Bitcoins Aren’t Money. They’re Even Better.

April 28th, 2014   Submitted by Joshua Krause

BitcoinMagicAre Bitcoins money? It’s a tricky question that everyone in the freedom movement has to ask themselves. There are plenty of debates across the net as we speak, trying to determine this pertinent fact, and I believe both sides have merit. The problem though, is we all keep trying to pigeonhole Bitcoins into two specific categories. You either think it’s money or it’s not. Neither side of the debate will ever reach a consensus for the simple fact that they haven’t bothered to consider that there is a third choice. That perhaps, Bitcoin is a form of value completely unique in the human experience, and has no traditional category.

To gain a true understanding of Bitcoins, we need to delve into the 6 defining factors of money. Durability, portability, divisibility, uniformity, scarcity, and acceptability. We need to see how these aspects stack up with Bitcoin. Once you see Bitcoins through the lens of these categories, what emerges is a very special form of value that excells and fails as money in different ways. This makes it difficult to pin down the true definition of Bitcoin.

Durability is a good example. Bitcoin appears to have high marks in this regard. Since Bitcoins are made of information, they can be traded an infinite number of times without breaking down. You could trade the same Bitcoin over and over until the sun blows up without it ever losing integrity. All you need to do is look at a rusty old coin to see this doesn’t apply to hard currency. On the other hand Bitcoins can disappear in a flash. If you send them to the wrong address you’re liable to lose them forever. Storing them offline can be treacherous as well if you’re computer crashes, something that can happen to the best of machines. The same doesn’t apply to hard currency. Traditional money is quite a bit more resilient to human folly.

How about portability? Since it’s digital you would assume that Bitcoins would be the most portable currency in history. Right now you could probably fit the entire Bitcoin blockchain on a single hard drive. That may not be the case in the future though. Part of Bitcoin’s protocol is that it needs to record every transaction that every Bitcoin has been in. As time goes on the Bitcoin blockchain is going to take up more and more computing space. Perhaps there’s a technical solution to this in the future, but time will tell.

Where Bitcoins prove to be far superior is divisibility and uniformity. It’s no contest. Bitcoins can be divided all the way into the millionth decimal. There’s probably never been a currency more divisible. Same with uniformity. Given the digital nature of Bitcoins, all units are precise. If Bitcoins were a physical item, each unit would be clones down to the atom.

As for scarcity, Bitcoin’s dual nature shows its face once again. Bitcoin has the most finite supply of any currency. The number of Bitcoins will never increase past a certain point. The fact that Bitcoins can be lost through computer crashes and missing passwords, means they will become scarcer over time. On the other hand, this wont stop anyone else from starting their own digital currency, a la Litecoin or Peercoin. Anyone can make their own digital currency with whatever limits they chose. Hopefully the marketplace will weed out inflationary currencies like Dogecoin.

Of course these other crypto-currencies run into acceptability, in which Bitcoins dominate the market. Every day more and more businesses are accepting Bitcoins, and there is already a long list of normal products and services you can buy with your coins. So Bitcoins are obviously valuable, but this is where they truly enter uncharted territory.

They are valuable without being backed by anything. While its value seems somewhat uniform across different Bitcoin websites, if you ever try buying the coins person to person, you’ll find the price can be subjective. This makes Bitcoins kind of like barter, but its amazing properties of divisibility and uniformity keep it out of that camp. So what are Bitcoins? They’re not backed by anything like gold, but they can’t be inflated like fiat.

I would argue that alas, Bitcoins are not currency, but they are definitely worth your money. When you buy Bitcoins you are not exchanging one currency for another. You’re buying a product. A product that provides a lifeboat from the government’s monopoly on money. A way to store value away from the prying eyes of authority. Who could forget that Bitcoin first gained notoriety for it’s use on the Silk Road, allowing users to buy illicit substances that the nannies and drug warriors don’t want them to have. Or how the U.S. Government effectively banned online gambling in April of 2011, only to have Bitcoin poker quickly fill the void. I have no doubt that in the future, whatever the government tries to ban us from using, Bitcoins and other digital currencies are going to allow us to access those products and services anonymously. Even if the government succeeds in banning Bitcoin, it would end with a hundred new crypto-currencies taking its place (as stated before, hopefully the market stays free and weeds out the garbage currencies).

