Don't buy Bitcoins (video)

Miscellaneous General
161

It would seem to me that the kind of “convincing” of the type you are talking about would only have to be done in the initial stage…getting the first people to accept something that no one else even knew about. It would also seem that’s already largely been done.

And I mean, who “convinced” you to use PDF format? Did someone sit you down and explain benefits? Or did you start using it because it was useful in your exchanges with other people because they were using it? How were you “convinced” to use a telephone? Email? Did someone have to persuade you of any benefits or did you try them out after enough people were using them that you felt is was worth your while to do so?

Does the Ithaca Hour Disprove the Regression Theorem?
Does the Ithaca Hour Disprove the Regression Theorem?
162

Unless by saying this, you assume that the only way for bitcoin to grow is through the rhetoric (i.e. if I can’t convince the average man to accept my bitcoin, bitcoin can’t grow, and if bitcoin can’t grow, bitcoin is useless).

This is what I am indeed saying, plus more. That the default assumption of the average man is that since he cannot eat or drink bitcoins, neither can anyone else. Also, he assumes that since he is unwilling to accept something that will not give him happiness, neither will anyone else. Thus he will not be able to eat his bitcoins, nor will he be able to pass them on to the next guy in exchange for something real, because the next guy cannot eat the bitcoins either. So the next guy has the same reason to reject bitcoins as the first guy. Bottom line, the first guy will refuse to accept bitcoins. And the same for everyone who thinks like him, obviously.

I am also saying that these are very sound assumptions he is making. It is not rhetoric or convincing that will change his mind. It is a question of showing him why his line of reasoning is mistaken. And I think this is impossible, that there is no mistake in his reasoning.

To John:

Your questions about PDF and email etc only strengthen my case. I used those because they gave me happiness. Indeed there was no reason a priori to think they wouldn’t. But, as I explain in the first half of this post here, I see great logical reasons to think that accepting a bitcoin will bring me great unhappiness. Thus I, and everyone who thinks like me, [which I assume is everyone because there is no flaw in my reasoning], will not accept bitcoins in exchange for $17 of hard work.

163

I’m incredibly surprised at the number of flaws here. It’s not like you. Mostly you’re just growing your begging the question fallacy. You’re assuming that bitcoin will “bring you unhappiness” because it will crash…which you assume will happen because everyone thinks like you and they also assume it will bring them unhappiness because it will crash…because it will crash. So your argument is that it will crash because you assume it will crash…because you assume everyone else believes what you believe.

And you extrapolate this from the notion that there is no flaw in your circular reasoning, that everyone thinks like you, and that everyone thinks like you because there is no flaw in your reasoning (which I would have to guess means you assume no one ever makes mistakes in reasoning).

And the bit about “there’s no reason a priori to think that email would bring you unhappiness” is quite circular as well. My point is that you didn’t need to be convinced to use PDF…that you used it because you found it to be useful…precisely because other people were using it. Just like email. And you somehow claim that helps your argument that people need to be convinced to use things. And then you claim that you used those things “because they gave you happiness” whereas you believe bitcoin will give you “unhappiness”…because you think it will crash because you assume everyone thinks like you…and they assume it will crash because everyone thinks like them…because they believe their reasoning is not flawed…and therefore everyone would agree with it…because no one ever believes in anything with flawed reasoning.

Does the Ithaca Hour Disprove the Regression Theorem?
164

No circular reasoning here. I’ll lay it all out:

  1. If Item X will not lead, directly to or indirectly, to some good or service that increases my feeling of contentment, such as food or drink [for example], I will not accept Item X as payment for my hard work.

  2. Other people also have the same atitude as expressed in 1.

  3. Bitcoins are not edible or drinkable, and thus the only possible way they could increase my feeling of contentment is if there exists a person, call him Smith, who will take them from me in exchange for food or drink.

  4. But the only possible way Smith will accept them is if they lead to him being able to trade them for food or drink, by 2.

  5. Thus Smith will only take them if there exists a Smith the Second who will take them from Smith.

  6. By mathematical induction [ for the nth Smith to take the bitcoin, there must exist an [n+1] Smith] there must be infinitely many Smiths in this world for me to be able to get contentment from my bitcoin.

  7. But there are only finitely many people in the world.

  8. Thus bitcoin can never bring me satisfaction. Knowing this, I will never accept it.

  9. Similar reasoning applies to every person. Thus no one who thinks things through will accept bitcoins.

165

Just a second ago you told me that everyone thinks like you because there is no flaw in your reasoning, thus implying that no one ever follows a flawed reasoning. Would you really argue that that reasoning isn’t flawed?

166

@Smiling Dave

  1. Bitcoins are not edible or drinkable, and thus the only possible way they could increase my feeling of contentment is if there exists a person, call him Smith, who will take them from me in exchange for food or drink.

