Austrians Slammed for their Criticism of Bitcoin

[Anenome]

@Phi est aureum

Thank you Anenome. I think I understand you now. I really liked the conclusion, that the “commodity” value it offers is its exchange value.

Question: since it is easily just as possible/plausible to imagine a digital gold-backed currency, would such a thing be more preferable to you? That is, it has all the features you love about bitcoin with the additional perk of being a store of value? Or is such a thing unnecessary because of the properties of bitcoin? I see no reason why a “BitGold” wouldn’t be preferable to BitCoin.

It’s an interesting question. Let’s examine it.

Under this scenario, we would turn each piece of bitcoin into an explicit title transfer for a certain amount of gold, much as a piece of paper currency was in theory title to an amount of gold (ie: the dollar used to mean a X quantity of gold, or the like). We could then, in theory, use bitcoin’s cryptographic protection to ensure that counterfeit and inflation of the title-documents never occurred.

You might then have the best of both worlds.

Are there any problems here? Perhaps. It’s certainly doable.

You’d need a very large supply of gold first of all. Or w/e commodity you choose to use. If it wasn’t sufficiently large it would greatly limit its ability to be used as a currency. If there wasn’t, say, at least $1b in this new currency issued then you would find it hard to conduct larger transactions, I should think.

Because the value of your bitcoin is tied to gold, the only advantage is that you can now sit and hold your bitcoin-gold and let the price of the digital-title float with the demand for gold generally.

This isn’t a huge advantage over existing bitcoin, because you can achieve essentially the same thing by simply using the existing exchange-value-only bitcoins to simply buy gold. When you later want to make another transaction, simply sell the same gold into bitcoins and make your transaction.

There’s actually advantages to this because you can now use any commodity as a value store instead of simply having that choice made for you–gold. This is what I was trying to get at before in saying that bitcoin can be de facto backed by any commodity simply by buying that commodity, though that’s a clumsy way to put it.

It’s just that the important thing about bitcoin is its utility as a medium of exchange. Why you perform that exchange, and to what end, is less important. And to point out that Smiling Dave’s main critique, that the value of Bitcoin will float, is not a big deal at all if you only use Bitcoin as a medium of exchange and not as a value store.

Which is exactly how many people have been using it.

That doesn’t make it an un-currency, it makes it an exchange currency.

It may be that this is a new law of non-commodity currencies, that people will tend not to store value in them. There’s nothing wrong with that, commodity’s excel in that function, so buy commodities.

I think pegging bitcoin to gold then is an unecessary complication.

I’ve also read some discussions of bitcoin as an interstellar currency in the far future. If bitcoin were pegged to gold, what use would it be to people living on Mars to be able to exchange bitcoin into gold, gold that resides only on earth? To them, its exchange value would be the only relevant feature. But they could always buy commodities on Mars using purely bitcoin’s exchange value.

So, the exchange value is key, and allows you to use -any- commodity as a value store.

That makes it more flexible and therefore better than a gold-pegged bitcoin variant, at least in my eyes. Since this is a free market, I’d certainly welcome attempts to establish a gold-based bitcoin variant. I don’t think it would compete directly with bitcoin’s exchange-value. People might use bitcoin-regular to buy bitcoin-gold as a value store and use them back and forth in that manner. In that sense, bitcoin-gold would function as just another commodity that anyone could buy with bitcoin generally.

Though, if you had a transaction with a significant time element to it, perhaps you’d prefer to be paid in bitcoin-gold. There’s ways to mitigate that still using bitcoin, so it’s still not a big factor.

For instance, if you were worried about bitcoin’s value store in the midst of a contract taking place over a significant period of time, you could simply peg the value to be paid back to a commodity within the contract.

Eg: if you buy a house today and schedule mortgage payments over 30 years, you could tie the payments you receive not to a specific number of bitcoin but to something like the market average of precious metals plus a multiplier, something like that. You could tie it to gold, but that would be somewhat risky long-term, especially as asteroid mining picks up. Heavy metal could become totally devalued.

You might have contracts that allow one party to decide what measure of value they’d like to receive payment in. That way the wage earner receiving immediate bitcoin could buy, say, X amount of gold today that Y bitcoin back when the contract was made would’ve bought, stuff like that. I know that doesn’t read too clear, but if we had to figure it out for a contract we would do so

[Smiling_Dave]

Here you fall, because Bitcoin is already doing this in the real world, already serving as a medium of exchange…

The number of people doing it is irrelevant. If one can do it, it’s possible.