It’s great that Bitcoin is expanding into perfectly legal services like Overstock.com. It’s awesome that now you can buy sandwiches, pizza, and beer at some locations, and it’s wonderful how many websites let you donate with Bitcoins. This legitimises Bitcoin in a big way, and covers up its vice ridden history. But never forget what truly makes Bitcoin valuable. Even if you don’t buy drugs and gamble your paycheck away, there’s no telling what peaceful activity you take for granted right now, that could be made illegal in the future. When that day comes, you can expect Bitcoin to fill the void, and give you the freedom to buy and sell as you did before.

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12 Responses to “Bitcoins Aren’t Money. They’re Even Better.”

  1. Jim DaviesNo Gravatar says:

    Nicely said, Joshua!

    Some folk feel that Bitcoin and its rivals will bring about a zero government society, whereas others (including myself, so far) think that task needs other resources and that Bitcoin will provide a useful assist but nothing more.

    Might you have a view about that?

    • Joshua KrauseNo Gravatar says:

      I’d have to agree with you. Control of the money supply is only one facet of government control (albeit an important one). I’m sure tyranny existed in the hearts of certain people long before the advent of money, and certainly before the first government decided to inflate the currency (the earliest example I can think of would be the Romans. I’d love to hear other examples in the comments). Finding an independent and decentralized currency is only one step, just as the internet provided independent and decentralized information, could be considered another big step.

      To peacefully replace the state, we need to create alternatives to everything they provide, not just money. This is easier said then done of course, as they will punish anyone that tries to step out of their monopoly, but it’s the only way. We need food grown without regulations, homes and roads built without permission, commerce conducted without being recorded, our kids taught outside of the public system, disputes settled out of court etc.

      Again, easier said then done. I know. It’s going to take a long time and Leviathan needs to be challenged on all fronts. After all, the state intrudes in our lives at all levels. Perhaps we should stop viewing money as the exhaust port on the deathstar. It alone won’t end tyranny by itself. The state is a hydra that attacks from all sides. So should we.

      • Jim DaviesNo Gravatar says:

        Glad we’re in sync on that. Bitcoin will be a big help, but IMO can’t do the job on its own. However, I think success may come sooner than your final para suggests.

        Might you agree with these two key propositions? –

        1. Government will continue for as long as anyone will work for it.

        2. Therefore to terminate government, our ONLY necessary task is to persuade everyone not to work for it.

        • Joshua KrauseNo Gravatar says:

          I would say that both of those statements are logically true, but I find it unlikely that you could convince everyone to leave government. There’s certain kinds of people that are drawn towards government such as sociopaths and unproductive members of society, who would have long careers in retail and fast food if the government didn’t exist to give them jobs. These people won’t be convinced to leave government. Government is one of the few environments that they excel in.

          They won’t leave leave until a free society creates alternatives to government that are more prosperous than a government can provide (which at the moment is hard to compete with when they can use our tax dollars to give their employees wages and benefits that are far superior to what the market can provide). At the same time though, this stubborn retention may not matter.

          I would argue that most people working for the government, are not losers and sociopaths. There are plenty of people in government, who would succeed in the free market, if their beliefs and ideologies hadn’t led them to state employment. If anything there maybe some very talented people who are stifled by work in bureaucracy, but too afraid to leave the benefits it provides.

          If these people can be convinced to jump ship, then all that will be left are the sociopaths, the unproductive, and the unimaginative losers who would never amount to anything without government. Somehow I don’t think the government would be much of a threat if that’s all they had left. Even criminals need to be creative and imaginative. Perhaps that’s one of the few things propping up the government system. They happen to have just enough smart and talented people to keep from disintegrating.

  2. VanmindNo Gravatar says:

    Checking premises, I find that there is no such thing as a “form of value.”

    Plato tried to associate subjective concepts, such as beauty or virtue, with so-called objective exemplars. Such a notion is misguided — hell, the very assertion that there exists a realm of “pure ideas” from which people gain a “rational” perception of reality merely begs the question: what is The Word, what is the aleph-like idea from which all other ideas become possible, what is the fountainhead of consciousness? Is it the “rational realm of forms?” Hardly, one might bow down with just as much credibility and pray to Pallas Athena or something (forms as gods).

    Yeah, I know: “There is much more to it than that.” Sounds like bitcoin, yawn. No, wait! I get it now! Bitcoin is the special purity of value (form of value) that only philosopher kings have adequate wisdom to appreciate. Ha.

  3. Martin BrockNo Gravatar says:

    Thanks for a very enlightened article. Bitcoin is not the last, best hope for humanity, and it’s not a devilish scheme either. It’s not quite money in the conventional sense, but it has many useful similarities. Spot on.

