most people would consider your use of the term “commodity” to refer to raw materials, so that explains the confusion. What form was the steel in before it was made into an i-beam? “Commodity form”?
Global annual (2010) silver production is 23,000 tonnes. The one for gold is 2,300 tonnes (peaked in 2001 at 2,600 tonnes).
Most important part of my critique was raising issues of software implementation in general not specifically bitcoin so I don’t see how my knowledge or lack thereof about bitcoin has anything to do with it. I wanted to point out that most fans of bitcoin (including you) choose to trust in algorithms (blueprints, templates - you get it) which are probably fine (don’t know, don’t care and thus I did not even attempt to criticise them) but somehow don’t adress or flat out ignore issues inherent in software development (quality of code, complexity of implementation etc) that are just as important in real world especially considering we are talking about money system here. I fail to see how novelty of approach changes this and necessity of storing bitcoins in something physical (usually bits of data on hard disk), so issue of trustworthy repository is not unique to gold.
Silver is consumed by industry, nearly all the gold ever mined can still be accounted for. 23K tonnes of silver production isn’t even enough to keep up with current silver demand. But don’t take my word for it, feel free to look it up.
The ‘issues’ inherent in software development that you cite are not relevent to the bitcoin monetary system or practical application of the network protocol, but only to the subset of users that depend upon that particular codeset. There are already several different implimentations of the protocol, so if one is flawed that doesn’t imply that users of another implimentation are at risk; in the same manner that just because BoA is insolvent doesn’t mean that deposits at Farmers’ Bank & Trust are at risk. Flaws have been found in clients, even exploited to a limited degree before being fixed. In practice, however, even those flaws have been of limited scope.
You fail only because you choose not to see. Read the whitepaper, if you honestly desire to see. Bitcoins don’t reside on any storage medium. To be precise, they don’t even exist even as a digital artifact (such as a file). Bitcoins are only a unit, and only transactions exist that describe addresses associated with integer volumes of that unit. The secret that permits the owner to spend bitcoins are the private keys that can prove ownership (to the rest of the network) of particular addresses. Yes, your wallet.dat file (and thus your private keys) can be stolen. But if they are encrypted, and you know that they have been stolen, you can recover another backup of your encrypted wallet.dat file and send them to yourself far faster than modern encryption can be cracked. Thus, your personal security is dependent upon youself, but the network as a whole is not dependent upon your security. The blockchain isn’t, and doesn’t need to be, encrypted at all; because my security is not dependent upon others. This is not true with paypal or visa while online, because your identity is the secret, and you have to share that secret with businesses online in order to transact; thus you become dependent upon their security model in addition to your own. Bitcoin never shares it’s secret, it uses cryptographic signing techniques to permit the owner of an address to sign his transactions with his private key in such a manner that other nodes can verify that it’s astronomicly unlikely that whomever sent the transaction didn’t posses the proper private key.
What am I supposed to be looking up? The “objective” (“true”?) values of gold and silver, as opposed to the “fake” ones reflected in the market?
Relative volumes of elemental stores, of course. It took me two minutes with google-fu to find this, and I will readily admit it’s not a terriblely good reference, and a bit dated; but it is a reference.
"
-
According to the World Gold Council (and others) there are between 4-5 billion
ounces of gold remaining in the world http://www.gold.
org/discover/knowledge/faqs/index.html. I say ‘remaining’ somewhat unnecessarily,
as it is estimated that 95% of all the gold mined in the history of the world is still
around. Quite simply, gold is not used up, rather, it is preserved. This also use to
be the case with silver, but times have changed dramatically since WWII. -
According to the Silver Institute and GMS, there are only 671 million ounces left of
identifiable silver bullion left in the world http://www.silverinstitute.
org/publications/index.php (World Silver Survey 2004). "
I am persuaded by the argument that Bitcoin can act as a money backed by “illegal goods and services”. If pot-dealers and other grey/black-market vendors adopt Bitcoin, it could persist as a kind of “money for the black market”, especially as dollars and other fiat monies come under tighter and tighter control. We’re on the brink of a society where literally every single transaction no matter how small is digitally recorded, tracked and data-mined. There is no sign that the authorities will be letting up any time soon on the financial controls agenda or the drug war agenda or any of their other follies.
However, Bitcoin will always be extremely volatile precisely because its value is completely speculative and dependent on the expected future political climate. If holders of Bitcoin begin to anticipate relaxed financial controls on legal money and the black-market, the value could collapse.
Furthermore, the deflationary design of Bitcoin is fatal - it is essentially just another Ponzi scheme. The June 2011 bubble and crash will not be the last. With its microscopic market-cap, Bitcoin is an easy target for skilled market manipulators.
