The question of the thread is, if Bitcoin is the currency of the future. As I said and it also seems you admit you cannot use it to exchange mass amounts of goods currently, because it would stop the convenience of being anonymous and therefore Bitcoin users would be taxable and tangible by government’s justice. So under the current regime it will never be the currency of the future, as long as there is a government who claims the monopoly for money Bitcoin better stays small and hidden and forms a special black market for bits and very low amounts of goods/services!
And in the other scenario, in which the market can decide itself which money it wants, the facts speak for commodities because then you don’t need decentralization and anonymity any more.
Finally my answer to the question of the OP only can be: It is extremely unlikely.
Yes it would be up to the institution I deposit with to protect my privacy and offer the means to anonymous transactions. And I agree with the point that BTC’s have made this feature far more convenient.
The issue is that it’s a feature that, I argue, is not widely in demnaded. It is not sufficient enough to justify major investment into BTC’s which would ultimately lead BTC’s to a generally accepted medium of exchange. I still agree with Menger that a single BitCoin must offer some type utility prior to it’s function as a medium of exchange. I see no other reason beyond hobbyists to want to hold BTC’s.
All of these wonderful feature sets are great for bitcoins if bitcoins were a generally accepted medium of exchange. The issue ofcoarse is that they are not and getting them to that point is difficult when a bitcoin offers no other incentives to hold them.
This is the chicken and egg paradox I was hiting at Micah.
Gold is not widely in demand. Libertarian ethics are not widely in demand. Personal freedom is not widely in demand.
But some of us demand all 3.
The worst thing that could happen to BTCs is to get popular. Anyone who is getting into them to speculate on their future value is going to be very disappointed because the minute they become very popular, they will become illegal and an enormous BTC risk premium via the state will emerge.
I think you’re overly invested in what BTCs are not, instead of what BTCs are. I agree, they will probably never be money proper. But that doesn’t mean they don’t have utility. In an increasingly decentralized world courtesy of the digital revolution, catering to niches, whether it is gold bugs, neoconservatives or digital currency advocates yields more gross utility than trying to establish standards.
I’ll admit, monetary theory is incredibly boring and pedantic, at least to me, and I probably don’t have your grasp of the more intricate details that would prevent BTCs from becoming ubiquitous, but I don’t think they need to become ubiquitous to function as a form of money. Yen is money in Japan, but it isn’t money in France.
When I say centralized I don’t mean planned, I mean the opposite of distributed. Back in the early days of the internet, before peer-to-peer networks like Gnutella, BitTorrent, etc. pirated software was hosted on servers and then any number of people could download the software from that server. The problem with this was that the government would constantly shutdown these servers which would significantly hurt the pirates since they had to find a new place to host the software and go through all the overhead of moving the software to the new server.
Eventually people came up with the idea of decentralizing the software by allowing users to download from other users. This is when software piracy really took off because the government no longer could shutdown the hosts. It is the difference between stopping a bear from bothering you and stopping a swarm of bees from bothering you, the bear is an easy target that can be killed by “cutting off the head” so to speak whereas the swarm of bees requires you kill every individual bee in order to be effective. If you leave one you are still threatened by the “swarm”.
When I talk about “centralized” currency I simply mean that there are limited number of “hosts” of the currency. Because there are a limited number of “hosts” the government has something to target. A distributed system has an unlimited number of hosts and adding new hosts has negligible overhead costs. Just like with BitTorrents, the government has nothing to target. The only effective way to takedown the network is to take down all of the users. As long as a single user remains the network survives.
I am not suggesting that there is a single authoritative figure when it comes to any other currency, I am simply stating that commodity based currencies cannot be truly distributed. The overhead required to gain consumer trust is prohibitively expensive for a distributed system which results in a finite number of “heads” that can be targeted by the government.
You keep forgetting the simultaneous part of my statement. Yes, anonymity exists with any in-person transaction. No, anonymity does not exist for remote transactions. This is a crucial point and cannot be left out in any argument against BitCoin. Secure, anonymous, remote, distributed simultaneously. Leaving off the simultaneously of that statement completely changes the statement.
