Apparently my computer’s security settings wont allow me to quote you guys. Any help? Ive been able to in the past on a different computer, but I dont know what settings I need to change.
The question remains…How having a industrial uses (that have nothing to do with money) make gold a better choice than bitcoin AS MONEY???
Because those industrial uses are collateral, ie they help to ensure that the person on the money side of the trade isn’t holding something of trivial value, ie pieces of paper or bitcoins.
Commodity value in money is all about safety and value hold, which is to say it’s a protection against hyper-inflation.
A commodity money could not be hyper-inflated, because you can’t make gold and other commodities out of thin air.
In the past, a non-commodity money was subject to rapid devaluation, hyper-inflation, whenever the government controlling that currency found it expedient to do so.
In bitcoin we have a non-commodity money which also cannot be hyper-inflated and is not controlled by any government.
So it violates the reasons why we, in the past, had tended to trust commodity moneys.
I agree that government tyranny makes Bitcoins more alluring, but even if there were no governments in the world, a cryptocurrency would still replace all other mediums of exchange.
The only advantage gold and silver have is that they have industrial uses. As pointed out many times, this is not nearly as big a deal as it’s made out to be.
My “theory” is that cryptocurrency will eventually replace all existing currencies because it is, by design, the perfect medium of exchange. (Perfect is a bit of a hyperbole, but I’d rather write this rather lengthy sentence than think of a better word at the moment.)
I do believe I’ve been misunderstanding you if these are the points you’ve been trying to get across this entire time. Sorry about that!
You’re still wrong though!
There is nothing about a promise-backed bitcoin that would improve the utility of bitcoins. Yes, it would provide psychological comfort, but that isn’t always a good thing.
No there isn’t. A promise IS a contract. If Piet promises Mike to pay him US$100 next week then Piet is lawfully liable to do so. Your problem is just to prove that Piet made this promise.
People often make the mistake that a contract is a piece of paper they signed (and only if they signed it). That’s not the case the contract is the agreement between the two parties. The text is just a description thereof and the paper with the signature a proof that can be used in court. An oral agreement is just as valid, even more valid then just signing a paper.
Actually even less can be a contract: You putting a DVD on the counter in a shop. They ringing you US10. You paying the amount, they giving you the DVD. Voila you are now the owner of the DVD, they ceased to be.
I tell you what isn’t a contract: That’s all the rules they uploaded into text/video onto that DVD and which they didn’t tell you about in the shop. So feel free to make copies of that DVD, show it at hotels and of course to more then 12 people !
Because those industrial uses are collateral, ie they help to ensure that the person on the money side of the trade isn’t holding something of trivial value, ie pieces of paper or bitcoins.
We have 3 monies: paper fiat, gold and bitcoin. All of them have two sources of “value”, one that comes from its utility as a ware and one that comes from its monetary nature. Let’s guess some percentage’s for the value of the underlying ware (completely irrelevant for trade) in comparison with its value as currency (which is higher than the commodity value).
Paper: the paper is worth 0.1% of its nominal value
Gold: the commodity material would worth in a market in which gold is not money 10% of its current market value (as money)
Bitcoin: whitout being money it would worth 0.001% of its current market value
Paper: Bernanke% annual monetary inflation
Gold: 2% annual monetary inflation
Bitcoin: 0% annual monetary inflation
What you say: “The first data is much more relevant for the value of a currency than its supply”. I guess that when you receive different fiats from different countries you don’t care about the monetary policy of the country. You just look at the size of the bills and weigh the underlying paper you could burn in case of total demonetization. That’s what everybody cares about when accepts money, how good would it be as a storage of value in case of demonetization. People don’t think about what they will buy later with that money using indirect exchange. Trade is just an addition, storage of value comes first. Rational people would chose the gold not because of its limited supply, but because with gold you would only lose 90% of what you’ve just receive it, if the money stops being money before you get to spend it. Even if you are going to spend it that same day, it is better to minimize risks.
A gold backed digital currency (be it promise or legal contract) is an IOU from someone. Is onether person’s liability. It is a relationship between two agents. Bitcoin is real cash. It is a relationship only between the holder and all the other users of the money. With the gold backed digital currency (by the way, open transactions implements this digital “cash” as untraceable), the digital token is not the money in itself, the real money is the backing and the issuer of the IOUs can cheat you. With open transactions you have to trust the minter of the currency, but bitcoin (like gold) is completely trustless. Bitcoin is superior.
Of course. But the key issue is that such IOU’s are not masquerading as actually money. They are money substitutes, nothing more.
That was the point of Bitcoin+… Bitcoin+ is “real cash” in every sense that Bitcoin is because the only difference is that there is a contractual agreement from the Bitcoin+ issuer to redeem X number of Bitcoins for X amount of backing (dollars, gold, whatever). Yet it’s obvious that anyone offered either 5 Bitcoins or 5 Bitcoin+s would prefer the 5 Bitcoin+s. Hence, the idea that Bitcoin is “real cash” by virtue of its greatest flaw (that it is unbacked) is a mockery of our collective intelligence.