If I write a book and only one person has read it, does that mean it’s unreadable? ._.

Nothing new here. I’ve explained in great detail in my blog [see above link] and in the forums here many times that this is not true. There is a criteria called “generally accepted” that bitcoin fails to meet. A book does not have to be generally accepted to be a book. Money does. This is basic economics accepted by all, not Austrian Economics.

That’s silly. Farmer F need only look at the exchange rate and prices for Bitcoin.

You make it sound like those exchange rates and prices are holy scripture. They can change in the blink of an eye, and have. Which also refutes your argument that it all depends on supply and demand. Farmer F wants to know what the demand will be in the future, and is correctly worried that it might very well be zero.

It’s like you’re saying Farmer F can’t possibly buy something in Drachmas because he’s only used to the US dollar. Well, there is a solution to that.

The problem is not “only used to US dollars”. It is “cannot rely on the future value of bitcoin”. If you thought I was saying the problem is that he is “not used to” bitcoins, then there is not much I can do for you. I cannot cure basic reading comprehension problems over the internet.

What you neglect is its utility as a medium of exchange.

Right now, that utility is zero, as explained in great detail in my blog. The key mistake here is, again, ignoring the criteria of “generally accepted”.

Just about everything in the world has been used as money. You realize that, right? Including rocks, seashells, etc.

No. Only things that at first had intrinsic value to the society using them. And intrinsic value here means value other than as a medium of exchange. Do you think Mises’ regression theorem has been refuted many times over by “rocks, seashells, etc” and “just about everything in the world”? Have you bothered doing even the most superficial research into this question, such as reading a few articles from mises.org, before expressing an opinion? This last sentence of yours tells me that no, you haven’t. As does your ignorance of the concept of generally accepted. As does your oxymoron that intrinsiic value can be exchange value.

I argue that Bitcoin’s intrinsic value is contained entirely within its exchange value,

Yes, this is the typical oxymoron [=nonsensical, self contradictory use of the English language] used by people who have not bothered to read Mises’ regression theorem.

You simply refuse to accept exchange value as a value form of human valuation.

Oh, it’s a value form, all right. But the wrong one. That sentence shows you have not bothered to read Mises regression theorem.

But you have no reason, no theory, to back that up.

Read Mises’ regression theorem. That’s my reason and theory. Again, the link above is your friend.

I have a price on the Bitcoin exchange to back up my view. If you’re right, by all means, Bitcoin should be valueless on the market.

No. It should be valueless in a couple of years. It takes time for fools to wake up. Let’s look at beanie babies, that once sold for a thousand bucks each, some of them, and now lost all value. That took ten years to happen.

…

You know, I tire of this. There is plenty here already to show that you are not familiar with the very basics of this discussion. Any person interested in finding out about bitcoin now has ample evidence that they have educate themselves before blindly accepting your thesis, based as it is upon ignorance. Read up, dear readers. My blog is one place, a search in a major search engine for mises regression theorem is another. Then you can come back and see the swiss cheese like holes in Anenome’s argument.

The curious thing is that you had an opinion long ago on bitcoin, Anenome, the same mistaken one, and have not bothered in all these many moons to actually find out what you are talking about.

One last thing. The astute reader will note that Aneneome has failed to meet my simple challenge, one essential for any serious discussion, of showing where exactly does the proof of Mises regression theorem fall apart for bitcoin? Which line exactly is incorrect when applied to “spiritual currency”?

Good day to you, sir.

[RothbardsDisciple]

There is a criteria called “generally accepted” that bitcoin fails to meet. A book does not have to be generally accepted to be a book. Money does. This is basic economics accepted by all, not Austrian Economics.

I agree with you and Mises on the monetary regression theorem and currency, etc. But I have a question. At what point is money “generally accepted” enough to be money? Is it subjective? If there is a society with 5,000,000 people, and only 4,999,999 people accept gold as the currency, is gold money? (Let’s say one guy just barters all day long for some reason). If 1,000,000 of those people don’t accept the currency – let’s say they use bitcoin to play devil’s advocate – is gold still the money?

So just how “generally accepted” does money have to be? 25%? 50%? 100%?

[ClaytonB]

Bitcoin threads have already been done to death.

My view.

Clayton -

[Anenome]

@Smiling Dave

What you neglect is its utility as a medium of exchange.

Right now, that utility is zero, as explained in great detail in my blog. The key mistake here is, again, ignoring the criteria of “generally accepted”.

