Anenome: 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? The chain is implemented as Merkle tree, and the longest branch is always considered the chain. Briefly looking at the code, it looks like blocks have a 256bit identifier which makes the number of possible blocks about 10^77. This is comparable to the number of particles in the universe, which is estimated 10^82. From a practical point of view, the chain can indeed grow to be very big, and there is a bitcoin wiki page that discusses it. Based on my calculations (listed on the aforementioned wiki page talk subpage), data storage is a smaller problem from scalability point of view than network bandwidth. | Post Points: 5
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?
Anenome: I have a question about the custody chain. It's been written that each bit of money has a custody chain that gets verified.
I have a question about the custody chain. It's been written that each bit of money has a custody chain that gets verified.
We might be confusing terms here, there is a custody chain for bitcoins individually (sort of) but the actual blockchain is a single, massive, distributed ledger of all such transactions. So the custody of a particular set of bitcoins can be tracked from it's initial issue, but only within the blockchain.
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?
Threre is no practical length limit. The size of a single block, which appears and is linked to the blockchain roughly every ten minutes, is one megabyte at present, but that is an arbitrary limit that can be raised without trouble. It's only there to limit the damage should someone figure out how to 'spam' the blockchain with transactions. This hasn't happened as such yet, but it might yet. The blockchain is expected to grow quite large, and the blocksize limit raised or removed, in the not very distant future in order to uncap the number of transactions per second the bitcoin network can handle. At present, the transaction volume isn't nearly as high as, for example, what Visa can manage. However, there isn't a need for every user to keep the bulk of the data in the blockchain, and the protocol contains a method for 'pruning' a blockchain. The transactions contained within a block are organized into a merkle tree, with the merkle root as part of the header of the block. So if a coin has been transfered a number of times beyond the transaction contained in that block, the data of that old transaction can be removed from your local blockchain without compromising the client's ability to prove to itself that those coins are valid later and without affecting either security nor the other transactions within that same block. In the future, a background pruning process could maintain the blockchain at a couple of gigs of the most recent transactions and still be incrediblely safe. Also, there is also a description of a 'lightweight' client, intended mostly for smartphones and the like, that uses only the blockchain headers plus the transactions directly related to it's own coins, and neither downloads new blocks nor maintains any blockchain beyond the headers. Headers alone weigh in at about 4 megs per year, but such a client could only spend coins that it already has, so it would need a trusted full client to tell it about new coins for it's spending addresses, such as a client on your PC at home.
So Pete and Moon Shadow are both experts about the geeky details of bitcoin.
Note that the ordinary person has never come out here, after losing 1- 4/33 = 88% of his money since bitocoin peaked this summer, and been probitcoin.
Quite the contrary. The people who lost big time have written anti bit coin threads.
Selfish of them , I guess.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
Oh, I see now. Smiling Dave lost his wealth because he "invested" into Bitcoins at the wrong time, and now he's following the strategy "if my goat dies, let my neighbor's goat die too". That explains why his posts are devoid of rational arguments.
No, Pete, I was lucky enough to understand Mises' regression theorem, which told me bitcoin is doomed from the get go.
You can read my blog to educate yourself about the theorem, and its relation to bitcoin.
So I didn't touch bitcoin with a ten foot pole. And never will.
You want the neighbor's goat to die [=buy bitcoin], for reasons unclear to me.
And if you truly think my arguments are not rational, then you have my condolences.
Mises' regression theorem is wrong.
The Economics Of Bitcoin – Challenging Mises’ Regression Theorem
The Economics Of Bitcoin – Challenging Mises’ Regression Theorem – Prof. George Selgin Responds
Stomping your feet and demanding that Bitcoin will not work, in the face of the market PROVING that it does work, seems beyond ridiculous to me.
Facts are facts.
Bitcoin is a market produced money and it is currently worth four times the value of the dollar on a per unit basis. Bitcoin currently has a market capitalization of 32 million USD. Bitcoin will not be going away anytime soon, and it will only gain more value as more users of the currency come online. Every day another vendor comes online who accepts Bitcoins as payment.
Michael, I will address your two articles at length soon.
The market hasn't proved anything but that bitcoin is a total flop. I don't see how losing 88% of it's value in less than six months is proof something works.
Bitcoin is a market produced...
yes
...money...
no
and it is currently worth four times the value of the dollar on a per unit basis.
I hope people reading this know better than to think that statistic is meaningful. I mean, so what? Especially since in a few months that number will change to "one tenth the value of the dollar", or less.
Bitcoin currently has a market capitalization of 32 million USD.
Which is a trivial sum. Even a company with that amount of money is a tiny player, certainly an alleged currency.
Bitcoin will not be going away anytime soon,...
Yes it will
and it will only gain more value as more users of the currency come online. Every day another vendor comes online who accepts Bitcoins as payment.
So how come it has lost 88% of its value in the six months droves of people started using this currency, and 182 vendors [=one a day, a piddling amount] came out of the closet to accept bitcoins? I guess one vendor a day just isn't enough to stop bitcoin from losing 88% of its value.
Smiling Dave,
I read your blog. However, I also read dozens of books about money and emailed with about nine austrian economists about Bitcoin (in no particular order, Hoppe, Block, Gordon, Selgin, Schlichter, Klein, Murphy, Kinsella, Bagus). Your interpretation of the regression theorem is flawed. As I explained, MRT does not say that the evolution from a medium of exchange to money requires "other employments". The most Bitcoin-averse Austrian position, that MRT means that Bitcoin cannot become a medium of exchange, is not even the dominant opinion of actual economists. Among others, Selgin, Bagus, Kinsella (and according to the last one, also Huelsmann), do not agree with this interpretation.
