most people would consider your use of the term "commodity" to refer to raw materials, so that explains the confusion. What form was the steel in before it was made into an i-beam? "Commodity form"?
MoonShadow: Discounting the uses in jewelry, gold's commodity value would be less than silver's at present, in part, because there is less silver in an elemental form available today than gold. Yes, silver is more rare in an 'above ground' and refined form than gold. Gold is only much more valuable than silver due to it's history as an ideal money, and thus it's monetary value.
Discounting the uses in jewelry, gold's commodity value would be less than silver's at present, in part, because there is less silver in an elemental form available today than gold. Yes, silver is more rare in an 'above ground' and refined form than gold. Gold is only much more valuable than silver due to it's history as an ideal money, and thus it's monetary value.
Global annual (2010) silver production is 23,000 tonnes. The one for gold is 2,300 tonnes (peaked in 2001 at 2,600 tonnes).
MoonShadow: Short version, Bitcoin has it's own issues that a rational critique can me made against; but these aren't them and you don't know enough about how the system works to even mount a plausible assault. Digital cash has literally never been done this way before, and as best as I can tell, neither has anything else. It's entirely a novel method, so the means that you believe that would work against it will not. And yes, it's a subjective decision. It's a choice. I choose to trust the mathmatics of the bitcoin system over my own capacities to keep gold safe or my ability to choose a trustworthy repository; because I understand how the system works. And it does work.
Short version, Bitcoin has it's own issues that a rational critique can me made against; but these aren't them and you don't know enough about how the system works to even mount a plausible assault. Digital cash has literally never been done this way before, and as best as I can tell, neither has anything else. It's entirely a novel method, so the means that you believe that would work against it will not.
And yes, it's a subjective decision. It's a choice. I choose to trust the mathmatics of the bitcoin system over my own capacities to keep gold safe or my ability to choose a trustworthy repository; because I understand how the system works. And it does work.
Most important part of my critique was raising issues of software implementation in general not specifically bitcoin so I don't see how my knowledge or lack thereof about bitcoin has anything to do with it. I wanted to point out that most fans of bitcoin (including you) choose to trust in **algorithms** (blueprints, templates - you get it) which are probably fine (don't know, don't care and thus I did not even attempt to criticise them) but somehow don't adress or flat out ignore issues inherent in software development (quality of code, complexity of implementation etc) that are just as important in real world especially considering we are talking about money system here. I fail to see how novelty of approach changes this and necessity of storing bitcoins in something physical (usually bits of data on hard disk), so issue of trustworthy repository is not unique to gold.
z1235: MoonShadow: Discounting the uses in jewelry, gold's commodity value would be less than silver's at present, in part, because there is less silver in an elemental form available today than gold. Yes, silver is more rare in an 'above ground' and refined form than gold. Gold is only much more valuable than silver due to it's history as an ideal money, and thus it's monetary value. Global annual (2010) silver production is 23,000 tonnes. The one for gold is 2,300 tonnes (peaked in 2001 at 2,600 tonnes).
Silver is consumed by industry, nearly all the gold ever mined can still be accounted for. 23K tonnes of silver production isn't even enough to keep up with current silver demand. But don't take my word for it, feel free to look it up.
boniek: MoonShadow: Short version, Bitcoin has it's own issues that a rational critique can me made against; but these aren't them and you don't know enough about how the system works to even mount a plausible assault. Digital cash has literally never been done this way before, and as best as I can tell, neither has anything else. It's entirely a novel method, so the means that you believe that would work against it will not. And yes, it's a subjective decision. It's a choice. I choose to trust the mathmatics of the bitcoin system over my own capacities to keep gold safe or my ability to choose a trustworthy repository; because I understand how the system works. And it does work. Most important part of my critique was raising issues of software implementation in general not specifically bitcoin so I don't see how my knowledge or lack thereof about bitcoin has anything to do with it. I wanted to point out that most fans of bitcoin (including you) choose to trust in **algorithms** (blueprints, templates - you get it) which are probably fine (don't know, don't care and thus I did not even attempt to criticise them) but somehow don't adress or flat out ignore issues inherent in software development (quality of code, complexity of implementation etc) that are just as important in real world especially considering we are talking about money system here.
Most important part of my critique was raising issues of software implementation in general not specifically bitcoin so I don't see how my knowledge or lack thereof about bitcoin has anything to do with it. I wanted to point out that most fans of bitcoin (including you) choose to trust in **algorithms** (blueprints, templates - you get it) which are probably fine (don't know, don't care and thus I did not even attempt to criticise them) but somehow don't adress or flat out ignore issues inherent in software development (quality of code, complexity of implementation etc) that are just as important in real world especially considering we are talking about money system here.
The 'issues' inherent in software development that you cite are not relevent to the bitcoin monetary system or practical application of the network protocol, but only to the subset of users that depend upon that particular codeset. There are already several different implimentations of the protocol, so if one is flawed that doesn't imply that users of another implimentation are at risk; in the same manner that just because BoA is insolvent doesn't mean that deposits at Farmers' Bank & Trust are at risk. Flaws have been found in clients, even exploited to a limited degree before being fixed. In practice, however, even those flaws have been of limited scope.
I fail to see how novelty of approach changes this and necessity of storing bitcoins in something physical (usually bits of data on hard disk), so issue of trustworthy repository is not unique to gold.
You fail only because you choose not to see. Read the whitepaper, if you honestly desire to see. Bitcoins don't reside on any storage medium. To be precise, they don't even exist even as a digital artifact (such as a file). Bitcoins are only a unit, and only transactions exist that describe addresses associated with integer volumes of that unit. The secret that permits the owner to spend bitcoins are the private keys that can prove ownership (to the rest of the network) of particular addresses. Yes, your wallet.dat file (and thus your private keys) can be stolen. But if they are encrypted, and you know that they have been stolen, you can recover another backup of your encrypted wallet.dat file and send them to yourself far faster than modern encryption can be cracked. Thus, your personal security is dependent upon youself, but the network as a whole is not dependent upon your security. The blockchain isn't, and doesn't need to be, encrypted at all; because my security is not dependent upon others. This is not true with paypal or visa while online, because your identity is the secret, and you have to share that secret with businesses online in order to transact; thus you become dependent upon their security model in addition to your own. Bitcoin never shares it's secret, it uses cryptographic signing techniques to permit the owner of an address to sign his transactions with his private key in such a manner that other nodes can verify that it's astronomicly unlikely that whomever sent the transaction didn't posses the proper private key.
MoonShadow: Silver is consumed by industry, nearly all the gold ever mined can still be accounted for. 23K tonnes of silver production isn't even enough to keep up with current silver demand. But don't take my word for it, feel free to look it up.
