Why Tim Fernholz is Wrong About Bitcoin

If you haven't, direct yourself over to the Tim Fernholz's article and read for a good laugh. Tim seems to believe some silly misconceptions, based on what he wrote. In his third paragraph, Tim suggests that Bitcoin is a scam. Well such a claim must provide evidence, otherwise his 'new source' is just spreading rumors.

"Each time bitcoins change hands, so does a transaction history encoded in a string of characters. This “hash value” or digest can be decoded by anyone with sufficient computer power and time to devote to the effort. When bitcoins are exchanged, a digest is broadcast to the network of users, a participant does the work of decoding the transaction history, and other users quickly confirm their history is accurate. (The decoders earn a 50-bitcoin bounty for their work.) This happens about once every 10 minutes. Everyone who holds the currency agrees on who owns what, which ensures people can’t copy-and-paste their way to millions or defraud other users without the whole network agreeing that it happened.

In other words, Bitcoin isn’t just a currency, it’s a massive experiment in group trust. It’s also a hint of the financial system to come and, ultimately, a scam."

Unfortunate for Mr.Fernholz's credibility, Bitcoin is not based on group trust. Bitcoin is based on peer reviewed open source, a very strict protocol and specific transaction script. Thus the cryptography applied in the transactions makes this a very difficult protocol to spoof, regardless of how many people are in on the 'scam'.

Reading his discussion of using Bitcoins for purchasing items, I was alarmed by a certain sentence: "So far, you can’t buy anything with bitcoins that you couldn’t purchase more easily with cash or a credit card." Okay? There are many incredible features of Bitcoins, but I don't think anyone has claimed one of them to be: you can buy things you cant buy with the US dollar...

Another blunder Tim makes is in his "economic" paragraph. He claims, "Currencies are most valuable when lots of people trust and use them frequently." So by this logic, the most exchanged currency is the most valuable? Wrong again. Currency is based of basic supply and demand principles which stem from more complicated factors, which has no causality to frequency of use.

In his next argument, he claims that Bitcoins wont work (whatever that vague term means) because it's benefiting to miners who have more computing power. All I have to say is that if the concept of using wealth to acquire more wealth is a new concept to him, I am just disappointed he is getting paid to write this stuff.

He then goes on to advocate the power of pools and how they can steal your money. Okay, if the pool owner changes their code to take a unfair amount they get one Bitcent from every user, which is a fairly typical cash-out amount, before everyone in the pool leaves and the owner is left with no more pool power, and a irreparably damaged credibility. Now who's really worse off?
I'm left with the inclination that Tim really hasn't read more then one or two articles before deciding to give his opinion to the world, but honestly, I'd rather hear what you think.