Economics Questions

Re: A feasible digital currency

Jack Roberts — Tue, 05 Apr 2011 18:21:54 GMT

I don't see the connection either. To me, it appears a sufficient, but not necessary condition. And anyways, isn't value subjective? So far, it seems that induction, not deduction, is being used to make the case.

You are saying that you could create a money that has no other use than being money. The only value it has is received through the subjective allocation of value by the parties involved in the trade. You would have to get everyone to change their subjective value towards this money. That is unlikely to happen and there would be a lot of people trying to convince people to use their money.

But surely companies like visa and mastercard are the key to a digital currency that is not national or international. They already have the means to create competing currencies, those organisations in combination with a paypal type organisation that could directly receive your salary by means of BACS. But you would definitely struggle to convince everyone that your money is worth what it is. Over time it could improve but at what cost to your money?

When i use national and international i am referring to a national currency and an international currency. Not a currency that is not attached to nationalism, but can be used internationally or nationally.

Re: A feasible digital currency

filc — Tue, 05 Apr 2011 17:35:16 GMT

Response here

Re: A feasible digital currency

filc — Tue, 05 Apr 2011 17:31:18 GMT

a) Does anyone here have anything to add or subtract from my OP regarding a Digital currency backed by securities/commodities?

Lets move the BTC discussion back to the appropriate thread.

Re: A feasible digital currency

Giant_Joe — Tue, 05 Apr 2011 14:19:40 GMT

Excuse me, I don't get why this is needed. It seems to me this is only needed in the beginning, in order to provide a "bootstrap" to the money. But after enough people accept it, then the money starts having value just because other people accept it; why does it need to have value other than exchange value?

I don't see the connection either. To me, it appears a sufficient, but not necessary condition. And anyways, isn't value subjective? So far, it seems that induction, not deduction, is being used to make the case.

Re: A feasible digital currency

Micah71381 — Tue, 05 Apr 2011 08:57:27 GMT

filc:

Yup. And I suppose your going to try and weasel out of this one by stating that your context was only the BTC community. If thats the case we are talking past one another. I am not arguing whether or not hobbyists in a closed group can agree on a medium of exchange. I am arguing how BTC's will likely not replace gold/silver or even the Dollar.

If there is a single person in the US that does not accept the USD as a medium of exchange then I would assume that the USD would still classify as money within the context of the US. If there are 2 people I assume it still holds. This leads to the question of how do you define where the line is drawn between money and not money within a given context? This comes back to my original question of whether or not you can have two forms of money within a single context or is only the most (singular) liquid/popular medium of exchange money in any given context?

In the Disney Land example every store accepts both USD and Mikey dollars (this is by decree/design). Both are highly liquid and easily transferable between one another. Are both considered money in this context or is there only one money within this context? What happens if there is a single vendor that doesn't accept Mikey dollars? What about two vendors? Where is the line drawn between money and not money in this context (Disney Land)?

filc:

So my context is as a societal level. Currently I can't say that BTC's are generally accepted in that context and I see no reason why they would be in the future.

I agree with your first part, BitCoins are not generally accepted within any national context (US, EU, China, etc.). I do not agree with your second part. They have potential to become generally accepted because there are advantages to BitCoins (anonymous, digital and decentralized) over current monies and there is nothing stopping them from gaining wider acceptance over time. This does not guarantee success, it just makes success a possibility.

filc:

Do you have something to add to my Stock based currency OP? If you think BTC's are an acceptable medium of exchange would you also accept my Stock based currency also?

I do not have a problem with a stock based currency but I see no advantage to it over any other commodity backed currency (digital or physical). In fact, I see it having a disadvantage over a traditional commodity based currency because the value fluctuation of the underlying commodity is too variable. Gold, silver, sugar, wheat, etc. all have relatively stable fluctiations (compared to stocks) and never decrease in value to 0 (as some stocks do).

I do not believe that stocks, as they exist currently, are a medium of exchange because you can't easily transfer ownership of a stock from one person to another without an intermediate currency. I understand that it is possible to directly transfer a stock without selling by one and then buying it by another but this transaction is not easy and cannot be completed by the average user, especially not without physical delivery of goods.

filc:

You said that you disagreed with it in theory. Explain?

In your original statement you made this assertion:

People must be willing to exchange and hold this digital object for reasons other then it’s usefulness as a medium of exchange.

I believe this requires some qualifications in order to be true and I would assert it as follows:

Someone must be willing to exchange and hold this digital object for reasons other then it’s usefulness as a medium of exchange.

As can be seen by any current fiat money and as argued by Mises, once a currency is established as a generally accepted medium of exchange it can and will be used for it's value in trade rather than it's underlying commodity or historic value.

Coming from a barter economy, if I know the butcher likes apples I may be willing to trade my clothing for apples knowing that I can take them over to the butcher and trade those apples for meat. What I have use for is meat, I may be allergic to apples and have no use for them but because I know someone that wants apples I can use the apples as a medium of exchange. In this scenario I am willing to accept as many apples as I think I can reasonably use to purchase other goods. If both the butcher and the shoe maker accept apples as payment I am willing to accept as many apples for payment of goods as I can spend on shoes and meat. Now that I am accepting apples as payment the carpenter, who also doesn't like apples, may start accepting apples as payment because he knows he can buy cloths from me with apples, even though he has no desire to buy meat or shoes or consume the apples. The carpenter is now using apples as a medium of exchange even though he doesn't transact with anyone who actually wants apples.

The purpose of the above example is to illustrate that as long as someone wants a good then that good can become a medium of exchange given time. It can also grow in it's user base beyond it's original context just as the apples in the above example grew beyond just trades with apple consumers or trades with apple producers (as seen by the carpenter).

