Here's some info on the gold market
http://www.kitco.com/charts/CPM_charts.html
What has given bitcoin its current level of success has a lot to do with people believing that the current systems are fine and the only thing wrong with it is government and central bank intervention. Obviously central authority intervention and money monopolies are what a lot of us want reduced or eliminated. So bitcoin has basically mimmicked today's system and exchanged the central authority with an algorithm. So now we're all free.
But what's missing is the understanding that the reason there's intervention today is that the system would not last without it. Why? Mostly because the paper or digits that are traded are worthless. It's just paper and digits. If these central authorities stopped enforcing their use, people would finally begin to see the true value of what paper bills and digits really are.
Also, their is the desired success of the early adopters or those on top of the pyramid. They get them cheaper and they want them to go up. What happens when/if the value does begin to rise? People are going to hoard them. Why spend them if their value is rising faster than the prices? After this rise slows down, hoarders will begin to cash in. Some hoarders will try to hold longer, but eventually, these people that bought in cheaply are going to want their investment to pay off, so they're going to liquidate.
After this liquidation occurs, the price will begin to fall precipitously. Will the bitcoins pull out of this last crash? Who knows. It depends upon how much people want to risk in order to be on top of the next climb. However, after the crash, will there come another bitcoin that claims better algorithms? And if more businesses are involved in this crash it should be much harder to entice them again, because I would guess that businesses are going to be much more conservative, since their business is their source of income.
And all of these negatives that are associated with physical money or receipts that represent it, these negatives can't be eliminated simply by just endowing the paper withj value. And as far as a limited supply of bitcoins, nearly anything made by man can be limited. So why would bitcoins particularly limited thing be superior to anyother limited piece of paper or electronic signature?
Bitcoin can't suddenly be above it all because it decides to forgo the real-world physicality of value. Beyond dealing with the phonyness of deeming a randomly limited blip as having value, you also have another party to your transaction. You're not eliminating that liability.
If the free-market were allowed to work and we didn't have central authorities purporting to protect consumers, I'm sure the free-market's oversight on fraudulent activity would reduce this risk quite a lot.
This whole saga reminds me of the Bernie Madeoff scheme. He pointed out the great returns and how it could go on and on. And it did go on for a good while because of the government's ineptitude. But once it was revealed that it was just paper and smoke and mirrors, billions were lost.
But at least bitcoin lays it out there. And like I said, the main reason I think bitcoin will have any success is because people today basically don't understand money and they've lived in a era of the state-enforced ponzi scheme and so they don't see anything particularly wrong with bitcoin except the goodness of ridding themselves of their central authority.
I could see my grandfather, if he was still alive, buying into bitcoins. Ha. Nope, too much commonsense.
I'm big into silver because of the currency turmoil and its increasing demand in technology and medicine. Gold is a lot higher because of it's rarity, its history and because it is owned by central authorities.
SILVER
http://www.kitco.com/charts/CPM_silver.html
"The best way to bail out the economy is with liberty, not with federal reserve notes." - pairunoyd
"The vision of the Austrian must be greater than the blindness of the sheeple." - pairunoyd
Another issue being addressed by bitcoiners is the ability for people to decide they no longer want X. People could stop wanting gold, silver, copper, ice cream, bitcoins. Therefore, all are equally good. Bitcoin has known limits and can be traded easily, therefore it is superior.
I think this basically boils it down, does it not?
What I'm saying is that gold and silver's monetary status has been qualified by the market over a period of thousands of years. Bitcoin was instantly promoted to monetary status. Why is it that bitoins haven't enjoyed prevalent trading BEFORE it was endowed with monetary status? Why the riush and shortcut to get it here?
Personally, I couldn't care less about gold or silver except when it's in things that I may need or want. And even though it may cost $20 to mine an oz of silver and $1400 to mine an oz of gold, it's not worth that to me, except as a portion of whatever product it is a part of that I want.
For example, if there is 1/2 gram of silver in a phone and that adds $5 to the cost (after it's inflated by intermediaries/businesses) of that phone, I am willing to pay an extra $5 for that phone because it might not work as well as it does without that extra $5. Therefore I'm willing to pay that rate of about $27/oz (todays approx price).
Part of the reason gold is so inflated today is because it's basically keeping step with paper money. Before this rampant ponzi scheme we've been locked into, gold was very steady in its price when denominated in less-inflated dollars. There's a saying that with an ounce of gold in 1900 or 1950 or 2000 you could buy a very nice suit. And any additional inflation in gold's value as money has to do with the instability of today's currencies. Sensing a collapse or massive displacement from fiat, people are insuring themselves with gold.
The increased cost in its monetary side is in my opinion the potential cost of future market redistribution of gold. If demand for gold as a more active monetary ingredient increases post-currency upheavels, there is a cost associated with shifting the gold from less hands to more hands. A certain price has to be paid by those not holding gold in order to return it to more hands and have it carry out its monetary powers. Once things settle down and the holders believe that calm has returned or when they really need to sell, then as gold fulfills its role, the monetary part of its price will deflate. IMO..
WARNING: The following contains immature humor, if you are easily offended please stop reading and contact your doctor immediately.
pairunoyd: People could stop wanting gold, silver, copper, ice cream, bitcoins. Therefore, all are equally good.
pairunoyd: Why spend them if their value is rising faster than the prices?
pairunoyd: I'm big into silver because of the currency turmoil and its increasing demand in technology and medicine.
pairunoyd: Personally, I couldn't care less about gold or silver except when it's in things that I may need or want.
pairunoyd: So why would bitcoins particularly limited thing be superior to anyother limited piece of paper or electronic signature?
pairunoyd: Why is it that bitoins haven't enjoyed prevalent trading BEFORE it was endowed with monetary status? Why the riush and shortcut to get it here?
