Smiling Dave,
instead of lamenting about people not acknowledging the great truth you purport to represent, how about you start presenting coherently formulated arguments, as opposed to random fractions and anecdotes?
I'd say his post to me was coherently formulated.
Malachi:There are an infinite number of aircraft designs, but not all of them are equally desireable. There are an infinite number of possible operating systems, but people still pay for proprietary versions of linux.
Indeed, that's one of the reasons why aircraft designs and operating systems are not money.
Its funny how people who think value is subjective are always trying to tell other people what they shoukd and shouldnt value.
Who's telling anyone whether they should or shouldn't value something? I am only explaining why I don't buy/value bitcoin and why I predict that no one else will in the future. I wasn't into beanie babies either. Feel free to value whatever you wish and I will do the same.
Who's telling anyone whether they should or shouldn't value something?
Pete,
Thou hast committed the offense of cherry picking. My chart of bitcoin goes from day 1 of its existence right down to today. Let's see what gold looks like from that perspective, not some time interval you searched for that would make gold look bad.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
gotlucky:I'd say his post to me was coherently formulated.
I say it wasn't, because it is full of holes and riddled with vagueness. In his post to you, he neglected to address the price of fiat money. Of course we all know that Mises' Regression Theorem does explain the emergence of price of fiat money too, but Smiling Dave's post was formulated in a way that precludes fiat money from having a price. He also neglects other goods that are of no use to Robinson Crusoe, because their use requires either social interaction, or infrastructure which he does not have (for example, a telephone). Other examples include positional goods and non-money pure network goods (e.g. language).
He can't formulate with sufficient precision, he just waddles from one error to another.
z1235: the reason why network goods such as, say, operating systems or money do not randomly displace each other is the network effect, which dampens the flow of users between the groups. Of course there are other oddities such as multihoming that can skew the results, I'm just pointing out that this plays a significant role in the process.
gotlucky,
Here's what I found a while back. Iremember Mises using it, too.
As for Bob Murphy, the best I have is "for its own sake" here.
In what manner does Smiling Dave neglect fiat money? I see SD as explaining that there needs to have been some sort of original value that people had about the object in question. To understand fiat money, we must understand the origin of money. The problem with bitcoin is that people are trying to say it has qualities that make it a better medium of exchange than anything else.
But so what? That is not the question. The question is why should the people of any given community/society care? Dave has pointed out fads. There are always going to be some group of people that value something more than the rest of society. But the problem with bitcoin is that the rest of society won't value it as money.
You disagree with his assessment. Only time will tell, but I'm with Dave on this one.
People can use bitcoin as a...medium of exchange...This...establishes a starting point for monetary value. This is all in complete agreement with Mises' regression theorem...
You aren't paying attention. Basically you are saying that it has intrinsic value, as money. Check out my latest blog post about how amusing that is, and why.
I am glad, for your sake, that you don't waste your precious money on bitcoins. Glad we agree on something.
Other people value it as a medium of exchange, other people use it as money, its money...trying to say that what they use as money isnt money because its not money to you makes you the idiot.
You aren't paying attention. Does the phrase "generally accepted" ring any bells?
I only repeated the "cherry picking" you started to invalidate your point. I do not claim that "gold is like Bitcoin", rather I am showing that you're inventing arbitrary assumptions to fit your pseudo-arguments. Just like you can make arbitrary assumptions that lead to your conclusion, I can make arbitrary assumptions that lead to an entirely different conclusion.
Furthermore, your chart is not from day 1 as you allege, since on day 1 of Bitcoin there was not only no Mt. Gox, but also no price for Bitcoin. The price of Bitcoin, based on my research, only formed when Bitcoin was already about 10 months old, and it took further 9 months for Mt. Gox to appear.
Last but not least, you as usually avoid addressing any of the arguments that I make.
Malachi:Unique immaterial goods can be valuable even if they are members of an infinitely large set.
Yes, they are valuable until another (better) immaterial good drawn from said infinite set replaces them and makes them worthless (paper winged aircraft designs, Windows 3.1, etc.). Our inability to predict the qualities of bitcoin-97 is one of the reasons why bitcoin is not money today and probably never will be. If we could predict that in the near future alchemists would devise precious metals with qualities similar to (or better than) gold, the attractiveness of gold as money would be significantly diminished, too.
Your argument does not address scarcity.
Yes, it does. Crypto-patterns are not scarce. Gold atoms (still) are.
You aren't paying attention. Basically you are saying that it has intrinsic value, as money.
