How many times have we said it? Almost everyone needs an exchange.

There’s this idea out there pushed by cryptocurrency advocates that digital currencies are akin to illicit drugs. That is, you can’t stamp them out because motivated parties are always going to be able to transact with each other. The obvious problem with that analogy is that cocaine (for instance) is a physical thing. I can always meet José in the parking lot of the local Waffle House and hand him $900 for a zone. But even that’s complicated by the fact that because it’s illegal, our “exchange” options are limited to Waffle House parking lots or, if we’re doing a bigger deal, the middle of the desert.

When you combine the shady aspect with a non-physical “asset” (i.e. cryptocurrencies) what you end up with is a situation where it’s damn near impossible for regular people to transact in the absence of online exchanges. I can’t meet someone at the Exxon and swap physical dollars for physical Bitcoin because there is no such thing as a physical Bitcoin. That, in turn, means that if the cryptocurrency exchanges run into problems, the market will crash simply because the vast majority of market participants will not be interested in figuring out how to go about obtaining cryptocurrencies. Everyone knows how to drive to the Waffle House. It’s just a matter of if you have the connect and if you’re willing to take the risk. With cryptocurrencies, there’s an extra obstacle: figuring out how to actually do the trade in the absence of streamlined online exchanges.

Here’s how we explained this in the context of Nassim Taleb’s recent effort to espouse the virtues of Bitcoin (or at least the idea behind Bitcoin):

This notion that “no authority” can doom Bitcoin isn’t true. Almost everyone needs an exchange. No, you cannot stop two determined parties from swapping Bitcoin for dollars, but the vast majority of people participating in this market are not “determined parties”. They are speculators and their interest in participating will ebb and flow with how easy it is for them to participate. If governments shutter the exchanges or if central banks make convertibility into traditional currencies a crime, well then the vast majority of people are just going to say “fuck it”, because it’s not worth the effort. That’s not an attempt to say anything bad about Bitcoin or about Taleb’s assessment, it’s just an attempt to communicate the reality that people are ignorant and lazy.