Against The Gold Standard

[michaelsuede]

Oh, that kind of addresses the first question. So tell me something: Why is mtgox, which is by far the biggest BTC trade, able to rollback all transactions that took place during the crash that happened a couple of days ago?

No need to reply, I will tell you why: because the transactions happen in the trade’s internal database and only when the trade deems appropriated the transactions actually happen is the BTC network.

Given that fact, they can create BTC out of thin air and trade them, and as long as there isn’t a “bank run” they are safe and can inflate the BTC economy.

No - You are completely wrong about them being able to create coins out of thin air.

They are able to pool coins and distribute them automatically between accounts on their site, which allows them to bypass the need for network validation of inter-account transfers. This does not result in the creation of any new coins. Not a single new coin is created in this process.

Mt. Gox could engage in outright theft and take money from the pool of coins - but this does not result in NEW coins being created. It simply results in less coins in the pool than are allocated to accounts on the site. This is does not result in any new coin generation, it is pure outright theft if they were to take from the pool.

Consider that no matter what Mt. Gox does, the number of bitcoins in circulation never changes, and since users are directly transacting with the Bitcoins themselves (not receipts for bitcoins), the theft would come unwound rather quickly. Mt. Gox could not fractionally lend bitcoins in a classic sense either, since it would be akin to a bank lending out specie on loans. They would destroy themselves rather quickly if they attempted to do this.

[John_James]

@Frederique Bastiao

The transactions made in a specific trade will be rolled back.

Let’s say I own a bitcoin trade, you want to sell 100 BTCs. You create an account at my trade, transfer to me the ownership of your BTCs and I give you a certificate of deposit, which is an entry on my trade’s database that I owe you 100 BTCs.

I then sell your 100 BTCs to someone, but at first all the steps of the transaction take place at my trade’s database, only when I deem appropriated I actually effectuate the transactions in the actual BTC network, so while I haven’t effectuated the transaction in the BTC network I can roll them back at will.

That’s a start. Is there somewhere I can get more details as to how this will work?

[Smiling_Dave]

More q’s about this rollback.

1. All those trades that will be rolled back, will that happen only with the consent of both parties? Or will someone decide that “to protect the value of the bitcoin” a legally binding trade will be declared void against the will of one of the parties?

2. Are all my trades in bitcoin going to be possibly supervised by someone to make sure he likes them, and if not he will roll them back? Why is this case different from any others?

3. How far back are we talking about? If I sold at $17 [on that black day that bitcoin fell from $17 to a penny], then it went to $16.99, will my $17 trade be rolled back? Why or why not? How is that trade different from one made say a year ago when I sold for some amount and then it dropped back a penny? If those trades will not be rolled back, because it’s only a penny, who will determine the cutoff line? On what basis will he determine that cutoff point?

4. What if someone correctly shorted the bitcoin market that day? Is anyone going to compensate him for the losses he incurs by this rollback? Or is it too bad for him, because he’s a wicked speculator who deserves what he gets?

5. Mtgox is still closed while they try and sort this mess out. Reminds one of the bank holidays FDR imposed.

6. The very mention of a rollback shows once again that the guys in charge may know a lot about computer codes, but next to nothing about economics. Think about it. In 1929, and at all points when the stock market crashed and politicians were wringing their hands, why didn’t they just declare a rollback? Do you think it’s because they lacked the technical means?

7. I doubt this rollback will ever happen.

[TANSTAAFL]

“Since gold can not be shoved down a transmission wire, unless the gold standard advocates want argue that all transactions must be made with physical specie, they have no possible way of getting around this one fatal flaw with the gold standard.”

One question…

Ever heard of a check?

Seems to me the check solved your problem of needing to transfer physical gold for every transaction.

[Smiling_Dave]

bitcoins can not be created out of thin air.

Ever.

What were the existing bitcoins made out of? Pizza dough?

[MaikU]

@Smiling Dave

bitcoins can not be created out of thin air.

Ever.

What were the existing bitcoins made out of? Pizza dough?

Bitcoins always existed, can’t you understand? It’s that simple.

[John_James]

@Smiling Dave

bitcoins can not be created out of thin air.

Ever.

What were the existing bitcoins made out of? Pizza dough?

While I did chuckle at this, I think it’s pretty easy to see what he meant by that was that bitcoins could not be created at will and without any real world resources and work.

[Conza]

@Michael Suede

The problem is not a new one, but it is a problem that I have never in all my years heard a satisfactory answer to. The problem is quite simple, so here it is: When gold is represented by something, what prevents arbitrary replication of that “thing”? The law? Who is the law?

What is to stop money substitites being artibitrarily replicated? Nothing but the fear that people will come to redeem them all at once. It is fraud, but laws don’t stop anything; laws can merely allow one to perhaps get restitution. Regardless, the current “law” is just arbitrary legislation passed by self interested politicans. A free market in law is the solution, better alternative.

@Michael Suede

I would argue that there is NO solution to this problem. Changing the structure of government, eliminating the State, enforcement of fraud laws, and other such measures ultimately can not prevent a private bank from engaging in this kind of fraud. Indeed, history has shown us that bankers routinely buy the law and were instrumental in creating the modern State.

Rothbard wrote extensively on the mischief caused by private banks engaged in the counterfeiting of their own notes prior to the inception of the Fed. The Fed is simply a coordinator and cartelizing agent that allows for the even inflation of the money supply and acts to prevent bank runs, but its existence is not necessary for banks to engage in the counterfeiting of their own notes. It was through this process that the bankers came to acquire enough power to take control of government in the first place. It was through the power of the printing press that the Fed came to be enshrined in law.

