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Rumors of Bitcoin's death greatly exaggerated...

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AJ Posted: Thu, Jan 31 2013 6:39 AM
The potential future "currency of the internet" zoomed past $20/BTC today, with its market cap about to overtake the all-time high reached in the 2011 bubble top. As the world's most powerful computing network, the p2p transaction technology - like p2p file transfer technology - is making end-runs around monopolistic control so easy that they look natural and even obvious.

But let's face it: Bitcoin is nothing more than a glorified point system. It is only the scarcity of the points (bitcoins) that forces a man to lay down 20 smackers just for the privilege of having a point chalked up to his account (his bitcoin address) in the universal internet ledger (the blockchain).

He is giving up cold, hard cash for nothing more than a mark in a ledger that the majority of users agree upon. He is essentially paying for the rest of the users to acknowledge his right to transfer that point to someone else (spend the bitcoin) at a later date. However, because of the way the point system works no one can reneg on that acknowledgement, so - unlike a bank debit - there is no trust involved.

What can this trustless, decentralized point system do? Well, everything a bank debit system can do, except without relying on banks or anything bricks-and-mortar, not even any company. The convertability to traditional currency is quick, cheap and liquid - if you want it - but as of now products you yourself might actually want can be obtained more cheaply (and more anonymously) in bitcoins: computers, RAM, and half a million others items at bitcoinstore.com, an upgrade for your Wordpress blog, dispute resolution services through judge.me, or a VPN through various providers - to name just a few.

Not to mention the world's largest (known) fully virtual hidden company: Silk Road, where every one of the $2 million per month of transactions are done in bitcoins. Meanwhile, one Bitcoin-only online gambling site reported 2012 earnings of over $0.5 million, while the Y-Combinator startup coinbase.com secured an additional half a million in venture capital from Silicon Valley angel investors.

Mr. Market - naturally starting with the black and gray markets - is making his own rules, unfortunately leaving some monetary theorists behind as the biggest boon to anti-statism since the internet itself slips by them unnoticed, because it is guised in garb that resembles some thousand-times refuted monetary fallacies and in a form none were expecting.

Ancapistan is already here, folks, but you don't recognize it because it's not a place, it has no borders, and it's not very big yet (only a few million dollars flow through its "streets"). It is virtual, and it doesn't secede or declare independence. It accretes. It develops, like any natural order, from a countless sum of almost indiscernable changes, each deemed negligible, dubious or useless on their own.

From a geeky novelty to a rag-tag collection of niche markets and agora of negligible mainstream interest, to gradual mainstream adoption for a few purposes where it is clearly superior... the way this voluntary order will unfold cannot be foretold.

While no one knows the future and if this experiment will succeed, it is no surprise that long-time market anarchists like Doug French (former LvMI President) and Jeff Tucker (former LvMI Editor-in-Chief) have turned tentatively positive about Bitcoin, while LvMI Founder Lew Rockwell has started accepting bitcoin donations at lewrockwell.com, receiving nearly $2000 in bitcoin donations shortly afterward.

The revolution is not being televised; it is being monetized.

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Link to Doug French, please.

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Smiling Dave,

AJ already posted the link to Doug French's article in November:

http://mises.org/community/forums/p/31743/508963.aspx#508963

when you asked for it:

http://mises.org/community/forums/p/31743/508842.aspx#508842

Either you're lazy to actually read the responses to your queries, or you're deliberately trying to derail the flow of the debate so that people waste time on supplementing your fictitious research activities. I already stopped taking you seriously and I think others should too. The constructiveness of your arguments ended back in 2011, since then you've been fabricating fairy tales. You're the Harold Camping of Bitcoin.

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Either you're lazy to actually read the responses to your queries, or you're deliberately trying to derail the flow of the debate so that people waste time on supplementing your fictitious research activities. I already stopped taking you seriously and I think others should too. The constructiveness of your arguments ended back in 2011, since then you've been fabricating fairy tales. You're the Harold Camping of Bitcoin.

Way to take the high road, Pete.

BTW, thank you for putting me into your master's thesis.

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Yep, Doug French said it.

He'll be another notch in my belt when bitcoin collapses.

Note that he doesn't refute Mises Regression Theorem [nobody has], but merely appeals to authority, saying Menger wrote something vague enough to justify bitcoin, maybe.

I may eat crow someday, sure. The moon may also be made of green cheese.

But you guys are crowing prematurely. Remember the Ithaca Hour, that lasted 20 years before turning into ashes in everyones mouth. I'm sure you've seen my article listing other currencies with bitcoin's flaw that lasted a few years, then died an ignoble death. Or rather, were revealed for the walking dead they were in the first place.

Just because the ECB is ignorant of the Regression Theorem, as they are ignorant of all economics, don't think their discussing bitcoin gives it any weight.