What am I supposed to be looking up? The "objective" ("true"?) values of gold and silver, as opposed to the "fake" ones reflected in the market?
z1235: MoonShadow: Silver is consumed by industry, nearly all the gold ever mined can still be accounted for. 23K tonnes of silver production isn't even enough to keep up with current silver demand. But don't take my word for it, feel free to look it up. What am I supposed to be looking up? The "objective" ("true"?) values of gold and silver, as opposed to the "fake" ones reflected in the market?
Relative volumes of elemental stores, of course. It took me two minutes with google-fu to find this, and I will readily admit it's not a terriblely good reference, and a bit dated; but it is a reference.
"
http://www.silverinscripture.com/moreRAREthanGold.html
I am persuaded by the argument that Bitcoin can act as a money backed by "illegal goods and services". If pot-dealers and other grey/black-market vendors adopt Bitcoin, it could persist as a kind of "money for the black market", especially as dollars and other fiat monies come under tighter and tighter control. We're on the brink of a society where literally every single transaction no matter how small is digitally recorded, tracked and data-mined. There is no sign that the authorities will be letting up any time soon on the financial controls agenda or the drug war agenda or any of their other follies.
However, Bitcoin will always be extremely volatile precisely because its value is completely speculative and dependent on the expected future political climate. If holders of Bitcoin begin to anticipate relaxed financial controls on legal money and the black-market, the value could collapse.
Furthermore, the deflationary design of Bitcoin is fatal - it is essentially just another Ponzi scheme. The June 2011 bubble and crash will not be the last. With its microscopic market-cap, Bitcoin is an easy target for skilled market manipulators.
This leads me to my final thought. Bitcoin is actually based on Nick Szabo's idea that he termed bitgold. Szabo's bitgold works differently than Bitcoin in that there is no (supposedly) pre-determined limit to the number of bitgold units. An enterprising individual who were to re-implement the basic idea of Bitcoin with Szabo's original setup (minus the stuff where he tries to arbitrage the units of bitgold based on their age) might find success as a more stable replacement for Bitcoin. Such a currency would still suffer from being at the mercy of the future political climate and of market manipulations.
Clayton -
MoonShadow: The 'issues' inherent in software development that you cite are not relevent to the bitcoin monetary system or practical application of the network protocol, but only to the subset of users that depend upon that particular codeset. There are already several different implimentations of the protocol, so if one is flawed that doesn't imply that users of another implimentation are at risk; in the same manner that just because BoA is insolvent doesn't mean that deposits at Farmers' Bank & Trust are at risk. Flaws have been found in clients, even exploited to a limited degree before being fixed. In practice, however, even those flaws have been of limited scope.
You have to use some codeset if you want to use bitcoin. Thus my point stands. There is no guarantee that that there are no flaws in the client I'm currently using and that they will not be exploited and I will not be able to use bitcoins or worse. It is software. It happens all the time to everyone. That is why I have hard time trusting software to implement my monetary system. Indeed it is good that there are multiple competing implementations, but it does not change fundamental issue.
MoonShadow:Yes, your wallet.dat file (and thus your private keys) can be stolen.
Thanks for granting me that point.
MoonShadow:Thus, your personal security is dependent upon youself, but the network as a whole is not dependent upon your security.
Hey, just like with gold!
MoonShadow: This is not true with paypal or visa while online, because your identity is the secret, and you have to share that secret with businesses online in order to transact; thus you become dependent upon their security model in addition to your own.
Remember that you don't have to use them at all if you so choose because there is world outside online which is actually huge plus in favor of gold in terms of security for those that prefer it. I would argue that it is way beyond most people abilities to secure bitcoin properly which calls for a thirdparty to provide such service, which in turn will make your argument apply is some way to bitcoin too (this is simply effect of division of labor). To compare apples to apples you need to compare money substitutes security (you have multiple competing "implementations" just like bitcoin clients) and gold security itself (possibility of getting genuine gold from other minerals, forgery, storage security) with your own or outsourced security (encryption, backups etc), bitcoin client security (my whole argument on development issues was about this) and bitcoin standard security (which granted is supposed to be foolproof). Then you have to remember about trade off between security and convenience. If you don't see this similarly to the way I see it then I'm afraid we will argue past each other.
MoonShadow: Relative volumes of elemental stores, of course. It took me two minutes with google-fu to find this, and I will readily admit it's not a terriblely good reference, and a bit dated; but it is a reference.
So what? The quantity of tungsten bullion in storage ("volume of elemental store") is even smaller than the one for silver. Should this make it more "valuable" than silver and infinitely more valuable than gold?
Clayton: I am persuaded by the argument that Bitcoin can act as a money backed by "illegal goods and services". If pot-dealers and other grey/black-market vendors adopt Bitcoin, it could persist as a kind of "money for the black market", especially as dollars and other fiat monies come under tighter and tighter control. We're on the brink of a society where literally every single transaction no matter how small is digitally recorded, tracked and data-mined. There is no sign that the authorities will be letting up any time soon on the financial controls agenda or the drug war agenda or any of their other follies.
The black market is a small portion of the bitcoin economy, but I will concede that bitcoin has little comparative advantage against a commodity backed digital currency in a legal climate that isn't hostile to such things. If Ron Paul's bill to legalize competitive currencies were to ever pass, the value of a bitcoin is likely to crash, but that is not the world that we live in.
This may or may not be so. Why do you believe that the deflationary nature of bitcoin is fatal?
It's been tried, and the result has been a number of slightly different crypto-currencies with a stable value of nominally zero. The hard, mathmatically deterministic limit of the monetary base is an important factor in the early success of Bitcoin, for lacking a commodity backing or support of a stable and trustworthy institution (a walmart-backed or apple-backed digital currency could likely eat bitcoin's lunch and more) the early adopters are those that grant it it's initial value via speculation that it can work as a monetary system. Lacking that security of a limited monetary base, and the fact that new currencies are in direct compatition with bitcoin itself, there have proven to be few speculators willing to take the additional risk that the other currencies will fail. Bitcoin is risky enough.
boniek: MoonShadow:Thus, your personal security is dependent upon youself, but the network as a whole is not dependent upon your security. Hey, just like with gold!
Indeed, very similar to gold in this respect, and many others. That's actually the point. Digital gold-like currency with the additional benefit of the ability to send precise amounts of funds to anyone in the world as fast as an email.
MoonShadow: This is not true with paypal or visa while online, because your identity is the secret, and you have to share that secret with businesses online in order to transact; thus you become dependent upon their security model in addition to your own. Remember that you don't have to use them at all if you so choose because there is world outside online which is actually huge plus in favor of gold in terms of security for those that prefer it.
