Bitcoin is presently in limbo. There are conceptual issues dogging the core developers of Bitcoin, issues that have led to charges of censorship, internacene warfare among developers and incredibly, death threats and hacking attacks that have taken down Internet providers. Just as Bitcoin is gaining credibility on Wall Street and in Silicon Valley, several "in house" questions have arisen, namely:

 

• How many transactions should/can the Bitcoin network handle?

 

• What are the objectives of the Bitcoin project and how should its online communities be governed?

 

Whereas these are the development issues that concern Bitcoin, there is a larger conceptual issue which affect Bitcoin and its role in global trade. 

 

 

Bitcoin as conceived by Satoshi, its inventor, has a processing cap. Satoshi conceived of a cap or limit on how many bitcoins can be processed every 10 minutes. The current limit is less than 7 transactions per second. 

 

As its basic software has continued to work, the value of Bitcoins outstanding has risen above $6 billion as has the vision of venture capitalists which is that the technology represents the future of finance and of a cheaper, faster way of carrying out financial transactions of all sorts. Bitcoin's promise is that of a cheaper, faster, more secure payment network to rival PayPal or Visa. 

 

The Fork

 

The rift among its core developers has led to the issuance of Bitcoin Classic, announced this week, expands network capacity while introducing new standards of governance. Meanwhile, Bitcoins have steadily risen in price to $430 this week. 

 

 

While the issues regarding the processing capacity and governance of Bitcoin have created divisiveness among its core developers, a tempest developers call "a fork," another issue arises in regard to global trade. 

 

 

Having practiced global trade for over 40 years, I admittedly struggle to understand details regarding blockchains and the algorithms on which Bitcoins are based. I believe that Bitcoins do provide a solution to the issues of providing a cheaper, faster, more secure means of effecting payment. The replacement of  currencies and the extension of Bitcoins throughout the global trade space is quite another matter.

 

Bitcoins are conceived of as eliminating the "politics" in currency trading. This is where what I call role/goal confusion comes in. 

The value of a currency is meaningless except with regard to or in comparison to one or several other currencies. Existing algorithms or formulae for defining these values are known as the Fisher Effect or International Fisher Effect. Basically, these formulae compare interest rates and the rate of inflation in one economy at the beginning and end of a year in comparison with those in another. This is all well and good but there is another, more subjective factor which governs and determines the relative value of a currency. This factor is psychological and measures the competence and astuteness with which a political economy is managed and governed. To give a simple example, the value of the ruble in comparison to the USD is determined in part on how effectively and competently Vladimir Putin manages the diversification of the commodity-based Russian economy. I will admit that my math skills are limited to operations research but I can't conceive of an algorithm that both measures and predict's Putin competence at running the political economy of Russia. Similar difficulties may be encountered in assessing and predicting the competence in managing the political economy of the US, affecting the USD during a year when our presidency changes. 

 

In sum; Bitcoin providing cheaper, faster, more secure payment? Yes! Bitcoin being used to value currencies and being used for the entire panoply of global trade transactions? Not so fast! 

The Hippocratic oath applies here. Before a physician can cure diseases in others, he or she must first diagnose the causes of the disease. At the moment Bitcoin is at a "fork" and is incapable of curing itself much less providing global trade solutions.