Free Capitalist Network - Community Archive
Mises Community Archive
An online community for fans of Austrian economics and libertarianism, featuring forums, user blogs, and more.

Don't buy Bitcoins (video)

rated by 0 users
This post has 288 Replies | 20 Followers

Top 50 Contributor
Posts 2,417
Points 41,720
Moderator
Nielsio Posted: Fri, Apr 22 2011 3:39 PM

My latest video: Don't Buy Bitcoins

 

I'm posting this as a seperate thread because I don't think that many people are still following the other super-long bitcoin thread.

 

See also the last 5 minutes (the Q&A) of: The Economics of Legal Tender Laws (by Jorg Guido Hulsmann) http://mises.org/media/1521 .

  • | Post Points: 170
Top 500 Contributor
Male
Posts 199
Points 3,930

I think you underestimate the extent of peoples' gullibility.

Some people make a living selling their psychic services and they get return customers.

I suspect you are right, though. Bitcoin is not such a great money. That said, bad money is better than worse money. With the federal debt situation, bitcoin might have its day yet.

A criticism that can be brought against everything ought not to be brought against anything.
  • | Post Points: 35
Top 10 Contributor
Posts 6,953
Points 118,135

I haven't followed that long bitcoin thread at all, so maybe this was answered...but how do I know coins aren't just added to site owner's or programmers accounts...just like the Fed enters amounts into their computers for bank reserves?

  • | Post Points: 20
Top 100 Contributor
Male
Posts 907
Points 14,795

how do I know coins aren't just added to site owner's or programmers accounts

I do not quite understand the question, but you basically have two options: trust the community or read a short paper http://www.bitcoin.org/sites/default/files/bitcoin.pdf, convincing yourself the idea is quite resistant to manipulation, then download sources of bitcoin client program and analize them, convincing yourself there is no backdoor and the sources faithfully implement the idea. Then just take a leap of faith anyway, as you cannot really prove this cannot be subverted (but then again, the same applies to security of any computer system more complicated than a digital clock). A break-through in maths may ruin the bitcoin, but then again it may ruin asymmetric cryptography at large. Caveat emptor. There are few hard guarantees in this life.

The Voluntaryist Reader - read, comment, post your own.
  • | Post Points: 20
Top 50 Contributor
Posts 2,417
Points 41,720
Moderator
Nielsio replied on Sat, Apr 23 2011 2:51 PM

Modus Tollens:

I think you underestimate the extent of peoples' gullibility.

Some people make a living selling their psychic services and they get return customers.

I suspect you are right, though. Bitcoin is not such a great money. That said, bad money is better than worse money. With the federal debt situation, bitcoin might have its day yet.

 
Bitcoins are not good for anything besides trading. You can't have a worse 'money' than that. You can have infinity inflation from one day to the other. It is irrational to trade something which is a good for something which is not a good. And it is deceitful to trade away something that is not a good for something that is a good (selling bitcoins).
 
People bring up the status of the USD a lot in these discussions, but however bad the USD dollar is does not make bitcoins any better.
  • | Post Points: 50
Top 10 Contributor
Posts 6,953
Points 118,135

Andris Birkmanis:
I do not quite understand the question, but you basically have two options: trust the community or read a short paper http://www.bitcoin.org/sites/default/files/bitcoin.pdf, convincing yourself the idea is quite resistant to manipulation, then download sources of bitcoin client program and analize them, convincing yourself there is no backdoor and the sources faithfully implement the idea. Then just take a leap of faith anyway, as you cannot really prove this cannot be subverted (but then again, the same applies to security of any computer system more complicated than a digital clock). A break-through in maths may ruin the bitcoin, but then again it may ruin asymmetric cryptography at large. Caveat emptor. There are few hard guarantees in this life.

 

Thanks for giving everyone all the more reason to not bother with bitcoin.

  • | Post Points: 20
Top 75 Contributor
Male
Posts 1,129
Points 16,635
Giant_Joe replied on Sat, Apr 23 2011 8:39 PM

People bring up the status of the USD a lot in these discussions, but however bad the USD dollar is does not make bitcoins any better.

Let's see...

The USD is awful and used as a medium of exchange. It has the potential to suffer hyperinflation. Bitcoins are awful and have the potential to be a medium of exchange, and don't have the potential for hyperinflation (as you have stated).

It's a judgment call, but at least make honest statements.

Thanks for giving everyone all the more reason to not bother with bitcoin.

It might not work for you or many/most others. What if it's used as a medium of exchange and is a very vendible/most vendible good within a large group of people? Would people need the kind of convincing as stated above to start using it as a medium of exchange in this group? I'd have to say probably not. I didn't learn about central banking and fiat currency before I understood why people wanted money.

  • | Post Points: 35
Top 10 Contributor
Posts 6,953
Points 118,135
John James replied on Sun, Apr 24 2011 12:16 AM

huh?  I specifically asked how we knew that bitcoin didn't have the potential for hyperinflation, and I was told "trust the community" (i.e. the bankers), "take a leap of faith", "caveat emptor", and my personal favorite: "convince yourself".

