Paypal is a company. Square is a company. Visa is a company. Mastercard is a company. BTC is a PROTOCOL. Each and every one of them could start honoring BTC tomorrow. They could move to BTC internally. They're not going to, though, because it's unstable and non-portable. They could trade in gold, too - hell, they could trade in Alcoa stock. They don't. They trade in currencies that are insured and regulated by central banking authorities.

Yes, it's the protocol that I am talking about, and as I mentioned, I do see adoption as a likely scenario. But, I am not talking about people holding onto BTC, or merchants either. The possibility that I see, is USD transactions using the bitcoin network for the ledger it is. Merchants using Coinbase can instantly convert BTC they receive to USD. Perhaps I could also instantly convert USD to BTC when I spend it? That's what Ripple is, and bitcoin comes without the pyramid scheme of Ripple Labs holding half of the XRP.

The traditional transactional protocols for USD are convoluted and expensive. Bitcoin offers another means to exchange USD. For that to happen, it doesn't matter much if bitcoins are worth $3 or $3000 so long as the value is stable enough that an exchange can float the minutes needed to verify a transaction.

The WaPo argument is that BTC mining should not be seen as the same as gold mining because BTC mining is just a way to incentivize people into providing a backbone for BTC transactions.

I think Lee makes the point that mining doesn't just generate coins alone, but powers the tranasction protocol, which is the more interesting aspect of bitcoin that Krugman doesn't discuss. This, I believe was the takeaway from Lee's piece:

But the smart case for Bitcoin isn't as a replacement for the dollar. Rather, Bitcoin is best seen as an alternative, or complement, to conventional payment networks like Visa, PayPal and Western Union.

Leading Bitcoin payment processors such as BitPay and Coinbase already give merchants the ability to price their goods in conventional currency. The dollar or euro price is automatically converted to the corresponding number of bitcoins (or fractions of a bitcoin) at the time of purchase. That makes Bitcoin's price fluctuations almost irrelevant for the thousands of merchants who now accept payment in Bitcoin.

This is why Andreessen Horowitz is investing in both Coinbase and Ripple. They know that the next gen transaction protocol is coming, and they are hedging their bets.

Only far down the line, if the bitcoin protocol wins universal adoption, do I see bitcoins themselves as possibly assuming some mantle of currency. But that's not why I find them interesting. There are a vast number of bitcoin fanatics that see it as some sort of revolution in currency. I don't. I see it as a ledger that can enable us to buy things without losing 3% (or worse) to middlemen.