Bitcoin Skepticism and Bitcoin Fever

April 12th, 2013   Submitted by Roman Skaskiw

BitCrashSkepticism of Bitcoin usually begins, quite reasonably, by citing its lack of intrinsic value. In this regard, it compares unfavorably to gold, as discussed recently by Patrik Korda on

The second reason for recent Bitcoin skepticism is its meteoric (some would say bubble-like rise), which indeed experienced a sharp correction the day after Parik’s article. Time will surely tell, but for the impatient, the philosophers and the gamblers, I offer these reasons for measured optimism in everything but the very-long term.

Good Money

Gresham’s Law is often misstated simply as “bad money pushes out good.” What’s left out is that this only happens when people are forced to accept bad and good money at a comparable exchange rate. When people are not (or CANNOT) be forced to accept a nonsensical exchange rate then quite the opposite happens – good money pushes out bad.

Gold unquestioningly has superior intrinsic value to Bitcoin,which have none aside from their value as a medium of exchange and wealth delivery.

The other characteristics of good money are:

  • Acceptability
  • Durability
  • Portability
  • Scarcity
  • Divisibility
  • Cognizability
  • Malleability
  • Uniformity

Bitcoin seems to win on all or almost all of these characteristics.

Acceptability – While the gold market is significantly bigger than the current Bitcoin market, it is a market for relatively privileged people, relegated to wealth preservation, and it requires intermediary brokers. The sale of consumer goods already happens in Bitcoin, and the huge e-commerce sector seems primed for a very low-cost transition to Bitcoin. It would save them considerable transaction costs, namely the percentage of each transaction paid to credit card companies or Paypal.

 Durability – The advantage seems to lie with Bitcoin which is immune to physical harm.

Portability – Clearly, this is Bitcoin’s biggest advantage. Anyone can send fifty cents worth of Bitcoin to an Asian online casino almost instantly with zero transaction cost. The rules for the transport of gold across international borders are vague and varied. The cost of wire transfers make such a small transaction unlikely.

Scarcity – Though it is still early to call Bitcoin non-counterfeitable, the advantage seems to lie with them. Also, there are no Bitcoin rich meteors floating through space.

Divisibility – Though technically gold may be divisible into smaller units (a very technical question) the cost of performing such a division, plus the transaction cost of verifying such a minuscule payment of gold gives the advantage to Bitcoin.

Cognizability – Again, it is still early in the life of this new technology, but the advantage seems to belong to Bitcoin. Gold does get counterfeited, whether explicitly through debasement or through the sale of paper certificates for non-existent gold.

Malleability & Uniformity – These aren’t even issues with Bitcoin, whereas the verification of uniformity places a heavy transaction cost on all deals involving gold.

Curiously, state barriers to the emergence and use of rival currencies accentuate Bitcoin’s advantage. Customs laws which are too slow and stupid for Bitcoin only ensnare gold. The gold market is fraught with regulations. Mints have been raided. Owners, like Bernard von NotHaus have been convicted of counterfeit, even though Liberty Dollars looked nothing like Federal Reserve notes. By many accounts, the price of gold is actively suppressed by the orchestrated sale of gold which doesn’t actually exist.

All this gives Bitcoin an edge in today’s world. However, it may very well be that Bitcoin carries the seed of its own demise. If they do elude the fiat system and help speed its withering away, many barriers to gold will wither away with it.

Bitcoin is a jailbreak

Not only are the advantages of Bitcoin over gold accentuated by the restrictions which entrench the world’s fiat systems, it is likely that Bitcoin’s emergence is a reaction to those restrictions.

It is hard to imagine their development in a completely free market where successful banking is based on service and competition instead of the political privilege which licenses select institutions to counterfeit, where regulatory burdens would be very low and tending toward increased efficiency, where, rather than restricting the flow of commerce across borders, major institutions would be dedicated to enabling it, where we could instantly transfer fractions of a commodity money to anyone in the world.

In such a free market, there would simply be no need for a crypto-currency without a commodity backing.

So what is Bitcoin’s value? It is a means of escaping the enforcement of the world’s currency monopolies, a jailbreak. It is a service, like Western Union, only cheaper, easier and faster. Bitcoin is a vehicle. Bitcoin HAS an intrinsic value as a wealth delivery service with the peculiar feature that wealth needs to transform into Bitcoin before it can be exchanged.

In an environment of extreme Bitcoin skepticism, a transaction would look as follows: wealth transforms into Bitcoin, zips instantly to anyone in the world (or beyond, so long as they have internet access), and then transforms out of Bitcoin.

People would be willing to thus transform their wealth so long as they are saving money, time or convenience over rival money transfer systems like conventional bank-wires, credit card purchases, or Western Union.

In the skeptical environment, the amount of wealth people leave in the form of Bitcoin would reflect the fees associated with changing wealth into and out of Bitcoin (for example, the fees charged by or

I think this kernel of value as a wealth delivery vehicle in our fiat world is sufficient for Bitcoin to survive. The modicum of value establishes enough confidence that when people need a quick, easy store of value they will turn to Bitcoin. It will be readily available every time a fiat system enters into its death throes, and it will be a commodity available for speculation.

The Bubble

Just because the value of something goes up, doesn’t mean it will crash down to nothing. It’s telling that the video linked in Patrik Korda’s essay discusses the possibility of a Bitcoin bubble at a time when they were $18 each. Cellular technology saw a meteoric rise. E-commerce, despite also being fueled by an artificial liquidity bubble, also had a dramatic rise. It was a bubble, but it wasn’t just a bubble.

Companies who raised millions of dollars to sell dog food over the internet went bust. Companies that effectively indexed and made searchable the greatest catalog of human knowledge ever did not. They thrived.

Coincidentally, I opened a bank account just a day after gifting to a friend his first fraction of a bitcoin. He didn’t have to leave his home to open an account. It took seconds. The only delay was downloading the blockchain, but that happens with no effort on his part besides patience.

By contrast, I had to make two trips to the bank because the first time I forgot to bring a proof of address. I rode buses. I signed my name at least a half-dozen times. I showed a photo ID. I had to dress myself before beginning the trip.

Returning from the light-speed world of Bitcoin finance to standard banking is like giving up email and writing letters to people and putting them in boxes for pick-up the following morning. It’s like wanting to call someone and instead of reaching into your pocket, going somewhere and standing next to a rotary telephone on the wall and listening to it ring and ring while you measure the opportunity cost of making another trip a half hour later.

Once you’ve seen the smart way of doing something, it’s hard to stop noticing the inefficiency of the past mechanisms. There’s also the unlikelihood of paying a $35 wire fee because you want to place a fifty cent bet in an online Asian casino. There’s also the huge potential for all e-commerce to lower their transaction costs.

As a final bit of skepticism, the essay called into question the anonymity of Bitcoin. Maybe it’s true, maybe it’s not, but the world is a checkerboard of jurisdictions and there do exist government in the world which do not care whether their citizens fling these obscure bundles of electrons back and forth. And even within the control-obsessed jurisdictions of the US and EU, people can almost instantly create as many accounts as they want.

Even if they were 100% traceable, so what? The wind is likewise traceable, but tracing it and stopping it are two very different matters.


Daily Anarchist readers will likely agree firstly that their needs to be competition, and secondly that the market is the best mechanism for selecting a medium of exchange. Bitcoin has many advantages over gold and one considerable disadvantage: the lack of obvious intrinsic value. Its value lies in its utility as a wealth-transfer vehicle.

Not only do the attempts of states to entrench their monopolistic fiat systems accentuate Bitcoin’s advantages over gold, they are likely the reason for the emergence of Bitcoins in the first place.

Barring any technological sabotage (so far, the system seems resilient), the greatest threat to Bitcoin will come after commodity money is re-established and after (God willing) capitalism returns to the banking industry.

Once financial entrepreneurs offer the service of safe, secure, perhaps anonymous, low cost, high speed, anywhere-in-the-world wealth transfers in a form that has commodity backing, I’ll sell every last one of my Bitcoins. Until then, I’m hanging on and trying to enjoy the roller-coaster.

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90 Responses to “Bitcoin Skepticism and Bitcoin Fever”

  1. Seth KingNo Gravatar says:

    As an adherent to the Subjective Value of Everything Theory I take issue with value being intrinsic. I believe the Austrian School of Economics teaches us that value is imputed.

