David Kramer on Bitcoin—Just Another Bogus Medium of Exchange
I’m sure by now many of you have heard about Bitcoin. The fact that it’s called “virtual currency” gives you an idea about its actual value as a real medium of exchange. While many people who are touting it on Facebook are enamored with the fact that it was voluntarily created by the marketplace (i.e., is not forced down our throats by a private central bank), I’m afraid that those people are losing sight of how a real medium of exchange arises in a free market. A medium of exchange arises from something that had a material use/value in the market prior to becoming a medium of exchange, i.e., it was also a good being bartered for other goods and services. Over the centuries, gold and silver won out as the two most preferred mediums of exchange—with gold holding the number one position due to it being more scarce than silver.
What was Bitcoin’s prior material use/value? Zero. It is just bits in a computer. And what’s with the “fixed” amount of Bitcoins? Who determined the “proper” amount? A computer programmer? Only the free market can voluntarily determine how much of a real medium of exchange is needed in the marketplace over time. While the idea of attempting to get rid of the Bankster monopoly on creating money out of thin air is commendable, Bitcoin is also money created out of thin air. Bitcoin is just substituting one bogus medium of exchange for another.
UPDATE: I’ve been getting a lot of reader response trying to “explain” to me the economic virtues of Bitcoin. Some responders have even mistakenly used Austrian economics to rationalize their views. I would suggest that before you write to me about the Austrian economics view of a medium of exchange, you should read the two books by one of the two giants of Austrian economics, Murray Rothbard, on what a medium of exchange is. Here is the pdf for Rothbard’s What Has Government Done to Our Money and here is the pdf for Rothbard’s The Case Against the Fed. For those of you who have not yet read any Austrian economics, please do not waste your time writing to me trying to explain the “scientific” breakthrough of the bogus Bitcoin computer program.
{ 226 comments }
To “buy” these bitcoins, don’t you first have to use another, equally worthless currency to get them? Exchanging Federal Reserve Notes for some other unbacked asset isn’t exactly going to turn my head. Looking at the whole scheme, it looks like any other currency that floats around in exchange rates with other currencies.
The only seeming limit on these coins is the ability of sovreign nations to print money, which means these coins are limitless in supply, thus have no reliable method to limit inflation (especially since the owners can feasably just program themselves a few more coins in their own accounts without anyone noticing).
Just as there’s a limited number of digits (10 in a decimal system), or IPv4 addresses (2^32), also the amount of Bitcoins could be limited. By their very nature, I mean, definition. AFAICT this is exactly so.
Sure, if we want more bitcoins than there are molecules in the entire universe.
J Murray,
I’m not sure I follow you. AFAIK there’s only a maximum of 21 million bitcoins scheduled to be created, why is this more than the number of molecules in the universe?
I just read their FAQ. Still find it absurd that the whole bitcoin movement believes the best person to provide money is the one that can program the best hash algorithm solver and has the fastest computer.
At the end of the day, I’m getting nothing by paying someone who has a bitcoin, a 100% virtual, unbacked “asset” with real capital. This isn’t any better than a Federal Reserve Note. The entire system lacks the necessary protections to be money considering a bitcoin can easily vanish off the face of the planet while, say, a bar of gold is still a bar of gold and takes a lot more to destroy it. A virus could destroy the entire stock of bitcoins and, being digital, it’s far easier to counterfeit than even a piece of paper. There isn’t such a thing as perfect security, many a company had their perfect security broken in hours after it hit the market. It’s just bad currency from every angle.
J. Murray,
You get, among other things, lower transaction costs, better protection against expropriation by government, better protection against inflation.
So is government fiat. But governments attack gold users. Those two combined create a gap in the market. Bitcoin fills that gap.
Okay, so who should provide the money? He who can get the gold out of the ground fastest? Why? Isn’t that equally absurd?
I see what you’re saying, you want something physical which is hard to destroy. But it is possible to back up your bitcoin wallet, and store it somewhere safe (in fact, it’s much easier to securely store bitcoin wallet backups than it is to store gold).
And there’s built-in protection to avoid counterfeiting. So far, nobody has managed it, at least. What makes you feel it’s so easy to counterfeit?
And yes, perfect security is a myth, but that holds for gold vaults too.
No system is perfect, but I’m still not sure why you see this one as being so unbearably awful.
The big difference is that this is a voluntary, market based currency. If people don’t trust it, then it will not succeed. End of story. Most of us probably have our doubts about this project, but I, for one, think it is worth trying. If this is a model that we can use to create currencies that are out of the reach of the state, then it is great.
Other than that, I think that Colin Phillips said what needed to be said in that first comment of his.
Colin,
Indeed, the protection is based on cryptography. If you attempt to counterfeit in the narrower sense (i.e. by creating an invalid transfer or new block claim), the rest of the nodes will clearly see that the hash does not match and will ignore the transaction. The computational effort required to perform validation is negligible. If you violate someone’s property rights in order to get bitcoins, then this is covered by property rights laws anyway, so you can sue them. The only case which is really problematic is a cryptographic brute force attack. If that becomes economically feasible and Bitcoin does not adapt, it will fall apart.
There were apparently already at least two cases when someone was defrauded. MtGox blocked the account of the people who ended up with the “stolen” Bitcoins. This is possible because all transactions are traceable. Bitcoin is pseudonymous: you do not know the identity of the people doing the transactions, but you can easily block transactions that were in the past connected to fraud and prevent them from going through. The “stolen” bitcoins are then unusable. Data mining techniques might be able to reveal the identity of the person “owning” an address.
“Exchanging Federal Reserve Notes for some other unbacked asset”
Bitcoins are backed by freedom, convenience and anonymity. Those are important assets when trying protect commerce from taxation and government crackdowns and when you want to facilitate exchanges across the internet.
We’re moving from a things to a bits world. From physical to virtual. Get used to it.
Hmm,
This article seems to be a lot of “This won’t work because I say it won’t”, rather than having any actual substance, or reason. Yes, Gold and silver have won out as media of exchange due to their unique applicability to the problem in the past. In the words of Murray Rothbard, So what?
And about the “proper amount” of bitcoins – this is just meaningless noise. Who determined the optimum amount of gold on the planet? Some exploding stars? Only the free market can determine the right amount of gold for the marketplace over time. Except that’s bullshit, obviously. Prices of other scarce goods, measured in gold, calibrate according to how much gold there actually is, not what the market would like the amount to be. Why should bitcoins be different? (Note: I’m not saying it’s exactly the same, just that the post fails to distinguish any reason that it might be different, except for a hasty appeal to authority). Clearly, if nobody used bitcoins, 21 million of them is superabundance. As soon as one person is willing to trade a piece of their property for a bitcoin, that bitcoin has a value which is greater that of the piece of property (subjectively, to that person, of course. This is Austrian economics, after all).
The fact is, whether or not it makes David Kramer happy, a medium of exchange has arisen in the free market, and it happens to be called bitcoin. It is scarce, due to non-reproducibility. It’s value is subjectively determined. Because it is a medium of exchange, the value is primarily determined by the range and quality of goods for which it can be exchanged. The fact that it does not have a past as something materially useful is interesting, but again, so what? Gold’s price right now is not primarily determined by its industrial applications, but rather the other way around. Menger’s theory on the origins of money manages to successfully explain the origin of every currency in the world, and that’s wonderful. If it happens that bitcoin is a currency that, through the free market, arose through a different mechanism (that of fixed-supply-by-design, plus anonymity of exchange, plus being a lot simpler and easier to invest in than gold in many places), why does that make David Kramer so cranky. Sadly, he leaves that part out of his article.
There may be significant problems with bitcoin, but from the original post, you wouldn’t know it. You can tell that David Kramer’s opinion is that there might be problems, but he cannot yet articulate what they are, or what their effect might be. Hell, we *know* and can *explain* what the significant problems with dollars are, but that doesn’t mean you can’t use them to buy bread.
This article is an embarrasment to LewRockwell.com, and should not have been mindlessly reposted on mises.org. This is supposed to be a place of scholarship, research, and study. The article has none.
Yes, I agree with most of your points. Telling people to read Rothbard to find out what is wrong with bitcoin is a bit absurd, as well. I am sure it would easy to quote Rothbard at length with arguments that support bitcoin. At the very least, Kramer could name or otherwise cite the particular arguments he has in mind.
The general points I made in the post I learned from reading Rothbard. Reading the actual Rothbard books will just explain the history of the medium of exchange in more detail. Rothbard would NEVER have approved of bitcoin from an economic point of view, though he might have found it commendable that people are at least trying to break free of the bankster/government monopoly on the medium of exchange.
Maybe in addition to Rothbard, you should also read other Austrians. What just quickly pops up to my mind is Hayek, White, Selgin, Schlichter, and although not published, Michael Suede.
We don’t know what Rothbard would have thought. From Austrian point of view, there is nothing wrong with Bitcoin and whoever claims something else is wrong. I already refuted those that I could comment on. I’ve been conducting economic research of Bitcoin for several months and among other things discussed the topic with actual Austrian economists as opposed to “Just another bogus blogger”. These economists do not share these fictional objections to Bitcoin ascribed to Rothbard.
Compared to gold, Bitcoin has superiour resistance to cartelisation, FRB, government interference, unpredictable supply changes, but most importantly from empirical point of view, it has lower transaction costs. It is also driving innovation in payment processing in an unparalleled way, due to its open source nature. While we don’t know what will happen in the future, what we can do is to criticise Bitcoin rationally and scientifically rather than ideologically.
Sorry you feel that way. I had not seen a discussion of Bitcoin on this blog as of yet and thus decided to spark a conversation utilizing this article to start things off.
I, for one, am glad you posted it. There has been a glaring lack of discussion about bitcoin on Mises.org, given the economic implications of such a currency and the fact that bitcoin.org’s own forums are full of Austrian thinkers.
Bitcoin has been discussed extensively on the Mises Forum since Aug 2009:
http://mises.org/Community/forums/p/9853/238889.aspx
The lewrockwell.com main page is for scholarship, research, and study. The blog page is more for personal musings and observations. If Lew Rockwell doesn’t approve of a post, you can be sure that he will pull it.
> And what’s with the “fixed” amount of Bitcoins?
> Who determined the “proper” amount?
> A computer programmer?
Sorry, but I think you should also take some time and inform yourself about how Bitcoins are actually working before you post random rants about an exciting new technology.
BTW: “Any quantity of money in society is ‘optimal’” (Rothbard in The Case Against The FED)
While Bitcoin may be fully worthy of criticism, this critique can’t be taken seriously at all. He could actually read a bit more about Bitcoin first, as he suggests its proponents do of Austrian materials.
I don’t like bitcoin, for the simple reason that for it to work, you need computers, networks and electricity. that doesn’t seem practical. but I find Kramer’s article to make a very poor case against bitcoin. I have to say I agree with Colin Phillips’ comments above.
Augusto:
You don’t. See http://bitbills.com/ . Also for gold to work, you need metallurgists. And if you want to use it online, you need computers, networks and electricity too.
Peter, for bitbills to work, you still need computers, networks and electricity – otherwise, you can’t read the bitbill cards or make any sort of transaction.
Re: gold and metallurgy. Not accurate. People have been digging gold by themselves for millenia. You basically need a gold pan, a shovel, and perhaps some luck.
I think bitcoins are an alternative to government fiat money. Perhaps even a better alternative. But still much inferior to gold (and silver).
Augusto:
You do not need computers for bitbills to work. You can use them in completely offline transactions, just like cash. You just need computers if you want to verify their validity mathematically (rather than by the physical attributes of the card, like the logo). Just like you need a metallurgist if you are unsure about the gold coin you have, or a network connection if you want to process a credit card payment online. But if you are happy with the level of trust of the other party, you can just accept an allegedly gold coin or allegedly valid credit card in an offline payment.
Besides I don’t see the obsession with being offline. You can’t do much business if you’re offline anyway. A business without at least a telephone is severely limited to local customers.
I can’t verify the authenticity of a gold coin. It could be a gold plated tungsten coin for all I know. While I am probably technically capable of measuring the electrical resistance, malleability, density, or resistance to acids of a coin, but I would need to lookup the details online in order to perform the tasks. It would consume a huge amount of time, and some of the procedures diminish the value of the coin. I could pay an expert, but I would need to trust his judgement. All these costs and times are negligible with bitcoin. Bitcoins do not degrade, their authenticity can be verified by publicly know mathematical operations, and there are several open source implementations that can do that for you. With Bitcoin, the issue of trust is decentralised. That’s a big advantage.
This could very well be (personally I am even inclined to agree), but as long as government is “regulating” banking (i.e. in bed with banksters) and on a crusade against gold, it does not carry much practical relevance.
thanks for reply, actually gave me a better understanding of the potential advantages of bitcoins.
Consider that for Gold to work, you need cars, roads and gasoline. I think that Bitcoins are much more practical than Gold.
What? That’s absurd. Gold was already used as currency thousands of years prior to the invention of any of the things you mentioned.
My point being that Gold is a slow, heavy, bulky and risky method of payment but Bitcoins are an instantaneous, virtual, convenient and safe method of payment.
You would NOT be carrying around your gold. It would be stored in a safe place. It would be represented by computer bits or gold certificates (which is what Federal Reserve Notes used to be before the Banksters got a hold of the country’s money supply.)
You have paper money being held in a bank, yet you can go online and see a digital display of how much paper you have.
David,
And, because certificates are substitutes, they have decreasing value (either demurrage or FRB), and require trust in the issuer. The whole system would become cartellised again because collusion decreases the risk of FRB. It also won’t allow online P2P transactions, decentralised transfer condition evaluation and won’t reduce transaction costs.
A bank can display anything they want. Verification is costly (auditors) and requires trust: you probably won’t be allowed into the banks safe yourself. With Bitcoin, the transactions as well as the code are public and anyone can verify them at almost zero cost.
Justin,
I already replied to several Austrians regarding Bitcoin on the forums and other sites, so I’ll just reformulate and expand. The argument you are using is incomplete. It would be complete if there was no government meddling in “money”, either by government not existing at all, or by not using force against alternative currencies (apart from determining the currency for tax payments).
If the Austrian theory about “money” is correct, in the absence of the government interference with “money”, we would see an expansion of DGC (digital currencies which use gold a specie). But governments, especially the US one, are outright hostile to any competition to dollar based on commodities, including DGCs. Under these circumstances, if you use DGC and the government confiscates the specie from the issuer, you are screwed. This is not just a theoretical problem, it is actually happening. Heard about von NotHaus? I think his story was mentioned on this site too. With Bitcoin, there is no specie to confiscate, and if you encrypt and backup your wallet, i.e. private keys, there’s also no Bitcoin to confiscate. Furthermore, it’s decentralised, so there is noone specific to attack, plus it gives Bitcoin a comparative advantage against DGCs due to network effects (standardisation). MtGox is probably the biggest single point of failure (based on volume it’s by far the dominant exchange), but a new exchange with promising features was launched just a couple of days ago, I forgot the name. More will likely follow. Also, Bitcoin authenticity is based on math rather than the reputation of the issuer or physical features of the specie, which takes care of the issue of trust (compared to DGC and commodities). You don’t have to be a metallurgist to verify a Bitcoin, your computer, such as mobile phone, can do that for you, in a second at negligible cost.
Bitcoin fulfils some of the requirements for “money”, such as homogeneity, divisibility, portability, durability, recongisability and scarcity. I’m not claiming that Bitcoin is “money” (I consider the term “money” as defined by the Austrians to be useless and not praxeological), I’m just claiming it has comparative advantages against the alternatives that exist in the current society. If governments suppress “money”, then the praxeological argument with regards “what would happen on a free market” is pointless. It will be replaced by “non-money”. That’s the logical consequence. And I don’t think government meddling with “money” is going away anytime soon.
Another misapplication of the Austrian theory is the claim that because Bitcoin is intangible, it has no value. Have you not been following the debates about IP? From the fact that Bitcoin is intangible you can only derive that it is not property, you cannot derive that it has no value. As long as you keep your private keys secret, you can for practical purposes treat your Bitcoin wallet as your property. If someone trespasses or uses force otherwise to gain access to your private keys, he is violating your rights anyway, so you have a legal foundation for requiring him to “return” the Bitcoins. Also, you only need access to the private keys if you want to pay. If you want to receive money, you don’t need them. The only risk (from Austrian point of view) is that if someone manages to brute force your private key (which is according to current knowledge so improbable that you can from practical point of view treat it as impossible), or if you somehow inadvertently disclose your private keys to a third party without them initiating force, and they transfer the money to another address, you cannot claim that theft occurred. Whether other people however accept transfers from the new address is another thing. Noone can force them to, they can boycott the new address if they feel like it. Also, you can protect yourself against brute force by having multiple addresses and separating the storage of keys. The costs for this are negligible compared to distributing your gold among multiple warehouses.
Even if we disregard the state, we don’t know what future brings and what new developments may occur. The commodity-based argument ignores this. If someone invents replicators (Star Trek), then the whole argument for for gold, or any commodity, as a good money will vanish. I don’t know what would replace gold in such a case. I’m a falsificationist, I do not prove, I disprove. And I’m claiming the argument for gold as money as not being founded in praxeological theory, rather as mixing praxeology with normative statements. Had linux and open source not existed, such a mixed approach would also lead to the conclusion that it cannot exist or compete with the alternatives. That’s evidently false.
To summarise my argument: in the current society, Bitcoin has comparative advantages against competing media of exchange. They all boil down to costs and opportunity costs. Of course, costs are based on “merging” heterogeneous variables, so there is no way of apriori determining whether the outcome supports or rejects Bitcoin. I think however I have made a reasonable argument why it is possible for the outcome to be advantageous for Bitcoin. Not necessary, merely possible.
Oh yea and I read, among other things, Human Action, What Has Government Done To Our Money, The Ethics of Money Production, The Tragedy of the Euro. My argument stands: the pro-gold (or pro-commodity even) claim is based on mixing praxeology with normative assumptions. It is valid only insofar as the normative assumptions are fulfilled. Currently, they are not fulfilled because government interferes with “money”. Also, future technological development (e.g. replicators) might render the normative assumption invalid even in the absence of government interference.
Peter Surda,
Thanks for your analysis, it’s useful to me.
Using your argument, then, could we say that Bitcoins are fulfilling a market need, by solving the problem of government interference in the money supply (both the fiat money supply, as well as the supply of commodities, as in the van NotHaus case)? Therefore, in the absence of government interference, unless Bitcoins adapt to some new use, the problem that Bitcoins solve will be nonexistent, and Bitcoins will lose out to things such as gold?
If that’s the case, then I might submit that bitcoins are really just a form of insurance, insurance against government seizure. Perhaps this is what gives bitcoins their value – one bitcoin represents one unit of purchasing power which cannot be seized from you. The subjective value of one bitcoin to you is then directly proportional to the risk of seizure that you face.
In a purely free market, then, the price in gold of bitcoins should approach 0. As the risk of government seizure increases, the price of bitcoins should rise also. Would you say then that the gold price of 1 bitcoin represents an index of economic freedom in internet-connected societies?
Colin,
Correct.
Correct, unless a new technological breakthrough, such as replicators, emerges. What would happen when replicators were developed I don’t know, but I think gold would be definitely bust.
Not only that, it also has lower transaction costs (I think I forgot to mention that originally) and can utilise network effects faster. I’d like to stress however that these are merely empirical variables, and while I think they accurately represent the current status, they are not a deductive conclusion.
Quite possible, also the aspect of technological novelty (the “cool” factor), independence from other encumbents (such as the banking system and online payment processors), internationalisation (government fiat is regional) and the dramatic reduction of the dependence on the human factor (instead of trusting minters and bankers, you need to trust mathematicians, but you can pick your own mathematician or even do it yourself). And I think also there is a bubble factor too, I just don’t know what proportion it has.
Correct (again assuming there are no replicators).
Correct. Although, if all governments threaten with this, it might not necessarily correlate. But luckily it looks like gold-backed digital currencies are quite popular in Asia. So they might be more receptive to Bitcoin too.
That is an interesting question. I tend to agree with your logic.
@Petr “From the fact that Bitcoin is intangible you can only derive that it is not property”
I don’t think this is correct. Bitcoins are scarce, and at least along Hoppean lines that would mean they can be property.