Reminder to the new guys. I've had my say over at my blog [look for Bitcoin All in One Place] , am tired of talking about it here. You know where to look to see my take.

 

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Adam Knott replied on Thu, Jan 31 2013 12:51 PM

Nice post AJ

I remember back in 1994/1995 when the Internet was first emerging as a commercial vehicle.  I was advised that the Internet wasn't applicable to the brick & mortar business I was engaged in.   That same business is conducted 100% over the Internet today.

I also remember when Amazon still had not made a profit and many wondered whether Amazon's business model was just a house of cards.

People couldn't see how the Internet could get from A to B and so they were skeptical.

 

"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)

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...the Internet...Amazon...

Do you think Mises' Regression Theorem applies to the Internet and to Amazon?

Is the Internet trying to be money? Is Amazon?

"How much is that coffee, Waiter?"

"Three Internets and an Amazon."

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Funny you brought up coffee.

http://bitbrew.net/
http://bitcoincoffee.com/

Yes, I know, it does not prove BTC will not go the way of Ithaca Hour in XX years.

The Voluntaryist Reader - read, comment, post your own.
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By the way, regarding the regression theorem, I think it is important to recognize that Mises presents it as a praxeological law:

"All these statements implied in the regression theorem are enounced apodictically as implied in the apriorism of praxeology.  It must happen this way.  Nobody can ever succeed in constructing a hypothetical case in which things were to occur in a different way." (HA, 3rd rev. p. 410)

And here is the law:

"no good can be employed for the function of a medium of exchange which at the very beginning of its use for this purpose did not have exchange value on account of other employments." (p. 410)

This means that if a good is presently employed for the function of a medium of exchange, it must have had, at the very beginning of this use, exchange value on account of other employments.  This is nothing but a tautological reversal of the law.

As Mises presents the regression theorem, a good currently employed for the function of a medium of exchange must necessarily satisfy the regression theorem.   All that is necessary for a good to satisfy the regression theorem is that the good be employed for the function of a medium of exchange.  Once that condition is satisfied, Mises holds that said good must have had, at the very beginning of this use, exchange value on account of other employments. 

If a good is currently used as a medium of exchange it must necessarily satisfy the regression theorem according to Mises.  The only question is whether Bitcoins are used as a medium of exchange.

(note: this is not intended as a defense or a critique of the regression theory.  The intention is to point out that any good that functions as a medium of exchange necessarily satisfies the regression theorem as implied in the passages quoted.)

"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)

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Adam.

I agree that the q is whether bitcoins are mediums of exchange right now. If it is true, though, then I see two possibilities. Either there was some past exchange value on account of other employments, or there is some flaw in the regression theorem that has gone unnoticed. People have claimed both of those two possibilities here in the forums.

My position is that it is not a medium of exchange right now. My website says why.

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z1235 replied on Thu, Jan 31 2013 2:21 PM

AJ great post. 

Guys, I'd appreciate some feedback on my idea about reconciling BTC with the Regression Theorem that I posted in the other BTC thread.

 

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Smiling Dave,

for the last time, Ithaca Hours are a (wannabe) money substitute, while Bitcoin is a (wannabe) money in the narrower sense. They are on a different position of the money classification tree designed by Mises. That's strike one.

Also, Ithaca Hours do not decrease transaction costs, they rather promote the idea that increases in the money supply and autarky are good (which is confused but my point is that Ithaca Hours require ideology to sustain themselves). Bitcoins do not require ideology to sustain themselves anymore (even though they might have required it at the begining), because they are already at a level of liquidity where they decrease transaction costs irrespective of ideology:

http://www.forbes.com/sites/jonmatonis/2013/01/22/bitcoin-casinos-release-2012-earnings/

http://blog.bitpay.com/2013/01/bitpay-surpasses-10000-bitcoin-merchant.html

People are not going to forego business opportunities just on account of you failing to understand their business models. That's strike two.

Last but not least, the regression theorem does not talk about sustanability of a medium of exchange, but about logical prerequisite of its existence. That's strike three and you're out.

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Blargg replied on Thu, Jan 31 2013 2:33 PM

These dicussions about bitcoin are fascinating. There are regular posts about how it's a revolution in the making, with people presenting their predictions as facts about the future. There are people who predict that it won't amount to much in the future, and lots of name-calling. Most want their predictions to be accepted by everyone, and spend a lot of time trying to convince people. Meanwhile, the market actually decides what to make of it, taking into account all factors, not just the ones focused on here.
 

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jmorris84 replied on Thu, Jan 31 2013 2:58 PM
Peter Surda,
 
What do you mean when you say, "money in the narrower sense?"
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Most want their predictions to be accepted by everyone, and spend a lot of time trying to convince people. Meanwhile, the market actually decides...