Once again, if your argument was correct, once Paypal and Western Union started trading their shares publicly, the companies would collapse. In fact, all service providers that do not sell goods would collapse, including barbers (unless they give you gel), dry cleaners, car repair shops (unless they replace components), lawyers, taxis, package deliver, and last but not least, all consultants. I already explained the flaw in your argument from a theoretical standpoint, this example just underscores the obvious absurdity of your position.
Bitcoin works because it decreases transaction costs. Since it eliminates the necessity for money substitutes, these lower transaction costs will be always present compared to either fiat or physical commodity system. The only thing Bitcoin needs to do to increase the market share is that these lower transaction costs must outweigh the network effect of fiat currency.
I made my own "money evolution theorem" to make MRT more general: if there is no money, it evolves when it decreases transaction costs. If there already is money, new money evolves when the transaction costs decreases outweigh the network effect of the old money. This not only explains how money substitutes and fiat money evolve, it also explains that the next step in evolution, if it ever comes, must be a something that decreases transaction costs even further. A new physical commodity does not do that. Bitcoin does it, among other things, because it eliminates the necessity for money substitutes. A system based on physical commodities and debt-instruments cannot compete on transaction costs with it, because these debt-instruments (money substitutes) have maintenance costs (for example, storage, redemption availability, risk assessment, interbank clearing) that need to be covered somehow and need to be reflected in the transaction costs.
Bitcoin is not competing with gold, but with fiat. Gold-based free banking models (whether Mises-Rothbard or White-Selgin) do not exist, and never existed. They can only evolve if there is a favourable legal framework (either directly, or due to fiat monetary collapse), and then maybe the development will follow one of these models (MR or WS). Bitcoin does not require any of this: it is already here and already works. If fiat collapses, for example, it won't become magically cheaper to transfer gold: you'd still need that a banking system to evolve. The ATMs won't magically start spitting out gold coins, banks won't magically start giving you gold-denominated accounts, POS terminals won't magically start processing cards issued by gold warehouses. In fact, all these services will probably stop working completely.
Just because you refuse to educate yourself and wish to remain in ignorance does not mean that you're correct. In fact, it's the opposite.
What you are forgetting is that Bitcoin is still up over 300% since April.
Yeah, it was inflated into a bubble by over-eager investors, but as a currency, it is still outperforming State issued currencies by a country mile. Just looking at the short term bubble that inflated and popped means nothing in the long run.
How much value has the dollar lost since April?
Looking at the charts, it appears that the bubble has finished clearing itself and the market has bottomed.
Smiling Dave: The market hasn't proved anything but that bitcoin is a total flop. I don't see how losing 88% of it's value in less than six months is proof something works.
On the contrary. The market proved that the Bitcoin detractors such as you are completely detached from reality. The impossibility of bubbles is not a prerequisite for money. That's just another fairy tale made up by the likes of you. In fact, there was a gold bubble around 1979-1980.
What one needs to realise is that not all Bitcoins are traded on the exchanges. Based on the available data, I would estimate that the exchanges hold less than 10% of all Bitcoins. So a 90% drop on the exchanges represents only 9% from the perspective of the whole market.
There are other variables, such as the transaction volume or the number of merchants accepting Bitcoin, which have been continuously rising despite the bubble(s). The transaction velocity slightly decreased, by about 21%, from the top to bottom (Mid-June to Mid-November), but has been rising again.
You're lacking both in your theoretical foundation as well as in empirical analysis.
Michael Suede: Looking at the charts, it appears that the bubble has finished clearing itself and the market has bottomed.
Well, I would be a bit more cautious here. While the analyses that I performed cannot tell me if there is a bubble or not, and indeed the current trends are upwards, I think a new bubble is forming. I think that until Bitcoin has reached a much higher market penetration than now, we'll probably see high price volatility. My worry is that amateur "investors" will burn during these bubbles and this will make bad publicity for Bitcoin.
"The market hasn't proved anything but that bitcoin is a total flop. I don't see how losing 88% of it's value in less than six months is proof something works."
I don't see how lising 99% of its value in 100 years is proof that something works... and yet I was able to buy a cup of coffee with a USD (well, several of them) this morning.
I don't have a stake in this race, but Smiling Dave, to me you are losing. Bitcoin *is* used by people. Not a lot, but there are plenty of national currencies for very small countries that still are used, so that doesn't seem to be a litmus test. Bitcoins have lost value vs the USD in the last 6 months, but you're simply cherrypicking a convenient window. Gold has lost value in the last month or two two: does that mean it "doesn't work"? Bitcoins *gained* a lot of value in the time before the last 6 months, and it's simply dishonest of you to continue to ignore that fact. You also continue to ignore the reverse: bitcoin has *retained* 12% of its value even in the last 6 months. It didn't go down to *nothing*. You can still *buy stuff* with it. What is money if not "something you can buy stuff with"?
Mises MRT is not a theorem. It doesn't meet the standards of a formal logical statement/reason proof. It is mostly an *explanation* of what happened in the past; it's an insight, and a very useful one, but that's all. Put simply: if people valued something as money yesterday, then there is reason for people to anticipate that it will be valued as money in the future and so they can value it as money today. Mises (and others of course, e.g. Menger) explained that in the case of gold, gold was "valued as money yesterday" because it emerged naturally from the market first as a commodity and it had many of the qualities that work well for money. But there's nothing in the regression logic that says that that is the *only* way that something could be valued as money "yesterday". In fact, with fiat currency, it was "valued as money yesterday" because the government decreed that it was. Bitcoin was "valued as money yesterday" because a bunch of people simply decided that they wanted an alternate currency and decided to do so. It doesn't really matter why as far as the MRT logic goes; it just matters that some people valued it yesterday, so that other people today can have some confidence that they will continue to do so tomorrow. Once the "ball gets rolling", the MRT just says that it can *keep* rolling. It doesn't say that is *has* to: for that, all of the other market forces that come to bear in terms of the quality of money are in play. This includes all the classic things like divisibility and fungibility and reliability, as well as evolving market forces like transaction costs, untraceability (by the government in particular), transimittability, etc.