You’re fooling yourself. You shouldn’t be so committed to a conclusion that you’re willingly blind about what’s happening in the real world. As has already been pointed out, you can get bitcoin funded credit cards right now and buy anything from anyone, anywhere.

@Smiling Dave

Just about everything in the world has been used as money. You realize that, right? Including rocks, seashells, etc.

No. Only things that at first had intrinsic value to the society using them.

Again, you are willingly blind. Cowrie shells, twelve ton boulders, all used as money. In fact, for the society using 12 ton boulders, their primary reason for using gigantic things as currency was that no one could steal them. That is, they had zero intrinsic value as a commodity and their primary use was a quality regarding their medium of exchange. You rely on one aspect of Mises regression theory to an absolute fault.

We’ve already long since pointed out to you that Mises, even in his regression theory, admits that a currency can have both commodity value and exchange value. Until digital goods came along it was impossible to imagine something with only exchange value. Not so anymore.

@Smiling Dave

And intrinsic value here means value other than as a medium of exchange. Do you think Mises’ regression theorem has been refuted many times over by “rocks, seashells, etc” and “just about everything in the world”?

The cowrie and several other things used as currency not only had no commodity value, they weren’t used as decoration either. You shouldn’t make a god of one theory, even a theory by Mises himself. Your whole argument is appeal to authority in the face of conditions that theory was never meant to be tested against.

@Smiling Dave

I argue that Bitcoin’s intrinsic value is contained entirely within its exchange value,

Yes, this is the typical oxymoron [=nonsensical, self contradictory use of the English language] used by people who have not bothered to read Mises’ regression theorem.

Have you read it? Because, in it, Mises talks also about an item’s exchange value. You have simply made a fetish of commodity value.

@Smiling Dave

You simply refuse to accept exchange value as a value form of human valuation.

Oh, it’s a value form, all right. But the wrong one.

Lol, now we’re making normative statements about it? You can’t do that. If you admit it’s a value then you lose the argument.

@Smiling Dave

That sentence shows you have not bothered to read Mises regression theorem.

I read it, I question whether you understand it tho.

@Smiling Dave

But you have no reason, no theory, to back that up.

Read Mises’ regression theorem. That’s my reason and theory. Again, the link above is your friend.

Appeal to authority alone will not save you. You really think the regression theory is the end all be all of theories about money, and that it can never be improved upon? Why do you need to appeal to authority when what you’re saying is impossible is happening right in front of your eyes.

You’re worse than the Keynesians during stagflation. At least they saw things happen they thought were impossible according to the theory they accepted and it actually gave them pause.

@Smiling Dave

You know, I tire of this. There is plenty here already to show that you are not familiar with the very basics of this discussion.

Enough with the silly ad hominem. Your complete ignoring of Mises statements about exchange value in your holy write of a regression theory is enough to discredit such statements.

@Smiling Dave

Any person interested in finding out about bitcoin now has ample evidence that they have educate themselves before blindly accepting your thesis, based as it is upon ignorance. Read up, dear readers. My blog

Your blog, your blog. I quite think everyone’s tired of hearing about it.

@Smiling Dave

Then you can come back and see the swiss cheese like holes in Anenome’s argument.

Yes, they should decide for themselves.

@Smiling Dave

The curious thing is that you had an opinion long ago on bitcoin, Anenome, the same mistaken one, and have not bothered in all these many moons to actually find out what you are talking about.

Lol, it was through your original discussions that I did the research and came to this view. I have clarity on the issue, not likely to change unless a devaluation actually occurs such as you predict. However, if 20 years from now no such devaluation has occurred, you’ll remember that I was correct. Or will you simply claim that it will take perhaps 30 years.

In any case, I’m planning to start a seastead within 10 years, and will be using bitcoin as the primary currency there, so I’m willing to put my money where my mouth is.

@Smiling Dave

One last thing. The astute reader will note that Aneneome has failed to meet my simple challenge, one essential for any serious discussion, of showing where exactly does the proof of Mises regression theorem fall apart for bitcoin? Which line exactly is incorrect when applied to “spiritual currency”?

We covered that ground long ago, I don’t feel the need to rehash it. Mises regression theory allows for a money to have two kinds of value: commodity value and exchange value. When he formulated the theory, the idea of a money without physical existence was an impossibility, thus he had no reason to even consider something without commodity value that could have exchange value.