    But aside from that I pondered quite some time ago what would happen to Bitcoin in the absence of the state. Without the state, would Bitcoin wither away and be replaced by precious metals again? I concluded that the answer is a resounding NO.

    It all comes down to the question of trust. The fact remains that if I want to send gold or silver, regardless of amount, to somebody across the world I simply am not going to ship it in a box or envelope. That is horribly inefficient.

    Furthermore, if I rely on a banking institution to keep the accounting for me, what am I doing? I’m essentially handing the trust of the ledger over to a small, secret group of people. But then we’re right back to where we were over 100 years ago with wildcat banking and fractional reserves.

    With Bitcoin the ledger is public, transparent, and available to every user. Instead of putting trust into men or powerful institutions, you’re putting your faith in the laws of mathematics.

    Ultimately, the state is just a criminal organization. And since there will always be criminal organizations, there will always be threats. I believe we’re going to see that the most resilient currency to these never ending threats is Bitcoin. Therefore, until something better comes along, Bitcoin is here to stay even after the fall of the state.

  2. MAMNo Gravatar says:

    Blah blah blah blah “Intrinsic value” blah blah blah. Sorry I’m not trying to be an ass, but NOTHING has intrinsic value. The entire premise of the “faults” of Bitcoin have no merit, as the principle the criticism was founded on is wrong.

    Furthermore using Bitcoin for online transactions makes way more sense than wire transfers. I don’t trust banks, I don’t use banks. After the fall of the State the ease of use for an electronic currency on the internet is going to give Bitcoin an advantage over Gold.

    For face to face transactions I’ll use silver and gold. But if I’m trading with someone around the world I’m going to use Bitcoin. I hate the idea of having a slip of paper saying I own some gold or silver, and not having access to the physical object. With Bitcoin I can make a hundred copies of the code, and only use it once.

  3. Seth, MAM,

    The point about intrinsic value is well taken.

    I was writing from what is perhaps a careless, imprecise perspective, namely that “Intrinsic value, when contrasted with subjective value means one thing. When contrasted with fiat value, it means something else.”

    Discussion here:

    There was probably a better way to put it, but if you’ll allow for my imprecise use of ‘intrinsic,’ my argument stands.

    • Martin BrockNo Gravatar says:

      In numismatics, coins have three widely cited values, their face value, their intrinsic value and their market value.

      The “intrinsic value” of a coin is simply the value of its constituent metals, so a one ounce, gold Krugerrand minted this year has the same intrinsic value as a 1933 Saint-Gaudens Gold Double Eagle, roughly $1500 at the moment.

      The face value of a Double Eagle is $20, but because it’s a rare collectible, its market value is millions of dollars. A Krugerrand has no face value in dollars, because it’s not a U.S. coin.

      “Intrinsic value” essentially also means “market value as something other than money or a collectible”.

      Bitcoins have no intrinsic value in this sense. This fact seems relevant to me but not because something with no intrinsic value in this sense cannot be a viable unit of exchange with a stable exchange value in the long term.

      The problem with Bitcoin is that it has no intrinsic value and also has an inelastic supply. The combination of these two characteristics is the problem, not either characteristic in isolation.

      If the supply of Bitcoins were more elastic (responding to the demand for money), it could have a stable market value despite having no intrinsic value.

      If Bitcoins had an intrinsic value, they could have a stable value as money if they weren’t the only thing used as money. If demand for Bitcoins (either as money or for other purposes) rises too much in this scenario, people can switch to an alternative medium of exchange.

      Because Bitcoins have no intrinsic value and the supply is inelastic, I expect bubbles, and I expect bubbles eventually to discourage its use as money, and since it has no other use, I expect its value ultimately to fall to zero.

      Imagine another, similar medium of exchange with an elastic supply, say Ecoins. Ecoins have a stable exchange value, because when people want more Ecoins to mediate their exchanges, the supply of Ecoins rises commensurately. When people want less exchange mediated by money, the supply of Ecoins falls.

      If digital coins with this property exist, Bitcoins must compete with these coins for use as money. Why would people use more volatile Bitcoins as money instead? If people don’t use Bitcoins as money instead, they have no use for Bitcoins at all, unless Bitcoins become collectibles which seems unlikely.

      • FreeRadicalNo Gravatar says:

        It’s easy to imagine another similar medium of exchange with an elastic supply. There are many. For example, a Paypal account is a digital value pegged to the dollar (or other currency). How about credit cards and bank accounts?

        (So long as your ecoins are pegged to the dollar that’s what they amount to, even if the exchange rate isn’t 1-1.)

        Bitcoins do compete with these media for use as money, and people do use Bitcoins as money for a variety of reasons. Here’s some I cribbed from a quick Google search:

        – No central authority tellng you what you can and can’t do with your money
        – Available in any country
        – Your account can never by seized, skimmed, or closed
        – No monthly or annual fees
        – No minimum or maximum transfer amounts
        – Deposits available in minutes
        – Unlimited access to your funds 24/7

        And for the win…

        The State can’t rob you by inflating the Bitcoin currency or taxing your transactions.

        • Martin BrockNo Gravatar says:

          I don’t imagine a currency pegged to the dollar. I imagine a currency with a stable value because the supply is elastic with respect to demand for money. A currency pegged to the dollar has a stable value only if the dollar has a stable value.

          People use Bitcoin for a variety of purposes, but speculation on an increasing value in dollars and other fiat currencies seems to dominate the trade. If people exchange dollars for Bitcoin primarily to hold Bitcoin in anticipation of a higher price in dollars, then Bitcoin is not a medium of exchange, and its value will not stabilize and will ultimately fall.

          • Seth KingNo Gravatar says:

            Martin, there are many ways to wrap your head around Bitcoin. Right now you’re failing to grasp it as a currency. So, maybe it will help to think of it like a stock. Imagine Google way back when nobody had heard of it. People invest in it early in the belief that it will be worth a lot more in the future. And maybe even people trade the stock for goods and services outside of the Nasdaq.

            That’s kinda like Bitcoin.

            But instead of it being a publicly traded company, it’s a piece of open source software.

            • Martin BrockNo Gravatar says:

              My grasp of Bitcoin is not the issue. How people are actually using Bitcoin is the issue. If people use it like a collectible, then they aren’t using it as money.

              How many Bitcoin transactions involve people exchanging dollars for Bitcoins only later to exchange the Bitcoins for dollars again, expecting the dollar price of a Bitcoin to rise? This quantity is measurable. If a large proportion of Bitcoin transactions occur this way, then Bitcoin is not money primarily. It’s a collectible, and it’s a collectible without intrinsic value.

              Collectible coins do not behave like money with a stable value (in which an index of common goods has a stable, average price). If they did, we wouldn’t need to distinguish their face value from their intrinsic value and market value.

              If people primarily exchange goods for Bitcoins and soon thereafter exchange the Bitcoins for different goods, then Bitcoin is being used as money. Using a good as money implies holding it only for short periods. Insofar as Bitcoin is primarily held speculatively (hoarded), then the resulting bubbles only discourage its use as money.

              If I want to exchange my corn for your milk using money as a medium of indirect exchange, I want to know that the price of my milk and your corn in the medium of exchange won’t change radically in a short time, but I clearly can’t make this assumption about Bitcoin prices now.

              Eventually, the Bitcoin bubbles must cease, or people won’t trust it as a medium of exchange, and people have options. Maybe may people continue to collect Bitcoins speculatively indefinitely, but Bitcoin never becomes common money in this scenario.

          • FreeRadicalNo Gravatar says:

            Alright, what’s tripping me up then is your concept of a “stable value”. A stable value compared to what?

            And how would elasticity of the currency with respect to the demand for money keep that value stable? (What is the feedback mechanism? How is the demand for money defined?)

            Do you have an example of something like this from the real world? You’ve mentioned that there are “less bubbly alternatives” that aren’t fiat money – like what, for instance?

            (I’m not trying to be argumentative, but clearly I’m on the wrong track in trying to understand you.)

            • Thanks for the comments, Martin. I’m not sure I follow your argument about why bitcoin’s inelastic supply is a problem. But regarding their lack of “intrinsic” (ie. not fiat) value — I think this common concern represents a misunderstanding.

