Many posts on this forum say something to the effect of “Bitcoin is scare, but since it doesn’t have any non-monetary purpose, it has no value.” I disagree. At this point Bitcoin has gained enough noteriety that it likely holds a collectors value. The future still isn’t written, yet, but this may be enough foothold for Bitcoins use to snowball over the long term.
Welcome to the forums Bill.
Gold didn’t become a currency because it was a “collectors item”. It was widely demanded for and used prior to it’s function as a money. Collectors and collector like things are always aimed at a small niche market. The point of having intrinsic value is to acheive widescale adoptation prior to it’s use as medium of exchange. This ensures that a healthy history of exchange ratio’s has already been established prior to a transition into money.
Having people collect BTC’s for the sake of collecting makes it no more likely of becoming a widely adopted medium of exchange than baseball cards.
This would be true if BTCs had all of the same properties as baseball cards. Since they have a different set of properties the chances of them becoming a widely adopted medium of exchange are different. Baseball cards cannot be traded remotely, anonymously, securely and in a distributed fashion at the same time. How valuable these properties are for a medium of exchange when compared against the advantages of physical commodity based currencies (store of value in the case of a dystopia/apocolypse) is hard to guage on a global scale at this time. We can only speculate.
Here is an idea about how a gold backed “Bitcoin” might work.
- A well known/respected vault may publish the quantity of their reserves in a public manner and have a well respected audit company(s) confirm the claim.
- Once it’s clear to the market how much gold the company has it could sell their own brand of “bitcoins” redeamable for it’s gold reserves.
- Assuming the companies bitcoin share the same public trading feature of the current bitcoin anyone can verify that the company has not issued more bitcoins than it has in actual gold.
- To make money the issuing company would specific a decay rate for the “bitcoins” at their time of purchase. i.e. every month the amount of gold the “bitcoins” could be redeemed for would decrease. The company would use the the gains from this decay to fund its operations.
- Multiple companies could compete by having the best audit companies, placing their reserves in locations most defensible from government/other pilage, and having the lowest decay rate.
What do you guys think?
I’m still not convinced that bitcoins will not be viable. I’ll happily let the market decide their future, though. While baseball cards and bitcoins may both have collectors value bitcoins have many features that baseball cards don’t have which make it more interesting than baseball cards as a medium of exchange such as those listed by Micah. Baseball cards are simply not divisible or uniform, and they cannot be exchanged electronically which make them a unsuitable for use as money. Imagine if gold was originally marketable but neither divisible nor uniform would we still use it as a currency today?
What you have described isn’t really related to BitCoins but rather just a description of a free market currency system. Unfortunately, there have been several attempts to start up such companies and each time they have been shutdown by the government.
In my opinion, one of the major advantages of distributed crypto currency over many other types of currency is that they are immune to government takedown. The most that government could do would be to make their use illegal and issue the death penalty to anyone who uses them. However, people could still use them if they felt the benefits of their use outweighed the risks of getting caught. For a traditional minted currency or commodity backed currency your mint/printing press and/or your storage vault(s) can easily be targetted by the government and this will essentially destroy your attempted currency overnight.
I do think baseball cards have nothing to with Bitcoins, yet they have even more to do with gold.
As gold, base ball cards are a real commodity. People don’t primarily value them because of their exchange value, but because simply they like those cards for what they actually are. Not different than people like to collect gold to have it around their necks, on their fingers and arms. But aside from that they have nothing to do with gold. Base Ball cards are not homogenous, not devisable and not very durable.
Bitcoins on the other side are perfectly homogenous and devisable. I am not sure how durable they are, since it depends on data storage used. But BCs don’t have any collectable value except exchange value so it is no commodity in no senses what so ever. I think you guys are misled if you think it is the original collecting value of some nerds that drives BCs. It is driven by the urge to avoid the oppressive government money system! This is the basis for its success now. And as soon as its value grows, its growing value is an additional reason its value increases. But what happens if government vanishes or stops oppressing competing money systems? Then the only thing that is left that might support the value of BCs is that its value is increasing or at least not falling. But this is not different to any bubble! Bubbles are the product of value increases based on the sole reason of former increases in value. The same logic that drives a bubble up, will drive it down!
