We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.
Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]
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Samizdata quote of the day Bitcoin offers a glimpse into the future of money a purely digital form of money that is individual, private, global, and free (free as in speech, not as in beer). Bitcoin is often compared with the existing banking system, juxtaposing its futuristic capabilities with the slow, antiquated, and cumbersome world of wire transfers, checks, “banking hours,” and restrictions. But the future will not be a choice between “old money” and cryptocurrency. Instead, it will be a choice between two competing visions of digital money: one based on freedom and choice, the other based on control and surveillance, a dystopian totalitarian system of control from which no one can escape.
We are now at the crossroads, and we must choose the future of currency wisely.
– Andreas Antonopoulos
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Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
We are also a varied group made up of social individualists, classical liberals, whigs, libertarians, extropians, futurists, ‘Porcupines’, Karl Popper fetishists, recovering neo-conservatives, crazed Ayn Rand worshipers, over-caffeinated Virginia Postrel devotees, witty Frédéric Bastiat wannabes, cypherpunks, minarchists, kritarchists and wild-eyed anarcho-capitalists from Britain, North America, Australia and Europe.
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I don’t know if it is just coincidence that the author of this comment seems to be Greek, but I think that the future of digital money has already been made. By governments. And they have concluded that money is their prerogative, their alone, and it will not be shared with anyone.
Individuals can mine as many bitcoins as they want, just like they can mine gold nuggets, but bitcoins will always be considered to be just objects, not a medium of exchange. Sure, if we end up with a broken economy where barter is the method of exchange, objects will be valuable – but not likely bitcoins, which require an electronic infrastructure and the trust and understanding of the public to work. If we are bartering with one another, a gun and ammunition will be a lot more valuable than your phone, which won’t have any electricity to run it or any network connection. Until then, the governments will do whatever they have to do to prevent an alternative currency from taking hold. By insisting that all transactions with the government have to take place in official currency, they have a very strong way to enfore this policy.
Getting rid of hard cash, however, is going to be harder, but I think it is a real work-in-progress, and I would not be surprised to see it happen within 50 years. Cards-with-chips and cheap networks make it unnecessary to use cash unless you have something to hide, and we all know how governments deal with people like that. All those anachronisms that the author bemons, like wire transfers and checks, are there to provide audit trails and track down wrong-doing, and once they eliminate cash, so that all transactions are recorded digitally, in a central database, they will go away.
We are already at the point where money is purely digital. If the US Federal Reserve says that the economy needs a couple of hundred billion more $US, they just type some lines into a computer and the money springs into existence on a ledger, ready to hand out to the banks to lend or to governments to spend. The EU is only slightly behind the US, because the Germans still have nightmares about the 1920s, but the euro is all digital, as well.
What he said ^
The Amerindians came up with a good idea- wumpum! Money you can wear as a necklace! If you’re into barter, this could be the way to go.
Nickolas,
Perhaps wearing gold chains and cutting off links to pay for stuff?
People have asked me about buying gold (coins or chains or whatever), or bitcoins, to prepare for the collapse that they see coming. I tell them that they should first of all go buy a few guns, LOTS of ammo, training in how to use them, and defensible land with shelter, water, and good soil to grow crops. Once you have that in place, then you can go buy gold, because unless you have the guns and a defensible position, someone else who does have the guns will come along and take all the gold away from you. And then he will declare himself (always a him) to be the new government, and he will start to build it all back up again. The hard way. With lots of blood, sweat, and tears. Yours.
You know here in the US there is a huge segment of the population that they call the “unbanked”. These are people who don’t keep money in conventional banks, but rather deal in cash. Many banks go to great lengths to service these people because the fees are really high (services such as check cashing, safe deposit boxes, etc. etc.) This segment of the population are people who want to stay out of the surveillance state, principally illegal immigrants, but also a large chunk of people who just don’t trust the government.
I think the estimates are in the order of 20 million people who live their lives this way, which is to say there really is a big market for a cash only society here.
Although I think @rxc is right on the money (if you will excuse the pun), I think that here at least we should not under estimate the degree of sentiment trying to retain a government free banking world.