Remember that you don't have to use them at all if you so choose because there is world outside online which is actually huge plus in favor of gold in terms of security for those that prefer it.
That's fine, bitcoin doesn't exist to compete with hard currencies (or any currencies) in meatspace, even though I think that it will eventually do exactly that. There are huge costs external to the transaction itself inherent to trade in meatspace that online transactions often avoid.
I would argue that it is way beyond most people abilities to secure bitcoin properly which calls for a thirdparty to provide such service, which in turn will make your argument apply is some way to bitcoin too (this is simply effect of division of labor). To compare apples to apples you need to compare money substitutes security (you have multiple competing "implementations" just like bitcoin clients) and gold security itself (possibility of getting genuine gold from other minerals, forgery, storage security) with your own or outsourced security (encryption, backups etc), bitcoin client security (my whole argument on development issues was about this) and bitcoin standard security (which granted is supposed to be foolproof).
This is true enough for the average Joe at the present time, and likely for the forseeable future, this is true. Yet, my great-grandaunt learned to use GNU/Linux (peanut, specifically) as her first personal computer about 8 years ago, at 81 years old. Don't assume that Joe Six-Pack is unable to learn new tricks if he decides it's to his advantage to do so.
Then you have to remember about trade off between security and convenience. If you don't see this similarly to the way I see it then I'm afraid we will argue past each other.
There is always a loss of convenience to improved security, and bitcoin is no different in this respect. Improving my own security requires me to understand what the risks are, and react to them as far as I am willing to go with that. Ultimately, my 'savings' account is an wallet.dat that is independent of my working wallet.dat that is both encrypted and resides on three thumbdrives in three relatively secure locations. This is not a conveint system, but it is as secure as I can make it, and far more secure for far less nominal costs than would be possible with gold of the same market value.
z1235: MoonShadow: Relative volumes of elemental stores, of course. It took me two minutes with google-fu to find this, and I will readily admit it's not a terriblely good reference, and a bit dated; but it is a reference. So what? The quantity of tungsten bullion in storage ("volume of elemental store") is even smaller than the one for silver. Should this make it more "valuable" than silver and infinitely more valuable than gold?
I think that you are arguing against something that you believe that I have claimed that I have not. I do not contest that gold's market value is higher than silver's, nor do I contest that is the way it should be. To do so would not only be arrogant, it would be futile. What I said was that silver's commodity value (i.e. it's usefulness as a raw material versus it's scarcity, with consideration to alternative materials for similar desired uses; what is commonly but inaccurately referred to as 'intrinsic value') is higher than gold's because it's both essential in a great many industrial uses (for which recycling is economicly impractical) and of a lower available volume. Gold's market value, both now at it's all time nominal highs and a decade ago floating around $300 per ounce, are largely due to gold's value as a store of value; thus it's monetary value dominates the market. Likewise, silver is a historical money, and thus it's market value is reflective of it's sum total of demands in the market; most of which happens to be industry and neither jewelry nor bullion.
Moonshadow, your problem is that gold still has some (so called) commodity value (however small you claim it may be, although I wouldn't think that the $ value of gold used in production is that much smaller than that of silver), whereas bitcoin doesn't have any (zero). But -- as it has been repeated here ad nauseum -- an even bigger problem of yours is your inability to understand that gold's monetary value (as it exists today) could only emerge through gold's value as a commodity in the past (Mises' Regression Theorem). Humans seem to have this weird propensity towards doubting (not valuing) exclamations like: "Here, this is money!" -- that is, unless they're being backed by thugs with guns.
z1235: Moonshadow, your problem is that gold still has some (so called) commodity value (however small you claim it may be, although I wouldn't think that the $ value of gold used in production is that much smaller than that of silver), whereas bitcoin doesn't have any (zero). But -- as it has been repeated here ad nauseum -- an even bigger problem of yours is your inability to understand that gold's monetary value (as it exists today) could only emerge through gold's value as a commodity in the past (Mises' Regression Theorem). Humans seem to have this weird propensity towards doubting (not valuing) exclamations like: "Here, this is money!"
Moonshadow, your problem is that gold still has some (so called) commodity value (however small you claim it may be, although I wouldn't think that the $ value of gold used in production is that much smaller than that of silver), whereas bitcoin doesn't have any (zero). But -- as it has been repeated here ad nauseum -- an even bigger problem of yours is your inability to understand that gold's monetary value (as it exists today) could only emerge through gold's value as a commodity in the past (Mises' Regression Theorem). Humans seem to have this weird propensity towards doubting (not valuing) exclamations like: "Here, this is money!"
I have no such problem. I understand regression theorem well enough, and bitcoin does not violate it. I have never claimed that bitcoin is 'money' in it's proper sense. Bitcoin is a currency, and there is a difference. In a world that was not hostile towards hard currencies backed by real money, Bitcoin would never have come to be for it's reason to exist would never have come to be. Again, we don't live in that world and until we do Bitcoin has a place among monetary systems that no other system can replicate at nearly the cost.
MoonShadow: I have no such problem. I understand regression theorem well enough, and bitcoin does not violate it. I have never claimed that bitcoin is 'money' in it's proper sense. Bitcoin is a currency, and there is a difference. In a world that was not hostile towards hard currencies backed by real money, Bitcoin would never have come to be for it's reason to exist would never have come to be. Again, we don't live in that world and until we do Bitcoin has a place among monetary systems that no other system can replicate at nearly the cost.
OK. To each their own. Values are only subjective, after all.
You are correct that there is no praxeological necessity for the bearer to pay the fees. But in the long term, due to pressure from competition, this can only be done profitably if someone involved in the transaction is the one paying the cost. Google search engine, through advertising, brings together searchers and want-to-be-founds (sellers and buyers), similarly as banking brings together lenders and borrowers. While lending does not require FRB per se, FRB makes it more profitable. Gmail, like practically all digital service providers, overcommit resources (bandwith, data storage, ...) because most of the time, most customers leave them idle. If someone started using all that the provider claims to provide simultaneously, the whole system would collapse. You can crossfinance from other divisions (like Microsoft's Office and Windows are financing the media & gaming divisions), but this won't last forever. So the examples are a fail. The question is not whether it's theoretically possible, but whether this can be done profitably in face of competition.
