- Bitcoin is not anonymous to trading parties. If those parties are careful and trustworthy, bitcoin can be anonymous to third parties.
I don’t think Austrian economists use the word “currency” as a technical term. Rather, they speak of money, money substitutes, fiduciary media, demand deposits, time deposits, and so on.
Money is defined as the medium of exchange, that is, the final payment in settlement of any obligation. It is perfectly liquid (zero time required to determine its market valuation) is widely acceptable in payment for goods and services. If you think Bitcoin is not trying to be any of these things, I think it is you who are confused.
Bitcoin is an unbacked money, because it is not a money substitute (X dollars back up Y Bitcoins) and it is not a commodity with value in its own right (as, say, gold and silver are). Saying it’s not a fiat currency is just word games.
Nonsense. Bitcoin has to conform to what money is, not the other way around. Money is a human invention to facilitate indirect exchange… this goal stands above and beyond any technological implementation. Bitcoin is just one of many contenders to fit the bill.
If Bitcoin is not under the control of a government, it will never be accepted at a local grocery store in exchange for a bag of potatoes. I deny that anything I can’t use to buy a bag of potatoes at my local Albertson’s is money where I live.
And having a non-zero worst-case-scenario (the commodity stops being used as money) value… Bitcoin does not have this feature.
Clayton -
This post has some good points in it and I would like to go over them one at a time to decrease the chance we get derailed so I will start here. This statement indicates to me that there can be only one money at any given time. Your definition includes the word “most” which is a relative maximum term and indicates that there can not be two items that meet this requirement.
I would assume that in any given city, state, society, nation, etc. there can be only one but there might be a different one for each group you are working with. So in the US the USD is the only money whereas in Japan the Yen is the only money. I also assume that in a country with multiple currencies in very high usage only one can qualify for money and the others cannot?
I find this forum software frustrating, as I keep losing long posts.
This may be how money is defined for some, but it is a loose definition. Money is more than a medium of exchange. Money is a commodity with intrinsic charcteristics that lend it well towards the use as a medium of exchange. Namely…
Durability (does not decay, nor is it consumed in any normal process)
Fungibility (any amount is comparable to any other)
divisability (cutting it into smaller measurements does not harm it)
portability (can I put a decent amount of value in my pocket?)
Recognition (Joe Average has seen it before, knows what it is, and can generally tell that it’s not fake)
However, a currency is a unit of measurement, said another way, it’s a number and an abstract measurement of value, but it is not value unto itself. Oftentimes, as is the case with every fiat currency on the planet, a currency is a debt instrument, that identifies that the issuing institution owes the bearer something.
A gold coin, with it’s fine weight printed upon the face of itself, is both a money and a currency. Which is why a gold coin issued by a government is both a legal tender of the value on it’s face, while also having a monetary value independently of the face value, which is normally higher than the face value these days. The unit of measurement is what is devalued in inflation, not the monetary value of the gold itself.
If someone wanted to hold the good that was most liquid with the intent to use it as a medium of exchange, why would they prefer a less liquid good over a more liquid good? Assuming both currency candidates are readily accessible to them? The only reason why a person would choose the less liquid good as a medium of exchange is if he mistakingly thought it was more liquid when in fact it wasn’t.
All of that changes when your understanding of money isn’t constrained by the concept of states. These objects are money by decree.
Can you provide an example? A good example of multiple currencies is something like gold, silver, copper each working together with a very strict ratio between the two. Do you have another example to provide? Bitcoin is an example of a currency proxy, not a currency.
To be clear, gold, silver, and copper are not different currencies or different “moneys”. It is all just money. Goods are priced in each as a root currency, not as proxy currencies.
As an aside, I believe that the 2.1 quadrillion limitation to the BitCoin is actually pretty significant. There is currently around 1 trillion USD (M0). These are divisible down to .01 which means 100 trillion divisible units of money in the US alone. Add in the money supply of all the other countries in the world and I don’t see it being hard to reach quadrillion divisible units. We can argue that you can’t actually buy anything with a penny and nothing is actually divided down to pennies for value reasons (marketing reasons do though) but I would say divisibility down to a $0.25 is pretty reasonable these days which still leaves us dangerousnly close to the limit of the BitCoin. Add in future population and economic growth and the price of goods is potentially limited by the divisibility of the currency. That is, a gumball costs the equivelant of $1 not because it’s worth $1 but because that is the smallest unit of transaction.
