods and services in the tens of millions of US dollars, I might be less skeptical. But curiously, Bitcoin's defenders seem to spend way more time defending Bitcoin in blog post comment threads than they do spending Bitcoins like it was, you know, money.