So those are the two sources of value that money has. Mises gave those values clumsy names, industrial value for the first, and exchange value for the second.
the industrial value of bitcoin is as a pseudonymous digital instant balance transfer mechanism between crusoe and friday. It has features like peer verification or whatever that bitheads find fascinating. Enough bitheads start using it to transfer meaningful balances and it becomes money. See, no equivocation, just focusing on the facts. Bitcoin is now money, because it is a primary medium of exchange in some markets. Freedom of association, see? Those bitcoinheads dont have to thnk about you, and neither do we when we make socioeconomic judgments of commodities like pork bellies or bitcoins.
gotlucky: Smiling Dave says that money must have "use value" before it has "exchange value". He did not say anything about the emergence of prices, which is the actual point Mises was trying to make. Fiat money does not have use value, but it can piggyback on the prior prices of commodity money (and Smiling Dave omitted this). So that's two gaps already. Now I'm not claiming he does not know it, but that he cannot formulate it even though he knows it.
Furthermore, there is a graver error in Smiling Dave's argument: money (or media of exchange) do not need use value to be money. Not according to Mises, not according to Rothbard. Once they are media of exchange, the network effect eliminates the necessity of other sources for the price. The "hardest" interpretation (with the use-value twist) of the the regression theorem says is that media of exchange need to have a use value before they are media of exchange. But Bitcoin already is a medium of exchange (and a highly liquid one at that). So whatever the regression theorem has to say about Bitcoin, it's already too late. But Smling Dave somehow absurdly twists the causality around.
Whether any given community/society cares about Bitcoin is irrelevant. Similarly as it was irrelevant whether people cared about the internet before it was mainstream. Either the infrastructure based on Bitcoin matures and it overcomes the network effect of fiat, or it does not mature and will linger around in its infancy or even collapse. But as I attempted to explain, Bitcoin has shown that the super low transaction cost monetary systems that were hypothesised can empirically exist. There is no putting the genie back in the bottle. Unless the whole civilisation collapses by then, one of those hypothesised systems will push out the current one, just like the internet has pushed out less advanced systems (e.g. letters, fax, books, tv), because they cannot compete with the internet on transaction costs.
Yes, they are valuable until another (better) immaterial good drawn from said infinite set replaces them and makes them worthless (paper winged aircraft designs, Windows 3.1, etc.).
Our inability to predict the qualities of bitcoin-97 is one of the reasons why bitcoin is not money today and probably never will be.
If we could predict that in the near future alchemists would devise precious metals with qualities similar to (or better than) gold, the attractiveness of gold as money would be significantly diminished, too.
My grandfather always said, "Figures never lie, but liars figure." Meaning that you can interpret an amazing amount of things from some set of data. Bitcoins are demonstrably better than every other medium of exchange currently on the market. Transaction costs are far lower, storage requirements are far lower, they're much faster to transfer, they're anonymous, they're immune to inflation or deterioration, and, best of all, there's no centralised authority. I understand that many of you think Bitcoin is destined for failure because it has no industrial use. What I want to know is; Why? I thought we fought to have a gold standard because it would prevent inflation, not out of some irrational fear of any competing currency. Bitcoins are immune to inflation. If Bitcoins are the better currency, they don't need any other use. Throw me a bone here. An axe would have value if it was only used to cut wood. A blender would be useful if it was only used to blend. Shoes would be useful if they were only used to protect feet. But a cryptocurrency can't be useful if only used as currency? Why? Why? You'll probably say, "I'm not saying it's not useful, just that it will inevitably lose all value." Why, though? I haven't heard any clear explanation. It's roughly equivalent to saying that all butter knives will inevitably lose value because we have swiss army knives. "Sure swiss army knives suck at buttering bread, but at least if their value for buttering bread falls to zero we can still open our wine bottles." Butter knives [Bitcoins] are better than swiss army knives [gold] at buttering bread [Being a medium of exchange], it doesn't matter that swiss army knives [gold] can be used for other purposes, butter knives [bitcoins] should still replace swiss army knives [gold] as a way to butter bread [medium of exchange]. What part of this are you not getting?
Peter Surda,
It seems the problem here is that you think so long as something is an indirect medium of exchange, then it is money. I was under the impression that money had to be a commonly accepted indirect medium of exchange.
Because if bitcoins arent useful in and of themselves, then they are a token that is ultimately redeemable for nothing. Just like being the last speaker of a dead language makes you an anthropological curiousity. True money is valuable in and of itself, because it carries no counterparty risk.