This is incorrect. Being useful as food or drink is not the only way a good can ultimately increase your (and everyone elses) contentement. You’re implying that people only ultimately value the satisfaction of hunger and thirst, to the exclusion of all other ends. That’s obviously not the case, I hope you agree, so the reasoning downwind of here fails.

167

(See also: Bitcoins and Mises´s Regression Theorem )

168

FWIW, here is a quote, [emphasis mine], from Mises proving he intended the regression theorem to be “forward looking”. It’s from Money and Credit:

The Necessity for a Value Independent of the Monetary Function

before an Object can serve as Money

If the objective exchange-value of money must always be linked
with a pre-existing market exchange-ratio between money and
other economic goods (since otherwise individuals would not be in a
position to estimate the value of the money), it follows that 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. This provides both a refutation of those
theories which derive the origin of money from a general agreement
to impute fictitious value to things intrinsically valueless’ and a
confirmation of Menger’s hypothesis concerning the origin of the
use of money.
This link with a pre-existing exchange-value is necessary not only
for commodity money, but equally for credit money and fiat money.’
No fiat money could ever come into existence if it did not satisfy this
condition…

Now, to be honest, I’m still not clear about the Ithaca Hour. Does it disprove the regression theorem? I’m going to start a new thread on that topic and hope for enlightenment..

169

I’m glad you found that, as it does sound as though Mises is saying the theorem is not just an explanation of how current money evolved. I’ll have to forward that to Wenzel and Kinsella who both admit to being of the position I described earlier.

However, it would appear than not only does the Ithcac HOUR disprove the theorem, but bitcoin itself does. You will likely claim that bitcoin hasn’t been around “long enough” to be considered a currency and claim it’s “just a fad” or a “bubble” or something, but that is irrelevant (not to mention whatever time frame you choose would be completely arbitrary). The question is whether the object “already possessed an objective exchange-value based on some other use at the moment when its use as money began”. This obviously wasn’t the case with either of these two examples. So it would seem that despite whatever other claims and qualifiers you might like to make—and I realize I’m probably committing some kind of sacrilege here—Mises has already been proven wrong in this case.

Does the Ithaca Hour Disprove the Regression Theorem?
170

That is a continuum fallacy. There is a well defined subset of the population that hitherto drives Bitcoin circulation. (See this thread for details.) Get back to us when its users are a good cross section of the population (not cliques). Then there will be something to talk about. (Ditto for Ithica Hours.)

The only idea that merits consideration for refuting Regression Theorem is that you can create a self-fulfilling prophecy by promoting something as money thereby leading to it becoming money. This by definition works and applies to anything. It has no special relation to Bitcoin, Ithica Hours or anything else.

Here’s a quick summary of what I see general agreement on here so far:

  1. There is no reason to buy Bitcoins.

  2. There is no reason to believe that it will expand beyond a particular type of person.

171

I gotta disagree with some of my fellow Bitcoiners. From where I stand Bitcoin does not disprove the regression theorem, rather it’s an interesting and very illustrative example of it.

Bitcoin’s value early on came from the novelty - people who liked the concept from a technical point of view wanted them just enough to engage in some - mostly tongue-in-cheek - trades. One often cited example is the two pizzas that went for 10000 Bitcoins in May 2010. But this is actually a rather late example, there were lots of trades with large and small amounts of Bitcoins before then, but in 2009 especially nobody really knew what a Bitcoin was worth. (To a lot of people it was worth absolutely nothing, which is why a significant percentage of 2009 coins should probably be assumed lost.)

The breakthrough was right around a year ago when exchanges like MtGox appeared on the scene. While trading Bitcoins for US dollars was not new, the fact that MtGox published a Bitcoin “price” was and it was significant because now people knew what you could expect to get for your coins. Selling anything for Bitcoin was no longer guesswork, but simply a matter of looking at the current market rate.

Once Bitcoins had an organized exchange market, trade started to shift from joke transactions to actual merchants accepting Bitcoins for their goods. By February 2011 the Trade page had grown to over a hundred companies and was moved to the wiki, because it had become to complicated to maintain otherwise. (Now, only four months later, it lists over 600 companies.)

Acceptance was what triggered speculation. People saw that the currency was starting to be used as such and suddenly they seriously considered the possibility that it might find widespread adoption some day. Speculation is the reason why the exchange rate went up more quickly (16x since February) than the acceptance (6x since February). Jörg Guido Hülsmann has a good YouTube video on deflation explaining that interest rates can’t go negative so instead currencies appreciate quickly as people anticipate deflation.