              People keep looking for a commodity, but Bitcoins “intrinsic” value is not a commodity, it’s a service. The service is transport of wealth. Just like I’m willing to buy a bank transfer for twenty bucks, or a Paypal transfer for 1.5%, I’m willing to buy bitcoins in proportion to the amount of wealth I want to transfer. Bitcoins are backed by a service.

              (elaboration here:

              This kernel of value gives them additional value as a medium of exchange, and as a market for speculation, and as a store of value (especially as the fiat system enters its death throes).

              Because it’s backing is a service, you can imagine that in a bitcoin-skeptical world, their value would reflect the cost of rival services (credit cards, paypal, bank wire transfers) and the cost of moving wealth into and out of bitcoins from other forms.

              If capitalism ever returns to the world of finance, there will be very low cost providers of wealth-transport services, which is why in that environment the value of bitcoins would drop.

              But so long as barriers exist, the coins will be very valuable. They will usher in a future which will sow the seeds of their demise.

              • Martin BrockNo Gravatar says:

                “Intrinsic value” does not refer to fiat value. Basically, it refers to the value of using the monetary good as something other than money. Again, in numismatics, the “intrinsic value” of a gold coin is the market value of the gold in the coin regardless of the coin’s face value or its market value. The face value (of fiat money) is the fiat value. The market value reflects the use of gold as a particular coin rather than some other use of the same gold.

                I understand that a medium of exchange need not have an intrinsic value to serve as money. Hayek makes this point well enough. The problem with Bitcoin is not only that it has no intrinsic value. It also has an inelastic supply.

                Because Bitcoin has no intrinsic value and also has an inelastic supply, people using it as money create a speculative opportunity. People accumulating Bitcoins to speculate eventually overwhelm people using Bitcoins as money. Bubbles result, and bubbles discourage people from using Bitcoins as money, but when people cease using Bitcoins as money, Bitcoins cease to have any utility, so the speculative game also collapses.

                This problem occurs only because the speculative opportunity exists, only because people can expect rapid Bitcoin deflation as long as the use of Bitcoin as money increases rapidly. The problem is not merely theoretical at this point. We’ve seen multiple Bitcoin bubbles inflate and then rapidly deflate, and we can’t blame this phenomenon on central bankers.

            • Martin BrockNo Gravatar says:

              By “stable value”, I mean that the average price of a collection of common goods changes little (or very slowly), i.e. something like the consumer price index measures neither rapid inflation nor rapid deflation.

              Demand for money is the number of indirect exchanges (in which a person exchanges a good for money and then exchanges the money for another good) per unit of time.

              If I exchange a good for Bitcoins but don’t then exchange the Bitcoins for other, different goods, instead holding the Bitcoins expecting to exchange them for more of the same good later, then I’m not using Bitcoin as money. I’m betting on growing scarcity of Bitcoins relative to the good.

              Betting on changing relative scarcity this way is not using a good as money. You can buy and sell anything this way, and we don’t say that goods generally are money.

              If demand for money rises (because people want more indirect exchanges today than yesterday) with a commensurate increase in the supply of money, then the law of demand says that the price of money rises, and a rising price of money is deflation by definition. If demand for money falls relative to the supply of money, inflation results.

              If the supply of a medium of exchange rises with demand for money, then the law of demand can stabilize prices.

              My favorite alternative to Bitcoin is something like Proudhon’s labor credit bank. Money in this system is a promise to perform common labor. When I buy something from you, I give you a promissory note. This note might entitle you to an hour of common labor, but the note does not require me to perform the labor. It only requires me to supply the labor on your demand. I might have someone else perform the labor for you on my behalf, someone who owes common labor to me.

              Common labor is similar to labor fetching the minimum wage in a statist economy with a minimum wage, but we can discuss a more precise definition. A unit of this money is not a minimum wage for an hour of labor, much less a fixed wage for all labor. People misunderstood Proudhon this way, but he was never proposing such a thing.

              • Martin BrockNo Gravatar says:

                Correction: If demand for money rises (because people want more indirect exchanges today than yesterday) !without! a commensurate increase in the supply of money, then the law of demand says that the price of money rises …

              • FreeRadicalNo Gravatar says:

                Okay Martin, I see where you’re coming from now. Very well reasoned.

                My analysis isn’t very far from yours, although I am more cautiously optimistic.

                Here’s how I see things —

                Currently there are two or three forces driving the price of Bitcoins. The first is the demand for an alternative currency – one that isn’t only non-fiat, but is beyond State regulation (along with whatever other advantages Bitcoin might have over other currencies). The second is speculation in the market – people trading in the hopes that the value of Bitcoin will rise in the future. A third possible use is as a hedge against the inflation of other currencies – banking crises and hyperinflation of currencies could dramatically increase the demand for Bitcoin.

                Bitcoin exists as a means of exchange and this is the basis of it’s value. As Bitcoin is further adopted as a means of exchange, the value of Bitcoin will rise because of the increased demand. The more people who use Bitcoin, the more it will be worth. As long as there is an increase in trade via Bitcoin the value of Bitcoin will rise.

                This upward trend in the value of Bitcoin invites speculation, which further drives up the value of Bitcoin. The acceleration in value caused by the speculation invites even more speculation as people see the value go up and “get in the game”.

                For me this is a mixed bag.

                From a marketing perspective the speculation increases the visibility of Bitcoin and encourages people to accept Bitcoin as payment. As more people accept Bitcoin as payment, more people will learn of it and use it as currency. Speculation can help drive adoption as currency. In fact speculation must be a key factor in getting the currency off the ground – after all, initial purchases of Bitcoin were entirely speculative.

                On the other hand this sets up the potential for bubbles. If the bubbles are too severe and/or frequent, then people will stop using Bitcoin as a means of exchange because they won’t perceive it as a reliable store of value. As people stop using Bitcoin as a means of exchange the value drops, which leads speculators to sell off their stakes. Bitcoin could be completely devalued. (And enemies of Bitcoin, like the current banking system, might actively work to destabilize Bitcoin in this way.)

                It’s a possible scenario.

                The other possibility is that the demand for Bitcoin as money grows at a sufficient rate to absorb any speculator sell-offs, or at least mitigate their effects to the degree that the market doesn’t spiral out of control. A sufficiently steady increase in demand would also encourage speculators to stay in Bitcoin longer term and avoid selling into falling markets. If the demand for Bitcoin as money continues to grow, then speculation fueled crashes become less and less likely until they are a virtual impossibility. (Once the market valuation is commensurate with it’s demand as money.)

                If Bitcoin survives long enough then it’s inelasticity might prove to be it’s greatest gift because it’s value will continue to rise so long as the economy grows – thus encouraging savings, capital investment, and further wealth creation.

                So what’s the chances of one scenario happening versus the other? I honestly have no idea, except that the longer demand for Bitcoin as money increases the more likely Bitcoin will continue to exist. That said, the second scenario is far from impossible – demand for Bitcoin as currency could drive the value *well* above what it is now.

                Here’s how the numbers shake out…

                There are roughly 11,000,000 Bitcoins in existence. Bitcoins are devisible down to 0.000,000,01BTC – or 1 Satoshi. That means that there are about 1.1 quadrillion Satoshi in existence right now (with approximately 2.1 quadrillion Satoshi ever coming into existence).

                Meanwhile, according to the Fed, the M2 money supply is around 10,446.4 billion USD – or 1.04 quadrillion cents.

                In terms of money supply, there are about as many Satoshi as there are cents in the M2 supply (weird, am I right?). When the mining is done there will be about two Satoshi to every penny in the current M2 supply. The M2 supply only represents a fraction of the world’s currency, so it is entirely conceivable that 1 Satoshi could one day be worth 1/2 cent – there is more than enough demand for currency in the world to support such a valuation.

                If 1 Satoshi were worth 1/2 cent then 1BT would be worth $500,000. Right now it’s at about $105 on mtgox.

                There’s a long way to grow from here.

                • Seth KingNo Gravatar says:

                  Very well said FreeRadical. Furthermore, the protocol could be modified in the future to make each bitcoin more divisible than it currently is. In other words, there will never be a shortage of currency units.

              • FreeRadicalNo Gravatar says:

                Will have to look into Proudhorn’s concept, but I have to admit I’m a little skeptical of labor-backed currencies. What happens, for instance, if the issuer dies? I’m open to learning more though – what would be the best source to look into?

