… Money and a medium of exchange are synonymous. I didn’t say money and cow are synonymous.
If all widgets are gadgets and all thingamabobs have gadgets, that doesn’t mean all thingamabobs are widgets.
I used money [a medium of exchange] to purchase a soda at the store.
I exchanged a crate of shoes for a cow to trade for wheat, in this insance the cow was used as money [a medium of exchange].
Meh. Tomato tomata. I don’t agree with the “commonly used” bit, but if that’s how it’s popularly used then I’ll try to stick with it. I try to avoid pulling a “Noam Chomsky” on words. Edit: Most definitions I’m reading don’t include “commonly used”, but almost always includes a central authority. Poor definition, I’m sticking with Money = a medium of exchange.
Has no bearing on bitcoin or it’s legitimacy as money.
As for “secured money”, I addressed that in my opening post. Anyone, anywhere in the world can back bitcoins with gold whenever they want. It’s silly though because bitcoins are immortal, can’t be inflated, and can be backed up wherever and as many times as you want. It’s just a mind game.
The purpose for backing paper money doesn’t exist with bitcoins. Bitcoins can be stolen, embezzled, and lost, but none of that is corrected by “securing” bitcoins as you have described. And “real money” isn’t protected against it either.
Great definitions. In fact, you’ve convinced me about the convinience of having a separate word for “by decree”. I reject my previous fiat = unbacked definition. Maybe a definition of currency would be needed too.
Bitcoin - an unbacked, non-fiat medium of exchange. No government has ever decreed anything about Bitcoin so it can’t be fiat.
Maybe this is a silly question. If some country accepted it for taxes/justice would it become fiat?
What if it is THE ONLY currency that state accepts for taxes/justice?
My point is…Is it necessary for a money to be a monopoly by decree or just being accepted by decree in some place make it fiat?
Couldn’t bitcoin2, bitcoin3, …bitcoinN defy the fixed base nature of bitcoin?
There’s many forks already. Some of them do one have fixed base, some of them are even more scarce than bitcoin…
But look at some of their prices. That very possibility of infinite currencies is what prevents them from growing. Only if they have a distinctive feature they have a competitive chance. Some of them don’t even want to become a generally used currency, for example, namecoin serves to purchase domain names without the need to have a centralized authority that controls the market, and has been created only for that specific use (although, of course, nothing stops you from using it for something else).
That’s an interesting point anyway. There was a lot of discussion in the btc forums about that, specially in relation with merged mining, but I don’t want to bore you with technical details.
What about the person that created bitcoin, does he have any rights over its use?
Is there a way of knowing at all times how many bitcoins actually exist? Can a bitcoin be removed from the system and then be reintroduced at a later time?
Anyone, anywhere in the world can back bitcoins with gold whenever they want. It’s silly though because bitcoins are immortal, can’t be inflated, and can be backed up wherever and as many times as you want. It’s just a mind game.
You seem to have a more relaxed definition of backing than the rest. But I agree, I don’t see how not being backed hurts the legitimacy or usefulness of it.
What about the person that created bitcoin, does he have any rights over its use?
No. Although mining the first bitcoins was really cheap, because they were cheap.
Is there a way of knowing at all times how many bitcoins actually exist? Can a bitcoin be removed from the system and then be reintroduced at a later time?
All the users (and non users) can know at all times how many of them are in each address at any given time (the whole history of transactions), but addresses don’t point to individuals, they’re just like random strings. Each address has a key. If you lose the key of an address you lose the coins that were there FOREVER (In that sense is deflationary rather than having a fixed base). You can store that key in various places, write it on paper and even memorize it. Yet another advantage, you can’t backup or memorize gold. And there’s more fancy and unexpected technical superiorities over gold like this one.
@Lurkers: All monies are media of exchange, not all media of exchange are money. All cows are mammals but not all mammals are cows. When you go to a restaurant, you order beef steak, not mammal steak. Definitions matter. Money and “medium of exchange” are not synonymous. But, as Mises states in HA, this is irrelevant to the praxeological analysis. Hoppe explains in many of his online lectures why there can only be one, universal money (universally accepted medium of exchange) in an unhampered market in money production. Money is inherently monopolistic in the sense that the more people are using a particular money, the more benefit they all receive from using that money versus some other medium of exchange.
Bitcoin is not widely used. Therefore, it is not money and it is not in the running to become the money. Nevertheless, unbacked digital currencies definitely have the potential to act as a kind of black-market money, particularly as the noose of financial controls around the world is tightened.
The confusion over backing persists. A backed money-substitute requires a legal context where the backing is enforceable in court… holders of banknotes must receive pro rata compensation from the remaining assets of the collapsed bank. If the legal context does not enforce this, then backed currencies are simply impossible.
