Home » Uncategorized » Bitcoin, the Summing Up.

Bitcoin, the Summing Up.

A friend of mine asked me to sum up my position on bitcoin, so here it is. We begin with the four horsemen that spell out bitcoins apocalypse, and then make some important observations.

1. Bitcoin violates the regression theorem, and thus praxeology tells us it is only a bubble. See https://smilingdavesblog.wordpress.com/2011/06/22/bitcoin-takes-a-beating/

2. Bitcoin violates Thier’s Law [a corollary of which is that any money that has no value except as a money will be rejected as a money], and so cannot be anything but a bubble. See https://smilingdavesblog.wordpress.com/2013/10/16/the-kickstart-fallacy/ This is not the same as the regression theorem, which says the problem is that nobody knows what value to give it. This second problem is that people will eventually give it a value of zero. See the articles linked to.

3. Bitcoin is not an economic good, meaning it is not scarce in the technical sense scarcity used by economists. See https://smilingdavesblog.wordpress.com/2014/03/29/why-bitcoin-is-not-even-an-economic-good-much-less-money-or-a-medium-of-exchange/

4. Bitcoin violates Gresham’s Law. By this I mean not the law per se, but the underlying reasoning used in Gresham’s Law. See https://smilingdavesblog.wordpress.com/2013/10/18/why-greshams-law-means-the-death-of-bitcoin/

5. Unlike every other thing, whose price is determined by two people bargaining, bitcoin has nobody bargaining for it to go down in price. This is a result of it not being an economic good, see point 3. This explains why bitcoin just goes higher and higher in price, except for temporary panics when someone hacks it etc. See https://smilingdavesblog.wordpress.com/2013/10/24/proof-positive-that-bitcoin-is-a-bubble/

6. The defenders of bitcoin from the reg thm either say the thm is a history lesson, not a praxeological law, or that it applies in barter economies, not money economies, or that it does not apply in modern economies that have computers, or that there must be some flaw in the reg thm, because bitcoin is, as we speak, a money, thus disproving the reg thm. I’ve dealt with all those objections, and others, and made a little bibliography of links here: https://smilingdavesblog.wordpress.com/2012/08/03/bitcoin-all-in-one-place/

7. Some Austrians agree with me, Peter Schiff, Frank Shostak, Doug Casey, Timothy Terrell, Gary North, one more at least whose name I forget. Some disagree, like Bob Murphy, Jeff Tucker, Mark Thornton [I think]. The ones who disagree usually fail to grasp something that Mises was not explicit enough about, even though he did say it, and even though common sense dictates it.

I refer to the fact of a medium of exchange having to be in wide demand, meaning almost everybody wants it badly. I wrote a few articles about this, because at first I argued just from sheer logic that it must be so, then found various places in Mises where he lays it out. So either look at the bibliography I linked to earlier in point 6., or search my site for the phrase “wide demand”. Also “most marketable”. A search might turn up more than the bibliography; I’ve neglected it a little.

8. This might be the place to reply to Pete’s internet claim that I contradict myself. He thinks I confuse money and medium of exchange. Well I do. Because they are the same thing, when it comes to analyzing their economics. What’s the difference between a group and a crowd? A large enough group becomes a crowd. A medium of exchange, that is already in very wide demand, when the demand gets even wider, becomes a money. This is well known standard Austrian Economics, Just look around in Human Action or MES or any other Austrian work.

Here’s Mises, for example, in HA:

A medium of exchange which is commonly used as such is called money. The notion of money is vague, as its definition refers to the vague term “commonly used.” There are borderline cases in which it cannot be decided whether a medium of exchange is or is not “commonly” used and should be called money. But this vagueness in the denotation of money in no way affects the exactitude and precision required by praxeological theory. For all that is to be predicated of money is valid for every medium of exchange. It is therefore immaterial whether one preserves the traditional term theory of money or substitutes for it another term. The theory of money was and is always the theory of indirect exchange and of the medium of exchange.[1]

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14 Comments

  1. Larry Jones says:

    Peter Schiff accepts Bitcoin now.

    Like

  2. Smiling Dave says:

    And instantly sells it.

    I bet he even stipulates that the buyer will only get gold equivalent to the dollars Peter gets when he sells the bitcoin. That’s what I would do.

    Like

  3. Larry Jones says:

    Why would Peter accept Bitcoin?

    Like

  4. Smiling Dave says:

    It’s cheaper for his customers, apparently.

    Like

  5. Peter Šurda says:

    By using Bitcoin without keeping it, Schiff proves that Bitcoin has non-monetary use (demand due to a reduction of transaction costs). By saying that this is cheaper for his customers, you prove it too. This contradicts your prior claims. You also fail to explain how it is possible to violate economic laws.

    And in the post you just made, you contradict yourself again, by first stating that “they are the same thing” and then quoting Mises explaining they are not.

    Also Casey is not as anti-Bitcoin as he used to be.

    Like

  6. Smiling Dave says:

    Pete,
    1. It has non monetary use when it is used to buy things? Seriously?

    2. To violate economic laws is shorthand for “if we assume bitcoin is more than just another fad, folly, delusion, mania, and bubble, that would contradict economic laws.”

    3. One of us has to read more carefully, and it’s you.

    4. Link to Casey, please?

    Like

  7. Larry Jones says:

    If it is cheaper for his customers to pay with Bitcoin and he is accepting Bitcoin as payment, that means Bitcoin must have some value to both of them. Can you please explain what that value is? And, is it monetary or non-monetary value or both?

    Like

  8. Larry Jones says:

    I am sorry I did not, but I would appreciate if you could share the sections here which are relevant to answering my questions.

    Like

  9. Smiling Dave says:

    The whole thing. It’s not long.

    Like

  10. geo says:

    I wonder if bitcoin is similar to a charge card, being a useful mechanism for transferring money. Or perhaps like one of those prepaid credit cards.

    Is a charge card money? Does it have value?

    I’m hoping to see a day when everybody carries a small balance of bitcoin, much like people carry cash in their wallets today, as a convenient way to make purchases. Its value would then be determined by how many people want to hold it. If 200 million people each wanted to carry $100 worth of bitcoin, and there were a total of 20 million bitcoins outstanding, then each would be worth $1000.

    Like

  11. anarcholibertarian says:

    SD, would you be a guest on the Tom Woods show to explain bitcoin to him if he asked? Tom is asking for guest ideas and I’m wondering if I should suggest you for that kind of thing now/in the future.

    Like

  12. Smiling Dave says:

    Sounds exciting. Sure.

    Like

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