Is BitCoin the currency of the future?

Economics Economics Questions
421

You’re comparison misses an absolutely cirtical point: Many people here (and I concur!) understand that there is a very clear difference between money and currency. Money is the actual medium of exchange. Currency is its form. As far as I can recall (however, I haven’t taken the requisite time to be an authority on the subject), no currency has ever successfully circulated that does not directly represent a commodity money absent coerscion. If you can find one, I’d love to see it.

So, with this in mind, let’s look at your different alternatives again:

  • Coinage: Contains money. A genuine coin always contains a consistent, well-known amount of the actual money commodity. Possession is sufficient to prove ownership of the base money.
  • Backed Bank Notes: Represent claims to a consistent, well-known amount of the actual money commodotity. Redepmption required to prove ownership of the base money.
  • Digital backed Bank Notes: Same as above for normal bank notes.
  • Crypto-currency: Unbacked. Represents no actual money. Fiat. In order to even come close to the alternatives above, you must prove that crypto-currency represents an actual commodity, and I have seen no cogent argument that it is.

I’ve seen you make no argument that crypto-currencies would arise absent coerscion. The “advantages” of crypto-currencies are that they are effective black-market tools. I don’t see this as a convincing argument. Especially since the market participants by definition can simply eliminate the coerscive element behind currency instead of attempting to adopt a crypto-currency, and then the market will likely return to use money.

And if your goal is simply to create a black-market fiat currency in order to give governments the finger, you’re going to very quickly find yourself on the losing side of the euqation. Even if you obtained wide adoption (which I doubt, for reasons above), governments will push back, and no system that I can see will stop guys with guns and the ability to obtain resources with guns from asserting control when they deem it necessary. You seem to think that governments wouldn’t simply fine, confisacate, and/or jail merchants which accept crypto-currencies. Which prevents “wide adoption” very effectively.

Many technology purists believe that they can code around men with guns and the tacit authority to use them. But all you’re trying to do is avoid tackling the real problem, which is the coerscion itself. And I personally believe efforts to avoid this central issue is a fool’s errand.

422

This appears to just be a terminology difference. My usage of the word “industrial value” is the same as your usage of the word backed here which I freely admit crypto-currency has none.

A crypto-currency can arise just as any other good/service can: through market forces. This changes the argument to one of arguing whether the pros/cons of crypto currencies outweigh the pros/cons of the alternative. If the properties of crypto-currencies are desired by the market in favor of the alternatives (coinage, bank notes, etc.) then they will thrive. If the properties are not desired then they they will fail.

I am making no assertions as to what the market as a whole desires since I can only speak for myself. I am simply outlining the advantages of crypto-currency over traditional currencies and stating that personally, those advantages outweigh the disadvantages.

I acknowledged this point directly in my previous post. The one option the government has to try and shutdown crypto-currencies is to make their use illegal. This would prevent BitCoins from being accepted at Walmart, restraunts, etc. This doesn’t mean they won’t be used, but it would definitely hurt them a lot and limit their use to under the table transactions. I do believe that there is a high likelyhood of this scenario arising and in my opinion it is the “worst case scenario” for crypto-currencies. That being said, there are many things that are illegal but still have a thriving market (drugs, weapons, software piracy, etc.)

I am a firm believer of reducing the size/power of the state and I advocate that as much as the next guy. However, that doesn’t mean we should focus only on trying to reduce the size of the state and ignore all other opportunities for minor victories. Just as I don’t think that drug/gun trade should stop just because the government says it’s “bad” I also don’t think that we shouldn’t choose to use BitCoins over the government sanctioned currency given the opportunity. Eventually the government will likely try to shutdown BitCoins since it hurts them so much but rolling over and accepting inevitable defeat isn’t the right choice in my opinion.

423

Micah my friend. If you had spent the all this time reading on some key austrian insights on money, rather then posting your armchair theorizing here, you would have already been fully read in Menger/Mises various theoretical arguments regarding money. In fact had you spent all this time more productively reading, rather then arguing from ignornace, you would be here with more firepower then anyone would care to match.