You are correct that there is no praxeological necessity for the bearer to pay the fees. But in the long term, due to pressure from competition, this can only be done profitably if someone involved in the transaction is the one paying the cost. Google search engine, through advertising, brings together searchers and want-to-be-founds (sellers and buyers), similarly as banking brings together lenders and borrowers. While lending does not require FRB per se, FRB makes it more profitable. Gmail, like practically all digital service providers, overcommit resources (bandwith, data storage, ...) because most of the time, most customers leave them idle. If someone started using all that the provider claims to provide simultaneously, the whole system would collapse. You can crossfinance from other divisions (like Microsoft's Office and Windows are financing the media & gaming divisions), but this won't last forever.
So the examples are a fail. The question is not whether it's theoretically possible, but whether this can be done profitably in face of competition.
They were examples to show that it is possible for the consumer to not have to pay for a service. They did not fail. As you have now admitted, it is theoretically possible for this to happen. It is not up to me to show if it is profitable for banks to behave this way. Some entrepreur may find a way. Maybe it would succeed in the long term, and maybe it wouldn't. I noticed how you ignored my example: "Perhaps they might provide a discount to clients who have savings accounts. In other words, have a savings account with $100 in it and you can have $50 in your checking account at no cost. Or whatever."
In that case, it would be the bank taking the cost, but only to encourage more people to use their bank for savings accounts. This could be a successful method for banks. "Save with us, and we will give you a discount on your checking account!" Who knows if it would be profitable, but we don't know what an innovative bank might come up with.
And it is likely banks probably would not charge for checking accounts. See here. Granted, this is being done in the current system, but it does show that consumers are not very interested in paying monthly charges to use a checking account. Innovative banks may find a way to make it profitable in a full reserve banking system.
While there is a certain risk, there is no necessity here. Overcommitting is conducted by all kinds of service providers, it does not even require internet. Insurance, hospitals, maintenance contracts. I don't see either the Austrians rambling against them, nor do I see any mass failures due to overcommitting. Besides, banks can impose withdrawal limits in their contracts. They do it even now, in the central bank + fiat system.
It is true that many services overcommit, and every so often everyone does actually try to use all the resources. Colleges admit more students than they expect to actually attend. Some unversities have to rent spaces at hotels for students to stay. Boston University is one such school. It can house thousands of students in many high rise buildings across its campus, yet it still rents out rooms at the Hyatt in Cambridge. Every so often everyone shows up for the flight on an airplane, and the airline has to provide tickets or credit the consumers because of this practice.
And banks have runs.
I wonder why then you are posting in a thread titled "How To Use Bitcoin – The Most Important Creation In The History Of Man".
I responding to a specific point you made in one of your posts. Now you no longer need to wonder.
"a walmart-backed or apple-backed digital currency could likely eat bitcoin's lunch and more"
Could someone explain this further, or provide links to references? How does this work mechanically? What does it mean for such a corporation to "back" such a currency?
I am interested particularly in envisioning a future AnCap world... is it imagined that such a currency would be competitive with bank-issued currencies, for example? What would be the tradeoffs (understanding ahead of time that we're speculating on what would happen in a free market, rather than philosophizing about what is right and wrong).
Alternatives Considered: "a walmart-backed or apple-backed digital currency could likely eat bitcoin's lunch and more" Could someone explain this further, or provide links to references? How does this work mechanically? What does it mean for such a corporation to "back" such a currency? I am interested particularly in envisioning a future AnCap world... is it imagined that such a currency would be competitive with bank-issued currencies, for example? What would be the tradeoffs (understanding ahead of time that we're speculating on what would happen in a free market, rather than philosophizing about what is right and wrong).
A large enough of an institution can back a currency by offering a pledge to buy back any and all of the currency in another currency if the market value were to drop below a specified limit, creating an artificial price floor on the value of the currency for as long as the market at large believes that said institution could live up to the pledge. With a crypto-currency similar to bitcoin, wherein the exact amount of the monetary base can be known at any point independently of the institution (thus functionally auditing the whole of the currency at will) and have a rational estimate of the institution's capital, such a currency could work well, but the total market cap of the currency could never much exceed the known market cap of the institution that supports it. Yet, as has already been pointed out, Bitcoin's market cap is still quite small as compared to Wal-Mart or Apple.
Alternatives Considered: is it imagined that such a currency would be competitive with bank-issued currencies, for example?
In a full-reserve world, yes, for the institution would functionally be a full reserve bank with the additional advantage of not requiring profits from the currency itself in order to exist, at least in the case of institutions that are not primarily financial institutions nor dependent upon them for their core business. Both Wal-Mart and Apple fit that case model. General Electric used to, but is now more of a financial instituton than a manufacturing company. Ford can do it easily, and functionally does with Ford Credit, but won't because credit in a fractional reserve system is more profitable. If Apple or Wal-Mart were to establish such a currency, the operations of the currency would likely be a break even taken alone, even though it might encourage customer loyalty in a way similar to loyalty discount cards presently do. So long as the general public continues to have faith in the fractional reserve fiat currency systems that presently exist, and corporations continue to be more than willing to appease governments, the odds of such a thing occuring are vanishingly small.
I don't have the time to sort out the posts individually. I didn't have time to reply until now as I was at the European Bitcoin Conference over the weekend.
Ad commodity/production: fiat money is issued by a monopolist and the production costs play practically no role in the production decision process. Bitcoins are produced by a competitive process, and at the moment, in most of the world, the electricity costs of running a typical mining rig exceed the market price of the Bitcoins thus produced. Miners are therefore stopping their machines (or even selling them for parts), which causes a decrease of the production price and speeds up reaching an equilibrium.
Ad "intrinsic value". First of all, the concept of intrinsic value is praxeologically invalid. Value is subjective. The opponents of Bitcoin made this one up, I don't know any actual economist claiming this (and I emailed with 9 austrian and a bunch of others). Detlev Schlichter at the conference said exactly the same thing, even though we have not discussed this particular topic with each other before. Second of all, unlike Bitcoin, gold does not have "intrinsic banking". So evidently, there is something special Bitcoin has, it's merely a service rather than something to consume in the classical sense. Furthermore, the argument misrepresents MRT. Mises did not claim that the transition from a medium of exchange to money requires "other employments" (this is the term he used, rather than "intrinsic value"). He claims that the transition from barter to a medium of exchange requires "other employments". There is no way to conclude that MRT means Bitcoin will collapse or can't be money. Last but not least, the argument is empirically false. If nothing else, this should clearly show that it's nonsense. Bitcoin demonstrably is a medium of exchange (for example, I bought a beer with Bitcoins in Prague). So not only did the Bitcoin detractors make up the premise, they also made up the conclusion and the data, ending up with an argument completely detached from any economic theory and reality.
Ad "transaction costs": Wondering why Bitcoin does not have a transaction cost advantage over fiat/gold is the equivalent of wondering what the point of email is since you can send letters over fax. It utterly misses a paradigm shift. The kids nowadays consider even emails obsolete and use IM, facebook and whatnot.