With bitcoin we have that very rule-breaking situation. Doesn’t mean Mises was wrong, just that the assumptions have changed and theory needs now to catch up. You shouldn’t fetishize a theory, even one made by Mises, in the face of the evidence. Especially when the very theory you’re relying on contains allowance for exchange value, which is the heart of my support for bitcoin.

It’s rather silly to knock me continually on my reading of the regression theory thereby. My support for bitcoin is rooted also in regression theory, except I don’t ignore exchange value like you do, nor fetishize commodity value.

[Anenome]

@RothbardsDisciple

I have a question. At what point is money “generally accepted” enough to be money? Is it subjective? If there is a society with 5,000,000 people, and only 4,999,999 people accept gold as the currency, is gold money? (Let’s say one guy just barters all day long for some reason). If 1,000,000 of those people don’t accept the currency – let’s say they use bitcoin to play devil’s advocate – is gold still the money?

So just how “generally accepted” does money have to be? 25%? 50%? 100%?

I love that he’s been reduced to, in the face of bitcoin being actually used world-round, claiming that it must surely collapse utterly in price at some point, and using such a non-objective measure as ‘generally accepted’ as his primary attack on it.

[shurdeek]

@Smiling Dave

Right now, that utility is zero, as explained in great detail in my blog.

This is easily refuted by empirical evidence.

@Smiling Dave

The astute reader will note that Aneneome has failed to meet my simple challenge, one essential for any serious discussion, of showing where exactly does the proof of Mises regression theorem fall apart for bitcoin?

The error in your argument methodological. You are using deductive reasoning to refute empirical data, an absurd proposition directly contradicting the fundamentals of praxeology. You also neglect the temporal component (exactly what Mises explains through the regression theorem) and transaction costs (exactly what Menger explains is fundamental for understanding money). You also ignore the main point of Mengerian and Misesian analysis that needs to come before the regression theorem, i.e. the realisation that liquidity increases demand. There are goods that are liquid but are not money. Mises calls them secondary media of exchange, Rothbard calls them quasi money. Bitcoin fits that classification pretty well.

Bitcoin exists and is not going away anytime soon. Deal with it.

[Amanojack]

BLOGDIAL » Blog Archive » Thinking correctly about Bitcoin

[Autolykos]

@Anemone

It is this very non-material quality that allows Bitcoin to break the rules which fiat currencies cannot. Any fiat currency can be counterfeited by simply arranging a group of atoms and molecules in the same arrangement as all the others of that currency. As time and tech progresses, mark my words, all paper currencies will be rendered useless. When 3D printers get good enough to print a dollar bill on the molecular level, it’s over for physical currencies. There’s no putting the genie back in that bottle.

Fiat currencies these days are already mostly digital in nature. That is, most of the supply of a modern-day fiat currency exists as computer digits. So I don’t understand your point here.

You also don’t need a 3D printer to fashion gold (or any other metal, for that matter) into specific patterns.

@Anemone

Commodity by itself would be a viable money. However, in a digital age, relying only on a commodity currency makes fiat a necessity, because you cannot teleport gold through digital channels. Thus exchanging title to a commodity is a vulnerability in a currency, because title can be falsified.

No, you can’t teleport gold through digital channels. But you can teleport claims on gold through digital channels. Keep in mind that paper money originated from paper bank notes, which merely represented (or at least was supposed to represent) the actual money at the bank. Paper bank notes proliferated because they were easier to carry and transact with. Nevertheless, they weren’t originally money.

@Anemone

With Bitcoin, its exchange value is tied to its unfalsifiability.

You’re saying that Bitcoins are literally unfalsifiable? That there’s no way in the entire universe to falsify Bitcoins? If so, can you please support that?

@Anemone

A commodity cannot be copied. But paper money, or what I’ll call title to that commodity, can be copied and thus is subject to inflation via fraud and counterfeit. Fiat money is title to… nothing, or should we say title to the ability of the American taxpayer to be bilked.

In theory, a commodity can be copied. Many commodities are essentially copied even today. By “title to a commodity”, are you referring to the concept (i.e. the mental construct) of title to a commodity, or are you referring to the document that expresses that concept?

@Anemone

However, what makes Bitcoin different is that the title is the value. The title contains within itself a unique and uncopyable spiritual commodity, in the form of the uniqueness of that individual bitcoin.

What you say here applies to fiat currencies as well. As I said above, paper money - fiat currency - arose from paper bank notes, which were essentially titles to the actual money (gold, silver, etc.). Turning paper bank notes into fiat currency meant treating the title as the actual money. How is that different from Bitcoin?