Why does that not apply to all economics books? A person, say Mises or Keynes or some Nobel Prize winner, "spends a lot of time" writing a book. He wants his "predictions to be accepted by everyone". Meanwhile the market actually decides...

Come to think of it, why doesn't it apply to all science books. Take physics. A person, say Newton or Einstein or some Nobel Prize winner, "spends a lot of time" writing a book. He wants his "predictions to be accepted by everyone". Meanwhile the atoms actually decide...

We, meaning mankind, have advanced to where we are now precisely because people were curious about the world around them. They wanted to understand it. They wanted to be able to predict things about it. Once they hit upon some truth, they wanted everyone to accept their discovery. Yes, it's true that meanwhile, the universe actually decided what it will do, taking into account all factors. But so what?

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Blargg replied on Thu, Jan 31 2013 4:43 PM

Thanks for focusing on the question of why someone wants their ideas to be convincing. It'd be an interesting question for people arguing for/against bitcoin to answer. This is my sense of reasons for those arguing against/for bitcoin:

Smiling Dave: the sooner this bitcoin distraction ends, the better, because it frees up energies that could be devoted to real contenders for non-fiat currencies. Belief in it also fuels flawed ideas about currency and builds unsustainable structures around it (e.g. exchanges).

Bitcoin supporters: bitcoin can succeed but it needs people to believe in it; if it is criticized enough it will fail simply due to lack of users. We're holding out for bitcoin to make our lives better and find critique harmful to this euphoria.
 

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...it needs people to believe in it...

That is a good litmus test for intrinsic value. Peanut butter, for example, or dog food, do not need anyone to believe in them. The man and his dog eat the foods and are happy.

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Blargg, Smiling Dave, I repeat, the liquidity of Bitcoin is already at a stage where it provides a comparative advantage (decrease in transaction costs) in an ideology-agnostic way. As new solutions are popping up every day and service providers are maturing, this is a strong hint that the network effect has reached critical mass. Whether people believe it or not is irrelevant. Businessmen can make profit off it, even if Smiling Dave does not understand it. But again the regression theorem does not talk about sustainability.

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By the way, this Monday, UT Mises Circle discussed my master's thesis and I was invited to participate. You can check out the recording:

http://www.youtube.com/watch?feature=player_embedded&v=yzMgiAJ1b-E

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Blargg replied on Fri, Feb 1 2013 8:56 AM

Network effect reaching critical mass, this implies that bitcoin does depend on others buying into it. I think Smiling Dave's point is that it's unsustainable if it depends on this. I asked myself what might also be fueling it, and came up with governments. As long as it offers advantage over fiat and non-anonymous transactions, it might survive.

Things like "As new solutions are popping up every day" raise my suspicion. Really now, every day? So in January, at least 62 new solutions have popped up? This and similar kind of talk about bitcoin always sound to me like the empty marketing materials businesses put out in order to create an image. They seem based on hope for something, not calm assessment of the situation. So my advice is to stop propping bitcoin up and let it stand on its own. I think people will take it more seriously if you do that.

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Mashuri replied on Fri, Feb 1 2013 11:46 AM

"That is a good litmus test for intrinsic value."

I'm tired of seeing this term.  Please clarify which you believe: Value is intrinsic or value is subjective.  They are mutually exclusive.  Pick one.

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Mashuri replied on Fri, Feb 1 2013 12:00 PM

"...this implies that bitcoin does depend on others buying into it"

Everything, gold included, depends on "others buying into it".  That's just another way of saying others value it.  Just like gold, bitcoin has intrinsic properties (certain mathematical properties as opposed to certain molecular properties) that people subjectively value for use as a medium of exchange.  How is that so hard to understand?

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 I'm tired of seeing this term. Please clarify which you believe: Value is intrinsic or value is subjective.  They are mutually exclusive.  Pick one.

https://smilingdavesblog.wordpress.com/2012/07/08/bitcoin-and-intrinsic-value/ [lays it all out].

https://smilingdavesblog.wordpress.com/2011/12/21/was-mises-regression-theorem-a-mere-history-lesson/ [last paragraph].

If you know how to dig up old posts here, you can find one from me where I quote several prominent Austrians, living and dead, who use the phrase intrinsic value as a matter of course, despite their belief in the subjective theory of value.

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Everything, gold included, depends on "others buying into it".

Gold's intrinsic value does not depend on others buying into it. See previous post.

 

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Mashuri replied on Fri, Feb 1 2013 2:06 PM

You seem to concede in your first link that "intrinsic value" is a muddled use of the term so let's dispense with it once and for all.  Intrinsic: Of or relating to the essential nature of a thing; inherent.  If the value of gold, for example, is intrinsic then it must have value to everyone at all times, since the value itself is inherent in its very nature.  This is, of course, utterly absurd.  I think we all understand that value is subjective and never intrinsic.