Ad "protecting your assets": I'll make an analogy with Harry Potter. Voldemort wanted to be immortal and therefore created 7 horcruxes, which preserved a part of his soul in case something happens to him. The main storyline of the 7 books is HP and Dumbledore trying to find these horcruxes, confiscate and destroy them. Voldemort is an elite wizard (let's call him "the 1%") and he paid a steep price for the creation of these horcruxes: he had to split his soul into 8 parts and die in the process, spent years on his plan and traveled into far places.
Let's say that a genius wizard, Satoshi Nakamoto, invented a spell that allowed anyone, including the muggles (let's call them "the 99%") to create a million horcruxes spread all over the world, in a fraction of a second, at negligible cost, while sitting at a couch in their living rooms. He would then proceed to publish the spell for everyone to use and study.
Now, imagine the horcruxes are your financial assets and HP&Dumbledore are the bad guys.
Harry Potter as an economic analogy. Inverted.
Wow, just wow.
MoonShadow: Indeed, very similar to gold in this respect, and many others. That's actually the point. Digital gold-like currency with the additional benefit of the ability to send precise amounts of funds to anyone in the world as fast as an email.
Yes that is very neat feature. I don't see why it couldn't be done with gold too using money substitutes.
MoonShadow: This is true enough for the average Joe at the present time, and likely for the forseeable future, this is true. Yet, my great-grandaunt learned to use GNU/Linux (peanut, specifically) as her first personal computer about 8 years ago, at 81 years old. Don't assume that Joe Six-Pack is unable to learn new tricks if he decides it's to his advantage to do so.
There are people even today that don't have bank accounts. It would probably be the same with bitcoin. There will always be people without thirparty security support for whatever reason. Still it is just easier to outsource security concerns to people that actually know what they are doing and focus on what you are doing the best. Thats how banks emerged. It is called law of comparative advantage.
boniek: Yes that is very neat feature. I don't see why it couldn't be done with gold too using money substitutes.
Transaction costs. Same as letter+fax vs. email. In 10 years, people might laugh at the concept of email similarly as they now laugh at the concept of fax. The only reasons why fax even survives is obsolete laws about signatures.
boniek: There are people even today that don't have bank accounts. It would probably be the same with bitcoin. There will always be people without thirparty security support for whatever reason. Still it is just easier to outsource security concerns to people that actually know what they are doing and focus on what you are doing the best. Thats how banks emerged. It is called law of comparative advantage.
Bitcoin is very flexible. There are at least two separate teams working on split keys. You can't have split keys with gold. It's the equivalent of gold materialising in a safe only when two people turn their keys.
Also, you can use your Bitcoins from a mobile phone already even though the services are not very mature. People in third world countries might not have bank accounts, but they have mobile phones, and this creates a market for alternative payment systems, like the m-pesa. In order to have Bitcoins on your mobile, you don't need any bank account or a contract: you just download an app (for example I use BitcoinSpinner), it generates a keypair and you're ready to receive Bitcoins (and, once you have them, spend them). Or if you don't like electronic devices, you can get Casascius coins and BitBills.
A large proportion of activities of banks is what I call "an overglorified management of money substitutes". With Bitcoins, this all falls away and specialists (like banks) can concentrate on providing useful services, like lending/borrowing without expanding the money supply.
Peter Šurda: Transaction costs. Same as letter+fax vs. email. In 10 years, people might laugh at the concept of email similarly as they now laugh at the concept of fax. The only reasons why fax even survives is obsolete laws about signatures.
I do not think it is that simple. Direct transaction costs are minimal only if we assume that both sides use bitcoin as currency and both sides use vanilla bitcoin with no or minimal security. The more security you use the harder and therefore more costly it is to transfer bitcoin. There are transaction costs associated with online money substitute transfers, but you get some useful services in turn (like possibility of rolling back your transaction) and we have to remember about taxes and regulations those firms have to comply with which raises cost to the consumer. These, with time (assuming bitcoin acceptance will grow), will be impossible to ignore with bitcoin too unless you or companies associated with bitcoin will want to risk jail time.
Peter Šurda: Bitcoin is very flexible. There are at least two separate teams working on split keys. You can't have split keys with gold. It's the equivalent of gold materialising in a safe only when two people turn their keys.
I do not understand what you are trying to say. Isn't this simply authentication mechanism?
Peter Šurda: Also, you can use your Bitcoins from a mobile phone already even though the services are not very mature. People in third world countries might not have bank accounts, but they have mobile phones, and this creates a market for alternative payment systems, like the m-pesa. In order to have Bitcoins on your mobile, you don't need any bank account or a contract: you just download an app (for example I use BitcoinSpinner), it generates a keypair and you're ready to receive Bitcoins (and, once you have them, spend them). Or if you don't like electronic devices, you can get Casascius coins and BitBills.
All this is possible with money substitutes too and is not unique to bitcoin: NFC makes possible paying with your mobile with any government imposed currency.
boniek: I do not think it is that simple. Direct transaction costs are minimal only if we assume that both sides use bitcoin as currency and both sides use vanilla bitcoin with no or minimal security. The more security you use the harder and therefore more costly it is to transfer bitcoin. There are transaction costs associated with online money substitute transfers, but you get some useful services in turn (like possibility of rolling back your transaction) and we have to remember about taxes and regulations those firms have to comply with which raises cost to the consumer. These, with time (assuming bitcoin acceptance will grow), will be impossible to ignore with bitcoin too unless you or companies associated with bitcoin will want to risk jail time.
Having a Bitcoin-only transaction is not necessary to decrease costs. Multi-forex transactions already have often lower transaction costs if you add Bitcoin. Avoding fiat completely is just a bonus. The analogy one of the guys at the conference made (forgot who) is that banks could silently switch to Bitcoin for their settlement networks without telling anyone, just like phone companies switched large parts of their infrastructure to VoIP.
I don't understand your point with security. With Bitcoin, you can choose the level of security you want and based on that you will have to carry the costs. The ability to reverse transactions is sometimes an advantage and sometimes a disadvantage. With Bitcoin, you can do e.g. the aforementioned multi-signing or conditional escrow, which can mitigate risks. If you're transferring money with someone you know and trust, you just send the Bitcoins and forget about it. Nobody can prescribe you what decisions you should make.
Taxes and regulations are only an issue with respect to Bitcoin because there are no legal precedents and no official statements anywhere in the world. Opinions differ regarding what taxes and when should be payable (capital gains/income/VAT), because from legal point of view, Bitcoin most likely is not currency or security or commodity. Nor is it, according to the EU e-money directive, e-money. Also, as Detlev Schlichter rightfully pointed out, once the fiat currencies collapse, the legal status won't matter.
boniek: I do not understand what you are trying to say. Isn't this simply authentication mechanism?
