So why are we tearing up the highlands of Papua New Guinea to add to our dead stock of gold and, even more bizarrely, running powerful computers 24/7 to add to a dead stock of digits?

Krugman is focusing too much upon the aspect of bitcoin that libertarians love, which runs counter to his own politics. He is taking it personally. I agree that the gold-standard is ridiculous. However, it is a very silly thing to compare bitcoin to gold. Bitcoin is a protocol. It is a universal ledger that prevents double-spending, counterfeiting, and enables transactions at very low cost, and it has other intrinsic functionalities. Bitcoins are the units of this ledger, the addresses of this protocol. Far from being inert, within adoption of the bitcoin protocol, they offer more liquidity than USD, which must navigate a complex and expensive network of middlemen whenever a transaction occurs.

Krugman needs to do some more homework. It's perfectly reasonable to be skeptical of bitcoin. However, this is a strawman argument, not an informed critique of bticoin for what it is.

You would think he might have learned to be more cautious in this arena, check out his last two predictions of this 1998 piece:

* The growth of the Internet will slow drastically, as the flaw in "Metcalfe's law"--which states that the number of potential connections in a network is proportional to the square of the number of participants--becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's.

* As the rate of technological change in computing slows, the number of jobs for IT specialists will decelerate, then actually turn down; ten years from now, the phrase information economy will sound silly.