I’m still trying to make sure I understand you correctly and I am not arguing any of your points yet. Do you consider any of the various paper currencies of the world (USD, JPY, RMB, etc.) to be money by your definition?
That would be a wonderful problem to have, and not an insurmountable one. It is one that has already be considered on the Bitcoin forum, and the answer given by the main programmers is that the 8 digits of divisability is an artifact of the 64 bit number, and not one that cannot be worked around. As a matter of the protocol that governs the Bitcoin system (as opposed to the actual programming for the current clients that perform that protocal) a bitcoin is infinately divisable. Even if it wasn’t, it’s generally expected that there will be dirivative cryptocurrencies develop in parallel to Bitcoin. If anything destroys Bitcoin, it will be a better version.
You sound like my freshmen students. For an anarchistic capitalist, you echo the fallacies for state capitalism fairly well.
By decree yes. You could definately make bitcoin a money by decree. Absent states though the concept of paralell money on a national basis would go away. In fact prior to rampent state monetary control nations generally used the same currency.
This ties into another problem I have with the BitCoin system in that it does not have a built-in upgrade path. In this exapmple, divisibility will likely need upgraded at some point (assuming it reaches global usage) but the same problem will occur for the cryptography used. Eventually (far off) SHA-256 will be broken and a replacement cryptographic system will be needed.
In both of these cases a redesign to the underlying system needs to be implemented. This means that the original BitCoins will need to be converted to some new BitCoins that have more divisibility, better security, or both. Because the protocol is all that matters and both of these things are based in the protocol, everyone will have to upgrade in order for the system to work.
This reminds me very much of IPv4 and IPv6. In order to upgrade the size of the address space everyone has to upgrade. The whole process is taking around 20 years to implement. Advances in quantum computing have potential to lead to a rapid decline in the level of security offered by SHA-256 and we may not have 20 years to migrate everyone to a new system.
You did indicate that the protocol allows infinite divisibility. However, in order for two people to to complete a transaction they must both share the same level of security and the same level of divisibility in the software they are using. This means that, like with IPv4 to IPv6 one party has to upgrade and then has to wait for the other party to upgrade before they can make the switch. Also, once a BitCoin is divisible past the quadrillion mark it can not be transferred to anyone using the older system (same with the security method). This means that it’s generally not a good idea to be the first to accept “upgraded” BitCoins because they will not be widely accepted.
Nonsense. Bitcoin has to conform to what money is, not the other way around. Money is a human invention to facilitate indirect exchange… this goal stands above and beyond any technological implementation. Bitcoin is just one of many contenders to fit the bill.
If I am reading this correctly, and you are saying that without state intervention most people of various nations generally used the same thing as a money and currency, then you are historicly incorrect. Many things have been used as money, beyond gold and silver. Including, but not limited to; salt, spices and even nails. And they were also used concurrently with gold and silver. Nails were used as money by the Romans for so long, and by so many, that the legacy of it persists to this day. The (imperial) standard of sizes of nails are still measured by the ‘pennyweight’, but the unit is marked by the small letter “d”. This is because for two hundred years, before the debasement of the Roman coins, the cost of a particular sized nail was so stable over time, and consistant across the region, that the exchange value of a particular nail, in denarius, was also it’s weight. Regular citizens were known to trade nails as currency on a regular basis, particularly in the countryside or cities far from Rome. This legacy was passed down through the history of Europe and then to the United States, and because the need to build with wood was common to the colonists; nails were sometimes traded as a currency substitute, when silver was scarce, by their ‘pence’.
Actually, it does have a defined upgrade path, which may or may not ever come into play. With respect to the cryptologies used, those parts are modular, and can be replaced by comparable crypto functions should one of them be broken. Also, the system isn’t dependent upon one crytpo function to maintain security, but overlaps several types, so even if one is broken, Bitcoin isn’t laid bare in the meantime. It would be astronomically unlikely that more than one such function would be broken at the same time.
Again, no. This was considered before the system began. The current client doesn’t impliment the entire protocol, which is complex and quite elegant. There will almost certainly be a point that an upgrade to the common client will be required, but that will not require that the user’s bitcoins be “converted”. In fact, the client itself is irrelevent. The coins don’t actually exist, even as a digital artifact. The ‘blockchain’ is a massive, distributed and collective ledger of the entire history of the system; and all the coins exist as cryptologically signed entries into this ledger. The ‘wallet’ file, or online account with a ‘wallet provider’, simply contains the public/private keypairs that permit the true owner of a set of coins to digitally sign a transfer of ownership that the p2p network can verify as legit.
