Look at this:
I have looked at it for 30 seconds, but it looks like an attempt to create a new "free market" money immune to government intervention. (but is this even possible to create a new money from thin air? does the regression theorem prove this cannot work? how would the initial array of prices be set?)
I see all sorts of problems. The only reason I would ever except one is because I thought other people would... but everyone is in the same boat. With gold, there is market value to begin with. Bitcoins require an agreement among people to just start using it as money. Plus, It is difficult to imagine that these Bitcoins wouldn't be counterfeited if they ever did take off.
Every decent man is ashamed of the government he lives under - Mencken
There is a fairly large thread about it here: http://mises.org/Community/forums/t/9853.aspx
My Blog: http://www.anarchico.net/
Production is 'anarchistic' - Ludwig von Mises
thank you, and sorry for the duplicate.
A point that I've consistently tried to make in that thread is that Bitcoin does indeed violate the regression theorem.
Furthermore, Bitcoin cannot escape the regulatory grasp of the State, another important point that is hardly ever discussed. At some point, Bitcoins must be exchanged for real goods and services. You might be able to hide your Bitcoins in the digital aether but you can't hide real goods and services and if you can't hide it, the government can seize it and regulate it. If you're not receiving legitimate payment in government money, then the government only needs to send you up on money laundering and tax evasion charges. They don't actually have to find the Bitcoins. Governments are not exactly sticklers about legal procedure in enforcement of their tax codes and monetary monopoly.
Econtalk podcast discussing bitcoin with one of their principals: http://www.econtalk.org/archives/2011/04/andresen_on_bit.html
I listened to the interview. Nick Szabo at George Washington University described a protocol he termed bit gold, years before Bitcoin came out. Bit gold itself has a (real-world) antecedent in hashcash. Bitcoin essentially implements a kind of bit gold. I think that "raw bit gold" is a better candidate to act as a money than Bitcoin precisely because the amount of bit gold in existence would not be managed. Economist Ben Powell explains in an online lecture that the Somali shilling is still in use today despite being obliterated by inflation under the Barre regime and despite its being worthless fiat paper. All the Somali shillings in use today are "counterfeits" and they are printed (inflated) at will by anyone with a printing press. But the Somalis will only accept the largest denomination of shilling that was in existence at the time that the Barre regime collapsed, which I believe is the 1,000 shilling note - that is, no one will accept a 10,000 shilling note instead of 10 1,000 shilling notes, so this limits the capacity for inflation... inflation is limited by the commodity costs of the paper, ink and transportation of 1,000 shilling notes, which Powell says were fluctuating between 3 and 4 cents exchange rate. Of course, shilling notes are only used for very small transactions.
Bitcoin or bit gold are nearly the digital equivalent of this system where anybody who wants to can print up their own fiat money, restricted only by the willingness of others to accept the printed money in exchange for real goods and services. Nevertheless, there is an important difference. Somali shillings had prior value in exchange by virtue of their status as the fiat money of Somalia under the Barre regime. So, we can regress modern, unregulated Somali shilling notes back to Barre's fiat Somali shillings in conformance with Mises's regression theorem. To what do Bitcoins or bit gold regress?
In addition, it is a feature not a flaw of the unregulated Somali shilling that it can be printed by anyone who wants to. The exchange rate is fully regulated by the market not by any wise central planners or through supposedly democratic processes. Between bit gold and Bitcoin, I believe that bit gold shares more features of the Somali shilling than Bitcoin which, if it were money, would be controlled by a kind of "techno-democratic" central bank (i.e. the open source programmers and other enthusiasts who participate in Bitcoin decisions). Somali shillings tend to be arbitraged to their commodity value... if the going exchange rate of a Somali shilling is 4 cents and I can print them for 3 cents each, then I can earn a profit of 1 cent on each Somali shilling I print. As I and other Somalis print them and spend them into the economy the exchange rate will be pushed back down until no profit can be earned on printing shillings. There is no need for a central planner to decide "there will ever be only 21 million Bitcoins in existence" and I am highly suspicious of the intentions of someone who wants to create a money system where they get to decide the total number of monetary tokens that will ever be created. This is justified by saying that it's supposed to mimic the scarcity of a natural resource but this is nonsense since the nature of bit gold is that the market could always "raise the bar" of computational effort required to exchange for 1 US penny without any oversight from a central planner.
As you can tell, I'm pretty pessimistic about bit gold, let alone Bitcoin. I think all the evidence and arguments are against the viability of these systems. However, a clever entrepreneur might be able to leverage the original hashcash system - which really does have a commodity value! - to create a monetary system. Hashcash was invented to impose a "dollars and cents" cost on spammers and force them to burn lots of wall power and CPU cycles in order to spam. It's a beautifully elegant solution to the spam problem since the cost of generating hashcash for a legitimate (one-time) mailer is negligible but to the spammer it is immense. Since hashcash tokens already have a commodity value (measurable in dollars and cents), these have a real possibility of becoming a monetary good without government support. The key would be to expand the hashcash protocol slightly to permit hashcash tokens to be "pre-generated" and later sold to someone who wants to do fast, bulk email.