So I leave it up to your imagination what happens if the real driver (oppressive government) stops “supporting” the value of BCs, and the value of BCs one day will start to go down, looking for a floor.
It depends on how popular BitCoin becomes as a medium of exchange prior to the total collapse of the state that you have mentioned. If BitCoins are the most popular medium of exchange (i.e.: everyone accepts them) then when the state disappears they will retain their value as a medium of exchange and won’t lose anything of significance since their value is wholely tied up in their exchange value. On the other hand, if they are only used in small circles before the state goes away then their value may in fact decline substantially as you suggest because their value is largely tied to the value of avoiding oppressive government money (which is no longer something of significant value).
This is a great start Bill. Check out a similar response I had here.
If there is one thing that is as sure as death, then it is that value never is stable or cannot go down or not up. This does not depend on the amount of people using it. It could only mean that it needs a while before a shift in preference or other circumstances may cause a substantial decrease in value, which could start a death spiral for BCs.
Try seeing it from this perspective: If most people use it there is not much room to gain any more value, but lots of room to lose value. The probability to lose value increases the higher it gets, not the other way around.
I am not suggesting that BitCoins will survive indefinitely nor am I suggesting that their value will not fluctuate.
The value of a BitCoin is tied up almost entirely in it’s exchange value, not it’s “commodity” value (anti-government currency). This is true for any medium of exchange to some degree, their real value = their commodity value + their exchange value. BitCoins have a very low commodity value so a sudden loss in their commodity value will hardly make a dent in their real value because the real value comprised almost entirely of their exchange value. Gold coins on the other hand have a relatively high commodity value and a sudden drop in their commodity value will have a substantial impact on their real value.
So in a world where BitCoins are accepted everywhere the government suddenly dissapears overnight. In this case the commodity value of BitCoins (anti-government currency) also suddenly dissapears. However, because BitCoins are valued almost entirely on their exchange value the real value of BitCoins will suffer only a very minor loss in value.
Now there are other factors that could influence the value of BitCoins such as the emergence of a new, superior currency in which case I imagine that BitCoins would decline in value over time (proportional to the rate of adoption of this new currency). The new currency may be a physical commodity backed currency as you have described since the government is no longer around to stop such a thing from developing. The new currency may be a new, superior, form of crypto currency. It may be something we haven’t even thought of yet.
As an aside, just because the state is gone overnight doesn’t mean it won’t come back. For me that creates a certain amount of risk in using any non-distributed currency (i.e.: physical commodity backed currency) since it gives a future up-and-coming state a means of economic control. I would much rather continue to use a currency that is distributed and cannot be controlled by any future state.
The ultimate death for BTC’s will be when someon makes a digital currency exactly like BTC’s except that it’s backed up with something of intrinsic value. The second such an option becomes available everyone will abandon BTC’s. It simply offers nothing to compete with in the modern age of digital currencies. It could easily be the quickest abandonded currency ever. In this regard it’s set itself up to fail.
I tend to agree, though at this point in time no one has been able to come up with even a theoretical model of such a currency (physically backed yet distributed, remote, secure and anonymous). At this point in time those properties are mutually exclusive.
IF physically backed THEN NOT distributed OR NOT remote OR NOT secure OR NOT anonymous
At a glance I think it could even be reduced to, though I would have to consider a while to ensure it is the true in all cases:
IF physically backed THEN NOT distributed OR NOT remote
Gold/silver/platinum nuggets (assuming every buyer/seller has a method of verifying authenticity) fulfill distributed but not remote (can’t trade them over the internet). Gold backed digital currency is remote but not distributed (consolidated storage).
