Is Bitcoin a Commodity?

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Is Bitcoin a Commodity?

  • B.K. Marcus

    In What Has Government Done to Our Money? Murray Rothbard writes,

    A most important truth about money now emerges from our discussion: money is a commodity. Learning this simple lesson is one of the world’s most important tasks. So often have people talked about money as something much more or less than this. Money is not an abstract unit of account, divorceable from a concrete good; it is not a useless token only good for exchanging; it is not a “claim on society”; it is not a guarantee of a fixed price level. It is simply a commodity. It differs from other commodities in being demanded mainly as a medium of exchange. But aside from this, it is a commodity — and, like all commodities, it has an existing stock, it faces demands by people to buy and hold it, etc. Like all commodities, its “price” — in terms of other goods — is determined by the interaction of its total supply, or stock, and the total demand by people to buy and hold it. (People “buy” money by selling their goods and services for it, just as they “sell” money when they buy goods and services.) [emphasis added]

    @mattgilliland said in last week’s bookworm hangout that he considers this a potential problem with the WHGDtOM, if taken literally — a problem that only becomes evident with the advent of cryptocurrency.

    But I guess I need someone to explain to me why Bitcoin isn’t a commodity. It certainly seems to fit Rothbard’s implicit definition in the above passage.

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  • Malcolm Heights

    Cyber currencies are a commodity. One of the characteristics of a commodity good is that its price is determined as a function of its market as a whole.

    Bitcoin might be “an abstract unit of account” but it has a unique value.

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    Matt Gilliland

    One of the subjects of my paper that I presented at the AERC in March was that, for purposes of economic analysis, Bitcoin is a commodity. The problem here is that most established Austrians (at least initially) have taken it for granted that it is not, as it is not a “concrete good” as described above by Rothbard.

    But quantities of Bitcoin are scarce; their supply is limited, they can be exclusively controlled, and copying a Bitcoin wallet does not give you twice as much Bitcoin. It is demanded for its own sake. In fact, as Konrad Graf has pointed out in one of his papers, the German word “commodity money” is translated from (sachgeld) may not even carry the connotation of a physical good. It’s “thing-money” or “fact-money.” There is no coherent reasoning why, for the purposes of economic analysis, Bitcoin would fall under any other category in Mises’ classification scheme (from ToMC) than “commodity money.”

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      B.K. Marcus

      Matt, how did your paper go over with that crowd?

      It seems to me that the main thing that is unique about Bitcoin is that where Rothbard writes that commodity money “differs from other commodities in being demanded mainly as a medium of exchange,” Bitcoin in contrast is demanded ONLY as a medium of exchange. But that really seems like a historic difference, not an economic one. Rothbard’s history of fiat currencies shows that people’s demand for money adjusts to political realities. I wrote an article several years ago about how Saddam Hussein’s dinars became more valuable after Saddam’s regime fell. I called the Saddam dinar post-fiat money. The Saddam dinar’s history was unusual, but the principles were familiar: recognizable, readily accepted for goods, limited in supply (more limited than the new dinars which is why the old dinars were more highly valued). It seems to me that Bitcoin is similar to post-fiat money in that it is a free-market response against fiat money.

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      Matt Gilliland

      The paper went over really well, but the few people I thought might object attended the alternate session upstairs or (Gary North) just stood outside the room and chatted with people.
      Bitcoin is not actually demanded only as a medium of exchange; it’s actually useful for quite a lot of other things (and I’m hoping some of my speakers next month will get to talk about that more than a bit). It is often accused of being demanded only as a medium of exchange by those wishing to criticize Bitcoin on grounds of Mises’ regression theorem, but this is an incorrect, backwards approach to the praxeological method; if the regression theorem is apodictic as most Austrians believe, then the fact that we see Bitcoin being used as a medium of exchange today necessitates the fact that it had some value outside of exchange prior to its use as a medium of exchange.

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        Matthew John Hayden

        The blockchain, non? All that cryptographically stored transaction data and the potential therein for expansion into a decentralised apps ecosystem must have struck many of the early adopters.

        As a newbie it strikes me that Bitcoin gains some value for some people precisely because it isn’t fiat money, a value that people would attach to anything they could securely use that wasn’t government-issue.

        On the subject of regression – and once again I’m skating near the edge of my Menger & Mises knowledge here – I can see the value of the blockchain technology itself, separate from the tokens Nakamoto attached to it.

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    Bern McCarty

    If Murray Rothbard had lived to see Bitcoin he would likely have said, “Oh. Ok. So there is another way come up with money. Great idea you guys. Now I have to go change a couple of paragraphs in a few books that I wrote.”
    Something is money when people demonstrate that it is money by accepting it as such.It is that simple. We are basically all exchanging cow turds (dollars) right now as money. My belief in the dollar is 100% because I feel very confident that lots of people will accept it. It is bad money for many reasons, but money nevertheless. Bitcoin is certainly money
    There are some in the liberty movement that have said that Bitcoin is not property because it is not scarce and it is not scarce because anyone can make alt-coin. They basically put it in the category of IP or phony property. That is a failure to understand the value of a successful particular x-coin network whose coins are indeed scarce. Such networks are not easy to establish and demand a tremendous investment. Millions have gone into the current Bitcoin network – and it has only gotten us to 7 transactions per second. Here’s hoping that is improved in time to avoid seriously constraining the acceptance of the currency.
    Upon second though I made a bad analogy; cow turds are far scarcer than U.S. dollars.

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      Matthew John Hayden

      Yeah, something that really bothers me about the “alt-coins make crypto non-scarce” arguments is that a given cryptocurrency (Bitcoin, Goldcoin, Unobtainium) is scarce. And that’s that. People will use as few of these things in their lives as they can just because life and trade are easier that way.