Bottom line though, I agree with @rxc “we” aren’t choosing which currency to use. It has already been chosen for us. And the very things that make a crypto currency appealing to you and I are the very things that make governments want to squash it like a bug.
I mean really, who wouldn’t want to be able to press a button and make $100 billion dollars extra? And in a political economy, $100 billion dollars buys a hell of a lot of votes.
rxc: That sort of talk strikes me as a rather helpless despairing attitude.
Sure, our governments aren’t going to like Bitcoin. On the other hand, quite a few companies have begun laying down the infrastructure to support it, and there hasn’t been any serious crackdown yet.
One of the principal ways that individuals have to actually change and influence their environment (social or natural) is to invent new tools and make them useable. Bitcoin is a prime example of this: There was no fanatical mass movement lead by demogogues that decided it was a good idea. There was no government manhattan project that decided it was a good idea. Some computer hacker, who no one even knows who he really is, published the protocol and the arguments for why it solves problems X,Y,Z for secure anonymous transactions. Then programmers took off with it, built software, and launched exchanges. The setbacks have been *minor* when it comes to technologies that are disapproved of by authorities.
If you don’t want to be a leaf blown about by the winds of circumstance, then taking some sort of constructive action is necessary. Of the constructive actions you could take, the creation of a communications/currency protocol or invention in general, I would think, would be one of the principal methods to appeal to libertarians: It doesn’t require anyone elses cooperation but your users. It doesn’t require agreement. It doesn’t require popularity. It doesn’t require an army of violent thugs. It’s remarkably hard to squash with an army of violent thugs if your invention is cheap enough to propagate and useful enough to others.
PS: The sort of currency that ends up being used is the currency that ends up being the most useful to acquire goods and services with for consumers: As Greece is finding out, and as countless countries have throughout the 20th century: There are limits to how much you can distort your fiat currency before it becomes unusable.
If there are competing systems out there, then the limit stops being “Weimar Republic wheelbarrels of cash for bread”, and instead becomes “whichever competing medium is the least insane/volatile and still widely accepted.”
In countries like Venezuela, where dollars are illegal to own, they are nevertheless the preferred medium of exchange on the black market (the only one that actually works!)
Send for Moist!
Q. What did Angela Merkel say when she rejected the proposals from Athens?
A. It’s all Greek to me!
My dad told that during WW2 you could always buy what you wanted if you knew where to go which was quite often under the counter.
Hardened individualists are deluded who believe, should the apocalyptic future envisioned by Hollywood fantasists come to pass, that they will stand off interlopers with their trusty firearms.
In that scenario, it won’t be one or two or twenty mohawk-wearing bad guys coming to steal your fuel or your women … it will be an organized remnant of some national army or militia, thousands strong, with tanks and howitzers and tripod-mounted machine guns. Maybe planes too.
Your pathetic little AR-15 and thousand rounds of ammo aren’t going to be of any use to you at all in that event. You would be far far better off hiding than standing athwart your door.
As usual, the best currencies one can have in emergencies are adaptability and useful skills. Though, given a choice between gold or bitcoin, I would take gold in a heartbeat … bitcoin requires a tremendous amount of infrastructure in order to be viable. Gold just requires scarcity.
If there are competing systems out there, then the limit stops being “Weimar Republic wheelbarrels of cash for bread”, and instead becomes “whichever competing medium is the least insane/volatile and still widely accepted.”
Ever since airtime (pre-paid mobile phone minutes) could be transferred between mobile phones, it has become a popular method of currency in many parts of Africa. Vodafone later developed M-Pesa, a mobile phone based currency, which is widely used.
TBH, I don’t see Bitcoin as the future, more likely to be Google-coins, Apple-pennies or Bezo-dollars.
Money (at least money that is not backed by government legal tender laws and tax demands) must be a store-of-value not just a medium-of-exchange.
That economic value is subjective does NOT alter this.
Therefore “special numbers” (which is what Bit “coin”) is supposed to be, are problematic as money.
Carl Menger regression theorem – money must start as something people value NOT as money (they regard as economically valuable for its own sake).