Again, you are taking half my argument and not the whole thing. Yes, these people can remain anonymous. However, they are severely limited in the types of transactions they can make. It is very difficult to amass wealth in cash/commodities because of the high security overhead cost. It is difficult to make online transactions using cash/commodities only as well.
Also you are mistaking lack of supply for lack of demand. When given the choice between ease of use and anonymity many people choose ease of use (bank vs cash). However, there are currently no options that provide both ease of use and anonymity. You are arguing that people can use cash right now for anonymity but the problem is that cash is not easy to use. Users are required to choose one or the other, they cannot currently have both. BitCoin allows them to have both ease of use and anonymity at the same time. As I mentioned previously, simultaneity is essential to the BitCoin argument. You can’t separate out the various attributes of BitCoin and argue them independently, you have to argue them as a collection because you get all four attributes simultaneously.
Right, and you cannot complete these transactions remotely. You have to carry around a bunch of cash and someone can shoot you and take your cash. With BitCoins I never have to meet in person and if I do, they would have to torture me for the money since killing me won’t get them the “something I know” part of the security (capture is much more difficult than killing). I can see black market dealings providing a big chunk of users to BitCoin once there are enough goods/services available to them to make dealing in BitCoins worthwhile. In fact, the number one deterrent for me entering the drug trade is not being able to accept remote anonymous payment. Western union is currently how it’s done but that requires a large number of fake IDs in order to pull off (Western Union is not anonymous).
Micah you are going off on so many side tangents I simply cannot spare the time to respond to every nuance. (Most of which are not important)
The issue is how bitcoins become a generally accepted medium of exchange. Meaning I can go to safeway and transact with it. This is the chicken and egg paradox I am referring to.
If we can just focus on this one thing and avoid lengthy 1000+ wordy responses I would be super ecstatic.
[EDIT]
Also Skylien raises an excellent point as well that deserves consideration.
See, this is the problem I have with you, Flic. Not that you have a different perspective, but that you are quick to dismiss the viewpoints of others as simply not worth your time to respond. If you don’t have the time to address the arguments of others, then you are not having a discussion, you are simply trolling. If you honestly don’t have the time, and are not making excuses as I would expect considering the amount of time that you have spent here already, then don’t respond at all.
Why is that the issue? The basic question, “Is Bitcoin the currency of the future?” doesn’t require that Bitcoin be the only, or even domamint, medium of exchange to be “yes”. Is the Internet the marketplace of the future? If the answer there is a general yes, then Bitcoin can be the “currency of the future” (or something very much like it) without ever gaining common use as an in person currency. Despite this, Bitcoin actually is expected to become an in person trade currency by many on the Bitcoin forums, including myself; as Bitcoin is better suited to “mobile payment infrastructure” than Visa or PayPal. There is already a Point-of-Sale system in development by a group in NYC, and another working in Portland, OR.
I don’t know if I stated it in this thread or another one but even if BitCoins were taxed through some system such as the VAT which doesn’t rely on individual reporting but rather only corporate reporting BitCoins still have the advantage of having predetermined and limited inflation which is a huge advantage (in my opinion) over a government controlled currency. Also, BitCoins still remain anonymous unless the government requires corporations to ID people on all transactions. As seen in the current US market, businesses will not require for ID unless the government forces them to. They will often request ID for marketing reasons (grocery store club card, etc.) but anytime they are able to legally complete a transaction without ID they will allow you to do so.
It sounds like we agree that the government will squash any competing currency it is able to, just like they squash any piracy they are able to. However, as seen with distributed software piracy the government is powerless to stop it, just like they would be powerless to stop BitCoins. The controlled and limited inflation alone makes BitCoin attractive over government controlled fiat currencies in my opinion and it’s distributed system makes it immune to government regulation (as currently defined). Obviously the government can do whatever they want such as “a war on BitCoins” but that is a whole lot more expensive to the government than a few raids on alternative currency mints/banks. Also, the propaganda required for a war on BitCoins is not as easy as the propaganda for the war on drugs and the war on drugs even with all that propaganda is difficult to maintain.
