Rumors of Bitcoin's death greatly exaggerated...

Miscellaneous General
1

The potential future “currency of the internet” zoomed past $20/BTC today, with its market cap about to overtake the all-time high reached in the 2011 bubble top. As the world’s most powerful computing network, the p2p transaction technology - like p2p file transfer technology - is making end-runs around monopolistic control so easy that they look natural and even obvious.

But let’s face it: Bitcoin is nothing more than a glorified point system. It is only the scarcity of the points (bitcoins) that forces a man to lay down 20 smackers just for the privilege of having a point chalked up to his account (his bitcoin address) in the universal internet ledger (the blockchain).

He is giving up cold, hard cash for nothing more than a mark in a ledger that the majority of users agree upon. He is essentially paying for the rest of the users to acknowledge his right to transfer that point to someone else (spend the bitcoin) at a later date. However, because of the way the point system works no one can reneg on that acknowledgement, so - unlike a bank debit - there is no trust involved.

What can this trustless, decentralized point system do? Well, everything a bank debit system can do, except without relying on banks or anything bricks-and-mortar, not even any company. The convertability to traditional currency is quick, cheap and liquid - if you want it - but as of now products you yourself might actually want can be obtained more cheaply (and more anonymously) in bitcoins: computers, RAM, and half a million others items at bitcoinstore.com, an upgrade for your Wordpress blog, dispute resolution services through judge.me, or a VPN through various providers - to name just a few.

Not to mention the world’s largest (known) fully virtual hidden company: Silk Road, where every one of the $2 million per month of transactions are done in bitcoins. Meanwhile, one Bitcoin-only online gambling site reported 2012 earnings of over $0.5 million, while the Y-Combinator startup coinbase.com secured an additional half a million in venture capital from Silicon Valley angel investors.

Mr. Market - naturally starting with the black and gray markets - is making his own rules, unfortunately leaving some monetary theorists behind as the biggest boon to anti-statism since the internet itself slips by them unnoticed, because it is guised in garb that resembles some thousand-times refuted monetary fallacies and in a form none were expecting.

Ancapistan is already here, folks, but you don’t recognize it because it’s not a place, it has no borders, and it’s not very big yet (only a few million dollars flow through its “streets”). It is virtual, and it doesn’t secede or declare independence. It accretes. It develops, like any natural order, from a countless sum of almost indiscernable changes, each deemed negligible, dubious or useless on their own.

From a geeky novelty to a rag-tag collection of niche markets and agora of negligible mainstream interest, to gradual mainstream adoption for a few purposes where it is clearly superior… the way this voluntary order will unfold cannot be foretold.

While no one knows the future and if this experiment will succeed, it is no surprise that long-time market anarchists like Doug French (former LvMI President) and Jeff Tucker (former LvMI Editor-in-Chief) have turned tentatively positive about Bitcoin, while LvMI Founder Lew Rockwell has started accepting bitcoin donations at lewrockwell.com, receiving nearly $2000 in bitcoin donations shortly afterward.

The revolution is not being televised; it is being monetized.

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Link to Doug French, please.

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Smiling Dave,

AJ already posted the link to Doug French’s article in November:

https://forum.freecapitalists.org/t/what-bitcoin-is/25276/192

when you asked for it:

https://forum.freecapitalists.org/t/what-bitcoin-is/25276/188

Either you’re lazy to actually read the responses to your queries, or you’re deliberately trying to derail the flow of the debate so that people waste time on supplementing your fictitious research activities. I already stopped taking you seriously and I think others should too. The constructiveness of your arguments ended back in 2011, since then you’ve been fabricating fairy tales. You’re the Harold Camping of Bitcoin.

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Either you’re lazy to actually read the responses to your queries, or you’re deliberately trying to derail the flow of the debate so that people waste time on supplementing your fictitious research activities. I already stopped taking you seriously and I think others should too. The constructiveness of your arguments ended back in 2011, since then you’ve been fabricating fairy tales. You’re the Harold Camping of Bitcoin.

Way to take the high road, Pete.