People value gold and silver – even if they are NOT used as money.
“bitcoins will always be considered to be just objects, not a medium of exchange”
No. I use them to buy things. Ok, I’m special, but I’m an early adopter. But that’s all this is: Bitcoin is in the early adoption stage. There’s nothing else stopping it from being a medium of exchange.
Paul: for all I know you may end up being right about Bitcoin, but they are not “special numbers”. You need to think of it as a public ledger of accounts. A bitcoin is really a key that lets you modify the ledger. Does that affect your analysis at all?
ams’s last paragraph is sqotd material.
But Bitcoins are not just “special numbers” that are created arbitrarily, they come into existence specifically as a reward for the work of validating the previous transactions that have taken place on the blockchain.
This validation process and the resulting decentralized ledger is valuable to people, hence Bitcoins themselves are valuable.
Whether they are as valuable in money terms as their current price reflects is certainly arguable though.
This is a good article on the subject which discusses the Menger theory: http://pricesandmarkets.org/volume-3-issue-3-winter-2015/commodity-scarcity-and-monetary-value-theory-in-light-of-bitcoin/
@ Fraser Orr – your estimate of the proportion of the US population that is ‘unbanked’ is way low – the more realistic number is between 25 and 30% of the population, or 80 to 100 million people. When I was regularly watching remittance workflows at utility companies here in MI, the average rate of payment by money order was between 15 and 20%, and that doesn’t include activities at remote/third party/remittance sites where you can pay your gas bill in cash.
In addition, many of the ‘unbanked’ are not counted because they do maintain some sort of a banking relationship – typically, with a credit union, where fees are low and a checking account is more-or-less free. But they only use this relationship to get free check cashing – many people in regular work cannot avoid being paid by check, but they immediately cash that check and their money moves into a cash-only society. Many State and Federal remittances are now only available by direct deposit or other electronic payment, so some form of banking relationship is unavoidable – but it is merely used as the quickest possible path to cash or its equivalents. Walmart provides free money orders – the number of people using the service apparently makes it well-worth the cost (somewhere between 20 and 30¢ per transaction) just to get them into the store.
As I’ve name-dropped here before, my passing-acquaintance Frank Abagnale often remarks that ‘we’ll see a cashless/paperless society around the same time that we see a paperless toilet.’ I just contracted to have the house painted – I asked for, and got, a 10% discount for cash, and this from an established contractor with all the right government permissions, not some fly-by-night gypsy. He’s doing all the right paperwork, but a significant number of his employees want to be paid in cash money. That alone should say something about the incentives that will keep a great part of the population ‘unbanked’ for a very long time to come.
llater,
llamas
Government may design a system where alternative currencies don’t work.
But as the key phrase in their is ‘Government may design’, I am not particularly worried. Unless government goes all coercive over this (not likely in the non-French democracies) then regardless of what they want people will do want they want.
@Rob Fisher, whatever you’ve said you haven’t fully addressed Paul Mark’s point, bitcoin only exists due to the general acceptance and the ledger, without those it is useless, just like a fiat currency is useless without the government that backs it or the people to use and value it – unlike commodity money. The only redeeming feature seems to be that a crypto-currency is imaginatively thought of as being outside government control, but I believe Paul points out this puts the currency into a more precarious and risky position not experienced by real materials.
Until the day when it won’t buy a loaf of bread.
Maybe there are people using bitcoins now, to “buy” stuff. People like the local government officials that get virus infections that lock up all their data, and the data won’t be unlocked unless a ransom is paid in bitcoin. Maybe some people who just decide to do a purchase for a meal. Maybe all sorts of people buying all sorts of things. It is new, some people think it is a good idea (for whatever reasons), and there is a sort of fad for bitcoins as people want to avoid government scrutiny in the name of “privacy”.
Well, the only thing that gives the bitcoin value is all the network infrastructure and social infrastructure that only comes with a government that provides enough stability for that infrastructure to exist. So, the bitcoins are only worth something if there is a government with the ability to enforce that stability. But governments do not like parallel systems of currency. Maybe at one time, there were all sorts of forms of money that were tolerated, but those were pieces of real metal, maybe issued by different sovereign states, but made out of real, intrinsically valuable metal, nonetheless. So, the local government would always gather them together, melt them down, and re-issue them with the image of the current ruler.