                • Martin BrockNo Gravatar says:

                  I’ve never found many details of Proudhon’s labor credit bank, but if you want a more specific description of the idea, browse The site is not active, but I may launch a variation on it someday. I also try to explain why the standard of value (labor or silver or something else) is not as important as it might seem.

                  When someone dies, his promise of labor becomes worthless, but life insurance can address this issue. Also, you wouldn’t hold a particular note promising labor for very long. You’d spend it or exchange it for a different note promising labor.

                  If I issue a note promising my labor, the note finds its way back to me, i.e. someone eventually uses it to buy something from me (not necessarily my labor). When someone uses my note to buy something from me, the monetary unit ceases to exist. In this way, every individual is both a source of money and a sink.

                  There is no central source/sink like a central bank, but individuals can pool their creditworthiness (coinsure each other against default risk). A group of individuals (a company) could issue notes promising the labor of any member of the group. These groups would be free associations, of course, like life insurance pools.

                  If I don’t redeem my notes for my labor or other valuable goods, then I am defaulting on them, and people cease accepting them. If I belong to a group sharing default risk, the group accepts the loss and possibly expels me. Someone must accept risk in a free market.

  4. SebastianNo Gravatar says:

    Bitcoin is fungible, divisible, durable and immediately transferable. These properties contribute to its valuation by individuals.

  5. FreeRadicalNo Gravatar says:

    The talk of bitcoin bubble does seem to have some merit, but so what? Tulip mania didn’t invalidate the tulip market (although it is always best to time your entry and exit as well as you can).

    I do believe that there is a long term flaw in the design of Bitcoin. After a pre-set period of time no new Bitcoin can be mined – thus removing the insentive to perform the mathematical work that keeps Bitcoin secure. The only insentives then become control of the Bitcoin systemor altruism. I don’t trust that altruism will out in that case.

    Luckily the code is open source, so it’s easy enough to create an alternate currency without this flaw.

    • MAMNo Gravatar says:

      Eventually you won’t be able to mine Gold and Silver either.

      • FreeRadicalNo Gravatar says:

        True, but the security of your gold or silver isn’t dependent on continued mining operations. The security of Bitcoin is. If no one is ‘mining’ Bitcoins then there is no way to verify transactions. If one entity is doing the majority of mining then they can fake transactions and steal bitcoins. It’s a real issue.

    • ShawnNo Gravatar says:

      I don’t think that’s really that much of a flaw. The bottom line is, the encryption work needs to happen in order to send BitCoins; the difference will be, once all 21 million have been “minted,” the “built-in reward” of possibly generating more coins will go away, so transaction fees will take over as the incentive. Given that mining technology (like ASIC miners) are going to continue to drive down the cost of mining (that is, doing the mathematical work needed to send the coins) I’m sure a number of individuals will continue the work in trade for transaction fees. Most will undoubtedly drop out, simply increasing the income for the few remaining. All of this assumes, of course, that BitCoins continue to be highly valued at that time, which is estimated to be around 2040.

      • FreeRadicalNo Gravatar says:

        Ah, my bad. I was ignorant of the transaction fee system, which nicely solves the problem by effectively creating a bid system for transactions.

        Thanks Shawn.

    • BrodieNo Gravatar says:

      People who have a lot of their value stored in Bitcoins will have a built in incentive to not let the value of Bitcoin plummet by simply not maintaining the blockchain. So I don’t see that as a valid concern.

  6. n13tzsch3No Gravatar says:

    This is the best article I’ve read on Bitcoin this week.

    It separated itself from the speculation aspect, and looked at it objectively as a currency.

    More people need to do this and understand BTC’s context in the market.

    > So what is Bitcoin’s value? It is a means of escaping the enforcement of the world’s currency monopolies, a jailbreak. It is a service, like Western Union, only cheaper, easier and faster. Bitcoin is a vehicle

    Plus the benefits of cryptography (anonymity), current banking system are inherently insecure, speed of transactions, speed of opening a bank (wallet), adherence to “good money”, etc.

    Bitcoins or more importantly crypto-currencies are *not* going away.

    This is just the offspring going through it’s awkward development stages.

  7. ShawnNo Gravatar says:

    Regarding the bubble aspect, yes, I’m quite sure BitCoins were experiencing a bubble the past week or so – indeed, that bubble appears to have burst as they have dropped to $74 USD from their high of $266 just two days ago. The fact is, I expect BitCoins to go through a number of boom/bust cycles over the years. If/when all (or nearly all, anyway) of the coins are minted, assuming there is a fairly widespread adoption of them as currency, these major fluctuations should smooth out considerably. Right now, you have a relatively small number of actual BitCoin users and a relatively large number of BitCoin speculators – once that’s reversed, there should be some true stability.

    • Martin BrockNo Gravatar says:

      The question is: why Bitcoin and not some less bubbly alternative? Bitcoin is not a fiat currency. No state collects taxes in it. No state threatens to shoot me if I don’t use it as money, so I may use an alternative instead, and less bubbly alternatives exist, including alternatives that are not fiat money either. That’s the problem with Bitcoin.

      • Seth KingNo Gravatar says:

        It’s only bubbly because it’s brand-spanking-new. Rome wasn’t built in a day.

        • Martin BrockNo Gravatar says:

          When does it cease being bubbly? What anchors the exchange value of Bitcoin for other goods at some stable value?

          The answer to this question cannot be the intrinsic value of Bitcoins, because Bitcoins have no intrinsic value, i.e. they have no non-monetary use (as gold can be used to make jewelry or integrated circuits).

          The answer cannot be an equilibrium between the supply of Bitcoins and demand for money (the volume of indirect exchanges that people want to make over a unit of time), because this equilibrium is nowhere in sight.

          To be used as money with anything like the frequency of dollars, the price of Bitcoin in dollars must rise many orders of magnitude from its current value, so since Bitcoin competes with dollars as money, bubbly Bitcoin prices seem inevitable for the indefinite future, and Bitcoin never becomes common money in this scenario.

          I fully endorse the idea of stateless money. I just don’t believe that Bitcoin is the right approach.

          • Seth KingNo Gravatar says:

            You seem to be closing your eyes and ears to the fact that Bitcoin users ARE using it as money. I don’t know where you get your information from, but you seem to think the only people interested in Bitcoin are day traders and speculators.

            The people I know that are into Bitcoin are always eager to find a new business that accepts Bitcoins as payment. We know that by spending our Bitcoins we are helping to grow the network, support businesses that accept bitcoin, and help spread the message. Bitcoins are fun to spend. So, you’re dead wrong if you think that the only reason Bitcoin is rising in value is because people are buying them with no intention to spend them.

            You can theorize all day long about what you THINK Bitcoin users are like and what you THINK Bitcoin is, but you’re totally oblivious to REALITY.

            • Martin BrockNo Gravatar says:

              My eyes are wide open, and I’m not your enemy here. I don’t say and don’t believe that !only! speculators are interested in Bitcoin, but a large proportion of Bitcoin transactions are speculative, and bubbles clearly occur. The question is: what effect do these speculative bubbles have on the adoption of Bitcoin as money?

              Here’s a good article examining the preponderance of speculation vs. trade, written last week before the latest bubble burst.


              Many people want Bitcoin to succeed as a medium of exchange and use it as such. Other people are simultaneously speculating. The people who want Bitcoin to succeed as a medium of exchange and use it as such are creating the speculative opportunity.

              To be clear, I’m not suggesting that people shouldn’t speculate on Bitcoin. Any medium of exchange must survive this sort of speculation to persist in a free market, and I want a free market in money, but speculation does affect the success of a currency, and denying this reality can’t change it.

              I’m not merely theorizing. Bitcoin transactions are public, and people studying the transactions find hoarding. According the Quartz article,

              “When researchers examined the bitcoin universe last year, they found that between 55% and 73% of bitcoins, depending on how you count, were being held in dormant accounts (pdf) rather than being traded or used to buy things.”

              If the price of Bitcoin in dollars only followed a gradually increasing path as more people used Bitcoin as a medium of exchange, the deflation might be more gradual, but that’s not happening empirically, and I don’t expect it to happen.