I look forward to the day when humanity figures out a way to have a physically backed currency that is also distributed, remote, secure and anonymous. I have no problem with BitCoins falling to this hypothetical currency of the future.
First off I already made a post about that here. Second off no one NEEDS to make a theory. Conceptually it’s possible, thats all thats needed.
This is a repeated claim of yours. Unsupported thus far. BTC’s are currently valued as a small collectors novelty for geeks.
And with your BTC zealotry your constantly ignoring the fact that several other currency candidates already have established a long stable history of exchange ratio’s. If BTC’s are valued only in their function as exchange t hey are still centuries behind other commodities whos exchange ratio’s are more well established.
I don’t expect someone who openly refuses to understand what money is to get what I am saying.
A further abandonment of the regressiom theorum that you constantly fall into. Why do you persist in arguing over subject matter you refuse to study?
If I understand your example correctly in that post, it is not distributed. The stocks have to be housed centrally in order for them to be authenticated. Because digital information can be copied freely and infinitely you need some way to prevent a person from buying a stock, copying it 1000 times, and then distributing it.
If you are suggesting that companies release their stocks into the peer-to-peer market utilizing a system for tracking similar to that of BitCoins then you run into the security issue. The users of the network have to trust that companies are releasing a fixed amount of stock into the market and not generating as much stock as they want and then telling the populous that some lesser amount was released.
Perhaps using the BitCoin system it would be possible for a company to release only a single stock into the market which could then be subdivided, but additional copies could not be added. This would require a unique naming system for all companies which is not conducive to an unregulated market. That is, there is nothing to stop me from releasing 10 stocks each with different variations of my company name into the market. Also, in an unregulated market it is not possible for me to lay claim to a name. It’s first come first serve.
These thoughts have brought up a good point though, homogeneousness is another property of BitCoins that makes it attractive. In any stock based currency scenario it is non-trivial to determine the value of something in terms of a million different stocks. I suppose with a very active trading community this calculation could be automated and some aggregate value calculated with each type of stock being valued relative to each other and then from that aggregate you can have a common currency.
Would you say that BitCoins would stand a higher chance of success if the number you held determined the fate of some company? That is, imagine BTCs exactly as they are now except for every BTC that you hold you get a vote in some company’s corporate policy / board of director election. I will admit, this sounds promising except for the fact that BTCs will still eventually lose their commodity backing when this company fails. Almost all companies fail eventually, and when that time comes these StockBitCoins will end up being in exactly the same position that BTCs would have been in.
Perhaps this mechanism would allow for faster adoption of BTCs though, especially if the company was desired. That is, imagine if Google put their shares on the marke in this manner, I am guessing BTCs would have gained adoption incredibly fast, though Google would also very quickly lose control of their company. 
The problem is solved by the BTC’s alreayd built internal algorithms. Your just pegging each BTC to something of value. It’s entirely possible. Also you can’t duplicate physical objects, and you also just tapped into the whole IP/scarcity issue. Yet aNOTHER reason why digital currencies fail.
Finally I can’t be bothered to read a 600 word essay from you. Especially when it’s you just rambling on repeating yourself for the 100th t ime. I’ve already addressed all the concerns you’ve mentioned. All you have provided for us and continue to provide is a bunch of assertions. There is on deductin, there is nothing which strings into anytrhing else. IT’s a bunch of non-sequiturs backed by your verbal assurance. Nothing else.
If you want me to actually read your posts shorten them up.
So, I’ve read this thread about halfway through (it’s over 28 pages now! At least on my laptop), and I find it very interesting how people don’t look at BitCoin and currencies/money in general in the same way that I do.
First, it astounds me that all of the “cryptocurrency” proponents out there don’t realize that they aren’t in the game to make money. The several I’ve seen out there don’t describe money, or even really a currency. They are describing payment clearing systems. I mean, go look at some perspecitves from BitCoins’ Wiki itself:
It’s interesting that most of the qualities that are talked about as “ideal” don’t describe a commodity at all, but a way to transfer commodities.