BTW, thank you for putting me into your master’s thesis.

5

Yep, Doug French said it.

He’ll be another notch in my belt when bitcoin collapses.

Note that he doesn’t refute Mises Regression Theorem [nobody has], but merely appeals to authority, saying Menger wrote something vague enough to justify bitcoin, maybe.

I may eat crow someday, sure. The moon may also be made of green cheese.

But you guys are crowing prematurely. Remember the Ithaca Hour, that lasted 20 years before turning into ashes in everyones mouth. I’m sure you’ve seen my article listing other currencies with bitcoin’s flaw that lasted a few years, then died an ignoble death. Or rather, were revealed for the walking dead they were in the first place.

Just because the ECB is ignorant of the Regression Theorem, as they are ignorant of all economics, don’t think their discussing bitcoin gives it any weight.

Reminder to the new guys. I’ve had my say over at my blog [look for Bitcoin All in One Place] , am tired of talking about it here. You know where to look to see my take.

6

Nice post AJ

I remember back in 1994/1995 when the Internet was first emerging as a commercial vehicle. I was advised that the Internet wasn’t applicable to the brick & mortar business I was engaged in. That same business is conducted 100% over the Internet today.

I also remember when Amazon still had not made a profit and many wondered whether Amazon’s business model was just a house of cards.

People couldn’t see how the Internet could get from A to B and so they were skeptical.

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…the Internet…Amazon…

Do you think Mises’ Regression Theorem applies to the Internet and to Amazon?

Is the Internet trying to be money? Is Amazon?

“How much is that coffee, Waiter?”

“Three Internets and an Amazon.”

8

Funny you brought up coffee.

http://bitbrew.net/
http://bitcoincoffee.com/

Yes, I know, it does not prove BTC will not go the way of Ithaca Hour in XX years.

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By the way, regarding the regression theorem, I think it is important to recognize that Mises presents it as a praxeological law:

“All these statements implied in the regression theorem are enounced apodictically as implied in the apriorism of praxeology. It must happen this way. Nobody can ever succeed in constructing a hypothetical case in which things were to occur in a different way.” (HA, 3rd rev. p. 410)

And here is the law:

“no good can be employed for the function of a medium of exchange which at the very beginning of its use for this purpose did not have exchange value on account of other employments.” (p. 410)

This means that if a good is presently employed for the function of a medium of exchange, it must have had, at the very beginning of this use, exchange value on account of other employments. This is nothing but a tautological reversal of the law.

As Mises presents the regression theorem, a good currently employed for the function of a medium of exchange must necessarily satisfy the regression theorem. All that is necessary for a good to satisfy the regression theorem is that the good be employed for the function of a medium of exchange. Once that condition is satisfied, Mises holds that said good must have had, at the very beginning of this use, exchange value on account of other employments.

If a good is currently used as a medium of exchange it must necessarily satisfy the regression theorem according to Mises. The only question is whether Bitcoins are used as a medium of exchange.

(note: this is not intended as a defense or a critique of the regression theory. The intention is to point out that any good that functions as a medium of exchange necessarily satisfies the regression theorem as implied in the passages quoted.)

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Adam.

I agree that the q is whether bitcoins are mediums of exchange right now. If it is true, though, then I see two possibilities. Either there was some past exchange value on account of other employments, or there is some flaw in the regression theorem that has gone unnoticed. People have claimed both of those two possibilities here in the forums.

My position is that it is not a medium of exchange right now. My website says why.

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AJ great post.

Guys, I’d appreciate some feedback on my idea about reconciling BTC with the Regression Theorem that I posted in the other BTC thread.

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Smiling Dave,

for the last time, Ithaca Hours are a (wannabe) money substitute, while Bitcoin is a (wannabe) money in the narrower sense. They are on a different position of the money classification tree designed by Mises. That’s strike one.