People are brainwashed by the fact of government funny-money. The fact that government funny-money is commonplace leads people to mistakenly believe that it has arisen naturally and is unremarkable. It only exists by very careful manipulation of the market and its continued existence crucially depends on this manipulation. Collapse of funny-money is what is unremarkable, just take a gander through history. The death-rate of funny-money is 100%. The USD is actually one of the oldest fiat currencies in the world, dating to 1971, an astounding 41 years old.
The most confusing aspect of funny-money is the fact that it looks like a money-substitute but it is in fact a money (medium of exchange). In an unhampered market in money production, money might be securely stored and bearer note warehouse receipts (money substitutes) exchanged hand-to-hand instead of the backing itself. This can only happen, as noted before, where the legal context enforces the rights of holders of titles to the securely stored money. There are economic consequences to this division (the money-substitutes are themselves a money as they are media-of-exchange) but the key is to realize their continued use is logically dependent on the legal context enforcing the rights of note bearers. No rights enforcement, no money substitutes. People switch to directly exchanging the backing despite the costs associated with that.
With unbacked, funny-money, the note is the money itself. It is not backed by anything except the continued use of the funny-money (demand for cash-balances denominated in that currency). Any government’s unbacked, funny-money is liable to a collapse of confidence. If that happens, the value of the money will fall to essentially zero very rapidly and the government will issue a completely new funny-money. This has happened to nearly 100% of all funny-monies more than a few decades old. I remember coming across a webpage discussing the lifespans of fiat monies… I’ll try to find it again if I get time.
The problem with unbacked digital currency as against government funny-money is that it doesn’t even have a government forcing it on its subject population. Being purely voluntary, this makes it that much more unstable and liable to a collapse of confidence. In fact, I believe the only reason unbacked digital currencies are possible at all right now is exactly because the governments of the world have dramatically increased their cooperation in lock-step on financial controls across the board since 9/11. The fate of unbacked digital currencies is directly proportional to the success of the authorities in maintaining this financial lock-step. In the short-term, there are no signs of abatement.
Currencies, even fiat currencies, don’t simply suffer a crisis of confidence one day for no reason and disappear.
They disappear because they were inflated to death. And the people accepted it as long as possible because of the government mandate to use that currency, without which they’d use a more stable currency.
Bitcoin’s inability to be inflated at all should protect it from a repudiation in perpetuity.
It may be the most perfect money that’s ever been created precisely for this reason.
The only major problem with Bitcoin is that computer security is in its infancy and it’s too easy to get hacked these days and lose your BC wallet.
Are you saying that money is a natural monopoly? Doesn’t that assertion legitimize fiat money?
No rights enforcement, no money substitutes.
What about mutual credit systems based on trust like LETS or Ripple? I guess that although they substitute money as a medium of exchange they don’t qualify as money substitutes in the formal sense.
Any government’s unbacked, funny-money is liable to a collapse of confidence.
[…]
Being purely voluntary, this makes it that much more unstable and liable to a collapse of confidence.
I disagree.
The reason why fiats fall is because if because of a collapse in confidence in the management of its supply. A fiat totally unbacked (only through taxes) money with a fixed supply (not that this has ever existed) should not fear the collapse that much. The reason why gold is more resistant to those kind of collapses is because no one can print gold, not because gold-money is backed by gold-commodity.
And bitcoin can’t be printed neither. Bitcoin will be more resistant to demonetization than fiats because of its fixed supply. You seem to assume that precious metals are completely inmune to that (if the demonetization is not caused by decree), but that’s untrue. Money does ALWAYS depend on trust and faith. It’s just easier to deposit faith in gold than in Ben Bernanke. But gold could be definitely be demonetized (and I believe it evetually will) in the future within a context of a free monetary market.
It surprise me the ease to use the term “intrinsic value” when is totally misleading. Ignoring how close that is from the Marxian “Labor theory of value”. There’s no such thing as intrinsic value, value is always subjective and you’re supposed to have learned that from Mises.
People accept money because they want to exchange it for other goods and services. The price of gold would be much lower if it were completely demonetized (gold is still a functioning money despite what some peole may think), because it would depend only on its properties as industrial commodity. Gold is money because of its qualities as money not because it’s shinny or a good conductor.
The first two sentences are correct, of course. [In fact they are taken from Mises.] But the third sentence does not follow from the first two, and indeed is a huge boo boo. The article on my blog called Bitcoin Takes a Beating explains why..
In fact, if you campare both monies only AS MONEY (ignoring the unimportant fact that gold-money can be “converted” into commodity-gold), it turns out that bitcoin is a superior form of money over gold. The value of bitcoin comes from its properties as money and it doesn’t need anything else.