This delves even so far as to be embedded into the structure of BitCoin itself. You’ll note that the BTC’s themselves aren’t “generated” at all: When the system was designed, there was a finite number of BTC’s available. The way you are “allocated” some BTC’s are to engage in a transaction with someone who has them. In the case of “miners”, the network will trade you a set number of BTC’s from the “pool” in exchange for an acceptable crypto block. So the claim of “BTC’s are backed up by computer power” is nonsense: A valid block is rewarded by a number of BTCs from the pool, but I certaintly can’t redeem the BTC for the compute power they “represent” on demand. So, BitCoins really are, by strict definition, a “fiat” currency: They are used in exchange puerly on the faith that at some later time they will be able to exchange it for something else of greater value.
I think that digital currency proponents simply don’t understand how money and its derivates operate in a coersion-free environment. These currencies are compared do fiat systems ruled by coerscion, which is entirely an invalid comparison, espeicially when you’re talking to a group of people who study and advocate for many different types of coerscion-free systems.
BitCoin guys out there, before I’m more than just morbidly curious about BitCoin, I’d like to ask 2 questions:
-
What is materially different between BitCoin and banknotes and other money subtitutes (and by reference, the underlying metal money commodity itself) that were being used in the 19th century prior to legal tender laws and universal national fiat money?
-
If given the choice, why would I ever want to transact in ficitonal BitCoins if I could leverage a transaction clearing system that works much like BitCoin but uses gold or silver as the actual base commodity?
If you can’t generate a convincing answer to these 2 questions, I’d suggest the BitCoin community come to understand money substitutes and transaction clearing functions better, and help us there, instead of trying to create money (which is actually an incredibly uninteresting problem from a digital standpoint).
Hello avaspell and welcome to this thread!
Let us list off the pros and cons of each different kind of medium of exchange has and then discuss the merits of each.
Metal coinage pros:
- Industrial value. Has significant use and value outside of a medium of exchange.
- Homogeneous. Every gold coin of a given size is equal in value.
- Anonymous. I can trade them without giving away my identity
Metal coinage cons:
- Non-distributed. There is a significant barriar to entry into starting up a mint and becoming trusted as a mint through auditing.
- Non-secure. Metal coins can easily be tampered with (edges shaved), larger operations can forge fake coins, secure storage is costly.
- Non-remote. I can’t trade them over the internet. The coins have to physically trade hands.
- Inconvenient. Metal coins are heavy.
Backed bank notes pros:
- Homogeneous.
- Anonymous.
- Convenient.
- Industrial value. Whatever the bank notes are backed by presumably has industrial use.
Backed bank note cons:
- Non-distributed.
- Non-secure. Large operations can forge bank notes. High barrier to entry into secure storage (vaults).
- Non-remote.
Digital backed bank note pros:
- Industrial value.
- Homogeneous.
- Secure.
- Remote. I can trade them over the internet.
- Convenient.
Digital backed bank note cons:
- Non-distributed. Digital banking requires a limited number of trusted trading centers (banks).
- Non-anonymous. Every transaction must be authenticated as coming from a specific person. I can’t complete untraceable transactions.
Crypto-currency Pros:
- Homogeneous.
- Anonymous.
- Distributed.
- Secure.
- Remote.
- Convenient.
Crypto-currency Cons:
- No industrial value.
In a truly free market the pros of a digital backed currency probably outweigh the cons when compared to the pros of a crypto currency vs the cons of a crypto currency. However, we do not live in a free market, we live in a statist society. As seen throughout history, the state will generally try to stop any new currency from becoming established and the way they know how to do this is by either tracking transactions or “cutting off the head” by raiding some central location (mints, presses, vaults, etc.).