It's more an authorisation than authentication mechanism.
boniek: All this is possible with money substitutes too and is not unique to bitcoin: NFC makes possible paying with your mobile with any government imposed currency.
You can't do this with money substitutes. That would require an account with the issuer of the substitute, and you'd be at his mercy.
Peter Šurda: Having a Bitcoin-only transaction is not necessary to decrease costs. Multi-forex transactions already have often lower transaction costs if you add Bitcoin. Avoding fiat completely is just a bonus.
Having a Bitcoin-only transaction is not necessary to decrease costs. Multi-forex transactions already have often lower transaction costs if you add Bitcoin. Avoding fiat completely is just a bonus.
I do not know how multi-forex transactions works so I won't comment on that. I just imagine that when two parties want to trade and all you have is bitcoin and I want payments in USD for example then cost of such transaction is higher than if we both would be using the same currency. I do not know how it is possible otherwise - you have to physically do more operations for this transaction to succeed.
Peter Šurda: The analogy one of the guys at the conference made (forgot who) is that banks could silently switch to Bitcoin for their settlement networks without telling anyone, just like phone companies switched large parts of their infrastructure to VoIP.
The analogy one of the guys at the conference made (forgot who) is that banks could silently switch to Bitcoin for their settlement networks without telling anyone, just like phone companies switched large parts of their infrastructure to VoIP.
That would work only if bitcoin is equivalent to (it would have to be fiat) or backed by (there would have to be guarantee of payout of certain amount) USD. I don't see how it is. In fact if other bank would accept bitcoin I would deliver it to them but myself would never accept bitcoin. The other bank would soon be bankrupt because it owes USD and not bitcoin to its clients. VOIP is perfect equivalent and even improvement over traditional methods.
Peter Šurda: I don't understand your point with security. With Bitcoin, you can choose the level of security you want and based on that you will have to carry the costs.
I don't understand your point with security. With Bitcoin, you can choose the level of security you want and based on that you will have to carry the costs.
That was my point. Secure bitcoin transactions are not free.
Peter Šurda: The ability to reverse transactions is sometimes an advantage and sometimes a disadvantage. With Bitcoin, you can do e.g. the aforementioned multi-signing or conditional escrow, which can mitigate risks.
The ability to reverse transactions is sometimes an advantage and sometimes a disadvantage. With Bitcoin, you can do e.g. the aforementioned multi-signing or conditional escrow, which can mitigate risks.
Such tricks (I do not claim that all of them) are available to traditional money substitutes too. AFAIK ebay uses such things.
Peter Šurda: If you're transferring money with someone you know and trust, you just send the Bitcoins and forget about it. Nobody can prescribe you what decisions you should make.
If you're transferring money with someone you know and trust, you just send the Bitcoins and forget about it. Nobody can prescribe you what decisions you should make.
Sure but mistakes and frauds happen. Even from close family. I prefer to get my money back if this is possible in such situation.
Peter Šurda: Taxes and regulations are only an issue with respect to Bitcoin because there are no legal precedents and no official statements anywhere in the world. Opinions differ regarding what taxes and when should be payable (capital gains/income/VAT), because from legal point of view, Bitcoin most likely is not currency or security or commodity. Nor is it, according to the EU e-money directive, e-money.
Taxes and regulations are only an issue with respect to Bitcoin because there are no legal precedents and no official statements anywhere in the world. Opinions differ regarding what taxes and when should be payable (capital gains/income/VAT), because from legal point of view, Bitcoin most likely is not currency or security or commodity. Nor is it, according to the EU e-money directive, e-money.
Governments probably won't care till bitcoin becomes threat to their monopoly. Then suddenly you will have law plus fear and smear campaign in the media. Somehow to me this is just expected and obvious :)
Peter Šurda: Also, as Detlev Schlichter rightfully pointed out, once the fiat currencies collapse, the legal status won't matter.
Also, as Detlev Schlichter rightfully pointed out, once the fiat currencies collapse, the legal status won't matter.
Collapse of fiat currencies is not an end of the world and surely not an end of states. I do not see how this is revelant as long as states will exist.
Peter Šurda: It's more an authorisation than authentication mechanism.
Really nice feature:) Basically like from old mafia movies where bad guys tear one banknote in two and each receives one part. Then they deposit suitcase full of money to the other guy and tell him to only give it back to the person who presents him both parts of this particular banknote.
Peter Šurda: You can't do this with money substitutes. That would require an account with the issuer of the substitute, and you'd be at his mercy.
Let me clarify then. Mobile payment with money substitutes is perfectly possible as long as you have an account with issuer. In case of bitcoin it is very similar: but instead of account you need key pair. Admittedly it is a incomparably more decentralized with bitcoin, but we are comparing government controlled cartel with product that is totally free from this control. You are at mercy of issuer too with bitcoin. Issuer is bitcoin itself. I have no problem being at mercy with issuer as long as he operates on a free market (you know - with competition etc), because the fact that someone is issuing my money substitutes is not the problem. I believe that bitcoin if it ever becomes successful will bend to government will anyway if people will still believe that money is government businness.
boniek: Peter Šurda: I don't understand your point with security. With Bitcoin, you can choose the level of security you want and based on that you will have to carry the costs. That was my point. Secure bitcoin transactions are not free.
We understood the point, and nothing is free, but secure bitcoin transactions are not only truely possible (unlike with any third party transaction system, such as a credit card or how digital gold certs would work) they are incrediblely cheap as compared to what is presently available, or even otherwise possible. I pay a (voluntary) fee for transactions for sheer speed, and they are normally about a tenth of a cent regardless of the value of the transaction. Increasing levels of security in Bitcoin doesn't really come at a monetary cost, but more of a convience cost to the user. If it's important to you, then you do the work to make it secure. With any third party system, the high mark of the security is beyond your control.
boniek: I do not know how multi-forex transactions works so I won't comment on that. I just imagine that when two parties want to trade and all you have is bitcoin and I want payments in USD for example then cost of such transaction is higher than if we both would be using the same currency. I do not know how it is possible otherwise - you have to physically do more operations for this transaction to succeed.
If you want to transfer fiat money electronically, you pay transaction fees. If the sender and recipient use different currency, there are additional fees (forex fees). If you inject Bitcoin in the middle, you magically save money because the fees are lower. This by the way indicates that there's something wrong with the banking system, because on a free market this would not be possible. The technology for lower fees has existed for a long time already.
boniek: That would work only if bitcoin is equivalent to (it would have to be fiat) or backed by (there would have to be guarantee of payout of certain amount) USD. I don't see how it is. In fact if other bank would accept bitcoin I would deliver it to them but myself would never accept bitcoin. The other bank would soon be bankrupt because it owes USD and not bitcoin to its clients. VOIP is perfect equivalent and even improvement over traditional methods.