JackCuyler: jtimon: No one is explaining us bitcoiners how its value will collapse to zero without monetary inflation and why that "crisis of confidence" is impossible for precious metals. Bitcoins' value, and the value of any metal used as currency, could certainly drop due to a crisis of confidence in their usefulness as currency. The difference is how far the value will drop. Bitcoins have no value outside of their value as currency. Metals have industrial applications. It is doubtful, though I guess an extremely remote possibility, that even if there was no confidence in gold as currency, everyone would also cease to use gold in jewelry and electronics.
jtimon: No one is explaining us bitcoiners how its value will collapse to zero without monetary inflation and why that "crisis of confidence" is impossible for precious metals.
Bitcoins' value, and the value of any metal used as currency, could certainly drop due to a crisis of confidence in their usefulness as currency. The difference is how far the value will drop. Bitcoins have no value outside of their value as currency. Metals have industrial applications. It is doubtful, though I guess an extremely remote possibility, that even if there was no confidence in gold as currency, everyone would also cease to use gold in jewelry and electronics.
And again, what precisely could precipitate a loss of confidence in bitcoin.
I understand how any currency backed by gold could lose confidence--in the case where more gold-certificates were issued than there was gold to back it.
I don't understand how bitcoin, the first currency literally immune to inflation, could face a crisis of confidence.
Again, loss of confidence doesn't just happen. It is precipitated by some event. The certificate issuers can inflate, as can the fiat runners. Commodity backing simply gives you a way to get some of your money back when the people controlling the currency screw up so badly that the floor drops out.
Why not go around the problem entirely and choose a currency that can't be inflated at all.
It was unthinkable in the recent past. Literally unimaginable.
Don't import theories about money from past thinkers whom lived in an era where a non-material currency wasn't even imaginable as if these theories included the domain of existence from which bitcoin hails.
Seraiah: Bitcoins meet or exceed all attributes of gold when it comes to performing the task of being a medium of exchange, with the minor caveat of lacking an industrial use.
Bitcoins meet or exceed all attributes of gold when it comes to performing the task of being a medium of exchange, with the minor caveat of lacking an industrial use.
Well, ironically, there isn't one person in a million who has an actual industrial use for gold. So, as far as their concerned, gold and bitcoin have equal industrial use--practically zero. All anyone cares about is will the next guy accept my medium of exchange.
Gold has thousands of years of confidence behind it. Bitcoin has four. Years.
Just a matter of time.
excel: Except bitcoins can be effectively shut down by putting up enough transaction servers that do what you want, rather than what the bitcoin market wants to do (I believe it was Peter Surda who explained this), which is far more likely than finding and mining an asteroid with more gold than there exists in use in the world today.
Except bitcoins can be effectively shut down by putting up enough transaction servers that do what you want, rather than what the bitcoin market wants to do (I believe it was Peter Surda who explained this), which is far more likely than finding and mining an asteroid with more gold than there exists in use in the world today.
I do not recall this. In fact I consider the supply of Bitcoin less elastic than that of gold.
excel: So if we're going to judge currencies on the most remote and unlikely scenarios, bitcoin is just another failure that will be used by the state to defraud anyone who uses them, which means weimar republic(bitcoin) versus a 50% drop in purchasing value (double the gold). I do not see how the state can use Bitcoin to defraud people who use it, quite the opposite, it demonstrates how to prevent it. | Post Points: 20
So if we're going to judge currencies on the most remote and unlikely scenarios, bitcoin is just another failure that will be used by the state to defraud anyone who uses them, which means weimar republic(bitcoin) versus a 50% drop in purchasing value (double the gold).
I see that Smiling Dave still does not understand the regression theorem (which has the purpose of explaining the emergence of prices of media of exchange as a catallactic process) and the threefold Misesian classification of goods into consumer goods, producer goods and media of exchange it is based on. He still presents a theory of intrinsic value he himself invented as if it had something to do with the Austrian school, and still confuses deductive reasoning with empirical data.
But what is refreshing is that less and less people fall for his nonsense.
@Parunoyd (or however you spell it)
There's always, always going to be one fatal flaw to any commodity money, and it's wrapped up in the fact that they cannot be traded directly.
Show me a digital transaction done in gold.
You have a problem with fiat currencies backed by nothing, and well you should, but a commodity money is simply a version of a fiat currency that's a touch more secure and little more.
The second you go to actually trade a gold-backed currency in the real world, no one wants to start carrying around gold coins again and doing all transactions in person. And that's never going to change. That 18th century ship has sailed.
The problem then is wrapped up in representations.
No matter what commodity you want to use, you're going to have to represent it. This means paper certificates and digital transactions.
Now, paper certificates serve just fine as money, even though their commodity value is nil compared to their exchange value.
But the guy who controls the printing presses can still inflate a commodity currency because real-world transactions can only realistically be done in representations. That's never going to change either. You're never going to be able to transmute gold into an electronic form and beam gold to another person. All the advantage of being a commodity currency is lost when you accept representations.
It's just as easy to hyperinflate a commodity currency as to hyperinflate a fiat currency. Neither are immune.
Only bitcoin is immune to hyperinflation.