This technology that you say assures you that the bitcoin is real, is real what? It’s a real blip that a group uses as if it’s money? So what if we issue goldcoins and proclaim that they’re real? And on top of that, how about we actually make it a claim on a certain amount of gold? You say that gold might not be there? Well why would that matter? There’s nothing backing bitcoin. Why should goldcoin have the additional burden of actually having gold behind it? We could just say that there’s gold backing it and then look at the price of physical gold and assign it that value. 1 goldcoin equals 1 oz of gold. And if you really want the gold that’s backing it and it’s not really there, then you can just go on the open market and trade it for 1 ounce of gold. Now it’s gold backed!
Or you could have silvercoins or landcoins or treecoins or housecoins or carcoins. All these coins would be backed by their namesakes. And if we somehow get screwed by the backer, we’ll just go get backing in the open market.
Ridiculous? This is exactly the premise of bitcoin, except bitcoin is everythingyoucanimaginecoin. It does it all! Wow, why didn’t I think of that? Me and my dumb, limited coins!.
Aside from the question of computer security that all transactions would face, do you really think that fraud in open transactions with gold and silver are really so easy to perpetrate?
All of these negatives that you cite are a given in any free-market. There will always exist those who try to reduce their costs thru fraud. With bitcoin, it’s a fraud (as in ‘a phony’) from the get-go. Not only does its user face the perils of free-market trade but it faces the perils of existentialism. That cost right there outweighs any fraud costs you’ve associated with gold and silver.
Jtimon points out that the real industrial value of gold is perhaps 10% of its current price, because 90% of gold’s current price is its exchange value as money, having been driven that high by a jittery market worried about unstable currencies the world over, etc.
So, you would agree then gold is only 10% money After all, it’s only 10% backed. It’s not like the real industrial value of gold today is $1600 an ounce.
I think his and Mises’s argument are compelling, that every commodity could be used as money, and in that capacity it has its original commodity value as well as its exchange value.
Bitcoin has a vanishingly small commodity value (as electricity), but it’s exchange value is MASSIVE compared to its commodity value, perhaps far, far more than gold’s ratio of exchange to commodity value.
This may indicate that Bitcoin is already the world’s premiere currency, if we take ratio of exchange to commodity value as a measure of success, which it would seem rather reasonable to do, because the better that ratio the more valuable purely as money that thing must be.
And bitcoin hasn’t even been adopted by a major economy yet. Just wait.
I assume by “goldcoin” you mean some sort of paper or electronic certificate?
The problem is that a simple gold certificate, backed or not, is subject to inflation and thereby also hyper-inflation which is the death of a currency. There’s zero guarantee that whomever is printing gold certificates will limit themselves to one certificate per unit of gold supposedly backing the certificate. Ultimately, a gold certificate is not much different from a fiat currency. Rather than being backed by the full faith and credit of some government, it’s backed by a limited quantity of some commodity, which you cannot be sure matches the amount of currency that’s been printed.
In practice, someone printing gold certificates can print two, five, ten, one hundred times more certificates than he has gold, or more, until the system collapses and the currency is devalued and thereby destroyed, akin to a run on the banks.
The ideal currency would be immune to hyper-inflation. So let’s use that as our rubric:
Gold. Immune to hyper-inflation? If traded in pure metallic coin and bar form, essentially yes. Unless we discover large gold reserves somewhere in the universe or the ability to cheaply transmute elements. So the risk is there but it’s rather remote.
Fiat money: Not even close to immune to hyper-inflation; in fact these currencies fail all the time. Governments like them because they get to control them and steal money by inflating them.
Bitcoin: Immune to hyper-inflation. End of story. The more popular this currency becomes the more immune it becomes as well, due to cryptographic means.
Conclusion: bitcoin is as close to the ideal currency as mankind has ever created.
If you meant rather Clayton’s idea of a backed bitcoin, then I apologize. A backed bitcoin would be just as usable. As with gold, its exchange value may come to be much higher than the price of the commodity backing it, meaning it might not be worth the effort in a situation where hyper-inflation is impossible.
In short, I’m arguing that where hyper-inflation is impossible you don’t need a backed currency.
Yes, that’s true, in a sense. You would also need to cryptographically limit the number of coins to fairly closely match the total amount of gold in the world or in some reserve. However, it wouldn’t be accurate for two reasons.
One because more gold is produced each year. And two because much of the price of gold right now is wrapped up in its exchange value.
I don’t deny that having a contractual agreement to redeem bitcoins for X amount of X commodity is an advantage, as this would, in an ideal scenario, place a floor on the price of a cryptocurrency and make users feel more secure in its adoption.
However all is not as it seems! Remember what Bastiat told us.