[shurdeek]

@Autolykos

No, you can’t teleport gold through digital channels. But you can teleport claims on gold through digital channels. Keep in mind that paper money originated from paper bank notes, which merely represented (or at least was supposed to represent) the actual money at the bank. Paper bank notes proliferated because they were easier to carry and transact with. Nevertheless, they weren’t originally money.

Claims on gold (or on anything, for that matter), bring about the whole problems of credit expansion and fiat money. In other words, a system like that is always susceptible to being overtaken by banks and the state. Furthermore, claims on specie cannot beat a purely virtual monetary base on transaction costs, as the issuer of the claim always has costs associated with storage and redemption of the specie, in addition to the clearing costs. The maintenance cost of specie does not exist in a purely virtual money.

@Autolykos

You’re saying that Bitcoins are literally unfalsifiable? That there’s no way in the entire universe to falsify Bitcoins? If so, can you please support that?

Bitcoin is unforgeable in the same sense that any mathematical formula is unforgeable. The number of integers between one and ten, for example, cannot be modified, as that would create a contradictory arithmetic framework that not only human actors, but also all computers would reject.

@Autolykos

In theory, a commodity can be copied. Many commodities are essentially copied even today. By “title to a commodity”, are you referring to the concept (i.e. the mental construct) of title to a commodity, or are you referring to the document that expresses that concept?

If you follow my definition of copy that I presented several years ago during debates with IP proponents, money substitutes are copies of the commodity: they are causally related to it, and they act as substitutes from economic point of view. Ideal money should be uncopiable, and this is impossible as long as money substitutes exist.

@Autolykos

What you say here applies to fiat currencies as well. As I said above, paper money - fiat currency - arose from paper bank notes, which were essentially titles to the actual money (gold, silver, etc.). Turning paper bank notes into fiat currency meant treating the title as the actual money. How is that different from Bitcoin?

Fiat money evolved by fixing exchange rates to preexisting monies (and forms, such as the bank notes you mentioned). Fixing exchange rates can only be done by the state. Bitcoin did not evolve by fixing the exchange rate, it always had a fluctuating exchange rate to everything else, through voluntary interaction between market actors. This is consistent with the Misesian description of the catallactic origin of money, even if some people still do not believe it.

[Autolykos]

@Peter Šurda

Claims on gold (or on anything, for that matter), bring about the whole problems of credit expansion and fiat money.

Are you saying here that it necessarily brings about credit expansion and fiat money?

@Peter Šurda

In other words, a system like that is always susceptible to being overtaken by banks and the state.

That assumes the state exists.

@Peter Šurda

Furthermore, claims on specie cannot beat a purely virtual monetary base on transaction costs, as the issuer of the claim always has costs associated with storage and redemption of the specie, in addition to the clearing costs. The maintenance cost of specie does not exist in a purely virtual money.

While I understand this, I don’t think it’s the whole picture.

@Peter Šurda

Bitcoin is unforgeable in the same sense that any mathematical formula is unforgeable. The number of integers between one and ten, for example, cannot be modified, as that would create a contradictory arithmetic framework that not only human actors, but also all computers would reject.

Could you elaborate on this? I don’t see the connection between the unforgeability of mathematical formulas and the alleged unforgeability of Bitcoin.

@Peter Šurda

If you follow my definition of copy that I presented several years ago during debates with IP proponents, money substitutes are copies of the commodity: they are causally related to it, and they act as substitutes from economic point of view. Ideal money should be uncopiable, and this is impossible as long as money substitutes exist.

I haven’t seen those debates, so I don’t know what your definition of “copy” is. Could you provide it?

@Peter Šurda

Fiat money evolved by fixing exchange rates to preexisting monies (and forms, such as the bank notes you mentioned). Fixing exchange rates can only be done by the state. Bitcoin did not evolve by fixing the exchange rate, it always had a fluctuating exchange rate to everything else, through voluntary interaction between market actors. This is consistent with the Misesian description of the catallactic origin of money, even if some people still do not believe it.

Fiat currencies clearly don’t need to have fixed exchange rates, so I don’t understand why you bring up that notion. It seems to be irrelevant to my point. So I’ll ask again: if fiat currency involved treating the title to money as the money itself, how is Bitcoin any different?

[shurdeek]

@Autolykos

Are you saying here that it necessarily brings about credit expansion and fiat money?