Therefore, it might be said that bitcoin is the first true money that mankind has ever produced. Everything else was a pretender to the throne--here finally is something that so nearly approaches perfection that Plato himself would've swooned in ecstacy as finally having found the form of money existing for once in the real world :P
Anenome:Again, loss of confidence doesn't just happen. It is precipitated by some event. The certificate issuers can inflate, as can the fiat runners. Commodity backing simply gives you a way to get some of your money back when the people controlling the currency screw up so badly that the floor drops out.
What can impair the monetary component of value except government mismanagement with the supply of it:
1: Political reasons (e.g.: Government outlaws it, throws people into jail for using it, which is highly likely in case BTC becomes politically/economically significant) 2a: Hacking (Not so much the BTC system itself, as the wallets of people. If people start saving big amounts in BTCs this will increase. And thanks to electronics and the internet such attacks could be done by a few people quite effectively. The biggest security issue are the users itself not how well designed the system itself is) 2b: Fraud (Don't know of course how likely this is, but who really knows if the programmer hasn't left some kind of back door in the code. At least the normal user like me never could be sure, and this is something that makes BTC for me that less attractive) 2c: If there really goes something wrong, whatever/whoever the cause there is nothing you could sue, no private and no public entity. The strength that no one is responsible for its issuence is also a disadvantage because there is no one liable. 3: Simple competition. (Competition in the money/currency market is heavily controlled by government at the moment so it depends mostly at what they will do. In any way there is always the risk that a competitor whether fiat, commodity or other more hip or technically better crypto is coming up and taking market share...) 4: Add all of them together, incorporate the fact that BTCs have no industrial component of value in them and don't forget about market psychology (how fast markets can move at times) and in my view it is really quite risky to have lots of value in BTCs. Since the time I became aware of the fact that monetary value is not guaranteed but only industrial value is, I always thought about in what to save while keeping the spread between monetary value and industrial value as small as possible especially in times of permanent financial crisis mode like now. It really amazes me that proponents of BTC try to paint it as an advantage that with BTC this spread is infinite.
No I don't deny BTC's usefulness in times like this. And please don't think I am saying you shouldn't make use of it. But don't believe any currency/money including BTC only can be destroyed by hyperinflation. If that was true silver never could have been demonetized, which means nothing more as a reduction of value to its industrial component.
So please use BTC in transactions, but please do me the favor and do not store thousands of Dollars in BTCs because you think that is the most prudent thing to do, and nothing (big) can happen to this value.
Peter Šurda: I do not recall this. In fact I consider the supply of Bitcoin less elastic than that of gold.
Most of the knowledge I have of bitcoin is from your comments and discussions on the issue. I think it's from your explanation of how bitcoin transactions are 'decided' by the P2P system.
So Skylien, Which of the (imo opinion valid) problems of bitcoin do not apply to other currencies?
Torsten: So Skylien, Which of the (imo opinion valid) problems of bitcoin do not apply to other currencies?
If I can suggest one, I think outlawing would be more effective against digital currencies than physical ones. Even when it's a distributed P2P type of network, you will end up hitting a sweet spot between low proliferation/use of the currency vs. shutdown of transaction servers.
I don't think living in sweden or some other outside country where the currency could remain technically legal would be as effective a barrier as it is in the case of copyright protection, as I expect the government to crack down hard on what will undoubtedly be labeled as a fraudulent operation, or even counterfeiting.
I expect you could end up with with newsgroup or irc like communities (and to a degree torrents as well). Viable, but with no real penetration into a large mainstream user-base.
Don't strawman me. Did I say that others don't have problems? I only tried to refute that BTC is invincible as Anenome seems to believe...
I would chose Gold and Silver, because I don't trust governments to manage Fiat, and they have an infinitely better spread between industrial and monetary value than BTC which in itself can cause volatile market movements triggered by small outside events, especially down. You can chose whatever you think is right according to your preferences.
Cheers!
Anenome: I don't understand how bitcoin, the first currency literally immune to inflation, could face a crisis of confidence.
faber est suae quisque fortunae
JackCuyler:Rumors (founded or not) that the system has been "hacked" or is somehow controlled by <insert evil entity>.
JackCuyler:Large-scale power outages. Almost the entire East Coast of the US lost power for a day or two in the last decade, so this is not that far-fetched.
JackCuyler:Government interference. This could include attempts to regulate or ban to simply a strong propaganda campaign. Most people are going to do what their government says, and that includes not accepting Bitcoins.
JackCuyler:If Bitcoins ever catch on to the point that they are widely used, there would certainly emerge Bitcoin-backed money-substitutes, as I really can't imagine the desire to perform transactions exchanging physical cash will go away.
JackCuyler:That is, there will always be "offline" transactins. These money-substitutes would be subject to the risk of inflation, though admitedly, not to the extent that gold certificates are.
Bitcoin is form-invariant, and indeed can exist in coin and note form without the use of a derivative instrument. This makes a demand for a derivative medium of exchange practically nil.
JackCuyler:Something "better" comes along. That I can't tell you what this could be is irrelevant. It seems as unlikely to you as the idea gold being replaced by the market did to Rothbard.
anenome: Well, ironically, there isn't one person in a million who has an actual industrial use for gold.
Seraiah:Ya, this advantage is way overblown. The biggest benefit of using silver and gold as mediums of exchange is that they can't be inflated. Bitcoins are even less inflatable. But still! You can't deny that if gold is suddenly repudiated, you could make a toilet out of it. It's been scientifically proven. You can't say the same for Bitcoins.
