One day, while I was learning about cipherspace, I discovered BitCoin. BitCoin is a completely decentralized, anonymous online monetary system that relies on a distributed database to facilitate transactions. The creator put a great deal of effort into ensuring that the system is secure and reliable. Unfortunately, there are no real assets backing he currency of BitCoin (and no coercive government backing it either). Thus ends BitCoin.
I can imagine, though, a system like BitCoin that allows people to write promissory notes and sign them with an RSA digital signature (to prevent couterfeiting). These promissory notes could be backed by gold, silver, fiat currencies, stocks and bonds, or pretty much anything. Then, these notes could be transfered from one person to another anonymously.
Couple this with an ebay-like service that allows people to swap these virtual currencies. Say, for example, that I have a gold note issued by a bank in South Africa. Since taking delivery of the gold could be a problem, I trade my notes for notes issued by a bank in U.S.A. Then, I can redeem those notes and have them FedEx me the gold (insured, of course).
This system would be Fed-proof, IRS-proof, FBI-proof and judgment-proof. This system would protect the users against monetary inflation, making it Fed-proof. Since nobody has a bossman ratting out their earnings, it is IRS-proof. It is FBI and NSA proof because all transactions are encrypted and anonymous. And, most importantly, it is judgment-proof because it is perfectly legal.
There are, at present, no laws that could be used to criminalize what I propose. Laws against money-laundering, for example, do not apply because there is no way to prove that the money came from an illegal source, such as drug dealing. Laws against tax-evasion do not apply either, because no taxes have ever been levied on imaginary currency. In addition, if you had your day in court, you could defend yourself on First Amendment grounds. Besides, international free trade agreements also have generous loopholes.
So what we are dealing with is anarcho-capitalism and wildcat banking on a global scale. If not for my non-existant programming skills, I'd be forking a new project off BitCoin right now.
Anybody here know C++?
"As long as there are sovereign nations possessing great power, war is inevitable."
@gabriel: Oh, man, you're begging for a flame-war.... ;-)
Of course, C++ and Perl are not even in the same solution-space... but I absolutely love Perl. Unfortunately, Perl has lost its roots with Perl6, which I think is going to be a fork, I don't think Perl5.x is ever going to be truly end-of-life'd, the code base is a large part of what makes Perl so powerful. Ruby and Python are Perl's closest relatives but they both lack the "down-and-dirty" quality of Perl5 that I fell in love with.
Clayton -
No worries, I'm just being inflammatory. I write C/C++ (C#, and some assembly) for a living, so I have a certain affection for them :). Now if there's any "God that Failed" book that should be written about a programming language, it's Ruby. Not a fan.
banned:This is wrong. Credit cards and banknotes are proxies for physical cash. Bitcoins aren't.
This has already been covered more then ocne here. Bitcoins do not have an established existing history of exchange ratio's. Instead they borrow the already existing exchange ratio's history of the dollar. In other words, all things are priced in another money, USDollars for example, then converted to BTC's, then back. All economic and accounting calculations are done in USDollars, not BTC's. BTC's behave exactly as a dollar proxy.
If you had any understanding of exchange ratio's and how currencies or moneys are formed, you would know that this is actually a good thing for BTC's, not a bad thing.
Boniek's assessment is excellent.
I really should unsubscribe from this thread rather than continuing to read and getting sucked back in. :P
Whether BitCoins are a currency, money, etc. all depends on how you define the terms. Fiat is money by some definitions, and not by others. Similarly, BitCoins are money by some definitions, not by others. Gold is money by some definitions, not by others. Words are just means of communicating concepts between humans so it really doesn't matter which definition is used as long as it is agreed upon. I would suggest to the BitCoin proponents here that you stick with the incredibly restricting definition of money used by those here which, as I understand it, goes something like:
Money: Any physical commodity used as a medium of exchange by X people (X depends on who you ask) that currently has industrial consumption value (e.g.: gold, rice, energy, etc.). Goods that can be traced back to a conceptual commodity, such as perceived value, coercively enforced value, collector value, etc. do not qualify.
I am not personally a fan of this definition as I believe it is far too loose and subjective, but I am willing to use it for the sake of moving forward.
