This lad just scored a home run. Poor frap.doc, if you read this and don't realize you were led astray, away from your "sound money" theories by false gods of "more adoption", "cheap stuff for everyone"...
It is important to understand that units of a settlement network represent money, they are money. If settlement is achieved, then those units represent a monetary base. In our existing system, cash and central bank credit represent this base layer of money and, as such, the settlement layer.
On the other hand, saying something is a payment network simply means it's units represent credit -- i.e, temporary placeholders for money. So when you send someone money using a credit card, the reason it happens so quickly is because the network is promising to settle later. That isn't to say that credit units don't have value, just that their value derives from the fact that, ultimately, they can be exchanged for more trustworthy forms of value.
So the goal of a payment network is really to provide utility. If the utility fails, people move to another payment network. The goal of a settlement networks, on the other hand, is provide confidence/trust. If confidence fails, the currency collapses.
In the current financial system, central banks represent the settlement layer, whereas companies like Visa represent payment network layers. No one really cares that Visa is a company, its power centralized, because its role is to provide utility. But that central banks -- also centralized institutions -- control the settlement layer, i.e., control base money, is deeply troubling to many people because the role of the settlement layer is to provide confidence and trust (and it is becoming increasingly hard to trust a tiny handful of unelected people).
Some people think the success of Bitcoin is going to come from its utility and they tend to favor increasing the block size. The problem is that in increasing that utility, you are also weakening the settlement layer of Bitcoin by increasing mining centralization and eroding trust. They don't see a problem because they are thinking of Bitcoin solely in terms of utility, like Visa.
But if Bitcoin is going to become a global money, then its settlement layer is far more important than its utility, assuming utility functions -- like the number of transactions the network can handle -- can be handled/processed by third parties. In the same way Visa doesn't erode confidence in the dollar simply because it is a third party company independent of central banks and governments, companies that provide more utility to the Bitcoin network won't erode confidence in it either. All that is important for confidence is the base money, the settlement layer, in the same way that confidence in fiat currencies depends on confidence in government and central banks. We don't expect governments and central banks to provide the utility of payment networks, just to provide confidence and trust that gives the underlying currency value.
Bitcoin's power is really going to come from confidence in the network, specifically in its decentralized nature. I know many people have begun to question how important decentralization is, but they don't tend to impress me as really understanding how essential trust is to money, they take it for granted. (Or they don't think the goal of Bitcoin should be to be a money.)
Without decentralization, for a money to retain value the central authority controlling that money must be trusted, which is precisely why all money today is (at least theoretically) controlled by the state (governments are the institutional power we trust most). A currency whose trust foundation is not dependent on a human institution, however, is intrinsically more trustworthy than even the state. Nevertheless, if decentralization fails and centralization occurs, then Bitcoin becomes vulnerable as those centralized powers can be easily targeted. If it becomes vulnerable, confidence erodes and people return to wanting state-run money, perhaps now in the form of Fed-coin.
As faith in central banks and institutional/human controlled money wanes and fades in the 21st century, I believe block chains are going to replace central banks. But cryptocurrencies that are controlled by an institution -- whose code can be changed by dictate because mining is over centralized -- will suffer the same loss of confidence that central banks face. The 21st century is the century of decentralized power, not of top-down institutional power of the 20th century model.
Bitcoin cannot succeed on the basis of utility alone for the simple reason that that utility can be replicated by other institutions. Its success depends on its ability to do what even imitation coins cannot. Fedcoin, IMFcoin, whatever institution you like can ultimately make a Bitcoin replacement with all the same utility. What they can't make is a coin that gets its trust layer from no institution.
Put simply, if Bitcoin isn't decentralized, then it will be replaced by a centralized cryptocurrency whose central authority we trust (more than whoever is running Bitcoin). If it is decentralized then the financial system is slowly going to migrate to it because it is inherently more trustworthy as a settlement layer.
The reason Bitcoin succeeds is not because of utility alone. The reason Bitcoin succeeds is because the settlement layer, the foundation of money, cannot be replicated by institutional power, and that is for the simple reason that Bitcoin is post-institutional. It is not controlled by any power, it is decentralized, and this makes it inherently more trustworthy. So its deep value comes from this decentralization, and it is this decentralization that ultimately makes it competitive and potentially the foundation for a new global financial system!
Every effort should be being made into increasing this decentralization . . . instead we are doing just the opposite.
https://www.reddit.com/r/Bitcoin/comments/3fhik9/mike_hearn_outlines_the_most_compelling_arguments/