The only way to contractually back a cryptocurrency would be to have a central authority dole them out at a fixed price (The “backing” commodity, or an equal value.). On the face of it we see one distinct problem;
1.) The cryptocurrency now has a central point of failure.
a.) This central authority is prone to thefts/embezzlement/and destruction.
b.) The central authority would likely present itself with a large amount of commodity to begin with. The larger the sum, the more “a.)” becomes a problem. The less the sum, the less likely anyone would buy in.
c.) The fixed price restricts the growth of the cryptocurrency. The farther the cryptocurrency increase in value above the commodity backing, the more people would sell out of the cryptocurrency. This restricts the amount of value the cryptocurrency could absorb into its economy.
The only solutions to this are to either end the contract or else to constantly increase the commodity reserves, increasing the problem of “a.)” and “d.)”
d.) Inevitably, there would be upkeep associated with storing and protecting the contracted commodity that must be paid one way or another.
Perhaps these problems could be overcome, but in the long run the most economically efficient cryptocurrency would be one that is not tethered to a central authority, and doesn’t need huge warehouses of commodities that are rarely used for anything.
So in my estimation, a “backed cryptocurrency” is only good for jump starting the currency, and even then it’s a very dangerous game to play and errodes at one of the greatest strengths of having a cryptocurrency; Decentralised control.
So my question to you is this, Clayton; How much freedom are you willing to give up for security?
You’re right, contract is the correct word. That was my bad.
Bitcoins are a scarce resource that [and] are traded on the open market explicitly for the use of being a medium of exchange. I’d call that money, but you wouldn’t. I [still] don’t get it, but that’s alright.
So what, just because Rothbard or some lawyers say so doesn’t make it gospel or true. Quite to the contrary, they may just express there materialistic or formalistic world view in this. That’s perhaps where one should look for the flaws, problems and contradictions in anarcho-capitalism/ libertarianism or related ideologies.
A promise is a onesided, yet not necessarily unconditional, statement towards another party. This can be done orally or in writing (which then formalises it). It’s like a donation is a onesided transfer of ownership. Saying a promise isn’t a contract is like saying a bike isn’t a vehicle. That you can’t win a formula 1 race with it, doesn’t make it less a vehicle. And just because you can’t enforce a promise in a state court, doesn’t mean that it isn’t a legally meaningful contract. You may just not be able to proof your case as with any other oral agreement.
Promise versus contract. They’re certainly different, but he’s right in the main. I think it would be correct to say that, technically, a contract is a bi-directional promise. Whereas promises generally can be uni-directional or bi-directional. A contract can definitely be oral, but due to the difficulty of proving oral contracts after the fact, people typically resort to written contracts for more important matters.
The difference between a promise and a contract is the transfer of title to property. There is no transfer of title in a promise, whereas there is one in a contract.
I have no idea what Torsten is going on about, but he clearly did not understand Rothbard’s points, and I question as to whether or not he even read what Clayton suggested.
Please reread my post to which you replied. I chose my words carefully. Notice I did not say incapable of becoming nor did I imply that idea. I simply said Bitcoins are not money. The word are is present-tense. My post does not address the future.
Bitcoins’ value, and the value of any metal used as currency, could certainly drop due to a crisis of confidence in their usefulness as currency. The difference is how far the value will drop. Bitcoins have no value outside of their value as currency. Metals have industrial applications. It is doubtful, though I guess an extremely remote possibility, that even if there was no confidence in gold as currency, everyone would also cease to use gold in jewelry and electronics.
Actually, yes it is. Fiat means by decree. Fiat money is money because government declares it so and enforces its use. This is the definition. No currency/money/etc can be “fiat” unless the government is involved.
Samesies to you too, sir. Notice how eloquently I put it:
Note how fluid and succinct the thought is, how perfectly it describes my thoughts and feelings about the whole “definition of money” debate. It is three syllables and an exclamation mark of pure unadulterated perfection. Please take notes, and take time to admire it. Get some friends together and sip wine while discussing the finer details of this exquisite example of English literature.
Bitcoins meet or exceed all attributes of gold when it comes to performing the task of being a medium of exchange, with the minor caveat of lacking an industrial use.
I understand that many here have qualifiers for the standard of “money” that range from silly to the really silly, and so it’s completely fine by me if Bitcoins (or any other cryptocurrency) are never seen as “money” or “money proper”.
The reason I tend to not just let it slide without voicing my passionate indifference about it is because many people say Bitcoins aren’t “money” or “money proper” (and some say that they never will be.) and it gives Bitcoins an air of illegitimacy. Like they’re a scam or a fiat currency.
I know that’s not what you’re implying, but that’s how it will be commonly viewed by the casual reader. (Not the hardcore readers like us.)
(Plus, as far as I’m concerned Bitcoins are money. [smugface])
!
After all, it’s only 10% backed. It’s not like the real industrial value of gold today is $1600 an ounce.