I, and most other Austrians, would define money as a generally accepted medium of exchange. Simple and to the point. Bicoin, while it is accepted by a minuscule portion of society (fractions upon fractions of a percentage) as a medium of exchange, it is not generally accepted as a medium of exchange.
The more I read about bitcoin the more I'm sceptical of it. System was designed in such a way that early adopters stand gain A LOT. As interest in it would skyrocket fueled by people hopes for better future and quick buck so would the price with severly decreased supply (limitation of supply it is builtin into the system - with time you get less and less coins with increased difficulty). So basically what I would do to exploit this system to earn big fucking money? Write it thus becoming earliest adopter! To avoid angry mob wanting to murder me for falling for this scheme it would be good to stay anonymous and cash in on it relatively early when we still are monopoly on the market, before government starts monitoring it and people still trusting it to ensure complete anonymity. It will become worthless the moment government bans it so no shop online or offline can accept it, or when people will start successfully exploiting software and thus decreasing trust in it or when competition arises and with it price drops across the board.
Thats my conspiracy theory. It may not be true - don't chop my head off.
filc,
you still have not responded to my arguments. But I will address your points nevertheless:
filc:I keep repeating words like "Exchange Ratios" and economic calculation and in my mind I see everyones eyes glaze over like I'm speaking French.
Some of your claims regarding exchange ratios and economic calculation could be correct. More important is however that you have failed to explain why these are relevant. You seem to be obsessed by proving that Bitcoin is neither money nor currency, but why should anyone care about this question eludes me. Furthermore, you have not provided a definition of either money or currency, which makes it impossible to determine whether the statements are true or not.
filc:Whats wrong is when you fraudulently sell it as money.
I already explained where this statement is wrong. The first issue is from the point of view of libertarian legal theory. Fraud has very specific meaning. Read Kinsella's work in this area. Also, you have shown no evidence where people are selling Bitcoin to people while misrepresenting the features of it. Since there is no universally accepted definition of money (neither you have shown one that you subscribe to), saying that people call Bitcoin money is a wholly inadequate objection, furthermore it would only be relevant for a trade among Austrians.
I find it amusing that you accuse me of arguing to air, while all that you are doing is being obsessed with meaningless and undefined terms.
filc:Bitcoins do not have an established existing history of exchange ratio's. Instead they borrow the already existing exchange ratio's history of the dollar.
Historically, the Euro also did not have an established existing history of exchange ratios, but was derived from preexisting currencies. The difference is that the Euro-ratios were established by political means (by successive restriction of the fluctuation boundaries), and the one of Bitcoin was established by the market.
Let's say that there was no gold, but suddenly the first nugget was dug out and subsequently others. In such a situation, gold would also not have a history of exchange ratios. But since gold has (let's just assume it does, for simplicity) comparative advantages against silver, its spread as a medium of exchange would grow compared to preexisting money (e.g. silver). After the spread was big enough, people might start switching to using it in bookkeeping and financial calculations instead of silver.
Bitcoin was not dug out but designed, but that makes no difference here. The point is that asynchronous entry to the market underscores that the "historical" argument is, well, historical, rather than praxeological.
So your objection is pointless.
boniek:I would not accept them if they were not redeemable in fiat.
Bitcoin is not redeemable in fiat. It is traded against fiat. Noone, including the "issuers", has the obligation to redeem Bitcoin in anything.
boniek:system was designed in such a way that early adopters stand gain A LOT.
If you think about this objection more thoroughly, you will realise that any human endeavour benefits early adopters, but only if it subsequently shows successful. If it's not successful, they bear the loss. If this was somehow relevant for Bitcoin, you could make the same objection to gold or fiat, or any human activity for that matter.
boniek:It will become worthless the moment government bans it...
Why should it become worthless? A ban could very well increase the price. Furthermore, since its foundation is virtual, only a ban by a significant number of governments would have any relevant effect. Otherwise, US citizens could still found an offshore company, store their Bitcoins outside of the country and it would still be legal. Furthermore, while US has been hostile against privately issued currencies, in Asia they seem to be quite popular. EU is a big question mark, but I read a paper about digital currencies lately, and it mentions that that there is a law in UK that regulates digital currencies and apparently it's not a big issue there.
boniek:...or when people will start successfully exploiting software and thus decreasing trust in it...