    Maybe the conventional sense of “money” will change as more people adopt Bitcoin as a store of value and medium of indirect exchange, but I remain skeptical of this outcome ultimately. Bitcoin has flaws as money, but that’s hardly a damning indictment of the system. !Everything! that human beings devise has flaws. Central authority fails largely because it will not tolerate less central authority challenging its delusion of infallibility. Don’t anarchists understand this fact better than most?

    Bitcoin’s extremely inelastic supply is a vice rather than a virtue. Money needs a stable value relative to common goods, and given the laws of supply and demand, anything with highly variable demand and inelastic supply does not have a stable value. Bitcoin is subject to speculative feedbacks amplifying its instability, but either a refinement of Bitcoin or a competing crypto-currency can and eventually will address this problem. No central authority needs to address it. The market will address it as long as we’re free to prefer a more stable alternative.

    Overstock.com does not accept Bitcoin as much as it employs a broker to encourage Bitcoin holders to exchange Bitcoin for Overstock’s reserve currency, which is still the dollar, before spending the dollars at Overstock. This distinction may seem insignificant to a Bitcoin holder buying stuff at Overstock, but it’s very significant to a competing currency. Overstock can “accept” the competing currency this way just as easily.

    Amazon already accepts many different national currencies in the same way that Overstock accepts Bitcoin, i.e. Amazon employs a service to exchange other currencies for its principle reserve currency (or currencies). You can spend Romanian Leus at Amazon, but Amazon doesn’t actually use the Leu as money itself, i.e. it doesn’t hold Leus that a Romanian spends until it finds something that another Romanian is selling for Leus.

    This increasing ease of currency conversion and competition is just as important as (if not more important than) the appearance of Bitcoin to the cause of divorcing money from state power, but competition doesn’t only make it easier for Bitcoin to challenge fiat monies. It also makes it easier for other crypto-currencies to challenge Bitcoin, and that’s a good thing.

  4. So, I remain extremely skeptical of Bitcoin. More than one erudite believes Leviathan’s heavy hand is all over it. I recently listened to another of several podcasts where Bitcoin was front and center. Of the 50 or so podcasts I pull every day, none is more highly regarded to me than Ernie’s Hancock’s Declare Your Independence Radio Show.

    http://www.freedomsphoenix.com/Program-Page.htm?No=0001

    A recent show and a recent guest spent a considerable amount of time drilling deep into Bitcoin’s roots and possible GovCo connections.

    Said guest was Sean Daley of SilentVault, the podcast is extremely long, about three and a half hours, and Ernie’s lengthy discussion with Sean Daley is, perhaps, the final hour and a half of the show found here:

    http://www.freedomsphoenix.com/Media/154460-2014-04-25-04-25-14-j oel-ho-marcus-west-sean-daley-90min.htm

    Look at the subtitle of this interview, “Bitcoin New Info You Need.”

    Both Ernie and Sean recently attended the Bitcoin Conference in NY a few weeks ago.

    http://www.mediabistro.com/insidebitcoins/new-york/

    Bitcoin is not, yet, the answer. Bitcoin will probably go the way of AOL. MaidSafe and SafeCoin, right now, are our next best hope.

    http://maidsafe.net/

    http://www.safecoin.io/

    In closing, Joshua, your dismount was a bit disappointing. Please remember, vice is not a crime.

    All the best.
    Bill Bochynski

    • VanmindNo Gravatar says:

      Thanks, avatar, for the link to the podcast.

      • VanmindNo Gravatar says:

        Man, I should have known better than to give that idiot another try.

        Warning: it’s nothing but a filthy infomercial.

    • Hi, Bill. There is new information about SilentVault this week. We launched our service. If you’d like a copy of our press release and other information, please let me know. We believe SilentVault can enhance bitcoin and litecoin for users by silencing the blockchain. If you have any questions, I’m available to help with answers.

  5. Joshua KrauseNo Gravatar says:

    I hope I didn’t imply that I consider vice a crime, as that wasn’t my intention. I recall attacking the “drug warriors and nannies” and praising bitcoin’s ability to maintain online gambling despite the government intrusion. Perhaps I failed to express that.

    As for the accusations that there are government connections to bitcoin, I remain open minded. The true origins of bitcoin are unknown and it is a possibility we need to remain vigilant of. For now I feel confident that bitcoin is a positive technology, but I am cognizant and open to other possibilities. Thank you for the link, I’ll check it out later this week when I have time.