So here is why Bitcoin is a great example for the validity of the regression theorem. Bitcoin’s exponential growth could have started 18 months earlier in 2009, but it took one and a half years before anybody used Bitcoin as a money. Bitcoins couldn’t develop monetary value while it didn’t have non-monetary value. And non-monetary value was hard to come by. Clearly a lot of the early trades were irrational, it was only when this irrationality was captured in a somewhat stable market rate that other people started using Bitcoin. You can accept Bitcoin, even if you don’t believe in the concept if you know you can sell them to somebody else at a certain rate. The more that happened, the more the demand for Bitcoins for monetary uses developed and eventually vastly outgrew the early non-monetary demand.

One thing to point out is that this same principle is hard to imagine happening with paper money. Early transactions consisted of tens of thousands of coins for value that is today only fractions of a coin, so Bitcoin’s divisibility and transportability were critical properties. Another reason for the hard-to-explain early demand is the fact that Bitcoin is the first implementation of a peer-to-peer network solving the decentralized, anonymous agreement problem, so some geeks wanted to own Bitcoins not because they thought it had a chance to become an actual currency, but purely to own a piece of history. Again, this stuff didn’t make Bitcoins expensive, it just gave them some value that was bigger than zero.

Disclaimer: This is not investment advice, I’m merely intested in this debate. In fact I would recommend against Bitcoins as an investment, since even if the economics are sound, it can still fail technically, socially, etc. At the same time I do invest time and effort in Bitcoin myself, mostly because I’d like it to succeed - independent of what I think its chances are.

172

Get back to us when its users are a good cross section of the population (not cliques).

A cross-section of which arbitrarily delimited group of ‘the population’? Are you going to maintain that gold users are currently a ‘good cross section’ of ‘the population’? Sounds like a double standard to me.

Here’s a quick summary of what I see general agreement on here so far:

  1. There is no reason to buy Bitcoins.

Puzzling thing to say. There’s clearly no general agreement in this thread–Opinion is strongly polarised on the question.

Here are my primary reasons for buying and using Bitcoin right now (note that these considerations do not depend on any expectation of growth of the BTC economy).

I can pay a provider of a service in a foreign country in bitcoins.

  1. I pay no transaction fee
  2. I pay no storage fee for holding Bitcoins
  3. I run no risk of my account being frozen
  4. The reciever can be confident the payment won’t be reversed
  5. The transfer happens quickly
  6. The receiver doesn’t need to grant access to any shady third party (like paypal) to his main bank account to recieve large amounts of BTC and withdraw them as local fiat currency.
  7. If desired, the transaction can be made invisible to local law enforcement agencies.

‘No reason to buy bitcoins’ indeed!

173

“Market rate/price” is a concept with no real substance. Publishing a price for something has the effect of encouraging some confused people to offer that price. Otherwise it is merely a news ticker on previous trades.

174

In video-form, for easy sharing:

http://www.youtube.com/watch?v=B3tJzbUaUQ4

175

Nielsio,

you omit to consider the features of the trades themselves, which is also important because it is subject to human action. Various methods of trade have different utility. Bitcoin provides, from some perspectives, a better utility for money transactions than the alternatives. This utility creates demand. So, as long as one person wants Bitcoins for purposes other than monetary transactions and thereby kickstarts the trading, bitcoin will be used for trades. As for the equillibrium of the number of trade participants, that’s an empirical question and anyone’s guess is as good as mine. However, if you look at history of the trade page in bitcoin wiki, [http:// https://en.bitcoin.it/w/index.php?title=Trade&action=history](http:// https://en.bitcoin.it/w/index.php?title=Trade&action=history), you will see that the number has been increasing, despite the MtGox incident, allinvain’s stolen bitcoins and other occurrences when the naysayers were prophecising the doom. I see one drop around June 20th, but it does not look like it was related, most of the deletes appear to be due to uncertain legal status of the trader, like selling of music.

I already brought up the example with English language which shows that on a free market, a good that belongs to a category subject to network effects can outcompete others even if it cannot be consumed. Money is merely a case of a good subject to network effects. The regression theorem is a badly phrased definition of the network effect. When evaluating Bitcoin, instead of looking at fiat money, you should look at languages and other widely deployed standards.

Betamax lost to VHS, HDDVD lost to BluRay, although neither have uses other than facilitating watching movies (apart from some fringe groups like collectors, cryptographers and likes). The imperial and metric systems coexist, but both are heavily influenced by government intervention. If the government intervention vanished, it would be ridiculous to claim that they would be both displaced by a standard that has other uses than measurement. Windows and Linux both have significant chunks of the market, although neither of them has uses other than being an OS (again, linux has a fringe use for studying programing). There is a gazillion of programming languages, they are all artificially designed, and all compete with each other.