Manuel,
Bitcoins are not scarce, their utility/meaning/interpretation is scarce. Every bitcoin P2P app (at least the current implementations) has a copy of all bitcoin transactions that ever occurred. But public key cryptography makes it behave as if it was scarce. Just like, for example, DRM can do that with movies. DRM requires that you have a key to watch. Bitcoin requires the key if you want to pay (i.e. transfer bitcoins to another address). If you try to double spend, one of the transactions will end up being verified faster than the other and that will then end up in the longest chain and be considered “valid”. The other one will be considered “invalid”.
Math can create “virtual scarcity” out of thin air. Cool huh?
@Peter Surda
So are we quibbling over semantics? If somebody hacks my computer and transfers my Bitcoin to his address, is he not a thief? Has he not stolen my property, however you may define it?
If somebody hacks into your computer then they are using your physical resources (your computer) without your consent. That constitutes a property violation.
Exactly.
If someone enters my house with a gun and tells me to put my public key information on their memory stick, ties me up and then disappears with it, he can spend the money anonymously (ie. without leaving an audit trail) as i understand it – is this correct?
Kid Salami,
last time I checked, threatening to shoot someone with a gun unless they perform some action is considered a violation of property rights. Why should it be relevant whether the action involves Bitcoins? BTW public key is publicly available, you probably meant to say private key. You said in another thread you have a hangover, so maybe you should take it easy and not post for a while.
I meant private yes sorry. And yes, i think i’m going back to bed. Don’t get so tetchy, i think Bitcoin is one of the greatest ideas of all time, though it might have one fatal flaw. I’m perfectly aware that pointing guns at people in their home is illegal – i asked a question, which you didn’t answer. Can he spend them anonymously once he has your private key and your tied up? It is my understanding that he can.
Kid Salami,
if the gunner “spends” the Bitcoins, you could argue he owes damages to the victim. It’s a consequence of property rights violation perpetrated by the gunner. It’s logically impossible to “return” the Bitcoins regardless of whether they are property or not, because all transactions are irreversible. I don’t think though you can argue that if a third party that was unaffiliated with the threat ends up with “stolen” Bitcoins, he needs to send them back to the victim. But others might voluntarily refuse to accept “stolen” Bitcoins.
And by the way he cannot spend them anonymously. The transaction will be publicly available for anyone to see. Merely the identity of the gunner is not a part of that transaction. That’s why it’s called pseudonymous.
Yes, anonymous in the sense that no audit trail is left to an identity is what I meant – and that’s why I said I was tied up by the robber, because they can be spent before anyone is aware they’re stolen. Bitcoin is great and certainly has its role, but I think this kills the idea of it displacing gold.
Kid Salami,
I would not be so hasty to conclude gold has the advantage here. If the object of the “theft” was gold and the robber was able to anonymise it (e.g. melting/recoining), it might not be ever possible to trace it, even if everyone is aware that theft occurred.
Yes I know – that’s why people don’t keep cash and gold in the house, they keep them in bank vaults. And i suspect that the equivalent for Bitcoin – a Bitcoin Bank where everyone stores their private keys – is fundamentally not possible.
Kid Salami,
at least Mt. Gox and MyBitcoin already offer services like this. Think of it as paypal. But the point is that paypal is centralised, and so are the credit card companies. On the other hand, just like someone can force you to give him the pin to your card, or login details to your online banking / paypal, they can force you to give them your login details to Mt. Gox / MyBitcoin. So there is no clear advantage in any of the situations.
If you want, you can put your savings onto one Bitcoin address, put the private keys onto usb sticks and store them in a bank vault (remember, there is no need to have the private key in order to receive money). That’s more difficult to force directly, although someone could still take your wife hostage in order to give them the keys. So again, there is no clear advantage anywhere. However, I think it can be argued that Bitcoin gives you flexibility that you don’t have with alternatives. How well you use it is up to you.
“If you want, you can put your savings onto one Bitcoin address, put the private keys onto usb sticks and store them in a bank vault (remember, there is no need to have the private key in order to receive money).”
Hmmm, I never thought of this rather obvious strategy (holding only the private key to your “checking” account and storing the key to your savings account in a vault). I still think there is a fundamental barrier but it maybe is not as bad as I first thought. I need to investigate this more.
“If someone invents replicators (Star Trek)”
At this point, money would no longer be needed. People could replicate food, clothes, energy, car parts etc. There would be no need for money because there would be no need to trade money for things you can make yourself for almost nothing.
I would not be so sure. Replicators just change energy into matter and vice versa. They do not create any of them out of nothing. So there is still scarcity. Furthermore, replicators only replicate goods, they do not replicate services, so these would be significantly less affected. So, if you want to obtain a service, you still need to offer something in exchange. What would it be?
build a butler robot and replicate it?
Ah, but who will build the butler robot? And who will invent it? And what if you do not want a robot, but want a “personal” service?
I share the author’s Bitcon scepticism, though main reason for me is the built-in possibility of a catastrophic breakdown. When someone breaks the underlying crypto and trust, all Bitcoins become worthless in an instant. Another unpleasant feature is their non-locality, as in, they need the network to be up and running, one cannot “take” Bitcoins and “store” them. Also, while number of Bitcoins is limited by design, nothing prevents creation of more such systems: Bitcoin2, Bitcoin3, etc (ok this is minor as each new system must come through voluntary acceptance by users).
.
That said, some of author’s arguments seem a bit weak. I agree Bitcoin doesn’t follow the usual ways for establishing a, quote, “real medium of exchange”. But once it’s been created (check) and people use it as means of indirect exchange (check), who are we to deny it the “medium of exchange” status? It may enjoy it temporarily, it may even be scammy (in an interesting new way, quite different from the usual fiat funny money and FRB scams), but a medium of exchange at the moment it seems to be.
.
Re Bitcoins prior material use being zero: so what?
.
Re “fixed” amonut – why, this is easy done, by definition.
.
Re “proper” amount – isn’t it the same as with proper amount of precious metals? The amount available is a given, and this, together with other features and circumstances, determines the subjective value people will assign to it. Within some boundaries re practicality, any amount can be “proper”, so as long as it is voluntary, let the people vote for them with their other monies.
.
Me would vote against Bitcoin. But provides for an interesting debate.
Ireland,
It does not need to be in an instant. It can just gradually degrade (and indeed, this is what has already happened in the past with weaker hashing functions). Bitcoin’s design allows for a replacement by a stronger hash function. It can also switch proactively as stronger alternatives become available.
You can, see http://www.bitbills.com . But why would you see locality as a problem? Don’t you want redundancy? If it was possible, wouldn’t you want to store all your gold simultaneously in two different banks?
Correct, there is no inherent protection against that. However, due to network effects it’s unlikely to have a significant impact, unless it offers new features. That is a real threat: something that has more features. But I think that’s difficult. From mathematical point of view, Bitcoin is missing true anonymity. But it has authenticity. I think those two are mutually exclusive. You can gain anonymity however by creating anonymised Bitcoin substitutes, but that’s not really a replacement, that’s just an extension.
And when someone finds a way to create gold easily? (not that you’re claiming gold doesn’t have these problems) Of course gold has stood the test of time in not being easily created.
No different than if we used gold as a currency, and someone proposed we start using something else as a currency as well. This is thus a criticism of the situation in any economy at any time, not of Bitcoins.
Since anything can be currency, the most important thing in its emergence is that in not be a fiat currency (“use this or we’ll shoot you”). As long as there is competition and not all businesses are forced to use it, then it would be alright I believe. It would still have a lot of the same shortcomings inherent in paper currency, though.
I think that a non-fiat commodity backed digital currency would be preferable, and in a completely free market, would be the currency to beat out the others. It would be the best of both worlds.
The only case I have against the the bit-coin is that I can not hold it in my hand. I can hold gold and/or silver. But that having been said, It is the market place that will determine the validity of the Bit-Coin or any other currency. It is unfortunate that a bunch of thugs in Washington are sending out agents to kidnap and mistreat people who attempt to create competing currencies.
Bogard,
You can, see http://www.bitbills.com
Value is subjective, so a few bits can be perceived as valuable by some people for whatever reasons. Thus we have the starting point of the regression theorem. Once something starts to be used as money, it gains increasing value in exchange. This is also true of gold, to the point where most of its value is not use value, but exchange value. This is even more the case for paper money and in bitcoin it is in the extreme. However some people think the coins are awesome, and the possibilities are mind-boggling, therefor somebody was willing to accept a few thousand of them in exchange for a pizza at one point.
The problem some Austrians seem to have is that “just bits” cannot possibly be valuable in themselves. Maybe not to you, but that doesn’t prevent them from becoming money.
It’s not the prevention of becoming money, but becoming sound money. This moves beyond the “is it government or not” aspect and moves into the realm of pure economics. Austrian economics is economics, not a political philosophy. Government intervention is merely one aspect of the discipline. Private entities making the same mistakes as government entities are still mistakes. There’s nothing in the Austrian book that states the followers cannot campaign against private sector created, even voluntary, transactions should the foundation of the transaction be rotten. Bitcoin is a bad idea for the same reasons the Federal Reserve Note is a bad idea, the only exception being bitcoin isn’t a force-fed currency. Bitcoin is being actively promoted as a sound monetary system and Austrian economists take umbrage at that, thus this blog post.
Based on their own published scale, we’re dealing with a currency that is going to experience the very definition of runaway inflation.
https://en.bitcoin.it/wiki/File:Total_bitcoins_over_time_graph.png
100% inflation over 3 years is horrendous. The inflationary rate doesn’t reach a “reasonable” Federal Reserve-level inflation until sometime in 2029 by their calculations. What exactly is the benefit of this system? Even the “asset based” money Mike Sproul shows up here and promotes now and again makes more sense than this because, at the end of the day, if the market stops taking the money you still have your timber/wheat/cotton/gold that it’s backed with and can convert it into whatever currency is in vogue. Should bitcoin lose market preference, you end up with, well, nothing. “Well, at least I still have my arrangement of magnetic particles.”
Even in a purely voluntary exchange situation, people can and do make immensely foolish decisions. Telling them the decision is foolish isn’t violating any libertarian or Austrian ethics. And bitcoin is a foolish monetary system.
J. Murray,
But since sound money is under attack by the government, the question is not whether Bitcoin is sound, rather if it has comparative advantage against the alternatives. I believe to have successfully argued that it is possible.
Bitcoin has the ability to diminish the bad influence government and banksters have on the economy. Gold does not have it. If it had, it would already have happened. Why does it matter if Bitcoin is sound or not?
You are missing the second half of the picture. The proportion of the economy that bitcoin affects also grew. Your argument would only make sense if you were comparing an economy that uses Bitcoin exclusively.
I explained the comparative advantages of Bitcoin in other posts of this thread. Behold.
When government comes and takes your timber/wheat/cotton/gold, will you be jumping with joy that you subscribe to the principles of sound money?
Bitcoin can only lose market preference when it loses its comparative advantages to another alternative. I believe to have successfully argued that this is by no means certain or even very likely.
Telling people that trusting government is foolish is also not violating any libertarian or Austrian ethics. But telling them not to hire tax advisors, or not to become a tax advisor because taxes are “unsound” is pointless.
Gold became money because it had a prior use value (jewelry, pottery, ornamentation; today it also has uses in medicine, food, and high technology) to people before it became the accepted medium of exchange. There were a number of mediums of exchange before gold and silver won out (e.g., salt, hoes, cows, silk[?]). All trade always was, and always will be, bartering (trading two different goods of greater importance to each party). Even with a medium of exchange, people are still bartering—it’s just that the medium has some sort of use value (like salt and gold have) which both parties knew that most people desired to have. THAT’S why only certain materials became acceptable as mediums of exchange. Fiat currency (which used to be just certificates of claims on a tangible material—gold or silver) is just paper. It has very little value as a material in the marketplace. Bitcoins are just electronic bits. They have no value as a material in the marketplace. If people want to use bitcoins rather than the fiat currency we are forced to use—be my guest. But just like fiat currency, they do not represent anything of real use value that people would use as a medium of exchange if left to choice. My view is that the people who want to use bitcoins are trying to replace one worthless medium of exchange with another. I’d even take salt (not really, it’s too abundant now) over a computer bit as a medium of exchange anyday. Remember that even when gold and silver were used as mediums of exchange for centuries, people still wanted them for their original material uses.
David,
This is an incorrect conclusion. The “that’s why” is a non-sequitur. Whether Rothbard erred himself or people are merely misunderstanding him is of secondary importance.
Mises wrote that once money has established itself, it is not necessary that it has non-monetary consumption value anymore. Whether Rothbard agreed with him on this I do not recall, but it’s not important. We’re not interested what Rothbard would have thought, but what the correct analysis of Bitcoin is.
The “theory of evolution of money” as presented by some Austrians is not very helpful when analysing Bitcoin. In a formal representation, this theory would be something like this:
barter => indirect exchange => competition => money => fiat
Bitcoin does not fit into this, because we already do have money. It is therefore not necessary that other money is also developed the same way.
Bitcoin has, as a medium of exchange, comparative advantages both to fiat and gold. What is unclear is how fast the services mature, what the legal status will end up to be, and if a yet better alternative emerges. These, rather than rants of a “just another bogus blogger”, will determine the future of Bitcoin.
If “that’s why” is a non-sequitur, then why don’t you explain why those particular goods (especially salt rather than sand, i.e., both a small, grainy substance) became mediums of exchange rather than all of the other products/goods available at the time?
Also, while it is true that a medium of exchange can eventually lose its non-medium use over time, it’s interesting how for centuries gold and silver were still wanted/used for uses other than as a medium of exchange. Bitcoin is as bogus as fiat currency. Fiat currency (gold certificates) used to be representative of real assets (gold and silver), i.e., the currency itself was not the medium of exchange but representative of the medium of exchange. I presume you already are aware of the scam that the Banksters/government carried out when they separated the claim from the actual medium. (As I’ve pointed out elsewhere, the only reason why they can still get away with it is because the population has been forced to use this monopoly of worthless paper as the MOE. If we could all print up Fed notes, not only would there be hyperinflation sooner or later, but people would then realize the horrible scam that has been perpetrated on them for the past 70 years.)
In the same way, from a libertarian point of view, that a group of people (government) have no special “right” to do things that an individual cannot, an individual cannot do things that a group of people cannot. Fiat currency is a scam by itself, regardless of whether it is forced on us by a government or voluntarily chosen by a group of private individuals. As I’ve previously stated, while I applaud the effort of people to break away from Fed notes, Bitcoin is going in the wrong direction.
If you still think I’m wrong (including what I believe about the regression theorem in relation to Mises and Rothbard), why don’t you drop a note to one or more of the leading Austrian economists today who not only have written about fiat currency (http://mises.org/journals/qjae/pdf/Q11_2.pdf; http://mises.org/books/sound_money_salerno.pdf) but who actually knew and studied with Rothbard, i.e., Walter Block, David Gordon, Hans Hoppe, and Joe Salerno and ask them their expert view on the economic viability of Bitcoin, and also whether or not it satisfies the Regression Theorem? Of course, if they agree with me and not you, you may feel that they are incorrect too, which is fine. That’s your prerogative.
David,
apparently you have a problem with elementary logic. Non-sequitur does not mean that the two claims cannot simultaneously occur, it merely means that their relationship is not that of an implication. You wrote that “THAT’S why only certain materials became acceptable as mediums of exchange”. That’s incorrect. This is not a necessary condition for an acceptable medium of exchange. Some Austrians do claim this, but they are wrong.
Both George Selgin (
http://www.libertariannews.org/2011/07/22/the-economics-of-bitcoin-%E2%80%93-challenging-mises%E2%80%99-regression-theorem-prof-george-selgin-responds/
) and Philipp Bagus (private email) say that the Mises’ Regression Theorem does not explain how money must evolve, rather they are a historical account of how fiat has developed out of commodity money.
You provide neither theoretical framework nor empirical evidence to arrive to this conclusion.
And as I pointed out, if this was the reason for the current use of currencies, people would be using gold, as opposed to forex/LoC in international transactions. They are not. But, they are increasingly starting to use Bitcoin.
Which has absolutely nothing to do with the question of Bitcoin.
On the contrary, it is going exactly the right direction, and providing solutions where gold and fiat failed.
Regarding Block/Huellsman QJAE 11/2: I have this article in the references of my paper. The paper complains about FRB, not about fiat money. I take a neutral stance on FRB, and explain how Bitcoin is much more resistant to it in my posts (more detail in my upcoming paper). FRB with gold is almost inevitable: given a choice between demurrage and FRB, the markets chose FRB. If FRB was illegal and it was somehow managed to be enforced, this would only hasten the switch to Bitcoin, since forms of gold other than coins/bullion would be gradually losing value directly (demurrage) as opposed to indirectly (FRB).
Regarding Salerno: If Salerno’s argument is that money has not historically arisen from commodities other ways, then he might be right, but that’s irrelevant. If his argument is that it is praxeologically impossible for a new money arise in a different way, he’s wrong. A counterexample is right here on mises.org: http://mises.org/daily/4262 . From his speech, it is unclear which of these two meanings he takes. Here’s a quote from a recent video of his:
He’s speaking about fiat money, not about Bitcoin.
Furthermore, as I said, the question is not whether Bitcoin can arise from a barter situation, but whether it can arise in a situation where there already is money. This is not handled by the Mises Regression Theorem at all. Also, while I would hesitate to call Bitcoin money, it is used as a medium of exchange to a certain extent, so you have a direct refutation here right in your face. There is no praxeological reason why it cannot develop into money in the future.
As I explained, the theorem is inapplicable because it addresses other situations (i.e. where fiat develops out of commodity). And even if it was, it would still match how Bitcoin came to be: at the beginning, Bitcoin was given away for free and it was unclear whether it has any value. Gradually, it started trading against goods and services, and later exchanges developed, which allowed a uniform price to form. That’s when it became a virtual commodity. Maybe some day, it will evolve into money. Maybe it won’t. But your arguments about why would remain incorrect.
I emailed with: Philipp Bagus, George Selgin, Larry White, Peter G. Klein, Stephan Kinsella, Robert Murphy. Not all of them replied directly, but those who did said that they are skeptical but don’t see a praxeological problem with it.
Let me provide my favourite quote by Bagus:
Who did you talk to?
I am saying that Bitcoin is a poor medium of exchange like fiat currency—not that it is NOT a medium of exchange. OBVIOUSLY it is “a” medium of exchange because people are using it as one. The same can be said for Fed notes.
BTW, though I like George Selgin, personally I don’t consider him as knowledgeable about Austrian economics and money as I do the other economists I named. Neither did Rothbard.
In the end, if you want to use bitcoins, go ahead. I’m not going to stop you. I’ll work on reviving the use of gold and silver as mediums of exchange. (I still say you should ask Hoppe, Block, and or Gordon for their views on the Regression Theorem and whether or not Bitcoin satisfies that theorem.)
I talked to David Gordon, Walter Block, and Hans Hoppe. They all agree with my views about Bitcoin. I also heard from a friend of Joe Salerno’s that he too does.
But don’t take my word for it, Peter. You’re a very, very, very bright guy. Why don’t you write to one of them (I would suggest Walter or David as being the most receptive to a correspondence on this matter) and ask them their expert view on the (1) Bitcoin in general; (2) the Regression Theorem and whether or not Bitcoin fits that theorem; and (3) What they believe Rothbard (whom both were very close with) would have thought on the subject.
Perhaps you might be able to convince one of them of your (and others) positive views (economically-speaking) about Bitcoin.
(Again, if this comment shows up twice, it’s the system, not me.)
I discussed the Bitcoin issue with David Gordon, Walter Block, and Hans Hoppe. They all agree with me. I also heard through a friend of Joe Salerno that he too agrees with me. But why take my word for it? You should write to one of them yourself (I would suspect that David and Walter would be more receptive to a correspondence on the issue) and ask them (1) Their expert Austrian view on Bitcoin; (2) Does it meet the requirements of Mises’s Regression Theorem; and (3) Would Rothbard have approved—from an economic point of view—Bitcoin. Both men were very close friends of Rothbard’s and his teachings, so they would know fairly well what his probable thoughts would have been on the matter.