Again, no. I don’t need to upgrade my client to accept coins from a newer client. The clients don’t even need to communicate with one another. Hell, I don’t even need my client (or any client) running to receive bitcoins, ever. I may need to upgrade my client to spend them, but that is always voluntary.
I am trying to understand the definition of money as you have worded it. Why people would choose to accept one over another does not matter for defining the term. In some places, both the USD and the EU are accepted as a medium of exchange as well as perhaps a local currency. Am I correct in understanding that only one of these can be considered money while the others cannot?
Assuming pure global anarchy in which nails and screws are both commonly used as a medium of exchange, would nails be considered money and screws not if nails were used in 51% of transactions and screws in 49%?
Any country in which two currencies are widely accepted. I will admit, I am not familiar enough with current world politics to know of many good examples but it is my understanding that Somalia widely accepts the USD as well as their own currency.
Any how I’ve said more than enough that needs to be said and covered all the necessary basis. We’re just going to start going off on side-tangents and I haven’t the energy. My recomendation to you is to do further reading on the regression theorum. There are a host of qualifiers that bitcoin lacks which prevent it from ever becoming a widely accepted medium of exchange.
My wager is that it will forever be a geeks/programmers toy. It serves no purpose beyond adding some type of development experience to your resume.
Interesting argument to make, just before quitting, considering that you never addressed his statement that regression theory may not apply in all cases. Also, what do you consider “widely accepted”? At what point does a medium of exchange become successful? The Bitcoin currency, as a whole, represents over $5million at present. That’s a drop in the bucket compared to some things, but it is only two years old, and many other local currencies have existed for decades and still represent less total value. Do you not consider the Ithica Hour a medium of exchange? Is it not successful, or widely accepted among it’s target demographic?
Perhaps it will forever be a geeks’ toy, but it already serves a purpose beyond that for myself, and many others besides. I’m not a developer anyway.
5 Million what? Dollars? Interesting that you use the dollar to demonstrate it’s value.
I don’t need to address it, and you don’t know what the Regression Theorum is any more then Micah does. 
Before you accuse me of quitting please consider the time I took out of my day to write this little explanation up for you and Micah. Please be more curtious if you want me to spend my time explaining more.
Or you can do us all a favor and go read up on the subject ensuring for yourself whether it’s right or wrong. Rather then just asserting it’s wrong because your intillectually too lazy.
It’s a relative valuation. I could have done the same in Euro, Rubbles, gold ounces or pounds of copper.
Really? You’re accusing me of being rude? For the record, I read your ‘explanation’ already, and again just now, and found it lacking. I find it amusing that you accuse me of not understanding regresssion theory, and yet you can’t even summarize it properly. Even in your broken version, regression theory doesn’t exclude Bitcoins from ever becoming a directly traded currency without the need of a fiat currency as an intermediary. And such as it is, your version would exclude the possibility that Bitcoin is traded directly for goods and services presently, and yet not only can I prove that it has been done, I’ve personally done it. The fact that the relative valuation of those goods may, or may not, be a conversion from US$ (or Euros, or gold) is not relevant to regression theory. All oil is priced in US $, that does not mean that US $ is required to buy oil; nor that oil will always be price in US $. My teenaged daughter could summerize regression theory better than this. Are you an adult?
I can state that I have 4,929,500 CAD in USD. That doesn’t speak to whether USD is money or not.
I have been trying to understand what about the regression theorem I am “not understanding” by participating in this discussion. You and others keep saying “go read” but I have read everything that everyone has pointed to on the regression theorem and I still don’t agree with one of it’s assertions. You are trying to claim that I am wrong because I am uneducated on the topic, not because I have made a specific fallacy (with the exception of the post you linked).
I would very much like to discuss that post but, as I mentioned previously, I think that discussion will go smoother and result in less derailing if we work on it piece by piece. The first piece I want to get through is your definition of money because you have indicated that everything builds off of that. So far I have not argued any of your points, I am first trying to understand how you define money so I can then correctly understand the rest of your post and either argue it’s points or agree with them.
It seems like you have a different definition of money than I do, which is not a problem for me. However, because we are coming from different definitions we need to establish a common ground in order to proceed with the discussion. I have no problem conceding to your definition but this means that I need you to explain it to me. In particular is the “most” qualifier that you have applied to your definition because this implies to me that there can be only one “money” and everything else is therefore not money.