WSJ Video - Bitcoin Commentary By Chuck Jaffe

Chuck Jaffe, senior columnist for Marketwatch, goes on camera to reiterate all the talking points that are followed by journalists wishing to steer their readers away from Bitcoin.  To determine whether or not Jaffe hit them all, here’s the scorecard:

• “Bitcoin has no backing”  Jaffe drops that point right off the bat (0:40).
• “The exchange rate is volatile”  Check.  (1:30)
• “Speculative Bubble” Done.  (1:45)
• “Bitcoin is used for buying drugs”  Check.  (2:10)
• “MyBitcoin Fiasco” Ditto. (2:45)
• “Only for techies, not for the average person” Job complete. (4:05)

Somewhere, Jaffe’s notes must have gotten mixed up because the term “ponzi” was not used whatsoever and there was no alarm raised over electricity being wasted from mining Bitcoin.   

On a more serious note — either Mr. Jaffe cannot grasp the concept of how a decentralized currency requires no bank intermediary or he purposely confuses things because repeatedly mentioned were “online banks”.

Online banks are generally used by those who are non-technical because to use Bitcoin the way it was designed where the coins are kept in a wallet locally is something that requires secure computing practices to be followed and for reliable backups to be maintained.

Thus Mr. Jaffe’s later point about bitcoin not being ready as an investment mechanism for the “average person” is useful commentary at the present time.

Multi-factor authentication (e.g., Mt. Gox’s yubikey), for example, reduces significantly any security risks with online bank-like ewallet services and is a dead-simple concept for most who are technical.  Our banking system has not yet forced us as consumers to adopt true multi-factor authentication and as a result the “average person” will have a learning curve to climb when first using an online ewallet with these security mechanisms.

Of course, during this commentary Bitcoin’s attributes were not touted.  These include:

• Bitcoin as a payment network has low transaction fees that  a fraction of those for other methods.
• Payments are not reversible — merchants accepting Bitcoin have no chargeback risk.
• Funds received are available for spending in minutes.
• Bitcoin is universal — a payment can cross borders just as easily as does an email.  

The Bitcoin ecosystem is constantly evolving and the shortcomings some see with the currency are being addressed.  The hybrid wallet model used for BitcoinJS / Webcoin, for instance, will likely be the innovation that boosts bitcoin use by mobile users.  Some exchanges are introducing margin trading and shorting — mechanisms that will add liquidity and will help to lower Bitcoin’s exchange rate volatility.

These are examples of improvements that are in Bitcoin’s near future.  If demand for bitcoins rise as a result, the currency having a limited issuance means that most of the supply would have to come from those willing to part with their holdings — something that may not happen unless the exchnage rate reaches a significantly higher level.  

Those choosing to retain their bitcoin holdings are likely those who are seeing the future prospects for Bitcoin rather than succumbing to Jaffe’s rear-view-mirror analysis. 

Jaffe had also published commentary in Marketwatch recently.

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