Perhaps you might be able to convince them of the economic virtues of Bitcoin as a medium of exchange.
David,
In that case you’re conflating two arguments, and provide no evidence for the latter one.
Well then how come none of them figured out that FRB is the consequence of demand for forms which cannot be satisfied without money substitutes? Although Selgin might not have realised this either, but at least he and White describe the process. This is a fundamental issue. I can’t be possibly the first one to realise this.
Since you obviously have no clue about how Bitcoin works, even if you talked to them, it is unclear whether they understand it, and whether you understand them.
Well, this was unexpected, but I have to protest a bit. I’m not debating to be complimented, I’m debating to find the truth.
I might. I previously emailed with Block about some other stuff and he seemed responsive.
However, it is very difficult to understand Bitcoin. I could talk about hours and hours just about the technical aspects of it, and more hours about economic aspects. Maybe I can email the paper draft to Block and see what he says.
Yes, that would certainly be thrilling. However, Bitcoin has a steep learning curve.
Peter:
I believe Guido Huelsmann has this view as well (as do I). I think he has written a couple of things that suggest it, and may have confirmed it to me privately. Hoppe things money must arise from a commodity.
Thanks Stephan,
Great, good to know.
I’m curious then what would Hoppe think about this: http://mises.org/daily/4262
BTW: thinks
Also, I’m curious what “must arise from a commodity” means (for Hoppe). Is it a causal relationship, or a legal one? Because if merely a causal, he still might be right, while Bitcoin fulfills that criterion. Bitcoin was developed by people who already knew about money, so there is a causal link. That way, just like Bagus said, apodictically, we cannot exclude anything from becoming money, because everyone already knows about money.
Besides, I would argue that Bitcoin is a commodity anyway, so there is still no problem here. It can still evolve into money in the future.
I heard a story on the radio about people using bitcoin and silkroad to sell drugs and other dangerous items like non-pasteurised milk.
They ended the piece by saying, “but don’t worry, the creators of BitCoin say that they could allow the FBI to trace bitcoins if they really needed to.” This is why the guys with guns will let Bitcoin live – it could be even more effective than the FBAR form at tracking down “criminals” through money trails. It will be interesting to see what happens to bitcoin purchasing power after the first publicized arrest is made as a result of this capability.
““but don’t worry, the creators of BitCoin say that they could allow the FBI to trace bitcoins if they really needed to.””
Thanks for clarifying this, so it appears that Bitcoins is nothing but a pipe dream after all and this is why Bitcoins will die.
Joe B,
[emphasis added].
This is a misrepresentation. The creators of Bitcoin cannot “allow” any such thing. As I said previously, Bitcoin is pseudonymous. All transactions are publicly visible, but unless people directly or indirectly disclose their own addresses or those of the trade counterparties, the link between an address and a person remains unknown. The creators of Bitcoin have no more knowledge about the identity of people using Bitcoin than anyone else, and no less knowledge about the transactions that occurred than anyone else. What Garzik said in the interview is that people are working on registering the exchanges as legitimate businesses. Exchanges are endangered by unclear legal status, they can be accused of money laundering and so on. Their existence is vital for Bitcoin’s health. But since Bitcoin is decentralised, Bitcoin does not require a specific exchange. Mt. Gox seems to dominate at the moment, hopefully more will follow. At least Mt. Gox is registered in Japan and I don’t think any of the people behind it are US citizens or residents (I don’t remember all the fine details).
I have read that some people are purchasing grams of gold with bitcoins. If this is true, how do you determine the exchange rate?
Another question: how did they determine a maximum of 21 million bitcoins?
@Sean “how did they determine a maximum of 21 million bitcoins?”
It is a consequence of the protocol variables. 50BTC money created per block initially, halving of the inflation rate every 210,000 blocks. Just some arbitrary values, could just as well have been something else.
First, how would I acquire 10,000 bitcoins? Second, what can I buy with 10,000 bitcoins?
If you have a fast computer, a strong programming background, and can solve an algorithm you’re working on before someone else does, you get 50 coins.
The Anti-Gnostic,
Just like anything else: make them yourself (by mining) or trade something for them.
Mining 10k bitcoins in the current environment is impractical. A quick calculation shows that if you want to mine 10k Bitcoins, you’d need to spend about 6 million dollars in computer hardware, 200MWh of electricity and it would take 2 days 18 hours. I might be slightly off but the point is that the investment is not for the faint of the heart or light of the purse.
You can trade them for other currencies on any of the existing exchanges (see http://www.bitcoincharts.com ). You can start selling whatever goods or services you otherwise offer, in Bitcoins. You can create a new business that has no Bitcoin competitors, or would not be possible without Bitcoin (for example, if Paypal does not like such a business). Anything that fits into the demand & supply paradigm.
Sorry Anti-Gnostic,
forgot to answer the second question:
See https://en.bitcoin.it/wiki/Trade
Colin Phillips speaks for me on this. The key to the entire issue is the voluntary nature of the system in question.
you can go to a market such as http://www.mtgox.com or http://www.bitcoin-otc.com and trade USD or anything else for bitcoin.
At the end of the day, Bitcoin is just another fiat currency backed by nothing.
But so is the money in your wallet. Do you just dimiss the money in your wallet and thow it away because it is backed by nothing?
As long as the Bitcoin network really caps the number of units in circulation at 21 million, then the value of the units will only rise over time and more widespead use.
This is in contrast to our current fiat currency, which only depreciates over time because of devaluation. Bitcoin and similar currencies can have the same effect as the competing paper notes did in the 1800′s, by being in competition with other fiat currencies.
It is a shame David Kramer just dismissed the concept out of hand, and starts pointing to Rothbard PDF’s (nobody with brains will claim Bitcoin is better than hard money, we just claim it could be better then CURRENT fiat money.)
There is a display of technical ignoranance by comparing Bitcoin to eGold and claiming it will be shutdown. Egold ran on a traditional website, with servers, accounts, logins e.t.c e.t.c There is none of that with a decentralized peer to peer network. It will be VERY difficult to shutdown, like Wikileaks and current bitorrent networks cannot be shutdown.
Yohan,
With a bit of exaggeration, I could say that it’s backed by government’s arrogance and greed
.
I don’t throw my Fed notes because I am forced to use them. But as I’ve told other folks: I’ll be happy to exchange my $20 Fed notes for your $20 (face value) U.S. gold coins—which the Fed notes, when they were gold certificates, used to represent. Like Fed notes, Bitcoins represent nothing of real value (i.e., a tangible asset). Just because they were created out of thin air (like Fed notes) voluntarily doesn’t give them any more legitimacy as a legitimate medium of exchange than the fiat currency that has been forced on the world’s population by the Banksters’ puppets in governments around the world in relation to what have been considered real mediums of exchange for the past centuries.
It’s not entirely fiat currency. Your exchanging the use of your computer processor. So unlike a dollar it is actually backed by something.
It’s just really stupid, that’s all.
Nate-m,
ao, if government fiat is stupid, then also bitcoin is stupid. I wonder if taxes are stupid, does that mean that being or hiring a tax advisor is also stupid?
Damn network wonked out, so if this is a double post (paraphrased as I’m typing it out again), apologies:
The biggest point of confusing I’m seeing in general here is the mixture of morality with practicality. Good activities can be forced involuntarily on others. For instance, if a law were passed forcing people to eat a proper, balanced diet and exercise regularly, it wouldn’t suddenly make proper diet and exercise something to campaign against. The discussion here is the morality of forcing others to perform actions, the action itself is irrelevant in the discussion.
On the flip side, an action being purely voluntary does not imply that the action is wise or sound in nature. The morality aspect has already been satisfied as no one is being forced into the action, but morally sound and proper are two different arguments entirely. The activity itself could be immensely foolish and is then discussed on the level of practicality once the question of morality is satisfied. Certainly, amateur parkour, recreational drug use, and even suicide are voluntary actions, but at no point would I ever promote them or fail to counter someone promoting them since I view them as foolish ideas that can or do negatively impact the lives of the people partaking in them.
Austrian economics is not a political philosophy or ethical code. The philosophy and code are aspects of Austrian economics, but at the end of the day, Austrian economics is economics, and economics is the study of an economic system and the impact varying interactions have on that system. Should government come out and propose banning bitcoin, the entire Austrian community would more than likely be in lockstep opposition, but once that battle is complete, former allies will become the new opponents.
To quote James above, “The key to the entire issue is the voluntary nature of the system in question.”
No, it’s not the key. The discussion is not the legality or use of force to cease operating bitcoin but whether or not the supporters have merit in promoting the system as an alternative currency. Once removed from the voluntary vs involuntary discussion, we get Yohan’s quote, “At the end of the day, Bitcoin is just another fiat currency backed by nothing. But so is the money in your wallet.” Meaning being voluntary somehow makes a world of difference.
The Federal Reserve Notes we are forced to used today is a lousy monetary system. The Austrian objection to the current system is not only because we’re forced to use it, but also because it’s a lousy monetary system. Forced or voluntary, unbacked money based purely on faith is always a lousy system of money. And this is what bitcoin is, an unbacked money based purely on faith it will be accepted in the future. If, say, gold were to become unaccepted as a form of money, it still has plenty of use. It can be alloyed with steel to improve rust resistance, replace lead as a more reliable radiation shield (gold is denser than lead), be used as electrical wiring, build circuit boards, form into jewelry, and a whole host of other uses. Bitcoins? They’re useless as anything but a method of electronic network exchange. Even a Federal Reserve Note has marginally more practical use, it can be used to clean up vomit in school cafeterias (Dollar bills seem to soak up everything) or as toilet paper.
There will be students in the Austrian way in opposition to bitcoin from the lowest nobody like myself to possibly some of the heaviest hitters in the Mises Institute. The opposite is true. However, it’s important to remember the division between morality and practicality when arguing this, or any other subject. Just because it’s voluntary, and thus satisfies the morality checkbox, doesn’t mean it’s worth promoting or supporting. This is where practical evidence and logical argument are necessary to further the cause.
J. Murray,
economics is not about morality, it’s about science. Furthermore, since creation, trade or advocacy of Bitcoin does not violate anyone’s rights, it’s an irrelevant aspect anyway.
Furthermore, I made the argument that the Austrian theory of money is based on normative assumptions mixed with praxeology. So, it’s not scientific. I think that is my strongest argument. Please confront that one.
I believe to have successfully argued that Bitcoin has comparative advantages against the existing alternatives.
I really see no point in your long post. Do you have a bank account? Credit card? Paypal account? Currency issued by country you are not paying taxes to? The government is not forcing anyone to have any of those and they are based on unsound money. They are also not equivalent to the government fiat, they are alternatives. You can trade cash for an account balance or for another currency. So if you use them, you contradict every fundamental objection that you brought up against Bitcoin. Have you really thought this through?
You don’t trade cash for cash. You trade the asset backing the cash for a different offereror’s cash. You go to the issuer of the cash and convert to your asset, take it elsewhere, and use that other provider’s cash instead. Should the provider of that bit of cash lack the asset you deposited in return, then the provider is obligated to liquidate other asset holdings to return that asset to you.
You can’t do this with bitcoin. To convert bitcoin to another currency, there has to be an existing market for bitcoin itself as if bitcoin was a solid asset. If the market abandons bitcoin, that’s it, you can’t convert to another currency because you won’t find anyone to trade your bitcoin to. That’s the entire point of a backed currency, when the trust in the currency fades there’s still the asset available in return and a real, physical claim against the provider’s other assets should the original asset not be available.
The KEY reason I dislike it is because, like a FRN, there’s no corresponding asset on the balance sheet. It’s an unbalanced currency. Yes, I did think this through, I deal with financial garbage every day. It seems those who support this nonsense are the ones not thinking it through. If the proposed transaction doesn’t balance, it gets rejected. No physical asset is being created (aka gold coins) nor is a physical asset being removed from circulation in lieu of an easily tradable claim slip (bank note). The original holder of the bitcoin “earned” it by having his computer spit out the answer to an algorithm before someone else did, literally trading whatever he purchased with the bitcoin for the answer to a math problem no one in the universe other than those seeking to manufacture bitcoins wanted to know the answer to.
It’s an anonymous, ownerless, insecure, and unaccountable currency system. There’s no one to hold accountable to the honesty of the currency system. It’s purely electronic in nature and decentralized, so there’s no method to audit the system for soundness, either against a physical asset base or other form of account system. Being digital, identifying the difference between a “legitimate” and “counterfeit” bitcoin is impossible just like how no one can tell the difference between an MP3 I ripped off a CD purchased from Best Buy and a 50th generation copy. And don’t give me this security hash bullshit either, security measures are hacked are bypassed in mere hours. Should this bitcoin thing get big enough, the system will quickly flood with impossible to identify counterfeit with a total impossibility to obtain recompense via civil action since the entire operation is anonymous P2P. This is the digital equal of doing business by leaving cash behind an alleyway dumpster and returning the following day to pick up your purchase. Sure, it’s popular for those anti-government, but the same tools used to bypass government excess are the ones used by fraudsters and scammers. This is why black markets are so horrible, the freedom fighters and the real criminals both want to avoid that eye in the sky. Bitcoin is their perfect currency. Untracable, unaccountable, impossible to verify. The very integrity of bitcoin is in question, meaning it’s already unusable as a medium of exchange.
Convert bitcoin into an accountable organization that witholds a real asset in conservatorship, make bitcoin convertable to that same real asset, and offer a face to engage in a lawsuit against should there be an overissue of currency above and beyond the established asset convertability agreed-to by the customer and you may convince me of going to it. However, this is the total antithesis of what bitcoin was formed to do, therefore, it’ll never happen. No one wanted to be liable for the operation, which is why P2P was formed in the first place. But they sure wanted all the benefits. I’m not about to trade away real time, real labor, and real assets for a phantom computer bit without any form of assurance there’s a real value behind it beyond hoping some clown on Facebook will sell me fan art in exchange for it. It’s just enriching someone else who did nothing to earn the initial issuance of the currency. Just like the Federal Reserve Bank. I’m already having a hard time dealing with US Dollars, but those are shoved on me at the tip of a gun.
J Murray,
So you never exchanged cash of currency A for a cash of currency B? Hmm. I wonder how come I have notes demonimated in multiple fiat currencies, even though I never sold goods or services for those.
That’s ood, if I remember correctly MtGox trade volume (between USD and Bitcoin) broke the daily threshold of 2 million (denominated in USD) two days ago. Yet you claim it cannot happen.
Since you admit your argument is emotional, I’ll just ignore the rest, because I’m interested in science and not emotions.
This is just hillarious:
Ok, so can you hold the government accountable if they either inflate the fiat or confiscate your specie? You can’t. So the whole argument is pointless.
Economics is NOT a natural science like physics, biology, and chemistry. It is a social science.
And the relevance of that claim to the topic is?
You wrote “economics is not about morality, it’s about science.” I was just making a comment on your comment.
You wrote:
“economics is not about morality, it’s about science.”
“I’ll just ignore the rest, because I’m interested in science and not emotions.”
I was just commenting on your two above statements.
You wrote: “economics is not about morality, it’s about science.” “I’ll just ignore the rest, because I’m interested in science and not emotions.”
I was just commenting on those two statements of yours.
You wrote: “economics is not about morality, it’s about science.”
“I’ll just ignore the rest, because I’m interested in science and not emotions.”
I was just commenting on your two above statements. (
You wrote: “economics is not about morality, it’s about science.”
“I’ll just ignore the rest, because I’m interested in science and not emotions.”
I was just commenting on your two above statements.
(BTW, Peter, if this post shows up as posted twice, it’s because the system is screwing up—not me!! LOL!)
Austrian economics is value-free and makes no claims about morality. Certainly, it is possible to mix it with libertarian approach, but I heavily try to avoid that. Rothbard famously complained that you’re not really an anarchist if you don’t hate the state. I’m just adding that you should formulate your arguments in a way that their validity does not depend on the hatred of state.
“Damn network wonked out, so if this is a double post (paraphrased as I’m typing it out again), ”
good it didn’t happen while you were trying to make a vital transaction using bitcoins.
Touché, augusto. Just as a side remark, cryptography takes care of Bitcoin network disruptions. Either the the transfer occurs correctly or it doesn’t. It can’t end up “half done”. Then the network needs to verify it. That can still statistically fail, but it’s a complicated topic and I think it exceeds the scope of a blog about economics.
Well put, J Murray.
“A medium of exchange arises from something that had a material use/value in the market prior to becoming a medium of exchange,”
Freedom of exchange, ease and convenience of exchange and anonymity of exchange, three extremely valuable services. It does not have to be a material, it can be a service.
Bitcoins bring three great values, freedom, convenience and anonymity. In this sense, it has even more value than Gold.
The value that gold has is a MATERIAL value, not some metaphysical “freedom” value. Gold would have “freedom” value too if we got rid of the institution of government. As far as convenience, that’s why there were gold certificates to represent the gold you owned that was stored in a bank. You can just as easily represent your physical gold today with computer bits (just like your fiat currency is currently represented).
BItcoins have no material value prior to becoming a medium of exchange. They are backed by nothing of value, just like fiat currency is backed by nothing of value.
David,
I demand that you return your “Austrian” club membership card. Value is subjective. What gold has is a definition that is manifested in specific material. Bitcoin also has definition. It’s more abstract definition than gold, and can be manifested in all kinds of materials. That’s an advantage.
And substitutes are subject to decreasing value, as well as carry high transaction costs. Even in face to face exchange, it’s easier to verify a validity of a Bitcoin than of a “gold certificate”. Bitcoin wins here clearly.
This is just some pseudo-marxism. There is no such thing as “material value”. Since you referenced Rothbard and Block, maybe you should read some of their writings regarding “value”.
I’m well aware of the fact that all value is subjective. Actually, your “scientific” (i.e., computer) creation of a new, “improved” medium of exchange is pure Scientific Marxism nonsense.
David,
You contradict this earlier.
now you’re mixing unrelated things. The price of Bitcoin is subject to market forces. The designer(s) have no effect on it.
Are you going to claim that only goods that are naturally present in nature can have price, but designed and manufactured cannot? What about virtual goods? You can’t buy movies or software? That’s the essence of your argument.
So not only you have no clue about Bitcoin, you don’t have a clue about economics either.
“What was Bitcoin’s prior material use/value? Zero. It is just bits in a computer. And what’s with the “fixed” amount of Bitcoins? Who determined the “proper” amount? A computer programmer?”
There is a fixed amount of Gold on earth too. The amount is not important. You only need two things. A fixed amount and an unlimited divisibility.
Bitcoins are fixed to 21,000,000 but can be divided to the 8th decimal. So they can be divided 10,000,000 times. Try to divide a dollar or even Gold that much.
The value of Bitcoins are in the future, not in the past and it’s value is as of a service, not as of a material. It’s the ease of use, freedom of use and anonymity of use, all those compounded by the ever increasing network of bitcoins that will make it extremely valuable.
Things don’t have to be real and objective to be valuable. Bitcoins rest on a subjective virtual illusion and if enough participants join, it will become real. The virtuality and illusion of Bitcoins bother those who want real stuff because it exposes them to the illusions of their own “real” world.
“So they can be divided 10,000,000 times.” “Great.” We already have the seeds of inflation. Oh, I know, some computer will “mathematically” determine how many Bitcoins should be produced, i.e., the “correct” number of electronic blips are “good” for the market at any moment.
David,
at least here it’s clear that you have absolutely no clue. Gold can be also divided into atoms, does that also spur inflation?
You have double-no clue. The production rate is a part of the definition of Bitcoins, just like the number of protons, neutrons and electrons of a gold atom is a part of the definition of gold. Constructs not fitting into the definition of Bitcoin (such as an algorithm with a different production rate) are not Bitcoin, just like an atom with a different number of protons is not gold.
In fact, the mining difficulty of Bitcoin has been falling in parallel with the media attention falloff, market price and money velocity. Eventually, the difficulty and market price will equillibrate. If anything, this shows that Bitcoin reacts to external shocks, speculation and irrationality exactly as a free market phenomenon should.
You’re embarrassing yourself.
Gold can be divided into atoms? To make a statement like that as an argument shows that our discussion has now come to an end. (But be “proud” of yourself: You’re not the first person who has made that ridiculous non-relevant point.)
