Bitcoin Fanatics Say the Darnedest Things

[Wesley]

[Anuojat]

Kinda makes me think back to stefans "bad ass mommy milk" video

 

Which wasnt the title i simple forgot what it was called precisely

[AccuTron]

I've recently been learning about Bitcoin, including SM's conference video.  I can follow the very big points along with the supporting smaller points.

 

One thing nags at me:  this is a human endeavor.  Doesn't that always ultimately suck in the usual tricksters and vipers, in ways never appreciated or foreseen* in the early days?  It's the feeling that Bitcoin is saying "we've figured out a way to circumvent human nature!"  My intuition isn't buying it.  I'm not referring to it's purchase value now, or especially it's revolutionary value.  I'm just thinking about any revolution I can think of, what happens a few years down the road....

 

(*With the internet age, foresight is now in abundance.  It can still be ignored.)

[Wesley]

I've recently been learning about Bitcoin, including SM's conference video.  I can follow the very big points along with the supporting smaller points.

 

One thing nags at me:  this is a human endeavor.  Doesn't that always ultimately suck in the usual tricksters and vipers, in ways never appreciated or foreseen* in the early days?  It's the feeling that Bitcoin is saying "we've figured out a way to circumvent human nature!"  My intuition isn't buying it.  I'm not referring to it's purchase value now, or especially it's revolutionary value.  I'm just thinking about any revolution I can think of, what happens a few years down the road....

 

(*With the internet age, foresight is now in abundance.  It can still be ignored.)

I am not sure what you are referring to. If you mean that you feel that human nature can be circumvented by math and algorithm, then it already has been. 2+2=4 no matter what anyone else says or does. If you mean something else, then I would be interested to have it explained more so I can understand what you mean.

[AccuTron]

I'm saying that math and algorithms do NOT change human behavior.  Bitcoins have a rah-rah to them right now that sounds like "monetary utopia" and any utopia runs into human nature.  How are bitcoins purchased anyway?  I read something about mining a server, but that makes no sense to me.  Sounds like a simple varying conversion of a national currency into a promise with a pretty logo -- which is what most stocks, sales promotions, IPO's. etc., present.  Stocks, promotions, IPO's, all have some kind of substance behind them; land, product, etc.  The currency we used to (at least somewhat) trust was backed by gold.  What's backing bitcoins, except public enthusiasm?  Sounds like a reality TV show.

 

Offhand, I can't think of anything at all, that isn't ultimately subjected to human nature, nothing new under the sun.  SM mentioned in passing that political influence may someday (and I suspect soon) be paid in untraceable bitcoin.  Which will likely lead to some legal backlash.  Is bitcoin "backed by the full faith and credit" of a server someplace?  

 

I don't have a particular mechanism in mind.  I am just suspicious of something that sounds too good.

[Wesley]

I can tell you have no idea what bitcoin is or why it is unique. I have a Bitcoin: Getting Started thread in my signature. Once you kind of have an idea what it even is, I will be happy to answer more specific questions.

[TheRobin]

There should be an award for "Most entertaining Dunning-Kruger effect"

[AccuTron]

Thanks for the links, I now have blurry and crossed eyes from yet another learning curve!

 

Most of the material is about how the BC are used and processed.  I can follow that well enough.

 

What puzzles me are elements of the mining.  As far as I can tell, BC are created/granted when a pricey bit of hardware runs complex software for long periods of time, then tells a supervisory human that it's done something, thereby getting a gold star called a Bitcoin.  How is that different from a number of very expensive printing presses slowly printing a newly named money with a limited stock of special paper from the paper supplier?  I understand that there's an ultimate limit in total BC, and thus not the total fiat disaster, which is good.  Except isn't the whole thing a fiat declaration? -- "Hi, I made some software which keeps tabs on itself, and after awhile makes something imaginary stored in bits which has whatever value you think it has."

 

It seems that BC, although radically different over time and space, are like an ultimately limited stock of goods, like art by someone dead, and the value is what people think it is.  Except again, no actual art.  BC value is what people think it is.  (Which of course describes the stock market to an extent.)

 

Right now, pun alert, BC has much cache.  It's value to merchants and users, as I make it out, is the cache, and the lack of fees, tracking, and gov't seizure, which are good things.  It also has electronic ease, yet so does most other stuff now.   Won't it eventually find it's level?  On the one hand, BC value is what the user base speculates.  On the other hand, it's what an online vendor thinks a pair of shoes is worth in BC, which then implicitly ties BC's value to national currencies.  Fees now are small or none, will that be always true?  Either way, it's a line item which adjusts the value, and again, the BC will find it's level.  

 

I'm sure this has been thoroughly worked elsewhere, but I haven't stumbled upon it yet.

