Is BitCoin the currency of the future?

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Micah71381 replied on Wed, Mar 16 2011 2:49 PM

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Clayton:

No way. People will never start accepting fiat digital currencies in payment for real goods and services.

Again, this statement is false.  There are already people who accept BitCoins as payment for goods and services.

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Micah71381 replied on Wed, Mar 16 2011 2:50 PM

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Jon Matonis:

Clayton (arachno-capitalist),

We all know that the judges and the IRS have enforced the tax code to suit the taxing authority.  Please appreciate the subtlety here. Bitcoin ALLOWS individuals the freedom to exist under their own self-enforced voluntary tax system.  If people like Micah want to pay because they feel some obligation, then that is their choice.  It is not a married bachelor or a square circle.  Some people actually want to claim all of their income in a voluntary manner and I would not deny them that.  Why are you on this forum, anyway?

I am not sure if you picked my name just because it was convenient but I would cheat on my taxes without a second thought if I knew I could get away with it (or at least if the probability of getting away with it was high enough to outweigh the risk of getting caught).

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filc replied on Wed, Mar 16 2011 7:08 PM

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filc:

People need to learn about the regression theorum before they start fancying this silly stuff.

Micah:

It's just not the only way a currency can be establish.

Michah:

In order for a theorum to always hold true for all future situations you must account for all variables.  This is not possible when dealing with macroeconomics

It will be established one way, guided by the premise that praxeology and mutual exchange implies. And yes ofcoarse it will all happen on the market via your spontaneous order. Bitcoin(Or anything like it) will not be the successor of the US dollar. Even if government dissapeared over night.

Honestly why don't you just read the Regression theorum prior to denouncing it? It looks real bad when you aarogantly talk about a theorum you know nothing about.

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filc replied on Wed, Mar 16 2011 7:09 PM

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Micah71381:

Again, this statement is false.  There are already people who accept BitCoins as payment for goods and services.

How do those people know how much a loaf of bread costs in bit coin currency?

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Giant_Joe replied on Wed, Mar 16 2011 8:37 PM

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The regression theorem explains why money has value to people. It has value to people and it is valued on the market because:

1) people want it in order to use it to get other things they want

2) people hold onto it because they know that it will have value in the future

Menger explained the origin of money and Mises described the whole process of why money has value by explaining a regression.

Is the above wrong?

Where is the part that says money can't be bitcoins and has to be something that was historically money?

My understanding is that anything that's

1) decent at alleviating the issue of double coincidence of wants and

2) increases in value because people use it as a store of value (liquidity preference and all that)

is money.

I suppose there can be different "degrees of moniness"

I don't see the difference between USD and Bitcoins as money, other than that USD is currently more popular and printable by the fed.

Maybe I'm not understanding the argument here.

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Giant_Joe replied on Wed, Mar 16 2011 8:39 PM

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Micah71381:

Again, this statement is false.  There are already people who accept BitCoins as payment for goods and services.

How do those people know how much a loaf of bread costs in bit coin currency?

I think there is a better question: how does anyone know the price of anything measured in any currency? Isn't the price of something decided at the point of exchange?

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Micah71381 replied on Wed, Mar 16 2011 8:55 PM

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filc:

It will be established one way, guided by the premise that praxeology and mutual exchange implies. And yes ofcoarse it will all happen on the market via your spontaneous order. Bitcoin(Or anything like it) will not be the successor of the US dollar. Even if government dissapeared over night.

The main point I would like to contend is your underlined "one way".  I assume that you mean this is the only way for a currency to become established? While I am not normally a fan of idioms this one seems to ring excedingly true here, "there is more than one way to skin a cat". 

filc:

Honestly why don't you just read the Regression theorum prior to denouncing it? It looks real bad when you aarogantly talk about a theorum you know nothing about.

I have read the regression theorum and I believe that the final conclusion, the one in paragraph 7 that I mentioned in a previous reply, is not logically sound for the reasons I have specified.  I am open to additional reading on the topic but so far nothing I have read (several articles here) lead me to the same belief that this particular conclusion is not logically sound.  It is possible that I am just missing a step that the author assumes to be already known to the reader so I am interested in hearing other views on the subject.

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Micah71381 replied on Wed, Mar 16 2011 8:57 PM

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Giant_Joe:

I think there is a better question: how does anyone know the price of anything measured in any currency? Isn't the price of something decided at the point of exchange?

I think this is where the regression theorum comes into play.  They know the value because of how much it was worth yesterday and they can extrapolate from there.

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Micah71381 replied on Wed, Mar 16 2011 9:02 PM

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filc:

How do those people know how much a loaf of bread costs in bit coin currency?

They know how much computing power it takes to generate a new BitCoin and therefor time/energy required.  They can then charge more for their good/service than it takes to "print a new coin" by calculating how much it time/energy is required for them to provide their service.  It's a rough calculation and one that requires a leap of faith (that BitCoins will succeed) but it is a method of calculation none the less.