Now let's get to a more accurate description: Gold has intrinsic properties that people subjectively value.  While its intrinsic properties are valued for non-monetary use (jewelry, industrial applications, etc), as demonstrated by the market, they are primarily valued for monetary use.  Bitcoin also has intrinsic properties that people subjectively value.  While its intrinsic properties are valued for non-monetary use (digital identity verification, smart contracts, etc), as demonstrated by the market, they are primarily valued for monetary use.

If all you have is an appeal-to-authority type argument to the regression theorem as an explanation why a mathematically backed currency cannot succeed, then perhaps you need to revisit your understanding of the theorem or reconsider the theorem itself.  The market has spoken.  Bitcoin is being used and accepted as currency.  Either it fits into the theorem or it refutes it.

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Mashuri replied on Fri, Feb 1 2013 2:16 PM

"Gold's intrinsic value does not depend on others buying into it."

Muddling terms again.  Gold's intrinsic properties do not depend on others "buying into it" but gold's value, which is subjectively and externally attributed, most certainly does.

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You seem to concede in your first link that "intrinsic value" is a muddled use of the term...

First.

...its intrinsic properties are..primarily valued for monetary use

Second.

If all you have is an appeal-to-authority type argument to the regression theorem...

Third.

mathematically backed currency

Fourth.

 Bitcoin is being used and accepted as currency. 

Fifth.

Conclusion: Mashuri, I wish you the best.

 

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"Gold's intrinsic value does not depend on others buying into it."

Muddling terms again.  Gold's intrinsic properties do not depend on others "buying into it" but gold's value, which is subjectively and externally attributed, most certainly does.

Sixth.

Keep 'em coming. Don't be discouraged if I don't reply.

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Mashuri replied on Fri, Feb 1 2013 2:56 PM

I'm actually quite encouraged by your lack of a reply.  It speaks volumes. :)

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After I disproved Smiling Dave's arguments and exposed his contradictions, he deleted my comments from his blog. I thought you guys might want to know.

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Anenome replied on Tue, Feb 5 2013 3:47 PM

Peter Šurda:

After I disproved Smiling Dave's arguments and exposed his contradictions, he deleted my comments from his blog. I thought you guys might want to know.

Time to disengage. He's not an honest opponent then. He's being disproven daily and has ego invested in his position, which is not conducive to finding truth nor debate.

Personally I put my money where I mouth is. Just bought 10 bitcoin, looking to buy some more soon :)

Autarchy: rule of the self by the self; the act of self ruling.
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To set the record straight, I deleted his rude comments and invited him to re-comment in a professional manner.

His latest buzzword is "secondary medium of exchange". You are all invited to my blog to see my response. https://smilingdavesblog.wordpress.com/2012/12/12/what-is-a-medium-of-exchange/

Check the comments.

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Anenome replied on Tue, Feb 5 2013 4:56 PM

Nah, no thanks.

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Malachi replied on Tue, Feb 5 2013 4:57 PM

thanks dave, we all know you would prefer to discuss this subject in a forum where you can censor people, since your position became obviously untenable long ago. but keep spamming the boards, working that seo! 

Keep the faith, Strannix. -Casey Ryback, Under Siege (Steven Seagal)
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baxter replied on Tue, Feb 5 2013 6:31 PM

""no good can be employed for the function of a medium of exchange which at the very beginning of its use for this purpose did not have exchange value on account of other employments."

Did BitCoins have initial employments other than mere exchange? For example, that of granting the holder perhaps desirable feelings and status of geekiness and rebelliousness? Or perhaps that of providing the owner with the excitement of being an early participant in an alleged pyramid scheme?

 

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Malachi replied on Tue, Feb 5 2013 7:06 PM

they most certainly did, they were employed as a unit of account and as a form of communication.

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Blargg replied on Tue, Feb 5 2013 11:53 PM

By these standards, everything had value in some regard, rendering the distinction meaningless.

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Anenome replied on Wed, Feb 6 2013 1:58 AM

They originally were objects of financial speculation. Turned out to be a good bet so far.

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Anenome replied on Wed, Feb 6 2013 1:46 PM

Virginia moves closer to creating state’s own currency

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In my opinion, bitcoin does not represent an exception to the regression theorem. In its beginning, before bitcoins were valued as money (assuming they are valued as money now), I believe they were valued as consumer goods, providing a psychic benefit to their buyers, who were of a certain ideology. In other words, libertarians bought them because they wanted an alternative currency to succeed.

Are bitcoins still merely exotic consumer goods or are they now valued as money? I don't know, but even if they are now valued as money by at least some of their users, this says nothing about how they will retain their value over time, or how widespread their use might become.

apiarius delendus est, ursus esuriens continendus est
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