              That the other 30% of Bitcoins are used as money is consistent with the theory. If no one uses Bitcoin as money, the speculative opportunity doesn’t exist, and speculators don’t hoard, and the supply of Bitcoin available for use as money doesn’t fall, and the price doesn’t rise more and more rapidly until a collapse occurs.

              But these events are occurring as a matter of fact. I want stateless money as much as you do, but denying reality doesn’t change it. Bitcoin is not the world’s only hope for stateless money, and we shouldn’t be telling people that it is.

  8. MAMNo Gravatar says:

    After further thought and discussion with my best friend, I have come to some more conclusions. Or should I say it broadened my perspective a little. In any case

    1. Gold has something Bitcoin doesn’t, history. Does this invalidate Bitcoin, absolutely not, it does however mean that people will more readily trust Gold, and silver.

    2. Imagine what could happen if someone set Bitcoin to a commodity? For easy example gold, then Bitcoin retains all of it’s perks while being redeemable for gold. Interesting thought eh? I wonder who came up with it before my friend, anyone know? (No if you think I’m looking for a pat on the back, I’m not, I’m genuinely curious.)

    Peace be with you all.

    • Martin BrockNo Gravatar says:

      No one can offer a fixed exchange rate between Bitcoin and gold, other than a state oblivious to the disastrous consequences. If you offered this fixed exchange rate, arbitrageurs would soon take all of your Bitcoins (and your gold).

      If you want to fix the exchange rate between gold and a unit of indirect exchange, you essentially want fractional reserve banking on the classical gold standard, and that’s not such a terrible idea, but it’s not my preference either. It raises many trust issues as you suggest.

      Modern communications technology can address many of the trust issues, but I still prefer a standard of value other than gold, because gold itself is highly hoardable and is already largely in the possession of states.

      • MAMNo Gravatar says:

        Gold can be a unit of indirect exchange. Are you saying that only fiat can be a medium of exchange? If you are I got to say you’re pretty oblivious.

        I mean carrots can be used as a medium of indirect exchange, it all depends on what people value.

        • Martin BrockNo Gravatar says:

          No. I’m not saying that only fiat money can be medium of exchange, and I don’t want fiat money as a medium of exchange.

          I sometimes advocate an index of perishable, agricultural commodities as a standard of value for extending credit (like gold under a gold standard), so your carrot example seems very reasonable to me. In this sort of system, people use notes promising the index of commodities, and a weighted average of the commodity prices has a fixed value. That’s basically my second favorite, stateless monetary system.

          • Seth KingNo Gravatar says:

            Have you ever used Bitcoin at all? Even once?

            If not, at what point would you say to yourself “okay, now I think I’ll start using bitcoin?”

            • Martin BrockNo Gravatar says:

              I haven’t used Bitcoin. Why does it matter?

              I considered using Bitcoin once, to make a contribution to this site, but I discovered that the transaction costs were a substantial fraction of the contribution, so I asked if you’d accept a contribution in dollars (which is how I’m paid at this point).

              If accepts Bitcoin, and if the Bitcoin price of goods in my Amazon “shopping cart” don’t change dramatically (say more than 10%) from week to week, and if I don’t pay a substantial transaction cost (over one percent say), then I’d use Bitcoin.

              • Seth KingNo Gravatar says:

                It matters because it’s difficult to wrap your head around Bitcoin without actually using it. At least it was for me and many others.

                When you say the transaction costs were too high, you mean the cost of actually PURCHASING bitcoins, right? Because the transactions costs of Bitcoin are essentially zero.

                Okay, so Amazon accepting Bitcoin is a big one for you. That may happen sooner than you think.

                And when you say transaction costs, I have to imagine still you’re talking about purchasing Bitcoin, because again the transaction costs of sending Bitcoin is essentially zero.

                As far as purchasing Bitcoin goes, you can do so at for 1%, which meets another one of your criteria.

                Sounds like you’ll be a Bitcoin user in the not-too-distant future.

                • Martin BrockNo Gravatar says:

                  I must purchase Bitcoin with dollars to use Bitcoins in a transaction, so until I’m paid in Bitcoins, the cost of this purchase is part of the cost of a transaction. People with no ideological preference for another currency take this cost into consideration. I share your ideological preference, but most people don’t.

         is a much better option than I found the last time I looked, which involved a trip to CVS to send a moneygram, and I might buy some Bitcoins now for the fun of it, but I’m the sort of person who considers digital money fun enough to pay one percent to play with it, and I’m unusual in this regard. I’ve also spent hundreds of hours developing a digital money system.

                  I can imagine the cost of purchasing Bitcoin with dollars falling further, but the larger problem with Bitcoin is its inelastic supply and resulting instability in Bitcoin prices. The latest bubble won’t be the last. We can’t avoid this problem by pretending that it doesn’t exist, so people interested in stateless money should openly acknowledge the problem and discuss solutions.

                  • MAMNo Gravatar says:

                    Certain people have made it to where they get paid in Bitcoin.

                    • MAMNo Gravatar says:

                      Oh and I don’t think the latest bubble is do to it’s “inelastic” nature.

                    • Martin BrockNo Gravatar says:

                      How do you explain the bubbles?

                    • MAMNo Gravatar says:

                      People panicked, they bought a bunch of the currency to protect their money in Europe from the socialists there. This caused the price to go up. Then when the demand slacked off and the price began to drop they panicked some more and began to sell it which caused the price to fall some more, hence the bubble burst.

                    • Martin BrockNo Gravatar says:

                      The volume of Bitcoin trade is hardly large enough to reflect a mass exodus of Europeans from their states’ fiat money systems. The market cap of all Bitcoins is roughly a billion dollars (down from two billion a few days ago). That’s hundredths of a percent of European sovereign debt.

                      A simpler explanation is more persuasive to me. The bitcoin-dollar exchange rate (and the bitcoin-euro and other exchange rates) rises as more people use Bitcoin as money, because the system is deflationary by design.

                      The rate of deflation is significant. If I exchange dollars for bitcoin and simply hold the bitcoin for a while before exchanging my bitcoin for dollars, I do better than putting my dollars in a U.S. bank, far better in fact.

                      Once I’ve exchanged dollars for bitcoins, I have two options. I can spend my bitcoins, or I can spend dollars. I still have plenty of dollars, far more dollars than bitcoins.

                      Since bitcoins are increasing in value while dollars continually fall in value, I save the bitcoins and spend the dollars. Other people may be spending bitcoins, but I don’t, and more and more people behave like me, so while more and more people are buying bitcoins, fewer and fewer bitcoins are available for sale at past prices.

                      The price of a bitcoin in dollars thus rises faster and faster until it finally rises so rapidly that most prospective buyers believe that the trend unsustainable. At this point, the bottom falls out of the market, and a selling panic ensues.

                      The proportion of bitcoin buyers who buy only to exchange bitcoins for other goods has already dwindled at this point, but some people continue using bitcoins as a medium of exchange. For these people, using bitcoins as money is advantageous even if the coins occasionally lose half of their value in a few days, but most people will never routinely use a currency with this characteristic.

                    • MAMNo Gravatar says:

                      The difference between what I just said and what you just said is that I provided a motive and a face to the buyers.

                    • Martin BrockNo Gravatar says:

                      You provide only a hypothetical face to the buyers above. Where is your evidence that the precipitous rise in demand for a shrinking supply of bitcoins in the last few weeks came from Europeans? Why wouldn’t these Europeans buy gold instead? If they also bought gold, why did the price of gold fall during this period rather than exploding and then imploding like Bitcoin?

                    • MAMNo Gravatar says:

                      I don’t think it’s a coin-i-dink that the rise and subsequent fall of the price in Bitcoins came right after the Cyprus incident. But does it really matter all that much?

                    • Martin BrockNo Gravatar says:

                      It doesn’t matter who the hoarders are, but a crisis in some another currency or a particular state’s rents is not necessary to explain a bubble in bitcoin. The dollar value of a bitcoin doubled in the first two months of this year, before the latest news from Cyprus. The price more than doubled in March.

                      The latest saga in the European financial mess could have contributed to the more rapid rise in March, but 100% in a month is more than enough to attract even very risk averse speculators. News of quick riches in Bitcoin was already spreading before the news from Cyprus.

                      If anyone expected Cyprus to dump the Euro for Bitcoin, this irrational exuberance could have contributed to the rise, but once the bubble is inflating, people can find reasons to be irrationally exuberant in any news.