Both sides would simply do the opposite forex transactions, and use Bitcoin for the transfer. Just like when you and I use a normal analogue phone, but the routing in the background occurs partially through VoIP.
boniek: That was my point. Secure bitcoin transactions are not free.
Nothing is "free". What Bitcoin does is it separates the layers, so that security providers can specialise and compete.
boniek: Such tricks (I do not claim that all of them) are available to traditional money substitutes too. AFAIK ebay uses such things.
With ebay, the arbiter needs to be either ebay or paypal. With Bitcoin, you can choose anybody that both parties agree upon, even completely unrelated to the item being sold.
boniek:Sure but mistakes and frauds happen. Even from close family. I prefer to get my money back if this is possible in such situation.
But Bitcoin does not prevent you from paying for a different security method. It liberates you from being forced to use the methods that banks or governments want you to use.
boniek:Governments probably won't care till bitcoin becomes threat to their monopoly. Then suddenly you will have law plus fear and smear campaign in the media. Somehow to me this is just expected and obvious :)
Well, laws against copyright violations and drug use are there to support established monopolies, yet the enforcement of these monopolies does not really have the anticipated effect. If anything, drugs are more expensive when illegal. Why should then the illegalisation of Bitcoin be a problem for Bitcoin users? If it's illegal, there's also no point in paying taxes for Bitcoin revenues, making it even more advantageous to use Bitcoin.
boniek:Collapse of fiat currencies is not an end of the world and surely not an end of states. I do not see how this is revelant as long as states will exist.
If you have hyperinflation and an alternative to the banking system, that could quite well affect the ability of the state to collect revenue and function. States are already affected by hyperinflations as is, but the banking system is also affected, so people do not really have much choice and have to revert to barter or foreign currencies. They still won't have a working banking system, so the state can reestablish its role by supporting the banks with a new currency that is less inflationary. If there is a working alternative to the banking system (decentralised, international, based on predictable money supply), who knows what can happen?
In the 1930s, the US government confiscated private gold, promising the people to use it to "fix" the banking system and reissued the people with bank notes/checking accounts. People bought into this. What would happen today? Would people surrender their gold willingly? What would happen if not? Would government permit gold-backed banks to arise?
boniek:Really nice feature:) Basically like from old mafia movies where bad guys tear one banknote in two and each receives one part. Then they deposit suitcase full of money to the other guy and tell him to only give it back to the person who presents him both parts of this particular banknote.
Kind of, except there is no person checking it, the result materialises out of nothingness. More like Captain Planet, or the warlock's ritual spells (from World of Warcraft).
boniek:Let me clarify then. Mobile payment with money substitutes is perfectly possible as long as you have an account with issuer. In case of bitcoin it is very similar: but instead of account you need key pair. Admittedly it is a incomparably more decentralized with bitcoin, but we are comparing government controlled cartel with product that is totally free from this control. You are at mercy of issuer too with bitcoin. Issuer is bitcoin itself. I have no problem being at mercy with issuer as long as he operates on a free market (you know - with competition etc), because the fact that someone is issuing my money substitutes is not the problem. I believe that bitcoin if it ever becomes successful will bend to government will anyway if people will still believe that money is government businness.
Do you prefer to trust in abstract concepts or in individuals?
First of all, the concept of intrinsic value is praxeologically invalid. Value is subjective. The opponents of Bitcoin made this one up, I don't know any actual economist claiming this (and I emailed with 9 austrian and a bunch of others).
You don't understand intrinsic value, a phrase used by respected Austrians. Google is your friend.
Detlev Schlichter at the conference said exactly the same thing, even though we have not discussed this particular topic with each other before.
Nobody's perfect, not even Detlev Shlichter.
Second of all, unlike Bitcoin, gold does not have "intrinsic banking". So evidently, there is something special Bitcoin has, it's merely a service rather than something to consume in the classical sense.
Mere mumbo jumbo.
Furthermore, the argument misrepresents MRT. Mises did not claim that the transition from a medium of exchange to money requires "other employments" (this is the term he used, rather than "intrinsic value").
Mises used the phrases "to use it for consumption or production," "industrial demand", and the killer, "nonmonetary --industrial--demand which is displayed only by those who want to use this good for other employments than that of a medium of exchange."
So "other employments", which is convenient enough to mean anything, is a misquote, Pete. Shame on you. He clarified many times what he meant. And he did not mean bitcoin, which is only an attempt at being a medium of exchange, and a miserable one at that, which has lost people 90% of their money forever.
Mises did not claim that the transition from a medium of exchange to money requires "other employments". He claims that the transition from barter to a medium of exchange requires "other employments". There is no way to conclude that MRT means Bitcoin will collapse or can't be money.
First of all, bitcoin is not a medium of exchange, as has been explained here many times.
Second of all, thou art making a distinction without a difference. The reasoning why bitcoin is doomed from the start is exactly the reasoning of MRT, which has been explained many times very clearly both in my blog and various posts here at mises.org.
The only possible argument to say that bitcoin will not collapse is that it already has collapsed. In less than six months it has lost more than 90% [ninety percent!] of its pump and dump value, and has nowhere to go but down.
Last but not least, the argument is empirically false. If nothing else, this should clearly show that it's nonsense. Bitcoin demonstrably is a medium of exchange (for example, I bought a beer with Bitcoins in Prague).
So what? One person buying one thing from one other person doesn't make it a medium of exchange. Ask Detlev Shlechter.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
Yet more dodging and nonsense form Smiling Dave.
Smiling Dave:You don't understand intrinsic value, a phrase used by respected Austrians. Google is your friend.
The concept of intrinsic value contradicts the austrian school's subjective theory of value. Stop making stuff up.
Smiling Dave:Nobody's perfect, not even Detlev Shlichter.
But "Smiling Dave's made up stuff" is, right?
Smiling Dave:Mere mumbo jumbo.
On the contrary, it explains the dual characteristics of Bitcoin as both commodity and service.
Smiling Dave:Mises used the phrases "to use it for consumption or production," "industrial demand", and the killer, "nonmonetary --industrial--demand which is displayed only by those who want to use this good for other employments than that of a medium of exchange."
