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”.
You must have missed my point. It is a semantic issue, and bitcoin does have industrial use. Bitcoin is money, its just not the right money for me.
Well, I can’t knock you for that, well I can, but, there’s no use. haha.
I tend to agree. If I was active in bitcoin markets, I would only keep a minimum amount of operating funds in bc. But thats my subjective opinion. As a socioeconomist, I can observe bitcoin and see that for some people it is money, and I can see why. They arent all idiots. Basically, I am waiting for the bugs to get worked out. I can see a token cryptocurrency, redeemable for metal or energy products on the horizon. 50 gallons of crude to the bearer of this cryptographic note.
gold is still better as a store of value over time. Gold is less liquid, considering it requires physical transfer. Different moneys have different strengths and weaknesses. I happen to like things that dont involve counterparty risk, so all digital money to me is a form of credit. That said, bitcoin is competitive with all other digital money forms that I am aware of. And I dont expect the utility of instant pseudonymous balance transfers to disappear, rather the market could support multiple cryptocurrencies as adoption becomes widespread. What can I say, I’m not a hater. Lots of people crashed in "air"craft, both before and after the wright brothers.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Some things become obsolescent. Counterexamples aside, bitcoin might.
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.
You almost got me to turn on the tv haha
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.
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.