Read the comments on Mt. Gox, they’re hilarious. The first few are all optimistic and like “Good job! You guys are handling this so well!” but then you get down towards the bottom of the page and it starts to turn nasty. “I WANT OUT NOW!! HOW MANY F-ING TIMES DO I HAVE TO REPEAT I WANT OUT OUT OUT!!!”
Then you got the “NO ROLLBACK” people who probably bought up a bunch of cheap Bitcoins right at the tail end of the crash. It’s just a gigantic cluster.
Clayton -
Izzy, good job finding that thread. I stand by what I said there.
Clayton, Danny Sanchez summed it up nicely; may as well quote him:
If an Austrian economist ever says that any good (including money) has “intrinsic value”, they are speaking loosely. What they mean is that it has significant use value (as opposed to only significant exchange value, as is the case with fiat money). The term “intrinsic value” is widely associated with the fallacious theory of value of classical political economy, the refutation of which was the crucible out of which modern economics was forged. The everyday definition of the word “intrinsic” naturally leads to that association. Therefore, it is a most inconvenient term.
And I pointed out that Rothbard and Mark Tornton use the phrase in that sense. And that Mises, though he did not use that very phrase, recognized the concept. It’s all in that thread Izzy linked to.
Nielsio,
You hereby refute your own arguments. You admit that “use” is contextual and thereby contradict your claim that Bitcoin and gold are qualitatively different. Furthermore, you do not actually use Windows in the economic sense. You use your computer. Merged together, the computer becomes more useful. Without the computer, Windows is unusable. Conversely, without an operating system, a computer is a clumsy paperweight.
This refutes your argument that goods only have value if they are consumed. Rothbard says himself in MES that some capital goods are created solely for the purpose of producing other consumption goods, and cannot be consumed directly. The picture in your video with exchanges ending in consumption is therefore erroneous.
Hi all (first post here).
I also recently wrote a blog post on Bitcoin, referencing Suede’s post above. Unfortunately I’d not discovered this thread and a lot of what I said seems to have already been pointed out here.
Anyway I thought it might be of interest to anyone interseted in this topic. Summary: Bitcoin does have a number of interesting unique properties, but as a currency it has a fatally flawed design.
http://fetchezlavache.millerchip.net/post/12642128191/bitcoin
Nice article.
Hi Adam,
Nice article. Have you seen my video series on Bitcoin? http://nielsio.tumblr.com/post/12407460182/bitcoin-from-an-austrian-perspective
Isn’t bitcoin just another fiat currency?
There’s no commodity that this currency stands for, as with gold or gold certificates. Its sole benefit is that it can’t be inflated or stolen and isn’t controlled by a state.
Why not simply go back to a commodity money. Far better than relying on the bitcoin central control and sponsor, whom is the central weakness here.
Found a money on commodity and there’s no chance of broken algorithms and no trust-point like the guy who invented it and ostensibly holds the keys to the kingdom.
Bitcoin is a commodity: it is fungible and its price is determined by the interplay of supply and demand. Bitcoin is a replacement for the banking system, something which physical commodities like gold cannot do. Since nowadays most transactions are conducted electronically rather than with physical exchange of the specie, not having the ability to do so natively is a showstopper.
The supply of gold (or any physical commodity for that matter), while more stable than the supply of fiat, is still prone to large shocks. Significant proportion of the matter and energy in the universe can be converted into gold, it’s just too expensive at the current prices. It has been demonstrated that gold can be synthesised in particle accelerators and nuclear reactors. How do you think gold came into existence? It is the result of nuclear reactions occuring in stars.
Bitcoin is also less prone to expansion of money supply through fractional reserve banking than gold. FRB with gold is almost inevitable, because for most uses, such as bank notes and demand deposits, it requires the inception of money substitutes. Thes have maintenance costs, and these need to be covered somehow. Either the issuer charges a fee for the maintenance (e.g. demurrage), or they lend the money out and collect interest (FRB). There is no third option. Since Bitcoin is virtual, it can be transacted in any form and does not require substitutes. Without substitutes => no expansion of the money supply.
Also, due to its open source nature, Bitcoin promotes innovation. Multisigning, conditional escrow, offline private key and transactions are just some of the ones I think are the most interesting.
Stable money supply + replacement of a crappy banking system + innovation => value.
How do you quote on this site? Meh I’ll just do it manually…
Anenome: "Far better than relying on the bitcoin central control and sponsor, whom is the central weakness here.
Found a money on commodity and there’s no chance of broken algorithms and no trust-point like the guy who invented it and ostensibly holds the keys to the kingdom."
You should take the time to understand it properly before you take such a critical tone. Bitcoin has neitehr centralised control (it is decentralised), nor a sponsor (it is run by volunteers for profit in bitoin). There is nobody that holds the keys to the kingdom, the application code is open source and has been published for all to inspect.