Mises wrote extensively to disprove exactly what you just wrote. See my aforementioned article.
Again it has exchange value as money, that -is- its intrinsic value. It is not a commodity value, but it’s still valueper se.
Mises claimed he had a rigourous proof that bitcoin is garbage. It’s called the Regression Theorem. Summarize it, please, so we are all on the same page, then show why it is either wrong, or does not apply to bitcoin.
May I suggest you go to my blog and read Bitcoin Takes a Beating.
Dave, you are completely misusing the Regression Theorum. Mises wasn’t trying to debunk the idea that the attributes of a good money aren’t valuable, he was trying to show how a commodity with a low value in a free marketplace could gain tremendous purchasing power in an economy.
It is done by initially redeeming the notes in a valuable commodity (Like gold.) and then eventually severing the ties to the commodity. This needs to be done because in a free market the commodity has very little value.
There is no reason at all to apply this theorum to gold. At this moment, people are willing to buy and sell gold at the price of about $1600/oz. That’s just the free market working. People have made a value judgement and voted with their dollar. People in general see that gold has properties that they like.
There is no reason at all to apply this theorum to Bitcoins. At this moment, people are willing to buy and sell Bitcoins at the price of about $6 a bitcoin. That’s just the free market working. People have made a value judgement and voted with their dollar. People in general see that Bitcoins have properties that they like.
(Note: I’m not saying gold and bitcoins are synonymous, I’m saying the regression theorum doesn’t apply to either one for exactly the same reason.)
I would read your articles, but you’d have to earn some credibility first.
Also, the reason I don’t like the “commonly used medium of exchange” definition is for the reasons you’re now revealing.
If I say “If you have alot of readers, that means you’re balls are at least twice the size of mine.” I haven’t imparted any knowledge on you because “alot” doesn’t mean anything*.* Is it a monopoly of every reader? Is it a supermajority? Is it dependent on specific locations like the entire world or just your living room?
Yes they are. That is exactly what I’m asserting. As mentioned “commonly used” is useless in the definition.
Cow is not synonymous with mammal, money is synonymous with “a medium of exchange”.
Why am I doing this? Symantics is a waste of time. Ugh. And onto the next one…
I was using backed in two different ways. “Backed up” as in digitally copying into seperate locations and “backed currency” as in promising to redeem currency for a set amount of commodity.
Pairunoyd Who tries to profit from bitcoin?
Speculators.
Speculators?
Yep. Just like with anything else, people will try to predict the market.
Businesses accepting bitcoins?
There’s a black market as well as various legal retailers.
Bitcoin exchange?
Mt. Gox is the most popular at the moment.
What about the person that created bitcoin, does he have any rights over its use?
No.
Is there a way of knowing at all times how many bitcoins actually exist? Can a bitcoin be removed from the system and then be reintroduced at a later time?
Yes, and no, respectively. Bitcoins are alway stored in the “Block Chain”, you can lose the private key that would give you access to the bitcoin. If this happens the bitcoins will still be there, but no one will ever be able to access them.
I still dont understand how bitcoin can ultimately set itself apart from the me-too crypto-currencies.
Is the bitcoin name somehow protected? Could an exchange pop up that says it has bitcoins when it’s really just another cryptocoin? When a business accepts bc (bitcoin), what makes it bc? Is it just because a certain set of networks transferred something THEY call bitcoin to the business owner or is there some other way to identify that piece of datum in and of itself? Where does its identity come from or how does it have an identity? Is its identity so because it came thru certain channels?
Personally, I’m all for each person deciding for himself what will serve as his money. I have PMs (precious mnetals) and am also interested in what’s going on in electronic currencies. Though my questions come from a philosophic point of view, they also come from a personal economic point of view. I’m trying to determine the value of this category and of bitcoin itself. If it seems to have value beyond being a fad, then it makes sense to diversify into it as a way to weaken the current regime and as a way to gain financial independence.
even if the BC does prove to have significant value, I would continue to hold alternative physical money such as gold and silver. I’d consider it a diversification of infrastructure. There’s coercion on the internet and on the streets. There could be times when an opportunity requires a physical exchange and times when it’s best faciltated electronically.
Reality: Bitcoins is a cryptocurrency that is currently being used to facilitate trade.
You make it sound like nobody has ever raised that argument before, or refuted it.
Reality: It’s been discussed at great length. [Hint: the fallacy in the argument is that three buddies in a college dorm who use baseball cards to settle their drinking accounts does not make baseball cards into a money, or even a medum of exchange. The key phrase to keep before your eyes is “generally accepted”.]
You can either check my blog, searching for bitcoin [the comments may have some elaboration as well], or search here in the redoubtable Mises forum. It’s been explain in both places.