Yes, it was fractional reserve banking prior to the FED which allowed them to get leverage. Not an argument against full reserve banking / free market in money.

@Michael Suede

The ability to acquire enormous power through the fraud of counterfeiting is plainly evident. Thus, the importance of ensuring that such fraud can not take place is paramount in selecting a currency system. Bankers are very good at playing the role of benevolent benefactors.

One wonders how this would happen in the absence of a centralized power.

@Michael Suede

I would argue that as long as the possibility exists that gold receipts can be counterfeited, they will be counterfeited. And as long as those receipts are counterfeited, a State will exist to ensure that things remain that way.

As long as there’s a possibility of murder, murders will happen. So what.

@Michael Suede

It is a simple matter to bribe judges, law makers, enforcement agents, and even the public itself when one has a printing press.

Again, not in a stateless society. Try again. Do you not understand the checks and balances of an actual free market in money & law? Certainly doesn’t look like it.

@Michael Suede

If it hasn’t become clear by now, I hope you can see why Bitcoins (or another similar currency like it) are superior to a gold standard. They simply can’t be inflated. It can’t happen. And further, since there is no bank issuing the notes, there is no one group of people who can use the power of the press to influence the public or political class with the bribery of free money.

Lmao! You haven’t made one friggin valid point against a gold standard (free market in money). You’ve ranted against the things gold standard supporters also dislike. You’ve attacked a gold exchange standard. Strawman fallacy.

But also - your whole post is in essence vibes off the Nirvana fallacy as well. “We can’t have the bad, ergo we can’t have it all!” Well we can never prevent the bad. That’s called life! Seriously–we can never fully prevent kids from taking a fall and breaking something. So no one should have kids.

@Michael Suede

This core problem must be addressed by gold standard advocates if they want to argue that gold is superior to encrypted digital currencies like Bitcoin. Since gold can not be shoved down a transmission wire, unless the gold standard advocates want argue that all transactions must be made with physical specie, they have no possible way of getting around this one fatal flaw with the gold standard.

http://www.goldmoney.com & http://www.e-gold.com … you were saying?

@Michael Suede

It is a waste of resources to have men digging for gold, just to have it sit in a bank vault, when those same men could be making something useful for humanity instead. Gold was only useful as a currency because it could not be arbitrarily inflated and met the requirements of scarcity, divisibility, fungibility, and recognizably better than any other physical commodity. Today, in our new digital world, such monetary requirements are better suited to the digital realm, where the waste of resources on the production of money is not necessary.

Hilarious. Waste of resources? Presumes objective value. And it still violates the regression theorem, for digital bits don’t actually exist as some real thing in tangibility. To be sure, they can be written as a magnetic pattern on a platter, or stored as electrical impules. But what were they before? How did they come to acquire the use as money or commodity?

Or were they just stated as “this is money” one day after not existing in that combination of bits ever before, which would be no different from Rothbard’s “Rothbards”. Which is EXACTLY what you say next after quoting Hoppe on money, which is even more mind-blowing considering the level of selective reading involved.

I am going to de-bold your emphasis, and bold what you fail to acknowledge / understand.

@Michael Suede

I would like to end this article with some thoughts on money by Hoppe.

In a free society, the market would produce money, as all other goods and services. There would be no such thing as money in a world that was perfectly certain and predictable. But in a world with unpredictable contingencies people come to value goods also on account of their marketability or salability, i.e., as media of exchange. And since a more easily and widely salable good is preferable to a less easily and widely salable good as a medium of exchange, there is an inevitable tendency in the market for a single commodity to finally emerge that differs from all others in being the most easily and widely salable commodity of all. This commodity is called money. As the most easily salable good of all it provides its owner with the best humanly possible protection against uncertainty in that it can be employed for the instant satisfaction of the widest range of possible needs. Economic theory has nothing to say as to what commodity will acquire the status of money. Historically, it happened to be gold. But if the physical make-up of our world would have been different or is to become different from what it is now, some other commodity would have become or might become money. The market will decide. In any case, there is no need for government to get involved in any of this. The market has provided and will provide some money-commodity, and the production of that commodity, whatever it is, is subject to the same forces of supply and demand as the production of everything else.

Bitcoins are the first true digital commodity.

Bitcoins are free market money.

Hahah. Bitcoin is not a commodity in the proper sense of the word ie. economic good, at least you seem to acknowledge that by prefacing it as a digital commodity. Does that make it money? No - since a commodity in the Hoppean sense above has to be valued previously for something else. Whereas bitcoins were just fiat’d as money from the get-go. His quote doesn’t support your case, it invalidates it.

Bitcoins:

• Commodity? No.
• The most easily and widely salable good? No. Let me know when people start trading in gold en masse for bitcoins.
• With the best humanly possible protection against uncertainty? Haha! Speaks for itself really given what it is based on - ‘faith’ and nothing else (besides legal tender laws & the state - which gives it the appearance of ‘validitity’ & ‘legitimacy’. Bitcoin is merely a reaction to the existence of the state. It is not a valid free-market money. And I’d be interested to hear the ‘positives’ / ‘arguments for’ bitcoin - that would still exist, if there was a voluntary society (free market in money & the law) etc.

*Props to Knight_of_Bawaa for discussion & helping elduciate some answers.