If you want to attack it, attack it on its true flaws. The points you mentioned are actually some of its strengths. Along with the fact that it enables instant transactions between individuals without a third party, and that it solves the double spending problem.
@Nielsio Actually now you mention it I think I had in the past, before I had done any reading about Economics. I remember disagreeing with you when I was a Bitcoin fanboy. 
I’ll take the time to watch them again when I get a spare moment. Your V for Voluntary stuff looks interesting too.
@Peter Sidor
There is a third option: Full reserve banking. There is no expansion of the money supply. There is also no reason why banks would necessarily have to charge for storing money in a checking account. Some might, some might not. There may be other options that more entrepreneurial banks would come up with if given the chance.
Assuming you meant me, I’m not Sidor but that’s just a side note, feel free to call me whatever you want.
Full reserve banking is the option 1 that I mentioned (maintenance fees = demurrage). Someone has to pay them. If it’s not the holders or transaction processors, then the bank needs to charge someone else. They wont do it from the goodness of their hearts. Also, this option makes bearer-instruments (such as bank notes) less likely because there’s no way to charge the holder since the bank does not know who he is in the first place. This leads to centralisation of the banking system.
Futhermore, I find it unlikely that FRB would be outlawed even in anarchocapitalism (much less so in statism). I find the arguments of Block/Hoppe in Against Fiduciary Media unsatisfactory. Block seems to favour outlawing all short positions (I might be mistaken here, I just vaguely recall noticing something like this somewhere) and that’s simply impossible to implement.
With purely virtual decentralised currencies like Bitcoin, all these issues are gone and there’s no reason to debate them. Debt instruments denominated in Bitcoin are technologically incompatible with it, so anyone can trivially distingiush between them and has no reason to accept them instead of a native Bitcoin form.
My mistake, there is another user here called Peter Sidor and for some reason I read your name that way.
Of course someone has to pay the cost. My point is that it may not necessarily be the user that is charged. Look at gmail and other free email services or search engines. Users are not charged a fee to use these services, but of course the cost is paid by someone - advertisers in this case. I did not want to speculate on how a bank might find a way shift the cost. Perhaps they might provide a discount to clients who have savings accounts. In other words, have a savings account with $100 in it and you can have $50 in your checking account at no cost. Or whatever. I’m just not convinced that banks must necessarily charge the user of a checking account to store his money.
Perhaps FRB would not be outlawed, but without a safety net, these banks would eventually go out of business.
I’m not about to debate the pros and cons of bitcoin, as it has been beaten to death in other threads.
You are correct that there is no praxeological necessity for the bearer to pay the fees. But in the long term, due to pressure from competition, this can only be done profitably if someone involved in the transaction is the one paying the cost. Google search engine, through advertising, brings together searchers and want-to-be-founds (sellers and buyers), similarly as banking brings together lenders and borrowers. While lending does not require FRB per se, FRB makes it more profitable. Gmail, like practically all digital service providers, overcommit resources (bandwith, data storage, …) because most of the time, most customers leave them idle. If someone started using all that the provider claims to provide simultaneously, the whole system would collapse. You can crossfinance from other divisions (like Microsoft’s Office and Windows are financing the media & gaming divisions), but this won’t last forever.
So the examples are a fail. The question is not whether it’s theoretically possible, but whether this can be done profitably in face of competition.
While there is a certain risk, there is no necessity here. Overcommitting is conducted by all kinds of service providers, it does not even require internet. Insurance, hospitals, maintenance contracts. I don’t see either the Austrians rambling against them, nor do I see any mass failures due to overcommitting. Besides, banks can impose withdrawal limits in their contracts. They do it even now, in the central bank + fiat system.
I wonder why then you are posting in a thread titled “How To Use Bitcoin – The Most Important Creation In The History Of Man”.
So the guy with the keys to kingdom is the one that cracks its security then (as has already happened at least once to my knowledge). Try cracking the security on a hunk of gold.
It’s still a fiat currency. Its sole merit seems to be that it’s a fiat currency that a government can’t inflate. I’ll admit, that’s a nice feature. But it’s still a fiat currency.
You might argue that fiat is okay as long as one can’t inflate. But as long as you have a system reliant upon security, you have a weakness that will eventually fall. I don’t know if this currency has a migration plan for how it could update its security, but I know that today’s toughest security measures will likely prove laughable a generation or two from now, don’t you think?
It certainly is not. It’s intended to be a commodity, but it’s a fiat currency with no backing in material wealth, except unless one should actually buy that bitcoin. But in and of itself it has no value, just like the paper a dollar is printed on.
Not so. You don’t lose the ability to use currency just because you have a commodity-based banking system. That is, you don’t suddenly have to start paying for things in gold. You go back to gold certificates and the like, which is the origin of modern paper money in the first place.