I guess economics really is a “natural” science to you.
David,
Indeed, it shows you’re completely bogus. You have no clue about anything and I find it surprising you can write.
Bye bye.
David Kramer, like many Austrians, is too fixated on normative (thanks Peter) assumptions to understand bitcoin. It is completely consistent with Mises’ regression theorem and there is a great post by xc on the bitcoin forum detailing it:
http://forum.bitcoin.org/?topic=583.0
Quote:
The Money Regression and Emergence of Money from the Barter Economy
The entire purpose of the regression theorem was to help explain an apparent paradox of money: how does money have value as a medium of exchange if it is valued because it serves as a medium of exchange? Menger and Mises helped break this apparent circularity by explaining the essential time component missing from the phrasing of the paradox.
As Rothbard explains in Man, Economy, and State (p 270),
“…a money price at the end of day X is determined by the marginal utilities of money and the good as they existed at the beginning of day X. But the marginal utility of money is based, as we have seen above, on a previously existing array of money prices. Money is demanded and considered useful because of its already existing money prices. Therefore, the price of a good on day X is determined by the marginal utility of the good on day X and the marginal utility of money on day X, which last in turn depends on the prices of goods on day X – 1. The economic analysis of money prices is therefore not circular. If prices today depend on the marginal utility of money today, the latter is dependent on money prices yesterday.” [all emphasis added]
Rothbard then goes on to explain that in order for money to emerge from a barter economy, it must have a preexisting commodity value. This commodity value arises from barter demand for the potential money in direct consumption (i.e. ornamentation). This value seeds future estimations of the value of the money as a medium of exchange. The natural market emergence of money is thus fully explained.
The Monetary Economy
However, once an economy has been monetized and a memory of price ratios for goods and services has been established, a money may lose its direct commodity value and still be used as a money (medium of indirect exchange). Rothbard explains (p 275):
“On the other hand, it does not follow from this analysis that if an extant money were to lose its direct uses, it could no longer be used as money. Thus, if gold, after being established as money, were suddenly to lose its value in ornaments or industrial uses, it would not necessarily lose its character as a money. Once a medium of exchange has been established as a money, money prices continue to be set. If on day X gold loses its direct uses, there will still be previously existing money prices that had been established on day X – 1, and these prices form the basis for the marginal utility of gold on day X. Similarly, the money prices thereby determined on day X form the basis for the marginal utility of money on day X + 1. From X on, gold could be demanded for its exchange value alone, and not at all for its direct use. Therefore, while it is absolutely necessary that a money originate as a commodity with direct uses, it is not absolutely necessary that the direct uses continue after the money has been established.”
This explains the history of fiat currencies. They originally started off as simple names for weights of commodity money (silver) that developed out of the pre-monetary barter economy. Despite later losing their ties to direct commodity value through state interference, paper currency retained status as money because of memory of previous money prices. This factor is so strong that the relationship between gold and the USD, for example, is somewhat inverted. Gold no longer circulates as a common medium of exchange. Prices are set in USD, not in gold. Most individuals wishing to trade in gold do so based on their knowledge of USD/gold price ratios. (“Hey, let me buy that $100 couch from you in gold?” “Ok, USD/gold is $1000/oz. Give me 1/10oz of gold.”) Legal tender laws, state taxation, and the entire financial regulatory environment maintain this inertia of USD prices and make it challenging to return to gold money directly, despite the destructive inflationary nature of fiat currencies.
The Emergence of the Bitcoin Economy
The very first businesses in the Bitcoin economy were exchangers (NewLibertyStandard, BitcoinMarket, BitcoinExchange,….). This is not an accident, but flows from the analysis above. In order for Bitcoins to serve as a medium of exchange without commodity value for uses besides indirect exchange, there must be a translated knowledge of money prices. Market exchangers fill this gap and give Bitcoin users access to this knowledge. Bitcoins may therefore currently serve as a money intermediary for paypal dollarspecunixeuros. But why is there demand for Bitcoin over USD?? This is a subjective valuation arising from properties such as anonymity, decentralized system of clearance, cryptographic trust, predetermined and defined rate of growth, built in deflation, divisibility, low transaction fees, etc…. inherent to the Bitcoin system.
The essential point is that once exchange can occur between a money (USD) and Bitcoins, providers of goods have a means by which to value Bitcoins as a potential medium of exchange. The money regression is satisfied, because taken back far enough we reach traditional commodity money: BITCOINS -> USD -> MONETIZED GOLD & SILVER [start monetary economy] -> [end barter economy] COMMODITY GOLD & SILVER.
Of course, if a major meltdown occurred and knowledge of all price ratios was wiped out, Bitcoin probably would NOT directly emerge as a money (assuming Bitcoins have limited value outside of exchange). Fiat currencies with zero direct barter value certainly would not. Commodities such as gold and silver that have widely recognized direct value in barter would likely emerge first. The economy would then be monetized with price ratios in gold and silver. Bitcoins then, being valued for intrinsic properties amenable to exchange, might then become prevalent in trade. Initially, creators of value would continue to make their price value ratios in terms of the true money (gold oz/BTC ratio), but with time Bitcoin prices (BTC) can emerge (see vekja.net as example). We are in this initial phase now.
Therefore, so long as exchange of BTC and USD/Euros/etc… occurs, knowledge of existing price ratios can be utilized in the Bitcoin economy. In time as Bitcoins become increasingly marketable, these fiatBTC price ratios will seed direct BTC price ratios. The Bitcoin Economy thus emerges. The Misean regression theorem is satisfied.
XC
edit: clarified possibility of direct emergence of bitcoin as money from barter economy.
Thanks for this link. It exactly points out to a relevant issue from the point of view of economic theory that Mr Kramer apparently ignores.
One cannot have it bothways. Either the regression theorem is valid and bitcoins had at least at the beginning to be valuable in direct use by some people, or be certificates to consumer or producers goods or to some preexisting currencies. Or bitcoins never had such features and the regression theorem is false (insofar as bitcoins have been used as a medium of exchange).
The regression theorem does not tell us that a commodity backed currency is better than an unbacked paper or electronic money. It tells us that any medium of exchange must start with a good which is valued in direct use. Hence, Mr Kramer’s appeal to the regression theorem to comment on a created “out of thin air” medium of exchange that he admits exists (otherwise it would make no sense to comment on its quality) seems erroneous.
Now, in this post you link to, I see the ultimate step for the regression, the earlier stage, is supposed to take place with “market exchangers”. But what is the nature of these things? And what does a “a translated knowledge of money prices” mean in this context:
“In order for Bitcoins to serve as a medium of exchange without commodity value for uses besides indirect exchange, there must be a translated knowledge of money prices. Market exchangers fill this gap and give Bitcoin users access to this knowledge.”
I’ll stick to the voluntary free market to determine the medium of exchange—not Ben Bernanke (the Fed) nor Big Blue, i.e., a computer program (Bitcoin).
If people are willing to pay for the computer cycles of others using their own personal scrip, and others voluntarily engage in this trade, more power to them.
I have to say, as someone who came into the thread really not liking the bitcoin side, that the arguments seem to be better from that end.
The argument that money should be based on a commodity that had some kind of value make sense, but as Peter has stated here the problem is governments can easily track gold sales and it’s not as though they haven’t even gone so far as to confiscate all gold in the past and then devalue the dollar a bit more.
The government is “interested” enough in this they had the developer of bitcoin talking to the CIA. http://forum.bitcoin.org/index.php?topic=6652.0
I think it’s a lot less likely that the government will try to outlaw something fundamental to this like encryption than outlawing gold.
There are lots of problems with bitcoin, but it’s not like the alternative is private currency at this stage.
I’m surprised none of the other commenters here have even mentioned goldmoney.com.
I mentioned goldmoney elsewhere in relation to Bitcoin. I don’t think it’s a competitor to Bitcoin. It has a higher barrier to entry, relatively high fees and is a centralised closed system. That of course does not mean that it’s bad, it just means it’s not competing with Bitcoin. It’s pretty good if you want to invest in gold. It’s not very useful if you want to trade.
“It’s pretty good if you want to invest in gold. It’s not very useful if you want to trade.”
Come on, that makes no sense. You can exchange goldgrams. If goldmoney is no good for trading, then bitcoin is no good either.
er….no. Goldmoney is a centralised system that can be seized by the government. Bitcoin is far better and more secure in this aspect.
er… no. Bitcoin is baloney. Cannot be redeemed. Is not subject to independent and distributed audit.
So what relevance does this have to Peter Surda’s claim that “It’s not very useful if you want to trade.” ? I don’t know. And I don’t know why your response was relevant either. I hope you get my drift.
Sorry I meant to refer to this statement “If Goldmoney is no good for trading, then Bitcoin is no good either.”
These two mediums of exchange exist in different universes and you have lumped them together. Bitcoin does have benefits for trading that Goldmoney does not.
Sorry that last post was a bit incoherent.
Yes Goldmoney is audited and backed by something. But as a method of easy exchange Bitcoin is far better. The reasons why are technical. No central server, no central website, no accounts, no logins, complete privacy. Security is better, as in security from the government being able to seize and or interfere with the exchange network.
First of all, I don’t think anyone makes the argument that Bitcoin can be redeemed. Second of all, government fiat cannot be redeemed either, and gold can be confiscated by them (and, indeed, this happens quite often as I explained above). So the objection is pointless.
You can trade goldgrams, but I presented a case why Bitcoin has a comparative advantage in this area. Let me relist and expand upon the disadvantages of GoldMoney:
- higher transaction costs (these are probably significantly affected by the physical nature of gold, so there might be no way of overcoming this)
- higher barrier to entry (you need to provide documents to identify yourself and the bank account you use to transfer money, also the bank account needs to be in your name)
- centralised system so
* it cannot benefit from the network effects
* it gives GoldMoney absolute control over all trades and the government can force them to interfere with free trade
- the gold can be seized (again by government), making the whole system collapse
- GoldMoney is a business, so there is a high chance it will comply with the regulations of the government (the alternative is to lose all customers and all gold).
Massive collapse in Bitcoin value from a high of $30 to $14 in a matter of a couple days.
http://bitcoincharts.com/markets/mtgoxUSD.html
No question that it’s very volatile. It rose too much too fast and I don’t think anyone should be surprised to see corrections when it’s not really available for doing much but trading back and forth for USD at this point (I’ve checked out the website that lists what you can purchase, but it’s limited and most of the websites listed are broken in one way or another).
It also rose from about $15 to $30 in a couple of days just prior to that. I thought it was obvious it’s unusual, I suspect it was caused by the recent uptake in media publicity (Falkvinge announcing he put all his savings into Bitcoin, Garzik on TV, senator whatshisname complaining about SilkRoad, BVDW “warning” customers about Bitcoin etc). I actually sold some Bitcoins at $31.5 (which got me into an argument with my wife put because I shouldn’t “speculate”). In long term, the market price of Bitcoin seems to be related to the computational difficulty of mining, see http://www.bitcoinminer.com/post/6031094127/price-difficulty-update-2011-may-31
Exactly why Peter Surda’s word cannot be taken honestly. Bitcoin witnessed a parabolic rise and speculative rise and the early adopters benefited from the rise and fall. The definition of a scam.
Like investing in shares? Because the price of shares can go up and down it is a scam? Whats about gold. Gold has had parabolic rises and falls too. Is investing in gold a scam?
Your really stretching logic to insult Peter Surda in this way. Devoid of logic infact.
“Gold has had parabolic rises and falls too.” Because it is not used as a medium of exchange. Prices were fairly steady for decades when gold and silver were used as currencies/mediums of exchange (although there was NOT a 100% gold-backed currency, i.e., a true gold standard).
Sammi,
Bitcoin is subject to market forces just like anything else that falls into the supply and demand paradigm. In the last week or so, its market price has been fluctuating wildly. At the time of writing this, it is trading slightly higher than I think it should, at $19.5. When I woke up earlier today, it was trading at around $10. But there’s no panic, no horror, no people jumping out of the window, no mad intervention by the government, no closure of exchanges or cancellation of trades and noone is going to jail. In the Bitcoin forums, I saw someone expressing gratitude, because the fluctuations allow him to obtain Bitcoin just by spending some time on a computer without having to mine.
If anything, this demonstrates that the Bitcoin market has the potential to be healthy, although it can be temporarily overexcited. I think once high frequency trading is implemented, the fluctuations will be smoothed out somewhat.
Peter, please explain to your wife that your and others’ speculation smooths out price fluctuations
Yea, but speculators can also lose money
.
All this technical debate is fine, but I still think it misses the overall point. The PLAIN fact is it seems to have spontaneously, voluntarily coalesced out of certain forces. If it’s really such a (figuratively) bankrupt idea, then it’ll all come out in the wash. I don’t understand the intense technical backlash. Sure you all have valid points for and against, but maybe they would fit better in another blog post (“Bitcoin: theoretical and practical pro’s and con’s; go!”) I think the original point of this blog post was to point out the ham-handed, unsatisfying way in which Mr Kramer flippantly brushed aside an idea which obviously is giving some utility to some willing participants (and we must be subjective here; silk road consumers are people too). Im with Mashiri’s last post.
I mean “Mashuri,” sorry, typo.
I would like to express some more general issues with Mises’ regression theorem (or at least with what appear to be the prevalent interpretations of it).
Money is selected by the market based on its properties. I’ll mention some of them (this is not an exhaustive list): homogeneity, scarcity, market price per unit of volume/weight, verifiability of authenticity, durability. There is no apriori reason why one commodity should be the best at all of these, nor is there a reason why a constant weight of these features (with respect to each other) was demanded in all situations. If a competitive good arises that outweighs significantly the advantages of existing money in some common situations (i.e. it has a comparative advantage in those situations), it would push out the old money out of the way for these situations. It can be argued that Bitcoin has the potential for that, because:
- while it is not homogeneous, rather discrete, a unit of Bitcoin is mathematically determined and functionally equivalent with any other unit. I would call this “pseudo-homogeneity”.
- its scarcity is mathematically determined and predictable
- it is digital, so its weight and volume depend on the medium it is stored on
- authenticity can be verified by publicly known mathematical algorithms at negligible cost and the process is non-destructive
- it is as durable as the medium it is stored on, plus you can make as many backups as you like. The backups do not affect the nominal value of the Bitcoins affected.
To summarise this point, merely because gold exists and was used in the past as money, it does not necessarily follow that Bitcoin cannot replace it in some areas.
Then there is the objection that it is not physical. Once you take into account Kinsella’s excellent work against IP, you will realise that there is no such thing as “non-physical”. The non-physical is merely an alternative interpretation of the physical. Bitcoin requires storage media in order to be interacted with. So the objection is unfounded.
Then there is the, in my opinion, most important, objection, that Bitcoin has no value outside of the medium of exchange. It could be that it has no meaningful value for a Crusoe stranded on an island. But social interaction creates plenty of examples of goods which would have no value were it not for the social interaction itself. For a Crusoe, on the other hand, a hard drive containing Bitcoins is about as useful as a telephone. The best example of this “socially created value” are positional goods, but in general any immaterial good is somewhat affected by this. As long as I know something others don’t (e.g. the private key to a Bitcoin address), that creates scarcity and brings the situation into the realm of economics. In the case of Bitcoin, that scarcity has a base in mathematics. If Bitcoin was based on symmetric encryption only, there would be no secrecy, no scarcity and it would not be usable. Once you have scarcity, however, network effects can create value.
I would be delighted if any of “Bitcoin opponents” would address any of these three issues.
Crusoe was living in a primitive economy. He didn’t need a medium of exchange because there was no one he needed to barter/trade with for his basic needs. A medium of exchange arose naturally over centuries because it was a better way for people to barter in order to develop a growing modern economy with exponentially more produced goods than Crusoe needed on his island.
David,
thank you for showing yet again an absolute disregard for logic. Instead of addressing my point that value is subjective, you confirm that it is, and present this as an explanation why it isn’t.
So, what was the value of Bitcoin before it was a medium of exchange? We know what the barter value of salt, cattle, gold, etc. were before they became mediums of exchange. That’s how people were able to use them as mediums of exchange because they already knew what their worth was in comparison to other goods that they were already being exchanged for (before they became mediums of exchange).
David,
First of all, you avoid the problem. The problem is that the value of a good for an individual is not only in his assessment in isolation, but also the context. If there are no mobile phone networks and no electricity, a mobile phone is practically useless. Its value is not zero, but close to it. Just like a USB stick with a bunch of Bitcoins two years ago.
Second of all, it might have been seen as a curiousity or something geeky, so maybe it had a price of 100000 BTC for one dollar. If it did not have a non-zero value, people would not have accepted it. But they did.
Since we already have money, this point is irrelevant. Bitcoin exchanges allow to determine the price instead of mass barter.
I introduced the world’s first gold-backed e-currency. When PayPal came out a few years later, I described it the same way I would describe Bitcoin: over-glorified gift certificates.
PayPal is not a gift certificate. It’s a service that pays your online bill for you anonymously. It’s just acting a a middleman to protect the privacy of your credit card information.
In the real (i.e., not digital) world, PayPal might be someone you give money to in order to buy something from a store (like porno?) that you don’t want the buyer to know who the real purchaser is. In the case of PayPal, it’s not your identity that is being hidden from the seller but your credit card information.
David,
Paypal is far from anonymous. Where do you get this stuff from?
If I remember right, Paypal prohibits usage for porn, but I’m too lazy to check.
Just above you said it’s anonymous.
I guess I have to explain every little thing to you. What I meant was that your credit card information is anonymous to the seller? Understand now?
David,
I used to work as a software developer in an online payment processing company. I know quite well how credit cards work. I was merely pointing out that that you’re struggling with elementary items and maybe attempting to analyse Bitcoin is too big a goal for you.
Peter, you wrote:
“However, it is very difficult to understand Bitcoin. I could talk about hours and hours just about the technical aspects of it, and more hours about economic aspects. Maybe I can email the paper draft to Block and see what he says.”
That’s one of the problems that Hans has with it.
But email Walter. I’m not sure how much time or how extensive a response he may give you, but it certainly is worth your time.
David,
Incredible. So Professor Hoppe admits he does not understand it, and from this you somehow conclude that he agrees with you. Maybe next time you’re talking to him, he can translate this one for you: http://www.youtube.com/watch?v=5KT2BJzAwbU
Peter, he does agree with me. Again, don’t take my word for it; write him yourself. BTW, NPR had Gavin Andersen on as a guest. (http://www.wnyc.org/shows/lopate/2011/oct/26/all-about-bitcoin/) After listening to him talk about bitcoin, I’m even more convinced of my views about it.
Write to Walter and/or Hans. See what they say. (If you do decide to write, if you wouldn’t mind, would you “cc” me on any correspondence so I can stay in the loop? I will not join in your correspondence with them, I just want to see how they respond to you. Thanks.)
I’d just like to add that it is very rare indeed that I encounter someone as incredibly stupid as David Kramer. I have difficulties to even find words for it. He’s totally off the charts. He’s like Sarah Palin squared. How come he’s at a first name basis with Prof. Block and Hoppe is a mystery to me.
I don’t know whether he actually talked to the Austrian economists he claims to have talked to, or whether they actually said what he claims they said, but I’m skeptical that what he posted here is an accurate representation of what really happened. Anyway, I recommend that the Mises Institute does not link to his statements about Bitcoin in the future, it would be a big embarrassment. Just like when a couple of years ago Jeff Tucker linked to a youtube video where allegedly Ahmadinejad says to university students that people should use gold and listen to Peter Schiff (that’s what the subtitles said). Well the subtitles were fake and Jeff removed the post from the site. Maybe you should consider doing the same thing with Kramer’s article.
Peter, I haven’t followed this thread–I just saw one comment of yours by happenstance when doing a websearch and commented on it–are you assuming the David above in all the posts is David Kramer? Or were you talking about his LRC post? I’ve met Kramer and like him–I think he is sharp, though he may be off base on the Bitcoin issue (haven’t read the main post here yet).