Malachi: Because if bitcoins arent useful in and of themselves, then they are a token that is ultimately redeemable for nothing.
They are useful in and of themselves. They are a decentralised authenticating unit of account. That's useful, extremely useful. Bitcoins have gained value because of this utility, not because it's a fad or for the luls.
Malachi:Seems to me, that people use whats available until something better comes along. I imagine a transition from one cryptocurrency to another would be a market event, just like any other. Some people make money, some lose money. Doesnt mean its somehow not money.
Because of the above risk, and to the extent that it is money, it's not sound money. The (potential) supply of crypto-pattern "money" is infinite, making the (potential) value of your current crypto-pattern "money" account zero. Not so with gold.
@Malachi That's purely definitional then. You're saying that Bitcoins can't be money because money must have an industrial use. Then I guess when a cryptocurrency becomes the dominant medium of exchange we'll just be without money. When Bitcoins are as commonly used a Gold, there will be just as little risk. (Gold is not without risk.) @z1235 Cryptocurrency is not infinately inflatable, and all cryptocurrencies are not equally valuable. Gold and fiat money both could potentially be worthless (unlikely with the former, likely with the latter) but they can still be money. But we're getting into symantics again. I want to know why Bitcoins would likely or inevitably become worthless, not whether or not it meets your standards of "money".
Malachi: Bitcoin is money, its just not the right money for me.
Because of the above risk, and to the extent that it is money, it's not sound money.
The (potential) supply of crypto-pattern "money" is infinite, making the (potential) value of your current crypto-pattern "money" account zero. Not so with gold.
I want to know why Bitcoins would likely or inevitably become worthless
gotlucky:It seems the problem here is that you think so long as something is an indirect medium of exchange, then it is money. I was under the impression that money had to be a commonly accepted indirect medium of exchange.
I actually do not claim that Bitcoin is money. I agree with you that only the most liquid medium of exchange is money, and further my empirical analysis leads to the conclusion that Bitcoin is not the most liquid medium of exchange (there are a handful of people who do conduct the majority of their business with Bitcoin, but I think they do it more to show that it's possible rather than something permanent). But it is nevertheless a medium of exchange. People obtain it in order to exchange it in the future. Such highly liquid non-money media of exchange are called "secondary media of exchange" (Mises) or "quasi-money" (Rothbard).
So I think the point is that bitcoin lacks certain qualities that would make it commonly accepted. Certainly, if bitcoin were a commonly accepted indirect medium of exchange, it would be money. What is holding bitcoin back is that most people have no reason to use it as money. Most people have a reason to use fiat money - it has been used as money previously (and this is where the regression theorum kicks in). But bitcoin has not been used as money previously by most people. So, they problem facing bitcoin is how is it going to be commonly accepted.
If I understand Smiling Dave correctly, he is asserting that it is not enough that bitcoin be easy to trade. People have to actually want it first. And that's the problem, most people don't want it, and they don't have a reason to want it. So it cannot become commonly accepted. At least with gold or silver, it can be used for vanity. Certainly someone can buy bitcoins for vanity's sake too, but again, the problem is that most people would have to want to do this. Most people do not.
As an example of what I was talking about in the prior post, there is a guy with the nickname "The Real Plato" who went on a road trip across the USA for several weeks while only paying with Bitcoins. See https://en.bitcoin.it/wiki/BitcoinRoadTrip. For him, during the trip, Bitcoin was not merely a medium of exchange, but money. So it is doable, but at the moment probably not very relevant for economic analysis.
gotlucky:So, they problem facing bitcoin is how is it going to be commonly accepted.
But this is not a fundamental problem, it is merely one that is not very thoroughly analysed by the Austrians (i.e. how do multiple media of exchange compete). Still, it's obvious, they compete on transaction costs. And because digital payment methods make multihoming easier (i.e. you can use a debit card issued in Japan when paying in Europe, even though you both parties used different currencies), this creates a potential approach vector for Bitcoin. Further potentials are, for example, black and gray markets, high risk merchants, international trade, emigrant/expat remittances, the "unbanked", online payments, or the collapse of the financial system.
z1235: Seraiah: Bitcoins do not need to be tied to any commodity because they are scarce and can therefore compete on the open market like anything else. (No Regression Theorem needed!) There is an infinite number of possible crypto-patterns. Bitcoin is but a sub-set of an infinite set. You've lost the context completely here. Bitcoin is scarce because it is mathematically limited in the number of bitcoins that can exist in the world. That has nothing to do with how many crypto-schemes are possible in the real world. Autarchy: rule of the self by the self; the act of self ruling. | Post Points: 5
Seraiah: Bitcoins do not need to be tied to any commodity because they are scarce and can therefore compete on the open market like anything else. (No Regression Theorem needed!) There is an infinite number of possible crypto-patterns. Bitcoin is but a sub-set of an infinite set.
