Some good news in the papers this morning.  A bit of an old article shows that Ebay chief John Donahoe may make Bitcoin useable on PayPal.  Something like that could be the a-ha moment for Bitcoin causing those sitting on the sidelines, or the millions more who haven’t yet heard of it, sit up and take notice.

More good news shows that the Canadian government has decided for the time being to lay off Bitcoin related businesses. And there is also news of Bitcoin Fund, a group that will make investing in Bitcoin substantially easier for those who don’t want to go to the hassle, or deal with the technology involved in making transactions.  This kind of thing would be a way to get the aging boomers interested.  It could, when the market turns and the value of Bitcoin skyrockets, be a way to salvage the retirements of many of these folks.  This would indeed be poetic justice; boomers have their retirements wiped out by greedy bankers and then have it restored in a run on bitgold that the bankers at first oppose and finally cash in on – too late.

But the most interesting news I ran into was the notion that the Palestinian state should ditch the shekel and adopt Bitcoin officially, making it the first state to do so.

As attractive as the notion is idealistically, I have some trouble with it in practice.  Bitcoin is an idea made valuable by the programing that makes it hard to fake.  Without the dispersed network that verifies transactions making it impossible for bitcoins to be faked or duplicated, the idea is worthless.  It is the idea that it is limited and trustworthy that allows people to put their faith in it and treat it as currency.  Bitcoin achieves this through zeros and ones and the US dollar does it through special security measures in the paper, harsh counterfeiting laws, and a police force that will come get you if you violate those laws.

But fiat money like the dollar and shekel can be exchanged hand to hand.  Bitcoins need a computer.  Kashmir Hill of Forbes just spent a week living only on Bitcoin and talked about how hard it was.  How are a depressed, downtrodden people going to gain the tech and savvy to be able to get a thriving bitcoin economy going?  They could certainly start using bitcoins, and even call it the national currency, but everyday transactions are going to be hand to hand, probably with shekels.

And if it isn’t the whole economy using bitcoin, then they are will be subject to attacks and embargoes by the nations around them, particularly Israel.  Banks will deny them service.  And they will be back at square one.

I fully believe that Bitcoin has great potential to be a force for positive change, but in the short term, those of us who are early adopters should keep it real.  Before we can start advocating to the Palestinian state that they accept Bitcoin as their currency, we need solve the liquidity and exchange problems which place too high a bar to entry for the newcomers.