It’s a pitty that you can’t be bothered to do the research you argue against.

424

No. Wrong. You didn’t read the beginning of my post. Your description of “backed” currency (unless you’re inteding a definition that I’m not seeing here), means that the currency represents the underlying money. A coin contains the money, while paper redeems to the money. The money itself is an actual commodity. The original dollar was a currency units that represented a given weight of a known alloy of Silver. Now, this is crucial: the dollar was not the money: the silver (and base metal) in it was. The Spanish silver dollar coin functioned as the currency unit.

All currencies you compared with the exception of crypto-currency represented a commodity, although we did not specifcy what the commodity was. I’ll assume it is a precious metal of some sort, becuase history shows that is what was used. When you are explaining crypto-currency, you are asserting that somehow the currency is the money, and that the currency is a commodity in it’s own right. So, let’s make this real simple:

Excluding usage by currencies, what properties does BTC have that make it a better commodity than gold or silver?

If you can’t come up with a good argument here, then by extension, since currencies represent the base money, absent coerscion a market will not intentionally select a currency that represents nothing over one that represents something.

Please note that I actually am quite curious about crypto-currencies as exactly that: currencies. If bright programmers can find a way of making a real currency that is immune to a lot of the problems that both original banknotes and current currenicies have, then I bleieve that it would have a shot at being a market-selected currency. However, the currency must represent money, and money is a commodity.

So wait. You’re telling me that a currency designed as an alternative to state-run currencies, which if it is successful will remove the power to regulate currency from the state, will be passively allowed to continue unopposed? State intervention and suppression isn’t the “worst case scenario”, it is the most likely scenario. And I don’t think that it’s a worthwhile excerise to create something neat and useful for the primary purpose of committing illegal acts, no matter how much we disagree with them. Not to be brash, but the moment that the state allows this to continue unchecked and unopposed when it threatens their power over currencies, I’ll go grab Excalibur and start slaying dragons.

And do you partcipate in these activities despite the threat of force by the state? If so, then by all means, use BitCoins as much as you like. However, BitCoins are destined to fail in the end as a widely-accepted currency because you haven’t addressed the real problem: state intervention in currencies!

And so you agree that the worst case scenario for BitCoin is the most likely one after all. And so in the face of actual inevitability of state intervention (because you’re ignoring the real problem), you want to continue down this course of action? It’s your life, but I don’t find this course particularly useful except as an academic exercise.

If you create something that absent state intervention in currencies would not be chosen as the winner by the market, and with state intervention inevitably ruining the currency, why do it? I would much prefer people work on viable, market-derived currencies and get the state out of the currency business.

425

I intend to address this point directly. The unstated premise that this concept is based upon is that either all government will act in like fashion, all banning and prosecuting/persecuting bitcoin users independently; or that one dominant government has the influence over the rest to functionally force them into this state. In the past, the US government has had the capacity to do the latter, but that influence is fading for a varity of reasons. Not the least of which is the Internet itself. So the most likely outcome is that most Western nations beholden to the US are going to tow whatever line the US lays out there. However, that still leaves a massive market for bitcoins to be traded among, and even the US is going to have real trouble stamping out bitcoin use within it’s own borders. Ultimately, national governments are protection rackets with regional monopolies; but they are in contention even in peacetime. If the US government comes down openly and hard on bitcoiners, that signals to the rest of the world’s governments that the US government believes that it can do exactly what some claim it can do, bring down the status quo in international finance, which dramaticly favors the United States and it’s closest allies and client states. The result being, that even in smaller states that talk like they are going to tow the line, there will be forces within that desire to let it ride to see just what Bitcoin can do for them.