Now, all significant money, from $US to yen to Euros to pounds, to bitcoin, is all digital. It is just numbers in computers. Except for the cash, which is just pieces of paper and lumps of metal that have very little intrinsic value that make it easy for small transactions to take place. Because, up to now, the transaction costs of buying an ice cream cone with a credit card were too high to justify buying it with a credit card. And, of course, there are a lot of people who prefer cash, because it is (mostly) anonymous.
However, you can’t buy lots of things anonymously with cash any more – sure, you can probably come to settlement on a house with a suitcase (a friend did this in Italy, 20 years ago), but now those transactions get reported and scrutinized, so you may just as well have done a wire transfer. Even a car which is bought for cash has a record, in the form of a registration form that you have to fill out, or else you get stopped by the police. The governments of the world are trying very hard to make that cash world go away. In the US, they sieze your cash, if you carry around large amounts, on the grounds that it looks like “drug money”, and to get it back you are obliged to PROVE, in a court of law, that it you have it legally. Not easy to do, at all.
It used to be that some govts liked cash, because the cash was used in other countries as a form of savings ($100 bills, for example), when the local currency was not very stable. The term was seignorage (sp?), and it allowed the government to literally print money and not suffer from inflation. But now, because the $ and the euro and the pound are digital, and the amounts in circulation are controlled well by the central banks, they don’t care about $100 bills in Russia or Zimbabwe any more.
Which is why they will only tolerate bitcoins as long as it remains small and doesn’t threaten their monopoly on currency. If it did, they have LOTS of other tricks to suppress it, and they will not hesitate to use those. One good example is the audit trail that is attached to the bitcoin. Since it documents who has owned them in the past, you have a complete trail. And there are laws that anything that was used in the comittment of a crime immediately becomes the property of the government. So, if they do an audit of your bitcoin and find that it was owned at one point by a drug dealer or someone who was involved in something shady, they can just seize it and you cannot get it back. Some people have told me that there are ways to avoid this, but you can be sure that the governments have thought about that, and have other means to discourage it, if they have to.
I am not being defeatist. I also tire of the way that government intrudes into my life and civil liberties. But we have gone way past the point described by the author of this article, so there is no future for alternative currencies that are not sanctioned by government. Maybe, at some point, governments will accept bitcoins as a replacement for their own currencies. I doubt that, because it would interfere with the political need to control the money supply. Which, as events in Greece demonstrate, is a very important power.
@llamas
> your estimate of the proportion of the US population that is ‘unbanked’ is way low
Might be, I used to run a bank service company, and that is the number that tends to be discussed in the banking circles, but it might be too low for a lot of reasons (and it also might have changed.)
However, there are considerable forces arrayed against the cash economy and a good cover story to go with it. After all, if you are using cash you MUST be dodging taxes or dealing drugs, and people who do that obviously shouldn’t have any rights…
Perhaps the most obvious example are the FinCEN reporting requirements, where whenever you do a cash transaction greater that $10,000 you have to file a report explaining why. Since this was defeated in the obvious way (by multiple transactions) they now have a crime of structuring so banks now require transactions over $3,000 have to be reported, which is well within the amount a small business might do.
Here is a great example: guy rents a private plane with cash, Delores Umbridge makes a report, the police search his bag and find a bunch of cash and arrest him for just having cash.
http://www.wsmv.com/story/24442140/man-arrested-with-153000-at-airport
Or kid had his life savings confiscated at the airport because his bag smelled of marijuana.
http://www.washingtonpost.com/blogs/wonkblog/wp/2015/06/30/drug-cops-took-a-college-kids-life-savings-and-now-13-police-departments-want-a-cut/
The government doesn’t much like cash, unless they can take it and keep it for themselves.
@JohnK
> Until the day when it won’t buy a loaf of bread.
If you are implying hyper inflation, I don’t think so. From what I have seen hyper inflation occurs when a country’s debts are denominated in a currency they don’t control, and so they use a little arbitrage in the exchange rate to ramp up and pay the bills.
