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Author Topic: Walter Block Comments On Bitcoin  (Read 12021 times)
Seth King
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« on: March 17, 2011, 11:05:44 PM »

In my attempt to get someone from the Mises Institute with authority to write an article on the efficacy, or not, of Bitcoin, Walter Block and I recently shared this correspondence.

I started off by writing...

Quote
Among students of the Austrian School there is an ongoing debate over
the efficacy of a new currency called Bitcoin. Since I have started my
blog I have been admonished several times to trade in, and promote, the
underground and anonymous currency called Bitcoin.

While I am all in favor of anonymous and underground trade, Bitcoin is a
patently absurd currency. It fails on many fronts and I am pretty
shocked to see so many Austrians falling for it. However, it could also
be possible that I am in the wrong and fail to see the brilliance that
is Bitcoin. Either way, forums and blog comments are becoming
increasingly geared towards the debate.

To which Dr. Block replied...

Quote
I'm not sure I fully understand it. But, I favor money based on real commodities
(gold, silver, whatever the market settles upon), and, I gather,
bitcoins do not qualify. So, I oppose bitcoins. I favor 100% backed (by
a commodity) currency for reasons that Rothbard and Mises have written
about, over and over again.

I'm sure this will not settle the ongoing Bitcoin debate, so I would like to publish a well written article debunking the Bitcoin scheme by anybody who can use an abundance of Austrian Economic logic in their case.
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nhwulf
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« Reply #1 on: March 25, 2011, 08:14:21 PM »

I dont like the the Bitcoin as its not backed by anything. Bitcoin is not to different from our current fiat currency. It is generated not by acomplishment and innovation in the market, but by turning on a computer. What if one does not own a computer? Would wealth be limited to those that bought a 3rd party product rather than work and inteligence? I see no value in Bitcoin beyond the attempt itself as an exersise.
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daprovic
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« Reply #2 on: March 25, 2011, 09:07:51 PM »

I dont like the the Bitcoin as its not backed by anything. Bitcoin is not to different from our current fiat currency. It is generated not by acomplishment and innovation in the market, but by turning on a computer. What if one does not own a computer? Would wealth be limited to those that bought a 3rd party product rather than work and inteligence? I see no value in Bitcoin beyond the attempt itself as an exersise.

Bitcoin is backed by the computational proof that there cannot be more than 21million bitcoins in circulation at any point of time.

Bitcoins are cryptographically protected against fraud, and the monetary inflation rate is hard coded in an open source algorithm. It is impossible to produce fake bitcoins, and no one controls the inflation rate.

The reason you want money to be backed by something is in order to restrict inflation, there is no need for that with bitcoins.

You don't see value in a currency that is un-counterfeitable, completely decentralized with no point of failure, that is 100% anonymous and irreversible, that removes the need for a trusted third party such as PayPal to make transactions and that has no transaction fees???
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Seth King
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« Reply #3 on: March 25, 2011, 11:30:33 PM »

I've yet to see a reply to the question: What happens when Bitcoin II and III and IV come out? That would be, in effect, inflation. Would it not?
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daprovic
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« Reply #4 on: March 28, 2011, 03:05:53 AM »

I've yet to see a reply to the question: What happens when Bitcoin II and III and IV come out? That would be, in effect, inflation. Would it not?

Seth, no that wouldn't be inflation, although I do understand it might seem counter-intuitive. Prices in bitcoin1s are completely independent of how many bitcoin2s or bitcoin3s or whatever other currency there is and how much there is of it. Products would simply be priced differently in bitcoin1s, bitcoin2s, etc.

With many crypto-currencies competing, people would eventually hold several different currencies in their wallet, and choose to spend them on products that are cheapest to them relative to the strength of the currencies they have in their wallets. So for instance, if bitcoin2s have high inflation, products priced in bitcoin2s will be more expensive than in bitcoin1s.

So again, inflation is relative to a specific currency and does not affect the value of different currencies whatsoever.
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Seth King
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« Reply #5 on: March 28, 2011, 05:30:05 PM »

That answer is unsatisfactory to me. My second question is what can I do with a Bitcoin? Gold and Silver and other commodities and resources can be used for productive purposes. A Bitcoin is nothing.
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nhwulf
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« Reply #6 on: March 28, 2011, 11:50:01 PM »