That's the best answer I got in defense from a completeley legit and important question.  And you're saying they don't have that potential?

  • | Post Points: 20
Top 75 Contributor
Male
Posts 1,129
Points 16,635
Giant_Joe replied on Sun, Apr 24 2011 1:38 AM

That's the best answer I got in defense from a completeley legit and important question.  And you're saying they don't have that potential?

Yes. I read the papers and get it.

  • | Post Points: 20
Top 50 Contributor
Posts 2,417
Points 41,720
Moderator
Nielsio replied on Sun, Apr 24 2011 1:22 PM

Giant_Joe:

People bring up the status of the USD a lot in these discussions, but however bad the USD dollar is does not make bitcoins any better.

Let's see...

The USD is awful and used as a medium of exchange. It has the potential to suffer hyperinflation. Bitcoins are awful and have the potential to be a medium of exchange, and don't have the potential for hyperinflation (as you have stated).

It's a judgment call, but at least make honest statements.

The fact that the USD can be inflated by the monopolist does not make it rational to trade away valuable goods for useless scarce bits. Even if the USD was hyperinflating right now, that still wouldn't make bitcoin any better.

The only thing that make a bitcoin valuable is people's willingness to buy it, there is nothing else. Don't you think that's sort of a problem to use as a medium of purchasing power; a belief based currency?

  • | Post Points: 35
Top 75 Contributor
Male
Posts 1,129
Points 16,635
Giant_Joe replied on Sun, Apr 24 2011 1:47 PM

The fact that the USD can be inflated by the monopolist does not make it rational to trade away valuable goods for useless scarce bits.

That's a judgment call and not something universally true, as evidenced by the fact that at least a few people have have performed such exchanges. How do you define rational here? In the praxeological sense, or in some other sense? If you meant it in the praxeological sense, you'd be in contradiction with the fact that people have exchanged USD for bitcoins, so I'll give you the benefit of the doubt and say you mean rational in some other sense; that the decision to do this is stupid. But this is claiming that the actions of market participants is stupid. You are entitled to your own opinion, but now your argument isn't a strictly logical one, and it's one that some people don't buy into.

Even if the USD was hyperinflating right now, that still wouldn't make bitcoin any better.

I agree that people won't flock to bitcoin if this happened over the next couple of years. Nevertheless, the "any better" part is a judgment call. It's not "any better" to you, but it is to people who use the rationalization that if it were to hyperinflate, people would use bitcoin.

The only thing that make a bitcoin valuable is people's willingness to buy it, there is nothing else.

Valuation is subjective. People can attach any value to anything as their minds see fit. I think you're speaking of the Marxian notion of use-value here.

People who believe it is or will be a medium of exchange will buy it to hold it for the purpose of being liquid. People have some level of preference for liquidity. It's the same people reason hold on to money today.

Don't you think that's sort of a problem to use as a medium of purchasing power; a belief based currency?

People believe there won't be hyperinfaltion tomorrow, they believe that their money will be worth roughly the same in the short-to-medium term to market participants as it was in the recent past. Subjective valuations are beliefs. The regression theorem basically states that people have money and use money and trust money to maintain market value.

What you are suggesting is that it is "not rational" that anyone use money before they study economics, understand the origin of money, the regression theorem and the banking system. People hold money because they believe they will be able to get stuff with it tomorrow. If I suddenly didn't believe in my money to have any exchange value in the market tomorrow, i'd offload it all today. Barely anyone today cares that their money isn't backed by some other economic good.

  • | Post Points: 20
Top 150 Contributor
Male
Posts 630
Points 9,425

It is within the interest of the owners of any currency to convince other people of its worth. As long as someone is accepting any currency as exchange for other currencies, that other currency has value that is relative to other consumer goods. The currency then has value that is exchangeable for consumer goods. But when the other currencies lose value through inflation the bitcoin will not be immune to this inflation unless it is actually backed by a commodity that retains value through currency devaluation periods.

  • | Post Points: 20
Top 50 Contributor
Posts 2,417
Points 41,720
Moderator
Nielsio replied on Sun, Apr 24 2011 3:44 PM

Giant_Joe,

A money, a store of purchasing power, is related to the subjective valuation of other people, in the future. The reason you buy it is because you expect someone else will buy it, and that person buys it because he hopes yet another person wants to buy it. Nobody down the line subjectively values it as a consumption good.

The regression theorem basically states that people have money and use money and trust money to maintain market value.

I don't think it says that:

http://www.youtube.com/watch?v=sV0OcvylweM#t=46m32s

 

Barely anyone today cares that their money isn't backed by some other economic good.

The reason government paper money holds value is because of laws. There are legal tender laws which means you have to accept purchases in government money, even if you don't contract in them.