Bitcoins do not need to be tied to any commodity because they are scarce and can therefore compete on the open market like anything else. (No Regression Theorem needed!)
gotlucky:The problem with bitcoin is that people are trying to say it has qualities that make it a better medium of exchange than anything else... The question is why should the people of any given community/society care?
You don't see the clear contradiction between these two statements? Why do people care that cars are a better medium of transportation than horses? Why do people care that modern healthcare is a better medium of healthcare than witch-doctorism? Why do people care that houses are better than caves?
It's precisely because people DO care about what "better X" means to their lives that they use these things. If Bitcoin is a significantly better medium of exchange than anything else, AND people need/want/demand a medium of exchange, then long term bitcoin is destined to be the primary medium of exchange in the world. Just as cars, houses, and modern healthcare have beaten their historical analogs.
Bitcoin is to a house as gold is to a cave; modern and better in every way.
BECAUSE people DO care, bitcoin is an actively traded currency in the world today and not a failed idea without broad uptake.
gotlucky:Dave has pointed out fads. There are always going to be some group of people that value something more than the rest of society. But the problem with bitcoin is that the rest of society won't value it as money.
Fads are when people value something primarily because others are valuing it, driven by artificial scarcity. Neither gold nor bitcoin display artificial scarcity.
Beanie babies could be mass-produced, copied even. So could tulips in the long run. Gold and bitcoin cannot be.
z1235: Malachi:Unique immaterial goods can be valuable even if they are members of an infinitely large set. Yes, they are valuable until another (better) immaterial good drawn from said infinite set replaces them and makes them worthless (paper winged aircraft designs, Windows 3.1, etc.). Our inability to predict the qualities of bitcoin-97 is one of the reasons why bitcoin is not money today and probably never will be.
Yes, they are valuable until another (better) immaterial good drawn from said infinite set replaces them and makes them worthless (paper winged aircraft designs, Windows 3.1, etc.). Our inability to predict the qualities of bitcoin-97 is one of the reasons why bitcoin is not money today and probably never will be.
Just think about that for a second and you'll see it's a rather ludicrous assertion, for the reason that people do not simply wait around for something better when they have a present need, they use what's presently available and switch when the new thing becomes available. Because when the new thing will appear in mature and broadly-usable form is a matter of total uncertainty.
You have a need for a medium of exchange today, you're going to use the best medium of exchange today.
If a better money comes along, you can simply transfer your present value into that money as easily as a peso is turned into a coin. Bitcoin v1 doesn't simply devalue because a better bitcoin comes around, if indeed such a thing does happen, anymore than silver devalues because gold exists, etc.
The worse money would lose some exchange value, certainly, when the new and better money becomes available, but that doesn't affect today's price or demand at all.
z1235:If we could predict that in the near future alchemists would devise precious metals with qualities similar to (or better than) gold, the attractiveness of gold as money would be significantly diminished, too.
Not likely. Gold has a unique combination of attributes that make it suitable. No other element is going to approach that. If the qualities were somehow better, its too-great scarcity would make it nonviable. And if you pick a non-scarce element, its inflationary aspect and ability to 'rust' would make it nonviable.
The new money with attributes that make it a better money than gold is bitcoin, a new class of material--a digital good--not a new metal. All the things we like about gold in the context of its service as money bitcoin is just as good or better at. If and when this fact becomes generally acknowledged, then sure the price of gold will drop as people demand less of it and more of bitcoin.
z1235: Your argument does not address scarcity. Yes, it does. Crypto-patterns are not scarce. Gold atoms (still) are.
Again, the context of bitcoin's scarcity is not that it's a unique cryptopattern. It's that the bitcoin system cryptographically limits how many bitcoins can exist. No future discovery of a better cryptographic method will change how many bitcoins exist within the present system. Bitcoins within the existing implementation are as fundamentally scarce as gold atoms for the purpose of any buyers and sellers using the system. That's the point of making it a crypto system. Without that, the currency would be nonviable for it would be infinitely inflateable.
It's like you're saying words are not scarce, therefore no one can write a book that would be valuable to anybody. Well, clearly unique ordering of a large volume of words can become extremely valuable--just ask J.K. Rowling.