And the other employments Bitcoin has is the service it provides: transmitting balances. Clearly, since PayPal and Western Union exist are making money, this service has value. The existence of PP and WU is a refutation of your claims: if your argument was correct, they wouldn't exist. Or, more precisely, once PayPal and Western Union's shares started trading on a free market, the companies would collapse. That is the basis of your argument and the evidence of the stupidity thereof.
Smiling Dave:So "other employments", which is convenient enough to mean anything, is a misquote, Pete. Shame on you. He clarified many times what he meant. And he did not mean bitcoin, which is only an attempt at being a medium of exchange, and a miserable one at that, which has lost people 90% of their money forever.
Mises did not explicitly mention possibility of value being caused by services within his formulation of MRT. From this you incorrectly conclude that this is impossible, and thereby support the absurd notion that the majority of our economy (services and information sectors) do not generate value.
Furthermore, since Bitcoin trades on a free market, saying that "has lost people 90% of their money forever" is a yet another example of ignorance of elementary economics. The money was not lost, it is owned by people who were more successful in estimating the future prices of Bitcoin.
Smiling Dave:First of all, bitcoin is not a medium of exchange, as has been explained here many times.
This is empirically false, as documented many times. You are either utterly incompetent or a liar. At least here it should be obvious that your position has no connection to reality.
Smiling Dave:Second of all, thou art making a distinction without a difference. The reasoning why bitcoin is doomed from the start is exactly the reasoning of MRT, which has been explained many times very clearly both in my blog and various posts here at mises.org.
You fail to address my point and instead repeat a non-sequitur.
Smiling Dave:The only possible argument to say that bitcoin will not collapse is that it already has collapsed. In less than six months it has lost more than 90% [ninety percent!] of its pump and dump value, and has nowhere to go but down.
You arbitrarily select a variable and present it as a relevant factor, without establishing a connection. If you take another variable, for example the relative velocity (rougly corresponding to transaction volume divided by money supply) of Bitcoin transactions, the difference between the bubble peak and the bottom is only about 20%. Since the beginning of November, the relative velocity and price have been rising. These two values (relative velocity and market price) correlate throughout the whole period I have analysed: they were rising until mid-June, then falling until beginning of November, and then rising since. The correlation between the relative velocity and price is an indication that Bitcoin behaves as money (see equation of exchange / quantity theory of money).
Smiling Dave:So what? One person buying one thing from one other person doesn't make it a medium of exchange. Ask Detlev Shlechter.
There are about 210 transactions occurring hourly on the Bitcoin network. I made many transactions myself. The proof was particularly evident at the Prague Bitcoin conference two weeks ago, where I made many transactions with other people from all over Europe, in fact Bitcoins were more liquid than either czech crowns or euros.
What is, according to "Smiling Dave's made up pseudoeconomic fairy tales", the threshold for medium of exchange? Assuming you can count as high as 210.
You're an ignorant fool, Smiling Dave. Your grasp of economics is in a shambles. You cannot coherently argue, you cannot present facts, you cannot counter arguments.
Peter Šurda: Smiling Dave:So what? One person buying one thing from one other person doesn't make it a medium of exchange. Ask Detlev Shlechter. There are about 210 transactions occurring hourly on the Bitcoin network. I made many transactions myself. The proof was particularly evident at the Prague Bitcoin conference two weeks ago, where I made many transactions with other people from all over Europe, in fact Bitcoins were more liquid than either czech crowns or euros.
The evidence of Bitcoin as a medium of exchange (and not just another online value transfer mechanism like PayPal) is also evident at PorkFest in New Hampshire. One could, quite literally, have nothing else for exchange, nor any form of credit card, but bitcoin alone and pay for anything, anywhere in the event. That includes the event itself.
I am persuaded by the argument that Bitcoin can act as a money backed by "illegal goods and services".
The quantity of tungsten bullion in storage ("volume of elemental store") is even smaller than the one for silver. Should this make it more "valuable" than silver and infinitely more valuable than gold?
Scarcity is one of the objective factors going into making a good currency. Another, more important one, as bitcoin users are finding to their chagrin, is security. Another is the durability to be made into things like coins and jewelry that can be securely carried on the person. If you could make great coins and bars out of tungsten that were as durable as gold coins and bars, then in the future it would compete with gold as a secure store of value and emergency medium of exchange.
Diamonds are even more compact than gold, but cannot be made into fungible units like coins. Gems are an historically important store of value for situations where such fungibility was not so important.
Bits can be, given the proper security protocols, the ultimate in compact, securely and cheaply storable and transportable money, while retaining the crucial fungibility and scarcity property of gold.
Yes, value is ultimately subjective, but that does not mean there are not objective criteria when we choose our tools, whether they be hammers to drive our nails or money for conducting our transactions.
I agree bit gold is well worth looking at as a model for the next generation of securely scarce cryptocurrency. Szabo's analogy to gold is more explicit and closer than with Bitcoin. Since the scarcity is based only on the cost of bit gold "mining" (requiring computer processing effort to solve mathematical puzzles of well-known difficulty to create new units of cryptocurrency), like gold there is no predeterminedly fixed money supply. The money supply as with gold increases as the demand for currency increases (i.e. as the supply of goods traded in gold or bit gold rises relative to the supply of gold or bit gold).
I'm afraid I don't see how we can do without the age arbitrage or some similar mechanism. Without it, we are left with either non-fungible units (like diamonds or rare postage stamps rather than gold) or a currency whose supply inflates at the rate of Moore's Law. A mechanism is needed to discount future bit puzzle solutions against past ones and create fungible bundles from them. Bitcoin solves this problem by increasing the puzzle difficulty according to a predetermined schedule, but that creates an inflexible response to changing demand for the currency compared to gold or bit gold -- probably the biggest cause of Bitcoin's extraordinary price flucutations.
LOL
"changing demand for currency"
My demand for currency is always infinite.
Clearly you are not from around here.
fortunato: The quantity of tungsten bullion in storage ("volume of elemental store") is even smaller than the one for silver. Should this make it more "valuable" than silver and infinitely more valuable than gold? Scarcity is one of the objective factors going into making a good currency. Another, more important one, as bitcoin users are finding to their chagrin, is security.
Scarcity is one of the objective factors going into making a good currency. Another, more important one, as bitcoin users are finding to their chagrin, is security.
What bitcoin users would this be,since Bitcoin has had no security breeches to speak of? Sure, some online websites that function as rudimentary banks have had some serious security issues, but that was foreseeable by most of us. However, Bitcoin itself has not been compromised. I'll say up front that a perfect form of security isn't likely possible, but this system is damn strong.
I have a question about the custody chain. It's been written that each bit of money has a custody chain that gets verified. How long is this chain or how long can it become? Is there a string limit or something? Couldn't that custody chain get awfully long after awhile?