Yes. People prefer medium of exchange with the lowest transaction costs. If those are not sufficiently low with specie, money substitutes emerge. Money substitutes carry mainteinance costs, that need to be offset to the user. With full reserves, the only way to do this is to charge storage or transaction fees, with FRB, this can be offset via overissue. To the individual user, absence of direct transaction/storage fees is preferable to maintenance of long-term purchasing power, so they will prefer the FRB instruments to full reserve instruments.

@Autolykos

That assumes the state exists.

With respect to fiat money, yes, with respect to credit expansion, no.

@Autolykos

While I understand this, I don’t think it’s the whole picture.

It’s not the whole picture, but is probably one of the most relevant aspects. Maybe I should say that a purely virtual decentralised money can deliver consistently low transaction costs, whereas with money substitutes, these fluctuate and are contextual. Apart from the maintenance costs, which are unavoidable, you also need to consider the control the banks can exert, and once the state comes into picture, there’s also regulation.

@Autolykos

Could you elaborate on this? I don’t see the connection between the unforgeability of mathematical formulas and the alleged unforgeability of Bitcoin.

A part of Bitcoin is basically a distributed ledger called blockchain, that always needs to be in balance and follow rules that all the nodes can verify. If a node sees a transaction that does not fit into the rules, it ignores it. Now, there can be problems with implementation, or people can be tricked to accept something as Bitcoin which actually isn’t Bitcoin (equivalent to, say, being persuaded that 11 is smaller than 10, or that 9.5 is an integer). But the data can be verified from multiple independent sources (nowadays over 10k nodes). Apart from the ledger, the only external datum a Bitcoin node needs to verify the validity of the blockchain is the current time, and this can from practical purposes be considered unmodifyable. Other systems require human intervention, verification of the identity of users (e.g. their signatures), measuring the GDP, bank reserves, chemical or sonic analysis of the gold bar and so on. The validity of Bitcoin is purely numerical, as I said you only need the distributed blockchain and current time.

@Autolykos

I haven’t seen those debates, so I don’t know what your definition of “copy” is. Could you provide it?

Well, as I said, I define a copy as something causally related to the original, and acting as a substitute to the original from economic point of view. Money substitutes fulfil both criteria. Some Austrians think that fiduciary media are theft, but based on my former argument they are merely a copy, and copying is not theft. So how to prevent inflation and the credit cycle? Nothing could act as a substitute of money. Transaction costs, fortunately, help in both: they decrease demand for money substitutes, and they also give a motivation for people to select the money with lower transaction costs.

@Autolykos

Fiat currencies clearly don’t need to have fixed exchange rates, so I don’t understand why you bring up that notion. It seems to be irrelevant to my point. So I’ll ask again: if fiat currency involved treating the title to money as the money itself, how is Bitcoin any different?

Maybe I was imprecise. Fiat money starts as having a fixed exchange rate to something else. Later, if it establishes sufficient liquidity, the peg as well as legal tender laws are no longer necessary, it continues to work due to the network effect. This is, in my opinion, the essence of the regression theorem. A prospective money must first establish a price, then liquidity. Once those two hurdles are overcome, it can act as a medium of exchange. Then, it must outcompete other prospective monies in order to evolve from a medium of exchange to money. While the Austrians do not formulate it this way, it is apparent from the writings of Rothbard or Salerno and a wonderful lecture by Block that’s available on youtube.

Bitcoin did not start as being pegged to anything, nor was it pegged later.

[Anenome]

@Autolykos

@Anemone

It is this very non-material quality that allows Bitcoin to break the rules which fiat currencies cannot. Any fiat currency can be counterfeited by simply arranging a group of atoms and molecules in the same arrangement as all the others of that currency. As time and tech progresses, mark my words, all paper currencies will be rendered useless. When 3D printers get good enough to print a dollar bill on the molecular level, it’s over for physical currencies. There’s no putting the genie back in that bottle.

Fiat currencies these days are already mostly digital in nature. That is, most of the supply of a modern-day fiat currency exists as computer digits. So I don’t understand your point here.

The nature of a fiat currency, be it digital or in paper form, is such that it is infinitely copyable. Nothing limits the amount of inflation it can go through save the entity controlling it by force.

The easiest way to inflate a fiat is by printing more units of that currency or by the digital equivalent.

Bitcoin doesn’t rely on force to prevent copying / inflation. It’s an NAP-based currency you might say

@Autolykos

You also don’t need a 3D printer to fashion gold (or any other metal, for that matter) into specific patterns.