 

I'm not trying to shoot down BC.  The idea is a currency revolution.  I just wonder what it will look like in 2-10 years.

[Wesley]

There is no supervisory human. It is a cryptographic idea called Proof-of-Work.

 

There is a maximum number of bitcoins and it could never be raised.

 

Besides further reviewing bitcoin concepts, I also think you have some work to do on what a money is and how goods are priced in it.

 

Again, you seem to not understand the basics and are already trying to jump to long-term consequences. I encourage you to spend some significant time with the basics first and make sure you understand those thoroughly, and then try to apply them to complex and future possibilities.

[st434u]

The currency we used to (at least somewhat) trust was backed by gold.  What's backing bitcoins, except public enthusiasm?  Sounds like a reality TV show.

 

You may find this other thread interesting, it was active until a couple weeks ago.

 

http://board.freedomainradio.com/topic/38337-bitcoin-intrinsic-value-and-mises-regression-theorem/

[WorBlux]

Except isn't the whole thing a fiat declaration?"

You might find it usefull to brush up on Mises's monetary theory. If your currency is made out of gold coins, then when you hold a gold coin it has two distinct sort of value. The first as a an instrument or exchange, that is its use for inderect exchange. The second is it's industrial use. You can pick one or the other, but not both. Most of the time you ignore the second and use it in the first. The value of money qua money is always what other people are willing to sell you for it.The value of the gold currency as gold acted to regulate monetary creation and destruction but really wasn't the basis for it's value.

[AccuTron]

Thanks for the thread link.  I now have a much fuller understanding.

 

Something occurs to me.  I'm not judging it, just noticing it.  The BC miners speak of buying expensive special computers, which I understand to be solving complex math, and take so long to make so little BC that the cost of electricity affects the profitability of being a miner in the first place.

 

Doesn't the NSA, and agencies in many major countries, have plenty of budget for electronics and electricity?  Could some of the most successful/effective miners be national security agencies, even other types of national agencies?  I've seen the comments that BC could be used for gun-running or such, but that cuts both ways.  BC would be a great way to fund covert operations or bribes. 

[Wesley]

The mining pool is more powerful than the top several hundred supercomputers combined.

 

I think you do not understand the meaning of the word "specialize" in this context nor understand the costs associated with competing with an entire network.

 

Finally, the blockchain is at best pseudo-anonymous. Regardless, the idea that people can exchange money for goods and services doesn't make money a problem and is the point of it. "Gun-running" only exists because of state bull-shit and the dollar will be used for the foreseeable future in the vast majority of criminal activities.

 

I am going to recommend again that you start with an understanding of the basics, like what a blockchain is, what proof of work is, what the cryptography behind bitcoin is, what vulnerabilities exist in bitcoin and what the actual odds or likelihood of those things happening are. So far, all of your concerns show that you do not understand the basics or what fixes or checks are in place to prevent such things from happening. There are a lot of free and easily accessible resources available out there for understanding these concepts.

 

I would be happy to explain concepts or clarify things, but these broad assertions without understanding the basics are rather tiresome.

[J-William]

I've got to say one of the things that most surprised me was jumping back into the common morass of people and seeing what ridiculous things they had to say about bitcoin.

It's pretty easy to get stuck in a mindset where you don't even realize that most people can't think.

When you go out into the world where these people are who can't think it really blows your mind to hear or read what they have to say.

[WorBlux]

Finally, the blockchain is at best pseudo-anonymous.

There is the proposed zero-coin extension, and there are ways to embed a private key into a smartcard type device so you could transfer a wallet with reasonable assurances the person holding the device is the only one with the private key. I wouldn't keep a million dollars of bit-coin like this, but it could be reasonable secure enough for amounts in the thousands.

[st434u]

You might find it usefull to brush up on Mises's monetary theory. If your currency is made out of gold coins, then when you hold a gold coin it has two distinct sort of value. The first as a an instrument or exchange, that is its use for inderect exchange. The second is it's industrial use. You can pick one or the other, but not both. Most of the time you ignore the second and use it in the first. The value of money qua money is always what other people are willing to sell you for it.The value of the gold currency as gold acted to regulate monetary creation and destruction but really wasn't the basis for it's value.

 

You really have no idea what you're talking about. Which is fine, but maybe you shouldn't be telling someone else that they need to read up on Mises's monetary theory when you clearly don't understand it.

 

The intrinsinc* value of gold is the only reason it has value in the first place. It is only after this that it can be used as a medium of exchange.