 

I would suggest the last 5 minutes (the Q&A) of: The Economics of Legal Tender Laws (by Jorg Guido Hulsmann): http://mises.org/media/1521

And also the full 2010 version of the Legal Tender lecture by Hulsmann that I uploaded today: http://www.youtube.com/watch?v=z-xR-xB84XQ (or: http://mises.org/media/5267/ ), to grasp the full weight of legal tender laws and it's effects (historically and today).

  • | Post Points: 20
Not Ranked
Male
Posts 79
Points 1,490
Walden replied on Sun, Apr 24 2011 4:13 PM

>Even if the USD was hyperinflating right now, that still wouldn't make bitcoin any better.

You don't suppose demand for a new medium of exchange would go up if the main mode is destroyed? There is no way you can predict what the market would choose but it's a fair guess to say the bit coin might be affected by it.

>The only thing that make a bitcoin valuable is people's willingness to buy it, there is nothing else. Don't you think that's sort of a problem to use as a medium of purchasing power; a belief based currency?

The only thing making anything a viable currency is people's willingness to buy it. All currencies are belief based in that they are valued by the traders. The fact that you individually do not see value in bitcoins does not disclude others valuation of it.

  • | Post Points: 5
Top 75 Contributor
Male
Posts 1,129
Points 16,635
Giant_Joe replied on Sun, Apr 24 2011 4:22 PM

Neilso, I think we're getting off track anyways. What bothered me was what you said here:

You can have infinity inflation from one day to the other.

This isn't true about bitcoin. It is up to you to show that it is true.

It is irrational to trade something which is a good for something which is not a good.

If people value something and are willing to give up something to acquire it, is it a good or not?

A money, a store of purchasing power, is related to the subjective valuation of other people, in the future. The reason you buy it is because you expect someone else will buy it, and that person buys it because he hopes yet another person wants to buy it. Nobody down the line subjectively values it as a consumption good.

Wouldn't you say that to expect something is to believe that it will happen?

Walden,

The fact that you individually do not see value in bitcoins does not disclude others valuation of it.

He is essentially stating "it is worthless, therefore, it is worthless". It seems to me that this is dogmatic for him, and he's not willing to understand the implications subjective valuation.

  • | Post Points: 20
Not Ranked
Posts 8
Points 115
justmoon replied on Sun, Apr 24 2011 7:32 PM

Nielsio:
Bitcoins are not good for anything besides trading.

Trading qualifies as an industrial use. If Bitcoins are useful for accounting and in exchange that means that they fulfill a human need. That makes them a good in the same way pen and paper are a good when you use them to write contracts and invoices.

The value of a currency comes from the balance that people would like to hold vs. the money supply available. Certain factors can influence the former, such as legal tender laws, merchant acceptance, even practicality. The fact that there are online shops, betting websites, freelancers etc. accepting Bitcoins creates a (tiny) demand for people to hold balances in order to be able to purchase these goods and services. People want something, they first need the currency, so they can then spend it on what they want. It gives the currency value just as it does for a legal tender currency, albeit on a much, much smaller scale.

Put simply: You are correct in pointing out that Bitcoin's value is overwhelmingly speculative. But you are wrong in claiming that the base value of Bitcoins is zero. The base value - if all speculators/investors suddenly flee the currency - will be whatever its usefulness in trade is. This could be an amount so small that it is practically zero. However it could also be very large - if Bitcoin finds widespread acceptance because people find it to have superior characteristics compared to alternatives.

So should anybody buy Bitcoins as an investment? Probably not, unless you personally think that they are a superior currency and will find widespread adoption. And even then you have to realize that there is a very real potential for a total loss: If it turns out that Bitcoins are *not* more useful then existing alternatives, people will eventually stop using them for trade/transfers and then Nielsio's comments will apply - you won't find anybody to sell them to.

(Disclaimer: I have a strong bias in favor of Bitcoins. For what it's worth I tried to stay objective in this post.)

  • | Post Points: 20
Top 50 Contributor
Male
Posts 2,551
Points 46,635
AJ replied on Mon, Apr 25 2011 12:34 AM

You bring up an interesting possibility:

Everyone has probably gambled with their friends using play money, which is scarce due to there only being one monopoly set at your house, or only a few smooth stones. Well, people can do that online with something like bitcoins, which are scarce because of the mathematics of the algorithm.

People might gamble with bitcoins as "play money," but it might be legal and whatever because it's not "really money." But what has now happened? There is a demand for them, possibly a strong one since gambling is very popular and highly restricted. Could it be that like the porn industry fueled the adoption of DVDs and BluRay, gambling could fuel the adoption of BitCoin? It might be worth it to sell my Japanese-to-English translation services for BTCs if I know I can buy graphic design services from a large population of gamblers who want BTCs for their gambling (which may otherwise be restricted in their jurisdiction).

  • | Post Points: 20
Top 10 Contributor
Posts 6,953
Points 118,135

Giant_Joe:
Yes. I read the papers and get it.

