@Toxic
Are we going to debate definitions down to ad naseum. Of course I was refering to the fact that Bitcoin is atleast entangled to the subjective value of watts if it ever holds any subjective value at all.
Yeah, but a competent arguer can establish the fact that the subjective value of “bitcoins” or any given thing is at least entangled to the “subjective” value of watts or any other given thing.
The point is not to establish an spurious correlation link, the point is to assess how much is it important.
And I’m fairly sure that whatever cost in kW*h that it takes to produce a bitcoin, its completely negligible compared to the actual price a bitcoin holds.
You could say, in the light of the regression theorem, that a bitcoin acquires exchange value and thus surpasses its own value in terms of energy costs, but that’s a meaningless platitude.
Bitcoins are not, at their inception or at any time, claims to a quantity of energy measured in watts*hour (or power measured in watts).
They cost in watts (and other less tangible resources) to be generated, but so do many other things.
The value of the bitcoins unit of currency is determined by the willingness of people to transact using this protocol and the general availability of them, regardless of how much energy was spent running the algorithms that created them.
The regression theorem applies to gold and other commodities that incidentally become money. It explain why money didn’t need to be invented by nobody and how it acquires most of its value.
But once the concept of money exists, it can be re-invented, and that’s the whole thing about fiat currencies. They hold value insofar as people are expecting to be able trade them. In the case of central bank fiat money, these expectations are somewhat guaranteed by the credibility of a certain government in enforcing its currency as legal tender.
That led some austrianites to think that only this menace could explain why “worthless paper” could be used to transactions.
But the bitcoin protocol was designed to be money, and it is entirely voluntary, and somehow a bunch of people decided to start transacting with it, and apparently it “works” up until now.
That’s why a few austrianites are so pissed.
But to try to distort the meaning of the regression theorem to accommodate bitcoin is absurd.
Point me where I failed at interpreting Mises’s Theory of Money and Credit. Chapter and Page number.
You failed way before that, because you think wattage spent gives bitcoin value somehow. You don’t get the ABC’s, the baby steps. You don’t know what value is and where it comes from. Money and Credit is too advanced for you.
My opinion is to be found on my blog in great detail, in the article Bitcoin takes a Beating.
Yes, value is subjective.
Progress. But you still don’t know what “backed by” means. It does not mean “has some cost of production”.
The fact that bitcoin needs wattage [which has value] to get made gives bitcoin, or anything else for that matter that requires wattage to be made, exactly zero value. The value of something does not come from its ingredients. That’s what “value is subjective” means in the first place.
Of course bitcoin is backed by nothing. Even the biggest bitcoin fanatics grant that much.
Of course bitcoin is not a fiat currency.
Toxic’s long post is mistaken at almost every line. People reading this might find it an amusng exercise to spot the flaws. They can get help from my humble article Bitcoin All in One Place, which lists most of the bitcoin fallacies Toxic makes. To start off, he makes the same error I mentioned in this very post, about wattage giving a produced product value.
If most of these are exchanges for bitcoin, which are then immediately exchanged for some product, it amounts to little more than something like Western Union. So you could call whatever secure system Western Union uses to wire money from one place to another a currency as well, since during the transfer, the money is being internally exchanged for some kind of digital token.
@Smiling Dave
It’s backed by its utility. I need to brush up on my Austrian basics.
Bitcoin is both a currency unit and a highly secure & decentralized transfer system. Western Union is the latter, but uses fiat currencies as it’s former. That said, some of the transactions that occur on the exchanges are, indeed, simply people using Bitcoin as an online substitute for fiat currencies. Others are speculating in it’s future value. These two groups are not equal at any given time, but the fact that they both exist is evidence that Bitcoin is a cryptographic form of money. The two root uses for such a money are 1) as a medium of exchange and 2) a store of value. If someone is buying bitcoins on an exchange in order to buy something else online, they are using Bitcoin as a medium of exchange; whereas if someone is buying bitcoins on an exchange in the expectation of holding them for some future need or gains, they are using Bitcoin as a store of value.