My point there was that 3D printers may one day be good and cheap enough to replicate the structure of a $100 bill to near perfection. At that point, the currencies would have to go all-digital and begin also relying on cryptography instead of relying on being difficult to copy as they do now.

@Autolykos

@Anemone

Commodity by itself would be a viable money. However, in a digital age, relying only on a commodity currency makes fiat a necessity, because you cannot teleport gold through digital channels. Thus exchanging title to a commodity is a vulnerability in a currency, because title can be falsified.

No, you can’t teleport gold through digital channels. But you can teleport claims on gold through digital channels. Keep in mind that paper money originated from paper bank notes, which merely represented (or at least was supposed to represent) the actual money at the bank. Paper bank notes proliferated because they were easier to carry and transact with. Nevertheless, they weren’t originally money.

Right, that’s what I mean by saying paper money was originally a title to a commodity. Rather than exchange the commodity people began using ‘bearer-notes’, called paper money, which gave title to the bearer of the note instead of any specific person. The real money in that instance was still the commodity behind it all.

The reason bitcoin is much better than trying to transmit title to gold, even digitally, is that title to gold can be counterfeited and by that inflated. It’s very difficult with any commodity-based title-transference system to ensure that there is actually a commodity behind the title being transferred.

In the vast history of money, the entity holding the commodity has historically issued far more title claims than existed the commodity that was supposedly backing those title claims.

Again, the difference with bitcoin is that inflation, or the multiplication of title claims, is effectiely impossible.

@Autolykos

@Anemone

With Bitcoin, its exchange value is tied to its unfalsifiability.

You’re saying that Bitcoins are literally unfalsifiable? That there’s no way in the entire universe to falsify Bitcoins? If so, can you please support that?

Unless the system’s elliptic curve DSA cryptography gets broken, or someone spends perhaps thousands of years brute-forcing a single key, then no. Right no, double-spending a bitcoin is about as difficult as somehow copying one gold coin into two identical ones in the real world. You could certainly devote much time and resource to breaking a single bitcoin’s unique hash. But unless you can break the cryptography of it in less than 10 minutes, it will enter the block-chain and become a confirmed transaction that cannot be reversed.

Thus, even the fact that any bitcoin’s individual hash can be broken, that fact does not allow you to falsify a transaction.

At least that’s the limit of my understanding in the fields of cryptography and Bitcoin’s specific implementation.

@Autolykos

@Anemone

A commodity cannot be copied. But paper money, or what I’ll call title to that commodity, can be copied and thus is subject to inflation via fraud and counterfeit. Fiat money is title to… nothing, or should we say title to the ability of the American taxpayer to be bilked.

In theory, a commodity can be copied. Many commodities are essentially copied even today.

I mean simply that if you have a gold coin, you cannot produce from thin air another gold coin–cannot simply cut’n’paste real objects. This isn’t quite true of title to a gold coin, because title relies not on the impossibility of producing new gold atoms from thin air, but rather on a unique arrangement of molecules, known as paper and ink. It’s financially profitable to produce such forgeries of title, or fiat money, because the value of that instrument is much in excess of the resources required to create it.

Title to a commodity being used as money, and fiat currencies themselves, therefore always have the risk of forgery / counterfeit, either from outsiders or from those who control the printing press itself.

Bitcoin cannot be forged. Or, should we say that it may be possible to eventually break the cryptographic key on a single bitcoin transaction, given enough time, but that once you did it would be too late to do anything with that, because the time stamp on the block chain would prevent reversing the transaction after ~10 minutes.

@Autolykos

By “title to a commodity”, are you referring to the concept (i.e. the mental construct) of title to a commodity, or are you referring to the document that expresses that concept?

I think I mean the document, since with either a commodity or a fiat currency, that document can be copied. Thus you could spend the same document claiming title to the same commodity, more than once, creating inflation, and implicitly fraud I suppose. As for ‘in concept’, title to any commodity couldn’t be legitimately duplicated, a commodity could only have one legitimate owner conceptually.

@Autolykos

@Anemone

However, what makes Bitcoin different is that the title is the value. The title contains within itself a unique and uncopyable spiritual commodity, in the form of the uniqueness of that individual bitcoin.

What you say here applies to fiat currencies as well. As I said above, paper money - fiat currency - arose from paper bank notes, which were essentially titles to the actual money (gold, silver, etc.). Turning paper bank notes into fiat currency meant treating the title as the actual money. How is that different from Bitcoin?

How is it different? Just the fact that fiat relies on its monopoly position for its continued value, and for force against counterfeiters, to protect its value. We still get ~3% inflation anyway. Fiat is not innately scarce, bitcoin is.