426

I thought I used the term “medium of exchange” throughout my posts of late because the usage of “money” and “currency” previously in this thread had resulted in a lot of confusion sach as we are experiencing right now. If I missed a spot and called it a currency or money at some point then I apologize. BitCoins currently are a medium of exchange within a limited but rapidly growing market so using this term prevents any debate about the definition of BitCoins. The definition of “medium of exchange” in this case is any good/service that you accept in trade with no intention of consumption but rather because you plan to trade it away for another good/service at a later date.

As mentioned above, I am not making any claim that BitCoins are a money, currency or commodity primarily because I have found throughout this thread that there is too much debate over the exact definition of each of those terms. Instead I call BitCoins a medium of exchange and nothing more.

The list in my previous post was meant as a comparison between various medium’s of exchange. Again, I apologize if I used the terms money/currency in my post, internally I tend to think of them interchangeably so sometimes it slips out when discussing the topic with other people.

If we change your statement to use the term “medium of exchange” rather than currency then I disagree with the assertion made (though I am uncertain your opinion given that change in the statement). I believe that it is possible for a market to select a medium of exchange that has no industrial value (no non-medium of exchange use) over one with industrial value if the other advantages of the former are valued enough. For me, they are but I can’t speak for the market as a whole.

It sounds like you hold a stronger belief that the government will put a stop to BitCoins than I do. While I believe it is likely that many governments will ban them at some point should they continue to grow, I do not believe that it is a certainty. Also, as another poster mentioned it is not necessary for all governments to let them run free, but only “enough”. If a handful of medium-sized nations don’t ban them and they become the defacto medium of exchange in those countries it will put a lot of pressure on the larger countries to lift their bans. This won’t guarantee a lifting of bans across the board but perhaps one or two 1st world nations will do so which will put even more pressure on the others to unban their use. For this reason I still hold a sliver of hope for alternative currencies in general.

427

Yes, there has been a lot of confusion, but magically switching terminology doesn’t address the logical point of my argument. The disticntions between money and currency highlight the difference between the composition of the medium of exchange and its form. This distinction between componsition and form is important because it has been the subject of much of the monetary dynamics throughtout history.

Nice wordsmithing. You’ve successfully defined a monetary term (medium of exchange) such that the only things that fit that definition are goverment-decree currencies and crypto-currencies. Once again, in order to understand my veiwpoint, you have to understand the difference between form an composition. Absent coerscion, we’ve never had in monetary history something used for indirect exchange that was traded solely for the purpose of future exchange. Again, you show me and example where it hasn’t, and this discussion will get much more interesting. :slight_smile:

I have to disagree here, because I assert that you can’t define what market that BTC’s serve as a medium exchange for. And no, you can’t describe a market using the FTC’s arbitrary standards. In order to even start to get close to a “generally accepted” standard for a medium of exchange, you have to have wider circulation than VISA rewards points, airline miles, and resort chain points. Otherwise you have to seriously dilute your definition of medium of exchange down to the point where it’s meaningles. (“Avabucks! The newest, nfitiest medium of exchange! We currently serve a limited but growing market! In fact, just the other day, our market doubled when my brother and his girlfriend starting accepting them!” ) Using that term and accepting that statement indeed prevents any debate, as you’ve now stated a tautology.

Come now. Let’s for the sake of argument assume that USD have direct gold convertibility (which it used to , in gold and silver) You’re telling me that you use BTCs, right now, as much as you use USD? (Or if you aren’t US-based, the local fiat in your area). And if not, why don’t you?

I hold out a bit more than a sliver of hope that the experiment known as fiat currencies will ultimately collapse (they’re less than half a century old at a large scale). At that point, commodotity money will likely be reestablished and we’ll be able to truly determine what who the winner between commodotity vs. crypto-currency. :slight_smile:

428

Most of the content of your reply is really just some observatiosn about state machanics.