I don't know that bitcoin is going to be successful in the market, but we're past the point at which the MRT applies. Bitcoin *is* a money. It's just not a particularly widespread or popular one yet. That's a market choice, not a definitional issue.
OK, I posted a rebuttal to Mike's links, hot off the presses. It summarizes Mike's argument, accurately if sarcastically, then links to three previous articles on my blog which rebutt him.
Pete's comments tell me he is blessed with a different logic than is commonly used in serious academic circles, so I won't bother to reply. I mean, proving I'm wrong by saying you asked all your buddies and they disagree? Point out the flaw, my son. Appeal not to Authority.
Also, saying Western Union is just another bitcoin? And barbershops too? I leave this as an excercise for the reader. If a serious person wants to know the difference he can ask me.
As for bit coin being worth a dollar in April and $4 now, proving bitcoin is here to stay, no my son. Bitcoin came out of nowhere, worth close to zero at first. It then was pumped to $33, then dumped. The curve of it's value is a perfect upside down V. Classical pump and dump of a useless stock. It's still on the decline.
But hey, MAYBE I'm wrong and MAYBE you are right. Maybe. Dear readers, are you going to gamble away serious money, or any money, on that kind of maybe? At least Vegas gives you better odds, and free drinks.
This is wrong:
The very first businesses in the Bitcoin economy were exchangers (NewLibertyStandard, BitcoinMarket, BitcoinExchange,….). This is not an accident, but flows from the analysis above. In order for Bitcoins to serve as a medium of exchange without commodity value for uses besides indirect exchange, there must be a translated knowledge of money prices. Market exchangers fill this gap and give Bitcoin users access to this knowledge. Bitcoins may therefore currently serve as a money intermediary for paypal dollars\pecunix\euros. But why is there demand for Bitcoin over USD?? This is a subjective valuation arising from properties such as anonymity, decentralized system of clearance, cryptographic trust, predetermined and defined rate of growth, built in deflation, divisibility, low transaction fees, etc…. inherent to the Bitcoin system.
We know it is wrong because it doesn't matter if Bitcoin's prices are established in terms of dollars, gold, widgets, cars, oil, or any other tradible commodity. Because dollars represent real resources, the establishment of dollar prices for Bitcoins through exchanges is the same as if any of the things one can buy with dollars is being traded for Bitcoins themselves.
This is how prices come about for any new good or service, and since Bitcoin is a digital commodity, it is the same as if coffee is being introduced to a market that had no idea how valuable coffee was. Imagine trying to trade coffee beans with a society that had never experienced coffee before. At first, the market for coffee would be limited and not many people would be willing to trade for this unknown good, but once people grasped its value, its price will rise.
What the dollar price of bitcoins proves is that people ARE willing to trade real resources in exchange for Bitcoins. If MRT was to hold true, then dollar prices for Bitcoins never should have been established in the first place. Bitcoins are the incontrovertible proof that the market can see value in a medium of exchange for its own sake, unrelated to any prior use.
For those that have studied and been involved in Bitcoin a lot more than I have, I have a question:
If you were the CEO* of a giant online ecommerce website** (say, walmart.com***), what could you do to advance the adoption of bitcoin**** while still satisfying your investors and board of directors (that is, without just sucking up some giant loss... you have to make a case that it's good for the business as well as for bitcoin)? Presumably the base concept would be to say that you *accept* bitcoin for all purchases on your site... but can you help me flesh that out a bit? How would that work for an existing site? If Walmart.com takes bitcoins, realistically, all of their accounting and systems are in USD. Would they then have to sell these immediately at an exchange? If so, does that really "help". or does it only help if they keep them themselves (which seems hard to justify). What about 3rd party merchants that sell on your website (assuming you let them do so): would you take in bitcoins for their wares, but then exchange them and pay the merchants in dollars? Or would you try to incent merchants taking bitcoins somehow? Would there be some advantage to "branding" your own line of bitcoins (it is my understanding that there can be different "pools" of bitcoins)? I realize such a branding wouldn't help those who already hold a different "pool", but if this new branded pool was considerably more successful (because consumers knew it was "backed" by the ability to buy stuff on this website), supporters of bitcoin might still be happy. Just thinking out loud, but if prices on the website are expressed in dollars and thus the price in bitcoins fluctuates according to the exchange rate between bitcoins and USD, that isn't really that much of a guarantee. Would the website have to promise relatively stable prices *in terms of bitcoins directly* for it to really promote the use of bitcoins? IOW, if I know that I can buy a pair of jeans with a bitcoin for 6 more months at least (because walmart.com has said that the price will stay the same for at least that long), then doesn't that "stabilize" the value of the bitcoin? In essence, bitcoins would become "backed" currencies, only instead of being backed by a single commodity like gold, they would be backed by the entire marketplace of things for sale on walmart.com.
is there anything there, or is that not really all that helpful?
*: I am not a CEO.
**: I do work at a large ecommerce website
***: I don't work at walmart.com
****: I do have input into new business ventures and I have seen mention of bitcoin, but only in passing at this point
I would immediately accept bitcoins because that would allow me to conduct international sales without any banking fee overhead.
If I was a multi-national, I would also use Bitcoin to move money between my overseas operations and my domestic operations.
Bitcoin allows small time players access to the inernational market as well without having to deal with hefty banking fees.
It also allows me to bypass the steep credit card fees, which allows me to discount products more so that if I just used credit cards.
Companies can reduce their risk of exposure by holding the coins for short periods, but there are also other ways of hedging market fluctuations.
1. On whom is the burden of proof? Mike asserted that the market "proved" bitcoin works. How does losing 90% in six months prove the value of bitcoin?
2. And indeed losing 99% in 99 years proves fiat money is a failure, too.
Bitcoin *is* used by people...national currencies for very small countries
But not by a lot of people. Economists use the phrase "generally accepted". And national currencies have an exchange rate anyone can and does use, 99.99% of humanity will not accept a bitcoin for anything, except as an excuse to give the presenter a swift kick in the butt.