Oh, I see.  You mean you've "taken a leap of faith" and "convinced yourself" to "trust the community"?  That's a great way to protect your wealth. 

  • | Post Points: 20
Top 100 Contributor
Male
Posts 907
Points 14,795

Oh, I see.  You mean you've "taken a leap of faith" and "convinced yourself" to "trust the community"?  That's a great way to protect your wealth.

Sorry John, I might have chosen wrong words. You do not need to trust the community of users not to inflate. You have to trust the community of developers that the mathematical idea is solid and the code implements it faithfully, thus preventing hyperinflation.

The Voluntaryist Reader - read, comment, post your own.
  • | Post Points: 20
Top 150 Contributor
Male
Posts 630
Points 9,425

If you get paid in bitcoins for labour then you can associate value based on your labour. Whether other people will agree on that value is a different matter entirely. Until bitcions can be used to pay your rent and buy everyday goods, it is difficult to draw a value comparison with other currencies. If you only obtain bitcoins through the conversion of other currencies then the bitcoins have value that is dictated by the other currencies.

  • | Post Points: 5
Top 50 Contributor
Posts 2,417
Points 41,720
Moderator
Nielsio replied on Mon, Apr 25 2011 1:56 PM

Giant_Joe:

Neilso, I think we're getting off track anyways. What bothered me was what you said here:

You can have infinity inflation from one day to the other.

This isn't true about bitcoin. It is up to you to show that it is true.

I meant inflation in the mainstream use, i.e. absolutele loss of purchasing power.

It is irrational to trade something which is a good for something which is not a good.

If people value something and are willing to give up something to acquire it, is it a good or not?

See Mises-regression that I linked above.

  • | Post Points: 5
Top 50 Contributor
Male
Posts 1,687
Points 22,990
Bogart replied on Mon, Apr 25 2011 2:44 PM

I disagree that the bitcoin does not have value.  Value is in the eyes of the buyers and sellers.  So the value of the bitcoin as a currency like any other currency should be left up to the market for competiting currencies.  This would be the same for gold and/or silver and paper money and what ever else the market place can discover.

Now I would bet that humans would settle on the traditional forms of currency precious metals and semiprecious metals:gold, silver and to a lesser degree copper, nickle, ect.  There is no technology yet that can transform things into elements in a cheaper manner than it is to manufacture them.

  • | Post Points: 5
Top 50 Contributor
Posts 2,417
Points 41,720
Moderator
Nielsio replied on Mon, Apr 25 2011 2:47 PM

 

"To be spontaneously adopted as a medium of exchange, a commodity must be desired for its nonmonetary services (for its own sake) and be marketable, that is, it must be widely bought and sold. The prices that are initially being paid for its nonmonetary services enable prospective buyers to estimate the future prices at which one can reasonably expect to resell it. The prices paid for its nonmonetary use are, so to speak, the empirical basis for its use in indirect exchange. It would be extremely risky to buy a commodity for indirect exchange without knowing its past prices; as a consequence, the spontaneous emergence of a medium of exchange is virtually impossible whenever such knowledge is lacking. On the other hand, when it exists, then there can arise a monetary demand for the commodity in question. The monetary demand then adds to the original nonmonetary demand, so that the price of the money-commodity contains a monetary component and a nonmonetary component. Although in a developed economy the former is likely to outweigh the latter quite substantially, it is important to keep in mind that the monetary use of a commodity ultimately depends on its nonmonetary use. The medieval scholastics called money a res fungibilis et primo usu consumptibilis. It was in the very nature of money to be a marketable thing that had its primary use in consumption."
 
-The Ethics of Money Production (by Jörg Guido Hülsmann), p23.
  • | Post Points: 20
Not Ranked
Posts 8
Points 115
justmoon replied on Mon, Apr 25 2011 4:04 PM

Jörg Guido Hülsmann:
It would be extremely risky to buy a commodity for indirect exchange without knowing its past prices; as a consequence, the spontaneous emergence of a medium of exchange is virtually impossible whenever such knowledge is lacking.

This refers to the price emerging in the first place - with Bitcoin we're already past that stage. For one and a half years Bitcoins were worthless. But people nonetheless created trading infrastructure, eventually bootstrapping a little economy.

Hülsmann correctly points out that this is "virtually impossible" to happen and it's quite interesting to look at why it did happen in the case of Bitcoin. Like any chicken and egg problem, the solution is a mixture of small steps and some people investing their time and energy to make it happen against the odds.

Jörg Guido Hülsmann:
it is important to keep in mind that the monetary use of a commodity ultimately depends on its nonmonetary use

Hmm. I can not find any arguments for this position in the excerpt you quoted. In fact it seems to contradict the preceding point. I would agree that a money emerging from a worthless good is unlikely ("virtually impossible" might be a bit strong, since there are other examples like Rai stones, Babunda, etc.), but once it has emerged, by what mechanism does it spontaneously disappear? Hyperinflation can wipe out a currency, criminalization, the emergence of a better currency, or in the case of Bitcoin a major technical flaw are all valid failure scenarios. However the mere collapse of a speculative bubble by itself may or may not wipe out its value completely, depending on whether people would still use it for trade. Since traders don't plan on holding Bitcoins for a long time I think it's arguable that trade would not seize completely - again, infrastructure like exchangers and financial services (ClearCoin, MyBitcoin, etc.) don't disappear overnight.