            • MachoPichuNo Gravatar says:

              We’ll all stop swapping dollars to bitcoins to dollars, when some sovereign threatens us all with violence if we use anything other than bitcoin for transactions within his/her borders.

              Perhaps volatility is the thing that will save Bitcoin, in the long run.
              If a currency is volatile, then we want to spend it quickly to obtain the goods we require. The problem with bitcoin today is that it’s being hoarded and traded, not spent, which fuels the volatility. If more merchants accepted bitcoin, then more people would be willing to spend them to avoid the volatility, which in turn would increase the velocity of bitcoin, thus ensuring a greater supply for transactions, thus helping to lower the volatility.

              • Martin BrockNo Gravatar says:

                You’re right. Hoarding contributes mightily to the volatility, and there’s little doubt about it. If the supply of Bitcoin were elastic, hoarding (or saving) Bitcoins wouldn’t be a problem, because hoarding would not constrain the supply of the medium available for use as money.

                When the market wants more indirect exchange, it should be free to create more exchange media. Market participants should not be at the mercy of people who already possess an arbitrarily limited medium and prefer to keep it off of the market.

                The problem with Bitcoin as a monetary system is that it’s modeled on a gold standard. Economists (including some classical liberals) have long understood similar problems with the gold standard (with or without fractional reserve banking). Some libertarians deny these problems, but far from proving these libertarians right, Bitcoin is proving them wrong. No one can blame a central bank for Bitcoin bubbles. They’re undeniably a market phenomenon, and they’re not hard to understand as a market phenomenon.

                Markets are experimental by nature. Expecting Bitcoin to be the last word on digital currency is like expecting McDonalds to be the last word on hamburgers. People preferring Wendy’s to McDonalds are not anti-market. People trying to protect McDonalds from competition are anti-market.

                If we aren’t willing to acknowledge problems with a particular monetary system and find solutions by exploring alternatives, we aren’t advocating an entrepreneurial, market system at all.

                • Hoarding is not a problem at all. It lowers prices enumerated in the commodity being horded for everybody else.

                  “When researchers examined the bitcoin universe last year, they found that between 55% and 73% of bitcoins, depending on how you count, were being held in dormant accounts”

                  So this is interesting but not very relevant for considering Bitcoin’s viability. All monies are used largely as a store of value in addition to being a medium of exchange.

                  • Martin BrockNo Gravatar says:

                    Hoarding creates bubbles, and bubbles are a problem for a monetary system historically. If Bitcoin bucks this historical trend, I’ll be surprised. Statutory gold standards have had similar problems, but Bitcoin’s problem is worse, because gold has other uses that constrain the price instability. It’s hard to imagine Bitcoins ever being a medium of exchange in long-term contracts.

                    Money is not a store of value for most people, not for people with much money anyway. When people say they “have their money” in stocks or bonds or real estate or gold, they’re really saying that they don’t have money at all. They aren’t using money as a store of value. They’re using stocks or bonds or real estate or gold as a store of value. If you think that money is where you store value, you don’t understand money. Money is a medium of exchange.

                    • “Hoarding creates bubbles”

                      This is simply wrong. Please go back to Hazlitt’s Economics in One Lesson and re-read the chapter 23, “The Assault on Savings.”

                      Hoarding does not create bubbles.

                      The Quartz Magazine analysis ( is very questionable.

                      “When researchers examined the bitcoin universe last year, they found that between 55% and 73% of bitcoins, depending on how you count, were being held in dormant accounts (pdf) rather than being traded or used to buy things.

                      For normal currencies, there is a concept known as “velocity of money,””

                      Firstly, it relies on the easily refuted notion of hoarding being somehow wicked. As if that wasn’t bad enough, the writer doesn’t do the obvious thing and compare the hoarding of bitcoins to the hoarding of dollars.

                      “Between 55% and 73% of bitcoins were being held in dormant account.”

                      So WHAT? They can’t be THAT dormant since bitcoins are only a few years old.

                      How many dollars are held dormant? I’m not going to try to figure it out because there are methodological difficulties comparing the velocity of dollars to the “days wasted” of bitcoins, and the answer wouldn’t be very meaningful anyway.

                      OF COURSE inflationary currencies will have a higher velocity. That’s a no brainer.

                    • Martin BrockNo Gravatar says:

                      Hoarding dollars need not reduce dollar velocity if a central bank replaces hoarded dollars. Broad measures of the U.S. money supply (which include hoarded dollars) have skyrocketed in recent years, but much of this hoarded money is coming from the central bank, so hoarding it doesn’t much affect velocity. It disappears as quickly as it appears. We can argue about what happens later, but that’s a separate issue. I’m not defending anything the Fed does. No one here is defending the fiat dollar vs. bitcoin.

                      Any wickedness of hoarding is irrelevant. Again, I absolutely defend anyone’s right to hoard bitcoins. I don’t believe this hoarding wicked in any sense, but it does lead to bubbles, and the bubbles do affect people’s willingness to use bitcoins as money.

                      Citing a chapter in Hazlitt is not persuasive when I can clearly see the spike in bitcoin days destroyed as well as the precipitous rise in the bitcoin-dollar exchange rate followed by a precipitous fall. On what grounds do you say that the analysis in the Quartz article is questionable? That bitcoins are only a few years old is irrelevant. The point is that bitcoin days destroyed increased precipitously in recent weeks.

                      I don’t need any deep theory of saving to know why people hoard bitcoins when their dollar value is rising ten percent per day without any corresponding collapse in the value of the dollar. I would be shocked if people didn’t hoard bitcoins under the circumstances. I would be shocked if people with plenty of dollars spent bitcoins rather than spending dollars under the circumstances, especially people expecting the rise to continue, people who think that $300/bitcoin a few days after $200/bitcoin is a completely reasonable expectation.

  9. AnthonyNo Gravatar says:

    Bitcoin is a new invention created to serve the market demand for a better medium of exchange. It derives a great portion of its value from governmental restrictions on voluntary exchange. As long as governments interfere with individual voluntary exchange there will be demand for inventions like bitcoin. In the event of the disappearance of governments, bitcoin (or something similar) is likely to continue as a desired medium of exchange because it makes it difficult, if not impossible, for new governments to gain control of the monetary system.

    Bitcoin: A New Commodity Created To Serve Market Demand

  10. Solid_blackNo Gravatar says:

    Bitcoin is declining because it is a fiat currency. I nearly invested in bitcoin last week and the next day, the value dropped to half of what it was the day before. The question is, what is it that a bitcoin is worth physically? Gold has an advantage because gold is a metal, not a digital entry. Still, my opinion is that the best investment is that in computers, tools, things that you will still find intrinsic use for after an economic collapse.

    • Martin BrockNo Gravatar says:

      Bitcoin is not a fiat currency in my way of thinking. A “fiat currency” circulates by force, because a state commands payment of taxes in it for example. People commonly use “fiat currency” to denote a medium of exchange with no intrinsic value, but this usage can mislead.

      I have no fundamental problem with a digital currency like Bitcoin. When I first learned of Bitcoin, I thought it a great idea, but as I learned more and pondered the likely evolution of the system, I became a skeptic. I’m also skeptical of other business models while believing that the models should have an opportunity to succeed in the market. I absolutely want Bitcoin to have this opportunity, but I don’t expect the model to succeed ultimately, because free people ultimately will prefer other models, not because states will ban or commandeer Bitcoin (which is also a possibility).

      I only believe that Bitcoin specifically, the particular algorithms involved in generating this particular digital currency, is problematic. I very much favor the idea of a decentralized, digital, monetary system affording states no opportunity to create the money in order to spend it.

      I’m skeptical of a gold standard for the same reason that I’m skeptical of Bitcoin. Gold can be one of many, competing exchange media, but it cannot be the only or even the most common exchange media, not without a state commanding its use anyway. If a state commands the use of gold, by commanding that people pay taxes in gold or notes promising gold for example, then gold is a fiat currency as surely as the current U.S. dollar is a fiat currency.

    • Solid_blackNo Gravatar says:

      Thanks for clearing that up.