Bitcoins have lost value vs the USD in the last 6 months, but you're simply cherrypicking a convenient window. Gold has lost value in the last month or two two: does that mean it "doesn't work"? Bitcoins *gained* a lot of value in the time before the last 6 months, and it's simply dishonest of you to continue to ignore that fact. You also continue to ignore the reverse: bitcoin has *retained* 12% of its value even in the last 6 months. It didn't go down to *nothing*.
I'm not cherrypicking. I am talking about the the complete chart of bitcoin from day one. Look up to my previous post to see it. Gold has a different long term chart than bitcoin.
They *gained* at first, yes. Classical pump and dump. One ride only up the roller coaster, then straight down, forever. That is the history of bitcoin. Look at the chart. Even Pete admits, finally, that you can get burned buying it. He also admits it is "volatile", which is partially correct. It has big down swings, but tiny up swings. I'm no expert, or even believer, in technical analysis, but look around. There is a bitcoin ENTHUSIAST out there who uses his charts to claim bitcoin will very soon, like in the next few months, drop to a buck. Prove him wrong. Buy bitcoins. Make money.
I never said it went down to *nothing*. No straw men, please. I said it lost 90% in six months, and shows every sign of falling off that cliff into the abyss.
You can still *buy stuff* with it. What is money if not "something you can buy stuff with"?
Read my blog. Mioney is not something *you* can buy *stuff* with, but something *everyone* is using to buy *everything* with.
Sadly, you misunderstand MRT. It meets the standards of a formal logical theorem. Summarize it in a fashion I will agree to, then show me the flaw, please. That is the accepted method of debate where thinking people gather.
I suggest you read my blog about MRT. The latest article has a link to where I explain it at length.
Also, it says more than you think it does. And fiat money is not a counterexample, as even Mike admitted and explained in his link about Mises being wrong.
We are not past the point where MRT applies. A not particularly widespread or popular money, is, by definition, not a money. Brush up on your economics.
On last thing, guys. If you are going to read my blog, make sure to read the enlightening comments, where the bitcoin enthusiasts try to blast me to pieces with every possible argument, and are left empty vessels by my replies.
I think it's wrong, too. It's a quote from your article.
Bitcoin is not the same as coffee. You can drink coffee. You cannot to anything with bitcoin but pass it on to the next sucker. And yes, as people grasped the value of coffee, its price will rise, but no one will ever grasp the [intrinsic] value of bitcoin, because it has none.
If MRT was to hold true, then dollar prices for Bitcoins never should have been established in the first place.
No, my son. First of all, they were never "established", in the sense that there was a large market for bitcoins. It was all a couple of guys who should have known better, but didn't. The exact same crowd all fraudsters and pump and dumpers go after.
Second of all, let's look at Beanie Babies. They were worth a lot of money at first. They were a popular fad. And it took ten years for the fad to fade, making them worth zero [besides their intrinsic value for use as insulation in housing].
Some people bought into bitcoin as a fad, thinking it's a cool thing to have, and maybe it is. But like all fads, this one will fade, not grow. It's fading as we speak. The last six months have seen it fade 90%.
Smiling Dave: Pete's comments tell me he is blessed with a different logic than is commonly used in serious academic circles, so I won't bother to reply. I mean, proving I'm wrong by saying you asked all your buddies and they disagree? Point out the flaw, my son. Appeal not to Authority.
Invoking references had twofold purpose. The first one was to show that medium of exchange having to evolve from a physical commodity is only a minority viewpoint of the Austrians. The second one was to show that your particular representation has no basis in Austrian writings. What you present is not Austrian economics, rather your own theory, which I previously labeled "Smiling Dave's fairy tales".
Smiling Dave: Also, saying Western Union is just another bitcoin? And barbershops too? I leave this as an excercise for the reader. If a serious person wants to know the difference he can ask me.
Your argument requires, among other prerequisites, that services have no value. This is clearly an absurd proposition. Without it being true however, your position collapses.
Smiling Dave: As for bit coin being worth a dollar in April and $4 now, proving bitcoin is here to stay, no my son. Bitcoin came out of nowhere, worth close to zero at first. It then was pumped to $33, then dumped. The curve of it's value is a perfect upside down V. Classical pump and dump of a useless stock. It's still on the decline.
My argument is not that "bitcoin is here to stay", rather that your line of arguing is erroneous. You make invalid assumptions, add some non-sequiturs and arbitrary data points.
I provided a point by point refutation of your claims. You retort with ridicule and incoherent ramblings.
Smiling Dave:But hey, MAYBE I'm wrong and MAYBE you are right. Maybe. Dear readers, are you going to gamble away serious money, or any money, on that kind of maybe? At least Vegas gives you better odds, and free drinks. Making random guesses is not the same as coherently arguing. Your arguments are erroneous and often also methodologically invalid. While that is of course inadequate to conclude that the future of Bitcoin will be bright, it unmasks the lack of fundaments in your position and makes it less likely to be taken seriously. | Post Points: 20
Smiling Dave:On whom is the burden of proof? Mike asserted that the market "proved" bitcoin works. How does losing 90% in six months prove the value of bitcoin?
Bitcoin survived bubbles, trolls, media frenzy, failures of service providers, fraud, security compromises. Despite your failed prophecy a'la Harold Camping, the "zero price" has not appeared yet. Since you're the one who claims it will fail, the burden of proof is on you.
Smiling Dave:And indeed losing 99% in 99 years proves fiat money is a failure, too.
Therefore, you refute your own argument.
Smiling Dave:But not by a lot of people.
However, the number of people using Bitcoin has been, according to the available data, rising regardless of the bubble. Unless you imagine that new money will magically gain significant market share like snapping fingers, your argument is at best incomplete.