Actually, it’s usually smaller states who desire to dabble heavily into the supply of money in their borders. Most are either currency manipulators or they maintain dollar pegs. Either way, no matter the size of the state, intervention in the system will likely be triggered due to taxation. Governments try to keep a close eye on currency conversion points because they are places where tax evasion opportunities abound. I suspect that there will be more than just a few participants that would leverage BitCoin to act as a currency buffer between a foreign income source and the domestic currency for tax evasion/laundering purposes. If that comes to pass, regulation of BitCoin usage in these countries will be well on its way. When you combine that with your obversation about strong US ties and falling in line, I would gather that most of the remaining nations will not have much of a need at all for a crypto-currency as much of the transaction load occurs via physical exchange, which the BTC developers already admit don’t work with BTC’s well, if at all.

429

Please describe what you mean about “unit of value” and “two-way convertibility”. I’m especially curious about what you consider BitCoin to be convertible between.

I disagree. You’re presuming that the reserve center is itself not distributed. I don’t’ consider a reserve system with 2 or more locations per 200 adults to be centralized at all. This differs from the “free banking era” in 2 ways: Essentially, all specie clearing centers are “branches” deriving from the p2p “trunk”, which is decidedly different from free banking where branches were explictly disallowed, and; There doesn’t explictly have to be a central issuer.

With everything I’ve seen, it’s not the digital coins themselves which are interesting: It the establishment of a chain of title while preserving anomyity of the actors involved. The only thing that would be needed would be to verify clearances at 2 endpoints in order to give the currency specie backing, which doesn’t sound like an insurmountable problem.

What your comparing are 2 systems trying to leverage the same underlying distributed system (P2P), to accomplish nearly diametrically opposed goals. BitTorrent is designed to copy data far and wide and so increase the number of data elemts in the system; bitcoin is designed to maintain an infitely growing title chain list of unique data sets, and use that to regulate a self-imposed finite pool of information. An intersting comparison, indeed. As much as I know BitCoin proponents love to tout confiscation immunity, but I have 2 points concerning that:

  • Confiscation in this system isn’t the major issue, however there are several others: https://en.bitcoin.it/wiki/Weaknesses .
  • Confiscation even using specie-bascked digital currency may be impractical in a globally-distributed network: If I can’t redeem my digital currency at a local reserve housing location, or even one in the same country, I’ll still be able to redeem in the Cayman Islands if there’s a location and sufficient reserves. At this point, the primary danger to the backed system is that governments confiscate sufficient specie to cause reserve ratios to deviate significantly from 1:1 (I firmly beleive a good digital currency system can “route around” small fluctuations in the reserve ratio), and as such destabilize the validity of the currency itself. However, noone said the system could only be implemented once: Multiple instances, one per specie type, would begin to even further protect the system from “specie attack”.

Being a network engineer by trade and only moonlighting as a student of Austrian Economics, I am well aware of public key crypto and some of the underlying theories that underly it. I will admit that I have much less knowledge of the mathematical methods used in its implementation, or in some of the ancillary algorithms required to impment it. However, my knowledge in this area is why I see much value in these type of systems for transaction execution other transaction-related functions. However, creating a full digital money commodity, currency, or combination of the 2 heavily involves human systems based on market actors that are non-deterministic, and these matters are more suited to the praxeology and economic fields of study. In fact I think you’ll find more than one person around here that think one of the problems with “modern” mainstream economic thought is that they have fallen into the trap of thinking that market actors are deterministic.

430

I appologize for the confusion on my definition. Something can be a medium of exchange in one transaction and not in the next transaction. If I have a tractor and I trade it away for butter, because butter is a more marketable good, with the intent to trade that butter away later then in this transaction butter is a medium of exchange. Later I trade that butter to someone for wood planks because I intend to build something and the person I am trading with intends to consume the butter. In this second transaction butter is a medium of exchange for me but not a medium of exchange for the other person. Perspective plays a role here in that the butter is a medium of exchange to me but not a medium of exchange to the butter producer nor the wood plank seller.

Using this definition BitCoins, Gold coins, fiat currency, etc. are all mediums of exchange at some point. It’s when they are used as a medium of exchange that we care about them. In the great depression when people were burning money to stay warm the fiat currency actually stopped being a medium of exchange for those people. In the case of gold coinage, someone who buys up gold with the intent of melting it down is not using it as a medium of exchange wherease almost everyone else is.

