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One More Detail about Bitcoin

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The latest claim is that bitcoin is ALREADY a money, or a medium of exchange at the very least, and so of course bitcoins very existence proves Mises wrong. Take that, Mises, with your stuffy old logical thinking, Mike is saying. Your regression theorem claims to prove bitcoin cannot exist as a money, because it is a money coming into existence with no intrinsic value, but here it is, existing and a money.

Here’s what these guys don’t get. To be a medium of exchange, and certainly to be a money, a thing has to  generally accepted by a wide audience. Now ecoomists have not given precise numbers for this, but bitcoin certainly isn’t acepted enough, as I will make crystal clear.

I guess the best way is to just copy what I wrote in the forums. So here it is:

Time to spell out what people don’t seem to grasp.
Pete thinks 10,000 people owning a bitcoin makes it a medium of exchange. Sorry Charlie, and no way Jose.
And why not? Let’s go back to first principles.
A man works hard and produces something, say he’s a carpenter. He wants to buy all kinds of stuff in exchange for the chest of drawers he has built. There is a mortgage to pay, food to buy, cable TV bills, dozens and dozens of things he needs and stores he will have to go to.
Along comes Pete and offers to buy his work for 30 bitcoins.
“What the heck can I do with this garbage?” says the carpenter?
“Plenty,” says Pete. “If you go to the bitcoin convention we had a month ago, you could have bought a beer. Even now, there is a store in NYC that will sell you a pizza, and hundreds of tiny online stores you never heard of and have no reason to trust that will sell you flawed software and crappy trinkets. There are 10,000 people all over the world who will buy your bitcoin at widely fluctuating prices, maybe. We’re talking about the most versatile medium of exchange in the history of the world.”
What will the carpenter say, if he is polite? “I don’t need that right now, thank you very much. Come back when I can buy anything with it, from anybody. Or at least from enough people that I can buy whatever I want. Until then it’s not a medium of exchange, but a fraud. Have a good day.”
Generally accepted. Widely used. Write it down.

The above scenario also refutes Mike’s claim that bitcoin has already done what Mises claimed was impossible, to wit, become money. No. It hasn’t done anything. It’s current situation is not one of being money.


8 Comments

  1. Unknown says:

    Take a look at the sheer spread of users across the globe as evidenced by the 'past 48 hrs' node map: http://www.blockchain.info/nodes-globe?series=48hrsThis massive spread means any particular user/merchant is likely to find they're relatively isolated as far as physical proximity. Mapping economic proximity in a network sense is a different proposition though. You'd be pretty brave to restrict consideration to geographic economic zones in a system which is a) not limited to physically adjacent tradersb) experiencing such a large growth whilst still in early distribution.I have some sympathy with the argument that it doesn't yet function as a money in any particular geographic area – but that's a poor criticism to make of a nascent digital currency. I also think it's a little strange to rest an argument on a requirement stated as 'generally accepted' – when this 'requirement' arose in an era before global digital interconnectedness even existed.Even if I accept 'generally accepted, widely used' as a necessary criteria for judging it as money, the carpenter example, being geographically biased, doesn't rule it out from an online perspective. Yes, I would hesitate to claim it as 'generally accepted, widely used' even in the broader internet – but it certainly seems to be on that trajectory.From this perspective your objection seems quantitative rather than qualitative. I'll concede it doesn't yet fulfill *your* criteria for being money, but as I can easily find merchants and users *that I've never met before* and trade with them – it certainly acts as a money for me much more so than say US dollars or Yen, but less so than my local currency.

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  2. Smiling Dave says:

    Not sure where you saw anything in my argument about geographic proximity. The carpenter cannot get all he wants, or even most of what he wants, from bitcoins, even if he orders stuff online.Until he can, bitcoin doesn't come close to being a medium of exchange, or a currency. Mises claims, and I don't see any refutation of his reasoning, that it will never happen. The carpenter will never be able to buy anything but a few mostly useless items with his bitcoin, which is exactly the current situation.

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  3. Matthew says:

    Arbitrarily taking the 10,000 person bitcoin user number as accurate, If it is not money because that is too few people using it to meet your criteria.Then explain to me the country of Tuvalu Population 10,244 where in 1976 they moved off the Australian $ to their own currency the Tuvalan Dollar. http://en.wikipedia.org/wiki/Tuvaluan_dollar an internationally recognized currency,however all your arguments against bitcoin as a currency are true of the tuvalan dollar. Cant use it to buy a pizza in NY and most people in the world havent heard of it, Im sure the carpenter would laugh you out of his shop if you tried to use it. Which shows yes geographic proximity to an acceptor is important, and since most bitcoin acceptors are online, whereever there is internet access there is proximity.

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  4. Matthew says:

    Arbitrarily taking the 10,000 person bitcoin user number as accurate, If it is not money because that is too few people using it to meet your criteria.Then explain to me the country of Tuvalu Population 10,244 where in 1976 they moved off the Australian $ to their own currency the Tuvalan Dollar. http://en.wikipedia.org/wiki/Tuvaluan_dollar an internationally recognized currency,however all your arguments against bitcoin as a currency are true of the tuvalan dollar. Cant use it to buy a pizza in NY and most people in the world havent heard of it, Im sure the carpenter would laugh you out of his shop if you tried to use it. Which shows yes geographic proximity to an acceptor is important, and since most bitcoin acceptors are online, whereever there is internet access there is proximity.

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  5. Smiling Dave says:

    No. The Tuvalu dollar can be used in Tuvalu to buy everything in Tuvalu. One can go to the Tuvalu mall and buy absolutely everything there. Also one can buy all one needs with a Tuvalu Dollar in Tuvalu. All the merchants in Tuvalu will gladly sell you anything you want for a Tuvalu dollar. It is generally accepted.Bitcoin cannot buy more than a handful of things. You cannot buy a house; You cannot buy anything in a simple grocery list; you can only buy a handful of random things. And why is that? Because the merchants are not willing to accept bitcoins. It is not generally accepted.

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  6. EconNoobe says:

    Dave,how about if we introduce a bitcoin exchange in your argument,we can always allow carpenter to cash in bitcoin for his favorite currency if he wishes ! Now what's stopping him from accepting bitcoins !?when people progressively get sick of their boring native currencies, native_currency/bitcoin pair will reflect their preferences in bitcoin exchanges…and someday… bitcoin will be more popular and acceptable than native_currencies!

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  7. Smiling Dave says:

    What will stop him is that no one is promising him that bitcoin will not fluctuate wildly. He cannot put aside his bitcoins for a month, because maybe in a month they will drop in price. I mean, why aren't you accepting your salary in stocks?

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  8. […] used” sufficiently refuted, we may now turn to some of Dave’s other criticisms. In this post, Dave puts forth the argument that Bitcoin is not being used as a media of exchange right now, […]

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