To the extent that it actually is acting as a money, I agree with you. However, there is no necessary correlation between Bitcoin and dollars… Bitcoins have no guaranteed exchange value. Their exchange value in dollars is whatever the market price of Bitcoins happens to be. There is no brick-and-mortar institution standing behind Bitcoins saying “no matter what else happens, we exchange $1 per Bitcoin”. There’s no one to sue if you can’t exchange your Bitcoins. Bitcoins can only be exchanged for what others will voluntarily give up in exchange for them. Hence, the value of Bitcoins is liable to wild fluctuation. If Bitcoins become big enough to be noticed by The Powers That Be, their continued non-zero value is completely at the mercy of the regulatory climate. Sure, as a technological matter, they can’t stop people from exchanging Bitcoins but, if it starts to be a thorn in their side, you don’t think the Department of Justice and Department of Treasury would start kicking down doors as they have with Liberty Dollar and e-gold? You don’t think the chilling effect of a couple raids would knock the wind out of the Bitcoin price?
Early adopters will see the value of their Bitcoin holdings rise and rise as late adopters join. If early adopters cash out before the system crashes, they will have effectively walked away with the money of the late adopters who bought after the price of Bitcoins had risen. I prefer to call it pump&dump but it’s basically the same idea. This explains why there are so many avid promoters of Bitcoin around on the Internet… it makes money sense for them to be pushing Bitcoin adoption. The more people that buy in, the higher the value of their holdings go. The deflationary nature of Bitcoins accentuates this effect as the computational effort expended by early adopters is much less than that expended by late adopters… that is, every day it is becoming exponentially harder to mine new Bitcoins in the manner that early adopters did. So, it becomes increasingly the case that the only way to get Bitcoins is to exchange away something of value (e.g. dollars) for them.
This is one of the most obvious problems with Bitcoin. Why 21 million? There can be no reason why 21 million, it’s a number plucked out of thin air. Bitcoin should at least have allowed the number of Bitcoins to be determined by a market process, as well. Even if everything else in Bitcoin were sound, this would be a fatal flaw.
I still dont get it… there was no’ brick and mortar instutiton’ regulating the objective exchange value when gold emerged as a medium of exchange out of a bartered system, right?
3) Bitcoin is a pyramid scheme. Everyone using bitcoins is a speculator.
4) By virtue of being unbacked, Bitcoin is at the mercy of the Establishment because it has nothing but its convertibility into other fiat monies. (As if bitcoins couldn’t be traded for anything else…oh wait, isn’t that kind of what they do?.)
If I’ve missed anything please enlighten me. But to be honest if this is the best anyone can come up with, I really don’t see how people could be so sure of themselves and still call others “irrational.”
For one thing, you have not proven that bitcoin value will disappear.
For another, the reason a pyramid scheme doesn’t mathamatically work is because people pay for a privelege of selling the privilege to sell priveleges to sell priveleges. There is no unit of exchange value. People pay money in the hopes of making a return generated from selling other people who pay money for the same thing. The only way bitcoin could even come close to even resembling a pyramid is if every single person who ever got involved with a fraction of a bitcoin was a speculator who had no intention of using it as a unit of exchange. (Which is why, I would have to assume, you selected Frederique’s useless post as the answer to a question he didn’t even address. (Check the thread title)).
So again, I’d love to see any actual proof of any of this.
Yes, there were. Banks issued banknotes which were a convenient, secure means of exchanging money which were backed by a contractual obligation of a particular brick-and-mortar institution (the issuing bank) to redeem the note for a particular amount of gold. Failure to redeem was (during the “wildcat banking” era) could get you sued. An institution’s notes had value precisely because they were redeemable in gold on pain of bankruptcy. No one is required to redeem Bitcoins for anything.
It is. Bitcoins definitely needs more people putting money into it so it can at least keep its value. There are around 6.7 million bitcoins today, by June of the next year there will be 9 million bitcoins. Today one bitcoin is worth roughly $15. Let’s do some quick math with this figure.