With industrial use I of course meant every use of Gold apart from monetary use. Everything else wouldn't have made sense. And this includes Jewelry, which is the biggest driver of the Gold price! Last year's figures show (2011 was a year with a huge demand for investment purposes) percentages for industrial versus investment demand of 43/57. And on the average in the years before it was about 60/40. (I am not saying the price would move in exactly those lines, but there is nothing that would suggest a price drop that would in the long run be only 10% or lower from the actual price. And even if it was only 10% you could not afford to make a toilet out of it!)
So what exactly is overblown here, what is scientifically proven? How about presenting some facts instead of baseless assertions?
Just for the fun of it: If Gold was priced only at 10% of today's price this would make it approx. 160 USD an ounce. An average toilet has a weight I guess of about at least 15kg made of ceramic. Ceramic has a density that is around half of steel which makes it about 5 to 6 times less dense than Gold.
This amounts to a Gold toilet of about 82.5kg (180 pounds) with a value of about 424,380.00 USD!
I was just saying it was scientifically proven that you can make a toilet out of gold if the value falls to practically zero. (Since it's been done.) This is an advantage on gold's side, but in a free market Bitcoin would be used in the vast majority of transactions. Bitcoin has way more advantages in other areas. But keep in mind that they aren't exclusionary as some people say, there's no reason one couldn't store gold and silver as well as use bitcoins. They would all still be acting as a medium of exchange.
if only we could find a way to eliminate gold's mass and volume, it might be able to compete against bitcoins. I wish we could just imagine we did this and even though others would have to trust that we did this since they couldnt see or feel it, I'm sure that with the help of a computer monitor we could show that it does indeed exist. Only problem is finding a way to cut imaginary gold into 22 million pieces. I mean, convincing them that gold isn't in it's normal state is one thing, but making them believe we we're able to cut it into 22 million pieces is quite another! Ah, algorithm!
And besides, gold wasn't a priori money. I mean, being made money before it even exists is a very hard characteristic to top!
Can any of you guys monetize an imaginary thing and then limit it to 22 million pieces? If you can, we're sitting on a freakin gold mine! Pardon the pun.
I just hope that a priori monetization of a limited imaginary thing isn't proprietary. If it is, I guess bitcoin will have cornered the market. Hopefully the US government won't protect their rights since such a technology could compete against the US's a priori monetization of a monopolistically created imaginary thing. This is going to get interesting...
Money substitutes have to be based upon an easily quantified, long-lasting store of wealth or you cannot effectively price money substitutes when loaning it to others.
When the price of borrowing money substitutes (interest rates) is based upon those easily quantified, enduring stores of wealth, i.e. money, it gives the market an indication as to the quantity of money available.
There's a disconnect between bitcoin and the actual wealth it is supposed to represent. The valuation of money substitutes is based upon what that money substitute represents. The price of borrowing money substitutes is partly based upon the supply of money substitutes, which itself should represent money.
So if the bitcoin were to be made available for loans, what would the interest rate be based upon? Would it only be based upon the risk associated with the borrower or would it also be based upon the particular wealth that its valuation is based upon? If it's not based upon particular things of wealth and is based solely upon the value of itself, then you are saying that the bitcoin itself is money. The bitcoin has value in and of itself.
However, it is superior money because while silver, gold or flour can't be moved around the world at the speed of light, the bitcoin can. What I want to know is if the bitcoin's moving at light speed to nearly all points of the earth is a wealth producing action, then how would this hyper-efficient distribution of bitcoins compare to gold, silver and flour if it were also as easily distributed?
I grant you that much of gold's value apart from its use as money and jewelry is pretty limited, but how much more enriching is it if bitcoins can get around the world in milliseconds and gold can take a week? How much more enriching is it if bitcoins can go from coast to coast in nano-seconds and it takes flour 3 days? Remember, this is referring to bitcoins as money and not as a money substitute, i.e., an end, final product.
And how much more enriching is the lightning quick distribution of bitcoins as money versus the lightning quick distribution of money substitutes? You say that money substitutes are inferior because they have the problem of redemption. Well, if we remove this problem of redemption and simply promote money substitutes to money itself and limit single units to 22 million and simply enjoy their lightning quick distribution, how are they different than bitcoins and how is their distribution as an end product enriching?
IMHO, bitcoins are money substitutes based upon themselves.
Yes, it's difficult to argue things when it forces you to dig deep into the nature of things. I've found it most challenging, for instance, to define the simplest words. The bigger words seem to have meaning based more in relationships, whereas the more commonly used words such as 'the', 'is', and 'as' require a lot more. I think that the acceptance or rejection of bitcoins is such an exercise.
It’s obviously the tired, old re-employment of a Ponzi scheme with the addition of the latest technology. Whether you’re passing something hand-to-hand, mail box to mail box or email to email, if it’s value is based upon how effortlessly it was delivered, it has no value…
What many see is how it can be used in the interim. It’s currently going for $6 or $7, I can convert this fiat into 1000 bitcoins and get it where I want to get it near instantaneously. It’s the same thing with the US Dollar. Even though it’s a fraud and its inability to survive the rigors of the market has been bypassed with the guns and cages of the US government, we have produced a heck of a lot of wealth with these wickedly enforced fraudulent pieces of paper. But this is because in spite of their intervention the usefulness of money substitutes yields its value.