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Micah71381 replied on Wed, Mar 16 2011 9:33 PM

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Giant_Joe:

I don't see the difference between USD and Bitcoins as money, other than that USD is currently more popular and printable by the fed.

Maybe I'm not understanding the argument here.

The argument as I see it is whether or not BitCoins are capable of becoming a popular currency.  Assuming they were popular, they have many advantages over the USD and none of the disadvantages (inflation, etc.).

However, whether or not they can come into popular usage is highly questionable.  Mises believed (as shown in his regression theorum) that in order for a currency to become popular it *must* originate from something of intrinsic value (gold, rice, water, etc.).  He suggests that it is impossible for a currency to become popular without that requirement being met.

I personally disagree with this line of thought and think that while that route is the most obvious and likely to occur, it is not *required* for a currency to become established popularly.  A presenter of BitCoin uses rai stones as a reference to a real world example of a currency that has no intrinsic value, though this is dubious to me since it could be argued that the stones had value as a status symbol/asthetic device.

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filc replied on Wed, Mar 16 2011 11:28 PM

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Giant_Joe:

I think there is a better question: how does anyone know the price of anything measured in any currency? Isn't the price of something decided at the point of exchange?

This misses the point. How does a store know what exchange ratio to use between bitcoins and apples? How does one know how much an apple is worth in Bitcoins?

Giant_Joe:

Where is the part that says money can't be bitcoins and has to be something that was historically money?

Giant_Joe:

My understanding is that anything that's

1) decent at alleviating the issue of double coincidence of wants and

2) increases in value because people use it as a store of value (liquidity preference and all that)

is money.

This is ignores fundamentally what money actually is. A key component to the regression theorum and misses the actual fundamental issues bitcoin has. It's destined to fail and I feel terrible for the people wasting time into it's development.

Micah:

They know how much computing power it takes to generate a new BitCoin and therefor time/energy required

That doesn't answer the question and I will perhaps rephrase it below.

Micah:

The argument as I see it is whether or not BitCoins are capable of becoming a popular currency.  Assuming they were popular, they have many advantages over the USD and none of the disadvantages (inflation, etc.).

There are literally plenty of items both logical and physical that have advantages over USD. Nothing about bitcoin makes it any more advantageous over gold, silver, or any other commodity. Second off there are literally a long host of reasons as to why bitcoin is a terrible concept for a currency and is likely never to succeed. The reasons can be found in what money fundamentally is and is covered by Mises in his regression theorum(read it)

So here is the question for todays lesson.

Regression Theorum Lesson 1) When someone uses a bitcoin to purchase an apple(Or any good) how is the good priced? How much does an apple cost in bitcoins? How is that price detirmined by the store clerk? What reference does he use to decide the exchange ratio between bitcoins and apples?

Regression Theorum Lesson 2) What is money? I am looking for a 4 word definition.

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filc replied on Wed, Mar 16 2011 11:31 PM

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Micah:

tMises believed that in order for a currency to become popular it *must* originate from something of intrinsic value

You were so close but..

Micah:

I personally disagree

But I think you missed a very crucial point he was making when he argued that. What is money? 4 word definition.

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Micah71381 replied on Thu, Mar 17 2011 12:45 AM

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I agree that BitCoin does not meet the requirements to make it as a form of money as Mises defines it.

I disagree that Mises's regression theorum is the only way to create a new form of money.

I feel that people keep pointing at how BitCoin does not meet the regression theorem requirements yet I am arguing that the regression theorem is partially flawed, not that BitCoin meets it's requirements.

I agree that there are many forms of money that are superior to the USD (or many of the current world fiat currencies) and this includes any backed currency currently in existence (are there any)?

The way that BitCoin is advantageous is that it has a limited supply, it is decentralized, and it is digital.  There are alternatives that meet any one of these desires but there are none that meet them all.  The big one for me is the decentralization of it, there is no one person in control of creating more. Precious metals meet this requirement since anyone can mine or transmute more if they so desire.  Next up is the limited supply which means no inflation and in fact means deflation (which I am a fan of) due to the fact that BitCoins can actually be lost and never recovered but after a point no more can be created.  Precious metals do not meet this requirement because more can be mined and as long as the mining rate outpaces the loss rate (unlikely for quite some time) then inflation will occur.  Last up is the digital aspect which is only a big deal when held hand in hand with decentralization.  With any other currency if you deal digitally your transactions can be traced.  BitCoins are unique in that you can complete digital transactions anonymously.

BitCoin pricing can initially be determined similarly to how one might determine the value of a precious metal.  It can be calculated (by the market) by the cost associated with creating new precious metals (mining them) and therefore you set prices for your goods in such a way that it is more profitable/desirable for you to make/sell your goods than it is for you to mine the precious metals directly.  Since BitCoins are, at their core, a proof of work that means that there is a cost associated with creating new coins, just as with precious metals.  This gives BitCoins a reasonable starting value which merchants can base their pricing on.  This is not in line with Mises's regression theorem (see above).

I'm not sure what definition of money you are looking for here, please provide it.