How To Use Bitcoin – The Most Important Creation In The History Of Man

Miscellaneous General
201

Oh please.

I can guarantee I’ve listened to more lectures and read more economics books on Austrian theory than you have.

I run a website dedicated to the stuff.

I know the arguments like the back of my hand.

And I’m here to tell you, the regression theorem is wrong.

But if you don’t believe me, how about another scholar - Jon Matonis, who has cited my work on the subject frequently.

http://themonetaryfuture.blogspot.com/

As for your assertion that I don’t know what I’m talking about in terms of “fiat” - if you actually read what I wrote, you’d see that I used the proper definition of fiat, while Hoppe did not. He used his own interpretation which was broader and included such currencies as Bitcoin.

202

No, bitcoin acts as a currency, and it’s very good at that. Gold acts as money in the market, because it is money regardless of whether or not you can take a gold dime and buy your groceries or not. Money has a related, but not identical function in the market as currency. A gold soverign coin was both at one time, but no longer functions as a currency anywhere that I am aware of today.

As has already been pointed out, it also serves the function of secured distance transactions internally to it’s own design; without the need of a third party institution to serve as the trusted intermediary between two business agents. In the rest of the world, this function is filled by financial institutions such as banks, credit card companies and businesses that issue ‘letters of credit’. But these institutions add overhead to distance transactions, whether or not the customer is aware of that or not. Bitcoin’s inherent ability to securely transact over distances removes the third party institution in many common transactions, but certainly not all such transactions. Therefore, the ‘initial’ value to early adopters was the potential to be able to transact in this manner should Bitcoin succeed.

Which would violate the regression theorem if Bitcoin was a commodity money, but it’s not. The regression theorem doesn’t necessarily apply to an intentially designed medium of exchange for several reasons, not the least of which is that an intentionally designed medium of exchange doesn’t depend upon a naturally arising economy in order to grant it value. The economy already exists, it just has to choose to move over to the new currency; or more accurately, individual economic actors must choose to participate in Bitcoin.

203

Bitcoin acts as a money because it is a money.

Bitcoin is valued for the inherent properties it has.

You are essentially arguing that all of the market participants in Bitcoin don’t actually value Bitcoin, and that the entire market is a figment of our imagination because Mises theorem says so.

Just stop for a moment and look at what you are saying. You are not making logical sense.

204

I agree with this statement. If every government in the world were to suddenly disappear and commodity money became the natural money again, then cryptographic banknotes would destroy Bitcoin immediately. But that isn’t the world that we live in. Gold backed Internet currencies have been attempted repeatedly, and face overt and covert resistance from governments the world around. It’s in this environment that Bitcoin can come to exist.

205

You can’t have secure gold backed bank notes. Such a notion is a physical impossiblity that violates the physical laws of the universe.

Since it is impossible to send gold over a wire, it is impossible to physically tie gold to an electronic bank note.

But let’s say for a moment that in theory this would be possible.

If after you created bank notes that were tied to gold, why would it be necessary to keep the gold around in bank vaults?

If no new currency could ever be created that was not originally backed by newly mined gold, then what purpose would keeping the gold around serve?

Clearly the money could never be debased, so keeping the physical gold around would be entirely pointless.

Obviously this is the problem that Bitcoin has solved!

206

I disagree. First of all, Bitcoin is not the most liquid good, so it’s not money.

Since you’re so familiar with Austrian monetary theory, you will know that monies are inherently monopolistic… they eliminate one another until there is just one, universal medium of exchange (or two or three, as we have seen through a long course of history that gold, silver and copper have tended to co-circulate but we can explain how and why this is the case since they don’t all serve exactly the same market and because their relative values change from time to time and place to place).

There is only one good which is money. In the United States and several other dollarized countries it is the USD. For many central banks, oil producers and many oil importers, it is the USD. Another point that you will be familiar with from Austrian monetary theory is that we live in a bizarro world where there are hundreds of “competing” currencies. Such a state of affairs could not exist in a marketplace of money production. The dominant money would quickly wipe out all other forms of money. The idea that Bitcoin is “a money” presupposes the false idea that there could be many, territorial or market-specific monies requiring conversion from one to another in a marketplace of money production. There could and likely would be local monies but these would not be money per se. Money per se must be a single good, universally accepted in payment. This is an inevitable consequence of the role of money as a medium of exchange.