Again I'm not claiming that the value of Bitcoin can not go to zero. I'm only saying that there is no basis for saying that it must go to zero - as you claim in the video.

 

  • | Post Points: 20
Not Ranked
Posts 7
Points 125
dvide replied on Mon, Apr 25 2011 6:37 PM

justmoon:
Jörg Guido Hülsmann:
It would be extremely risky to buy a commodity for indirect exchange without knowing its past prices; as a consequence, the spontaneous emergence of a medium of exchange is virtually impossible whenever such knowledge is lacking.

This refers to the price emerging in the first place - with Bitcoin we're already past that stage. For one and a half years Bitcoins were worthless. But people nonetheless created trading infrastructure, eventually bootstrapping a little economy.

Hülsmann correctly points out that this is "virtually impossible" to happen and it's quite interesting to look at why it did happen in the case of Bitcoin. Like any chicken and egg problem, the solution is a mixture of small steps and some people investing their time and energy to make it happen against the odds.

I think you're right about that. I imagine how bitcoin can spontaneously bootstrap like this. Let's say you read the source code and the whitepapers and you totally grok bitcoin. You understand what it does, how it works, and why it would be valuable as currency IF it were to become established as such in the future. If you can forsee the very use of bitcoin as a medium of exchange in the future, it would logically behove you to try to generate some bitcoins in antipication of the future. You might be wrong so it's naturally a risky venture, but this is also offset by the fact that at the start of bitcoin's life it is significantly easier for each individual to generate a lot of bitcoins because their nodes will comprise a larger percentage of the total CPU power available in the network.

But also note you wouldn't necessarily be alone. There will others too who can forsee the use of bitcoin as a medium of exchange in the future, so they will happily accept bitcoin in exchange for services today. They themselves would be taking a risk by doing this early, but they believe it will pay off in the long term if they were to earn some bitcoin today. So you could potentially find people to trade with in bitcoin even in the very early stages. Sure it's risky, but it's not therefore impossible to find people because of that; it just makes it harder. It's also made easier because there is community of people around bitcoin, who want to see it become established, with a forum where you can communicate with anybody from anywhere in the world about it. So this makes it much easier to find like-minded people who also forsee the use of bitcoin as currency in the future.

So I think that this process by itself would provide the bootstrapping that bitcoin would need for its future use as an established currency, because it's already being used as currency today. Those early adopters who see the potential in bitcoins and so trade with others who also see the potential in bitcoin (and who accept bitcoins because of the very fact that they see its future potential) are therefore bootstrapping the very potential that bitcoin has to become a currency. So the principle is a bit meta really, but the idea is that even with a lack of a consumption use behind an item that is very compatible with the task of it being used as a medium of exchange, the potential value it offers as an established currency in the future can serve to provide all of the bootstrapping requirements that it needs to get itself off the ground in the first place. People immediately begin to value it as a currency itself, because it has all of the properties that are good for that use case. So how do you price in bitcoins? The price of bitcoin early on is the based on the perceived probability of bitcoin becoming established in the future, and so the subjective perceived risk/reward analysis of getting your hands on some bitcoin today.

So I don't think it is necessary for people to value it for some consumption use initially, because you can infact rationally value it as a potential future medium of exchange based on the intrinsic properties that lend it to be good at that very task. In history, Gold is the really the only item that has all of those neccessery intrinsic properties for a currency together in one. The fact that Gold has consumption uses too no doubt helped to bootstrap its use as an established currency, but I think it would have been an inevitable development in human history regardless of that. Because there's nothing else that can truly fulfil its role as currency. The value that using currency brings by itself (over having to barter) is huge, so it's inevitable that Gold would become used for this task even if it had no other foreseeable use case. Because there literally would be nothing else that could possibly do the job anyway. Does Nielsio contend that we were merely lucky that Gold is considered pretty, and so was desired as jewellery? What luck! If Gold were not pretty, life would be that much more difficult indeed because there is almost literally nothing else that could do as good a job as Gold for the task of being currency. You could still use silver, but it corrodes easily and the same argument of luck for consumption use cases could apply to it also.

But once a currency is rolling and established it won't just spontaneously stop. It might fall out of circulation if the government controls it and devalues it majorly, and it becomes an unsustainable lost cause or if it loses the 'benifit' of its legal tender laws to back it up. But it wouldn't happen on its own with a free currency, and this scenario is impossible with bitcoin anyway as no central authority can ever gain control over issuing it. Government could potentially declare credit notes redeemable in bitcoin to be a legal tender, and enact fractional reserve systems around it, but then it would be the credit that is considered to be legal tender and not the bitcoin itself. But even Mises and Rothbard contend that the consumption uses of Gold could be removed after the fact and it would continue perpetuate by itself as a medium of exchange. This is because the price of Gold as a currency on one day is evaluated based on the price of Gold as a currency on the previous day. As far as I'm aware, they did NOT contend that if for some reason Gold were to lose its non-monitary uses--after it had already become established as money--that it would therefore inevitably fizzle out of use and devalue.