Smiling Dave:Economists use the phrase "generally accepted". And national currencies have an exchange rate anyone can and does use, 99.99% of humanity will not accept a bitcoin for anything, except as an excuse to give the presenter a swift kick in the butt.
Again, the number is rising. On meetings like the bitcoin conference or porcufest, Bitcoins are generally accepted. There is no fundamental problem here.
Smiling Dave:I'm not cherrypicking. I am talking about the the complete chart of bitcoin from day one. Look up to my previous post to see it. Gold has a different long term chart than bitcoin.
Gold has been used for thousands of years, Bitcoin only existed for about 3, and price data is only available for not even two. How can you compare those two charts baffles me. Your argument lacks any foundation.
Smiling Dave:They *gained* at first, yes. Classical pump and dump. One ride only up the roller coaster, then straight down, forever. That is the history of bitcoin. Look at the chart.
Again, you arbitrarily select data that is convenient for you.
Smiling Dave:Even Pete admits, finally, that you can get burned buying it. He also admits it is "volatile", which is partially correct.
Unlike you, I have been very sparing in making future predictions about the price of Bitcoin, because I understand that it's fundamentally an empirical issue, rather than a theoretical. However, you lack both empirical and theoretical foundation.
Smiling Dave:It has big down swings, but tiny up swings. I'm no expert, or even believer, in technical analysis, but look around.
Apparently, technical analysis is not the only thing you're weak at.
Smiling Dave:I never said it went down to *nothing*. No straw men, please. I said it lost 90% in six months, and shows every sign of falling off that cliff into the abyss.
You provide no coherent explanation why your conclusion should be the correct one. Your attempts at providing arguments are erroneous, as explained several times.
Smiling Dave:Read my blog. Mioney is not something *you* can buy *stuff* with, but something *everyone* is using to buy *everything* with.
This is incorrect. There are no absolutes, only relatives. Money is simply whatever has the highest liquidity rank. This all depends on context. In the right context, Bitcoin is money. Once again, based on the available data, its acceptance has been rising, and I explained that there are no fundamental obstacles to this continuing until economists recognise it as money. Only fools like you will even then refuse to acknowledge it.
I have one anecdote to underscore my point. When I went to Prague for the conference, I exchanged some euros to czech crowns at the Dublin airport so that I can pay for the taxi to the conference. The exchange office told me if I bring the receipt, they will replace the remaining crowns back to euros at no fee. At the conference I mostly used Bitcoins (and debit card where I couldn't). Back at the airport, I gave the lady in the exchange booth the crowns I had, and she said "No coins, only banknotes". So much for "accepted everywhere".
Smiling Dave:We are not past the point where MRT applies. A not particularly widespread or popular money, is, by definition, not a money. Brush up on your economics.
Once again, unless you imagine that one day you go to sleep and when you wake up, market will have supplied new money, your argument is pointless.
Smiling Dave:On last thing, guys. If you are going to read my blog, make sure to read the enlightening comments, where the bitcoin enthusiasts try to blast me to pieces with every possible argument, and are left empty vessels by my replies.
Your blog is apparently not important enough to merit a reply there.
It's not a minotriy view, and please display links proving such an outlandish notion.
So you think appeal to authority is going to disprove my argument? summarize it, then show the flaw.
My argument does not require that services have no value. You dont understand my argument if you write such an odd thing.
And bitcoin doesnt provide a service, btw. A barber cuts your hair, something you want. Western Union transports money for you. Dollars. Bitcoin doesnt do anything but change hands.
Anyway guys, tired of repeating myself, those who get it know what I have to say, those who havent by now never will.
I shall return only to gloat when bitcoin drops under $2 a coin. May be a while, since now it's at $4.
Smiling Dave:It's not a minotriy view, and please display links proving such an outlandish notion.
Selgin: http://libertariannews.wordpress.com/2011/07/22/the-economics-of-bitcoin-%E2%80%93-challenging-mises%E2%80%99-regression-theorem-prof-george-selgin-responds/
Kinsella+Huelsmann: http://blog.mises.org/17249/ideological-and-irrational-exuberance/#comment-807100
Bagus (private email, selected quotes):
Philipp Bagus:Apodictically, we cannot exclude anything from becoming money. The absence of a use value makes the use of the currency more dangerous than the use of a currency with a use value (in consumption or production). This is a comparative disadvantage. You argue, that there is also a comparative advantage, absence of government intervention. So it would in any case depend which is more important.
The absence of a use value makes the use of the currency more dangerous than the use of a currency with a use value (in consumption or production). This is a comparative disadvantage. You argue, that there is also a comparative advantage, absence of government intervention. So it would in any case depend which is more important.
Smiling Dave:So you think appeal to authority is going to disprove my argument?
Stop blabbering nonsense and address my points.
Smiling Dave:summarize it, then show the flaw.
I explained it several times.
Smiling Dave:My argument does not require that services have no value.
On the contrary, that is exactly what it does. You deny that the service Bitcoin provides has value, reasoning that it cannot be consumed. By the same logic, all other services have also no value, because they cannot be consumed. This is absurd.
Bitcoin provides a replacement for significant parts of the the banking system and payment processing. This is where its value comes from. If it did not have a value, why do payment processors, remittance services and bank accounts exist?
But I explained it already. Are you incompetent or intentionally misleading? Oh wait, I don't actually care.
Smling Dave:You dont understand my argument if you write such an odd thing.
You do not understand your own argument.
Smiling Dave:And bitcoin doesnt provide a service, btw.
Again, refuted by empirical evidence as well as theoretical foundation of Bitcoin, plus countless anecdotes.
Smiling Dave:A barber cuts your hair, something you want. Western Union transports money for you. Dollars. Bitcoin doesnt do anything but change hands.
