My latest video: Don’t Buy Bitcoins
http://www.youtube.com/watch?v=DoK8HXMSsNg
I’m posting this as a seperate thread because I don’t think that many people are still following the other super-long bitcoin thread.
See also the last 5 minutes (the Q&A) of: The Economics of Legal Tender Laws (by Jorg Guido Hulsmann) http://mises.org/media/1521 .
I think you underestimate the extent of peoples’ gullibility.
Some people make a living selling their psychic services and they get return customers.
I suspect you are right, though. Bitcoin is not such a great money. That said, bad money is better than worse money. With the federal debt situation, bitcoin might have its day yet.
I haven’t followed that long bitcoin thread at all, so maybe this was answered…but how do I know coins aren’t just added to site owner’s or programmers accounts…just like the Fed enters amounts into their computers for bank reserves?
how do I know coins aren’t just added to site owner’s or programmers accounts
I do not quite understand the question, but you basically have two options: trust the community or read a short paper http://www.bitcoin.org/sites/default/files/bitcoin.pdf, convincing yourself the idea is quite resistant to manipulation, then download sources of bitcoin client program and analize them, convincing yourself there is no backdoor and the sources faithfully implement the idea. Then just take a leap of faith anyway, as you cannot really prove this cannot be subverted (but then again, the same applies to security of any computer system more complicated than a digital clock). A break-through in maths may ruin the bitcoin, but then again it may ruin asymmetric cryptography at large. Caveat emptor. There are few hard guarantees in this life.
Bitcoins are not good for anything besides trading. You can’t have a worse ‘money’ than that. You can have infinity inflation from one day to the other. It is irrational to trade something which is a good for something which is not a good. And it is deceitful to trade away something that is not a good for something that is a good (selling bitcoins).
People bring up the status of the USD a lot in these discussions, but however bad the USD dollar is does not make bitcoins any better.
Thanks for giving everyone all the more reason to not bother with bitcoin.
Let’s see…
The USD is awful and used as a medium of exchange. It has the potential to suffer hyperinflation. Bitcoins are awful and have the potential to be a medium of exchange, and don’t have the potential for hyperinflation (as you have stated).
It’s a judgment call, but at least make honest statements.
It might not work for you or many/most others. What if it’s used as a medium of exchange and is a very vendible/most vendible good within a large group of people? Would people need the kind of convincing as stated above to start using it as a medium of exchange in this group? I’d have to say probably not. I didn’t learn about central banking and fiat currency before I understood why people wanted money.
huh? I specifically asked how we knew that bitcoin didn’t have the potential for hyperinflation, and I was told “trust the community” (i.e. the bankers), “take a leap of faith”, “caveat emptor”, and my personal favorite: “convince yourself”.
That’s the best answer I got in defense from a completeley legit and important question. And you’re saying they don’t have that potential?
Yes. I read the papers and get it.
The fact that the USD can be inflated by the monopolist does not make it rational to trade away valuable goods for useless scarce bits. Even if the USD was hyperinflating right now, that still wouldn’t make bitcoin any better.
The only thing that make a bitcoin valuable is people’s willingness to buy it, there is nothing else. Don’t you think that’s sort of a problem to use as a medium of purchasing power; a belief based currency?
That’s a judgment call and not something universally true, as evidenced by the fact that at least a few people have have performed such exchanges. How do you define rational here? In the praxeological sense, or in some other sense? If you meant it in the praxeological sense, you’d be in contradiction with the fact that people have exchanged USD for bitcoins, so I’ll give you the benefit of the doubt and say you mean rational in some other sense; that the decision to do this is stupid. But this is claiming that the actions of market participants is stupid. You are entitled to your own opinion, but now your argument isn’t a strictly logical one, and it’s one that some people don’t buy into.
I agree that people won’t flock to bitcoin if this happened over the next couple of years. Nevertheless, the “any better” part is a judgment call. It’s not “any better” to you, but it is to people who use the rationalization that if it were to hyperinflate, people would use bitcoin.
Valuation is subjective. People can attach any value to anything as their minds see fit. I think you’re speaking of the Marxian notion of use-value here.
People who believe it is or will be a medium of exchange will buy it to hold it for the purpose of being liquid. People have some level of preference for liquidity. It’s the same people reason hold on to money today.
People believe there won’t be hyperinfaltion tomorrow, they believe that their money will be worth roughly the same in the short-to-medium term to market participants as it was in the recent past. Subjective valuations are beliefs. The regression theorem basically states that people have money and use money and trust money to maintain market value.
What you are suggesting is that it is “not rational” that anyone use money before they study economics, understand the origin of money, the regression theorem and the banking system. People hold money because they believe they will be able to get stuff with it tomorrow. If I suddenly didn’t believe in my money to have any exchange value in the market tomorrow, i’d offload it all today. Barely anyone today cares that their money isn’t backed by some other economic good.
It is within the interest of the owners of any currency to convince other people of its worth. As long as someone is accepting any currency as exchange for other currencies, that other currency has value that is relative to other consumer goods. The currency then has value that is exchangeable for consumer goods. But when the other currencies lose value through inflation the bitcoin will not be immune to this inflation unless it is actually backed by a commodity that retains value through currency devaluation periods.