Here's a quote from Rothbard's Man, Economy, and State (p 275) that I picked up from this interesting thread on the bitcoin.org forums. He is talking here about Mises' Regression Theorem:

On the other hand, it does not follow from this analysis that if an extant money were to lose its direct uses, it could no longer be used as money. Thus, if gold, after being established as money, were suddenly to lose its value in ornaments or industrial uses, it would not necessarily lose its character as a money. Once a medium of exchange has been established as a money, money prices continue to be set. If on day X gold loses its direct uses, there will still be previously existing money prices that had been established on day X – 1, and these prices form the basis for the marginal utility of gold on day X. Similarly, the money prices thereby determined on day X form the basis for the marginal utility of money on day X + 1. From X on, gold could be demanded for its exchange value alone, and not at all for its direct use. Therefore, while it is absolutely necessary that a money originate as a commodity with direct uses, it is not absolutely necessary that the direct uses continue after the money has been established.

So Mises' Regression Theorem is only concerned with the initial bootstrapping of currency, not with its continuing use after it is already established. He contended that money needed a commodity use in order to get itself off the ground, but as I have described above I don't even think that this is necessarily true. I think it can spontaneously bootstrap by voluntary action. It certainly helps to have another initial use case, but it's not vital step, especially when considering an item whose task is explicitly designed to be used as money from the very outset. I find the whole idea really interesting, that we could design something new that would be even better at the task of being currency than Gold is. Bitcoin may just be that very something, though that is obviously very grandiose optimistic thinking. Even if it just finds use in some niche way, amongst a set of other competing currencies, it would still be very cool.

  • | Post Points: 20
Top 50 Contributor
Male
Posts 2,551
Points 46,635
AJ replied on Tue, Apr 26 2011 12:53 PM

Yeah technically all that needs to happen is for a sizable number of people to have some passing interest in holding bitcoins for any reason (even a mistaken reason; this also qualifies as Hulsmann's "nonmonetary use"), then bootstrapping is at least conceivable.

  • | Post Points: 5
Top 500 Contributor
Posts 146
Points 2,230

Jack Roberts:

It is within the interest of the owners of any currency to convince other people of its worth.

 

This is true to an extent, but if those of us who do own and trade in Bitcoin were to come and start preaching the merits of the system on this forum, would you be more or less suspicious?  I don't need to "talk my book" in order for Bitcoin to succeed.  In fact, if it requires my participation in this context, or anyones, it's already doomed to failure.  You can read the documentation, and if you don't trust it, don't use it.  If you have programming skills, you can look at the source code for yourself.

  • | Post Points: 5
Top 500 Contributor
Posts 146
Points 2,230

AJ:

Could it be that like the porn industry fueled the adoption of DVDs and BluRay, gambling could fuel the adoption of BitCoin?

Porn sold for bitcoins before gamblers used them.

It might be worth it to sell my Japanese-to-English translation services for BTCs if I know I can buy graphic design services from a large population of gamblers who want BTCs for their gambling (which may otherwise be restricted in their jurisdiction).

I suggest you try.  What have you to lose?  If you advertise your services on a Bitcoin forum, and you get Bitcoin business from it, would you have had that business otherwise?  What do you risk besides your time?

  • | Post Points: 5
Not Ranked
Posts 2
Points 25

Every single one of your criticisms could apply to Gold.  There's a reason Bitcoins was designed it was- it was modeled after Gold.  If you don't like Gold because you can't eat it and it has no force behind it, then fine, come out and say that too.   I await your "Don't Buy Gold" video, where you are only selling worthless rocks to people gulliible enough to buy them from you.

Sure, Gold has some industrial uses.  And it has some uses as jewelry and being pretty to look at.  But really, how much of gold is used in industry and how much is used in jewelry, and how much is dug up, melted into bars, then put back underground?

Now Gold does have a big advantage over Bitcoins.  Gold has a 5000 year plus track record.  Gold cannot be "cloned" and create an alternative to it that is Green or Purple (someone could fork the Bitcoin code and make something identical to it, but in a different flavor).  If you are going to pick on Bitcoins, find an actual argument for doing it.  There actually are some good ones out there.

But I can't send gold over the internet.  I can't verify it's real very easily.  I can't measure it without a scale.  I can't divide it easily and arbitrarily small.  A new discovery could happen that makes it not as scarce.  Gold isn't perfect.  But it's a damn good source of money, far better than government fiat currency that can be deflated at the will of a few people.  And if you like Gold, you at least should like Bitcoins more than government fiat.