Because of the state’s action and it’s use of violence and threats of violence to stop competing currencies, new currencies cannot arise to compete against the state’s currency. This allows the state to effectively tax people (non-anonymous transactions are easily tracked) as well as control the money supply since the currency is not backed by anything.
Crypto-currency gives us an opportunity for a currency that cannot be shutdown or tracked by the government. It gives me the freedom to complete an online transaction without anyone knowing my identity and it also allows the currency to develope and expand without the government having any person to target. The only action the government can take would be to make the use of the crypto currency illegal, but even then it still could be traded, it would just have to all be under the table.
TL;DR:
We aren’t living in a utopian world where poeople are free to create and transact in alternative currencies. Crypto-currencies fill a particular void created by the current political landscape.
Nice summary, Micah.
Under digital backed bank note cons, you neglected to include asset backing is “vulnerable to confiscation”. Of course, e-gold as an example in the US is only part of the story because any centralized operator or precious metals vaulter in other jurisdictions would quickly find themselves subject to OECD-FATF crackdowns if they reached sufficient size and did not adhere to Know-Your-Customer rules. The only two countries that I know of currently ignoring the OECD-FATF are Iran and Libya.
In my thinking that falls under non-distributed, meaning there is one or more central store(s) that can be targetted by government, thieves, etc. However, I will admit that these labels are just my own personal way of putting things into nice little boxes to facilitate communication and there is definitely some overlap between them and room for addition of more boxes.
E-gold and the liberty dollar are prime examples of why we need something like crypto-currency if we want any hope of creating a currency that isn’t stifled by the government with ease. BitCoins could still be significantly hampered if they declare the use of BitCoins illegal, but from a PR standpoint that is more difficult than raiding these central stores.
From Avaspell: BitCoin guys out there, before I’m more than just morbidly curious about BitCoin, I’d like to ask 2 questions:
What is materially different between BitCoin and banknotes and other money subtitutes (and by reference, the underlying metal money commodity itself) that were being used in the 19th century prior to legal tender laws and universal national fiat money?
If given the choice, why would I ever want to transact in ficitonal BitCoins if I could leverage a transaction clearing system that works much like BitCoin but uses gold or silver as the actual base commodity?
If you can’t generate a convincing answer to these 2 questions, I’d suggest the BitCoin community come to understand money substitutes and transaction clearing functions better, and help us there, instead of trying to create money (which is actually an incredibly uninteresting problem from a digital standpoint).
Ok avaspell, I’ll come out of the dugout to answer your questions:
- Like your stated “money substitutes”, bitcoin is a fully nonpolitical unit of value with transactional non-repudiation and two-way convertibility. The difference between bitcoin and other money substitutes is that, for the first time in history, open source software has been released that solves the dreaded “double-spend” problem over digital networks without relying upon a centralising “re-issuing” mint. This is a post-RSA, post-Diffie-Hellman, post-Chaumian, and post-Brands development and it builds on that work through the utilization of Hal Finney’s RPOW (reusable proofs of work) and the software author’s transactional block-chains. That is a material difference.
I suppose you could attempt to cram a gold coin through the wires of a DSL connection but until we can deploy nanotechnology to molecularly transport (“beam”) gold over digital electronic networks, then we have to rely on mathematics for digital value transfer.
- This is a moot point. A transaction clearing system utilizing specie backing but functioning like bitcoins is an impossibility. The two are mutually exclusive due to the fact that the former requires a centralised and auditable pile of reserves. A distributed p2p monetary infrastructure is intentioanlly designed to survive a single point of failure. Much like BitTorrents are immune to direct government prosecution of copyright infringement, bitcoin is immune to confiscation. The short answer to your question #2 is that you won’t even have your fictional clearing system because it will be terminated once it reaches sufficient size.
Economists studying bitcoin really need to understand more about public key cryptography before reaching conclusions. When 0’s and 1’s are outlawed, only outlaws will use 0’s and 1’s.