Again, this issue is not specific to Bitcoin. If someone found out how to manufacture fake gold that cannot be (easily) distinguished from real one, that would undermine the gold as money too.
boniek:...or when competition arises and with it price drops across the board...
This is a valid objection, although it would need to provide a better combination of features and/or overcome the network effects. Furthermore, again the same thing can be said about gold or anything else.
In general, there is an element of truth in each of the objections you brought up, but if you think about it from a broader perspective, there is nothing special about them.
Peter:Historically, the Euro also did not have an established existing history of exchange ratios, but was derived from preexisting currencies.
I already conceded(pages ago) that BTC's, or anything, could indeed be made a money if it were done so by decree. That is necessarily true.
Peter:you still have not responded to my arguments.
As stated before I've yet to see any argument from you. What argument do you keep refering to?
filc:I already conceded(pages ago) that BTC's, or anything, could indeed be made a money if it were done so by decree. That is necessarily true.
Could you please specify what do you mean "by decree"? In the context of money, this usually refers to the initiation of force by the government. This is clearly not present in the case of Bitcoin. On the other hand, if you by that mean that someone who does not have the ability to initiate force declares that Bitcoin is money, the same is then valid for gold.
filc:As stated before I've yet to see any argument from you. What argument do you keep refering to?
Let me point out, again, that your first reaction to me was because I made an argument, and then subsequently you magically forget about it. Then I reposted it, but you somehow miss it. This is already a significant hint that you are not interested in a debate.
Nevertheless, let me do it again: the objection that Bitcoin is valueless is completely irrelevant as long as government interferes with money (e.g. by legal tender laws, or by confiscating gold). This interference creates a market gap, and anything that fills that market gap has value. In other words, the value of Bitcoin is created by government force, albeit unintentionally. Assuming that on a free market, gold is superiour, once government interference with money disappears, Bitcoin will be replaced by gold or its digital substitutes.
Your objection to Bitcoin is like an objection to tax consultants. On a free market, there would be no tax consultants. They are, indirectly, created by government force. But until that happens, a tax consultant might very well be a profitable career, and indeed they help you to reduce the confiscatory power of the government. Now, imagine that someone developed a digital tax assistant on steroids, that would automatically know everything about laws, was able to reduce your tax burden to the minimum level legally possible and was available at the cost of copying. Would you then go on a rampage that it is a fraud, on account that it does not fit into an obscure irrelevant definition?
Bitcoins do not have an established existing history of exchange ratio's. Instead they borrow the already existing exchange ratio's history of the dollar. In other words, all things are priced in another money, USDollars for example, then converted to BTC's, then back.
No. Bitcoins are exchanged for US dollars on an open market and are therefore not proxies. They don not represent a direct liability to pay in dollars and there is no fixed exchange rate. Any economic calculation made using bitcoins is done based on speculation about a future exchange rates between other currencies/commodities and bitcoins. Your logic only works if it is an historic certitude that bitcoins will maintain a fixed exchange ratio with US dollars, something that cannot be demonstrated by praxeology nor through historic observation.
Peter Šurda: boniek:system was designed in such a way that early adopters stand gain A LOT. If you think about this objection more thoroughly, you will realise that any human endeavour benefits early adopters, but only if it subsequently shows successful. If it's not successful, they bear the loss. If this was somehow relevant for Bitcoin, you could make the same objection to gold or fiat, or any human activity for that matter.
Yes I agree obviously, but limitation of number of bitcoins could be done in different way easily as not to benefit early adopters as insanely as it was done in current implementation for example by introducing constant inflation. <conspiracy>In my view it was done purposefully to extract as much money from people as possible in shortest amount of time</conspiracy>. Even if this conspiracy is true however it has nothing to do with merits of the system.
Peter Šurda: boniek:It will become worthless the moment government bans it... Why should it become worthless? A ban could very well increase the price. Furthermore, since its foundation is virtual, only a ban by a significant number of governments would have any relevant effect. Otherwise, US citizens could still found an offshore company, store their Bitcoins outside of the country and it would still be legal. Furthermore, while US has been hostile against privately issued currencies, in Asia they seem to be quite popular. EU is a big question mark, but I read a paper about digital currencies lately, and it mentions that that there is a law in UK that regulates digital currencies and apparently it's not a big issue there.