Once you have figured that out, you can go back to what we are waiting for here, your refutation of Mises’ Regression theorem. Do not disappoint us. Summarize it accurately, then refute it. Your place in economic history will be ensured.
Is the bitcoin name somehow protected?
Sort of. The unit of account is authenticated and changes are authorised. The name itself is arbitrary.
Could an exchange pop up that says it has bitcoins when it’s really just another cryptocoin?
No. The system authenticates bitcoins, the “Block Chain” can fork, but then the coins would not be spendable in the main fork. They’d be their own currency, like NameCoin.
You cannot spoof a bitcoin, that is what the entire system was designed to prevent, and it has sofar proven itself very good at its job.
When a business accepts bc (bitcoin), what makes it bc?
It is verifiable through the Block Chain. When someone sends bitcoins to someone else’s address the transaction is verified by other peers and added to the Block Chain, and at that point the reciever can look and ensure that he has recieved bitcoins.
Is it just because a certain set of networks transferred something THEY call bitcoin to the business owner or is there some other way to identify that piece of datum in and of itself? Where does its identity come from or how does it have an identity?
The Block Chain.
Is its identity so because it came thru certain channels?
Not really. It’s a distributed authentication and authorisation system using “proof of work”, hashing algorithms, private keys, and public keys. It’s really difficult to explain all of this because I don’t know where I’m starting at. There are many resources on google as well as youtube that will help you out tremendously.
Bitcoins at the moment are a volatile investment, and you need to know how to keep them secure going in. In the long run I suspect Bitcoins is a very safe investment.
The baseball cards aren’t a medium of exchange and were never intended to be. You can’t just come up with some random item that isn’t a medium of exchange, equate that item with Bitcoins, and then say you’ve won the argument.
You haven’t even made an argument.
Have you given up the Regression Theorum debate and just moved on to non-arguments? You’re not really working towards my prerequisite for reading your articles, so you shouldn’t keep insisting.
Bitcoins clearly can be theoretically a medium of exchange, and they currently are. Whether that’s “money” or not is symantics and irrelevant.
I’m not going to derail this debate into “How many vendors need to accept a certain medium of exchange for it to be considered money.”
By my definition, the moment something is exchanged for the sole purpose of exchanging for something else it is acting as money. Whether it’s only done once between three people or by thousands of different people and vendors.
If you have higher standards for a medium of exchange to attain the prestigious status of “money”, I really couldn’t care less. (And neither should you.)
I still dont see where the value of bitcoin comes from beyond it being in a craze or fad phase.
What is it about bitcoin that’s difficult to duplicate?
A. You have the cryptocurrency.
B. You have the exchanges.
C. You have the demand.
How does one justify their demand for bitcoin based upon the presumably easily duplicated A and B? What is it about bitcoin that a very large number of others couldn’t duplicate? Where’s it’s value?
Maybe it’s there, I don’t know.
If bitcoin isn’t ultimately successful, I do hope that this experiment yields dividends for the journey to a successful alternative currency.
Maybe the bitcoin is the invention of the carriage before the horse. Maybe as time goes by we’ll see that the currency is just a part of many divisions of labor. I think there’s something missing in this currency model.
There are many advantages that bitcoins have over any other currency in the world. They’re immortal, can be transferred anywhere in the world at almost no cost, can be backed up in many locations, take up very little space, and are immune to tampering.
Nothing. It’s open source. You could start your own “pairunoydCoins” currency right now, the trick is getting other people to accept it. There is no incentive for people to give up their bitcoins in exchange for pairunoydCoins.
The Bitcoin system is self reinforcing. The more people that use them, the more secure it becomes, and the more valuable the coins become.
Knowing that Bitcoins are currently worth $6 a coin, would you accept a hundred of them for a pair of your socks?
Why?
You have your answer.
Ive used these forums many times and I know how to quote people, but with this new computer Ive having problems using all of the tools. It mentioned something about my security settings when I tried to use a feature (cant remember what feature. I was about to pass out asleep). Any help?
Sure I’d accept them for my socks. But if people were valuing doodoo at $100/lb I guess Id take that too. I understand that there is value because subjectively people have placed value upon it. However, I don’t see how it could withstand the vicissitudes of the market. It makes me think of the dot com bubble, the housing bubble, etc. But like I said, I am NOT anti-bitcoin and I absolutely love it’s origin, but I can’t see myself regularly using it as currency. I could see trying to make something from the speculation.
If there is a further implosion in the fiat currencies of the world, I could see people in their searches for safe havens and convenience of transactions, going to bitcoin. I’m going to read further on the pros and cons.
Do you have any links to good debates, debates that answer some of the questions brought up here and also debates that answer the technological questions?