  11. ShawnNo Gravatar says:

    Martin, I don’t know of a single person who is suggesting that Bitcoins are the *only* possible digital currency, that no one should create or use something else, or that Bitcoins will, without a doubt, be around forever. What we *are* saying is that the Bitcoin model is still very new and very open to speculation and therefore volatile, but has a strong potential to become more stable in the future, and that we’ve seen nothing as yet to make us think they should be avoided. If you don’t agree with that and therefore don’t want to use Bitcoins, then of course that’s your decision, but please don’t make strawman arguments.

    Also, regarding the elasticity of the supply, I’m not 100% sure I’m following your argument. Specifically, the only “elasticity” I’ve seen in *most* currencies (eg, fiat) is the ability to be increased. When do federal reserve notes ever go away? The fed only increases or decreases the *rate* at which they add new notes to the supply, but the amount is always increasing, and so therefore the value of dollars is always decreasing. Is there some mechanism that you’re aware of to remove excess money from the supply in response to a decrease in demand? If so, I’d love to hear it. But I think one of the huge selling points for Bitcoins is their scarcity. The fact that they are divisible down to such small amounts means that the deflationary aspect of them won’t prevent their use as a medium of exchange. Are their inherent problems in this? Sure, but *any* medium of exchange has issues, it’s a matter of which one works best in the minds of the people using them, and I think that enough people feel comfortable in the way Bitcoins work to ride out the bubbles and use them for the long haul. This can certainly change as new digital currencies are implemented, but other currencies actually have to come along and compete, and right now, I’m not aware of any that are giving Bitcoins much of a challenge.

    • Martin BrockNo Gravatar says:

      Bitcoin’s vulnerability to speculation is not a consequence of its newness. It’s a consequence of the inelastic supply and the lack of intrinsic value (the lack of a valuable use other than mediating exchange and speculation). Bitcoin will always have these characteristics, so the volatility will always exist, and I expect most people to prefer a less volatile medium of exchange. Bitcoin may exist forever, but it will never be a very common medium of exchange.

      I haven’t made any straw man arguments. Seth writes, “you seem to think the only people interested in Bitcoin are day traders and speculators.” That’s the straw man argument. I never say that only speculators are interested in Bitcoin. I explicitly say that speculation can only exist if some people use Bitcoin to mediate exchange.

      I do say that we shouldn’t tell people that Bitcoin is the only possible, stateless money, but I don’t attribute this argument to you or anyone else specifically, so it’s not a straw man.

      We also shouldn’t tell people that a gold standard is the only possible alternative to fiat money, particularly since a statutory gold standard is fiat money. Noting that gold bugs sometimes argue this way is not a straw man argument either. Google for “gold is the only real money”. It’s just a fact that people argue this way. Libertarians particularly should resist the impulse. The broadest possible range of choices is precisely what we advocate.

      In a central banking system (which I oppose), money can flow out of money sources (new money entering circulation) or into money sinks (money leaving circulation and ceasing to exist). We don’t talk much about the sinks, because in a growing economy, the outflow exceeds the inflow, so the money supply is always growing. When the Fed “absorbs liquidity”, by selling Treasury securities to member banks for example, it removes money from circulation as surely as it creates money when it does the opposite.

      Central banking systems are actually statutory alternatives to decentralized, monetary systems proposed by nineteenth century anarchists like Proudhon. We have the Communist Manifesto, as much as anything, to thank for the emergence of central banking systems in the 20th century, but of course, Marx was a state socialist opposed to anarchists like Proudhon.

      In a system like Proudhon’s labor credit bank, money enters circulation when one individual freely decides to trust another individual by exchanging a good for a promise of future labor. The seller accepts a promissory note from the buyer, and this note becomes more widely accepted as money only insofar as other individuals also trust the promise. Money of this sort is a social network, a trust network, not a material substance like gold obeying some sort of conservation law.

      Many other private currencies exists. Of course, the state crushed the Liberty Dollar, but Ithaca Hours and Equal Dollars and other alternatives, like various silver coins, still exist. I can tell you why none of these alternatives is my favorite either, but I don’t oppose any of them.

  12. Martin BrockNo Gravatar says:

    I linked an article from Quartz ( yesterday asserting that Bitcoin hoarding exists and affects price stability. Lest anyone think Quartz somehow biased against Bitcoin, here’s a very bullish article posted yesterday. -next-bull-market-in-bitcoin/

  13. Seth KingNo Gravatar says:

    Way too many people think a bubble popped this last week. There was no bubble and it didn’t pop! The only reason Bitcoin took a nosedive is because the exchanges started to completely falter. Mt. Gox was experiencing 20 minute time lag and nobody knew what the current market rate of Bitcoins were. Couple that with severe DDoS attack and the inability of people to be able to get Dollars into the exchanges, and you had the perfect storm for a drop in the price of BTC.

    When you have the ability to instantly send BTC’s to the exchanges, but you don’t have the ability to get your Dollars into the exchanges, you are going to see a massive drop in price. This isn’t because demand for BTC dropped. This is because the ability to purchase BTC’s dropped.

    Mt. Gox has over 15,000 people waiting to be verified. Right now, Coinbase only allows people to buy 10 BTC’s per day, IF they’re lucky.

    If a person wanted to buy $1 million worth of BTC right now, they would have any EXTREMELY difficult time procuring those Bitcoins.

    So no, there was no bubble in BTC. And nothing popped. The ONLY reason BTC’s price is at $100 instead of $300 + is because the exchanges are sucking really badly right now.

    • Martin BrockNo Gravatar says:

      An equally precipitous rise preceded the precipitous fall, and an accelerating rise preceded the precipitous rise preceding the precipitous fall. You can’t blame all of that on a technological glitch during the fall, not if you want skeptics to take you seriously.

      Any technological glitch presumably was a consequence of the selling panic, i.e. the glitch was an effect of the bursting bubble, not a cause. People were calling the bubble and the imminent pop days before it happened, and you’ll never persuade these people with post hoc stories about technological glitches halting the Bitcoin road to riches.

      Bitcoins cannot increase in value a hundred percent per week without everyone hoarding every Bitcoin they have, thus freezing the market for Bitcoins used as money. The idea that the price would be $300 if only a technological glitch hadn’t stopped the precipitous increase is not remotely credible. If their utility as a medium of exchange supports their price, why did Bitcoins increase so rapidly in dollar value in the few days preceding the crash?

      What is the fundamental explanation for such a rapid increase in demand for this particular medium of exchange? Were people actually buying a larger dollar volume of bitcoins in order to purchase a larger dollar volume of goods at this time? What are these goods? The evidence I’ve seen suggests the opposite, that people were using Bitcoin less and less as a medium of exchange in the days preceding the crash.

      Contrary evidence would be sellers of real goods (transactions other than currency exchanges) accepting a rapidly increasing volume of bitcoins (measured in their dollar value for example) for their goods in the days preceding the crash. Where is this evidence? What are these goods? Why did people suddenly decide to pay for these goods with bitcoins over the last couple of weeks?

      People accepting bitcoins in trade for goods, other than different currencies, presumably saw a rapid fall in people spending bitcoins in the first two weeks of April. Are you saying that’s not true?

  14. MAMNo Gravatar says:

    Martin are you a Keynesian… You seem like a Keynesian.

    • Martin BrockNo Gravatar says:

      I haven’t written anything that would lead anyone with much knowledge of economics to conclude that I’m a Keynesian, and I’m the furthest thing imaginable from a Keynesian in fact. I’m presumably more of an anarchist than you are. I was a Proudhonist advocating free (as in speech) money over thirty years ago. How long have you been pondering these questions?

      • MAMNo Gravatar says:

        “I’m presumably more of anarchist than you are” No true scotsman much? How about a big fuck you from me? Yeah that sounds good. Douche bag.

        In fact you have written things that make me think you are a Keynesian otherwise I wouldn’t have asked. What you wrote is “hoarding creates bubbles” which implies that spending is good, which is very similar if not exactly the same as what Keynesians espouse.

        I wasn’t even born thirty years ago. How long have you been an insufferable pompous, and arrogant twit? My guess is over thirty years.

        • Martin BrockNo Gravatar says:

          I don’t care what sort of Scotsman you are, but I’m no true Keynesian or even a false Keynesian.