If someone is buying bitcoins on an exchange in order to buy something else online, they are using Bitcoin as a medium of exchange; whereas if someone is buying bitcoins on an exchange in the expectation of holding them for some future need or gains, they are using Bitcoin as a store of value.
That sounds so smooth. They are both wrong.
This has been one of the most interesting threads I’ve read in a while. With that being said, after reading most of the discussion here, nothing that I thought about Bitcoin before has changed; it’s akin to playing with fire. You are going to get burned sooner or later.
Funny how we can have such different reactions to the thread. I’ve read most of it (and much more elsewhere), and my optimism for Bitcoin’s future has only been strengthened. It certainly has a volatile short-term future due to it’s relatively small market cap and low liquidity, but over the long term I see this as having incredible potential and stability.
It’s backed by its utility. I need to brush up on my Austrian basics.
Well, with your admission, you softened me up. I’ll explain what “backed by” means.
“Backed by” applied to paper money means “that which someone has legally obligated himself to give me in exchange for the paper money.”
I remember when some US dollar bills had “Silver Certificate” written on them. Meaning the US govt was promising to give you a fixed amount of silver if you presented it with that dollar. When there was a gold standard, the promise was to give you a fixed amount of gold. So that the silver certificates were backed by silver, and under a gold standard, all money is backed by gold.
When the US govt declared it will no longer give you gold for paper money, some people wondered what the money is now backed by. The answer, of course, is nothing. But such an answer was uncomfortable for politicians to say. So they started saying it is backed by “the full faith and credit of the US govt”. Which is just double talk and means nothing. It’s like saying the plumbing in someones house is not made of copper or plastic, but of angel’s wings and mothers’ prayers.
OK, let’s look at bitcoin. What does anybody promise to give you in exchange for bitcoin? Gold? Silver? US dollars? Wattage? Utility? No, they promise to give you absolutely nothing. Nobody has made any promise at all. So that bitcoin is backed by nothing.
Which is why I won’t go near it.
I’ve shown you records of currency exchange trades between dollar and bitcoins.
Those are analogous to FX trading records between dollar and other currencies.
They do not represent all the activity in the trading “bitcoin economy”.
Many people keep bitcoins in their electronic wallets, either because they do expect it to appreciate faster than the dollar or because they consider it a form of hedging/cost reduction when making FX transactions in other currencies.
And in any case, as long as people are willing to make payments with “Wester Union” credit, so that not all money wired through western union is cashed out, it IS money too. Just like any checking account in a fractional reserve bank IS also money.
Pasted below are the introductory paragraphs written by Satoshi Nakamoto explaining the intent of the Bitcoin payment system. I’ve bolded the phrases that refer to “trust” and “nonreversibility.” In his opening paragraphs, Nakamoto refers to "trust’ six times and to “reversibility” four times. As is clear, Nakamoto’s intent was to design a payment system that eliminates, as far as possible, the middleman in an interpersonal exchange between two people, and that therefore prevents the possibility of the middleman reversing the transaction.
For those who may not be actively involved in running a business that depends on third-party payment processing, the problem that Nakamoto proposes to solve is an important problem not only from the point of view of commerce, but also from the point of view of libertarianism—specifically, libertarian ideas about contracts between individuals.
Third-party payment systems such as Visa/Mastercard/American Express and PayPal, act as a middleman when a customer makes a purchase from a merchant. When a dispute arises the payment processors may resolve the dispute using its own judgment, largely without respect to any contract that may have been agreed to by the customer and merchant. For example, assume the customer and merchant agree that the transaction is a “final sale” and that no returns will be allowed. The customer receives the good or service in question, but then changes his mind and insists on a refund. The merchant refuses to process a refund, so the customer appeals to Visa or PayPal asking for a refund. The payment processor (Nakamoto’s “trusted third party”) may in this case reverse the transaction and grant the customer a refund regardless of the contract between merchant and customer.