Today’s size of the bitcoin economy in USD: 6.7 million x $15 = $100.500.000
By June/July next year, there will be 9 million bitcoins in existence, so just to keep its current value of $15, $34.5 million dollars have to be injected into the bitcoin economy during the next 12 months, that’s almost $3 million a month. By 2014 there will be 12 million bitcoins in existence, so from June next year to January 2014 an additional $45 million have to injected into the bitcoin economy just to keep its current value of $15.
So yes, all people paying $15 today for a bitcoin know that dozens of million of dollars have to be injected into the bitcoin economy or they will take a immense hit. No wonder all the messianic talk most bitcoin proponents employ when talking about bitcoins. (most important invention of history!; it is better than gold; etc.) They have to bring people into the scheme or it will fail.
Take a look at the bitcoin forums and check out their marketplace session. I mean, there are 100 million dollars worth of bitcoins out there, by that point you would expect a small but quite robust marketplace around it. But it doesn’t exist. There are only people selling stuff related to bitcoin mining and even the few people selling non-bitcoin related stuff want the bitcoins to speculate. (I have looked at the post history of some of them and they’re always speculators.) I’m not asking you to take my word for it, go there and spend a few hours/days examining their forums.
I didn’t know about it. I’ll read more about it before giving some opinion on that.
See my explanation above and please explain to me how bitcoins’ value can at least stay where it is if more people are not brought into the scheme.
First, bitcoins are being created out of thin air right now. Only because some day in the future (2030!) its expansion will stop doesn’t mean it is scarce as something physically tangible, for example. If all bitcoin miners but a single one stopped mining today the output of bitcoins would still be the same. If only one person was mining gold today, the gold output in the world would be insignificant. I wish people could notice the fundamental difference between the scarcity of something physically tangible and the so called bitcoin scarcity. Actually, I wonder if Bernanke said that by 2030 the FED would stop printing money you would say that dollars aren’t being created out of thin air.
Also, what do you mean by ‘capital investment’? On the early days of bitcoin people mined thousands of bitcoins using half of the computational power of their Pentium4 CPUs. If you call that ‘capital investment’ I will call the time, paper, renting and other expenses a con artist had to incur to set up his pyramid scheme of capital investment (actually it is, but I don’t have any idea why you think that ‘capital investment’ gives bitcoins a superior status to a pyramid scheme, as even a pyramid scheme requires some capital investment).
Once again, please explain to me how the value of bitcoin can remain at least the same if no more people inject money into the bitcoin economy.
See my answer above.
Please refute my argument that without hundreds of million of dollars having to be injected into the bitcoin economy in the next months/years its value will not fall greatly.
See a definition of “pyramid scheme” and explain to me how bitcoin is a “is a non-sustainablebusiness model that involves promising participants payment, services or ideals, primarily for enrolling other people into the scheme or training them to take part.”
You literally quoted what I said. Please tell me how any of that debunks what I said.
This should discount your assessment right here. You evidentely have no understanding of what scarcity is or what makes something scarce.
So let me get this straight. Bitcoin is a “pyramid scheme” because more bitcoins are going to be created, and therefore, ceterus peribus, the value will go down unless demand goes up. Is this your argument? This is all it takes for something to be a “pyramid scheme”?
I did. It was basically a long winded “no.”
See my question regarding your definition of “pyramid scheme” above.
The Bitcoin forum is not intended to be a marketplace. Such posts are tolerated, to an extent, but ongoing operations are not permitted to advertise there, it creates too much noise. I should know, since I’m a mod there. There is quite a large and growing bitcoin economy elsewhere. Take a look at the trade page, for starters. I’ve traded bitcoins for handmade stuff a number of times, with more than one person who advertises on Etsy.com.
I think I have the answer to why both Ithaca Hours and Bitcoin are not money. Voila:
If you and your kid sister set up a system of paying each other for lollipops with tarot cards, that doesn’t make tarot cards money, right? And why not? Because money has to be something accepted
by a whole community
in exchange for anything and everything.
That’s what medium of exchange means. [So it’s not a “no true Scotsman” argument].
When everything has a price in tarot cards, for a large group of people, not just a few close friends, then they can be legitimately called money.