Thanks Stephan,
I admit that I might have made an unsubstantiated assumption that this David posting here is the same person as the David Kramer that made the LRC post. The posts made in this thread make some hints that he is the same person, for example here:
http://blog.mises.org/17249/ideological-and-irrational-exuberance/comment-page-1/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:MisesBlogCommentsCommentsontheMisesEconomicsBlog#comment-806599
In reaction to:
written by Colin Phillips, “this thread David” writes:
There have been many comments in the last 2-3 days on this 4 month old thread by “David”. So I assumed it’s the same David in all posts and LRC.
If it’s not the same person, then I sincerely apologise to the David Kramer that wrote the LRC post. While I disagree with the LRC post (and I explained why), it did not show the level of total failure that some of the posts made by “this thread David”. My mind made a hiccup when I was reading “this tread David”‘s posts.
Ah, I guess Kramer did probably author the comments then.
Yes, Stephan and Peter, it is the David Kramer who wrote that post. And, yes, I do know Walter Block and David Gordon very well. I also have met and spoken with Hans Hoppe on a few occasions and have emailed him from time to time about certain issues. He has always responded to me.
After I wrote the post on LRC, I got so much negative response that I decided to go ask the top Austrian economists their opinion in case I had mistaken what I learned from them about what makes a good and what makes a poor medium of exchange.
They all agreed with me about my views on Bitcoin.
But write to them. If I’m wrong about what I claim they said, I’m sure you’ll let me know. (Stephan, you can obviously ask Hans himself what he thinks about Bitcoin from an economic point of view.)
David,
well, I’m glad you’re the same person. I wouldn’t want to make incorrect accusations.
Since you have shown that you not only have no clue about Bitcoin, but also have vast deficiencies in knowledge of economics and elementary logic, I am skeptical whether whatever Block/Hoppe/Gordon may have said to you, as presented by you, is relevant in any way whatsoever to the actual topic. You not only got your arguments wrong, you even got the facts wrong.
I wrote to Prof. Block on Wednesday, but got no reply. Those Austrian economists that did reply to me (Bagus, Selgin, and probably Kinsella too) do not agree with you.
You’ve however earned now quotations in my paper, because I can’t let you spread your stupidity to actual economists. I made up some analogies to make your errors more apparent.
(Peter, why do you feel it is necessary to personally insult someone who you have a disagreement with on an issue? Can’t you have a discussion/debate on a topic without being rude?)
At this point, I am satisfied that my views on Bitcoins are in line with what I’ve learned about money/medium of exchange from the above-mentioned Austrian economists. As previously mentioned, I don’t expect you to take my word for it that those economists confirmed what I believed; that’s why I suggested you write to them yourself. (Walter may or may not get back to you. Sometimes it takes awhile for him to reply if he is busy.)
David,
don’t forget you are the one who, on his own initiative, came out with your LRC post. Since I have been researching Bitcoin for quite some time, I attempted to confront your arguments. In the process it turned out that not merely are you in error, you have no idea what you’re talking about, and are not interested in a scientific discourse. That should have actually been the end of the debate.
There’s nothing wrong with being ignorant. It can be approached with education. Since I’m not an educator, unfortunately I can’t really do much for you.
However, you managed to trick some people into believing you’re more knowledgeable than your actual output with respect to Bitcoin demonstrates. Those I’m giving a friendly hint that if they take you seriously, they might end up embarrassing themselves (as scientists).
I thought I’ll post it here before my paper comes out, I think it’s the most concise response to the Austrian detractors of Bitcoin:
The Austrian detractors of Bitcoin focus on an overly narrow interpretation of Bitcoin, and make unfounded implicit assumptions, which lead them to their conclusions. They miss the whole picture: it is not merely a medium of exchange, it is a replacement of the banking industry. That is where its value comes from. The Austrians, until now, have seen money as one phenomenon, and banking as another phenomenon, a reaction to money if you want, built on top of it. Bitcoin combines these two phenomena into one integrated framework, in the process both providing a solid monetary basis (predictable degressive production) as well as preventing its “banking” aspect from going rampant and distorting the functionality of money (decentralisation, low transaction costs, resistance to FRB). This combination breaks the implicit assumption that media of exchange arise chronologically before banking. Even if that might have historically been so, Bitcoin proves that there is no praxeological reason for this. Until the Austrian detractors of Bitcoin adapt their argument so that it addresses the banking sector as well, it remains false.
Peter, I agree with your thoughts that bitcoin is a “replacement of the banking industry”. Austrian detractors of bitcoin have also failed to realize that the economic decentralization so often touted is the fundamental basis of bitcoin. An anonymous, un-coerced digital currency is demanded by the marketplace and that demand cannot be extinguished.
In my paper, “Why Are Libertarians Against Bitcoin?” http://themonetaryfuture.blogspot.com/2011/06/why-are-libertarians-against-bitcoin.html , I proposed A Binary Corollary to Mises’ Regression Theorem. The regression theorem is not forward-looking and in the binary digital world of the 21st century a theorem corollary is needed to account for arbitrary enforcement and confiscation against a competing nonpolitical monetary system. This binary corollary weighs the importance of a modern money’s survivability and states that a digital money is exempt from the regression theorem specifically if: (a) the network can be demonstrated to be immune from State enforcement and termination; and (b) the monetary unit can be defensible against State confiscation.
Jon,
I’ve been researching Bitcoin for about half a year now. While I don’t entirely disagree with your claims that resistance to government interference affects the use of Bitcoin (in fact, I wrote about it even before you made your blog post, somewhere on the mises.org blog comments, I’m too lazy to look it up), I don’t think that this is general enough to be worthy of the rule. Instead, I propose a more general concept that affects the choice of currency: transaction costs. These include all the “soft” properties of money, including account maintenance fees, transfer fees, taxation resistance, FRB resistance, decentralisation and so on. If the market price is stable enough, transaction costs take precedence over value stability. And the ability to multihome and use hybrid solutions (e.g. bit-pay) compensates against the network effect, for example by allowing a decrease in the transaction costs for international transfers (an example is here: http://www.thebitcointrader.com/2011/10/send-money-to-china-with-bitcoin-and.html ) . This explains why people are motivated to use Bitcoin, rather than gold or pure fiat, for indirect exchange, even if the price volatility is higher. The ability to multihome and the concepts of transaction costs, which are analysed in papers about credit cards and other innovations, for example, is completely ignored by the Austrians, who are obsessed with the network effect, even though most do not call it this way (Peter Klein pointed me to a paper that analyses MRT as a network effect). They just assume that the network size and usability in physical exchange are the only things that affect the transaction costs. This is an unfounded assumption, and Bitcoin makes it apparent. If legal tender laws and banking regulation was abolished and all fiat money collapsed, it wouldn’t become significantly cheaper to transact gold or gold substitutes, whereas Bitcoin transactions would still be either free or at the marginal cost of mining.
With respect to Mises Regression Theorem (MRT), as I was trying to explain to David Kramer above, I do not know any actual Austrian economist who make the explicit claim that money can only arise from a commodity that is a consumption good (although Stephan Kinsella argues that Hoppe probably thinks along these lines, but I haven’t spoken with him). I spoke to several of them. This argument is explicitly only made by various bloggers. I was able to establish four possible interpretations of the MRT:
- money must originate as a commodity that is a consumption good, and therefore Bitcoin will fail (assorted bloggers claim this)
- MRT means that fiat can arise from commodity and therefore is inapplicable to Bitcoin (Bagus, Selgin)
- Bitcoin refutes MRT
- Bitcoin does have a non-monetary value that the anti-bitcoin bloggers miss. We both agree that this value is in providing an alternative to bank and state activities. If this interpretation is correct, MRT does not need any modification for Bitcoin.
Peter, I have been researching bitcoin for over a year now so I am certain that we both independently arrived at our respective conclusions. The transaction cost argument has been put out there before but transaction costs can be minimal compared to the up or down volatility in exchange value and I do not believe that transaction costs are the driver for an individual’s decision to transact in bitcoin. They are at best a minimal consideration. Furthermore, as you mentioned, bitcoin will have minimal transaction costs for purposes of priority on the ‘networked ledger’. Correctly, bitcoin will also start to see transaction costs associated with merchant acceptance in other settlement currencies and costs associated with immediate confirmation at the point-of-sale and specialty escrow services.
MRT (Mises Regression Theorem) certainly does need modification for cryptocurrencies like bitcoin because MRT is only a valid theory for a non-digital world in addressing money instruments like paper notes and gold/silver coins. However, once the notion of ‘digital bearer’ value is introduced, the theorem is woefully incomplete. It is ‘digital bearer’ value specifically that is the driver here because double-entry accounting existed in the digital environment with VISA, Mastercard, e-gold, etc. Digital bearer value and decentralized digital networks are what is new.
The demand for bitcoin is derived from the demand to emulate the features and characteristics of a physical $100 bill or a physical gold Krugerrand coin in the digital realm. Nanotechnology does not yet exist that would allow us to transport gold molecularly across a public digital network, so bitcoin is a response to that need. So then, what are those characteristics that bitcoin has permitted to be emulated? I maintain that user-defined anonymity and user-defined transaction untraceability are the two primary drivers in the demand for a digital currency or ‘digital bearer’ token. And, as we all know, those two important characteristics are only achievable within a p2p decentralized network immune from State termination and confiscation.
Jon,
Yes, I doubt I’m smart enough to come up with things noone else does
I think I did not explain myself very well. By transaction costs, I mean the broader sense, which also includes other “soft” aspects. For example, let’s take anonymity and “anti-confiscability”. Bitcoin does not fully provide either, it just makes it easier to achieve them. i.e. it lowers the costs thereof. You can, hypothetically, build a million solar powered drones with a stealth body, powerful defensive systems and swarm communication, distribute your gold onto them and let them fly around the whole world. That would be pretty resistant to confiscation.
Solutions for these have been suggested at the network level already, which means their costs would probably end up being negligible. For example, green address technique for immediate confirmation and multi-signing/scripting for escrow. Forex is the most significant cost, which would be eliminated in the end for people who switch to Bitcoin completely (if such a situation ever becomes practical).
That depends on what it actually means. I have come to the conclusion that it does not mean what the most opinionated people think it means. I’m still not entirely sure which interpretation is correct, but it’s just a distraction: either it does not talk about situations like Bitcoin at all, or it is too broad to be helpful, or it is plainly wrong.
This is funny, I made the argument several times already where I hypothesise what would the invention of replicators do to currencies based on physical commodities. Bitcoin is, exactly as you say, the equivalent of being able to teleport gold instantly anywhere at negligible cost.
BTW thank you for helping “convert” Max Keiser, he’s having a presentation at the First European Bitcoin Conference in two weeks.
It’s simple. The definition of medium of exchange is old and outdated and will need an update. All the old thoughts from different economic schools won’t be able to explain exactly what bitcoin is because it is revolutionary. The longer and tighter people try to hold on to the old ideas, tougher it will be for them to grasp the revolutionary idea for new currency that is bitcoin.
This blog post is none other than old school of thought failing to embrace change that will take place in the very foundation of economic principles that will allow a truly free marketplace.
I don’t think there is a need for an update. Just some implicit assumptions need to be dropped.
I’ve heard it stated on this forum by Renegade Division that:
“if regression theorem doesn’t count for people’s desire for anonymity in an uncoerced currency, then obviously something must be wrong with the desire for anonymity.”
Hans Hoppe on money:
http://lewrockwell.com/hoppe/hoppe30.1.html
“But money, too, has physical characteristics. It is commodity money, such as gold or silver, and money profits are reflected in an increase in the supply of this commodity, gold or silver, at the disposal of the capitalist.
What can be said, then, about both the capitalist’s means of production and his money, is this: their physical characteristics do not determine their value, but without their physics, they would have no value at all, and changes in the physical quality and quantity of his property do affect the value of his property, whatever other factors (such as changing consumer evaluations) may affect the value of his property also.”
Have fun explaining bitcoin to Hoppe.
Hoppe also writes in the very same article:
(emphasis added)
Bitcoins require a medium, which is a physical good and has physical characteristics. However, to a large extent, the value of the Bitcoin stored on this medium is invariant to the quality and quantity of the medium, which makes it uniquely suitable for the use as money.
You just make up assumptions on the fly.
Have fun explaining gold to Hoppe. You know, protons, valence, electromagnetic force, Wohlwill process and all that kind of stuff.
You’re comparing virtual “currency” to something that has a physical presence in our 3-D world? You left out the rest of the statement that Hoppe wrote: “but without their physics, they would have no value at all.”
Since people are still accumulating gold and silver (even though they are NOT currently used as a medium of exchange), and gold and silver still have (after thousands of years) marketable uses in this 3-D world other than as mediums of exchange, we’ll see how far bitcoin takes off in the next 20 (I’m being generous) years as a medium of exchange (especially since bitcoin promoters have the terrific communication powers of the internet to get the word out).
And I still say you should write to Hoppe and get his opinion on bitcoin instead of taking (or not taking) my word for what he says about it.
BTW, you used Selgin as an example of an Austrian economist who is okay with bitcoin. Well, OF COURSE he is:
http://www.freebanking.org/2011/11/10/stupid-arguments-against-gold/
“Persons familiar with my writings on monetary reform know that, far from being anyone’s idea of a gold bug, and despite my conviction that those monies work best that governments govern least, I’ve always shied away from arguing that we ought to re-establish a gold standard. Instead, I’ve favored reforms aimed at preserving our existing fiat standard while eliminating the role of bureaucrats, and increasing that of competitive market forces, in regulating that standard.
What I find most obnoxious about Mr. Porter’s arguments isn’t that they are arguments against reviving the gold standard (for I recognize good arguments for not attempting such) or even that they are bad arguments. It is that they are both bad and smug; indeed they are bad because they are smug. Starting from the premise that only idiots can favor a gold standard, Mr. Porter imagines that no great effort is required to prove that such a standard is deeply flawed.”
And this in an essay where Selgin is actually defending aspects of the gold standard.
David,
All media carrying Bitcoin have a presence in our 3-D world. Without the existence of Bitcoin-carrying media, there would be no Bitcoin.
I am hesitant to write to Hoppe, since he’s an uber-Austrian and I’m a nobody.
BTW Block replied, saying:
There is no indication that he thinks there’s something praxeologically wrong with Bitcoin. So there’s even less reason to give any merit to your claims about Hoppe’s opinions.
Surda,
I will have to quote you on this line the next time you pipe up on IP. This is classic:
LOL
If Wildberry was actually paying attention to what I wrote, he would notice that this is essentially the same argument I use to explain my position regarding IP. Also, if Wildberry was actually interested in a genuine debate, he would provide some sort of an argument, which he did not.
Surda said:
Peter Surda May 11, 2011 at 1:18 pm
Wildberry: “Also, beware of equivocating “ideas” and IP.”
Surda:
OK, your paper on Bitcoin is bound to be an interesting read in lunacy.
I raised the issue that here you say that “Bitcoin is a media carried currency, and without the media, Bitcoin could not exist”, yet when Schulman says the same thing about IP, you riled against him as being a proponent of metaphysical hocus pocus, or something to that effect.
You respond to this with a comment you made in response to my objection that ideas and IP are not equivalent, but you argue that they are equivalent from the point of view of human action, I assume meaning to imply that Bitcoin and “money” are equivalent. But of course they are not.
Since you are wrong in the former, I can only presume you are also wrong in the latter.
People do not interact with ideas and IP in the same way. For example, they are not both economic goods. Ideas cannot be owned, and IP can. One cannot calculate the subjective value of an “idea”, but one can trade money for IP.
I know nothing of Bitcoin specifically, other than it is something that was created (not homesteaded by the way), is carried on a media, is dependent upon that media for its existence, is not a free good, and can and is exchanged for other economic goods with anyone willing to accept them on the terms of exchange.
Sounds much like an IP scheme to me. No one ever accused you of being consistent.
ROTFLMAO.
Schulman made it abundantly clear that he sees his logos as something completely separate from the physical aspects of the medium. Let’s see what he wrote,
http://blog.mises.org/16319/the-origins-of-libertarian-ip-abolitionism/#comment-771459 :
I presume Wildberry is just trying to makes himself visible and lure people into his games.
Every Bitcoin is an object made out of information, correct?
> Every Bitcoin is an object made out of information, correct?
Every bitcoin is a series of magnetic fields or organization of electronic gates that represent a binary number. (the two most common forms of storing non-volatile digital data)
A bitcoin is a ‘object made out of information’ in the same manner that a paper dollar bill or gold coin is a ‘object made out of information’.
Which is to say it’s not physically made out of information at all since that is impossible. Information is a abstract concept with no physical substance. It does represent information, however. In common vernacular it would be said that it ‘contains information’.
Hi Nate-m
You too?
Do you think “made out of” and “contain” are important distinctions? Please explain.
You guys crack me up. You use all of the same terms and concepts to describe your beloved Bitcoins, but vehemently object to those same terms and concepts being applied to IP.
Isn’t that just a little bit embarrassing? Not even a teensy bit?
The Bitcoin blockchain tells a story, which adheres certain rules, and can be verified for consistency. Everyone knows how the story goes, and can add to it, within those rules. There are no “objects”, there’s only a story. If someone tries to “break” the rules and tell a story that makes no sense, he’s laughed at. Because the rules are useful, this arrangement creates value.
This actually better than anything demonstrates the errors of a pro-IP approach, which require that physical force is used against IP infringers, and expects people to pay if they find out how to story goes.
> You guys crack me up. You use all of the same terms and concepts to describe your beloved Bitcoins, but vehemently object to those same terms and concepts being applied to IP.
I don’t give two shits about bitcoins, personally.
You are the pathetic one that is always grasping at mixed metaphors to try to confuse the subject. This time you tried to use a technology you don’t understand to make a worthless snipe and got called out for it.
> Isn’t that just a little bit embarrassing? Not even a teensy bit?
Not a tiny fucking bit.
It depends on context.
Bit coins are a medium of exchange. Just like other mediums of exchange they have a physical reality. This physical reality is what they are ‘made out of’. Just because you are not able to understand what they are and you cannot perceive them because they exist as a series of copies in a electronic medium does not make this any less true.
I took your statement as to mean that bit coins are ‘made out of information’ as if they are created out of nothingness, as some sort of ghost or spirit of a thought existing in some ethereal medium… which is false.
They have information ‘contained’ in them. As I first stated this is a colloquialism in the common vernacular used when discussing digital media. Apparently this is confusing to you. Bit coins ‘contain’ information in the same way that dollar bills ‘contain’ information. There is a implied contract. That you can use bit coins or dollar bills as a medium of exchange, that they ‘contain’ a certain value. In that way dollar bills and bit coins are very similar. Their physical reality is very different. Dollars are paper and bit coins is a series of electronic signals and stored magnetic fields representing specific series of binary data that is controlled by a large number of individual actors in a distributed electronic network.
(some, maybe most, dollars exist as only digital data nowadays… but the controls and validation used with them is typically vastly inferior to bit coins.)
In practice they have much more in common with written contracts then ‘copyrights story’ or ‘patented algorithm’, (which I can only guess was your ultimate point.) The major difference is that bitcoins depend on a mostly automated system of voluntary independent witnesses that can accurately monitor, track, and record transactions rather then use formal singing ceremonies to transfer the money value.
@nate-m November 16, 2011 at 6:13 pm
If you don’t mind nate-m, I’ll confine my response to your second post.
“Do you think “made out of” and “contain” are important distinctions? Please explain.”
>blockquote>It depends on context.
They may be similar terms, but they don’t have similar meanings. Context defines terms.
Like I pointed out that bitcoins are a medium of exchange. They exist as physical items. Just like dollar bills and gold coins.
For your statements to be true then every single thing you said for bit coins must hold exactly the same for dollar bills and any other currency that people have used in the past. Cattle, wheat, large stone wheels with squares in them, silver powder, salt etc etc.
If you are willing to state that the value of dollar bills is derived from original authorship in the same way that a copyrighted story does… then I don’t know. But that is what you’d have to agree to if your statement is logically valid.
In fact that is what it derives it’s utility from. It is very specifically a specific unique pattern of information. That is it’s ‘essence’ and nature of utility.
This is similar to how the usefulness of a screw is derived from the shape of the threads of the screw. The utility of a screw is not derived by copyrights, but that the screw has a physical nature that makes it useful for binding pieces of wood together.
The value of the screw is derived from what you can do with the screw. That is that it’s a useful item.. a means to a end. It can used to make two objects one object. It’s a physical good.