Wealth could be produced in the soviet union in spite of their interference in the market. Many things still yield a portion of their worth in spite of the interference from deception. Bitcoin is such a misconception and in spite of these errors, those economic actors involved are finding value. If man's creations couldn't produce unless they were fully truth, we'd have perished not long after the garden of eden. It's a question of how costly particular deceptions will be. It’s not the job of truth to dictate your actions but to be available for your use. But the less that truth is used, the more you will suffer.
DON'T BE DECEIVED
http://www.youtube.com/watch?v=pBI1fv8YrzU
The fact that Bitcoins travel quickly doesn't "produce wealth", it just makes it valuable as a medium of exchange. I expect you knew that anyway. If a donut were immortal, could be divided into 2,100,000,000,000,000 (21 million + 8 decimal places), and be transferred to anwhere in the world very quickly at almost no cost, then yes, a donut would be as valuable as Bitcoins as a medium of exchange. (lol!)
The fact that Bitcoins travel quickly doesn't "produce wealth", it just makes it valuable as a medium of exchange.
Bitcoin+ is valuable in exactly the same way but it's a money-substitute. In other words, there's nothing about digital media that makes it inherently money-like rather than being employed as a mere money-substitute.
Clayton -
Clayton: In other words, there's nothing about digital media that makes it inherently money-like rather than being employed as a mere money-substitute.
More important than what could cause a loss of confidence, because a loss of confidence in just about anything is natural, is how resilient the bitcoin would be to a loss of confidence. A loss of confidence is fine when it involves things that have a lot more going for them than just confidence. The bitcoin is a confidence game and it’s a major existential threat when that vital factor is affected.
What could cause a loss of confidence in the bitcoin?
Realizing that it has no end-user value
Realizing that limiting the number of units of a thing with no end-user value doesn’t add to the end-user value
Realizing that sending something that has no end-user value around the world in 1 second adds no end-user value
So the next stage of thought is, But doesn’t its value as a money substitute mean something?
It makes no claim on money.
Therefore it isn’t a money substitute.
Then what is it?
It is fiat.
It is money because it is said to be money.
How does one valuate this proclamation?
What other proclamations has he made?
Do you have full confidence in all of his proclamations?
Is it not his proclamation that you value but the usefulness of bitcoins as money?
But it’s not money.
And it’s not a money substitute.
There is no confidence in bitcoin.
There is confidence in his proclamation.
There is confidence in succeeding proclamations.
There is confidence in the deception.
There is confidence in the continuation of this deception.
Don’t be deceived.
Lol. Just kidding.
I've never even seen a Cain-Dollar before. Ergo, they must be extremely rare. Ergo, they must be extremely valuable. This is an incredible offer!
For your excellent answer I have gone to my private stash and decided to give you a Schrute buck. Congratulations!
'Men do not change, they unmask themselves' - Germaine de Stael
pairunoyd: Lol. Just kidding.
Money substitutes are (Mises in The Theory of Money and Credit):
The special suitability for facilitating indirect exchanges possessed by absolutely secure and immediately payable claims to money, which we may briefly refer to as money substitutes, is further increased by their standing in law and commerce.
While I have issues with this definition, as there are evidently instruments which act as substitutes from economic point of view, but are not claims, the point here is that money substitutes are not subject to a distinct appraisal process, but their price is derived from something else. To say that something is a substitute of itself makes no sense.
However, Bitcoin has features which were empirically so far only present in money substitutes. This is because a balance transfer can occur either with a transfer of the private key itself, or by injecting a transaction into a Bitcoin network. This dual character is something new and almost entirely neglected by economists. But at least one Austrian economist realised this. Lawrence White writes in "Competitive Payments Systems and the Unit of Account" (1984):
Coinage reduces transaction costs compared to simple exchange, because of authentication and weighing. Bank liabilities also reduce transaction costs. But these are empirical factors, and not something inherent in all possible monetary systems. [emphasis added]
Also, Bitcoin is not fiat money, as fiat money requires a special legal status (see again Mises in Theory of Money and Credit). It is either commodity money (if you relax the requirements a bit), or a type of money that Mises neglected, and which Selgin calls "quasi commodity money" in a paper with the same name.
Interest rates depend on the time preference and the elasticity of money, not on whether they are done with substitutes or not. Bitcoin lending market is too disparate for a uniform interest rate, but if Bitcoin spreads widely and becomes money, its interest rate (assuming the supply remains inelastic) will be low. For a description how interest rates works with an inelastic supply, I recommend de Soto's Money, Bank Credit and Economic Cycles.
Also I find it peculiar when someone claims that just transferring something quickly does not create value, and does this on an internet forum instead of using something "real" like chalk and blackboard.
But the reason I would shy away from calling Bitcoin a "money substitute" is because Bitcoins are scarce, and also because they aren't subsituting anything. There's no contract to redeem; they have value only through voluntary transactions in the free market.
I agree, Bitcoin is not a money-substitute. It is (currently) a medium of exchange in certain contexts. But the fact that Bitcoin is a medium of exchange and not a money-substitute doesn't in itself make it more valuable or a more reliable store of value than a money substitute that works exactly like Bitcoin in every respect but is also redeemable in money (the hypothetical Bitcoin+). The point I have been making all along is that Bitcoin's unbacking is only useful/valuable in combination with the present political state of affairs in the global financial market - heavy financial surveillance, global regularization of tax law, elimination of shelters and havens, increasingly stiff penalties for anything that even hints of tax avoidance, etc. If we imagine a world where governments are ambivalent about money production and leave it to laissez-faire money producers to sort out, it is clear that Bitcoin+ would be preferable to Bitcoin.