 

----------------------

 

*by intrinsic value I mean value coming from consumption demand and/or production demand (demand from producers who want to use the item to produce something else which in turn has consumption and/or production demand)

[WorBlux]

You really have no idea what you're talking about. Which is fine, but maybe you shouldn't be telling someone else that they need to read up on Mises's monetary theory when you clearly don't understand it. The intrinsinc* value of gold is the only reason it has value in the first place. It is only after this that it can be used as a medium of exchange. ---------------------- *by intrinsic value I mean value coming from consumption demand and/or production demand (demand from producers who want to use the item to produce something else which in turn has consumption and/or production demand)

I'll just let people read for themselves. 

The difficulty is, however, merely apparent. The purchasing power [p. 409] which we explain by referring to the extent of specific demand is not the same purchasing power the height of which determines this specific demand. The problem is to conceive the determination of the purchasing power of the immediate future, of the impending moment. For the solution of this problem we refer to the purchasing power of the immediate past, of the moment just passed. These are two distinct magnitudes. It is erroneous to object to our theorem, which may be called the regression theorem, that it moves in a vicious circle.But, say the critics, this is tantamount to merely pushing back the problem. For now one must still explain the determination of yesterday's purchasing power. If one explains this in the same way by referring to the purchasing power of the day before yesterday and so on, one slips into a regressus in infinitum. This reasoning, they assert, is certainly not a complete and logically satisfactory solution of the problem involved. What these critics fail to see is that the regression does not go back endlessly. It reaches a point at which the explanation is completed and no further question remains unanswered. If we trace the purchasing power of money back step by step, we finally arrive at the point at which the service of the good concerned as a medium of exchange begins. At this point yesterday's exchange value is exclusively determined by the nonmonetary --industrial--demand which is displayed only by those who want to use this good for other employments than that of a medium of exchange.

Look we can track the price of bit-coin back to just a hair above zero. Industrial demand doesn't need to be significant.

 

We aren't starting at the first place, we are stuck in today in which the prices of the medium of exchanges are heavily influenced by what people expect to be able to buy with them in the futures, an appraisal heavily influenced by what people actually exchanged for that medium today.

[st434u]

I'll just let people read for themselves.

You're making my point. 

We aren't starting at the first place

You said that the basis for gold's value when it was used as money, was not it's intrinsic* value, which is wrong. Not only is it wrong, it's strictly contradicted by Mises's monetary theory, which you brought up. You said other things that are wrong, but I'll be satisfied with arguing that one point here.-----------*paraphrasing; using the term as defined above by me

[WorBlux]

You're making my point. 

You said that the basis for gold's value when it was used as money, was not it's intrinsic* value, which is wrong. Not only is it wrong, it's strictly contradicted by Mises's monetary theory, which you brought up. You said other things that are wrong, but I'll be satisfied with arguing that one point here.-----------*paraphrasing; using the term as defined above by me

I don't believe I've said anything wrong, though I may have failed to make myself suffeciently clear.

 

With free coinage the industrial and exchange values tend to even out, with  seniorage + the coase cost of minting gold the ceiling of the exchange value, and the industrial value as the floor. However,  this confuses the issue as changes in the exchange value induce changes in the monetary supply, feeding back to induce changes in prices to keep exchange and industrial values (prices) close. 

 

When Gold was currency, if you asked Jones who worked all week to get a gold coin "Why did you labor to get that coin?" he would say "So I can buy other stuff with it;" and probably not "I think gold is just that pretty;" or "I want to make something else with it." The exact sort of labor Jones is willing to do to get that coin depends on just what he believes he can exchange for it. That's what I'm saying. I'm not denying the process described in the prior paragraph.

 

Gold isn't even money until or unless enough Jonses and Smiths demand it for use in exchange.

 

Look at what happened with the demonetization of silver when the practised of free coinage ended. You saw exchange value of silver coinage far above the industrial value. This shows that there really is two distinct sorts of utility metallic money possesses, and that it's value in indirect exchange  (what you can buy with it) is what determines the demand for it as money.

[st434u]

When Gold was currency, if you asked Jones who worked all week to get a gold coin "Why did you labor to get that coin?" he would say "So I can buy other stuff with it;" and probably not "I think gold is just that pretty;" or "I want to make something else with it."

What Jones says is irrelevant, he's just one person. He doesn't decide the basis of why gold has value. He doesn't have to know.If he was a knowledgeable man, you could keep asking why others would take his gold for other things of value, and eventually he would come to the answer that through a chain of exchanges, gold flows from those who produce it, to those who consume it (or use it to produce other producer/consumer goods/services); and it's only in the middle of this chain of exchanges that gold is used as a medium of exchange. Or, put another way, gold must first be wanted for nonmonetary purposes, before it can serve as a good medium of exchange.  

Look at what happened with the demonetization of silver when the practised of free coinage ended. You saw exchange value of silver coinage far above the industrial value.