The very specific mathematical value (not subjective value, but numerical value) of a bitcoin is where it derives its utility. It’s unique and very orchestrated mathematical value is what enables a distributed network of actors to:
A) Determine the valid owner of the bit coin
B) Be able to track the bitcoin accurately during a transaction.
C) Confirm that a agreed upon transaction has been completed.
Whether or not you feel that a bitcoin has value as a currency does not affect it’s nature as a trackable asset.
This is a difficult concept to get since the public key cryptography is confusing to people and seems alien. But it in fact is just mathematics. Just like how 2 + 2 equal 4.
The subject _value_ of the bitcoin as a currency is derived the same way a the value of a any currency is derived. That is people agree to assign a subjective value to it as a agreed upon medium of exchange.
A bit ironically:
The original numerical value of a specific bitcoin is eventually derived from is purposely random information called a ‘seed’. This original ‘seed’ being completely random and unknown is absolutely critical to the utility of the bitcoin. The most useful source of ‘original authorship’ of a bit coin would be computer sensors recording the radioactive decay of a element, although more typically it’s generated from electronic ‘noise’ generated by things like mouse movements or hard drive activity. This value that CAN NOT be pre-determined before use or derived after the fact. If this seed can be predetermined prior to the bitcoin creation or derived from the bitcoin itself then the bit coin’s utility is destroyed.
A person could create a ‘concept’ of a bitcoin and talk about it in the same terms and same ways, but unless they use similar cryptographic means to build bitcoins then it will have no utility.
You have stumbled upon the concept called ‘Digital Rights Management’; commonly know as ‘DRM’.
It is something that at face value makes a lot of sense to the layman, but unfortunately it is doomed to failure because it ignores the laws of nature surrounding the use of modern cryptography. That is cryptography cannot be used for controlling the use of data (or information).
By the way the form of cryptography used in bit coins is called ‘Public-key cryptography”. It probably uses other forms of cryptography, but that is what is core to the concept.
Using correctly-working cryptography you can do things like:
- Confirm the origin of a transmission
- Confirm the receiver of a transmission
- Prevent the data in the transmission from being intelligible to a third party.
- Confirm the data has not been tampered with.
You can even create values that will identify data has not been tampered without needing to know the original data. All sorts of fun things like that.
But the one thing that encryption cannot do is control the use of information once it has been decryption. This is against the laws of nature; against how the universe iteslf functions. A violation of natural law, so to say.
Since the purpose of DRM is too control the use of information once it’s been decrypted then it cannot depend on encryption to do it. If the success of DRM is dependent on the use of encryption to control the use of information then it’s failure right out of the gate.
So you still need a policeman. That is why we have the DMCA. That is why we are getting ACTA. That is why you still need physical violence.
It would be nice if this wasn’t true, but it’s not. It would make reality compatible with people’s desires in a lot of ways. But the universe is not that convenient.
It is true that you do not need to know how bitcoins function or how they derive their nature for you to use bitcoins. You will just have to trust that they will work correct as designed.
This is similar to how gravity is. It is not necessary for you to understand how gravity works to take advantage of gravitational forces.
Unfortunately public key cryptography is a rather weak form of encryption that is only useful as long as we do not posses the physical means to brute force crack the encryption. As long as the cryptography is correct and we use large enough keys then the energy needed to ‘crack’ a public/private key pair would require us to consume the sun.
[quote]I have no informed opinions as to whether it is a good, bad, or useful innovation. I don’t really care.[/quote]
Unfortunately public key encryption, which bit coins depends on, is computationally complex and relatively weak. It appears that the authors of the software that creates and manages bitcoins took advantage of this complex computational nature of the cryptography to limit the growth of the bit coin.
The weakness of public key cryptography may bite them in the ass. It depends on how correct their mathematical formulas are. If they are not correct then somebody will find a weakness to them and then be able to exploit people’s trust in them. If they are correct and a large enough key is used then it would require a attacker to use the energy of multiple stars to successfully brute force crack it.
Also it may be vulnerable to certain types of social engineering attacks. Since it depends on people to be able not only keep their private keys secret, but to use the software in a correct manner so that it can validate transactions correctly then attackers may be able to exploit the human element.
Another potential problem is that it takes a significant amount of work and luck to find a agreed upon value for any currency. If bitcoin cannot over come this hurdle and develop a stable value as a currency then it won’t be realized.
Just because you can use similar terms to describe some aspects of bit coins and IP does not mean that they are the same things or that you are using the terms correctly.
damn. Failed edit.
Just a small remark to a confused Wildberry:
There is no “reality” in Bitcoin. Bitcoin is pure consensus, like language. Noone is required to “accept the reality” of Bitcoin. The only way one can act in a way that recognises the value of Bitcoin is to use it in a transaction, which others need to validate and accept. Posessing or copying Bitcoin is irrelevant to its value or its working, you can even say that the more it’s copied, the more valuable it is, because it increases the robustness of the network.
Since I never claimed that immaterial goods do not have value, the objection that I treat Bitcoin differently lacks a factual basis. In fact, similarly as with my approach with IP, in almost all the cases where what is colloquially interpreted as “theft” of Bitcoin occurs, this is only possible through a direct violation of property rights, such as (physical) robbery or fraud. Copying Bitcoins has no effect on their working, nor is it interpretable as theft.
Nate-m,
just some side remarks:
Actually, in case of Bitcoin, it’s not random, it’s “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. Of course this does not negate your point, it’s just a funny anecdote.
The grown is not limited by public key cryptography but hashing. So there are two questions: hashing weakness and public crypt weakness.
Hashing weakness might cause the 21 million Bitcoin be generated prematurely, but it can’t escape the logarithmic progression in general. Also, the hashing algo can be changed by consensus if there is demand.
Public key crypto weakness might, theoretically, lead to the ability to crack private keys. There are at least two methods to counter this. The first one is that the public keys are actually private too: only a hash of the public key is known. This creates an additional barrier. The second one is that once a weakness is discovered (which will likely happen gradually, like with MD5 and SHA1), the protocol can be adapted to use a different one.
@nate-m November 16, 2011 at 8:53 pm
It’s not necessary to point out the obvious; I understand this. As you might imagine, I am not as interested in possible differences, (which certainly exist, since they are different “things”), but am asking you to note the similarities. That’s why I wrote what I did.
Books exist as physical things, don’t they?
Yes. I have been complaining about the tendency of people here to impose limitations on IP that they don’t impose on other economic goods. I have said that given the assumption that IP is a form of property right, it thenceforth operates exactly like other property. In this respect, I agree with you. As David quoted Block earlier, just about anything can be a medium of exchange. But a medium of exchange is not equivalent to money.
Likewise, even though a book is made up of components that are not property, like ideas, letters of the alphabet, grammar, etc., that is not equivalent to “an original work of authorship”. There is an important distinction there. Similarly, there must be an important distinction between a bitcoin and say, other packets of information.
Speaking of context, you are now context jumping. Who said anything about how value is derived? In any case, it seems to me that value is derived from some subjective calculation of utility and scarcity, among other things. That seems to be true of all economic goods. So, we can agree that books and bitcoins are both economic goods. So?
Yes, and every bit as literally true is the fact that the nature of utility of a book is that is a unique packet (pattern) of information. Without a necessity of explaining why, it is sufficient here to observe that both have value.
Yes, again we seem to agree that both BC and Books are in essence useful, unique packets of information. In this way, they are both members of a single class of “things”.
I am waiting for you to make a useful distinction. All goods that are useful have utility. Screws can bind wood, and books can impart knowledge, both useful purposes as means to some other end. Goods that are useful means to an end seem to have value. If there is also scarcity, they are economic goods.
This is one of its most interesting attributes, whether it is applied to its use as a medium of exchange, or some other application.
Likewise it is not necessary for you to value a particular book or any book for that matter, for it to be useful to someone for the purpose of imparting knowledge.
To observe that bitcoins and books are designed to serve different purposes equivalent to observing they are different things.
It is not really that difficult. It is possible to understand the principle of relativity despite not having the skill or knowledge necessary to recreate the mathematical proof. I think of bitcoins as self-authenticating information packets which stores its own transaction history. That is an interesting concept, quite aside from its usefulness as money.
Think about what you are saying here. You are describing mathematical uniqueness in terms which are meant to imply its complete originality; it cannot be duplicated by discovery or logic in advance of its creation.
Likewise, you cannot put a person in a room with a computer, and predict what his book will contain. The probabilities of that prediction are impossible for all practical purposes, just like with a bitcoin.
If you could predict, books would not be scarce. Likewise, if you could predict, or pre-determine the value of a bitcoin seed, it also would cease to be scarce. It is this scarcity which contributes to their utility and thus their value.
If you have a number that is so encrypted that you could say with very high probability that a “copy” can only exist if it was derived from the original, you can trace every copy back to the original as “proof” that it must have been copied.
This is identical to the methodology employed to resolve the question of derivative work/copying of copyrighted works. It is an equivalent concept.
Likewise, if a person tries to copy War and Peace without an original to copy from, it will not have much utility as War and Peace. Consequently we are left with physical copying, or independent authorship. Taking something that is scarce and making it ubiquitous is another way of saying worthless as an economic good. Not worthless in terms of utility, since reading a book that is freely available sill imparts knowledge. If books were impossible to copy, you would not need copyrights. This is why we don’t have laws against copying land. It can’t be done.
Again you underestimate me. You have caught my meaning even though I was not explicit. DRM, in its most benign of interpretations, is a form of “utility control”. Unless your use satisfies a certain protocol, the utility is disabled. Unfortunately it also has a dark side. But again I digress. The point is that this is another similarity.
I admit I don’t understand this, because it seems to be counter-intuitive. It seems to me that cryptography is used to control the use of data. When we use shttp://, we control the use of the bits being transmitted. You may posses and read the bits, but you cannot reassemble them into the message. It is the message that is useful.
Sorry, above my pay grade.
Well this is a bit lofty, but I think I understand. If you take the encryption away, it is no longer encrypted, and behaves in the same way as unencrypted data. Thank you.
This is what I was referring to earlier, the way you impose your bias on IP in ways that you do not with other economic goods.
The legal issue is authorized use, not how you defeat an attempt to authorize a given use. You can build a fence around your property, and only admit people who ring the bell and come through the gate. If someone hops the fence, you call the cops. How is this different than calling the cops when someone distributes copies of your book?
Yes, we agree.
Yes.
Yes, at some point it is practically impossible. For this reason, it is possible and practical to tell that a copy is derived from a specific original pattern. To assume otherwise is to buck the reality of probability curves, as you point out.
I’ll leave the musings on cryptology to you and others.
“I am interested to learn, however, that the people here that are so adamant in their opposition to IP are not bothered by their use of terms and concepts to explain the nature of bitcoin, while denying the plain meaning of those same terms and concepts in the context of IP. Like I said, it is ironic, and I thought worthy of comment.”
Yes, I agree. Unfortunately I have failed to get you to weigh in either way. Note that I am not claiming they are the same thing; obviously that is not the case. What I am saying is that there are obvious parallels in the way each are conceptualized. In short, I find that IP opponents use concepts that I’ve discussed here to oppose IP, while using those same concepts to “explain” what bitcoin is.
For example, is it correct to say that bitcoin is property? If not, then how can it be a useful medium of exchange?
If so, the how did it become property? Did someone homestead a bitcoin? If you honestly explore that question, I think you might see my point.
Wildberry is still completely off the track.
No, it is not. I can’t find the post that I thought I made about this, but found another one:
http://blog.mises.org/17767/intellectual-property-advocates-hate-competition/comment-page-1/#comment-794351
Most importantly, copying Bitcoins does not increase their supply, so even if the economics touted by the proponents of IP was correct, it would still fail to be analogous to the workings of Bitcoin.
Because value is not derived from restricting other people’s actions, rather from making some of the actions that are already available to you more valuable. With money, there are even further considerations, such as intertemporal and interpersonal coordination of plans. Having a stable money supply makes a better money.
If anything, the analogy to IP would be if Bitcoin was designed to have its supply dependent on the restriction of copying. That would be a really stupid design.
@Peter Surda November 18, 2011 at 2:05 am
Gratuitous condescension duly noted.
“For example, is it correct to say that bitcoin is property?”
This link shows you can be ludicrous in two places at once.
Here is what you said:
OK, you say Bitcoin is like written language. Fine. I would like to buy your computer with this blog post. OK?
You also say copying does not increase the supply. If copying means “duplication”, then how do you copy a Bitcoin? Seems like a contradiction to me. If you cannot copy it, like land, then why are you comparing copying with IP? Bits can be copied, but Bitcoins cannot. Care to explain?
You analysis of utility always was weak, or worse. If I’m wrong about that, please address the distinction you are making here:
What is the utility of Bitcoin and what is the utility of a book (or a turnip for that matter)? Given that they are different things, I would expect their utility to be different.
Anyway, leave it to you to answer a direct question with an irrelevant observation. I did not ask you if the act of copying was analogous. Try to follow the program.
I am asking you a simple question. If Bitcoin is not property, and cannot be defended as property, how is it that it can be used as money? How can whatever value it may have be exchanged for other commodities which clearly are property? Now don’t go off on a tangent. Just answer this…
“If not, then how can it be a useful medium of exchange?”
To say that “Value is derived from making some of the actions already available to you more valuable” is a contorted way of saying that we value things that serve as a means to some desirable end. Thank you for explaining, but I didn’t ask you about value.
Again, I’m asking about property. If something has value but cannot be owned, it is not property. Language is useful as a means to communicate, etc., it has value but cannot be owned, and is therefore not property. Free oxygen is valuable but not property. Bitcoins are not property you say, yet you use them to buy stuff. What are you exchanging for property? How does that work, exactly?
Bitcoins are not “free”, i.e. they are scarce. Are they property? Property can only be created by homesteading or transfer of previously homesteaded scarce resources. Are bits scarce? Can they be homesteaded? Can they be owned, and can the right to exclusive use be enforced? If I hold a gun to your head and make you buy me stuff with your bitcoins, I have converted your bitcoins into property without your consent. Is that violation of NAP in your world? Can you prove that they were yours? It is a yes or no answer; don’t get creative.
Yes, I suppose it would. It would be like selecting turnips for money, that wouldn’t work very well and we’d have way too many turnips around. Brilliant insight.
An analogy is not as useful for pointing out differences between two things, they are more useful for comparing similarities.
You have placed yourself in a logical cul-de-sac. If Bitcoin is not property, then it is useless as a medium of exchange, which is its primary utility. Even if you claim that Bitcoin’s most important utility is to do away with the need for banking, its essential function is to serve as a medium of exchange.
It appears, however that its encryption and tracking algorithms are designed to protect the identity of a Bitcoin, and therefore its value, from being debased. Without this attribute, it cannot fulfill its essential function, and would have no utility. This seems to imply that the attribute of property ownership, namely exclusive possession and control, is being created.
So either you are wrong in your assertion that it is not property, or it is useless as a medium of exchange.
Care to have a do over?
Wildberry does not understand that value and property are distinct concepts. He also does not understand how Bitcoin works.
Bitcoin is only scarce within specific context derived from consensus. Outside of this context, it has no value and functionality. IP is built on the assumption that the value is independent of the consensus, and people who disagree with the opinion of the author need to be forced to comply. If Bitcoin was built upon this assumption, it would not work. Since the functionality of Bitcoin requires consensus, it does not require enforcement of the rules that affect its expected functionality against dissenters to work.
Similarly, language has only value and functionality within the context of people who use it. If I disagree with the rules that govern a language and start talking gibberish, this does not require that others force me to comply. They will ignore me, just like Bitcoin users will ignore people who attempt to use Bitcoin outside of the consensus.
It is evident that whatever Wildberry used his time for during his visits on this website, it was not in order to learn.
@Peter Surda November 18, 2011 at 12:35 pm
Not only do I understand that, but I have asked about only property. You raised value, which is not relevant, but that has never stopped you in the past.
Are you now asserting a new theory of property that involves value? It was a simple question, which you are apparently incapable of answering.
So it is scarce then? By consensus you mean I have to agree it is scarce before it is scarce? Good, I will help myself to your free bitcoins then.
This is meant to have some didactic value? Let’s see, outside the context of utility, things have no value. Too bad Mises is dead; he could have really used this insight.
I suppose that within some context, they do have value and functionality. Wow, that is so…so symmetrical!
I guess since you don’t have a clue what you are talking about, this somehow makes sense to you? Let’s see, law must be by consensus: anyone who withholds his consent to private property is free to steal? Law is a matter of opinion, and an author can enforce compliance to his opinion, and that is the assumption of IP? Doesn’t this seem a little goofy, even to you?
Really? Somehow I don’t find this surprising. It’s hard to imagine anything that would, but thank you for pointing out the obvious.
I’m not aware of anything that has a consensus being in need of enforcement. Otherwise it wouldn’t be consensus. Never hurts to throw in a random tautology here and there, though.
Another useful bit of information: Language only has value to those who use it and understand it, or can translate it into another language.
I am curious why you think this has any relevance whatsoever. We agree that language and bitcoins are both useful when used for the purpose for which they are designed.
Congratulations, you wrung that out of me. We also agree that no one need force someone to use bitcoins, nor to buy a book, or even read it for that matter. Again, good going, I surrender.
“If Bitcoin is not property, then it is useless as a medium of exchange, which is its primary utility.”
It is evident that you can’t answer even the most fundamental questions about Bitcoins, and stay consistent with the positions (or more properly, the lack of positions) on IP.
I presume this is because your framework for property, etc. is so arbitrary and confused that you can’t make a simple bridge between one context and another.
This is why, to restate the obvious, you are worthless in discourse. When confronted with a contradiction, you start talking gibberish and raise irrelevant and/or obvious tautology, as if you are actually saying something. Clearly this is not the case.
Whatever. Enjoy your Bitcoins. I’m sure they are about to take over the world, especially with skilled and articulate proponents such as yourself.
Wildberry brought up value and then denies it.
Wildberry formulates exactly the opposite position that I presented, and asks me if that’s what I mean.
Bitcoin is “scarce by consensus” in the same way that the integers between 1 and 10 are scarce by consensus. It is agreed that there are only 10. A claim that one invented a new integer between 1 and 10 would not be countered by the arrival of “math police”, but rather by ignorance and/or ridicule. Instead of making an impression of a being clever thief, one would make the impression of being a fool. A similar result would occur if Wildberry attempted to “obtain free bitcoins”.
Against dissenters. Wildberry cannot read.
It is evident that Wildberry is not interested in a debate, rather in playing games. I’m afraid he will have to play with himself tonight.
@Peter Surda November 18, 2011 at 5:05 pm
“Not only do I understand that, but I have asked about only property. You raised value, which is not relevant, but that has never stopped you in the past.”
Nice try. There is the initial exchange:
http://blog.mises.org/17249/ideological-and-irrational-exuberance/comment-page-1/#comment-809794
“I am asking you a simple question. If Bitcoin is not property, and cannot be defended as property, how is it that it can be used as money? How can whatever value it may have be exchanged for other commodities which clearly are property? Now don’t go off on a tangent. Just answer this…”
“If not, then how can it be a useful medium of exchange?”
The question was, and is about property.
“Are you now asserting a new theory of property that involves value?
You presented the position that Bitcoin is not property. You stand by that, right? (yes or no; please choose one)
“So it is scarce then? By consensus you mean I have to agree it is scarce before it is scarce? Good, I will help myself to your free bitcoins then.”
OK let me see if I follow you. Property can only be applied to scarce resources, Bitcoins are not property, so bitcoins must not be scarce. They are non-rivalrous. But they ARE scarce by consensus, so I guess they are scarce, and they are rivalrous because I can’t have free Bitcoins, so they must be property.
They get scarce because some people consent to them being scarce, so this makes them so. But people cannot consent to making IP scarce. That’s different. And integers are scarce, which means that if I am using any numbers between 1 and 10, then you cannot also use them. But that doesn’t seem to be the case. I suspect people are all using integers at the same time, right? So they can’t be scarce. It’s all becoming clear to me…NOT!