The argument for BitCoins rising to the top comes from a statist perspective. In an anarchist society BitCoins do not present a significant advantage over alternatives unless BitCoins are already established as currency, in which case there is no need for commodity backing. Even in an anarchist societ I believe that a distributed system is a huge boon, I do not think it is as necessary as a stateless society. Though, distributed does prevent monetary takeover by government should the state return.
I am willing to focus on this particular point for the time being and I will attempt to be less wordy where possible, though I am hesitant to leave points out.
There is currently a BitCoin market. It is small but it exists. There is almost no barrier to entry into this market (overhead costs are minimal). Because there are goods/services that can be purchased with BitCoins, any person who sees a large enough collection of goods/services available in BitCoins can easily start accepting BitCoins as payment (along side another currency). As more people accept BitCoins, the collection of goods/services available in BitCoins increases. This increase in available goods/services results in more people willing to enter into the BitCoin market.
If we assume that every person on the planet has a certain “collection size” (number of goods/services available in a given currency) required for them to be willing to participate in that currency and we also assume that every person participating in that currency increases the collection size of that currency then we can conclude that the only barrier to mass participation is if there is a significant gap in collection sizes somewhere in the population spectrum.
If there are 5 people on an island:
Person
Required Collection Size
1
0
2
1
3
1
4
2
5
4
In this example there is no gap in the required collection size that would result in a maximum collection size short of the entire population. The first person requires no one else, the second and third person require only one person thereby increasing the collection to 3, the fourth person joined the bandwagon at 2 bringing the collection to 4 and the 5th person joins once all the other 4 are in.
This is an example with a gap resulting in a permanently limited collection:
Person
Required Collection Size
1
0
2
1
3
2
4
4
5
4
In this example the collection will get up to 3 people but the 4th and 5th people will never join in because they are both waiting for the collection size to grow by one more.
I believe the first example is the real world case, but this is unprovable. It sounds like you believe the second example is the real world case, which is also unprovable. This is why I think that BitCoins are possible, but not guaranteed.
That is a very easy assertion to make for someone who lives in a first world country. BTC’s on the other hand are not nearly as accessible outside 1st world countries. Or for that matter outside of the internet in general.
Yes there is a BTC market community no one is disputing that.
But the 2nd and 3rd and 4th person must be interested in the currency. So far only hobbyists, people who misunderstand or reject the regression theorum, and people who don’t want value in their currency are interested in BTC’s. It’s more of a novelty rather then currency.
My neighboring thread explains a digital currency that is built from market demand. People demanding the currency because it has prior utility. If your argument is that BTC’s will gain traction then Gold, Silver, Stocks, and many other items are already waaaaay ahead of you as far as volume of daily transactions. If it is only true that BTC’s will just “gain traction” over time. Then why won’t gold just “gain traction”? Why won’t Silver just “gain traction”? Especially considering they already have a head start.
So back to the main point. I see no reason why anyone, aside form a hobbyist, would want to increase their holdings in BTC’s and withdraw their holdings in dollars or commodities.
80% of my wealth is backed in gold and silver. Why should I move that wealth into BTC’s?
I will concede that electricity and internet access is a requirement for BitCoins. However, only the merchants need these things since the consumers can utilize mechanisms similar to credit cards and banks for the day to day transactions if they desire or don’t have the resources to manage their own digital wallet. I will admit that my current argument for BitCoins taking off is dependent on a first world infrastructure so let’s use that as the context for our discussion.
I think it was earlier in this thread that it was established that BitCoins follow the regression theorem. The proposed currency does not need to have uniform value to all of it’s potential users, it only needs to have value to some subset of it’s users, the seed population. As I mentioned in the example using apples as currency, not everyone has to value apples for their commodity value. Only someone has to value apples for their commodity value in order for the regression theorem to hold true. In the case of BitCoins, there are people who value BitCoins for whatever reason so it meets the requirements for the regression theorem.