This leads me to my final thought. Bitcoin is actually based on Nick Szabo’s idea that he termed bitgold. Szabo’s bitgold works differently than Bitcoin in that there is no (supposedly) pre-determined limit to the number of bitgold units. An enterprising individual who were to re-implement the basic idea of Bitcoin with Szabo’s original setup (minus the stuff where he tries to arbitrage the units of bitgold based on their age) might find success as a more stable replacement for Bitcoin. Such a currency would still suffer from being at the mercy of the future political climate and of market manipulations.
Clayton -
You have to use some codeset if you want to use bitcoin. Thus my point stands. There is no guarantee that that there are no flaws in the client I’m currently using and that they will not be exploited and I will not be able to use bitcoins or worse. It is software. It happens all the time to everyone. That is why I have hard time trusting software to implement my monetary system. Indeed it is good that there are multiple competing implementations, but it does not change fundamental issue.
Thanks for granting me that point.
Hey, just like with gold!
Remember that you don’t have to use them at all if you so choose because there is world outside online which is actually huge plus in favor of gold in terms of security for those that prefer it. I would argue that it is way beyond most people abilities to secure bitcoin properly which calls for a thirdparty to provide such service, which in turn will make your argument apply is some way to bitcoin too (this is simply effect of division of labor). To compare apples to apples you need to compare money substitutes security (you have multiple competing “implementations” just like bitcoin clients) and gold security itself (possibility of getting genuine gold from other minerals, forgery, storage security) with your own or outsourced security (encryption, backups etc), bitcoin client security (my whole argument on development issues was about this) and bitcoin standard security (which granted is supposed to be foolproof). Then you have to remember about trade off between security and convenience. If you don’t see this similarly to the way I see it then I’m afraid we will argue past each other.
So what? The quantity of tungsten bullion in storage (“volume of elemental store”) is even smaller than the one for silver. Should this make it more “valuable” than silver and infinitely more valuable than gold?
The black market is a small portion of the bitcoin economy, but I will concede that bitcoin has little comparative advantage against a commodity backed digital currency in a legal climate that isn’t hostile to such things. If Ron Paul’s bill to legalize competitive currencies were to ever pass, the value of a bitcoin is likely to crash, but that is not the world that we live in.
This may or may not be so. Why do you believe that the deflationary nature of bitcoin is fatal?
It’s been tried, and the result has been a number of slightly different crypto-currencies with a stable value of nominally zero. The hard, mathmatically deterministic limit of the monetary base is an important factor in the early success of Bitcoin, for lacking a commodity backing or support of a stable and trustworthy institution (a walmart-backed or apple-backed digital currency could likely eat bitcoin’s lunch and more) the early adopters are those that grant it it’s initial value via speculation that it can work as a monetary system. Lacking that security of a limited monetary base, and the fact that new currencies are in direct compatition with bitcoin itself, there have proven to be few speculators willing to take the additional risk that the other currencies will fail. Bitcoin is risky enough.
Indeed, very similar to gold in this respect, and many others. That’s actually the point. Digital gold-like currency with the additional benefit of the ability to send precise amounts of funds to anyone in the world as fast as an email.
That’s fine, bitcoin doesn’t exist to compete with hard currencies (or any currencies) in meatspace, even though I think that it will eventually do exactly that. There are huge costs external to the transaction itself inherent to trade in meatspace that online transactions often avoid.
This is true enough for the average Joe at the present time, and likely for the forseeable future, this is true. Yet, my great-grandaunt learned to use GNU/Linux (peanut, specifically) as her first personal computer about 8 years ago, at 81 years old. Don’t assume that Joe Six-Pack is unable to learn new tricks if he decides it’s to his advantage to do so.
There is always a loss of convenience to improved security, and bitcoin is no different in this respect. Improving my own security requires me to understand what the risks are, and react to them as far as I am willing to go with that. Ultimately, my ‘savings’ account is an wallet.dat that is independent of my working wallet.dat that is both encrypted and resides on three thumbdrives in three relatively secure locations. This is not a conveint system, but it is as secure as I can make it, and far more secure for far less nominal costs than would be possible with gold of the same market value.
I think that you are arguing against something that you believe that I have claimed that I have not. I do not contest that gold’s market value is higher than silver’s, nor do I contest that is the way it should be. To do so would not only be arrogant, it would be futile. What I said was that silver’s commodity value (i.e. it’s usefulness as a raw material versus it’s scarcity, with consideration to alternative materials for similar desired uses; what is commonly but inaccurately referred to as ‘intrinsic value’) is higher than gold’s because it’s both essential in a great many industrial uses (for which recycling is economicly impractical) and of a lower available volume. Gold’s market value, both now at it’s all time nominal highs and a decade ago floating around $300 per ounce, are largely due to gold’s value as a store of value; thus it’s monetary value dominates the market. Likewise, silver is a historical money, and thus it’s market value is reflective of it’s sum total of demands in the market; most of which happens to be industry and neither jewelry nor bullion.