What makes unbacked digital currencies possible where such a money had not been possible before is the combination of cheap, military-grade cryptography and "always-on", widely-available, cheap, high-speed digital communication (the Internet) to make the nearly costless transfer of unbacked, but un-counterfeitable tokens possible. And this is the key. If someone had devised an essentially costless way to print un-counterfeitable (at any price) paper notes in, say, round about 1971, such notes could conceivably have come into use as an "escape hatch" from the post-Bretton Woods paper money system, even before gold ownership was legalized in 1974. But the key to remember is that such notes would only have remained valuable (to the present day!) in tandem with the insanity of the global, government-created fiat paper money system. If, at any point, the government had simply thrown up its hands and said "We're done! No more fiat money, no more global inflation, we're calling it quits, we're now going to leave you guys alone to live in peace and prosperity", the value of such a currency would experience a tremendous collapse and would only retain value as either a collector's curiosity or as a "shadow money" in much the same way that Somalis still use Somali shillings despite their permanent collapse in value over two decades ago.
So, I am predicting that Bitcoin will continue to grow in value and expand its user base so long as the global financial control grid continues to cinch the noose on global capital. People buying Bitcoin are essentially betting that this trend will continue and that Bitcoin will be more attractive in the future as an escape-hatch from the global financial control grid than it is today. All in all, I think that's a safe bet. My concern in debating this issue is to have theoretical clarity on the precise status of Bitcoins in monetary theory.
Clayton,
adding "backing" (i.e. Bitcoin+ being a money substitute) would increase transaction costs compared to Bitcoin. All convertible money substitutes carry costs associated with maintaining reserves and their redeemability (see Hoppe - How is Fiat money possible?). Not to mention that the liquid markets (exchanges) would collapse as there would be no reason for their existence.
So Bitcoin+ is a fail. It's like an attempt to add physical "backing" to the Internet because Internet is only virtual. Same with language. Or, to use a different metaphor, when upon realising that the emperor is naked, you attempt to hastily throw a cloak around him before someone notices. You miss the whole reason why money comes to being (because it decreases transaction costs).
Whether Bitcoin could have emerged in a free market gold standard world is, of course, an entirely different question. Undoubtedly the state has, unintentionally, made it easier for Bitcoin to compete with other media of exchange. But once Bitcoin already exists, gold cannot compete with it on transaction costs, even if we eventually end up with anarchocapitalism. Even if technological issues disrupt Bitcoin, a new and improved cryptcurrency would emerge, as Bitcoin has shown that it can be done. Long term, gold or other physical commodities are doomed as media of exchange. At best they will be redelegated into stores of value.
Clayton: ...it is clear that Bitcoin+ would be preferable to Bitcoin. The administrative overhead of redeeming Bitcoin+ for a commodity (Which would translate into higher transaction costs.) would make it less preferable to Bitcoin.
Clayton: ...it is clear that Bitcoin+ would be preferable to Bitcoin.
What the heck? Why'd I repeat what he said... So dumb.
You miss the whole reason why money comes to being (because it decreases transaction costs).
Interesting that you mentioned the Criterion of the quality of money for Silvio Gesell.
You seem a well documented person, at least on austrian theory. I've been asking for a serious critique of the free-money theory of interest from the austrian school with no success. Here and here.
Can you help me with that?
I'm trying to convince people that a cryptocurrency with demurrage (http://www.freicoin.org/) would be better than bitcoin. Would decrease the costs of commerce even further by removing the burden of the basic interest. If I'm wrong, I would like to know why.
skylien: Anenome:Again, loss of confidence doesn't just happen. It is precipitated by some event. The certificate issuers can inflate, as can the fiat runners. Commodity backing simply gives you a way to get some of your money back when the people controlling the currency screw up so badly that the floor drops out. What can impair the monetary component of value except government mismanagement with the supply of it: 1: Political reasons (e.g.: Government outlaws it, throws people into jail for using it, which is highly likely in case BTC becomes politically/economically significant)
1: Political reasons (e.g.: Government outlaws it, throws people into jail for using it, which is highly likely in case BTC becomes politically/economically significant)
Sure, but that really only stops it in a region. It can take root anywhere, any-time. And will likely prove impossible, in time, to block bitcoin transactions and also allow citizens to have computers and internet access. I dunno how hard it would be to incorporate something like the tor network into bitcoin... The whole world would have to crack down at once to cause a loss of confidence. Not even sure that would work if it did happen. It would probably drive people to it.
skylien: 2a: Hacking (Not so much the BTC system itself, as the wallets of people. If people start saving big amounts in BTCs this will increase. And thanks to electronics and the internet such attacks could be done by a few people quite effectively. The biggest security issue are the users itself not how well designed the system itself is)
True, but the free market will take care of this by itself. This wouldn't likely create a mass loss of confidence, but rather isolated incidents. Where there's value to be protected there will be those willing to provide that protection, and they will.
skylien: 2b: Fraud (Don't know of course how likely this is, but who really knows if the programmer hasn't left some kind of back door in the code. At least the normal user like me never could be sure, and this is something that makes BTC for me that less attractive)
Nah, it's open source, not really an issue. Code's been combed.
skylien: 2c: If there really goes something wrong, whatever/whoever the cause there is nothing you could sue, no private and no public entity. The strength that no one is responsible for its issuence is also a disadvantage because there is no one liable.