Instead of remaining affixed at the regression theorem, the Austrians should spend more time studying the more generic phenomenon, network effects.

176

So, as long as one person wants Bitcoins for purposes other than monetary transactions and thereby kickstarts the trading, bitcoin will be used for trades.

One person? You gotta be kidding.

Money is merely a case of a good subject to network effects. The regression theorem is a badly phrased definition of the network effect. When evaluating Bitcoin, instead of looking at fiat money, you should look at languages and other widely deployed standards.

You must have been good at writing college term papers graded by weight.

177

Circular reasoning. An object requires demand before it has utility in trading.

Think of an island with two people. One guy has a margarita and the other guy has a unique looking rock. There is no reason for the guy with the consumable good to give it up for the rock.

The only reason he would have to give up his consumable would be if the rock represented a contract, to give a specified consumable in the future.

Bitcoin specifies nothing, as far as the future is concerned.

210×210 2.88 KB

178

Nielsio: Monetary use aids in the fulfillment of wants itself, by furthering the division of labor. So people are willing to buy and sell money at a loss, so long as it solves the double coincidence of wants for them. I.e. if they can get it by selling something they value less than the thing they later buy with it.

Or in other words, even if everybody thought the value of Bitcoins was going to go down, it wouldn’t crash, because there would still be demand by people willing to take a loss, because it’s not an investment for them, just a vehicle of exchange - they just need them to do a transfer or to purchase things. It’s the demand for money.

The demand for money depends largely on how widely it is accepted and whether it has good properties as money. That’s why I demand Bitcoins, and not Nielsio fortune-telling vouchers. Bitcoins represent for me the Chinese lessons I can buy with it, the programming work I can buy with it, etc. This demand doesn’t require an ultimate use. Bitcoins are not an investment, I don’t care whether I make a profit. That’s why this demand doesn’t go away - money can circulate forever, and every time it circulates it pays its keep with its usefulness.

Of course, money is subject to competition. If a better currency comes along and everybody started switching, then yes, Bitcoin’s would go to zero, because nobody wants to own money that’s on the way out.

Funny story, I actually lived through a hyperinflation once. When I was 13 or something there was a project where I grew up called Simsalon. Basically children would go there two weeks during the summer every day and it was like a whole simulated economy. Of course I was super excited about it and joined immediately. I ended up working at Simsalon’s copyshop and even back then I was already a workaholic, so I put in extra hours, expanded our offerings (we started just offering copies and ended up offering different kinds of paper, publishing a newspaper, etc.) and I saved almost all of my money. Come the last day, I wanted to spend all that I had saved, but it was impossible - all the shops were closed, because everyone had had the same idea. A few shops were still selling of their remaining inventory at hugely inflated prices, so I managed to buy a hand-made boomerang. Other than that, everybody lined up outside the “government-run” cinema, which had a fixed entry fee, but as overcrowded as it was, it wasn’t very much of a satisfaction for all the hard work.

This is what Nielsio, Peter Schiff and others say will happen to Bitcoin. Suddenly noone will accept it and you will be left holding the bag. But I find it hard to imagine what event could match Simsalon closing down or government printing of money in terms of triggering this. And remember that unlike a ponzi scheme or a scam investment it won’t collapse just based on people expecting it to go down. People demanding it as money rather than as an investment don’t care if it will go down some. So to trigger a collapse it would have to be some news or realization, causing everyone to doubt its usability as a currency at the same time. That’s possible, but most certainly not inevitable.

179

Circular reasoning. An object requires demand before it has utility in trading.

There’s nothing circular about it. Utilty for use in trade, and associated demand, arise concomitantly*.*

There is no reason for the guy with the consumable good to give it up for the rock.

Again you’re making a claim that’s far too strong. The margarita owner may really like the look of the rock, he may want to adorn his alchoholic-bevarage-filled cave with this rock. This would be a reason to make the trade (Edit. agreed with justmoon’s post below that this is irrelavant in the context of a discussion about money though).

180

Nielsio: Just saw your latest post. On an island with only two people the problem that money solves doesn’t exist. You need at least three people (A sells good/service to B for money, buy good/service from C with money) and in practice obviously a lot more in order to even have the coincidence of wants problem.

So to expand your example: If there was only one rock like that on the island, I might give my margherita away for the rock, if I thought I could give it to a third person in exchange for their t-shirt. And the third person might accept the rock, because they want to use A’s fishing net. A being willing to accept the rock planning to purchase some labor from B with it, who is willing to accept it to get land from C on the top of the hill for his signal fire, etc. As the rock circulates, it becomes “money” - pretty crappy money (no divisibility), but money nonetheless. There is no reason to expect a sudden “rock crash” unless something new happens, like someone discovered a million more of the same kind of rock.