For example, Wiemar Germany’s post WWI debt was denominated in gold. They couldn’t control the value or supply of gold, so they just ramped up the gold to Mark exchange rate (by printing more Marks) and that allowed them to pay the debt service for a short while (since the conversion ratio didn’t update immediately.)
American debt (and UK debt) is mostly denominated in currencies they control, for example US bonds are paid in Dollars, and US social security is paid for in dollars. So printing more dollars doesn’t cause a change in the dollar to dollar exchange rate, it just devalues the amount of the debt, which is a really good trick if you can get away with it.
Of course if you do it too much you make your bonds harder to sell and you get political turmoil when pensioners find they can’t heat their homes. But the latter can be blamed on the money grubbing capitalists at the power company rather than the mendacity of the government printing press.
Of course it shows up as inflation, but you can rely on the ignorance of people to not realize that “inflation” means “government printing presses stealing the value of your savings.” And also you get to control the inflation number too. So that you, to use an American example, exclude the cost of fuel and food from inflation numbers, even though those two things are probably on the margin the two most important thing that affects the lives of poor people.
I used bitcoin to purchase a foul weather jacket at BassPro. If it quacks like money, its money.
Of course it is money, just like any other medium of exchange people are willing to use – whether because they like it, or because governments force them to use it. If, with time, enough people like Bitcoin, it will be money (in a wider sense than it is now). If governments take notice of that and intimidate/fool enough people out of using it (just as they did with gold and are now doing with cash), it will cease being money. In any case, if any alternative currencies (“physical” or “virtual”) are to take hold, it will be the ones that have the best intrinsic capacity to evade government notice, or it will be the ones governments are most successful at forcing on their subjects. Or both. Time will tell.
to evade government notice > to evade government interference
Isn’t the real point of using gold, silver, or other precious metals the simple fact that people do desire it for itself, that is, that they find it aesthetically delightful, and a status-symbol, and some also use it as a component of some sort of physically useful object — which is what people mean, I think, when they say it is “intrinsically” valuable?
Even if one doesn’t particularly care about having gold for oneself, there are millenia of history suggesting that it tends to “hold its value.” For these reasons, people tend to retain confidence in the metal as a medium of exchange even when they lose confidence in the markets or in whatever is the governmental fiat money — or in Bitcoin and the like — or in various negotiable securities.
It’s somewhat a beneficent circle — it’s desirable to me because I know it’s desirable to others, and I have reason to believe that that situation will continue. Similarly, now that it’s desirable to me, others have increased confidence in its desirability to people other than themselves.
(This sort of thing is what feeds bubbles, of course, like the Tulip Mania.)
There is some sense in which precious metal retains its exchange value, although I don’t know quite how to word it since the prices of other goods can go up and down in terms of the amount of gold their sellers are willing to sell for and their buyers are willing to pay for, even in a perfectly “stable” and healthy economy with no financial mummery going on.
Salt retained its exchange value in parts of the world for a very long time, I think. A lot of people recommend stockpiling ammo as a fungible to see them through the Coming Economic Meltdown; but I would think that that would only work as money for as long as ammunition remained in short supply relative to the demand for it, first as useful in itself (again!) and second as something people are willing to accept as part of a trade — but this second still depends in large part on the first, because as people need less of it to defend themselves and feed themselves its desirability will (over time) decrease in their view.
So it seems to me that the monetary value of Bitcoin is very much dependent on people’s confidence that it will remain a “store of value” in the sense that its purchasing power will remain relatively stable (whatever that means, see above) or will increase, come what may on the ground. And for reasons cited by others above, it’s not so clear that Bitcoin is reliable that way. In fact it could suddenly just disappear, if the Net is broken for some reason political or physical.
Just read of a village in Russia which started a potato bank. Notes of potato weights were exchanged. Now the central authorities are trying to close it down (I bet that surprised nobody!).
Not that Australia has much to snicker about- Western Australia has a central potato board which tries to regulate prices, last I heard. I wonder if restaurants could get around that by colouring some of the potatoes in sauces, call it ‘art’, and have customers buy some ‘organic art’ with their regular meals?
