Economics: Krugman Takes on Bitcoin

... if you measure prices in Bitcoins, they have plunged; the Bitcoin economy has in effect experienced massive deflation.

And because of that, there has been an incentive to hoard the virtual currency rather than spending it. The actual value of transactions in Bitcoins has fallen rather than rising. In effect, real gross Bitcoin product has fallen sharply.

So to the extent that the experiment tells us anything about monetary regimes, it reinforces the case against anything like a new gold standard - because it shows just how vulnerable such a standard would be to money-hoarding, deflation, and depression.

For more, see Krugman Takes on Bitcoin by Joshua Keating, September 8, 2011 at Foreign Policy.