Bitcoin is not money yet, because there is no community, [even if we call a group of people connected by computers a community], who will buy and sell everything for bitcoins. Same for Ithaca Hours.
In my posts, I tried to get across why it will never be a money in the above sense [=medium of exchange].
Yes, bitcoins derive their value from the expectation that one may readily exchange them for actual money (money proper), i.e. dollars. In this sense, bitcoins sort of function like secondary media of exchange, but they’re not employed nearly as regularly as traditional secondary media of exchange (precious metals, securities, etc). Thus, we can say that bitcoin are essentially tertiary media of exchange.
But money is defined as a commonly employed media of exchange, which means that, by definition, bitcoins are not money. Your grocer will not accept bitcoins, laborers will not accept bitcoins as payment, etc, etc. In order for bitcoins to emerge as actual money, in a way which consistent with Mises’ regression theorem, they would have to be absolutely interchangeable with actual dollars but more convenient, so that eventually the employment of bitcoins completely surpasses the employment of dollars (in all of its various forms) altogether.
If bitcoins actually become money (again defined as a commonly employed media of exchange) in any other way, then Mises’ regression theorem will become empirically invalidated.
I could get on board with that. It really does depend on how you define money. So if you go by the notion of “commonly employed media of exchange”—which, I suppose I don’t have too much of a problem with the impreciseness of the phrase—then I would say it probably will be the case that bitcoin will have a pre-existing exchange value (most likely with the popular fiat currencies, and probably gold & silver) when it meets that definition of a money. However, again, as everyone here has been so adamant in pointing out, bitcoin hasno other use aside from its monetary use…meaning, the moment it ever does become “a money” it would disprove Mises:
"an object cannot be used as money unless, at the moment when its use as money begins, it already possesses an objective exchange-value based on some other use."
However, as Jonathan has been pointing out, an exchange value with the dollar connects bitcoin in a chain that does regress back to a commodity that started with non-monetary value. So I’m not positive it could be said the even in that case bitcoin would violate the Regression Theorem…but it would definitely prove Mises’ above statement to be false.
It’s very simple, the hour attatched itself to a currency which had a preexisting rate, and then the people agreed to treat it as money. They could not do this from scratch, they could not simply have founded the hour, it had to be attatched to another currency.
This is how currencies today, like the Euro, which never had backing from gold come to act as monies, they attatch themselves to currencies which at one point did and so through foriegn exchange and the replacement of another currency they can do it.
The people who adopted the hour simply treated it as money, just as someone can treat a money substitute as money.
Yes, the founders of the Ithica Hour agreed to value the Hour at $10 per hour at the time, but there isn’t any formal peg there. Is the Hour still worth $10? Or does it float? Bitcoin was initially valued in a similar manner; when one guy offered $10K BTC in exchange for one pizza delivered to his home. The guy who accepted that offer took a huge risk, but established the initial value of a bitcoin, and it’s been on a tear since. So is bitcoin a dollar proxy, then? Sure. Does that mean that it’s not a currency? Of course not. The Hour is a currency. So is the Euro, which was founded by political agreement alone, and valued against several existing national currencies. Bitcoin does this as well. How, again, is it not a currency if the Hour is?
I don’t think I like the idea of “commonly employed” as part of the definition of a money. A money may not be universally accepted - e.g. dried tobacco or salt - but within the region where it is accepted it is as much money as anything which has wider acceptance. The trouble with Bitcoin, or even Ithaca HOURS, is that they are not universally accepted in any region. If Ithaca HOURS were, in fact, money per se, they would not be accepted only by a limited number of individuals and businesses who have “opted in”. I am truly baffled how people who purport to have read Mises, Rothbard and Hoppe on this subject can even be slightly confused about this. US Dollars are money. Euros are money. Yen are money. Rupees are money. Gold and silver still retain a vestigial or shadow money status. But Bitcoins are not money. Ithaca HOURS are not money. GoldMoney is not money. Money is the most marketable good and, for this reason, it is universally accepted. The idea that a money can be “kind of” accepted by a limited sub-community of market participants in payment for select items is contrary to everything that Mises, Rothbard and Hoppe have written on the subject. Please, please, everyone needs to read Mises on Money.