Bitcoin too is a unique implementation of the theoretically infinite combinations of crypto patterns. And it has value, right now, today, not diminished by the fact you cite about crypto patterns.
z1235: Malachi:Seems to me, that people use whats available until something better comes along. I imagine a transition from one cryptocurrency to another would be a market event, just like any other. Some people make money, some lose money. Doesnt mean its somehow not money. Because of the above risk, and to the extent that it is money, it's not sound money. The (potential) supply of crypto-pattern "money" is infinite, making the (potential) value of your current crypto-pattern "money" account zero. Not so with gold.
This is simply false. I wish you'd do your homework on what it means to be a crypto-currency. You can't simple create bitcoin 2 and show up and add your bitcoin-2's to the original bitcoin network and thereby inflate the system. It doesn't work that way. Neither does the fact that there is a Euro currency mean that the dollar can't function. Anyone can establish a new crypto-currency just fine. Probably won't affect BTC.
Malachi:I want to know why Bitcoins would likely or inevitably become worthless thats easy, it is the first exponent of a new technology, sooner or later someone is going to improve upon it. We still use spears and knives, just like cavemen, but our spears and knives are like nothing a caveman ever imagined. The model t was destined to be surpassed by later designs, and likely as not so will bitcoin. But in the meantime it is the best digital currency, if you are active in certain markets.
That's not really how tech tends to work tho. We're still programming things in Lisp, Fortran, and Cobol, some of the original programming languages. We still use keyboards laid out by the guy who invented the mechanical typewriter and laid it out to work around deficiencies in his product. We still use internet protocols from the 60's, still use 8086 instruction sets in modern processors.
Tech tends to create stable standards which future tech makes backwards compatible.
In any case, the tech industry is quite young today still. While BTC is still too new to have a ton of confidence in it, that will change with time and the protocols can change along with it just as easily.
ALERT
Right now, the tv show The Good Wife has an episode about BITCOINS. I shit you not. The defendant is arrested because the government considers bitcoin a currency, and the defendant's lawyers are planning on arguing that bitcoin is merely a commodity and not a currency.
Seriously, I am not making this up. CBS. Now.
EDIT: THIS JUST IN - The judge has ruled bitcoin to be a currency! And it's only halfway into the show.
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.
False. Some of you bitcoin supporters are worse than opponents.
It doesn't matter how many malicious nodes may be added to the network, as it's not a question of consensus based upon the number of nodes. It's a consensus based upon the total amount of brute force computational power contributed by honest nodes versus the total brute force compuational power of dishonest nodes that happen to be working together. This is the 'proof of work' method. Considering that the bitcoin network's total compuational power is consistantly higher than the total of the top 50 (unclassified) supercomputers on Earth combined, the construction of a single computer network capable of overwelming the honest network would be a fortune presently in excess of the total value of all the bitcoins in existance. Once upon a time, it was small enough to crush. This is no longer the case.
Anenome: z1235: Malachi:Seems to me, that people use whats available until something better comes along. I imagine a transition from one cryptocurrency to another would be a market event, just like any other. Some people make money, some lose money. Doesnt mean its somehow not money. Because of the above risk, and to the extent that it is money, it's not sound money. The (potential) supply of crypto-pattern "money" is infinite, making the (potential) value of your current crypto-pattern "money" account zero. Not so with gold. This is simply false. I wish you'd do your homework on what it means to be a crypto-currency. You can't simple create bitcoin 2 and show up and add your bitcoin-2's to the original bitcoin network and thereby inflate the system. It doesn't work that way. Neither does the fact that there is a Euro currency mean that the dollar can't function. Anyone can establish a new crypto-currency just fine. Probably won't affect BTC.
It hasn't so far. Several alternate variations upon the Bitcoin code have come and gone, none of which have amounted to anything. The problem that they all share is that while Bitcoin was novel and filled an unmet need, the rest of these alt-coins (so far) have only been tweeks of arbitrary design decisions, and not fundementally different currencies with an obvious advantage over bitcoin. Bitcoin has both the first-to-market advantage and a huge head start in the network-effect advantage. For example, Litecoin is intended to be the 'silver' to Bitcoin's 'gold'; using a shorter target block interval (2.5 minutes instead of 10 minutes) and a different proof-of-work algo (Scrypt instead of SHA256, intended to favor CPU mining). Litecoin isn't dead, but I personally can't see it gaining any particular market advantage over Bitcoin unless some breaking flaw is discovered in the bitcoin protocol, which is extremely unlikely at this point.
https://en.bitcoin.it/wiki/Litecoin