In other words, there is a significant overlap between what Western Union does and what Bitcoin does, it merely uses different units of account. But the unit of account is irrelevant to the service, similarly as it does not matter whether your hairdresser uses the metric or imperial system. WU actually allows to use more than one unit: you can pay euros and the recipient can receive yuan, for example. In combination with the exchanges, Bitcoin can do it too, and cheaper. Once you drop the necessity of fiat, it's even more cheaper.
Even better, WU could simply replace their backbone network with Bitcoin, without having to tell anyone, and reduce their own costs.
Smiling Dave:Anyway guys, tired of repeating myself, those who get it know what I have to say, those who havent by now never will.
Maybe you should start arguing rather than attempting to make up fairy tales.
Smiling Dave:I shall return only to gloat when bitcoin drops under $2 a coin. May be a while, since now it's at $4.
How about you return when it reaches zero? That would give a reasonable chance for you to remain away forever.
Bitcoin survived...
I was reading about Nick Szabo's/et. al. ideas on bitgold and Reusable Proof-of-Work (RPOW) more than a year before "satoshi nakamoto" began working on Bitcoin, a bit of pre-history most Bitcoin-fanatics are unaware of. But I was reading about bitgold back in 2008 which was just 4 years ago. We have a global fiat monetary experiment (Bretton Woods II) on the brink of collapse. That fiat monetary experiment has the backing of all the world's major governments and is ten times as old as Bitcoin and was founded (however precariously) on the preceding established monetary order. Yet its "survival" means nothing. It appears to be on its last leg despite its many advantages over Bitcoin.
Clayton -
That Selgin link says nothing of the kind. I leave it to the interested reader to see for himself. But here's a clue. If Selgin is agreeing with you and Mike, why does Mike feel a need to rebutt him at that very link?
As for Kinsella and Bagus, they are wrong, as I will show in an upcoming blog. Note that they do not disagree with Mises, just have their own interpretation of what they think he said.
Note that Kinsella didn't understand Selgin's paper, either.
how about you address the points I make, rather than rambling about your fairy tales? Stop making stuff up.
Clayton,
similarly as Smiling Dave, why don't you provide actual arguments rather than talk to yourself?
Alternatives Considered: For those that have studied and been involved in Bitcoin a lot more than I have, I have a question: If you were the CEO* of a giant online ecommerce website** (say, walmart.com***), what could you do to advance the adoption of bitcoin**** while still satisfying your investors and board of directors (that is, without just sucking up some giant loss... you have to make a case that it's good for the business as well as for bitcoin)? Presumably the base concept would be to say that you *accept* bitcoin for all purchases on your site... but can you help me flesh that out a bit? How would that work for an existing site? If Walmart.com takes bitcoins, realistically, all of their accounting and systems are in USD.
If you were the CEO* of a giant online ecommerce website** (say, walmart.com***), what could you do to advance the adoption of bitcoin**** while still satisfying your investors and board of directors (that is, without just sucking up some giant loss... you have to make a case that it's good for the business as well as for bitcoin)? Presumably the base concept would be to say that you *accept* bitcoin for all purchases on your site... but can you help me flesh that out a bit? How would that work for an existing site? If Walmart.com takes bitcoins, realistically, all of their accounting and systems are in USD.
This is not so. Walmart.com will present the user a site that is tailored to his locale, with localized pricing and the local currency. Paypal does the same thing. Even Ebay does it, unless I specificly choose to see foreign auctions, which I can then bid on in their currency even though I don't have their currency. Walmart could add bitcoin to their site in less than a day.
Would they then have to sell these immediately at an exchange?
If they are risk adverse, maybe so. In such a case, then Bitcoin is simply a dollar substitute to them, just like Paypal, Visa or Mastercard. The effect upon the bitcoin market would largely be a net zero. However, if Walmart chose to keep a portion of those bitcoin sales in order to build up a bitcoin fund, the overall demand for bitcoins would rise slowly, although still likely imperceptablely. If Walmart chose to start selling bitcoins in the stores at the 'money services' counter, they could close the loop just fine without either exchange fees nor credit card transaction fees. Said another way, Walmart could accept bitcoin on their website and sell them in the stores, and keep the vast majority of the transaction fees that they pay to others for their online sales. Everyone else could do this to, and once they start to do this, the 'market adoption' of bitcoin would be irreversible. At present, Bitcoin is still an experiment, and still very risky. Smiling Dave might prove to be correct about Bitcoin in the long run, even though he will be forever incorrect on the reasons as to why.
If so, does that really "help". or does it only help if they keep them themselves (which seems hard to justify). What about 3rd party merchants that sell on your website (assuming you let them do so): would you take in bitcoins for their wares, but then exchange them and pay the merchants in dollars? Or would you try to incent merchants taking bitcoins somehow? Would there be some advantage to "branding" your own line of bitcoins (it is my understanding that there can be different "pools" of bitcoins)? I realize such a branding wouldn't help those who already hold a different "pool", but if this new branded pool was considerably more successful (because consumers knew it was "backed" by the ability to buy stuff on this website), supporters of bitcoin might still be happy
There is no way to 'brand' bitcoins into a pool. You are conflating terms here. A bitcoin pool is a group of people who own their computers that cooperate in 'mining' and share the proceeds, acting as one entity with greater hashing power. There are other currencies derived from bitcoin's codebase, but among them only "namecoin" isn't trying to compete with bitcoin directly in it's own niche over some perceived flaw or arbitrary design decision. Most of them simply have died.
. Just thinking out loud, but if prices on the website are expressed in dollars and thus the price in bitcoins fluctuates according to the exchange rate between bitcoins and USD, that isn't really that much of a guarantee. Would the website have to promise relatively stable prices *in terms of bitcoins directly* for it to really promote the use of bitcoins? IOW, if I know that I can buy a pair of jeans with a bitcoin for 6 more months at least (because walmart.com has said that the price will stay the same for at least that long), then doesn't that "stabilize" the value of the bitcoin? In essence, bitcoins would become "backed" currencies, only instead of being backed by a single commodity like gold, they would be backed by the entire marketplace of things for sale on walmart.com.