As seen by fiat currencies and as addressed by Mises, once a currency is established as money it no longer needs to have commodity value to it’s users. It only needs to have a history of use that, as explained by the regression theorem, eventually leads back to the seed population’s initial valuation.
It sounds like you don’t agree with me on this point:
every person on the planet has a certain “collection size” (number of goods/services available in a given currency) required for them to be willing to participate in that currency
If everyone in the world except you used bottle caps as currency, would you begin to use them as currency as well? If the answer is yes then that means you have a collection size somewhere less than the world population. My guess is if two people in the world didn’t use bottle caps you still would use them. I don’t know where your personal line in the sand is drawn at, I am just suggesting that almost everyone has a threshold.
I believe that the number of people that will boycott a currency just for philosophical reasons is low. The reason for this belief is due to the current fiat money system. People use fiat money even though many of them understand it is terribly flawed. I use USD as a medium of exchange even though philosophically I disagree with the entire concept. Because it is accepted in enough places, I utilize it. The same can be seen with Visa/Mastercard. They are accepted in enough places that I will choose them over something like American Express or Discover even though American Express and Discover may offer lower rates, better rewards, etc. When it comes to currency, popularity matters.
Many people have American Express/Discover along side their Visa/MasterCards because they prefer the former when available but they will use the latter when necessary. The same can occur with BitCoin where you may have some BitCoins and some USD and you will use BitCoin where possible but USD when necessary.
Because gold, silver, stocks, etc. do not offer security, remote transactions, anonymity and distribution simultaneously. It is my belief that this is why those currencies have not beaten out fiat currencies to date, they do not offer those four attributes simultaneously.
80% of your wealth may be backed by gold and silver but my guess is that 80% of your daily transactions (grocery store, rent, utilities, movie tickets, luxury goods, airline travel, etc.) are not done in gold/silver. BitCoin can be your medium of exchange while you still use commodities as your store of value; this is not incompatible with BitCoins becoming a popular currency.
People would withdraw their holdings in commodities in exchange for BitCoins for the same reason I am guessing you do with USD, EUR or whatever currency your locality uses. To make day to day purchases like food, cloths, house, cars, etc.
Unfortunately there is nothing I want that are sold in BTC’s. Furthermore if there was something I wanted it would be easier to use usdollars anyways. I have no reason to carry BTC’s or increase my holdings therein.
This repetition is getting me exhausted.
Except that you can’t. Chicken and Egg what comes first?
I’m not quite sure what you don’t understand about the growth of a currency. Just because there is no one that offers goods/services you desire now doesn’t mean there will never be anyone that offers goods/services you desire at some point in the future.
Person A accepts BitCoins in exchange for good/service A. Person B wants A so he has something to spend BitCoins on and therefore starts accepting BitCoins as well. Person C wants A and B so they start accepting BitCoins. Person D wants A, B and C so they start accepting BitCoins. Person E wants A, B, C and D so they start accepting BitCoins.
If the current BitCoin market has the collection of goods/services available [A,E] but in order for you to start accepting BitCoins the collection needs to be [A,Z], there is still nothing stopping the collection from growing over time until eventually it expands to the collection [A,Z].
You have indicated that this is a chicken and egg situation and I keep describing how it is not. The market already exists, it has already been bootstrapped. The chicken already exists and it can lay eggs. The only thing required at this point for popular usage is growth in the market size which may or may not occur. There is no logical proof that the market for the currency cannot continue to grow or will somehow stop growing.
Once again I am not claiming that it will necessarily grow indefinately, only that it has potential to grow indefinitely. As shown in the two tables previously it is entirely possible that there is a large enough gap in the spectrum of collection sizes for BitCoin to stop growing but that is unprovable.
Make using it illegal. It will still be used, but this will significantly limit it’s growth potential.
It is not possible to commodity back BitCoins. At best a company could exchange commodities for BitCoins at a fixed rate but this is not the same as backing, this is just selling a good.
Sorry Flic but this one is too easy … it was the rooster of course!
