We read with interest Paul Krugman’s recent article in the New York Times, humorously titled “Bitcoin Is Evil.” Perhaps the most important part of the article is where Dr. Krugman remarks:

“… when I try to get them to explain to me why BitCoin is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange. Even if I buy this (which I don’t, entirely), it doesn’t solve my problem. And I haven’t been able to get my correspondents to recognize that these are different questions.”

Approaching bitcoin as a currency or store of value is focusing on a single and secondary application of the bitcoin network (analogous to analyzing a single feature built on top of the Internet, like email).

The first application of the network which has gained broad adoption is payments, where it can be easily demonstrated that real money is being saved by harnessing the efficiency of the network. Since one must acquire bitcoin to use the bitcoin network, this has given bitcoin as a currency value as a secondary effect.

Krugman states that bitcoin does not act as a good store of value because it does not have some kind of inherent floor to its value. Looking at other examples, he implies, gold has decorative and commercial applications and fiat currencies have the backing of their respective sovereign entities.