Eh? Not sure I see the point. Do people sue the Fed when dollar bills go wrong or something? Huh?
skylien: 3: Simple competition. (Competition in the money/currency market is heavily controlled by government at the moment so it depends mostly at what they will do. In any way there is always the risk that a competitor whether fiat, commodity or other more hip or technically better crypto is coming up and taking market share...)
The only thing likely to beat a crypto-currency at being currency is a better crypto-currency, so really a non-issue in the long term, as you'd be trading up in essence. There wouldn't be a devalutation in such a case, but rather some discounting, as people traded good money for better money. If your point here were accurate, all other fiat currencies with less confidence than the dollar would've been repudiated long ago, but they haven't been.
skylien: 4: Add all of them together, incorporate the fact that BTCs have no industrial component of value in them
That fact is really a non-sequitor. And there's a number of mitigating points to your above list.
skylien:and don't forget about market psychology (how fast markets can move at times) and in my view it is really quite risky to have lots of value in BTCs.
I would agree that it is risky, but primarily because of the age of the currency, which means it hasn't proven itself. Four years simply isn't long enough.
skylien:Since the time I became aware of the fact that monetary value is not guaranteed but only industrial value is,
Industrial value isn't guaranteed either. Silver has crashed several times historically. Gold prices right now are ridonkulous and will crash at some future point. It's not industrial value that makes gold $1600 or w/e an ounce right now. Get that fallacy out of your head. It's gold's value-store ability which is what's making it so valuable right now. And that value store ability has almost nothing to do with industrial value and everything to do with uninflateability. Gold's primary use in human history is as money.
skylien:I always thought about in what to save while keeping the spread between monetary value and industrial value as small as possible especially in times of permanent financial crisis mode like now. It really amazes me that proponents of BTC try to paint it as an advantage that with BTC this spread is infinite.
It's not infinite, as was pointed out in this thread, but rather vanishingly small, as the energy which makes up the 1's and 0's of each bitcoin do have innate value in themselves. That miniscule amount of energy has about as much utility to you in the real world as an ounce of gold, which you cannot eat, drink, or make anything of industrial use out of. The only thing you would do with an ounce of gold is trade it. Ala, it's value is from its utility as money. And it's physical properties are what make it especially suitable as money, but these, again, have nothing to do with industrial use.
skylien:No I don't deny BTC's usefulness in times like this. And please don't think I am saying you shouldn't make use of it. But don't believe any currency/money including BTC only can be destroyed by hyperinflation.
I'd sum up your post as mainly saying the following: BTCoins are a complex technical thing which most people don't and indeed cannot fully understand and that creates various uncertainties, also hacking of the hardware people would need to use to trade BTC is a huge issue.
All true, but would this cause a general repudiation of BTC? That's an open question.
In essence, BTC is relying on cryptography in the same way that any commodity currency relies on its physical existence to limit the ability to cheat reality. You can't copy gold any more than you can copy a crypto-currency.
skylien:With industrial use I of course meant every use of Gold apart from monetary use.
Gold is used in trace amounts to cover electrical components to prevent corrosion. We're talking vapor deposition processes that deposit less than a penny's worth of gold on electrical contacts. What other industrial uses are there? A few ranom chemical uses. They don't constitute much demand. You have decorative uses, sure, but these aren't strictly industrial per se. Mainly you have people producing gold to serve as money. Who's buying lots of gold? China. India. Not to use in some industrial process but to lock away as a value store.
skylien:Everything else wouldn't have made sense. And this includes Jewelry, which is the biggest driver of the Gold price!
Sure, but gold's value as a decorative metal is because of the same physical qualities that make it a good money. Namely that it is incorruptible, meaning it doesn't rust no matter what. Would be rather important to make sure your money doesn't just rust away. This is gold's premiere quality.
Bitcoin too is rust-proof, via a completely different mechanism.
Gold is heavy, and heavy things feel valuable somehow. Also, gold's mass makes it easy to distinguish between fake and real gold.
Bitcoin's cryptography makes counterfeiting impossible generally, and it's actually much easier to validate a BTC than to put a gold coin through its paces to verify its composition (the really only good way being to melt the coin completely, etc.).
Gold is "pretty".
Well, BTC is pretty cool conceptually :P
skylien:Last year's figures show (2011 was a year with a huge demand for investment purposes) percentages for industrial versus investment demand of 43/57. And on the average in the years before it was about 60/40. (I am not saying the price would move in exactly those lines, but there is nothing that would suggest a price drop that would in the long run be only 10% or lower from the actual price.
Have you got a source for these ratios? I'd be quite interested in how they determined such a thing. If I was doing armchair mathematics:
Price of gold in 1990 = ~$350 - $400 an ounce.
Today, ~$1600 an ounce.
Even in 1990, some large fraction of that price had to be its value as a money store.
Let's be conservative and say that fraction back then was only 50%.
So, true price of gold for industrial purposes, $175 - $200 an ounce.
Have any new industrial uses for gold been discovered that would cause a surge in industrial value? Not hardly. In fact, gold rings have become less and less popular in favor of platinum, silver, and tungsten, etc.
So, $1600 an ounce today? $175 is nearly ~10% of that figure.