In regards to AB’s questions …
Attractive for black markets? - not really since it isn’t as liquid as say a silver dubloons shipped overnight across borders via DHL.
Good for micropayments? - sure if there was an established market of merchants and consumers, thats a big if.
redundant question with unlikely qualifying statements - yes, good luck on building a user base of over 300 million accounts.
government regulation? - covert stings of big traders perhaps, e.g. the gov secretly becomes a big player in the bitcoin phenomenom, after a ten year mission, they come with guns a blazin to their ten best clients whom they’ve gained the trust of?
Commodity benefit? - if you 86 the inflation and tie it to a commodity, I might be interested, but then how would you keep the storage of the commodity secure and decentralized?
I was an e-gold merchant and saw that as the true currency of the future, psst anyone wanna buy a low six digit e-gold account, but it was ahead of its time, perhaps bitcoin cuts a middle ground while the emperor’s clothes fade. Once the man is standing naked though, I can’t see it competing with other means of payment. In the meantime, I’m all ears, please sell me on the bitcoin!
As you said I think we largely agree. And I really think that it is good thing what you do and try with Bitcoin. But I want to emphasize again be careful, because it is as Bob Murphy said today in his article about von Nothaus. Von Nothaus merely was a low-hanging fruit on the tree, and Bitcoin might be some branches higher, but don’t underestimate the governments ability to climb. If push comes to shove they might even cut down the whole tree… Good luck!
You think I am confused on something, I am not. As someone who’s never even heard of the regression theorum prior to this forum post I find that odd that you think I am the one who is mis-undertanding.
The truth is I agree with Mises and Menger in this regard, you do not. You have not made an attempt to critique or refute their argument. In fact you haven’t addressed it at all. There is no need for you to continue and repeat yourself as if somehow you’d get a different response from me(Argument ad nauseum). Your graphs and charts logically do not apply to the issue I’ve raised. I openly agree to disagree with you.
A big chunk of my argument can be found here. It’s only 50 pages. If your serious about this write a serious critique on Menger and on Mises and his regression theorum. Then go post it somewhere.
My original problem with the regression theorem was that it didn’t hold up in all cases and I provided some example scenarios where that was true. However, after some discussion on these forums it was determined that these scenarios actually do match the regression theorem as long as you don’t define “value” too narrowly.
A commodity, as far as the regression theorem goes, does not necessarily need to have consumable value and it does not need to have value to everyone. A commodity only needs to be valuable to someone and for any reason (consumable or not). Traditionally we look at gold as a commodity of value through it’s use as a consumable luxury good (jewelry). The key here isn’t that it’s valuable for a specific reason but just rather that someone values it. Even people who aren’t interested in gold for it’s jewelry value can use it as a medium of exchange because someone else values it for a reason besides a medium of exchange.
BitCoins meet this requirement as well, just in a different way than gold. BitCoins have value to some individuals and the reason it is valuable to them is of no consequence. If you take the praexeology position on this matter what we can see is that some humans value gold and some humans value BitCoins. Trying to analyze why they value it goes against praexeology. Humans value them both and that’s all that matters.
When it comes to building a currency the regression theorem asserts that someone has to value it at some point in history for non-exchange reasons. The regression theorem does not specify why they value it, only that they do. Since we can see that some people value BitCoins currently we can draw the conclusion that BitCoins meet the requirements of the regression theorem and can follow the path as described by Mises to becoming a popular medium of exchange.
Obviously, not everything with value will become a popular medium of exchange because it is the nature of a medium of exchange to gravitate toward a single most useful medium rather than spreading out across several mediums. There are situations of course where one medium of exchange has a desired property yet lacks a different desired property while another medium of exchange has the inverse state which is why we sometimes see multiple mediums of exchange in use.
I believe that BitCoins provide a number of attributes that make it a competitive medium of exchange. It does lack a consumable use like traditional commodity backed currencies provide and this may result in it’s inability to become a prominent medium of exchange. However, that is a decision for the market to make whether lack of traditional commodity backing is enough to stop the growth of the BitCoin market or not and not something you or I can accurately predict.