The Bitcoin Middle Ground That Nobody Wants To Hear

Bitcoin is very polarizing.

Believers in the "digital currency" frequently talk about how it has the potential to uproot the existing financial system, and replace the dollar and the Federal Reserve.

Skeptics think it's a sham, a la tulip bubbles.

A series of tweets from Nouriel Roubini capture the "anti" side quite well.

But there is a middle ground between the True Believers and the Roubinis.

That middle ground is that Bitcoin has a lot of potential as a payment system for non-mainstream services.

For example, if you're in China, and you want to get money out of the country, you have to deal with capital controls that limit cross-border flows. Bitcoin is a good technology to do that. If you want to send remittances from one country to another, Bitcoin may be a good way to do so if you want to avoid exorbitant fees. And yes, if you want to buy commit illegal acts online, Bitcoin is probably a better bet than dealing with a bank.

Kevin Roose, writing recently at New York, nicely characterized Bitcoin as a "disintermediated money wire." Essentially its a way of sending someone money without going through a centralized company like PayPal or a bank. It's probably not suitable for most people, because it's difficult to use, unregulated, and massively prone to theft. Traditional finance has theft too, but there are all kinds of layers of security and guarantees built into the current system, so that if someone steals your credit card, you don't have to worry about being on the hook.

Bitcoin advocates say that various security features could be built on top of the existing system to ease fraud concerns, but the additional fees that these would involve would likely obviate Bitcoin's benefits. It's hard to see anytime soon why the standard mode by which most people pay for things (going to the grocery store, etc.) would be made better if it were based on Bitcoin.

Bitcoin doesn't have to change the world or be adopted by everyone for it to be a success. There are a lot of transactions for which the existing system isn't well-suited. On the other hand, it clearly solves more problems than the people who scream "tulips" or "ponzi" are inclined to admit. Unfortunately, in the battle between zealots and detractors, not many people are eager to pick up the banner of the middle ground.