Oh, look how nicely the math works out :P
JackCuyler: Anenome: I don't understand how bitcoin, the first currency literally immune to inflation, could face a crisis of confidence. Off the top of my head: Rumors (founded or not) that the system has been "hacked" or is somehow controlled by <insert evil entity>. That would have to be accompanied by a pretty radical volatility on the currency market for BTC indicating an actual exodus. I suppose that could be triggered, but when the truth was revealed, that the whole thing was a manipulation, as surely it must be, it might no cause a general repudiation. And whoever pulled the stunt, by buying large amounts of BTC over a long period then suddenly selling it all at once timed to the rumor, would lose a great deal of money doing so, possibly more than anyone else. It would be pretty analogous to stock price manipulation--buy bunch of stock, put out rumor, short the stock. However, that hasn't led to a complete sell off, much less a repudiation, of the stock market itself. People who know there's real value tend to absorb the values being offered and even it out. People start selling BTC, in massive quantities, at a discount, and those with the technical knowledge to laugh the rumor off can make a killing buying the suddenly cheap money. So, there's a good chance such a plan would fail outright. JackCuyler:Large-scale power outages. Almost the entire East Coast of the US lost power for a day or two in the last decade, so this is not that far-fetched. That's interesting. However there's free market solutions available which are simply illegal in most countries. Did you know there's still about ~20 pacemakers out there which have been operating continuously for 25+ years without a change of battery? Yeah, they have nuclear batteries. However, the US gov doesn't trust people with such things anymore. We could easily have nuclear powered cellphones and the like. Neither do power grids need be centralized leading to mass blackouts. The future may very well see home power generation being done in decentralized fashion making a widspread blackout a thing of the past. So, true, you make a good point, but it is one that the future will likely solve permanently. Which means it's a conditional objection, not a structural problem with BTC itself. JackCuyler:Government interference. This could include attempts to regulate or ban to simply a strong propaganda campaign. Most people are going to do what their government says, and that includes not accepting Bitcoins. They don't have to. All fiat currencies will eventually crash and at that point people will ignore silly laws like this and do whatever they can, including buying BTC, to store value. That is one of my near-term predictions for how BTC uptake could take place in a large economy. JackCuyler:If Bitcoins ever catch on to the point that they are widely used, there would certainly emerge Bitcoin-backed money-substitutes, as I really can't imagine the desire to perform transactions exchanging physical cash will go away. You can't? Why can't you? Near-field communication, cell-to-cell sales, and the ubiquity of cellphones makes going 100% digital currency beyond easy. JackCuyler: That is, there will always be "offline" transactins. These money-substitutes would be subject to the risk of inflation, though admitedly, not to the extent that gold certificates are. I disagree that such a need for offline transactions will continue to exist. Face to face transactions can be done between cellphones + online, which will be even more ubiquitous proceeding forward than it is now. JackCuyler:Something "better" comes along. That I can't tell you what this could be is irrelevant. It seems as unlikely to you as the idea gold being replaced by the market did to Rothbard. I too thought of this, that I would wait for v2 or 3. However, looking deeper into the tech, it's not really a point. In an extreme circumstance, the BTC network could get together an amend the protocol, essentially updating it, without destroying the network. So, it contains its own v2 and v3 mechanism already. So, no point in waiting. Again, I find a lot to mitigate these obejctions. Autarchy: rule of the self by the self; the act of self ruling. | Post Points: 5
JackCuyler: That is, there will always be "offline" transactins. These money-substitutes would be subject to the risk of inflation, though admitedly, not to the extent that gold certificates are.
jtimon:I'm trying to convince people that a cryptocurrency with demurrage (http://www.freicoin.org/) would be better than bitcoin. Would decrease the costs of commerce even further by removing the burden of the basic interest. If I'm wrong, I would like to know why.
Demurrage is not a desirable feature in money. Your suggestion that it is alludes to the velocity of money fallacy.
Ludwig von Mises offered a more philosophical criticism, "The main deficiency of the velocity of circulation concept is that it does not start from the actions of individuals but looks at the problem from the angle of the whole economic system. This concept in itself is a vicious mode of approaching the problem of prices and purchasing power. It is assumed that, other things being equal, prices must change in proportion to the changes occurring in the total supply of money available. This is not true."
Looked at your link, and have to say that the use of demurrage there is a bit unusual, but the actual proposals are the worst sort of social engineering imaginable, look at this stuff:
There is another option of what to do with the demurrage that has been subtracted from people's coins as they were used to pay for things. In Gesell's universe, the demurrage fees were to be used to pay out to members of society, more specifically Gesell proposed to give that money to the mothers who are holding together a family and bringing up children. In our case, distributing the demurrage fees directly could be a point in favor of using the currency. My proposal would be to limit rewards to miners to a reasonable amount of coins, and to directly distribute the remainder to all accounts equally. That means that demurrage is positive for small users (they get back more than they pay in demurrage) and it is negative for the large users, or those who hold on to many coins for a long time. Those users will pay more demurrage than they get back through direct distribution.
You would create a digital sales tax, call it demurrage, and redistribute the proceeds via cryptographic coercion to whomever your value structure thinks needs free money. Frankly, it's despicable.
So, looking at your link, you wrote:
With the current proposal, all the accounts are charged no matter if the owner moves the coins or not. That money is "destroyed" and when the maximum supply is reached, the amount "destroyed" is equal to the amount given to miners.
Is the idea to convince miners to continue processing the block chain in perpetuity? Is that the main reason for such a proposal? Doesn't seem to be a direct connection between amount of mining done and who receives how much and why. You'd have to implement it via money movement I'd think, if paying back miners is even a problem.