There is only one value in the sense you're talking about, and it's price; i.e. exchange value. Saying that "silver traded for more than it's industrial value" is a meaningless statement.

[WorBlux]

What Jones says is irrelevant, he's just one person. He doesn't decide the basis of why gold has value. He doesn't have to know.If he was a knowledgeable man, you could keep asking why others would take his gold for other things of value, and eventually he would come to the answer that through a chain of exchanges, gold flows from those who produce it, to those who consume it (or use it to produce other producer/consumer goods/services); and it's only in the middle of this chain of exchanges that gold is used as a medium of exchange. Or, put another way, gold must first be wanted for nonmonetary purposes, before it can serve as a good medium of exchange.  There is only one value in the sense you're talking about, and it's price; i.e. exchange value. Saying that "silver traded for more than it's industrial value" is a meaningless statement.

Austrians are methodological subjectivists. Human action is necessarily individual. While Jones doesn't set the price of gold coins, he certainly knows why he wants to get one.  (It's value to him) It is improper to concieve all the users of gold as a medium of exchanges merely as middlemen between producers and consumers of gold. There is a general demand for money just to hold onto for future transaction. Yes if you go far enough back you get to a point where there is no monetary demand for then the price is based purely on the industrial use, yet when gold is money demand for industrial use correspondingly becomes a smaller fraction of demand. And these are really distinct ends and uses rather than a single supply chain. 

There exists a demand for media of exchange because people want to keep a store of them. Every member of a market society wants to have a definite amount of money in his pocket or box, a cash holding or cash balance of a definite height. Sometimes he wants to keep a larger cash holding, sometimes a smaller; in exceptional cases he may even renounce any cash holding. At any rate, the immense majority of people aim not only to own various vendible goods; they want no less to hold money. Their cash holding is not merely a residuum, an unspent margin of their wealth. It is not an unintentional remainder left over after all intentional acts of buying and selling have been consummated. Its amount is determined by a deliberate demand for cash. And as with all other goods, it is the changes in the relation between demand for and supply of money that bring about changes in the exchange ratio between money and the vendible goods.

 

Let me clarify. Silver coinage commanded a price far above that of silver.  Or money made of silver could buy far more silver than it was made of.

[st434u]

Austrians are methodological subjectivists. Human action is necessarily individual. While Jones doesn't set the price of gold coins, he certainly knows why he wants to get one.  (It's value to him)

No, you said so yourself, he doesn't derive value from it himself, he wants to trade it for other things which he does derive value from. It is precisely because human action is individual that you can't explain away the basis for the value of gold in some sort of medium of exchange societal limbo. You can't explain it by saying that everybody wants it only to trade it for other things which they want. This does not explain why anyone would want it in the first place. 

yet when gold is money demand for industrial use correspondingly becomes a smaller fraction of demand.

But it doesn't disappear. And it certainly doesn't cease to be the basis for why gold has value. (and again, "industrial" is not the best term because some of the nonmonetary uses of gold have nothing to do with industry) 

And these are really distinct ends and uses rather than a single supply chain.

It is a single supply chain if you look at the longer term.  

Let me clarify. Silver coinage commanded a price far above that of silver.  Or money made of silver could buy far more silver than it was made of.

I don't know what or when or where you're talking about. Silver coins were more expensive than the silver they contained because private businesses were forbidden to mint coins? What's that got to do with the subject at hand?

 

Also, there is always a premium in minted coins as opposed to the raw metal.

[NumberSix]

Every time a Bitcoin is mined a statist dies!

[Josh F]

how can someone argue the world's largest decentralized encryption and fastest and lowest cost currency transfer system has no "intrinsic value"? 

 

There is a clear difference between bitcoin and me just writing down the word bitcoin on a piece of paper, and in that difference, with a lot more technical understanding, you can see all of the market functions bitcoin has beyond use as a currency (this fitting very well into Mises's Regression theorum)

 

"What Jones says is irrelevant, he's just one person."

"You said that the basis for gold's value when it was used as money, was not it's intrinsic* value, which is wrong. Not only is it wrong, it's strictly contradicted by Mises's monetary theory, which you brought up."

 

That is an ironic contradiction.  I actually agree though, no amount of saying it isn't money will ever stop people from using it as money and what one person says is irrelevent.  I sincerely wish people spent their time providing better alternatives when they see a problem.  Hunting down new bitcoin topics to spam the same tired and overly discussed argument I find personally annoying.  Can you just make the Mises Regression theorum topic and keep all the spam in one place?

[st434u]

how can someone argue the world's largest decentralized encryption and fastest and lowest cost currency transfer system has no "intrinsic value"?