          “Hoarding creates bubbles” does not imply “spending is good”, and nothing I’ve said here is exactly what Keynesians espouse. Keynes advocated Knapp’s state theory of money, state “stimulus” spending and a Marxist central banking system. I’ve never advocated anything similar, here or anywhere else, but Bitcoin is not remotely comparable to a widely used, statutory medium of exchange of the sort that Keynes would even call “money”.

          I ask you a straightforward question, and you respond with a stream of ad hominems.

          • MAMNo Gravatar says:

            I don’t care what kind of ad homenim you are.

            • MAMNo Gravatar says:

              And the same could be said of you I asked you a simple question and you respond with a stream of arrogance. Congrats.

              • Martin BrockNo Gravatar says:

                You basically called me a “Keynesian”, which qualifies as an ad hominem all by itself in my book.

                • MAMNo Gravatar says:

                  I can understand maybe it was the poor punctuation I was actually just asking if you were. Because it seemed to me that you were. But you aren’t so, that’s good.

  15. MAMNo Gravatar says:

    Look you pissed me off because I just got through debating “libertarian communists” and the no true scotsman fallacy is one of their favourites. So I may have been a little more touchy than normal.

    • Martin BrockNo Gravatar says:

      I don’t hold grudges. We’re all on the same side here.

      • MAMNo Gravatar says:

        Cool thanks for the understanding. I conducted myself like a child. I’ll be beating myself up for that for a while I think.

        So are you still a Proudhonist? I’ve been thinking about reading his, and Tucker stuff.

        • Martin BrockNo Gravatar says:

          No sweat. I was a little testy myself.

          Ideological labels often confuse more than they illuminate, but if we want to discuss ideas, so we need some labels. I don’t use “Proudhonist” much anymore, because when I do, people assume that they can attribute every word Proudhon ever uttered to me, and I don’t agree with every word Proudhon ever uttered.

          I still identify with “mutualism”, largely because the term is not widely used and carries little baggage for most people and also because it has a complementary usage in biology. Still, I decide what “mutualism” means to me, and that’s not any party’s platform or church’s dogma. “Mutualism” is just a label that I assign to my thinking, and my thinking often coincides with other thinking labeled similarly. If the subject interests you, Kevin Carson is the place to start these days, but I don’t agree with everything he says either, and I don’t even think he likes me.

          If I call myself an “anarcho-capitalist”, legions of libertarian lefties leap to all sorts of unwarranted conclusions, and we waste countless words bickering over semantics. Same goes for “libertarian-communist” and similar labels. Some people using this label are only apologists for state socialism, but it’s only a label, and we shouldn’t make enemies lightly.

          I post a lot at Bleeding Heart Libertarians and sometimes a defend ideas that could be called “libertarian-communism” myself, but we need to discuss the meaning of these words before you decide that we disagree. If you’re a Rothbardian, we disagree much less than you might think. Proudhon and Tucker were certainly “on the left” in their day, and Rothbard is (stereo)typically on “the right”, but Tucker is very much an ideological precursor to Rothbard.

          Nineteenth century “libertarians” and “anarchists” were jousting with different states, before the rise of state socialism in the 20th century, and we should remember that when pondering the ideas they emphasize. When the state subjugating you doesn’t even bother with egalitarian rhetoric, your own anti-state rhetoric might seem more egalitarian by contrast, but that doesn’t make you a proponent of a state imposing uniformity.

          Needless to say around here, socialist states never actually impose equality, even supposing that “imposed equality” makes any sense.

          Don’t know if I answered your question, but that’s a start.

          • MAMNo Gravatar says:

            Well you’ve certianly given me some stuff, which I appreciate.

            My understanding of Proudhon and Tucker is that the were socialists, yes, but that they wanted it on a voluntary basis.

            I identify with the label “Anarcho-Capitalist” because I consider myself an anarchist, and I am pro capitalism, so it fits.

            I don’t know enough about Rothbard’s positions to know whether or not I am a Rothbardian. Though I have liked most of what he said, that I am of aware of in any case. I do find his notion of printing copyright on the bottom of things to make a contract to be a little ridiculous.

            Recently I’ve been over at talking to the “libertarian-communists” and I have come to the conclusion that they are neither libertarians nor are the anarchists. For starters they don’t acknowledge the NAP, nor do they acknowledge voluntary association, two things I consider essential for libertarianism, and they aren’t anarchists because they are pro democracy.

            I’m sure someone said this before me, but I just developed it independently this morning…

            “Democracy- The brilliant idea that the majority of people who don’t know me, know my business better than I do.”

            • Martin BrockNo Gravatar says:

              People called “libertarian” or “anarchist” in the 19th century were also called “socialist”, but the meaning of these words changed a lot in the 20th century. “Socialism” now means “state socialism” as a practical matter, but the distinction between state socialists like Marx and anarchists like Proudhon, Kropotkin, Tolstoy and Tucker was very significant before nominal “socialists” actually took control of states.

              I agree that many “libertarian communists” these days are thinly veiled state socialists, but I distinguish anarcho-communism from anarcho-capitalism (or radical classical liberalism) as follows and think the distinction less significant than it seems.

              For an anarcho-capitalist, particular rules governing which individual owns what resource are fundamental. Individual ownership necessarily precedes any association of individuals agreeing contractually to use resources cooperatively. Isolated individuals with natural property rights on a wide open frontier eventually grow together to form communities respecting these rights. Locke basically tells the story this way.

              For an anarcho-communist, these rules are not fundamental. Individuals do not have rights outside of a community, because rights are definitively rules that members of a community will respect. An individual can’t simply assume that he has rights that others will respect. He must find other people willing to respect particular rights, and the particular rights that a community of people will respect reflect preferences that people develop only within a community.

              We can call the emergence of these rules “democratic”, but the term in this context does not imply any majority votes or central committees. “Democracy” in this sense means the rule of people by themselves, not the rule of minorities by majorities. “Democracy” became synonymous with “majority rule” only in the last century or two.

              Some sort of natural territoriality might precede a community standardizing private property, or a single monarch might author a community’s rules. As long as every member of the community freely accepts the rules, either process is democratic. What matter is the free association, not the process creating the rules.

              A Rothbardian community, governed by Rothbardian principles described in Ethics of Liberty for example, would be such a community, but people in this community don’t have Rothbardian property rights because these rights are natural or logically necessary. People in a Rothbardian community have these rights because everyone in the community wants these rights. The rights are a preference of members of the community rather than anything anyone has outside of a community.

              Members of a strictly egalitarian community with no individual ownership, like a monastery for example, prefer different rules. As long as these communities coexist peacefully, as long as neither invades the other to impose its rules, both are consistent with anarcho-communism. Anyone who says that a commune must hold land in common and must distribute produce equally and must govern production through some majoritarian process clearly is not an anarchist of any sort.

              A Rothbardian has no fundamental problem with an egalitarian community with joint land ownership as long as members belong to it freely and individual proprietors freely contribute their property to it, but they imagine that individuals proprietors must exist prior to such a community. I’m not a Rothbardian in this sense myself.

              I don’t accept the natural rights idea, but I also don’t think the distinction is worth fighting over. What matters is that people choose the rules governing them and that no central authority imposes rules on free associations.

              • MAMNo Gravatar says:

                I’ll agree that voluntary association is the key here. However the “ancoms” over at desire no such thing. That is why they are going to attack the AnCaps, and that is why people holding those beliefs are a threat to freedom lovers, everywhere.

                They have told me that they want a democratically governed centrally planned economy. They have also said that somehow direct democracy isn’t a State because everyone gets a vote or something. In other words, they’re crazy, don’t know what words mean, and don’t consider voluntary association to be anarchistic. Because employing people is exploitative etc…

                • Martin BrockNo Gravatar says:

                  I know the type. No one will be free until everyone thinks like me.

                  • MAMNo Gravatar says:

                    Yeah I’m spending my time trying to convince them that the Earth is big enough for people to disagree. I think I’m just wasting my time.

                    • FreeRadicalNo Gravatar says:

                      More people read online discussions than write them. You won’t convince any hard core ideologues, but that doesn’t mean open minded people won’t come across what you’ve written. Argue the knuckleheads but write for the fence sitters and people who are there because they’re curious about anarchy.

  16. Just wondering, before I consider subscribing… is this an actual, individually composed letter to each individual subscriber, or does every single writer compose a single letter each and every week and send the same composition to all of your subscribers they’re assigned to write to?