When ban hits its acceptance will fall - no shop will accept it. With ban in place, bitcoins usefulnes will diminish and so demand will fall. It will mean that bitcoin will not topple current monetary regime because most people will simply ignore them then - it would not meet criteria for money. Will it become worthless then? To me certainly as it would not deliver on the promise of being money. WoW gold for example is certainly not worthless to some people - it is just not money.
Peter Šurda: boniek:...or when people will start successfully exploiting software and thus decreasing trust in it... Again, this issue is not specific to Bitcoin. If someone found out how to manufacture fake gold that cannot be (easily) distinguished from real one, that would undermine the gold as money too.
People had, I don't know, 3 thousand years? to fake the gold successfully as to fool everyone and you can't say they had no incentive. There is a reason gold was picked as money back then. In case of bitcoin - software bugs are a given. Probability of someone finding out how to fake gold versus finding the exploit in software can't be, at least to me, reasonably compared.
Peter Šurda: boniek:...or when competition arises and with it price drops across the board... This is a valid objection, although it would need to provide a better combination of features and/or overcome the network effects. Furthermore, again the same thing can be said about gold or anything else.
Agreed, but gold would still have some value because its use is not only as money. Bitcoin, if better system were to show up, would just die.
boniek:
boniek:my view it was done purposefully to extract as much money from people as possible in shortest amount of time
The question however is, what are the alternatives? I only see two. Higher built in inflation, which obviously invalidates a crucial point of Bitcoin. Another one is to assign creation of Bitcoins by non-mathematical properties. But that again invalidates the core feature: who would decide who gets how much? How do you make sure noone pretends to be multiple persons?
boniek:When ban hits its acceptance will fall - no shop will accept it.
First of all, how do you effectivelly ban it? Bitcoin is just some math. Are you going to ban math? And how are you going to enforce it internationally? Furthermore, the price after ban depends on what substitutes are available. The price of drugs, for example, rises when made illegal. Since Bitcoin was designed due to a lack of usable substitutes in the first place, how do you know the price won't rise if it was made illegal?
boniek:to fake the gold successfully as to fool everyone and you can't say they had no incentive
There are multiple issues with this. First of all, I can't determine if a gold coin is genuine and could be easily fooled by a gold-plated tungsten coin. In order to verify its authenticity, I would need to spend a comparatively high amount of resources, either myself or by hiring an expert, and the value of the coin might be diminished in the process. Bitcoin is based on math, and there are multiple open source implementations of the algorithm. The verification of an authenticity of a Bitcoin transaction takes a small amount of time and you just need a computer with a network connection. The type of attack you're describing is as if one computer tired to persuade other computers that 2+2 = 5. Furthermore, why does a scammer need to fool everyone?
boniek:Agreed, but gold would still have some value because its use is not only as money.
Probably lower than the current level though.
Peter Šurda: boniek: boniek:my view it was done purposefully to extract as much money from people as possible in shortest amount of time The question however is, what are the alternatives? I only see two. Higher built in inflation, which obviously invalidates a crucial point of Bitcoin. Another one is to assign creation of Bitcoins by non-mathematical properties. But that again invalidates the core feature: who would decide who gets how much? How do you make sure noone pretends to be multiple persons?
I just said it in my previous post - constant inflation. Everybody gets constant amount of bitcoins per block till all blocks are solved. It would be much less suspicious that this is just a platform to rip people off. This issue is not important from the point of view of bitcoin viability as money though.
Peter Šurda: boniek:When ban hits its acceptance will fall - no shop will accept it. First of all, how do you effectivelly ban it? Bitcoin is just some math. Are you going to ban math? And how are you going to enforce it internationally? Furthermore, the price after ban depends on what substitutes are available. The price of drugs, for example, rises when made illegal. Since Bitcoin was designed due to a lack of usable substitutes in the first place, how do you know the price won't rise if it was made illegal?
How do you effectively ban USD in Poland? It is just a some paper. Are you going to ban paper? And how are you going to enforce it internationally? ^_^
Price depends only on subjective valuations. I can't speak for other people but what use will bitcoins have as money to me if I won't be able to spend them to buy anything I want and if I won't be able to do that why I would want to store my wealth in them?