Maybe I can put it more clearly. A thing retains its purchasing power (exchange value) only as long as people have confidence that it will retain its purchasing power. Because many people desire a given precious metal either for its usefulness as a component or just because they like it, and because this has so often been the case down through millenia, people have more confidence that it will retain its purchasing power (over the long haul, that is).
With fiat money, or any “asset” that’s backed by only by promises, sensible people only take it when that’s all there is on offer. People will be willing to trade something for an IOU signed by Mr. X only if they’re pretty sure Mr. X will pay the hold of the IOU on time and in full (or as stated on the IOU).
If an “asset” depends for its notional existence on an infrastructure that’s vulnerable to both physical and political breakage, one crosses one’s fingers and hopes. In that case, confidence depends on optimism, not on the value people place on the thing for its own sake (they’d want to have it even if they weren’t going to use it to trade) and not because of its historical track record.
“Mr. X will pay the holder of the IOU” &c. :>(
Q. Have you heard about the newly-released super Porsche?
A. It’s actually the old model, but they found it works better without Greece!
I’m confident about Bitcoin. If nothing else, it should upset a few apple carts.
Step 1, let go of the idea of intrinsic value. There is no such thing. All value is subjective and contextual. This is the underlying mechanic of the free market and why it is such a fantastic thing. It is probably the most insightful lesson the Bitcoin brings should you choose to study it rather than throw out a few glib dismissals.
All a currency needs to be is accepted, Simply trusted as a short term store of value. Fiat itself has not been a terrible tool for this. I work, I get paid, I buy stuff. But it’s been abused and it’s only getting worse. When fiat is not a good option, people turn to other things. Gold, boxes of detergents, cigarettes… Which brings us to
Gold. Bitcoin is not the anti-gold. Gold has many good properties. But it also has a few issues. It is bulky, heavy, hard to transport, has slow transmission speeds, is difficult to secure and has issues with divisibility. Bitcoin provides a solution to these.
As said before, don’t think of bitcoins as some numbers on a computer. Bitcoin is a globally distributed ledger. Bitcoin is more like Yap stone money where the ownership of something is less important than the knowledge of the transactions against it. https://en.wikipedia.org/wiki/Yap#Stone_money
Yes, government interference is a certainty. However, its my opinion that Bitcoin may be such a force that trying to go against it will only turn out to be bad for anyone who attempts it (it won’t be pretty along the way for sure but omelettes and eggs)
But anyway, if you’re not convinced about Bitcoin, no biggy. If it succeeds like I think it will, you’ll be welcome to join in anytime. In the meantime, some of us have the future to build…
The most interesting thing about Mr. Antonopoulos’s article, to me, is the implication that if governments use the tracking of transactions to control individual people in the ways he suggests then they will demonstrate the connection between property and freedom in ways that everyone can understand, regardless of where they sit on the political spectrum. That surely has to be regarded as a silver lining.
Julie:
I don’t think intrinsic value, if it exists, matters much. Consider the case of cigarettes used as currency in POW camps. While smoking was more widespread in those days it was not universal, and cigarettes would have had no intrinsic value to a non-smoker, only value as a medium of exchange. But they most definitely inspired confidence as a medium of exchange because they had the attributes of durability (somewhat), divisibility, fungibility, portability, and scarcity. Confidence in a commodity as a medium of exchange comes from those properties.
In the case of POW camps it’s probably also true that a lack of alternatives helped cigarettes remain the currency of choice. Gold would obviously have been impractical or impossible. But paper fiat money, paper money tied to commodities, and other commodities such as coffee, chocolate, and sugar were all tried. None proved as stable as cigarettes, presumably because they did not have those same five basic properties to the same degree.
I have a theoretical question. Since Bitcoin is clearly not commodity money or representative money, is it by default fiat money, or does it simply not fit any of those categories?
(I realize the term fiat money generally implies government fiat. But I assume it can be reasonably expanded to include fiat by any agent with the necessary power. For example, the private money once issued by companies in Canadian mining towns would presumably have been fiat money.)