Also, Ithaca Hours do not decrease transaction costs, they rather promote the idea that increases in the money supply and autarky are good (which is confused but my point is that Ithaca Hours require ideology to sustain themselves). Bitcoins do not require ideology to sustain themselves anymore (even though they might have required it at the begining), because they are already at a level of liquidity where they decrease transaction costs irrespective of ideology:

http://www.forbes.com/sites/jonmatonis/2013/01/22/bitcoin-casinos-release-2012-earnings/

http://blog.bitpay.com/2013/01/bitpay-surpasses-10000-bitcoin-merchant.html

People are not going to forego business opportunities just on account of you failing to understand their business models. That’s strike two.

Last but not least, the regression theorem does not talk about sustanability of a medium of exchange, but about logical prerequisite of its existence. That’s strike three and you’re out.

13

These dicussions about bitcoin are fascinating. There are regular posts about how it’s a revolution in the making, with people presenting their predictions as facts about the future. There are people who predict that it won’t amount to much in the future, and lots of name-calling. Most want their predictions to be accepted by everyone, and spend a lot of time trying to convince people. Meanwhile, the market actually decides what to make of it, taking into account all factors, not just the ones focused on here.

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Peter Surda,

What do you mean when you say, “money in the narrower sense?”

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Most want their predictions to be accepted by everyone, and spend a lot of time trying to convince people. Meanwhile, the market actually decides…

Why does that not apply to all economics books? A person, say Mises or Keynes or some Nobel Prize winner, “spends a lot of time” writing a book. He wants his “predictions to be accepted by everyone”. Meanwhile the market actually decides…

Come to think of it, why doesn’t it apply to all science books. Take physics. A person, say Newton or Einstein or some Nobel Prize winner, “spends a lot of time” writing a book. He wants his “predictions to be accepted by everyone”. Meanwhile the atoms actually decide…

We, meaning mankind, have advanced to where we are now precisely because people were curious about the world around them. They wanted to understand it. They wanted to be able to predict things about it. Once they hit upon some truth, they wanted everyone to accept their discovery. Yes, it’s true that meanwhile, the universe actually decided what it will do, taking into account all factors. But so what?

16

Thanks for focusing on the question of why someone wants their ideas to be convincing. It’d be an interesting question for people arguing for/against bitcoin to answer. This is my sense of reasons for those arguing against/for bitcoin:

Smiling Dave: the sooner this bitcoin distraction ends, the better, because it frees up energies that could be devoted to real contenders for non-fiat currencies. Belief in it also fuels flawed ideas about currency and builds unsustainable structures around it (e.g. exchanges).

Bitcoin supporters: bitcoin can succeed but it needs people to believe in it; if it is criticized enough it will fail simply due to lack of users. We’re holding out for bitcoin to make our lives better and find critique harmful to this euphoria.

17

…it needs people to believe in it…

That is a good litmus test for intrinsic value. Peanut butter, for example, or dog food, do not need anyone to believe in them. The man and his dog eat the foods and are happy.

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Blargg, Smiling Dave, I repeat, the liquidity of Bitcoin is already at a stage where it provides a comparative advantage (decrease in transaction costs) in an ideology-agnostic way. As new solutions are popping up every day and service providers are maturing, this is a strong hint that the network effect has reached critical mass. Whether people believe it or not is irrelevant. Businessmen can make profit off it, even if Smiling Dave does not understand it. But again the regression theorem does not talk about sustainability.

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By the way, this Monday, UT Mises Circle discussed my master’s thesis and I was invited to participate. You can check out the recording:

http://www.youtube.com/watch?feature=player_embedded&v=yzMgiAJ1b-E

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Network effect reaching critical mass, this implies that bitcoin does depend on others buying into it. I think Smiling Dave’s point is that it’s unsustainable if it depends on this. I asked myself what might also be fueling it, and came up with governments. As long as it offers advantage over fiat and non-anonymous transactions, it might survive.

Things like “As new solutions are popping up every day” raise my suspicion. Really now, every day? So in January, at least 62 new solutions have popped up? This and similar kind of talk about bitcoin always sound to me like the empty marketing materials businesses put out in order to create an image. They seem based on hope for something, not calm assessment of the situation. So my advice is to stop propping bitcoin up and let it stand on its own. I think people will take it more seriously if you do that.