Giant_Joe,
A money, a store of purchasing power, is related to the subjective valuation of other people, in the future. The reason you buy it is because you expect someone else will buy it, and that person buys it because he hopes yet another person wants to buy it. Nobody down the line subjectively values it as a consumption good.
I don’t think it says that:
http://www.youtube.com/watch?v=sV0OcvylweM#t=46m32s
The reason government paper money holds value is because of laws. There are legal tender laws which means you have to accept purchases in government money, even if you don’t contract in them.
I would suggest the last 5 minutes (the Q&A) of: The Economics of Legal Tender Laws (by Jorg Guido Hulsmann): http://mises.org/media/1521
And also the full 2010 version of the Legal Tender lecture by Hulsmann that I uploaded today: http://www.youtube.com/watch?v=z-xR-xB84XQ (or: http://mises.org/media/5267/ ), to grasp the full weight of legal tender laws and it’s effects (historically and today).
Even if the USD was hyperinflating right now, that still wouldn’t make bitcoin any better.
You don’t suppose demand for a new medium of exchange would go up if the main mode is destroyed? There is no way you can predict what the market would choose but it’s a fair guess to say the bit coin might be affected by it.
The only thing that make a bitcoin valuable is people’s willingness to buy it, there is nothing else. Don’t you think that’s sort of a problem to use as a medium of purchasing power; a belief based currency?
The only thing making anything a viable currency is people’s willingness to buy it. All currencies are belief based in that they are valued by the traders. The fact that you individually do not see value in bitcoins does not disclude others valuation of it.
Neilso, I think we’re getting off track anyways. What bothered me was what you said here:
This isn’t true about bitcoin. It is up to you to show that it is true.
If people value something and are willing to give up something to acquire it, is it a good or not?
Wouldn’t you say that to expect something is to believe that it will happen?
Walden,
He is essentially stating “it is worthless, therefore, it is worthless”. It seems to me that this is dogmatic for him, and he’s not willing to understand the implications subjective valuation.
Trading qualifies as an industrial use. If Bitcoins are useful for accounting and in exchange that means that they fulfill a human need. That makes them a good in the same way pen and paper are a good when you use them to write contracts and invoices.
The value of a currency comes from the balance that people would like to hold vs. the money supply available. Certain factors can influence the former, such as legal tender laws, merchant acceptance, even practicality. The fact that there are online shops, betting websites, freelancers etc. accepting Bitcoins creates a (tiny) demand for people to hold balances in order to be able to purchase these goods and services. People want something, they first need the currency, so they can then spend it on what they want. It gives the currency value just as it does for a legal tender currency, albeit on a much, much smaller scale.
Put simply: You are correct in pointing out that Bitcoin’s value is overwhelmingly speculative. But you are wrong in claiming that the base value of Bitcoins is zero. The base value - if all speculators/investors suddenly flee the currency - will be whatever its usefulness in trade is. This could be an amount so small that it is practically zero. However it could also be very large - if Bitcoin finds widespread acceptance because people find it to have superior characteristics compared to alternatives.
So should anybody buy Bitcoins as an investment? Probably not, unless you personally think that they are a superior currency and will find widespread adoption. And even then you have to realize that there is a very real potential for a total loss: If it turns out that Bitcoins are not more useful then existing alternatives, people will eventually stop using them for trade/transfers and then Nielsio’s comments will apply - you won’t find anybody to sell them to.
(Disclaimer: I have a strong bias in favor of Bitcoins. For what it’s worth I tried to stay objective in this post.)
You bring up an interesting possibility:
Everyone has probably gambled with their friends using play money, which is scarce due to there only being one monopoly set at your house, or only a few smooth stones. Well, people can do that online with something like bitcoins, which are scarce because of the mathematics of the algorithm.
People might gamble with bitcoins as “play money,” but it might be legal and whatever because it’s not “really money.” But what has now happened? There is a demand for them, possibly a strong one since gambling is very popular and highly restricted. Could it be that like the porn industry fueled the adoption of DVDs and BluRay, gambling could fuel the adoption of BitCoin? It might be worth it to sell my Japanese-to-English translation services for BTCs if I know I can buy graphic design services from a large population of gamblers who want BTCs for their gambling (which may otherwise be restricted in their jurisdiction).
Oh, I see. You mean you’ve “taken a leap of faith” and “convinced yourself” to “trust the community”? That’s a great way to protect your wealth.
Oh, I see. You mean you’ve “taken a leap of faith” and “convinced yourself” to “trust the community”? That’s a great way to protect your wealth.
Sorry John, I might have chosen wrong words. You do not need to trust the community of users not to inflate. You have to trust the community of developers that the mathematical idea is solid and the code implements it faithfully, thus preventing hyperinflation.
If you get paid in bitcoins for labour then you can associate value based on your labour. Whether other people will agree on that value is a different matter entirely. Until bitcions can be used to pay your rent and buy everyday goods, it is difficult to draw a value comparison with other currencies. If you only obtain bitcoins through the conversion of other currencies then the bitcoins have value that is dictated by the other currencies.