Bitcoins are about 95% speculation right now.  There's not a huge advantage in using them other than in niche areas.  But that could change.  There are some benefits of using them... if they catch on and you don't need to constantly convert back to other currency.  But buying them for speculative value isn't due to gullibility, it's due to insight into how they *could* be useful, but just aren't at the present time.  If you found some rare earth element that you could predict would be super useful in 5 years, but right now was only good as a paperweight, you wouldn't be foolish for buying it now.  You'd be a visionary.  It could be your prediction is wrong, and you lose some money.  But you aren't relying on gullibility.  You are relying on predicting how things might be used in the future and speculating in that part of the economy.  Neilsio- after Black Friday, I would have thought you would be able to see the power of Bitcoins in the online gambling community.  It's a huge potential.  Maybe nothing happens, but if ANY dent in the market happens with Bitcoins, you'll see a potential 20 to 100x return on your investment.  As long as you realize you are playing with fire, could lose your investment, etc...  No gullibility is needed.  Just being able to see something as being more useful in the future than it is right now.

I'm sure Grok the caveman was laughed at when he gathered gold in 10,000 BC, though.

  • | Post Points: 20
Top 50 Contributor
Posts 2,679
Points 45,110
gotlucky replied on Tue, Apr 26 2011 10:14 PM

The same criticisms do not apply to gold.  Don't knock gold as a useless rock.  It is no more useless than a Monet painting.  Gold has value to people other than as currency.  It does have uses.

http://en.wikipedia.org/wiki/Gold_plating

These uses are what makes gold valuable to people.  Gold was not only valuable as a commodity but it also had qualities that made it a good currency.  Bitcoins may have qualities that are good for currency, but it has no commodity value.  This is the complaint about bitcoins.  Without having value as a commodity, there is no way to speculate as to its value to others.

It's possible that bitcoin could be useful for online gambling in that it may be easier to evade the state and its laws.  People could find a value in bitcoins in that manner, but something seems off to me.  Perhaps someone could demonstrate to me how this could work (I am not claiming that it would or would not, I am actually curious about this).

My main point though: Gold has uses as a commodity and has qualities that make it useful as currency.  Bitcoin has yet to show how it has uses as a commodity, but it does have qualities that make it useful as a currency.  But that is not enough, it needs to have a value other than useful qualities for currency.

  • | Post Points: 20
Not Ranked
Posts 1
Points 35
SunAvatar replied on Tue, Apr 26 2011 10:21 PM

Hey there, Nielsio, others. Like many others on this thread, I'm a visitor from the Bitcoin.org forums. Several people from there have come to this thread for the purpose of defending Bitcoin from what they see as an unfair dismissal, but I think they're going about it the wrong way.

Not because of their language or demeanor or choice of arguments, no, but because they're trying to correct you with words. Like those folks, I think Bitcoin is undervalued on this forum. And the right way to correct an undervaluation is to buy!

I'd like to to buy call options on 1000 bitcoins for 2500 US dollars, redeemable at expiry at the end of 2012. Since you, Nielsio, think Bitcoin has effectively zero chance of success, I'd say $50 is more than fair as a premium---wouldn't you?

In fact, I might be willing to buy nine or ten contracts at that price! I'd like them signed and notarized, of course, so I can minimize my counterparty risk. It would be nice if you had the bitcoins to cover it, but I don't really expect that. If necessary we'll just work out an installment plan: 250 bitcoins per year for 10 years? 50 bitcoins per year for 50 years? We'll see when we get there, I guess.

Seriously, I agree with you though. Bitcoin has no chance of success, and I am basically offering to give you $500. You really should take this deal! Please, please take this deal! E-mail me if interested: ian dot maxwell AT gmail dot com.

Unless you're not so sure, of course.

(While my point is rhetorical, this is a serious offer, open to anyone: I don't promise to buy ten contracts, but I will buy at least four or five if we can agree on the details.)

  • | Post Points: 35
Top 50 Contributor
Male
Posts 2,551
Points 46,635
AJ replied on Wed, Apr 27 2011 3:02 AM

And so it begins...

  • | Post Points: 5
Not Ranked
Posts 2
Points 25

Gold has *some* value,  but nowhere near what people are treating it as.

The commodity value of gold is SIGNIFICANTLY below the currency + commodity value.

I'm not disagreeing that Bitcoins have no commodity values.  Having commodity value is not really neccessary for a currency.  It just means it has some floor value if everyone else stops using it as a currency.  If everyone who is buying gold now finally realizes everyone who is left to buy it is not as "gullible" as them, then they will lose their investment (save maybe a hundred bucks per ounce).  You really think Gold has gone up in the last 5 years just because we found lots new industrial uses and lots of people now find it pretty that didn't before?