The purpose of using “medium of exchange” rather than money or currency is because it’s definition can easily be agreed upon in my experience and is well defined. Money and currency on the other hand are very abstract concepts and their definition differs widely from person to person and leaves a lot of room for two people to argue about something and have both be correct depending on how each defines the word.

If I accept “Avabucks” with the intent to later trade them away then yes, they would be a medium of exchange. If there are only two people who accept Avabucks in trade then the Avabucks market size is very small. It is possible for a medium of exchange to have no consumers, as in this example: Me and 3 friends often trade things amongst each other. Rather than barter we create 100 special tokens and divide them up amongst each other in a one-time distribution. We also all agree to accept these tokens in exchange for various goods/services, perhaps we also play poker together using them. These tokens, assuming we start doing our trade using them. These tokens have no consumer and they have a very small market (the 4 of us) but they are a medium of exchange none the less. It is very unlikely that these tokens will expand in market size, though if we add a friend to our little circle we may be able to convince them to use the tokens as well.

It sounds like what you are debating is not whether BitCoins are a medium of exchange but rather whether they are/can become a “generally accepted” medium of exchange. At this point the argument breaks down until we do a little more defining since “generally accepted” is a vague term. How many people must accept a medium of exchange in trade before it is considered generally accepted? Is there some base set of goods that I must be able to purchase in order for it to be considered generally accepted? If so, what is this base set of goods?

Also, I want to reiterate that I am not making claims as to how large or how fast the BitCoin market will grow, which it sounds like what you are arguing. I am only saying that BitCoins are used by some people right now as a medium of exchange and the market is currently growing. I have hopes that the market will continue to grow to a point where I can do all of my daily transactions in BitCoins, but I cannot say whether or not that will happen and if it does, how far off that will be.

No, I am making no such claims. I am only saying that I would rather, given the opportunity, complete all my transactions in BitCoins than in USD (backed or unbacked). The BitCoin market is currently too small to do all of my transactions in BitCoins but I can do some subset of transactions in BitCoins. For this reason I am inclined to accept BitCoins as payment for my goods/services along side USD and use BitCoins to purchase goods/services when possible and USD in all other cases.

Given the condition where the state is not involved in regulating mediums of exchange, I do not believe the advantages to BitCoin are meaningful over some alternative options. However, given the condition where the state is involved in regulating mediums of exchange I believe the advantages to BitCoin to be significant.

431

Reserves require trust. In order for a full reserve bank to have meaning I have to trust that they will follow through with their promise of always giving me X amount of gold for Y amount of BitCoins and that the exchange rate will be permanately fixed.

If 100 people came to you and claimed that they would all accept BitCoins in exchange for gold at any time for the next 100 years at an exchange rate fixed right now, would you suddenly jump on the BitCoin bandwagon? Would you do it without a formal contract? Do you believe that there exists a business model these people could use that would allow them to keep such a promise indefinitely? Out of those 1 reserves per 100 people, how many of them are actually trustworthy? Just because a bunch of people say they will back BitCoins doesn’t mean that when the time comes they actually will. Since only the trustworthy ones matter your 1 reserve per 100 people has now dropped dramatically, to the point where it is no longer a distributed network.

Take SSL for example. Anyone can claim to be a trusted root certificate authority but in reality there are only a small handful that actually are trusted. So while root certificate authorities could theoretically be massively distributed (everyone can be a certificate authority if they wanted), in reality the barriar to entry is trust and acquiring that trust is not something that everyone can accomplish. The government could raid a very short list of businesses and destroy the entire system. My browser (Google Chrome) only comes with 11 trusted root certification authorities. That means that with the takedown of 11 businesses my browser would be unable to effectively complete SSL transactions in a verifiably safe manner. I (or rather Google) would have to find someone new to trust which is a non-trivial task and once that trust was established the government could take them down too.