That would contribute to the stability of bitcoin, at the potential expense of Walmart. I can't see walmart or anyone else making such long term pricing promises. They don't make such long term pricing promises with US dollars as it is. An advertised price is only valid till the sale is over, which is usually less than a month from publication date.
Peter, what role does the cost of mining bitcoins play in terms of the theory of bitcoins to you?
As I've read this, several times people have attempted to make a point that there is no "intrinsic" value to bitcoins, or similarly, how would somoene know how to value the first one, the implication being that there is no objective way to argue that they aren't worth "zero". I've read a bunch of your stuff and still haven't seen what I think is a direct response by you to this question: how would one of the first adopters put a *specific* value on a bitcoin.
It strikes me that the cost of mining them has a role to play here. Quite simply, if it cost my X dollars to mine a bitcoin, that I'm not going to do so unless I get at least a dollar in exchange. The cost that I put in to mining one sets a specific, concrete, non-zero lower bound on how much I would be willing to trade one for.
And to be clear, I'm not invoking a labor-value concept here: value is always subjective and a function of what people are willing to pay. But since the cost of mining a bitcoin is relatively constant (some amount of computing power and electricity), it follows that for someone else that wants a bitcoin, if they can buy it for something close enough to what it would cost them to mine it to cover the convenience factor of buying rather than mining, they would. So this again sets a reasonable price on bitcoins.
In fact, IIUC, as the value of bitcoins has dropped, it has ceased being cost-effective to mine them which, among other things, helps point out the importance of the cost of mining them in the bitcoin economy.
As for "intrinsic" value, I think there was value in an earlier poster who referred to gold's original "intrisinsic value" as purely aesthetic. For many, many years, that was gold's value: purely aesthetic. I suspect (but have not looked up) that it is still far more in demand for its aesthetic uses than its industrial uses (that is, absent its use as a money/store of value, most of its price would be driven by its aesthetic uses, not its industrial uses). I see no reason to not thik that some people could assign an "aesthetic" value to being one of the first to "own a bitcoin" or whatever. The MRT doesn't require all that much for the origin of money: it just needs to have *some* value to get the ball rolling, and then the value of that item as money can take over. Putting these together would work towards giving that initial value: some people wanted bitcoins for aesthetic reasons (no different in their pure subjectivity than gold), and the cost of mining set the early price.
OK guys, the proof that Mises Regression Theorem is not a mere "insight", or a historical bedtime story, but a true logically perfect theorem with predictive power, that will show once for all that bitcoin is naught but a place for idiots to get together and lose their money, is hot off the presses right here:
http://smilingdavesblog.blogspot.com/2011/12/was-mises-regression-theorem-mere.html
Also in that article: Justification of the concept of "intrinsic value" [hint: Mises used it without blushing], and a rebuttal of Pete's proof that bitcoin is money becuse he used it at the bitcoin convention with to buy a beer.
Alternatives Considered:Peter, what role does the cost of mining bitcoins play in terms of the theory of bitcoins to you?
I would say this is a controversial question. Empirical data suggests that the market price of Bitcoin and mining difficulty correlate. At the bottom, a lot of miners were unprofitable. However, because several times more Bitcoins are traded on the exchanges daily that are mined, I think that the difficulty adjusts to market price rather than vice versa.
I spoke to one of the professional miners (he has many rigs in a data centre), he sells immediately, and stops mining when it's not profitable (i.e. when electricity costs exceed the price of Bitcoin). I on the other hand don't mind mining below profitability for a while because I don't sell immediately. Of course, it's not an efficient use of resources but it's not that much money (1.7kW) so I don't mind. I also have the option of lowering the costs by mining only in the night as opposed to 24/7 because I have dual electricity prices.
If my conclusion (that mining does not influence the market price, but the other way around), this could be interesting from economic point of view.
There's no way I'm increasing your (SD) blog's readership numbers by clicking through, not when you've been nothing but snide and condescending. You want me to read something, *post* it here.
I already addressed your argument regarding MRT, many times. The main error in your position is that you exclude the possibility that money originates from a service. Now, whether Mises/Rothbard made the same error as you is of secondary importance, since many other Austrians disagree with the origin as commodity as well, albeit for other reasons than me.
Furthermore:
Smiling Dave:One Pete Sudra thinks that a couple of guys at a small convention using bitcoins for a couple of days is enough to prove bitcoin is money.
It is symptomatic for irrelevant trolls that they cannot even correctly represent their opponents' position. You got my name wrong, and also my argument is not that this proves that Bitcoin is money, but that it's a medium of exchange. Since I already explained this several times, either you're incompetent or deliberately misleading. I don't care which one, but I'll probably go back to seeing you as an ignorant fool.
Sorry you feel that way, Alternatives.
Don't want to read it on my blog? It's a free country.
Having led the horse to water, I have done my job.
my argument is not that this proves that Bitcoin is money, but that it's a medium of exchange.
From investorwords.com:
medium of exchange
Definition
Any item that is widely accepted in exchange for the goods and services offered to consumers in a given market. One example of a medium of exchange is currency.
Smiling Dave: Write it down, Pete. Generally accepted. Not you and and Moondog and Mike. You three guys, or even a room full of guys like you, don't constitute generally accepted. But I'm glad you are retreating, step by step. You aren't claiming bitcoin is money anymore, thank God. Now you think it's a medium of exchange. Still a mistake, but you're learning. Dave, you are a grade A jerk. From what I recall, none of us have claimed that bitcoin is a "money" in the economic sense, although some of us may have used in in the common vernacular sense. Also, whether or not your views on the interpretations or accuracies of the MRT are correct or not is irrelevent, since Bitcoin does not violate regression any more than the current fiat US federal reserve note does. Bitcoin has a history as a currency, prior to that, a longer history as a general idea. Bitcoin has no intrinsic value, but neither does any other currency issued by any government on Earth. Gold might be better for in person transactions and as a store of value, but that's inmaterial if I can't fax it over to my power company. I have purchased many things with bitcoin alone, both real and virtual in nature. The fact that it may be used only as a currency substitute, just like Paypal, Visa and Travelers' Checks, by those who accept bitcoin as payments online is entirely irrelevent from the perspectives of the customer. | Post Points: 20
I call it a money because it's clear that it is being used as a money.