Why is being a commodity required for a currency?  To me, it seems like that actually is a negative.  Fortunately Gold has much fewer industrial applications than other precious metals (maybe just because it's so expensive, if it were $50/oz, it would be used just as often as Silver?), so it makes it a good money.  People buy Gold not because it's useful (that's why they lock it in a box underground or hide it), but because it stores value well.  Why is having commodity value useful?  It seems to me that's nothing more than an insurance policy if it stops being used as a currency.  But if you are spending $1500/oz on something that would be worth $50/oz (making that number up, but it's certainly a lot less than $1500), is it really *that* different than if it were $0?  A 97% loss vs. 100% loss?  As an investor, I really wouldn't care that much either way between the two.

You ask how it works - it's a decentralized network.  Everyone has a copy of every transaction.  If the government wants to shut down PayPal for funding gambling sites (it threatened them years ago), they can cut it off at a central point.  If the government wants to shut down Neteller, they can.  If the government wants to shut down Bitcoin, good luck.  It's the difference between shutting down Napster and shutting down P2P networks.  There is no central person to sue or arrest.  They would have to make using the currency illegal (it could happen).  They'd have to then actually enforce it and prove various people were using it (possible, but it's also possible to disguise this).  But it would require going after each individual participant rather than a centralized clearinghouse.  The Bitcoin network is like Terminator 2, you put a bullet in it, it's like liquid, that hole is there, then it eventually regrows.  Actually stopping it would be a huge pain.  I'm not saying they won't or couldn't, but it has a lot of huge advantages in terms of being able to stop.  I also have found the payments to be very simple and fast, especially compared to bank transfers or PayPal, and no transaction fees (within the currency).  It's a fantastic currency from a users point of view if widespread adoption takes place.  But without widespread adoption, Neilsio is right, it's not really that valueable.  And I think most people entering the market right now are doing it not on hoping for gullibility, but for the vision of the future.  Perhaps we are Grok who discovered Gold in 10,000 BC, or perhaps we are Grok Sr, who discovered Pyrite.  Time will tell.

  • | Post Points: 5
Top 100 Contributor
Male
Posts 907
Points 14,795

I'd like to to buy call options on 1000 bitcoins for 2500 US dollars, redeemable at expiry at the end of 2012.

Nice constructive idea!

Have you considered using something like intrade.com instead of a notary? Just an idea, it might be less expensive and more accessible.

The Voluntaryist Reader - read, comment, post your own.
  • | Post Points: 5
Not Ranked
Posts 5
Points 100
ribuck replied on Wed, Apr 27 2011 2:02 PM

Nielsio, I'd like to send a donation in recognition of the videos that you make and share. Let me know your Bitcoin address. I'm sure others would like to donate too.

  • | Post Points: 20
Top 50 Contributor
Male
Posts 2,551
Points 46,635
Top 50 Contributor
Posts 2,360
Points 43,785
z1235 replied on Sun, May 1 2011 3:25 PM

I'm still trying to wrap my mind around this concept. So, right now as I write, there are people firing up their CPUs and accumulating BTCs into their accounts which they are exchanging for actual goods and services later on?

And the requirement that every node in the network must have an updated list of ALL BTC transactions everywhere since the first one seems logistically unrealistic if this is ever to grow to a size even approaching a national economy. As both the number of nodes (millions) and the frequency of transactions (millions/second?) increase this would turn into an exponentially difficult problem.

Not sure about "anonymity" if everyone out there has the whole history of all my BTC account's transactions. 

Also I'm not convinced that three 13-year old punks in a garage somewhere couldn't hack a shortcut to a multi-million BTC bounty into their accounts. 

This was a good article and discussion I just read on BTC:

Bitcoin: Virtual money created by CPU cycles

 

...and most of the above questions come from there. 

 

 

  • | Post Points: 20
Not Ranked
Posts 5
Points 100
ribuck replied on Sun, May 1 2011 4:35 PM

1. The protocol only requires nodes that generate blocks to keep the whole block chain. However the current software client keeps the whole block chain anyway, but it's open source so someone can optimize it if/when it becomes a problem.

2. It's not anonymous, it's pseudonymous. You don't enter any identifying details into the system. You don't have an "account", you just have a list of keys (on your computer only) that can be used to spend transactions from the block chain that someone else has previously spent to you (or that you have generated).

3. Don't spread FUD about 13-year-old hackers unless you've read the technical details and still think it's a problem:

http://www.bitcoin.org/bitcoin.pdf

  • | Post Points: 20
Top 50 Contributor
Posts 2,360
Points 43,785
z1235 replied on Sun, May 1 2011 4:50 PM

If I knew enough to think that there's a problem I most certainly wouldn't be informing you of it here. Instead, I'd hire the three 13-year old punks to take advantage of it. 

 

  • | Post Points: 5
Not Ranked
Posts 1
Points 35
vvSaKvv replied on Tue, May 3 2011 5:31 PM

Do not buy bitcoins, said man with glasses... Turn camera off, and start buy bitcoins in bulk :))

  • | Post Points: 35
Page 1 of 8 (289 items) 1 2 3 4 5 Next > ... Last » | RSS