Clearly it does not, and I defined what I meant by that. Maybe if you took the time to read what I actually post before mindlessly downvoting it and coming up with a half thought-out reply, we both would waste less time arguing. 

There is a clear difference between bitcoin and me just writing down the word bitcoin on a piece of paper, and in that difference, with a lot more technical understanding, you can see all of the market functions bitcoin has beyond use as a currency (this fitting very well into Mises's Regression theorum)

This is why it's wrong to think of the basis for the value of gold as being it's nonmonetary "uses". A "use" can mean anything. That is why I am careful to define things properly and say that the basis for gold's value is it's consumption demand and/or production demand. Sometimes in responding to somebody else who has already brought up that terminology in response to me talking specifically about consumption demand and/or production demand, I will talk more casually about the nonmonetary "uses", but it's not a proper term. 

"What Jones says is irrelevant, he's just one person.""You said that the basis for gold's value when it was used as money, was not it's intrinsic* value, which is wrong. Not only is it wrong, it's strictly contradicted by Mises's monetary theory, which you brought up." That is an ironic contradiction. I actually agree though, no amount of saying it isn't money will ever stop people from using it as money and what one person says is irrelevent.

It's not a contradiction. I'm not saying that the basis for gold's value is it's intrinsic value because I say so, or because Mises said so.Also, I'm not saying that bitcoin is not acting as a medium of exchange, I'm saying it's not a sound one and it will collapse. 

I sincerely wish people spent their time providing better alternatives when they see a problem.  Hunting down new bitcoin topics to spam the same tired and overly discussed argument I find personally annoying.  Can you just make the Mises Regression theorum topic and keep all the spam in one place?

I don't "hunt down new bitcoin topics to spam", there was someone else who brought up the topic here and was being given the wrong advice about it.Also, how is it that you think this topic is "tired and overly discussed", and you find it annoying that I would talk about it, yet you still make a reply and try to argue against my points? You said you were sincere, but I don't sense much sincerity coming from you at all.

[WorBlux]

No, you said so yourself, he doesn't derive value from it himself, he wants to trade it for other things which he does derive value from. It is precisely because human action is individual that you can't explain away the basis for the value of gold in some sort of medium of exchange societal limbo. You can't explain it by saying that everybody wants it only to trade it for other things which they want. This does not explain why anyone would want it in the first place.

Why not? As soon as it's spent, the payee can turn around and get the same sort of use from it. The exchange value of money is a price, (albeit a odd sort of price not expressed in terms of money, and price is a social/market phenonomon. It is this price that drives the demand for cash holdings. That these cash holding are used only as a means to satisfy other wants makes the demand to cash holdings no less real in a persons scale of values.

It's not a contradiction. I'm not saying that the basis for gold's value is it's intrinsic value because I say so, or because Mises said so.Also, I'm not saying that bitcoin is not acting as a medium of exchange, I'm saying it's not a sound one and it will collapse.

   

Now, the regression theorem aims at interpreting the first emergence of a monetary demand for a good which previously had been demanded exclusively for industrial purposes as influenced by the exchange value that was ascribed to it at this moment on account of its nonmonetary services only. This certainly does not involve explaining the specific monetary exchange value of a medium of exchange on the ground of its industrial exchange value.

Human Action, Chapter 17 section 4And there are several good reasons as to why a person might think gold is not the best sort of money, even from an Austrian perspective (F.A. Hayek, The denationalization of money)

[st434u]

Why not? As soon as it's spent, the payee can turn around and get the same sort of use from it.

Someone has to want (demand) to consume the item, or use it in the production of other consumer/producer goods/services (we'll use C/P demand for short), otherwise as soon as the demand for holding it drops, the value drops without the balancing effect or backstop that would be provided by the abovementioned C/P demand.For as soon as the first person spends it, the second person now finds themselves with an extra supply of cash, which all other things being equal, he will not want to hold. And especially under a situation of diminishing value, or the expectation thereof, not only will he rush to get rid of his new cash, but he will also want to get rid of what he already has. So as one "uses" their cash holdings (gets rid of them in exchange for something else that they want), they are effectively generating supply*1 and reducing demand, as they become a seller of the money and a buyer of other things which the money trades against.The monetary demand which adds value to an already valuable item is not the part where the money is spent, it's the part where the money is held. But you're still putting the cart before the horse. The item must first have value, in order for anyone to want to hold it to purchase things with it. Unless of course, it doesn't have value right now, but the person speculates that it will have value in the future, and they hold it for that reason, but that's not monetary demand.As I argue, this is the basis for bitcoin's value, just like the basis for gold's value is it's intrinsic value. There's nothing wrong with speculation, but there are fundamentally two types of speculation when it comes to investments.The first type is the kind where you expect potential intrinsic value to develop, such as when you buy stock in a startup company that you believe may end up producing goods or services with actual C/P demand. This is just an investment which depending on the fundamentals may or may not be sound. There's another type of speculation where you don't expect any intrinsic value at all, indeed where such a thing is impossible, but you're just speculating based on the hope that others will speculate, and that they will only do that based on the hope that others will speculate, and so on and so forth. This is an investment which is never sound and where you will most likely lose 100% of your investment. You may however earn substantial profits if you can liquidate the investment after a lot more investors have bought in, but before a lot of them wise up. This is the basis for a pyramid scheme.Bitcoin belongs in the second category.  

