The tide is slowly, and I mean slowly, shifting. People are becoming aware that Bitcoin does not satisfy the regression theorem, because it has no intrinsic value. [Note: To find out what the regression theorem is, why bitcoin violates it, why intrinsic value is a meaningful expression even though all value is subjective, what “industrial value” means with regard to bitcoin, mosey over to Bitcoin All In One Place].

So some people, both at libertyhq forums and in a comment to the previous article, came up with a new idea, to show that bitcoin does have intrinsic value. I’ll quote the commenter, Vlad:

Mises’s regression theory requires for the good to have some “industrial value” in order to become a currency. Bitcoin does not have at the time such a value. Well, I propose a little thought experiment.

Were Bitcoin to maintain its current value and have added, it the protocol, some digital industrial value, let’s say… if you had to use Bitcoin to send e-mail, and this was the only way to send e-mail (thought experiment, bear with me), would you say it does have the prerequisites of becoming money? According to Mises it would, unless I am missing something.

So, since you compare AE with geometry, could I extend this and say that if Bitcoin’s industrial value was sending not e-mail, but sending money, it would have an industrial value?

You could argue that the moment I do that I start another circular loop. But not necessarily, because I can refer to other types of money, not necessarily Bitcoin, thus avoiding another circular logic. So I’d argue then that as long as there is some other form of currency that the value can be translated to, Bitcoin has value and can respect Mises’ theory, Nowhere does it state that the form of money has to be the only one accepted in the world, so I could argue that Bitcoin can be money and respect Mises’s theory at the same time.

Seems pretty good, no? I mean, people pay for the service of having their money safely delivered from place to place. You hire a Brinks Armored Truck and armed guards, and they deliver money for you to someone. The Brinks truck and the guard are not money. You won’t buy anything with the truck or the armed guard. They are performing a service. Same thing with bitcoin; it is performing a service of transporting money, which is not the same as actually being money. Thus it performs a service which satisfies the regression theorem.

To solidify this argument, let’s quote the respected Austrian, Prof. Frank Shostak, who said this about bitcoin:

Bitcoin is not a new form of money that replaces previous forms, but rather a new way of employing existent money in transactions…The fact that the price of bitcoins has jumped massively lately implies that people assign a high value to the services it offers in employing existent money. This is no different from the case when in a country which imposes restrictions on taking money out people will agree to pay a high price for various means to secure their money…Bitcoin is not money but rather a new way of employing existent money in transactions. The fact that the price of bitcoins has jumped massively lately implies that people assign a high value for the services it offers and nothing more.

Game, set and match, no? Bitcoin satisifies the regression theorem, it looks like!

I think there is a flaw in the argument. The good professor hinted at it when he wrote:

Because Bitcoin is not real money but merely a different way of employing existent fiat money, obviously it cannot replace it.

In other words, imagine if you call up the Brinks truck company and had the following conversation:

SD: Brink’s Truck Company?

BT: Speaking.

SD: I’d like to hire one of your trucks.

BT: Certainly. Would you like armed guards as well?

SD: Absolutely. I need a truck big enough for ten million dollars in cash.

BT: I’m sorry, the only trucks we have now are filled with cement. There is no room to put any money inside. You’ll get a truck, armed guards, all the prestige that goes with people seeing our trucks and men outside your establishment, but you cannot put any money inside the truck.

SD: Forget it. that’s not the truck I was talking about. A truck that holds money and one that cannot hold money are two different trucks. Apples and oranges.

You see the problem. As long as bitcoin transports dollars or some other currency, it is like that truck filled with money. It serves a purpose. But once bitcoin itself becomes the money,  then it is like a truck that you cannot fill with money, but have to send from place to place, empty. Doing that, moving around an empty truck, serves no purpose. You can’t say that because a bitcoin that transports dollars has industrial value, then so does a bitcoin that doesn’t.

So we are talking about two different kinds of bitcoins. One of them transports money, and has some use. That will not make some other bitcoin, one that does not transport anything but itself, have industrial use.

Imagine if right now there were two kinds of bitcoins, call them dollar-coins and nothing-coins. The dollar-coins had a market where they could be exchanged for dollars, but the nothing-coins, for whatever reason [maybe legal problems, it doesn’t matter why], could not be exchanged for any currency at all.

Clearly, the fact that dollar-coins serve as postage stamps give them some non monetary use, but equally clearly, that does not give the nothing-coins any non monetary use whatsoever. The dollar-coins and the nothing-coins are apples and oranges, I think it’s clear. So the nothing-coins do not satisfy the regression theorem, even though the dollar-coins do.

When we talk about bitcoin someday becoming money, we are talking about them transforming from dollar-coins into nothing-coins. Just because they have non-monetary use as dollar-coins does not mean anything at all when they turn into nothing-coins. The situation would be similar to a debasing of a gold coin, where instantly people stopped taking at par.

Devil’s Advocate: When bitcoins become money they will still be dollar-coins. There will still be a forex or whatever to exchange them into dollars.

SD: This is a deep point, Devil. When bitcoins become money, things will be priced in bitcoin. You get paid in bitcoins at a fixed salary. The slice of pizza will no longer sell for a dollar, but for a thousandth of a bitcoin. If bitcoin is really successful the dollar will be all but forgotten. But then, the bitcoin is but a nothing-coin, as above.

[For more about bitcoin’s use to transport whatever, see]

The commenter also asked me what improvement I would like to see in bitcoin that would patch things up. I like Peter Schiff’s idea. If a reliable bank, say the bank of Hong Kong, started issuing its own bitcoins, redeemable in gold if you showed up at the bank and proved ownership, then of course there would be no problem whatever with bitcoins.

Let me conclude with a personal response to the commenter. Vlad, I’m happy to see that people are enjoying my articles. And I’m glad to see you are enthusiastic about Austrian Economics, and using your intelligence to play around with the ideas and make thought experiments and look at things from all angles.

Keep up the good work.