Second, Hoppe’s definition is not directed at proving that experimental monies, such as Bitcoin, are impossible. Clearly, they are not; cf Ithaca Hours, LETS, etc. Rather, Hoppe is refuting the vague notion promulgated by central bank apologists that money arises as the result of some kind of “general agreement” to begin using a particular good (or non-good in the case of slips of paper) as money. Because the general agreement (in this ad hoc theory of money) is the deciding factor in selecting which good is to be money, there is no reason why money has to be a good at all, it can be a non-good (slips of paper). Hoppe alludes to how he will refute this idea in the opening of the lecture because it is probably the most pervasive and mischievous myth about money in the popular consciousness. Most Bitcoin apologists assume the truth of this myth to one degree or another.

Clayton -

207

I shouldn’t have to point out the fallacy here, but I will. The US FRN is not universally accepted as payment. There is not, nor has there ever been, a single universally accepted medium of exchange.

208

True, but this happens because of popular misconceptions about money and gold, specifically, not despite them. Government is a symptom of popular opinion (popular ideas and values, to be more exact). Hence, the only obstacle to sound money is public opinion. This is one of the primary reasons LvMI exists, to educate people about the facts of sound money. Just four years ago, I couldn’t have argued my way out of a wet paper bag on issues of monetary theory. I had no idea (and little care) how our monetary system worked. LvMI changed all that in just a matter of a couple years. I don’t think everyone needs to become experts on monetary theory but we do need a core of academic theorists and a cadre of popularists surrounding them to “get the theory down into layman’s terms” and that’s one of the things these forums accomplish.

Clayton -

209

Within its domain, it is as universally accepted as anything can be. This is true of each national fiat currency, respectively. Please reference the bit about how hundreds of competing currencies is “bizarro” and such a state of affairs cannot obtain in a marketplace of money production.

Clayton -

210

The regression theorem does apply and this is precisely what it says - today’s money has value because it was exchanged one way or another for yesterday’s money.

Also note that there are exception clauses to the regression theorem - it clearly did not apply to money in Soviet Russia because there basically wasn’t any. But then, there were healthy black markets and those must have conformed to the regression theorem because there was no central power who could coordinate people’s actions through the threat of force or otherwise.

Clayton -

211

Well, all $20M or so of it could indeed be a figment of your imagination… $20M for Paris Hilton is a long weekend snorting too much coke, drinking too much top-shelf liquor, thrashing too many penthouse suites, renting too many hookers and commissioning too many entertainers for private performances. So, yeah, Bitcoin’s market cap is microscopic.

But that’s a strawman, anyway. I’ve not asserted Bitcoin is a figment of anyone’s imagination. In fact, quite the opposite, I tentatively accept the idea that Bitcoin is backed by its black-market uses (including tax evasion). So, it’s value is real but I think it will always be haunted by malicious manipulation because there is no way to defend against it. Even if its market cap were 1000x larger ($20B), any central bank could manipulate it without even trying and many private entities could manipulate it, as well.

If Bitcoin does continue to grow, my one prediction is that the Bitcoin market has seen nothing in its prior “bubbles” and “crashes” compared to what lies in store for it.

Clayton -

212

Yeah, that was great. I laughed till I cried! The governments’ around the world oppose a gold standard because of public opinion! Priceless!

213

This is not true. There are a number of situations wherein a US FRN is not accepted as payment even within the United States. Notablely, the Internet in general is one such place, even when both parties to the transaction live exclusively within the United States. A dollar substitute, such as credit extended by Visa or a debit at Paypal, is not a US FRN. Credit is credit, and cash is cash. There is no way to (safely) use cash in an online transaction, even if both parties were willing to wait for the post office to deliver an evelope with cash in it. Likewise, you cannot donate to any public official’s reelection campaign, under campaign financing discosure laws, without your identity tied to it; so you can’t even donate to a politcal campaign in person, because they simply won’t accept it. Practially speaking, legal tender laws have little real force beyond the payment of taxes; because you cannot force a business to accept cash against their own policies. Granted, in most cases refusing to accept cash would be stupid for any business, but not all of them. I’ve been in gun shops that are openly hostile to cash purchases, for example; presumedly for reasons similar to the campaign finance law example.

To summerize; credit is not the same as actual currency, even though they function very similar in a highly liquid market.

214

Once again you avoid the gap in your arguments. The number of participants in the Bitcoin economy is unknown, but some estimates have been made. The results of a survey I conducted in September put the number to about 10.000 people. The number of bitcoin nodes (metric used by other people) seems to correspond to this number too. Also, as I said previously, the transaction volume has been increasing.

This is comparable to LETS systems.

You arbitrarily ex cathedera proclaim that “it’s not enough”, but do not provide backing for your position. Your position is arbitrary.

Furthermore, other sources, such as http://en.wikipedia.org/wiki/Medium_of_exchange, do not agree with your definition. In fact, your definition makes medium of exchange indistinguishable from money, thereby becoming misleading.