Human Action, Chapter 17 section 4

You misunderstand. All Mises is saying here is that the current exchange value is not identical to the exchange value that existed prior to the item being used as a medium of exchange. He is still saying that the C/P demand (what he calls industrial value or nonmonetary services) is what constitutes the basis for why the item has value, which is exactly the opposite of what you said above. Are you going to concede this point? 

And there are several good reasons as to why a person might think gold is not the best sort of money, even from an Austrian perspective (F.A. Hayek, The denationalization of money)

Hayek was a socialist*2, and although that one is possibly his best book (and a very short one I might add), his idea of the basket of commodities has been completely refuted by Rothbard, Hoppe and other austrians.Still, I believe he was on to something, and I have my own idea of how this could be applied to provide a variety of mediums of exchange which outperform gold and silver, but this idea is very complex and certainly not the type of thing I want to engage in right here (in this thread). 

 

------------------------------------

*1 Not to be confused with the money supply, which is something else.

 

*2 For more on Hayek being a socialist, watch this presentation by Hans-Hermann Hoppe: http://propertyandfreedom.org/2012/11/hans-hermann-hoppe-the-hayek-myth-pfs-2012/

[TheRobin]

@st434: I apologize if this has been answered already, but how do you define "consumption"? And can you give some examples on how that applies to different things like, say, computers, art, a piece of paper, a pen, an industrial machine (to give a few ideas, cause some seem kind of "non-consumable" in the most common sense of the word (i.e. I don't "use up" my computer))

[TheRobin]

Thanks for the indepth explantion. I don't quite understand then how the Bitcoin network doesn't have value for it's application (which then in turn would be the basis of the value of the Bitcoin currency)

[st434u]

You're welcome. The bitcoin network has value for it's application and people demand it for that purpose, but if bitcoins themselves have no value, then the network becomes worthless as I understand it. So the coins themselves must have value first, for the network to become valuable. (and by the network I mean transferring services)

 

It's like how NumberSix brought up Western Union and Visa in the other thread. These services are valuable, but they are only valuable if and insofar as they function with a currency or money which has value (it doesn't have to have intrinsic value, but it must have market value, i.e. exchange value)

 

Western Union and Visa don't give value to the US dollar in the first place. Rather it is because the US dollar has value, that Western Union and Visa can provide value and capture C/P demand by producing a service which offers advantages in transferring US dollars and debt denominated in US Dollars (or other fiat currencies). Of course US Dollars (or other fiat currencies) don't have any intrinsic value either.

 

In fact, it could be argued that because Western Union and Visa make it easier to transfer US Dollars, and to settle transactions in US dollars, they reduce the demand for holding US Dollars; thus reducing the value thereof. Murray Rothbard has a very interesting piece on this, in his book The Mystery Of Banking, Chapter V.3: Clearing Systems, on page 63.

[TheRobin]

Okay, if you look at the Bitcoin Network as a mere transferring service, then I see your point.But do you understand the innovation behind it? (It being a decentralized concensus network, something, which experts in computer science have thought of as being impossible before) I mean, there are many uses for a network like this, currency being only one of them. And I would still argue, the currency has value, cause the way the network works has value to people. Like if it where only a transferring service (in the Western Union sense), that created it's own currency, I don't think the currency held much or any value either.

[Josh F]

Clearly it does not, and I defined what I meant by that. Maybe if you took the time to read what I actually post before mindlessly downvoting it and coming up with a half thought-out reply, we both would waste less time arguing. 

This is why it's wrong to think of the basis for the value of gold as being it's nonmonetary "uses". A "use" can mean anything. That is why I am careful to define things properly and say that the basis for gold's value is it's consumption demand and/or production demand. Sometimes in responding to somebody else who has already brought up that terminology in response to me talking specifically about consumption demand and/or production demand, I will talk more casually about the nonmonetary "uses", but it's not a proper term. 

It's not a contradiction. I'm not saying that the basis for gold's value is it's intrinsic value because I say so, or because Mises said so.Also, I'm not saying that bitcoin is not acting as a medium of exchange, I'm saying it's not a sound one and it will collapse. 