Moonshadow, your problem is that gold still has some (so called) commodity value (however small you claim it may be, although I wouldn’t think that the $ value of gold used in production is that much smaller than that of silver), whereas bitcoin doesn’t have any (zero). But – as it has been repeated here ad nauseum – an even bigger problem of yours is your inability to understand that gold’s monetary value (as it exists today) could only emerge through gold’s value as a commodity in the past (Mises’ Regression Theorem). Humans seem to have this weird propensity towards doubting (not valuing) exclamations like: “Here, this is money!” – that is, unless they’re being backed by thugs with guns.
I have no such problem. I understand regression theorem well enough, and bitcoin does not violate it. I have never claimed that bitcoin is ‘money’ in it’s proper sense. Bitcoin is a currency, and there is a difference. In a world that was not hostile towards hard currencies backed by real money, Bitcoin would never have come to be for it’s reason to exist would never have come to be. Again, we don’t live in that world and until we do Bitcoin has a place among monetary systems that no other system can replicate at nearly the cost.
OK. To each their own. Values are only subjective, after all.
They were examples to show that it is possible for the consumer to not have to pay for a service. They did not fail. As you have now admitted, it is theoretically possible for this to happen. It is not up to me to show if it is profitable for banks to behave this way. Some entrepreur may find a way. Maybe it would succeed in the long term, and maybe it wouldn’t. I noticed how you ignored my example: “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.”
In that case, it would be the bank taking the cost, but only to encourage more people to use their bank for savings accounts. This could be a successful method for banks. “Save with us, and we will give you a discount on your checking account!” Who knows if it would be profitable, but we don’t know what an innovative bank might come up with.
And it is likely banks probably would not charge for checking accounts. See here. Granted, this is being done in the current system, but it does show that consumers are not very interested in paying monthly charges to use a checking account. Innovative banks may find a way to make it profitable in a full reserve banking system.
It is true that many services overcommit, and every so often everyone does actually try to use all the resources. Colleges admit more students than they expect to actually attend. Some unversities have to rent spaces at hotels for students to stay. Boston University is one such school. It can house thousands of students in many high rise buildings across its campus, yet it still rents out rooms at the Hyatt in Cambridge. Every so often everyone shows up for the flight on an airplane, and the airline has to provide tickets or credit the consumers because of this practice.
And banks have runs.
I responding to a specific point you made in one of your posts. Now you no longer need to wonder.
“a walmart-backed or apple-backed digital currency could likely eat bitcoin’s lunch and more”
Could someone explain this further, or provide links to references? How does this work mechanically? What does it mean for such a corporation to “back” such a currency?
I am interested particularly in envisioning a future AnCap world… is it imagined that such a currency would be competitive with bank-issued currencies, for example? What would be the tradeoffs (understanding ahead of time that we’re speculating on what would happen in a free market, rather than philosophizing about what is right and wrong).
A large enough of an institution can back a currency by offering a pledge to buy back any and all of the currency in another currency if the market value were to drop below a specified limit, creating an artificial price floor on the value of the currency for as long as the market at large believes that said institution could live up to the pledge. With a crypto-currency similar to bitcoin, wherein the exact amount of the monetary base can be known at any point independently of the institution (thus functionally auditing the whole of the currency at will) and have a rational estimate of the institution’s capital, such a currency could work well, but the total market cap of the currency could never much exceed the known market cap of the institution that supports it. Yet, as has already been pointed out, Bitcoin’s market cap is still quite small as compared to Wal-Mart or Apple.
In a full-reserve world, yes, for the institution would functionally be a full reserve bank with the additional advantage of not requiring profits from the currency itself in order to exist, at least in the case of institutions that are not primarily financial institutions nor dependent upon them for their core business. Both Wal-Mart and Apple fit that case model. General Electric used to, but is now more of a financial instituton than a manufacturing company. Ford can do it easily, and functionally does with Ford Credit, but won’t because credit in a fractional reserve system is more profitable. If Apple or Wal-Mart were to establish such a currency, the operations of the currency would likely be a break even taken alone, even though it might encourage customer loyalty in a way similar to loyalty discount cards presently do. So long as the general public continues to have faith in the fractional reserve fiat currency systems that presently exist, and corporations continue to be more than willing to appease governments, the odds of such a thing occuring are vanishingly small.