Essentially, the “trust-based” or “third-party-based” payment processing systems (Visa, PayPal, etc.) are not bound by contracts between trading parties. The cost of achieving a contractual, non-reversible transaction, which is important in many commercial transactions, is therefore high. The parties must either meet face-to-face and conduct a physical exchange, or they may transact electronically and then seek to enforce the original contract through the legal system when one of the parties reneges on the contract . In any event, the “trust-based” system in which the middleman is not bound to enforce the contract between trading partners constitutes a cost barrier to the execution of contracts made in conjunction with electronic or Internet transactions.
This is the important problem Nakamoto’s system seems to have solved. This is important for libertarian contract theory, since the bitcoin payment system enables some types of contracts that are currently prevented by the cost of their creation or enforcement. In addition, the bitcoin payment system drastically lowers the cost of payment processing (the amount paid to Visa or PayPal) which for small merchants can be 2.5% to 3.5% of each transaction. Transaction fees for bitcoin transactions are negligible.
In the discussion about bitcoin and whether bitcoins have “intrinsic value” (a theoretical notion discredited by Menger and the Austrian School), it is important to keep in mind that the system conceived by Nakamoto is of significant value for many people who are involved in Internet commerce. Many cannot afford the current high costs of contract creation and enforcement associated with the “trust-based” third-party system, and many must currently pay thousands of dollars each year on third-party processing fees. These people therefore see the bitcoin system as a valuable payment system regardless of how individual bitcoins compare to traditional commodity or fiat currency units.
Regardless of bitcoin’s status and prospects as money, from the point of view of Internet commerce and libertarian contract theory, bitcoin appears to be a significant technological advance with the potential to dramatically expand and enable free-market trade.
Bitcoin: A Peer-to-Peer Electronic Cash System - Satoshi Nakamoto - www.bitcoin.org
- Introduction
Commerce on the Internet has come to rely almost exclusively on financial institutions serving as
trusted third parties to process electronic payments. While the system works well enough for
most transactions, it still suffers from the inherent weaknesses of the trust based model.
Completely non-reversible transactions are not really possible, since financial institutions cannot
avoid mediating disputes. The cost of mediation increases transaction costs, limiting the
minimum practical transaction size and cutting off the possibility for small casual transactions,
and there is a broader cost in the loss of ability to make non-reversible payments for nonreversible
services. With the possibility of reversal, the need for trust spreads. Merchants must
be wary of their customers, hassling them for more information than they would otherwise need.
A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties
can be avoided in person by using physical currency, but no mechanism exists to make payments
over a communications channel without a trusted party.
What is needed is an electronic payment system based on cryptographic proof instead of trust,
allowing any two willing parties to transact directly with each other without the need for a trusted
third party. Transactions that are computationally impractical to reverse would protect sellers
from fraud, and routine escrow mechanisms could easily be implemented to protect buyers. In
this paper, we propose a solution to the double-spending problem using a peer-to-peer distributed
timestamp server to generate computational proof of the chronological order of transactions. The
system is secure as long as honest nodes collectively control more CPU power than any
cooperating group of attacker nodes.
It still isn’t a currency.
I actually own bitcoin. I am down $8000 at current prices. I accepted the risks, and still have a smile on my face.
I use bitcoins to conduct transactions. The person on the other side knows that bitcoin has a certain value at a given moment in time. He knows that if he holds those coins and does not cash out, they will flucuate in value. He knows it isn’t money, but rather a proxy for money.
No matter what people say here, it isn’t a currency. Not yet. If it becomes ‘money’ then you can apply the regression theorem to it.
The USD fluctuates. The Euro fluctuates.
Prices where you live change on a daily basis?
Not when you transact in the unit of account.
Whatever you say, bitcoin is not a ‘transactional currency’, because it is neither primarily transactional, nor is it a currency.
I have worked out a method of solving the error of bitcoin. Not going to tell what it is. Just going to make my own crypto-tokens.