So, the only way I can get free bitcoins is to make up an 11th integer between 1 and 10? OK, I guess this is the same as saying that the only way you can get a copy of my book without an original is to pull it out verbatim form the virtual book reservoir, where ideas and letters of the alphabet live, and that monkey that accidentally writes the Encyclopedia Britanica. Both seem rather improbable.
“I’m not aware of anything that has a consensus being in need of enforcement.”
Ah, if there is consensus, why would there be dissenters?
“It is evident that you can’t answer even the most fundamental questions about Bitcoins, and stay consistent with the positions (or more properly, the lack of positions) on IP.”
You avoid the simplest of questions, and then make this rather childish accusation. Really, Peter.
There’s a guy at Penn State that likes to imagine stuff like that too. Have you two met?
Bitcoin is not property. This does not mean it does not have value. Apparently, Wildberry is confused by the notion that value is not derived from property.
Bitcoins only behave as scarce if you accept them as such. One can, of course, do the same thing with any any abstract concept, including whatever one thinks about IP. This is why Wildberry is so often confused when Kinsella or me show how arrangements superficially similar to IP can be created by contracts. However, such arrangements cannot be applied to dissenting third parties. IP is based on the assumption that dissenting third parties must be forced to comply. Bitcoin does not not assume this. In fact, as I said multiple times, if it did, it would not work at all.
This is actually a nice example, because this is the same way Bitcoin behaves. It is perfectly possible to use Bitcoin in a non-scarce manner. Action of one person using a Bitcoin does not prevent another person from using “the same” Bitcoin. What happens instead is that other users of Bitcoin will only recognise at most one of these actions as an attempt to spend, and will ignore the other one.
Let’s say there is a waiting queue at a hospital, for example, and people draw numbered tickets, which determine the order in which they go into the room. Let’s say that for whatever reason, two people end up having the same number. Person A having a ticket number 4 does not prevent a person B having a ticket number 4 as well. But this does not make it likely the doctor to accept both of them simultaneously. More likely scenarios are that one of them will be attended to first, or that one of them will be ignored. With Bitcoin, it’s always the latter option, because after 4 comes 5 and not another 4.
Apparently, Wildberry is still baffled by the concepts of contracts and scarcity.
@Peter Surda November 19, 2011 at 3:12 am
Sorry, Peter, this is idiotic. I explained this already; air has value but is not property. Got it. I am not asking you about that. I am asking: since it is true that value and property are not equivalent, and Bitcoin is not property, then how can its value be owned? It must be owned to be exchanged, correct? Are you saying that no one owns their Bitcoins? Yet they can be used as a medium of exchange, and this network of exchange can replace banking? But there is no concept of private property underlying this network?
Property rights must be asserted and defended. The fact that Bitcoin defends itself is irrelevant; it is still a defense. If you can only get them by trading with someone who has them, then they apparently have rights of exclusive use and possession.
Something to which an individual has a right to exclusive use and possession is property, private property. Private ownership is a prerequisite to trade. Bitcoins are a medium of exchange in trade. You say they are not property. You have not explained why. You cannot, and remain consistent with the basis upon which you oppose IP. But please try, rather than being a coward and trying to pretend that I am confused.
Since property can only exist, according to you, by homesteading and transfer of previously homesteaded scarce resources, how is it that people can own bitcoins, use them for trade, but somehow exclude them from these fundamental principles of property?
I paraphrased your position as follows: “They [Bitcoin] get scarce because some people consent to them being scarce, so this makes them so. But people cannot consent to making IP scarce. That’s different.”
Then you admit that Bitcoin and IP are equivalent in this regard? You agree that scarcity can be created by “acceptance”, whatever that may mean? C’mon, don’t weasel. Just answer.
Don’t bother to bank on my confusion, clear it up for me, if you can. Explain precisely what the difference is. It appears that your only real objection to IP is that its encryption scheme is not robust enough to defend itself from “dissenters”. So you would favor stronger DCMA schemes, as long as people don’t have a choice; i.e. if they “consent” to reading a book, they must have consented to the self-enforcing scarcity feature of the digital lock. Is that it? And therefore you favor an infinite term of protection, since no one can both consent to use and dissent from the means of protection. Isn’t that how Bitcoin works?
There is no such thing, as you have pointed out. If the use requires consent, there is no dissent possible, except not to use. If this is imposed by software, it is ok by you. If it is imposed by any other means, it is “different”. Right?
You apparently have no clue how contradictory this is. What is “force”? Since you cannot use Bitcoin except for how it is designed, then your use is “forced compliance” since there is no other way to use. Without this force, Bitcoin would not work at all. This is your idea of consent, am I right? You can choose to use it or not, but you cannot both use and dissent, just like you cannot add and subtract if 1-10 contained 11 integers. No choice in the matter equates to “consent” in your world, right?
Your faith in Bitcoin is based on your belief that no one can ever figure out a way to game the system. Therefore there is “consent”. As long as no one can game the system, the artificial scarcity will be observed, since no one can “capture” a bitcoin.
Yet you allow that “capturing” the work of another is fair game because you have not consented to his private property being treated as such. Therefore you are morally free to help yourself.
The only way you can escape this obvious and elementary contradiction is to claim that Bitcoin is not property, an absurd assertion. Trade is based on a presumption of private property. Without it, there is no possibility of economic calculation. Yet you avoid this obvious truth by simply declaring that Bitcoin is not property without even an attempt to defend this absurd position.
What a HOOT!!
Even though it may escape you, any third grader reading this can see the BS you are spouting. Your framework is a mess. Rube Goldberg has nothing on you…ROTFLMAO-Again!!
Wildberry is still hopelessly confused about, well, everything.
Air is merely usually not treated as property, because the scarcity of it is in most cases insignificant. I doubt someone taking air from a scuba diver would be very successful defending his position in court.
From Austrian perspective, value cannot be owned. Apart from Kinsella, Block also elaborates about this point.
Incorrect.
Correct.
Correct.
Of course there is. All actions are covered by property rights in physical goods. The infrastructure and storage media are privately owned.
Better than anything this indicates how Wildberry does not understand the concepts of scarcity, exclusivity, and use. Bitcoins are only scarce in the narrow context of transactions on the Bitcoin network, and this is ensured by algorithms (which is just a fancy name for math). There is no need to make sure that exclusivity is upheld for uses of Bitcoin outside of the context of the Bitcoin network.
Correct. The infrastructure of the Bitcoin network and storage media are private property. Bitcoins are not.
Private ownership of a good is a requirement for a transfer of title to that good. Providing services, however, does not require private ownership of the service, rather the tools used in the provision of that service. Maybe Wildberry recalls how I made the argument in the past that in order to agree not to move for an hour, there is no necessity to own “hour” or “movement”.
Metaphorically, yes. It’s more accurate to say they are a service that facilitates trade.
Correct.
I did.
I can.
Yawn.
Bitcoins cannot be owned. Bitcoin network infrastructure and storage media can and is.
Once again, the concept of IP is based on the assumption that people who want to use immaterial goods need to consent to the rules outlined by the IP proponents. Bitcoin is not based on this assumption that people who want to use Bitcoin need to consent to
the rules governing the Bitcoin network. When they do it (use Bitcoin outside of the rules governing the Bitcoin network), the network ignores them. It does not send “Bitcoin police” on them.
The difference is that people who do not agree with the rules governing the Bitcoin network do not need to be forced to comply if they want to “use” Bitcoin. Their use of Bitcoin outside of these rules is ignored rather than punished. With IP, people who want to “use” “works of authorship”, or whatever, need to be forced to comply in order for IP to work. They are not ignored, rather they are sued, raided, called “thiefs” and so on.
Wrong. Dissenters can do whatever they want. The result of the compromise of the cryptographic algorithm would not be that Bitcoin users would suddenly attempt to force dissenters to comply. Rather, Bitcoin would collapse.
DMCA is a legal tool to attack dissenters and people who analyse and publish algorithms. There is no equivalent to Bitcoin. Bitcoin is based on the assumption that these algorithms withstand attacks from dissenters. A result of a compromise would not be a legal action against dissenters, but the collapse of Bitcoin.
No.
Wrong. I have multiple times explained already that the problem with IP is not that it restricts parties to the contract, but that it applies to third parties who never consented to any restriction of their own property.
Wildberry is boring the audience.
I have multiple times said that you can use Bitcoin other ways than it was designed. It’s merely pointless and others would ignore it.
Wrong.
Sure it is possible to add and subtract in such a case. One just has to invent new math school governed by different axioms. There is nothing preventing anybody from doing this. The result, however, would be ignorance and/or ridicule. Not the arrival of “math police”.
Wrong.
This is an overly simplified and inaccurate representation. The scarcity would be preserved regardless of whether one finds how to “game the system”. It merely would cease to be useful in such a case and collapse.
This has no relation to my position.
It has long been clear that Wildberry has problems with elementary logic.
I already explained the errors in this claim, both here as well as many times in the past. Having a noun in a sentence that describes a trade transaction does not imply that that noun refers to property.
Boooooooriiiiiiiiing.
You’re equating “virtual” currency to an object in our 3-D material world? I guess there’s no difference between your girlfriend and the atoms that she is made of.
Block wrote: “I doubt that it would succeed as a money, but that is an empirical question.” You wrote: “There is no indication that he thinks there’s something praxeologically wrong with Bitcoin.” Wanna bet? Ask him that directly as to whether or not he thinks Bitcoin is a good-quality medium of exchange as compared to the current bad-quality government fiat currency. What he is saying in his response can also be said about our current fiat currency (i.e., that it has succeeded as money). Do you believe that Walter Block believes there is nothing wrong with our current fiat currency? He’s not saying that bitcoin is good, just that it could exist—which it already does. Bitcoin obviously already is being used by a small group of people as a medium of exchange. I and others are not arguing that it isn’t a medium of exchange, just that it’s no different in and of itself as the computer blips that the Fed currently pumps into the Banksters bank account, i.e, they are both virtual. (Which, as I’m sure you know—and I only found out a few years ago—don’t even represent paper notes anymore.)
You wrote: “I am hesitant to write to Hoppe, since he’s an uber-Austrian and I’m a nobody.” That’s a cop-out. He’s a teacher. He’s here to answer questions. (But in the case of bitcoin, he is so against it that he may not respond. But again, never assume. Write to him.)
David,
Kindly read what I actually wrote.
In that case you already admit that Mises Regression Theorem does not prove the infeasibility of Bitcoin.
Maybe you’re right, but as I already explained, the learning curve is steep. First I would need to undo the damage you did. I am not going to write him merely to disprove you. I would rather wait until my paper is ready and published, and then the Austrians can read it and react to it.
Peter, I wrote to Walter myself to get his reaction to what you wrote that he replied to you. Here is his response:
“Dear David:
Please feel free to post this.
I used to be part of a baby sitting co-op. There were five couples, all with kids about the same ages. We would keep records of who baby sat for whom. These baby sitting credits were a legitimate money. We never did use these credits as money for anything else than supplying other baby sitting services, but, we could have; e.g., possibly, we could have used them for washing cars, buying beer, whatever. Cigarettes were used as money in that prisoner of war camp (Radford). Bitcoins, too, are money. But the baby sitting money, and the cigarette money are in some ways preferrable to the bit coin money, in that the former, not the latter, are based on valuable considerations (baby sitting services, cigarettes), while the bitcoin money, as I understand it, are based on solving math problems (please correct me if I’m wrong on this, I really haven’t studied bit coins) that in and of themselves have no value to anyone.
Best regards,
Walter
Walter E. Block, Ph.D.
Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics
Joseph A. Butt, S.J. College of Business
Loyola University New Orleans
6363 St. Charles Avenue, Box 15, Miller Hall 318
New Orleans, LA 70118
tel: (504) 864-7934
fax: (504) 864-7970″
So now, Peter, if you have anything to say/explain to Walter, you can see what his view currently is on bitcoin.
Block wrote to me that he has no time, but will reply if I donate to the Mises Institute. I told him I will donate, but only if he can figure out how I can do that using either gold or Bitcoin. To that he did not reply (yet).
This episode should actually be sufficient to refute all the nonsense posted by Bitcoin detractors. The value of Bitcoins is in replacing the banking system. Block does not know that, because all he knows about Bitcoin he got from the likes of you, who have no clue about anything.
This quote further supports my claim:
(emphasis added) Providing a replacement for banking services clearly is of value. Block does not know that this is what Bitcoin does, and does not care about it. I’m not going to divert his energy into rebuking the likes of you merely to satisfy your ego. If he thinks it merits his attention, he will address it.
“I’m not going to divert his energy into rebuking the likes of you merely to satisfy your ego.” (You still can’t seem to have a discussion on something without being rude. Amazing.)
I also wrote to Walter asking him about my above response to you that started: “Block wrote: “I doubt that it would succeed as a money, but that is an empirical question.” …don’t even represent paper notes anymore.)”
Here is the email exchange (I put it in chronological order, i.e., my question, then his response):
From: David Kramer [mailto:mur****@****.com]
Sent: Tuesday, November 15, 2011 11:46 AM
To: Walter Block
Subject: RE: One other thing about Your bitcoin response
“You didn’t answer my original question. Do you agree with the assessment I made that your response was not saying that you thought that bitcoin was a quality medium of exchange, but just that it could become a medium of exchange?”
Subject: RE: One other thing about Your bitcoin response
Date: Tue, 15 Nov 2011 11:47:00 -0600
From: walterblock@cba.loyno.edu
To: mur****@****.com
“Yes, I agree”
Walter E. Block, Ph.D.
Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics
Joseph A. Butt, S.J. College of Business
Loyola University New Orleans
6363 St. Charles Avenue, Box 15, Miller Hall 318
New Orleans, LA 70118
tel: (504) 864-7934
fax: (504) 864-7970
wblock@loyno.edu
http://www.walterblock.com/
Perhaps you should write to Walter to verify that I didn’t make the above up.
I can’t wait for you to hear what Hoppe thinks about Bitcoin. (I already know what he thinks, but I’m sure you would think I was “distorting” or making up his view.) If he doesn’t write back to you, you can ask him in person the next time you attend the same Mises conference that he is a speaker at.
David,
As I explained before, since you have shown not having a clue about anything, I doubt that how you interpret the responses of Hoppe and Block has actually to do with whatever I claim. What does Block say in this quoted exchange? That Bitcoin might or might not be a medium of exchange. What’s the relevance of it? Zero.
Block saying that: “…don’t even represent paper notes anymore.” shows that you, of course, did not explain to him what Bitcoin actually is. Since you don’t get it yourself, it’s no surprise.
It does not show that Block thinks there is something wrong with Bitcoin. At most it shows that whatever inaccurate assumptions you fed to Block, he might agree with the conclusions that follow from them.
I hate to break it to you, Peter, but I never presented ANYTHING to either Walter Block or Hans Hoppe. I just asked them their own opinion of bitcoin after I had written my post and got mostly negative responses from LRC readers. (I thought, perhaps, that I had misunderstood what I had learned from them and their mentor, Murray Rothbard, about mediums of exchange.) Hoppe had heard of bitcoin from a number of people who are into it—and formed his own opinion of it—way before I ever asked him his opinion of it.
Sorry, Peter, better luck next time with your assumptions.
David,
You did not tell them about your article?
Also, I finally wrote to Hoppe yesterday and he replied and asked me some questions. I replied to them the best I could, I’m curious what he replies (assuming he finds it interesting enough to think about).
Both Block and Hoppe told me that they don’t know much about Bitcoin. Since you, according to your own presentation, asked them about a medium of exchange, and not about banking system (which is what Bitcoin actually provides), you’re following exactly the same trajectory I outlined about a week ago in a post above: a too narrow interpretation of Bitcoin. Even your original article refers to Bitcoins as (bogus) medium of exchange.
How about I write an article about a bogus banking system that we currently have (and have had with gold), and how Bitcoin replaces it with a superiour alternative? Oh wait, my paper already does this. Maybe I should spend my time on finishing it, rather than repeating myself online.
I presume you will post here what Hoppe responds to you. Have you ever submitted an essay for LRC on bitcoin?
I have no problems posting in professor Hoppe’s reply, once it’s clarified whether he is ok with that and whether he’s made up his mind.
I have not posted any essays anywhere, I am merely researching and debating about Bitcoin. I will publish a paper about it when it’s ready.
BTW, I’m almost positive that a number of years ago someone sent me a Powerpoint presentation on what I now realize was bitcoin. I remember forwarding it to Walter Block and Guido Hülsmann for their opinion. Neither ever got back to me.
Also, remember I wrote that “I thought, perhaps, that I had misunderstood what I had learned from them and their mentor, Murray Rothbard, about mediums of exchange.”
If either of those guys delves into bitcoin and think it is superior to what we’ve naturally/freely had for thousands of years (I’m referring not just to gold as a medium of exchange, but the use of a commodity that had a use value prior to becoming a medium of exchange), then I will absolutely do a post on LRC taking back what I wrote. To paraphrase a thought by George Bernard Shaw, I’m not afraid to have an opinion, nor afraid to change my opinion if I’m shown that my original opinion was wrong. If you want to email Hans’s response, my email address is: euro5ark812@yahoo.com.
David,
Since Bitcoin was only launched in January 2009 and the technical paper about it was only published a month or two before that, I don’t think whatever presentation you’re referring to had to do with Bitcoin.
Once again, interpreting Bitcoin as a medium of exchange is inadequate, similarly as interpreting email as digital letters is inadequate. Economic analysis of money does not end with media of exchange, it begins there. It continues with banking.
I remember, about 23 years ago at school, a classmate was telling others how he can read books on a computer and how it’s cool and groundbreaking. The teacher said, “but it’s useless for people without computers”. That’s the equivalent of viewing Bitcoin through the narrow point of view of a medium of exchange.
If you are not afraid of being shown that your original opinion was wrong, maybe you should start with getting the facts right.
“Since Bitcoin was only launched in January 2009 and the technical paper about it was only published a month or two before that”
It was definitely bitcoin because 2009 sounds like the time I received the information.
“If you are not afraid of being shown that your original opinion was wrong, maybe you should start with getting the facts right.”
When information on the internet gives me the correct facts, I will be more than happy to change my opinion. So far, from what I’ve read (and heard from Gavin Andresen in an NPR interview http://www.wnyc.org/shows/lopate/2011/oct/26/all-about-bitcoin/), I’m not convinced yet.
David,
Ok, so what exactly did it say?
Let’s now ignore that half of what you say is unscientific ridicule. Let’s also ignore that the core argument you present, MRT, is even in Austrian circles an “unfinished business”. In fact, it seems to create more controversy than fractional reserve banking.
Then, you make the argument that the production of Bitcoin does not follow free market demand. Let me quote Huelsmann in Ethics of Money Production:
This is exactly how it works with Bitcoin. Production of Bitcoin carries a price, and people who invest into production of Bitcoin with the intention of earning profit will only produce Bitcoins as long as it’s profitable.
The production rate of Bitcoin was designed to mimick the exhaustion of natural resources and from this point of view is closer to the ideal of gold than actual gold.
Your claim that:
is inaccurate. Market determines the cost of production and the market price. It does not necessarily determine the amount, because this is influenced by the scarcity of resources. Many Austrians, including, if I’m not mistaken, Mises, Rothbard and Schlichter, say that within certain reasonable margins, any amount of money can fulfill its purpose.
Also, you completely miss that Bitcoin contains an integrated, decentralised banking system, which gold does not. Banking system of gold is an element separate from gold and has to be built after gold becomes money, and this lack of integration creates all sorts of issues. Bitcoin’s integrated banking system has a comparative advantage over gold-based banking system. The vast majority of financial transactions are nowadays not in cash, but by the use of the banking system. Why should the advantage of gold in cash transactions take precedence over Bitcoin advantage in the banking system? The detractors of Bitcoin do not address this. They are stuck in the 19th century.
The “arguments” you have made in this thread are typically even more far fetched, like claiming that the divisibility of Bitcoin carries seeds of inflation, which, as I already said, is the equivalent of claim that because a gram of gold is divisible into atoms, this can somehow lead to inflation.
I find it funny how you reference an interview with Gavin Andresen (who is not an economist) targeted at general populace, in a debate about economics. Next time, maybe you should quote a high-school textbook claiming that there are only three states of matter (solid, liquid, gaseous) as supportive of your opinion that plasma, superfluids or Bose-Einstein condensates do not exist.