Peter Šurda: boniek:to fake the gold successfully as to fool everyone and you can't say they had no incentive There are multiple issues with this. First of all, I can't determine if a gold coin is genuine and could be easily fooled by a gold-plated tungsten coin. In order to verify its authenticity, I would need to spend a comparatively high amount of resources, either myself or by hiring an expert, and the value of the coin might be diminished in the process. Bitcoin is based on math, and there are multiple open source implementations of the algorithm. The verification of an authenticity of a Bitcoin transaction takes a small amount of time and you just need a computer with a network connection. The type of attack you're describing is as if one computer tired to persuade other computers that 2+2 = 5. Furthermore, why does a scammer need to fool everyone?
But you can definitely distinguish fake from original for example by cutting it. In case of bitcoins if exploit were to be found you wont be able to tell the difference.
Peter Šurda: boniek:Agreed, but gold would still have some value because its use is not only as money. Probably lower than the current level though.
Still better than nothing.
boniek:I just said it in my previous post - constant inflation.
This is the monetarist approach. That does not necessarily mean it's incorrect, but it's not founded in praxeology either. Even if you have constant inflation, as the number of users increases, from the perspective of an individual user, the marginal return on investment still decreases. So there is still a reason to call it "unfair". Furthermore, in the current implementation the block size adjusts only once every four years anyway so there is plenty of time to hop on.
boniek:How do you effectively ban USD in Poland? It is just a some paper. Are you going to ban paper? And how are you going to enforce it internationally? ^_^
As far as I know, USD is not banned in Poland. In fact I think a lot of Austrians misrepresent the legal tender laws. For a normal businessman, the direct effect of legal tender laws on his trades is largely non-existant, with the exception of countries suffering from hyperinflation, or communist ones, where governments explicitly ban it. If you're not a bank, you probably do not need to accept USD (or the local tender) in any trade you are conducting. The reason why fiat is regionally distributed is mostly due to indirect influence (e.g. you need to use the local currency as the main one in your bookkeeping, banks often treat it favourably, and various public services require it) and network effects.
I'm not familiar with Poland in particular, but in general in communist countries, you were prohibited from owning a "harder" currency. That did not stop a flourishing black market and high prices for those currencies.
The problem in the US is that the government often attacks producers (rather than users) of competing currencies. But the production of Bitcoin is decentralised, and happens all over the world. So what's the government going to do? The computer that produces a Bitcoin does not need to store it. It could be stored in a different country. So even if somehow the government would claim that the mining rig is violating its monopoly on mint, confiscating the rig still does not confiscate the Bitcoins.
Think of Bitcoin as bittorrent. It's just data flowing on the internet. It's also comparatively smaller amount of data. So how do you stop it? You forbid people from renting servers in other countries, and connecting to services in other countries? Apart from having ridiculous restrictions of the internet, which affect almost all use of it whatsoever, there is no effective way of stopping it. Also, even if they somehow get to you and you get jailed, you can still manage to protect your bitcoins from being expropriated (and leave them to be used by your family, for example). Compare that to gold: government takes the gold and you're screwed.
boniek:what use will bitcoins have as money to me if I won't be able to spend them to buy anything
You can use it to buy stuff from countries that do not ban bitcoin, and you can trade them on black market. There might be a higher risk, but the market value of Bitcoins would also be higher.
boniek:But you can definitely distinguish fake from original for example by cutting it.
I'm not an expert, so I don't know to what extent this is correct or not (for a gold-plated tungsten probably yes, but that's hardly the only way to forge a gold coin). Nevertheless, it diminishes the value of the coin and its usability. Furthermore, there's the problem of physical contact and speed. If you're trading remotely or online, it is impractical to cut a coin that is stored somewhere else, so you'd need to substitute gold for a note, or a DGC (digital gold currency), which has its own range of problems.
boniek:Still better than nothing.
Unless, of course, someone invents replicators. Then gold would become worth next to nothing.
My point is that there is no praxeological reason to why any specific type of medium of exchange should be dominant. The advantages and disadvantages of them (and therefore their ability to grasp this or that part of the market for medium of exchange) are heterogeneous variables, and their relative importance changes depending on the environment and the state of technological progress. While it's possible that on a free market, gold would be dominant for the time being, we do not have a free market. Furthermore, gold is much more in danger from government than Bitcoin. Even if they wanted, they can't do much about it.