BitCoin has people who value it for reasons beyond a medium of exchange. What their reasons are is of no consequence, all that matters is that such people do exist. This means that there is a demand for BitCoins (currently small, but demand exists) and that demand can grow and expand beyond the hobbyist context just as the demand for apples expanded beyond the apple producer/consumer context purely for reasons of medium of exchange.

Re: A feasible digital currency

Maurizio Colucci — Tue, 05 Apr 2011 08:41:57 GMT

@filc

People must be willing to exchange and hold this digital object for reasons other then it’s usefulness as a medium of exchange.

Excuse me, I don't get why this is needed. It seems to me this is only needed in the beginning, in order to provide a "bootstrap" to the money. But after enough people accept it, then the money starts having value just because other people accept it; why does it need to have value other than exchange value?

Re: A feasible digital currency

Micah71381 — Tue, 05 Apr 2011 08:17:16 GMT

filc:

Andris Birkmanis:
Try to transfer gold remotely AND anonymously.

The prior can easily be done. The latter is an issue of government involvement/intervention. However I could apply the conventions of Bitcoin, in theory, to trade gold anonymously as well. Its just that no one has bothered to make that mechanism. To be quite frank, it's not exactly a function in high demand...

I would hardly say that remote transfers aren't in high demand. The entirety of the internet market is done by remote transfers. I purchase everything except food online personally and even then, I utilize "remote transfer" methods when I am buying locally (credit/debit card).

In my opinion, this is a major contributing factor to what allows the centralized banking system to stay on top, nothing anonymous, remote and decentralized has (previous to BitCoin) been created. Because government can intervene with anything that is centralized and/or not anonymous, anytime something comes up they can squash it. This has been seen with the countless government shutdowns of independant currencies over the past ~20 years.

Re: A feasible digital currency

filc — Tue, 05 Apr 2011 08:12:43 GMT

Micah71381:
I presume "generally accepted" is dependant on the context of it's use? So something can be a local currency but not a global currency? Mikey dollars would be a currency while at Disney Land but would not be a currency in the context of Anaheim

Yup. And I suppose your going to try and weasel out of this one by stating that your context was only the BTC community. If thats the case we are talking past one another. I am not arguing whether or not hobbyists in a closed group can agree on a medium of exchange. I am arguing how BTC's will likely not replace gold/silver or even the Dollar.

So my context is as a societal level. Currently I can't say that BTC's are generally accepted in that context and I see no reason why they would be in the future.

Do you have something to add to my Stock based currency OP? If you think BTC's are an acceptable medium of exchange would you also accept my Stock based currency also?

You said that you disagreed with it in theory. Explain?

Re: A feasible digital currency

Micah71381 — Tue, 05 Apr 2011 07:35:34 GMT

filc:

What you left out in your definition is the "Generally accepted" part. Not only is this included in most definitions of standard english dictionaries, it's actually included as point 2,3, AND 4 on dictionary.com. Isn't it very odd that you decided to ignore that?

I chose the first definition because that is how I use the word. I was mereley providing a starting point for our discussion on the definition of the term and am open to using your definition instead. To make sure I understand it correctly, is this it:

Something generally accepted as a medium of exchange.

I presume "generally accepted" is dependant on the context of it's use? So something can be a local currency but not a global currency? Mikey dollars would be a currency while at Disney Land but would not be a currency in the context of Anaheim, CA?

Re: A feasible digital currency

filc — Tue, 05 Apr 2011 07:24:27 GMT

Andris Birkmanis:
Try to transfer gold remotely AND anonymously.

The prior can easily be done. The latter is an issue of government involvement/intervention. However I could apply the conventions of Bitcoin, in theory, to trade gold anonymously as well. Its just that no one has bothered to make that mechanism. To be quite frank, it's not exactly a function in high demand...

Re: A feasible digital currency

Andris Birkmanis — Tue, 05 Apr 2011 07:12:38 GMT

Dear filc,

not to spoil your enjoyment from picking on "digital cowboys", but you seem to assume that bitcoins have no advantage over gold (or other commodity), while having a lot of shortcomings. Try to transfer gold remotely AND anonymously.

Re: A feasible digital currency

filc — Tue, 05 Apr 2011 07:11:09 GMT

Micah71381:

Your post used the word currency throughout and using the definition I provided, the logic doesn't follow through in my opinion. If you share my definition I can point out where I disagree with your original post. If you are using a different definition, then your original post may logically hold for me.

What you left out in your definition is the "Generally accepted" part. Not only is this included in most definitions of standard english dictionaries, it's actually included as point 2,3, AND 4 on dictionary.com. Isn't it very odd that you decided to ignore that?

Here is the whole thing for those reading along. From Dictionary.com

1. something that is used as a medium of exchange; money.

general acceptance; prevalence; vogue.

a time or period during which something is widely acceptedand circulated.

the fact or quality of being widely accepted and circulatedfrom person to person.

circulation, as of coin.

Re: A feasible digital currency

filc — Tue, 05 Apr 2011 05:11:43 GMT

Consider the number of things that Stocks are already used for as collateral. For example stocks are frequently used as compensation for labor, in addition to salary. This is further evidence that such a concept is more likely. This practice seems to be on the rise.

Re: A feasible digital currency

filc — Tue, 05 Apr 2011 04:42:54 GMT

NewLibertyStandard:
...

Response here.

Look you guys are frustrated because someone disagrees with you. Lets keep the BTC stuff on the BTC thread.

If you guys have a legitimate critique of a commidity backed digital currency I am all ears.

Re: A feasible digital currency

filc — Tue, 05 Apr 2011 04:38:21 GMT

rawfreedom:
You therefore are wrong, sir,

My response here.