Bitcoin and the theory of money in the tradition of Carl Menger

So people are accepting a bitcoin in exchange for their 260 USD even though there is an almost free competitor available in the form of PGP or OTR encryption?

other forms of crypto are not equivalent to the bitcoin network. people pay more than ten times as much for one automobile as they do for another. at this point you can compare and contrast features to discover why one good is more valuable to some people than another good.

Do you have evidence that even a single person is using Bitcoin in 'secure durable pseudonymous cryptographic communications'?

do you understand what cryptography is? do you know what pseudonymous means? do you know what it means for a communication system to be secure? do you now see how absurd it is to ask me for evidence of someone doing something that is intended to be private?

"..one could easily assert that acceptance of bitcoin is based primarily upon usage. this is because bitcoin has industrial value."

can you give me evidence of anyone purchasing a bitcoin because they do not intend to use it to send a datum or data to someone else? or are we done here?

Peter,

I'll answer you tomorrow. Busy today.

 

This is the key about bitcoin: it does not represent any producer or consumer good to consumers, nor does it represent any contract.

Nielsio:

A speculator is not just buying without information and then hoping it goes up; that would be a losing strategy.

Correct. In my model, the speculator bases his activity on the assumption that the market price will be volatile. He'll set up walls around the current price, and people who are trying to buy/sell Bitcoin for transactional purposes will hit the walls. Everyone is able to benefit from such a structure. The costs associated with this are minimal.

 

You might argue that it is not apodictically certain in advance that such a thing will work, but the funny thing is, it already works, and has been working for several years. So the objection would be moot. Just like in a sociaty without language, it is not apodictically certain in advance that something like language could work, but we know empirically that it already works, so the objection is moot. We do not need to make a praxeological argument, because it's an empirical issue.

 

Nielsio:

Your model of 'speculators will buy any time someone wants to sell their bitcoins' has to be based on something else. Speculation is not something that keeps itself going. They need to have a reason to believe that in the future they will be able to sell it. This is the key about bitcoin: it does not represent any producer or consumer good to consumers, nor does it represent any contract. What speculators in Bitcoin are doing today is they are basing their purchasing decisions on their estimation of the trend of belief in Bitcoin. If belief goes up, the price goes up. If belief goes down, the price goes down. If belief disappears, the price goes down to 0.

Nielsio:

'Bitcoin as a transaction cost lowering vehicle' (and as an anonimizing vehicle for that matter) relies on the believers in Bitcoin, not the speculators.

It does not rely on believing becase it already works.

 

Nielsio:

I was attempting to explain to you that problems with other currencies don't make Bitcoin a better currency when I am precisely arguing that Bitcoin has nothing going for it, fundamentally. Similarly, it being easier to transport Bitcoins over the border does not solve the problem of Bitcoin being useful whatsoever as a money. I can transport a photo of a car over the border without having to pay taxes on it as I would have on importing a car; this however misses what we are arguing about.

To a certain extent, this is correct, but my point was that this is just one of the factors influencing the choice of a medium of exchange. On its own, it probably wouldn't be enough, but my thesis lists all kidns of other types of transaction costs where Bitcoin has an advantage. If there are enough of them, it can sustainably work. Are there enough of them already? Well, that's an empirical issue, but I'm increasingly becoming convinced that there already are.

 

Nielsio:

Then you should criticize my work on Menger and Rothbard that discusses the fundamentals about how indirect exchange is viewed, and point out my mistakes.

Wait, I thought I did. I explained that the act of exchange is a type of act that is influenced by transaction costs, and this has an effect on the choice of media of exchange. There are other types of acts where the most relevant factor are transaction costs, such as communication. You do not wonder if internet can be "consumed" (indeed, it cannot, it's an immaterial set of rules). You previously (a year back) argued that you can transport other things through the internet than itself (if I recall the wording correctly). But that's only true metaphorically. What we call colloquially "the internet" isn't just the abstract set of rules, it's the rules plus a bunch of electronics acting according to an abstract set of rules. It's the possibility of acting in unison that creates utility. And some rules are better than others (for example because they are more generic and allow open implementations), so these will be preferred. Similarly, Bitcoin, from the point of view of human action, is bunch of electronics acting according to an abstract set of rules. This is what we perceive as a good. Not the abstract sets of rules, which are immaterial and cannot be an object of human action. From Hoppean/Kinsellian view of property rights, when you are communicating, you are using your computer, not the abstract "internet". And people are not going to abandon using computers actiong based on a set of rules merely on account of these rules being abstract.

 

Using a transport of physical objects as a means of communication is done to a lesser and lesser extent, due to transaction costs. Similarly, transporting physical objects as a medium of exchange is done to a lesser and lesser extent. That does not imply that the standards must be derived from physical properties of objects. Indeed, with communication, it's the opposite: we define protocols by abstract rules, and then these can be deployed on different media using different physical methods.

 

Nielsio:

You bring up the regression theory in your paper. This is an invention of Mises, and Rothbard followed Mises on this idea. According to them, the value of a money good is its consumer and producer value + monetary demand from the previous exchange period giving it a higher price. According to my interpretation of Menger, his money theory is that the value of a money good is its speculated consumer and producer value and nothing else (with perhaps discounted costs).

If your theory was correct, immaterial goods couldn't exist. We wouldn't have books or the internet. You wouldn't be able to use a computer to post on this forum, because your computer would be a clumsy paperweight unable to communicate, unable to produce any output or collect any input.

 

Nielsio:

Your paper is arguing under the premise that the regression theory is true. My article goes a level deeper in that I attempt to discredit the regression theory.

I think that the point Menger was making was the emergence of liquidity. Liquidity is influenced by many factors, and is both a sufficient and necessary condition for something to be a medium of exchange. Now, that on its own is yet not a big deal.

 

However, once you go beyond Menger, you must realise that that factors other than consumption of the good itself can influence your actions, because merely wanting to consume the good does not frictionlessly allow you to consume it, even if the issue of double coincidence of wants is solved. Even if your ultimate goal must always be consumption, that does not mean that all goods must be consumed or even consumable. Some goods increase  utility even though they are never consumed, only in the metaphorical sense. And that is, in my opinion, the core invalid implicit assumption in your position.