Again, this is pure strawman on your part and not well thought through. A commodity-backed currency would allow electronic transactions the same as now. To even raise this objection means you don’t have much of a clue of what a currency really is.
And for anyone who knows the physics of the process, this is a silly objection. It will never be economical to use fusion to turn lead into gold, much less the other elements. To do so would cost far more than what you would obtain. What’s more, a commodity-based transaction can use ANY commodity, gold is just the most typically convenient one. Humans have used silver, copper, wood, diamonds, etc. A better line of argument would be to say that the supply of gold isn’t static. That’s sort of true, as we continue to mine it, but largely irrelevent. The recent price shocks are largely due to investor panic. If Bitcoin were the world’s safest commodity right now rather than gold, it too would have experienced the same price shock in gold’s place.
Gold and fractional reserve are separate issues entirely. You could just as easily create a fractional reserve using bitcoins. Again, I’m not sure you realize how fractional reserve works to talk this way about it.
You don’t think someone can create an IOU for a bitcoin, a “bitcoin certificate”? That would be exactly how dollars got their start. Again, I think you’re not thinking this through.
Perhaps it will be useful in the future and I’m just not seeing it, but it’s definitely not needed. Just because our own modern system has gone off track because of a bad financial philosophy doesn’t mean that a so-called virtual currency that is itself a fiat currency is going to replace it.
You’re lone selling point can’t merely be that the bitcoin cannot be artificially inflated. Neither can gold and all the other commodities out there.
I’ll give you that it’s a step forward compared to all the inflateable fiat currencies around us–which is a horror show. But I’m not convinced that this is the way forward either.
This is nonsense. Anyone can “crack security on a hunk of gold” if they have enough firepower. Also, once the price of synthesising gold falls below the its market price, gold is screwed.
Bitcoin is a commodity.
Bitcoin also features lower transaction costs, higher resistance to FRB and other government interference (e.g. confiscation), and higher innovation. Gold has none of this.
All physical matter can be converted into other matter. Significant proportion of all the matter and energy in universe can be converted into gold, for example. To build your monetary system relying on this not being profitable is short sighted.
Bitcoin cannot be inflated beyond the originally designed limit of 21 million against the wishes of tis users, even if its security is compromised, no more than an attacker can increase the number of days in week from 7 to 8.
Bitcoin can proactively switch to different encryption and hashing algorithms, before potential cryptographic weaknesses escalate. Gold cannot do this.
Bitcoin is fungible, its production requires the use of scarce resources, and its price is determined by the interplay of demand and supply. Fiat money requires a government force. Bitcoin is a commodity, not fiat money.
You miss my point. My point is that this is not gold, this is an industry based on gold.
If you want to conduct electronic transaction with gold, this requires the creation of gold substitutes, a whole new industry that has its costs, and is necessary to support this. Just like you claim that “Bitcoin has no value”, I retort that gold has no banking. Banking industry build upon gold is not gold.
It is short sighted to argue this would never be economical. Equally short sighted is to build a monetary system relying on this.
FRB with Bitcoin does not affect money supply. Please consult the Austrian section of the corrensponding wiki entry I wrote: https://en.bitcoin.it/wiki/Fractional_Reserve_Banking_and_Bitcoin
They would not circulate, because they do not decrease transaction costs. See aforementioned wiki entry.
Gold cannot fix the problems of the banking industry nor is it a good tool against the government. If you’re not seeing it, that’s acceptable, but lack of imagination is not a replacment for an argument.
I also listed resistance to confiscation, FRB, greater innovation and most importantly, decrease of transaction costs. I think the last one has the best chance of being a mass driver in Bitcoin adoption.
The advantages of Bitcoin only become apparent through a thoroug analysis. I spent months reading books and analysing it.
This is the first time I’m hearing this. What specifically are you referring to? Are you sure your portrayal of the situation is correct?
Historically people did not trade gold directly, so it is hard to speak in terms of transaction costs with gold. It was done mostly using money substitutes. They have low transaction cost. Innovation has not been a problem in money substitutes business too - paypal, debit cards, you name it. I don’t see how gold is any more susceptible to confiscation, especially considering it is possible, from government perspective, to know exactly how much bitcoins you personally have, which is hard, if not impossible to do, for gold. In the end your bitcoins rest on a hard drive somewhere and this hard disk is as easy to steal as gold. Am I missing something? I agree on FRB.
As in - iron to gold convertion? It may very well be shortsighted in the long run. But how shortsighted is to put faith in correct implementation of software? IMHO this is much more down-to-earth worry. Each change in codebase form the very begininng is potential bug and bugs happen even to the best of programmers out there.
Physical commodities don’t need this. Also this is potential backdoor.