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.

I'm probably being obtuse about this. Can you tell me what the advantages are for transacting in BTC? If there's dollars on either side, the only advantage to dealing in BTC is different (as opposed to lesser) transaction fees… and Square and others are whittling away at that already. Yes, the "traditional transactional protocols" are convoluted and expensive, but the Check 21 act eliminated their necessity in 2004. That's why Square can exist.

This, I believe was the takeaway from Lee's piece:

It's an allegation, though, not an argument. I can go to Kinko's right now and buy a Square reader for $9. They'll give me a $9 credit. Now I can take Visa, MC, Amex, you name it. It's in dollars, it talks to Quickbooks, and it's cheap. More than that, if there's a dispute, there's someone to dispute it with: that's one of the real problems with peer-to-peer as far as consumers are concerned; something goes wrong with a BTC scam and it's between you and… well, there it is.

I see it as a ledger that can enable us to buy things without losing 3% (or worse) to middlemen.

Large organizations will still do wire transfer because of the security. Small operators will gripe over 3%, but they'll pay it. Because really, for the majority of transactions between individuals, the banking network absorbs the fees already. I don't pay a fee when I paypal a "gift." I don't pay a fee when I send a check. And I don't need a working knowledge of cryptocurrency.

But this has become a roaming discussion - the argument for BTC is a lack of central authority. The argument against BTC is a lack of central authority. The argument for gold is a lack of central authority. The argument against gold is a lack of central authority. That, in my opinion, is the point Krugman is making… he's just omitting the arguments "for."