The reason I find the distributed aspect of BitCoin appealing is because there are no central locations, no head to cut off. The reason it is compared to BitTorrent is because of this property. The government has trouble shutting down BitTorrents because they have nothing to target. It is akin to trying to fight off a swarm of insects versus trying to fight off a bear. While the bear may appear more formidable, you have a definite target to go after and given the right tools (a gun) the bear drops with relative ease. A swarm of insects on the other hand is not nearly as easy to defeat and the only real way to win is if they are attacking you (take up a defensive position, create a choke point, fight at the choke point0.

Let’s say you have a bear around your house, or even 5 bears. You can offensively go around and hunt down the bear(s) even if they want to avoid you. If you have a swarm of insects taking up residence around your house however you can’t go out and kill them all. In fact, you wouldn’t be able to even put a dent in their numbers if they were proactively avoiding you. There are too many and it is too costly to take them down individually. Your only hope is finding a central location (hill, hive, etc.) and targetting that. Many insects are non-social however (they don’t congregate) and those are virtually impossible to wipe out.

432

You are in a forum with a whole bunch of people who read quite extensively about mediums of exchange and coordination of production of economies. You come here talking about the benefits of a monetary system, based on an artificial digital medium of exchange. Many of the advantages of this system can only be realized if the medium of exchange becomes generally accepted. All of the arguments in this forum regarding monetary theory are discussing the ways that goods become “generally accepted mediums of exchange”, which for short we call “money”. No non-generally accepted medium of exchange has ever been called money. I don’t call Visa rewards points money, even though I only acquire them for the purpose of exchange them later. Same goes for my poker chips. Same goes for Chucky Cheese tokens. BitCoins are entirely uninteresting as a monetary unit unless it: a. becomes a generally accepted medium of exchange, or b. can show that it has all of the proper properties to become a generally accepted medium of exchange.

BitCoin, and all arbiitrary monetary systems, have a problem in that thier “benefits” only matter if they become generally accepted, and because they have no other purpose other than a medium of exchange, market actors require that the medium be generally accepted in order to use them. It’s a chicken and egg problem. This is precisely the issue that Mises’ Regression Theorem addresses. That the only way to escape the chicken and egg problem is for the medium in question to gain wide acceptance apart from acting as a medium. Then, and only then, can it obtain the status of “generally accepted medium of exchange”, or money.

You can’t use BTC for a significant number of your day-to-day transaction because a sufficient number of merchants with whom you trade do not accept them. These merchants don’t use BTC’s for a significant number of exchanges because their customers and suppliers do not accept them. This is the paradoxial problem. We offer Mises’ Regression Theorem as a solution for this seeming paradox. What’s yours?

If you want this conversation to yield anything benefecial, and you choose to define a term, you have to abide by that definition. By your definition, states do not regulate “mediums of exchange”. They do not regulate Chucky Cheese coins, nor Visa rewards points, nor airline miles, nor resort points, nor Avabucks. They only regulate “generally accepted mediums of exchange”. In fact, states allow localities to issue scrip for use in a town, or a network of merchants, to drum up business. However, these people (and Chucky Cheese) must inform actors that they are, and have no intention of becoming “generally accepted mediums of exchange”. Thus the warnings on various units of “No monetary value”, and “Not legal tender”.

So congratulations. You’ve broadened the terminology in the discussion all the way to a point where the state isn’t interested anymore. The playing field is now a (relatively) unregulated market for “mediums of exchange”, and your meaningful advantages suddenly evaporate compared to alternatives, by your own admission.

Don’t redraw the yard markers and expect that you can run all the same plays.

433

You have proposed a strong argument and worded it well. I think this is a similar argument to the one filc was attempting to make, though I had trouble understanding his points as he worded them.