I also say it clearly violates the regression theorem because it has no other use other than to act as a money.
The free market determined a value for bitcoin without it having to have any other prior use, which is a violation of the regression theorem.
This is as true of fiat paper money as it is of Bitcoin. In other words, you're wrong, if Bitcoin were to become the most widely used medium of exchange (money), it would not have "violated" the regression theorem.
Please watch this for clarification:
Hoppe refutes you in the first 30 seconds.
I listened to the first two minutes, and in terms of fiat money (money by DECREE) Hoppe is right.
In reference to "fiat" money as Hoppe defines it, he is clearly wrong.
WRONG WRONG WRONG WRONG WRONG
We know Hoppe is wrong because BITCOIN DID EXACTLY THE THING HE SAID WAS IMPOSSIBLE. The market established prices for Bitcoin all on its own without any threats, violence, impositions, etc.. etc.. etc..
Bitcoin is not representative of a physical commodity and it has no prior use, nor does it introduce any economic inefficiencies. In fact, I would argue that gold introduces economic inefficiencies! Gold takes massive resources to produce, store, ship, and protect. Bitcoin hardly takes any. When gold is used as a money, it introduces massive waste and inefficiences because now that gold is not availible for productive use in physical processes, such as jewerly or plating.
Compared to bitcoin, gold sucks.
I'm pretty sure I can think of a use-value that bitcoin has for some: the satisfaction brought about by the employment of a money that they believe to be innovative, revolutionary, efficient, and non-fiat.
I listened to the first two minutes,
It shows. You really don't get Austrian monetary theory because, like most critics, you haven't actually taken the time to hear it all the way out. It's not something you pick up in 2 minutes or even in an afternoon. Human Action is, I think, 400 pages or so of extremely concise explication of Austrian theory. This doesn't mean you have to be super pointy-headed to get it, it's just that there is a large body of specialized concepts and terminology that have very definite and exact meanings and which feed into the exposition Hoppe gives in that 45 min lecture. Understanding the many theorems and concepts he alludes to is pivotal to understanding that he's not just venting an opinion, he's making an argument that basically boils down to this: "Unless you reject the idea that humans are motivated by self-interest, you cannot deny the following facts about money..."
If he's "WRONG WRONG WRONG WRONG WRONG" then either he's made a mistake in his reasoning (please point it out for our benefit) or humans are not motivated by self-interest. Take your pick.
and in terms of fiat money (money by DECREE) Hoppe is right. In reference to "fiat" money as Hoppe defines it, he is clearly wrong. WRONG WRONG WRONG WRONG WRONG We know Hoppe is wrong because BITCOIN DID EXACTLY THE THING HE SAID WAS IMPOSSIBLE. The market established prices for Bitcoin all on its own without any threats, violence, impositions, etc.. etc.. etc..
A couple things. Bitcoin is not a fiat money, it's an unbacked currency (or "currency" since the picture painted by Bitcoin apologists is undeservedly grandiose). So, you're the one who needs to straighten out your definitions, not Hoppe. Second, saying "the market established prices for Bitcoin" is a contradiction of the idea that Bitcoin is actually unbacked. It's backed by something otherwise people wouldn't be exchanging anything for it. I have speculated elsewhere on these boards that it might be backed by the black-market goods and services which it can be exchanged for (to the extent that its value exceeds that given to it by hostile speculators and starry-eyed enthusiasts).
If this is true, then its value is dependent on the size of the black market. Should the government liberalize drug laws or prostitution laws or other laws which are creating the black-market demand in the first place, Bitcoin would drop significantly in value. Note that this is quite different than the behavior of the price of gold which has risen meteorically since 1971 despite the confident predictions prior to 1971 that the price of gold would plummet once its "link to the dollar" was severed.
This is why you're mistaken to compare Bitcoins to gold. They're doing very, very different things.
Bitcoin is not representative of a physical commodity and it has no prior use, nor does it introduce any economic inefficiencies. In fact, I would argue that gold introduces economic inefficiencies! Gold takes massive resources to produce, store, ship, and protect.
To quote Warren Buffett:
"[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."
The same could be said to one degree or another of wheat, beef, oil, copper or any other commodity. All of these commodities are basically useless in their raw state and are valued for their eventual use as a consumer good (gold being unique in that it is valued for its eventual use as a monetary good). The fact that the production of these goods is costly is simply a by-product of the limits our technological know-how.
Bitcoin hardly takes any. When gold is used as a money, it introduces massive waste and inefficiences because now that gold is not availible for productive use in physical processes, such as jewerly or plating.
Nonsense, there are economic substitutes (silver, platinum, etc.) for gold's industrial uses and its costliness in jewelry is the primary reason that it became money in the first place, so this is a feature not a bug. As for the costliness of mining and transporting gold, this is why banknotes were invented in the first place. Rather than wasting resources on silly unbacked digital currency like Bitcoin, if we had a more mature, adult attitude about gold in the culture, we could see entrepreneurs applying those very same cryptographic protocols to implementing gold-backed digital banknotes which could be used with all the advantages that Bitcoins have, with the crucial difference that you can cash your digital tokens out in gold bars if you choose.
I hope I get to see this happen in my lifetime... it will truly be the 8th wonder of the world and I believe it will unleash economic forces whose power will create wonders on a grander scale than the future envisioned by the Venus Project. Gold really is that big a deal.