In 1900 $1 would equal $25 in 2007. At that rate  the tire chains I found for 25 bitcoin (and I did not find much else definitive) valued at $98-$125 dollars shows that bitcoin is worth (where it is accepted) $4 in 1900 gold backed currency or $100 fiat debt backed currency. (Rounded to even 100's for ease) With no backing of a true commodity the bitcoin is nothing more than a faith based electro-dollar. Basing a means of trade off processor time rather than a universal commodity is folly. Bitcoin states that 21,000,000 coin will be distributed. I say distributed rather that produced for a reason. At 21,000,000 bitcoin worth $4 in backed currency in 1900 that makes bitcoin worth $84,000,000 in total value, assuming you accept its worth. This is not going to sustain a population of 310,000,000, regardless of of how many are producers. It is worse when the majority are consumers. At even distribution that leaves 310,000,000 divided by 84,000,000= .3690476 bitcoin per person (in 1900 gold backed dollars) Go ahead, buy bread for a family with that. In 1900 bread was $.25. Does that leave just over 1 loaf of bread per person with bitcoin? check my math, its always suspect.
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daprovic
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« Reply #7 on: March 29, 2011, 02:28:55 AM »

That answer is unsatisfactory to me. My second question is what can I do with a Bitcoin? Gold and Silver and other commodities and resources can be used for productive purposes. A Bitcoin is nothing.

My answer is an academic one Seth, it's just economics 101 :s Ask any monetary economist the same question at mises.org and they will respond that your worries are unfounded.

The purpose of money is to facilitate exchange.. not to use it for industrial purposes. The only reason you'd want it to have another use, is if people lost confidence in it as a facilitator of exchange (money), then it would still keep some value as it can be used in production. Now all the reasons for people losing faith in a gold/silver currency do not exist with bitcoins. There is no way for people losing faith in bitcoins, unless everyone in the market using bitcoins stubbornly decided not to use them anymore and decided to lose all their wealth in bitcoins.
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daprovic
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« Reply #8 on: March 29, 2011, 02:42:37 AM »

In 1900 $1 would equal $25 in 2007. At that rate  the tire chains I found for 25 bitcoin (and I did not find much else definitive) valued at $98-$125 dollars shows that bitcoin is worth (where it is accepted) $4 in 1900 gold backed currency or $100 fiat debt backed currency. (Rounded to even 100's for ease) With no backing of a true commodity the bitcoin is nothing more than a faith based electro-dollar. Basing a means of trade off processor time rather than a universal commodity is folly. Bitcoin states that 21,000,000 coin will be distributed. I say distributed rather that produced for a reason. At 21,000,000 bitcoin worth $4 in backed currency in 1900 that makes bitcoin worth $84,000,000 in total value, assuming you accept its worth. This is not going to sustain a population of 310,000,000, regardless of of how many are producers. It is worse when the majority are consumers. At even distribution that leaves 310,000,000 divided by 84,000,000= .3690476 bitcoin per person (in 1900 gold backed dollars) Go ahead, buy bread for a family with that. In 1900 bread was $.25. Does that leave just over 1 loaf of bread per person with bitcoin? check my math, its always suspect.

All currencies - whether gold, silver or bitcoins - are faith based, this is their principal characteristic. Your utilitarian concern that "we would run out of bitcoins" is analogous to the myth that we would run out of gold if it was used as currency. The amount of bitcoins or any weight of any commodity is completely irrelevant. The whole world's economy encompassing 7 billion people can be ran on 1 bitcoin. Bitcoins are infinitely divisible (just as gold is), meaning you can divide them ad infinitum (for practical purposes they are rounded off to 8 digits for now). This means that if you had 0.3690476 bitcoins, prices in bitcoins would simply be very small, like 0.00000000123432 bitcoins, which is good, lower prices are good Wink You'd end up spending millibitcoins, micro, nano, picobitcoins...

It seems that you and Steph don't really understand how money technically works :s There are a number of technical books on the production of money and how money works at store.mises.org
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Seth King
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« Reply #9 on: March 29, 2011, 05:20:41 AM »

I will admit that there is a possibility that I am totally wrong on this one. I'm just not convinced that Bitcoin is good.

I do agree that the amount of Bitcoins in the world is irrelevant. I've been saying for a while that the entire global economy could function with a gold currency even if only one ounce of gold existed in the universe. The same goes for Bitcoin. It's not the amount of Bitcoins in existence that I am worried about. It's merely the fact that there is no reason for people to use Bitcoins as currency, since it serves no purpose other than being traded.

Gold and silver are valuable as a currency, yes, but they are also extremely valuable as commodities. Gold is used in computing and spacecraft. Silver is the most conductive metal on earth. So people will trade commodities of value for silver and gold. I cannot do anything with a Bitcoin other than spend it. And since Bitcoin II, III, and IV can be created on a whim I see no reason why I should accept payment for something. Yes, if we all collectively decided to trade in Bitcoins it would work. Hell, we all use Federal Reserve Notes and things "work." So while I agree it is possible that Bitcoin can work as a currency, I simply don't believe it will ever catch on. People are using Bitcoins as a currency now. So that is proof that is "works."

I've also said that the free market will have many different currencies. Bitcoin may very well be one of them, but as of right now, I don't accept Bitcoins as payment. I also don't accept Labor Hours as payment either. I know those seem to be popping up in many cities.