Out of curiosity (I truly don’t know the answer to this question), have there been any generally accepted mediums of exchange that were generally accepted before becoming a medium of exchange and were not by decree? Gold coins have very little use to the majority of people for consumption and, if I am not mistaken (I easily could be), they didn’t find their way into general acceptance until minted by lords of the land (money by decree). Modern fiat currency obviously is all money by decree and had no industrial value at the start. There have been other media of exchange throughout history such as tobacco, nails, etc. but none of these really became “generally accepted” as far as I know.

Your argument that airline miles, etc. fall into the same category as BitCoins seems weak to me since I cannot trade BitCoins away, I can only redeem them for something I would consume. That is, if I have 50,000 airline miles the only thing I can do with that is buy a plane ticket. I cannot setup a shop that accepts Delta miles as as a form of payment for my goods/services. Chucky Cheese coins on the other hand I could, but there is no advantage to them over state issued coinage so I have no reason to switch (at least the airline miles are digital).

That being said, it does make me question the definition of medium of exchange I provided above since I would consider Chucky Cheese coins as sometimes being a medium of exchange but I would never consider airline miles as a medium of exchange since I cannot trade them freely. When I get airline miles it is more akin to making a purchase of a promise for a future specific goods/service (with no ability to exchange it for anything else). It would be like me giving the a carpenter a loaf of bread in exchange for a promise that he will build me a house within the next 3 months. Essentially I am paying for a service in advance.

Also, there have been many casese, even in the past 1, 5 and 10 years where the government shutdown a media of exchange that is not generally accepted. I think the most recent case in the US is the liberty dollar. It was not generally accepted but it was a medium of exchange. I will admit, the difference between the liberty dollar and chucky cheese coins seems to only be in how they are advertised which is an odd distinction, but one the government has chosen to make none the less.

434

You are mistaken about your history. Read the regression theorum. Read the origins of Money. Money is a market phenomena, not a phenomena of decree.

Why do I sound like a broken record with you?

[EDIT]

Oh I know why, because even though I ask you to read these short and few items you will just continue to dissmiss them and proceed to argue from ignorance untill your blue in the face. You waste both our times in this way. At the very least you could read the whole thing and write a formal critique, schooling me and everyone else. For now though your trying to argue against something that you don’t even grasp.

I like how my “arguments” are only attempted.

435

I was looking for real world examples of a medium of exchange that became generally accepted without state influence. I was not inquiring about the theory of how it happens, which is what Origins of Money talks about. I am interested in the empirical data the theory is based on.

As for your argument, I said “attempted” because because the message did not get through to me. Perhaps the message you were trying to convey did get through to others, I am uncertain. This does not imply fault on your part or mine, only that the your attempt at explaining a particular viewpoint to me failed. Why it failed is of no consequence nor do I particularly care to exert the energy to try and figure out where the failure occurred.

My understanding now is that the argument you are both putting forth goes something like this:

  • BitCoins have property A that is advantageous over current currencies.
  • Property A only applies after BitCoins are generally accepted.
  • In order for BitCoins to go from a market size of 0 to a market size that qualifies as “generally accepted” they need properties properties other than A to encourage adoption.
  • Therefore, without an advantageous property B (that applies even at market size 0), BitCoins will never reach a market size of “generally accepted” where property A can begin to apply.

This logic assumes that the general populous has no ability to speculate into the future, which is why I am hesitant to get on board with it. If we assume that humans can/will see the future advantages of BitCoins they may adopt them before those advantages are realized because they desire them in the future. This is the same as why people go to work, exercise, etc. People want some future reward so they put forth effort now in hopes of achieving that reward.

All humans (save certain types of brain damage) have the ability to speculate on/plan for the future. Whether they will do so in the case of BitCoins is a very important question for this debate I think.

436

There are references and examples given in the text I recomended. Not too mention the rich history already acknowledged in the application of gold and gold coins. Many of which were not tied to kings and lords. It was on the other hand, kings and lords who monopolized those services so as to inflate(Coin shaving) currency to their benefit.

437

Obviously, for convienience and logistics people will want to make electronic transactions. I think these could be done with bank accounts which are backed by proper commodities like gold and silver (Or perhaps what the account owner chooses.) and all transactions can be encrypted in a way which the merchant cannot overcharge and can not store valuable details unless rquested and allowed.