Tedd, it is fiat-like but since fiat means “by decree”, to call it a fiat currency would be incorrect. I prefer to call it a concordant currency because its value is defined by general agreement.
I like that term, Richard. If I may try it out, I’ll suggest that all fiat money is also concordant money, but not all concordant money is fiat money.
Alisa, I don’t think those two sets completely intersect. Fiat money is forced on a people, but it isn’t always accepted by “general agreement”. Witness Argentina, where they have a national currency, and use of the dollar is prohibited, but the dollar is still the currency of choice in the black (functioning) market. There, the peso is certainly “fiat” but it isn’t “concordant”.
After further reflection, and considering Richard’s, Alisa’s, and Laird’s comments, I think Bitcoin is in a new category of currency. It is like fiat currency in that it’s value is not tied to the value of any commodity (and in that the algorithm that defines it is a bit like a decree). But it is like representative money in that it’s value can’t be controlled by any one person or authority — i.e., it can’t be inflated. Those are both very important characteristics and, since no existing category has both, Bitcoin must be in a new category.
Sorry, “its.” I really hate it when I do that one.
Laird, if the Peso is still actually used in some segment of the population, then it is accepted by that segment (however small and under however limited circumstances) – the fact that it is not accepted freely does not make it any less concordant within that sector and under those circumstances. If however no one at all use the Peso, then it is not money and is irrelevant to this discussion.
Alisa, I suspect that peso usage is actually an illustration of Gresham’s law: people spend it whenever possible to get rid of it, but people accept it only when there is no alternative.
I agree with Tedd’s suggestion (and his correction!).
Tedd, I did indicate above what I think people are really trying to get at when they talk about the “intrinsic value” of a medium of exchange. I do not use the term myself, because I don’t think that properly speaking it applies.
Also. There are many commodities, such as cigarettes, coffee, sugar, salt, ammo, seashells, etc., etc., etc., that have served as a medium of exchange down through history. My point was that, as I was careful to specify, over the long haul some few of these have proven more long-lived than the others, and I think that there is more than one case where gold or silver, having fallen into disuse, is revived later as a form of money.
The fact that there are certain downsides to using gold as pin-money makes it convenient to use other things for that purpose, such as the pieces of paper we used to call “checks” (or “cheques,” *g*), or even paper currency. But those are paper markers, and there’s a downside to them too; for instance they can catch fire, or be torn up, or caught in the wind and blown away. Within a local community, for some unknown value of “local,” I suppose a great many things could come into use as stand-ins for gold (or whatever the long-term commodity may be), but at the end of the day there has to be some sort of reckoning to determine how the purchasing power of the stand-in is doing relative to the purchasing power of the long-term, underlying medium of exchange.
In any case, Everything Has a Downside.™ *g* Gold is no exception, and neither are other media of exchange.
. . .
Laird, good point just above.
Fraser:
I hope you are right about hyperinflation, but even without it, “ordinary” inflation erodes the purchasing power of money at an alarming rate. It takes a pound to buy what a penny bought a hundred years ago. Governments now issue bonds which are “bought” by their own central banks, effectively issuing themselves free money. Even without hyperinflation, the $100 billion loaf of bread is on its way.
Well sure Laird, same goes for the dollars and the shekels and the pounds – we all (at least those among us who have read their Austrians) accept our fiat currency rather unwillingly. The difference between that and the peso is one of degree, not of substance. If someone is spending it, someone else is accepting it, however grudgingly. If not, it’s no longer money.
Sadly, many libertarians are fantasists when it comes to the history (and theory) of money. Bitcoin, in its current manifestation as a medium for the criminal to talk unto the gullible, is a small scale accident waiting to happen. Let’s all hope it’s not a much larger scandal in the making.
Opinions are like arseholes, Alsadair, everyone has them. But unlike arseholes, opinions need more than a baseless assertion to use useful. Moreover the snide turn of phrase predisposes me to just write you off as a wanker.