Sadly, I don't have as good of an understanding in economics as Walter Block. I would liked to have had him write a full essay on the matter, but he wasn't interested. Perhaps I will be able to find another Mises Fellow to give us a full report on Bitcoin. Hey, they may even think it's the greatest thing since sliced bread. But I'd be willing to bet cash money they show all of its flaws in extraordinary economic prose.

Bitcoin is definitely growing in popularity and the conversation is infesting a lot of blogs and forums. It's past time a Mises Fellow addressed the issue. If you're a Mises Fellow and reading this, PLEASE PUBLISH YOUR ESSAY WITH DAILY ANARCHIST!! =)
« Last Edit: March 29, 2011, 05:24:42 AM by Seth King » Logged

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randallstevens
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« Reply #10 on: March 30, 2011, 08:54:40 AM »

That answer is unsatisfactory to me. My second question is what can I do with a Bitcoin? Gold and Silver and other commodities and resources can be used for productive purposes. A Bitcoin is nothing.

My answer is an academic one Seth, it's just economics 101 :s Ask any monetary economist the same question at mises.org and they will respond that your worries are unfounded.

The purpose of money is to facilitate exchange.. not to use it for industrial purposes. The only reason you'd want it to have another use, is if people lost confidence in it as a facilitator of exchange (money), then it would still keep some value as it can be used in production. Now all the reasons for people losing faith in a gold/silver currency do not exist with bitcoins. There is no way for people losing faith in bitcoins, unless everyone in the market using bitcoins stubbornly decided not to use them anymore and decided to lose all their wealth in bitcoins.


I agree that that the purpose of money is to facilitate exchange, but the key reason that gold and silver are money (in addition to the industrial uses and their good money properties) is that people are trading their labor for someone else's labor. When I get paid in gold coin, I am trading my labor for the labor of the miner, the refiner, and the minter, along with all the others whose labor directly or indirectly went into producing the coin. I don't really see where there is labor involved in "producing" a bitcoin, outside the initial programming to start the whole thing.

I also see a problem in conducting typical hand to hand "cash" payments with bitcoin as well. If I go to sell something that I posted on Craigslist, I'm sure not going to accept bitcoins in payment.

Despite these problems, so long as there is no force or fraud involved, if people wish to conduct trade in bitcoin, they are certainly welcome to.
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Seth King
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« Reply #11 on: March 30, 2011, 12:49:19 PM »

That answer is unsatisfactory to me. My second question is what can I do with a Bitcoin? Gold and Silver and other commodities and resources can be used for productive purposes. A Bitcoin is nothing.

My answer is an academic one Seth, it's just economics 101 :s Ask any monetary economist the same question at mises.org and they will respond that your worries are unfounded.

The purpose of money is to facilitate exchange.. not to use it for industrial purposes. The only reason you'd want it to have another use, is if people lost confidence in it as a facilitator of exchange (money), then it would still keep some value as it can be used in production. Now all the reasons for people losing faith in a gold/silver currency do not exist with bitcoins. There is no way for people losing faith in bitcoins, unless everyone in the market using bitcoins stubbornly decided not to use them anymore and decided to lose all their wealth in bitcoins.


I agree that that the purpose of money is to facilitate exchange, but the key reason that gold and silver are money (in addition to the industrial uses and their good money properties) is that people are trading their labor for someone else's labor. When I get paid in gold coin, I am trading my labor for the labor of the miner, the refiner, and the minter, along with all the others whose labor directly or indirectly went into producing the coin. I don't really see where there is labor involved in "producing" a bitcoin, outside the initial programming to start the whole thing.

Despite these problems, so long as there is no force or fraud involved, if people wish to conduct trade in bitcoin, they are certainly welcome to.

Well said.
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David Giessel
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« Reply #12 on: April 01, 2011, 08:43:50 AM »

Menger informs us that value is imputed. We don't want to argue gold as money based on the labor theory of value.
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« Reply #13 on: April 01, 2011, 11:00:49 AM »

Menger informs us that value is imputed. We don't want to argue gold as money based on the labor theory of value.

I am going to fall short on the explanation, as I'm still groping my way through the learning process of Austrian economics, so please forgive my obtuse answers. I'm only saying that part of gold's value is due to the fact that someone else's productive labor was required to make it into money. Real wealth is based on production. The more a society can produce, the wealthier it is. Once the productive effort is made to build a printing press and make the paper, fiat currencies cease to be a measure of productive value. Simply adding zeroes onto green pieces of paper doesn't make it worth more.
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Seth King
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« Reply #14 on: April 01, 2011, 04:18:08 PM »

Menger informs us that value is imputed. We don't want to argue gold as money based on the labor theory of value.

This is true. This is why Bitcoins are liked by so many people and has the potential to grow in use. They like the fact that it is anonymous etc. But I think their imputed value will drop dramatically once Bitcoin II and III come out and the supply skyrockets.
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