Again, there is a gap in your argument. I can revert it and claim that a bunch of guys arguing that Bitcoin is not money does not accept a correct opinion.

Since I do not recall calling Bitcoin money, you are blabbering nonsense again. Since I don’t think you could be that unintelligent, I now lean towards the position that you’re a fraud. Your interest in the debate is not genuine, you do not care about having correct arguments, you just want to appeal to emotions. In other words, you’re a troll.

215

This is simply incorrect if you are speaking of money in its broadest sense (what Austrians call “True Money Supply”). No one defines “money” as M0 cash & coin.

Clayton -

216

And this is why Bitcoin doesn’t violate the regression theorem, because it’s history of value extends beyond it’s own inception. Because there were people willing to take the risk because the believed that Bitcoin had great potential as a currency, and chose to exchange either their own fiat currencies for it, or electricly supported processing power. Specificly, the first public bitcoin transaction involved a delivered pizza. An early bitcoin miner had accumulated a large sum of bitcoins, for which there was no established exchange rate, and posted that he would 10K bitcoins to the first guy willing to buy him a pizza delivered. Even today after the peak and fall of bitcoin’s dollar value, that’s a $40K pizza. The regression of bitcoin’s value can be traced back to these two people, who were willing to risk the value of a pizza and the unknown future exchange value of Bitcoin to do this deal, because they both believed in the system and knew that someone would have to be first.

From what I understand, the black market money in Soviet Russia was US FRN, which don’t violate regression theorm either even though they have no intrinsic (which does not really exist) value or any fixed commodity backing.

217

Well, that’s good news that you don’t claim that Bitcoin has no uses. That puts you ahead of Smiling Dave.

This has been suggested, but the mechanism for this is unknown. Since malicious third parties cannot affect the production of Bitcoins (at least, not upwards), the only thing they can do is open market operations. In the worst case, they will make the price volatile (which it already is). Other than that, they will just make professional Bitcoin speculators filthy rich and not affect the casual Bitcoin user.

The price of Bitcoin already rose from zero, which means infinite volatility. Once again, this alone does not make it possible to “attack” Bitcoin. On the contrary, from historical data we know that the users of Bitcoin do not mind volatility. The only thing an attacker would cause is that he’d become poorer.

By the way, there are papers that analyse what a government can do in such a case, for example Woodford (2000) or Tanaka (1996). They however assume that the new virtual money would have an inflationary effect on the money supply, while Bitcoin does exactly the opposite.

218

Really? Do you honestly think that no one defines money as cash and coin? For whom does the M0 metric exist for, then? I agree that a debit can rationally be considered to be part of the money supply, but if Paypal declares bankruptcy today all that ‘money’ ceases to exist. This is because a debit at any financial institution is credit extended from the customers to the bank, in the (generally rational) expectation of service. But what happens when such an expectation is no longer rational? There is a reason that ‘cash is king’.

219

Time to spell out what people don’t seem to grasp.

Pete thinks 10,000 people owning a bitcoin makes it a medium of exchange. Sorry Charlie, and no way Jose.

And why not? Let’s go back to first principles.

A man works hard and produces something, say he’s a carpenter. He wants to buy all kinds of stuff in exchange for the chest of drawers he has built. There is a mortgage to pay, food to buy, cable TV bills, dozens and dozens of things he needs and stores he will have to go to.

Along comes Pete and offers to buy his work for 30 bitcoins.

“What the heck can I do with this garbage?” says the carpenter?

“Plenty,” says Pete. “If you go to the bitcoin convention we had a month ago, you could have bought a beer. Even now, there is a store in NYC that will sell you a pizza, and hundreds of tiny online stores you never heard of and have no reason to trust that will sell you flawed software and crappy trinkets. There are 10,000 people all over the world who will buy your bitcoin at widely fluctuating prices, maybe. We’re talking about the most versatile medium of exchange in the history of the world.”

What will the carpenter say, if he is polite? “I don’t need that right now, thank you very much. Come back when I can buy anything with it, from anybody. Or at least from enough people that I can buy whatever I want. Until then it’s not a medium of exchange, but a fraud. Have a good day.”

Generally accepted. Widely used. Write it down.

The above scenario also refutes Mike’s claim that bitcoin has already done what Mises claimed was impossible, to wit, become money. No. It hasn’t done anything. It’s current situation is not one of being money.

220

As for Jon Matonis refreencing Mike’s work, so what?

But more than that, he actually references li’l old me! Look at his post of November 14, 2011, where he links to “detractors of bitcoin”. And sure enough, there is one guy detracting bitcoins in that link, Smiling Dave. We have hit the big time.