The main source of the fantasy, my dear platypus, is that, historically speaking, the notion of money preceded the notion of government. It most certainly didn’t. If you want some Austrian or Fresh Water source material conceding this, I’ll happily point you in the right direction. In the meantime, I’m offering you a putative Jack and the Beanstalk exchange rate: 1 Bitcoin = one cow = five beans.
Who cares which proceeded which historically? What does that have to do with anything? Moreover telling people what they think is a truly terrible tactic if you actually want said people to take the time to listen to what you have to say, rather than just writing you off as some jackanapes who likes the sight of his own pixels. Either make an actual argument or I will conclude the semiaquatic egg-laying book reading mammal might be on to something.
I rather enjoyed seeing the Literate Platypus pop up, seemingly out of nowhere, and jump down Mr. Reid’s throat with both feet. I’m sure Mr. Reid expected a response, but I highly doubt it was that one.
Nonetheless, Mr. Reid is correct the most people, libertarians included, are abysmally ignorant on the history and theory of money. A rather curious thing, that, given the importance of money to all of our lives, but there you are. However, that ignorance has nothing to do with the utility or future of Bitcoin. One can be completely ignorant of physics and still function quite well in a gravitational field.
Personally, while I very much like the idea of Bitcoin I remain skeptical about it in practice. This is mostly because, as has already been noted, it is so highly technology-dependent. In the event of a world-wide currency collapse (which seems inevitable sooner or later) I don’t see how the infrastructure upon which Bitcoin relies will remain widely functional. In such an event people will do what they always have done, and revert to the only substance which has consistently retained value throughout all of human history: gold (and probably silver as well). Bitcoin’s utility today stems from its insulation from governments, but it nonetheless requires the existence of at least some government because government provides the environment in which it can function. I see Bitcoin as a short-term respite from governmental dominance, but if it ever becomes a serious problem for traditional governments they will find a way to destroy it.
Laird, I also think of that as the most obvious vulnerability of Bitcoin (there are others too). However, there are ways to maintain the infrastructure beyond the inevitable (in the case of a global currency collapse) but possibly only short-term interruptions (such as power failures).
Yes, Laird; and yes, Alisa.
Alisa, unfortunately, “concordant” can’t be said to apply for fiat. I could believe that my local fiat currency was worthless but the the words “For all debts public and private” will play into things.
Tedd, I once said that Bitcoin was perhaps the purest form of commodity, unsullied by the need for any physical purpose. Then someone pointed me at the South Sea Bubble which I had to admit was quite appropriate 🙂 [I do not believe Bitcoin is the same, however]
https://www.youtube.com/watch?v=QjN8q5rwLoo
Laird, government *currently* provides the infrastructure upon which Bitcoin functions.
Now envision a global mesh network with no ISPs…
Can you explain the contradiction, Richard?
Richard, that was precisely my point. If/when there is a general collapse there will be no one to maintain that infrastructure, at which point Bitcoins will be as worthless as any paper currency.
Richard, with regard to your previous point, US currency does indeed contain the legend you quoted. Interestingly, though, the legal tender laws don’t require you to accept payment in US currency. The actual language of the statute (31 USC §5103) is “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.” The US Treasury observes that there is “no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services.” So the cash in your wallet isn’t necessarily exchangeable for goods or services.
Laird, the whole point is that that infrastructure needs no central maintaining – all it needs is electricity. That will be subject to interruptions, as I have noted earlier, but that’s the only serious problem that I can see. And if such interruptions are frequent and long enough, we have lots of other problems to worry about anyway, but they are also solvable.
Laird, your last comment is interesting. Haven’t we seen enforcement to the contrary, or am I thinking of something different?
Laird, fair point. But I’d suggest it’s fairly had to avoid being a creditor at all times, particularly when it comes to government involvement. Which also somewhat addresses Alisa’s question. The value of fiat currencies are not set only by the people who are using them but the government also has many levers they can pull to ensure (in the regular run of things) that those notes have some non-zero value (Executive order 6102 for example)
For electricity, there is always solar. Mesh networking is still only just getting started. With current centralized services currently plenty adequate, there is little incentive. What would get it going would be a killer app. Which could possibly turn out to be cryptocurrencies.