The Silk Road is an online marketplace specifically designed for cryptography enthusiasts. The chattering classes will call it an Amazon for guns and dope, and surely those things are available, but you can bet most of the commentators have never actually been to the Silk Road. It’s notoriously difficult to get to. But one thing I know about cryptography enthusiasts is that they don’t just want their illicit activity to be anonymous, they encrypt everything. So, don’t be surprised if you can also buy an argyle sweater or the complete works of George Romero on the Silk Road. But if you listen to the uninformed chattering classes recently you might be led to believe that the Silk Road is in crisis.
Willard Foxton at The Telegraph says the Silk Road is on the verge of collapse because… get this… it’s suffering from hyperdeflation. What a problem to have.
The alleged problem is that when Bitcoin surges in value people stop spending. What kind of sense does it make to spend $10 worth of Bitcoin on beef jerky today if those Bitcoins will be worth $20 tomorrow? It’s exactly the opposite problem of hyperinflation. What sense does it make to save $10 today if the dollar buys half as much tomorrow?
People want to hold their Bitcoins rather than spend them. Imagine that. People want to save. Admittedly, volatility makes future predictions difficult, which makes commerce difficult. But here’s the thing, people who understand monetary policy seem to prefer a volatile currency to an inflationary currency.
So, yes. Basic economics would suggest that when Bitcoin surges in price commerce on the Silk Road could decrease. But what the chattering class is ignoring is that when that happens the merchants of the Silk Road, and anyone who is saving their Bitcoin, profits from their savings. So, they win either way.
Silk Road was apparently down temporarily, so the detractors were quick to blame Bitcoin. But the site was also the target of a series of distributed denial of service (DDoS) attacks, which has nothing to do the economics of the situation.
Some black hat hacker going by the handle “Lance G” threatened to crash the site unless it gave him a $5,000 ransom. Let’s not pretend blackmail is some kind of economic indicator for the monetary viability of Bitcoin. Some even speculate that law enforcement is behind the DDoS attacks.
Here’s how I interpret these events. Statists base their worldview on headlines, not on data. So for them DDoS attacks is something scary hackers do that shuts down websites of banks and government agencies. They don’t actually know hat it is. And they assume that because their Statist institutions seems powerless against the onslaught of these mysterious attacks, that for some reason other hackers must be powerless against it too. Hardly! I’m sure Silk Road, like Pirate Bay and all the others have contingency after contingency built into their site to prevent being shut down so easily.
Foxton even claims that the Silk Road is “one of the main drivers of liquidity in Bitcoin, and one of the main places people spend them.” When one considers that both Bitcoin and Silk Road are virtually impossible to track I wonder how he could possibly know this. A recent survey of the demographics of Bitcoin at Zero Hedge found that the most common use of bitcoins (55%) was for donations, and 11% of respondents had used it to buy drugs. But Foxton probably imagines headlines are economic indicators when the raw data won’t due.
Haters gonna hate. But the least he could do is refrain from wild speculation about topics he clearly has no expertise in, especially when writing about the dangers of wild speculation. Bit surprise, free markets don’t behave exactly how central planners want them to. It’s a risk we all accept.
Find out where you can see Silver Circle by checking our theater and special screening schedule on our event page.
- BitCon:2013 The Biggest Problem with Bitcoin is Dollars
- World’s First Bitcoin ATM
- Bitcoin is going mainstream
- BitInstant Founder Charlie Shrem Earns Millions Promoting…
- IRS, Treasury to Attempt Taxing Bitcoin Transactions