At the moment the merchant takes card details and could potentially over charge or the details can get stolen etc.

Gold and silver coins can be used as physical cash and withdrawn from banks.

Banks should ensure they keep all deposits, aka full reserve banking.

It’s stupid to say everyone should pay hand to hand with physical metal. Cards and other electronic payment methods make it simpler. How could internet commerce work otherwise?

438

Note: to make my posts more consise, I will use the term “money” to mean “generally accepted medium of exchange”.

Sure! Two examples were wheat (in antiquity), and in more modern times, cigarettes. Cigarettes were used as money in prison camps. I also know that private mints have operated in varying degrees and with varying success throughout history.

Please refer to my earlier post regarding the separating of form and composition. Gold Coins may have limited non-monetary use ( although I don’t necessarily agree with you there ), but limited non-monetary use is irrelevant for a commodotity to become a money. Markets reuquire that money have a stable predictable valuation and already be widely traded. Once these requirements are met, market actors will often seek to package the money up into neat packages that make it easier for inderect exchange. If they are succesful, you then have a currency. But note that the gold coin was never the actual money; the gold was.

A simple Google refutes this:

http://www.delta.com/skymiles/use_miles/index.jsp

First, I’ll have to hound you with understanding the distinction between the real commodity money and it’s form. Having said that, the Liberty Dollar had a HUGE difference with Chucky Cheese coins: The gold and silver that the Diberty Dollar contains or represents has already proven itself an excellent money in the past, and so if allowed to continue (regardless of the aims of the creator!), they represent a real and present threat to the current fiat state-controlled system. (And even before the fiat standards, states usually hated private minters, because the private currency (the form of the money) was usually of better quality and wasn’t diluted (by diluting with base metals, weight reduction, or clipping).

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A nonpolitical unit of value refers to a monetary designation that is unrelated to a political/national authority as an issuing entity. Two-way convertibility means that the unit’s value is not stuck in some virtual world such as Linden Dollars and Facebook Credits where direct two-way convertibility is restricted. For example, and through various exchanges since bitcoin does not have a central issuing authority, BTC is convertible to gold, euros, dollars, and even russian rubles.

It doesn’t matter. The more important point here is not how many specie clearing centers are distributed, but the fact that specie clearing centers cannot both exist and be immune from confiscation. This particular challenge stems from the requirement to have auditing capability. This is a double-edge sword because strict auditing of specie reserves is what guarantees “note” holders that issuance is not fraudulent, but this same auditing also unwittingly grants authorities a full trail thereby revealing precise specie quantity and precise specie location. Results can be disasterous as in the case of e-gold.

Think about it for a moment. Can you devise a method of full-proof auditability that cannot then be exploited in the event of a confiscation? I suppose you could blind-fold accountants and drive them to your distributed centers or you could arrange a public meeting place and transport the assayed bullion to that location for serial number verification. However, both of those scenarios are subject to unwanted infiltration and undue trust in third-party auditors. Wavyhill and Andre Goldman attmpted to solve this exact problem in 2004, see http://themonetaryfuture.blogspot.com/2010/03/toward-private-digital-economy.html

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Glancing through the essay by Wavyhill and Andre Goldman, I still don’t see how this solves the centralization issue. While the system definitely makes it harder to track down the vaults, a limited number of vaults still exist simply due to the costs associated with running a vault. Sure, the government can’t just look into public records and get the vault’s address, but they system can still be infiltrated much like drug cartels can be infiltrated. Unlike the drug cartels though, the banks are very much stationary. One could argue that drug plantations (for certain kinds of drugs) are just as stationary as these bank vaults but this is exactly why illegal drugs have such a high premium, because the cost of running their business is so high. This means that participating in a banking system as described would likely have a similar premium to all it’s users and I am not sure people would be willing to pay that much of a premium for a new currency.