I don't "hunt down new bitcoin topics to spam", there was someone else who brought up the topic here and was being given the wrong advice about it.Also, how is it that you think this topic is "tired and overly discussed", and you find it annoying that I would talk about it, yet you still make a reply and try to argue against my points? You said you were sincere, but I don't sense much sincerity coming from you at all.

I am extremely sincere, the arguments you've received counter to your points number in the dozens and are categorically dismissed and then this topic is introduce into another bitcoin thread for the whole thing to repeat itself.  This topic would be great to discuss with someone who gave the slightest consideration towards counter arguments.

 

The Mises Regression Theorem explains that the expected future purchasing power of a currency informs its current value.  This theory seemed to imply that the value of a currency was determined by a historical use of the currency for exchange.  That is to say, the value of a currency comes from its previous successful use as a currency.  This provoked another important question Mises attempted to solve: what is the origin point of this infinite cycle?  He said if you go back far enough you will discover the currency being exchanged exclusively as a commodity.

 

So for example, the history of the value of gold traces back to a point when it was being used exclusively as a commodity (say for jewelry) and not at all as a currency.  The value of the gold at this point is said to be its "intrinsic value" by some though that term is a bit faulty and often criticized.

 

 

Bitcoin is the name of an encryption based network being used as a currency now.  In order to understand its evolution into currency using Mises's argument we need to go back to a time when encrypted networking was not being used as a currency.  Here we can see the intrinsic value of encrypted networks in the modern market, most of which is used to keep personal, business, and government information secret and private at the lowest competitive cost.  Gold was perfect for jewelry, because of its malleability and other qualities (for example, unlike Bronze and Silver, Gold doesn't pantine in oxygen and instead remains shiny over time).  Similarly, encryption based networks have proven the fastest, cheapest, and most reliable way to protect information.  Their utility began in SSL, banking websites, email and other applications and have since moved on to currency. 

 

The value of bitcoin is like the value of a Roman Coin.  The Roman Coin might have contained extra value because of the strength of its network, much like bitcoin, but is still based on the market value of the metal used to make the coin.  So like a Roman Coin made out of Silver, Bitcoin is a brand name for a currency made out of something called encryption. 

 

Hopefully that helps everyone reconcile the Mises theory and the empirical fact that bitcoin is money.

[WorBlux]

Someone has to want (demand) to consume the item, or use it in the production of other consumer/producer goods/services (we'll use C/P demand for short), otherwise as soon as the demand for holding it drops, the value drops without the balancing effect or backstop that would be provided by the abovementioned C/P demand.For as soon as the first person spends it, the second person now finds themselves with an extra supply of cash, which all other things being equal, he will not want to hold. And especially under a situation of diminishing value, or the expectation thereof, not only will he rush to get rid of his new cash, but he will also want to get rid of what he already has. So as one "uses" their cash holdings (gets rid of them in exchange for something else that they want), they are effectively generating supply*1 and reducing demand, as they become a seller of the money and a buyer of other things which the money trades against.

As the demand for anything drops, so does it's price other things being equal. So what?Having a second or third or ... source of demand for an economic good can keep the price more level if the demand for one use drops, but so to can changes in those alternate demands influence the price. It's not a pure benefit here. And from evidence with modern fiat currency it takes huge shocks in demand to effect a collapse like you describe, and mises associates it with inflationary policies, and not to the lack of industrial uses for the monetary unit.Second why should assume the buyer of money already has a cash reserve as high as he'd like it? Additionally these demands are not static. Some people can be looking for an increase or decrease.And you weren't responsive to my question here. Why doesn't the exchange value of money, gold or otherwise, give adequate explanation as to why a person comes to demand a cash reserve? 

The monetary demand which adds value to an already valuable item is not the part where the money is spent, it's the part where the money is held. But you're still putting the cart before the horse. The item must first have value, in order for anyone to want to hold it to purchase things with it. Unless of course, it doesn't have value right now, but the person speculates that it will have value in the future, and they hold it for that reason, but that's not monetary demand.

Let's back up here, because this doesn't jive with what you just said. You just relied on an argument where people we acting on the speculation that the price of money would continue to drop.Lets take an example with gold. An city is introduced the the idea of gold as currency and a few people start to use it but it's still kinda spotty because nobody is really sure how well the idea is going to work for them. A few other people are pretty sure it's going to take off so they start buying up gold in anticipation of a later greater demand creating a subsequently greater price. Yes this is a different sort of activity as a demand for cash reserves, but it's not prohibitive of gold coming to be money in that city.One of the reason reason you wanted a valuable unit before is so you didn't have to carry around a lot of it rather then being a categorical requirement for a thing to be money. With a ledger system though it's just as easy to transfer 1,000 units and 1/1000th of a unit. It makes it feasible to drive initial demand simply by curiosity, novelty, or ideology. 