It will be interesting to see what Hoppe says. (I do hope he gets back to you.) By the way, you should seriously consider sending your material to David Gordon. He has more time than either Block or Hoppe, and he would probably be more open to reading the material and giving you his assessment of bitcoin’s merits and pitfalls.
I have not read much by David Gordon, but from the few blog posts and videos I watched I see him as a very logical and respectable a scholar. However I do not recall him being a specialist in the monetary theory.
I find it fascinating how you switched from a raving lunatic to perfectly reasonable and disciplined guy. Maybe my original impression is not representative of the whole David Kramer after all.
David Gordon is, in the words of the late Murray Rothbard, a universal genius. If you read enough of his Mises Review reviews, you will understand why Rothbard called him that.
Very well then, I’ll see what I can do.
I emailed with Gordon too. He, similarly as Hoppe and Block, said that he’s not an expert in Bitcoin, and also said he’s not an expert on monetary theory.
Nevertheless, he quoted Mises in Human Action:
[emphasis added by PS]
Bitcoin is being used as a medium of exchange, and has been for at least one and a half years. Furthermore, apart from the time of the speculative bubble collapsing, its use has been increasing. If anything, Bitcoin behaves exactly as money should.
We can dispute whether the service provided by Bitcoin (replacement for large parts of the banking sector) counts as “other employments”, and therefore whether it behaves according to MRT or not, i.e. confirms or refutes it. However, regardless of this, the quote does not say that Bitcoin cannot evolve from being a medium of exchange to being money. So your claims, as well as all kinds of other detractors of Bitcoin, such as Nielsio and SmilingDave, are plainly wrong. Also, your representation of the positions of Block, Hoppe and Gordon with respect to Bitcoin is misleading. They are skeptical alright (as are many other Austrians, including those I talked to, including Bagus, Selgin and Kinsella), but they also say:
Hoppe:
Gordon:
There are Austrians that are more optimistic, for example Detlev Schlichter (who’s speaking at the first european bitcoin conference next week) and Michael Suede.
You still have not provided any solid backing for your position. It’s all just speculation and conjecture. A solid analysis of Bitcoin from Austrian perspective does not exist yet. Michael Suede did a lot of pioneering work, but I think a more thorough analysis is necessary. I hope to contribute to this.
Maybe you should listen to this interview: http://traffic.libsyn.com/ftl/FTL2011-11-19.mp3
The unrelated Ludwig von Mises Institute in Poland appears to be ahead of the Auburn Mises Institute on this one:
Alan Szepieniec Presents Bitcoin at Polish Mises Institute
http://themonetaryfuture.blogspot.com/2011/11/alan-szepieniec-presents-bitcoin-at.html
There were a couple of things Alan said that I have issues with. Alas, the economic research of Bitcoin is still in diapers.
@Peter Surda November 19, 2011 at 5:17 pm
True, Peter, but the atmosphere is not owned, correct? It is not property. Leave it to you to come up with an irrelevant example to obscure the simple point that value and property are different things; one can exist without the other. Right?
What are Bitcoins? If you know what they are not, you should be able to explain what they are. Please do, if you can. You have said they have value but are not property, they are a medium of exchange, but are not scarce. What are they? Is there no existing concept upon which you can rely to simply say what they are?
Again with the preference for obscurity over illumination. I did not assert that value can be owned. Objects with value can be owned. Bitcoins have value. Can you own them?
“It must be owned to be exchanged, correct?”
OK. Please explain their utility. What is being exchanged?
“Are you saying that no one owns their Bitcoins?”
“Yet they can be used as a medium of exchange, and this network of exchange can replace banking?” (Is there an echo in here?)
Please explain why this is so.
“But there is no concept of private property underlying this network?”
I see, the person(s) who own the infrastructure and storage media own what, relative to the utility of Bitcoin? Someone owns the hardware and fiber that makes up the internet, so they also own the information that propagates through it? Something like the idea that because you own paper and ink, you own anything that you put upon it? Like that?
Meh…
Yes, but inside the context of the Bitcoin network, they are scarce. This is a necessary condition to their being useful as exchange medium. (And thank you for trying to simply the concept of algorithm, so even I can grasp it. I’m trying real hard to stand up straight so this doesn’t go over my head…)
Yes, but there is a need within the network. So why are you avoiding the obvious? If they are scarce in any context, they are scarce in that context. So stick with that context, it doesn’t change anything I’m asking about.
Why are they scarce in the context of the Bitcoin network? Someone created scarcity within some context you are calling the “network”. How did that happen? Did someone homesteaded Bitcoins, and then offered them for sale?
If they were offered for sale, what was offered? You claim to speak English. Without relying on tautology, what was sold and what was purchased? Use terms of AET, and I’ll try to look up the big words.
“Something to which an individual has a right to exclusive use and possession is property, private property.”
I think you are once again avoiding the obvious, but let’s see if we can work with this. If Bitcoins are not private property, why are “they” being traded for currency and goods (although I don’t see much trading for goods; the cake shop that takes bitcoins admitted that he’s never actually traded for them…)
“Private ownership is a prerequisite to trade.”
This is all really Zen and everything, but it sounds like BS to me. Paypal is a service too, but they require cash. I gather you are thinking Bitcoins are “credit packets” and this is some great insight that is supposed to blow my mind. A medium of exchange denominates value, enabling economic calculation by the trading partners. Big whoop.
When my employer electronically deposits “money” in my account, it is a virtual transaction, but those little electronic entries are redeemable for current value.
We have a whole world of economic reality you can refer to in your brilliant illumination of Bitcoins. There is a great saying that applies to you; if you can’t explain it, you don’t understand it.
“Bitcoins are a medium of exchange in trade.”
They’re a metaphor now? Wow, you’re really covering a lot of Zen territory.
They only facilitate trade in theory, since trade at the moment seems to be limited to world currencies and other Bitcoins. But don’t let that stop you.
How do they facilitate trade? I mean, who wants to trade a cake for non-property services that have no real value?
“You say they are not property.”
Correct.
“You have not explained why.”
You claim you did, but that is what you do. You have so far said nothing meaningful or responsive to what I’ve asked.
“You cannot, and remain consistent with the basis upon which you oppose IP.”
Perhaps you can, but you haven’t and apparently won’t. I’m not surprised.
“Since property can only exist, according to you, by homesteading and transfer of previously homesteaded scarce resources, how is it that people can own bitcoins, use them for trade, but somehow exclude them from these fundamental principles of property?”
Got it Seisin. Grasshopper understands. The computers and hard drives are privately owned. The bits that travel over the internet are not. When “money” is transferred into my account, I don’t own the bank’s computer network, computers, or even the little magnetic impulses used to read and write numbers on my statement. But I do have title to something. We call it money. It is my private property.
You are making the absurd claim that Bitcoin is a medium of exchange, and the only private property on the horizon is the network infrastructure that makes up the internet and someone’s private computer on two ends of a transaction. All of that exists without Bitcoin, so I can only conclude that Bitcoins also do not exist.
If you “own” some, you apparently own nothing. Way to go, Sherlock.
“I paraphrased your position as follows: “They [Bitcoin] get scarce because some people consent to them being scarce, so this makes them so. But people cannot consent to making IP scarce. That’s different.”
“Then you admit that Bitcoin and IP are equivalent in this regard? You agree that scarcity can be created by “acceptance”, whatever that may mean? C’mon, don’t weasel. Just answer.”
Way to jump context. I think sometimes you are better at this than Kinsella.
First, your concept of IP is trash, but that’s ok because I didn’t ask you to define IP.
Second, I already said that the use of Bitcoin is self-enforcing, just as you say, for the umpteenth time. You seem to think repeating irrelevant points somehow makes them relevant.
Third, what I asked was this: you agree that “scarcity can be created by “acceptance”? The key distinction is what you mean by “acceptance”. Whatever it means, scarcity can be created by it. Right? And you also agree that IP can be created by acceptance of it.
Now let’s examine a difference:
“Explain precisely what the difference is.”
The difference is that people who do not agree with the rules governing the Bitcoin network do not need to be forced to comply if they want to “use” Bitcoin. Their use of Bitcoin outside of these rules is ignored rather than punished. With IP, people who want to “use” “works of authorship”, or whatever, need to be forced to comply in order for IP to work. They are not ignored, rather they are sued, raided, called “thiefs” and so on.
Like I said:
“It appears that your only real objection to IP is that its encryption scheme is not robust enough to defend itself from “dissenters”.”
Wrong. Dissenters can do whatever they want. The result of the compromise of the cryptographic algorithm would not be that Bitcoin users would suddenly attempt to force dissenters to comply. Rather, Bitcoin would collapse.
Great, I ask you about your objection to IP, and you respond with something about Bitcoin.
I hope no one reading this (I’m sure there aren’t any) is under the impression that you are trying to communicate. Obviously you are doing a Wizard of Oz imitation: “Pay no attention to the man behind the curtain!”
The self enforcing feature of Bitcoin is unique, let’s say. It is equivalent to land surrounded by electric fence that zaps trespassers. No need for the owner to repel trespassers, there aren’t any.
Likewise, if literature was only distributed as encrypted patterns, there would be no need for copyright laws. People could simply choose to read under the conditions of use, or not read. Non-readers are simply ignored. Of course, you are ignorant of the fact that one of the primary objectives of copyright law is to prevent that scenario from happening. But my purpose here is not to highlight your deficiencies of understanding IP.
“So you would favor stronger DCMA schemes, as long as people don’t have a choice; i.e. if they “consent” to reading a book, they must have consented to the self-enforcing scarcity feature of the digital lock.”
DMCA is a legal tool to attack dissenters and people who analyse and publish algorithms.
It is? That’s funny, I thought it was a rather weak encryption scheme that was easily defeated, and this failure was compensated for by stronger enforcement. All that was really needed, according to you, was a stronger encryption scheme. Problem solved.
That is what I said. You think Bitcoin’s strongest feature is its ability to withstand attacks from those who would like to game the system by “attacking” the integrity of Bitcoin and thereby causing its demise. And all of those who are currently invested in Bitcoins (I hope you are one) would have no problem with such an attach, should it occur. Bitcoins are not property, so no action is permitted anyway; on what grounds? Right?
“And therefore you favor an infinite term of protection, since no one can both consent to use and dissent from the means of protection. Isn’t that how Bitcoin works?”
Well you can’t have it both ways. Do you want the right to protect stuff with encryption or not? Are you saying that at some point, Bitcoin is going to have to give itself away? How long do we have to wait?
“If this is imposed by software, it is ok by you. If it is imposed by any other means, it is “different”. Right?”
Way to answer a question I didn’t ask. I’ll ignore this particular rat hole. Been there, done that.
I am asking this: If IP could be imposed on users strictly by software encryption, that would be OK with you? If your answer is still “no”, then explain why.
“Since you cannot use Bitcoin except for how it is designed, then your use is “forced compliance” since there is no other way to use.”
Yes, Einstein, you can use a book to roast marshmallows too, but that’s a little off point. Using a book as fuel is kinda pointless, given the alternatives, but whatever. Not going to get a straight answer out of you, no sir.
“This is your idea of consent, am I right?”
Enlighten us, Swami.
“You can choose to use it or not, but you cannot both use and dissent, just like you cannot add and subtract if 1-10 contained 11 integers.”
Sure it is possible to add and subtract in such a case. One just has to invent new math school governed by different axioms. There is nothing preventing anybody from doing this. The result, however, would be ignorance and/or ridicule. Not the arrival of “math police”.
But if you do invent a new integer, the IP police will show up?
“No choice in the matter equates to “consent” in your world, right?”
Illuminate the darkness, oh great one!
“Your faith in Bitcoin is based on your belief that no one can ever figure out a way to game the system. Therefore there is “consent”. As long as no one can game the system, the artificial scarcity will be observed, since no one can “capture” a bitcoin.”
Let’s see. If the encryption that protects the utility of a Bitcoin is compromised in some way, there would still be scarce 1s and 0s, but they would be useless. I hope we can all get by with only 2s-9s.
So you agree, except for the ability to withstand attacks from “dissenters” Bitcoin would collapse.
Sounds like a peachy investment opportunity. Maybe that explains the pricing curves for Bitcoins.
Yet you allow that “capturing” the work of another is fair game because you have not consented to his private property being treated as such. Therefore you are morally free to help yourself.
BS. After all, you are using your ink and your paper, right? And you didn’t consent to any contract. And you don’t consent to the author claiming property rights in his work. But you are not free to help yourself? Why not? What’s stopping you? What is your position, if you have one.
“The only way you can escape this obvious and elementary contradiction is to claim that Bitcoin is not property, an absurd assertion.”
That is what is called a non-denial denial. So, tell me how do you escape the obvious contradiction?
“Trade is based on a presumption of private property. Without it, there is no possibility of economic calculation. Yet you avoid this obvious truth by simply declaring that Bitcoin is not property without even an attempt to defend this absurd position.”
Yes, by all means, let’s stay away from nouns. Please correct my sentence for me and show me how to convey meaning without using them. Lay it on me, Brotha’. (ooops, another pesky noun!)
Wildberry confuses providing services with title transfer. He repeats the errors he has been for the last year. He thinks that because people use two word “exchange”, this requires that the underlying principle is a title of transfer.
Nobody owns information in the Rothbard/Evers/Hoppe/Kinsella’s TTTC.
Because the rules governing the Bitcoin network are defined that way, similarly as integers are defined in a way that there is only 10 of them between 1 and 10.
A service.
Ah, finally a tiny bit of progress. This distinction does not exist with Bitcoin, it integrates both into one.
By providing a service, similarly as banks and paypal. One of the most significant differences are the transaction costs (both in narrower and broader sense), which gives Bitcoin a comparative advantage and creates demand for the services it provides. Similarly, emails are not owned, yet there are many providers of email services.
Approximately, this corresponds to my position. If you think it is absurd, then you must also think all abstract concepts that are not recognised as property are absurd, such as language, math or love.
Does math, language or love exist? Can you teach math or language to others, can you exchange love with your wife?
This is a misleading formulation. It is more accurate to say that contractual restrictions that govern copying (or, any contractual restrictions whatsoever) are from the perspective of rights similar to restrictions that govern the Bitcoin network. However, IP applies to third parties, whereas other contractual restrictions or the rules of the Bitcoin network don’t.
Wrong. I already explained Wildberry’s error. Bitcoin network does not restrict third parties’ usage of Bitcoin. The “self-enforcing feature of Bitcoin” is not unique, it is merely combined in a unique way. One can try to talk gibberish, or create and attempt to send emails that do not correspond to common standards. Noone can force anyone not to do so. The result, however, would be ignorance, rather then the the creation of a new branch of police.
This is absurd. If you can read it, you can copy it. Encryption just hinders digital copying, analogue copying still works perfectly fine.
This is where Wildberry’s analogy fails. It is not “non-Bitcoin users” that are ignored by Bitcoin users. It is the dissenting users that are ignored. I already explained this several times. Wildberry is stalling becuase his “theory” fell apart. Also, as an example it fails, because it is possible to read without entering into a contract or violating property rights. In the magical world of Wildberry, one is unable to see or hear, but by signing a contract the sight clears up. Futhermore, in his magical world, if one starts talking gibberish, other people require complicated defensive systems to protect themselves from this gibberish, and send police against him. But he shoots himself in the foot, as his own gibberish would cause his own untimely demise.
Wildberry demonstrably not only does not understand IP, he does not understand almost anything.
All those who are currently invested in Bitcoin either do not think this will happen, or presumably at least think they can bail out before the problem spreads. Several papers and blog posts have been published analysing the ability of Bitcoin to withstand attacks. In the magical world of Wildberry, the researchers publishing these would be jailed, similarly as researchers publishing analyses of DRM schemes, like Dmitry Sklyarov or Jon Lech Johansen. But the resident copyright expert Wildberry should already be familiar with these cases.
This makes no sense.
Once again, the “protection” protects consenting users, it has no effect on dissenters. It only affects dissenters’ ability to interfere with consenting users’ use of Bitcoin. Other uses (uses, not users) of Bitcoin are ignored.
Calling this “IP” is misleading, similarly as would be misleading saying that the metric system imposes the definition of gram or time on users.
In a way, yes. If you crack encryption schemes (which are often based on finding primes, which are integers), the IP police indeed shows up.
No, I don’t agree. A succeeding dissenting attackers would most likely not succeed in using Bitcoin outside of the rules governing the network. Rather, he would make these rules produce different results than the Bitcoin users anticipate. An analogy would be finding a legal loophole that allows one not to pay taxes.
Wilberry yet again demonstrates having no clue about anything.
You have demonstrated, yet again, that you cannot carry on a conversation.
Mises says that a medium exchange cannot exist unless the medium has some from some other use other than as a medium of exchange. Bitcoin has no extrensic value. You leave this issue with a vague assertion that no one has proven you wrong. You certainly have not proven you are right. You have not even advanced an argument, which is your habit.
Instead of dealing with this issue, you rely on the relative ingornance of Bitcoin (which is understandable, given its general insignificance), and the fact that there is not a detailed study proving your assumptions that Bitcoin theory is smarter than Mises. Right.
You say Bitcoin use is growning? From nothing to nearly nothing?
You say it is scarce because you have agreed for it to be, but such an agreement cannot be applied to any context except Bitcoin? Right.
You say a medium of exchange can exist and yet not be treated as property, yet you cannot explain how. You must be right becasue you are Peter Surda.
You are predictable by now. Please have the last word.
I thank Wildberry for graciously allowing me to post.
This depends on how it is interpreted.
Mises says that it is impossible for a medium of exchange to arise when it does not have “other employments”. However, Bitcoin demonstrably is a medium of exchange. So either it has “other employments” or Mises is wrong.
Several critiques with respect to MRT and Bitcoin have been published, for example by Michael Suede, Jon Matonis and a bitcoin forum member “xc”. These were developed independently of whatever I said.
The data is available for anybody to analyse. Both the Bitcoin blockchain as well as the trade history on the exchanges. By appealing to ridicule, Wildberry is only proving his own irrelevance.
I have said that it can. I said the problem with IP is that in order to work, it needs to be applied against dissenters. Wildberry is lying again.
On the contrary, I explained it several times. I also referred to my posts in which I already explained how services are sold without property rights in the service long time before I started thinking about Bitcoin. Wildberry is lying again.
Wildberry’s boring performance does not get high marks from the audience.
@Peter Surda November 20, 2011 at 1:24 pm
“Bitcoin has no extrensic value.”
Nonresponsive. Interpret it in your favor and explain.
“You certainly have not proven you are right.”
Or your premise is wrong. It is not obvious to me that it is a medium of exchange. It appears to me that it is a virtual device for temporarily storing the value of other commodities, which it does poorly, given the historical price curves. The most likely possibility is that Mises is right and Bitcoin is not what you claim it is.
“You say Bitcoin use is growing? From nothing to nearly nothing?”
Yes, there are about 7 million BTC trading at ~$3 USD. $21M of stored value in a multi-trillion dollar world economy. HUGE!!!
“You say a medium of exchange can exist and yet not be treated as property, yet you cannot explain how.”
Here are a few lines from Wikipedia on Bitcoins:
Yet apparently you have your own theory about property. You are predictable by now. You are a weasel-meister.
You think you are playing to an audience? Perhaps that explains your clownish antics.
Repetitive and boring. I already explained, but Wildberry prefers to play games instead of engaging in a conversation.
Bitcoin is demonstrably a medium of exchange. Even opponents of Bitcoin like David Kramer admit so much. Only Wildberry can’t leave is Imaginationland.
To Wildberry, only his dreams are obvious. At the moment, there are, on average, about 210 transactions hourly occurring on the Bitcoin network. This irrefutably proves that Bitcoin is, indeed, a medium of exchange.
It appears wrongly then, I am afraid.
The most likely possibility is that Wildberry is talking gibberish and does not have a clue about anything, as usual.
Wildberry now performed several non-sequiturs.
The quote was not written from the point of view of TTTC.
As far as I know (and I talked to lawyers and people who are involved in legal disputes), there is no legal precedent for handling Bitcoin.
As usual, Wildberry makes up fairy tales. Regrettably, they are boring.
Comments on this entry are closed.