When I left off with Part IX, I observed that the central argument of bitcoin advocates is made in ignorance of "the collective action problem." Even if we accept the idea that government-backed currency is bad (I don't accept that), that doesn't mean individuals have incentives to conduct their transactions in an alternative currency. That collective action problem limits the ability of bitcoin to proliferate.
Remember GDP? Basically, it's Consumption + Investment + Government expenditures + Net Exports. The government will never conduct its transactions in bitcoin. I've covered that, way back in Part II. Whatever the government does will always be in its own currency. 18% of GDP. Consumer expenditures. How much is that? That's 70% of GDP right there, and they have no incentive to switch to bitcoin because of the issues I have covered over the last several posts.
Who might conduct any transactions in bitcoin? Foreigners might, depending on the country. If your country's currency has already collapsed, what's the harm of using bitcoin? (Then again, if your country's currency has collapsed, how much business are you doing with major, multinational corporations, really?) International transactions conducted in bitcoin avoid currency conversion in theory, except that you have to convert back to your own country's currency to pay taxes anyway, so that's kind of bullshit. Still, some of those exports, and some business investment could be conducted in bitcoin, but in order for business to "invest" by spending bitcoin, they must receive bitcoin, either by having consumers purchase goods with bitcoin (see previous discussion), by converting dollars to bitcoin (and thereby paying transaction costs for no reason), or just because they accepted payment from some foreign entity in bitcoin.
In other words, look at the basic math. Then, extrapolate from there. How much bitcoin is there in the world? Supply is limited. How much of the economy is it supposed to cover? I have written repeatedly about the wild, insane fluctuations in the price of bitcoin, and about how this is not convergence to a proper exchange rate. It is driven by market speculation. However, what should the exchange rate be? That actually depends on the size of the market bitcoin is going to cover, should it continue to exist. If you think it is going to cover a significant portion of the economy, it has to take on an insanely high price because there is so little bitcoin in the world. However, since consumer spending is 70% of the economy, and government spending is another 18%, I don't know how much of the economy anyone thinks bitcoin is going to be. The government won't use bitcoin, and consumers have no incentive to use bitcoin, so... what's left?
Just do the damned math. Unless people start buying Itchy and Scratchy Dollars for the hell of it, thinking about this in terms of the economy itself, there's a cap on where this goes.
What does that mean for the future of bitcoin? More thoughts to come...