Fiat currencies aren’t innately protected against copying, and cannot or do not right now contain any cryptographic assurance of uniqueness and each unit of the currency. That seems to be the salient difference. Fiat currencies will therefore always be more risky than a cryptographically assured currency, and thus the market will likely tend towards using them if given a choice and other factors held equal.

I maintain the view that fiat currencies as they exist now would collapse overnight if their monopoly protection was taken away.

Yet here we have bitcoin existing without monopoly protection of any sort. If you created a fiat currency from scratch now, would it take off like bitcoin has? Of course not. That’s why an unsponsored fiat currency doesn’t currently exist. Fiat can only exist in alliance with government power. Absent government power it must rely on a commodity backing or a cryptographic backing.

And fiat currencies will never incorporate a Bitcoin-style cryptographic protection, because it would preclude governments from controlling and inflating the currency, which we of all people know that they will never agree to stop doing.

[shurdeek]

@Anenome

I maintain the view that fiat currencies as they exist now would collapse overnight if their monopoly protection was taken away.

I think you’re exaggerating. Empirical evidence in countries like Somalia or Iraq where legal tender laws are weak or even non existent (see papers by Stenkula and Selgin) suggests that fiat money remains in use, despite availability of other monies and wide counterfeiting. Do not underestimate the power of liquidity.

In a country where the majority of money is digital fiat produced by commercial banks, it’s probably even easier to prevent excessive copying without legal tender laws. The bank cartel simply won’t give competitors access to their clearing systems (ACH) and thus create a vendor lock-in. While vendor lock-in is not a monopoly in the Austrian sense, it can have similar effects.

[Anenome]

@Peter Šurda

@Anenome

I maintain the view that fiat currencies as they exist now would collapse overnight if their monopoly protection was taken away.

I think you’re exaggerating. Empirical evidence in countries like Somalia or Iraq where legal tender laws are weak or even non existent (see papers by Stenkula and Selgin) suggests that fiat money remains in use, despite availability of other monies and wide counterfeiting. Do not underestimate the power of liquidity.

I am exagerrating, but only slightly. In a state of forced monopoly, bad money driveth out the good. But in a state of freedom, good money will tend to driveth out the bad.

As for the Somalia, etc., example, there you have previously established fiat currencies that still hold sway. They could not come about on their own and are doomed to repudiation eventually.

[Smiling_Dave]

So just how “generally accepted” does money have to be? 25%? 50%? 100%?

As Clayton has said, bitcoin has been done to death here. You can have a look at http://smilingdavesblog.wordpress.com/2011/12/21/one-more-detail-about-bitcoin/

All I have to say about bitcoin can be found here: http://smilingdavesblog.wordpress.com/2012/08/03/bitcoin-all-in-one-place/

[shurdeek]

Smiling Dave,

we all now know that you plan to keep denying that Bitcoin exists and refuse to admit it in your life at all costs, even if it would mean starving to death. You are a man of principle, even if other consider those principles to be a folly.

[Anenome]

Like the emperor with no clothes, he clings to the theory that he’s wearing clothes at least He calls it ‘Mises regression theory’

[gocrew]

Bitcoin is not money; it is a public ledger system keeping track of who was deemed by whom to provide a good or service the latter person valued.

If it ever gets to the point where any and all goods can exchange for it, it would indeed be money.

[shurdeek]

@Anenome

I am exagerrating, but only slightly. In a state of forced monopoly, bad money driveth out the good. But in a state of freedom, good money will tend to driveth out the bad.

As for the Somalia, etc., example, there you have previously established fiat currencies that still hold sway. They could not come about on their own and are doomed to repudiation eventually.

The decision regarding what money to use is almost always determined by liquidity. Bitcoin can avoid this problem, as it is a technological improvement and can decrease transaction costs where fiat/gold cannot. In the absence of cryptocurrencies, if people move away from local fiat, it is to fiat currencies of neighbouring countries, or globally dominant currencies (e.g. dollar or euro). So, if Bitcoin didn’t exist and legal tender laws were abolished, I’d expect the whole world to eventually to move to the US dollar. They would not switch to gold, for example. This is explained e.g. by Rothbard in The Case For A Genuine Gold Dollar where Rothbard criticises Hayek’s idea of competing monies. Hayek neglected liquidity. But both Rothbard and Hayek missed that technological progress can mitigate the problem of overcoming the liquidity of existing fiat.