As I argue, this is the basis for bitcoin's value, just like the basis for gold's value is it's intrinsic value. There's nothing wrong with speculation, but there are fundamentally two types of speculation when it comes to investments.

The basis for the price of Gold when it was money was the composite it's demand for industrial and monetary uses. Both because it satisfied some wants directly or through a production chain, and because it satisfied the demand for cash holdings. The price of bitcoin should be become a monetary instrument will be almost entirely in the demand for cash holdings. 

The first type is the kind where you expect potential intrinsic value to develop, such as when you buy stock in a startup company that you believe may end up producing goods or services with actual C/P demand. This is just an investment which depending on the fundamentals may or may not be sound. There's another type of speculation where you don't expect any intrinsic value at all, indeed where such a thing is impossible, but you're just speculating based on the hope that others will speculate, and that they will only do that based on the hope that others will speculate, and so on and so forth. This is an investment which is never sound and where you will most likely lose 100% of your investment. You may however earn substantial profits if you can liquidate the investment after a lot more investors have bought in, but before a lot of them wise up. This is the basis for a pyramid scheme.Bitcoin belongs in the second category.

See my prior example of the city and gold.The same stock might be subject to both sorts of investment by different people. Some people are buying bitcoin because they are saying "look at the price.. up, up, and up". And other people are saying, look there's a huge potential demand for a monetary instrument with the particular qualities bitcoin has.When you invest on fundamentals you can certainly be wrong and end up with nothing also. That bitcoiners could end up with nothing doesn't prove there are no good reasons to believe that are sound fundamentals. 

You misunderstand. All Mises is saying here is that the current exchange value is not identical to the exchange value that existed prior to the item being used as a medium of exchange. He is still saying that the C/P demand (what he calls industrial value or nonmonetary services) is what constitutes the basis for why the item has value, which is exactly the opposite of what you said above. Are you going to concede this point?

No. The specific exchange value of money is best explained by the exchange value it had in the immediate past, and not by the nonmonetary services it renders.At one point just before the economic good serves as an unit of indirect exchange the value was based simple on industrial used, as no regression can be actually infinite. 

Hayek was a socialist*2, and although that one is possibly his best book (and a very short one I might add), his idea of the basket of commodities has been completely refuted by Rothbard, Hoppe and other austrians.Still, I believe he was on to something, and I have my own idea of how this could be applied to provide a variety of mediums of exchange which outperform gold and silver, but this idea is very complex and certainly not the type of thing I want to engage in right here (in this thread).

Was the refutation of a basket based on categorical or practical grounds? If the first I'd certainly be surprised and would like a link.It would be best if you could point to textual sources, listening to Hoppe speak at 1x speed is tiring, any files I download with him speaking I set to playback at 1.5x. Anyways it seems to be an attack on the philosophy and not the economics of Hayek.Yes Heyek isn't exactly an Austrian, but he did contribute some very important material to Austrian thought.

Bitcoin is the name of an encryption based network being used as a currency now. In order to understand its evolution into currency using Mises's argument we need to go back to a time when encrypted networking was not being used as a currency. Here we can see the intrinsic value of encrypted networks in the modern market, most of which is used to keep personal, business, and government information secret and private at the lowest competitive cost.

Bitcoin is not just the network it's the blockchain as well. And it's not the encryption that's being sold as the ledger is block-chain is public. The service the blockchain provides is simply secure verification that data on the block-chain is correct. I think the initial demand was simply a curiosity to experience what a decentralized crypto-currency would be like to use. When I first heard of it nobody was saying OMG you sha256 hash these series of bytes people on the network are sending you. The way saying OMG something like this this might change the world in and you can download this programs to see how now.

[Josh F]

Bitcoin is not just the network it's the blockchain as well. And it's not the encryption that's being sold as the ledger is block-chain is public. The service the blockchain provides is simply secure verification that data on the block-chain is correct. I think the initial demand was simply a curiosity to experience what a decentralized crypto-currency would be like to use. When I first heard of it nobody was saying OMG you sha256 hash these series of bytes people on the network are sending you. The way saying OMG something like this this might change the world in and you can download this programs to see how now.

The blockchain is an encrypted database or ledger shared by all the nodes in the bitcoin network.  I don't know exactly what your point is, to be honest. 

[WorBlux]

The blockchain is an encrypted database or ledger shared by all the nodes in the bitcoin network.  I don't know exactly what your point is, to be honest. 

 

The block-chain is not encrypted, it's signed,