      There’s room for more than one, but that isn’t enough to render the tokens traded on each individual blockchain non-scarce.

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    B.K. Marcus

    Quotable: “Something is money when people demonstrate that it is money by accepting it as such.”

    Also quotable: “cow turds are far scarcer than U.S. dollars.”

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    Jeffrey Tucker

    I’ve used the commodity point many times in order to dislodge this mistaken notion that money is somehow fundamentally different in substance from another economic good. It is not. It is just a means of exchange, the most valuable commodity in a given exchange context, something acquired not for consumable but rather for later trading. Bitcoin is exactly like this. In other words, MNR is not saying “if it is not a physical commodity, it cannot be money” (after all, the dollar is almost entirely digital); he is saying that when something it is money, it does not cease to be a commodified good of exchange.

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    Lincoln Gardner

    Why are we trying to fit bitcoin into some pre-existing category or definition? What difference does it make? Who cares if it is “money”, “currency” or “commodity”?  Why is that important? Why are we trying to fit it into the old paradigm? It is both a unit of exchange and a payment system as Jeffrey points out.  And it can be used not merely as a medium of exchange but also as a proof of work,  proof of title, etc. Not sure that old definitions and categories that belong to the old paradigm are useful. My apologies if I’m missing something obvious here. Please help me out.  Yes, bitcoin is exchanged for other things of value. Yes, it is fungible. But why must we try to make bitcoin fit into categories and definitions from the old paradigm? To say that a bird is an evolved dinosaur doesn’t say much about its birdness.

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      B.K. Marcus

      Lincoln, for the vast majority of Bitcoin users, these questions don’t matter at all. I’m asking from the perspective of economic theory. If your science can’t account for the emergence of new species of bird, then the discipline itself is a dinosaur.

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    Lincoln Gardner

    Thanks for your patience with me, B.K. That helps.

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    Bruce Koerber

    When you think of a coin it has two sides!

    One side of Bitcoin is its inherent market value which satifies the regression theorem of money.

    The other side of Bitcoin is its ability to negate the State which makes it incredibly and increasingly powerful in this period of history when the State is about to dissolve (not coincidentally because of the existence of the Bitcoin!).

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    Lincoln Gardner

    “If your science can’t account for the emergence of new species of bird, then the discipline itself is a dinosaur.” B. K. Marcus. Indeed. Is this Kuhn’s The Structure of Scientific Revolutions playing out in the social sciences?

    Nick Szabo’s article, Shelling Out – The Origins of Money , is really fascinating, particularly if you assume the writer is Satoshi Nakamoto.

    http://szabo.best.vwh.net/shell.html

    It was written before bitcoin was released, but is this effectively Satoshi’s scientific accounting of bitcoin’s emergence? This is my first foray into Szabo’s writing’s, and it’s really fascinating. There are some similarities to Ridley’s point of view, which I wrote about here. http://lincolngardner.liberty.me/2014/05/23/the-origins-of-virtue-human-instincts-and-the-evolution-of-cooperation/?refer=libertyme.

    Both authors are following up on Dawkins’ statement that “Money is a formal token of delayed reciprocal altruism.”  Ridley says “Trust is as vital a form of social capital as money is a form of actual capital.” This whole idea of distributed trust seems central to the whole thing. Maybe someone who has actually read Rothbard (I confess – I haven’t – yet) can tie him in to Dawkins, Ridley and Szabo’s ideas.

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    Kamuela Franco

    Bitcoin is a commodity. It’s a raw material used for business, finance, property rights, and whatever else people find it useful for economically.

    I think it has an inherently rising value because it is both limited and infinitely divisible. It will never become “too expensive” except for the lower limit of transaction fees on the network, I suppose.

    Which by the way, is why i want to see some mechanism for competitive transaction fees. Seems like Bitcoin folks are OK with transactions rising in value and Bitcoin only being useful for larger transactions… No.

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    Mike Vroman

    If I may, I think I can add a lay perspective for those such as me who are not as well read on economic theories as some.

    Bitcoin, like most other currencies, has the unique distinction of having the dual role of both a desirable commodity in its own right and a tool for exchange for items/services of more tangible and immediate value.

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    Well Liberty Me

    I haven’t got time to read all this so I’ll just take it back to basics: money is a commodity.

    Therefore the question isn’t necessary, because all money is a commodity therefore Bitcoin is a commodity whether it’s money or ‘a commodity’.

    I hate “the regression theorem”, it’s a stupid poncey expression. It just means the commodity used for money isn’t entirely useless, but it begs the question of what ‘usefulness’ means. I think Austrians could live without it, but for the sake of tradition, the ‘first use’ of a cryptocurrency is as a payment and contract system and most importantly as a ledger.

    None of those concerns are of any concern at all: it’s perfectly sound money while it lasts.

    The problem is it isn’t scarce. Bitcoin is scarce (for now) but when mining becomes onerous people will find ways to fork the blockchain, interface multiple ‘coins’ together with a single ‘currency’ presented to the user, or all manner of other tricks. The fact it’s not UNAVOIDABLY scarce (like gold) means it’s no good as a guarantee there won’t be unbelievable amounts of inflation in the future.

    For now, that’s not a worry you need to worry about. For now, the volatility’s more of a worry: not that you might lose money (though you might), but that you can’t rely on it as a spending medium. (Nobody wants to wake up tomorrow realising they paid an hour’s labour for one photograph because they thought it was one minute’s labour, and it’ll never be that value again.)

    But that’s fine: most people comparing it to gold seem to think it’s going to be a hedge against inflation. Bad idea: it’s in the long run that the inflationary bomb will explode.

    So if spending’s out and investment’s out, what does that leave?

    Frankly it leaves speculation, and if the people advocating for it are mainly early adopters who made a killing, that should give you pause for thought.

     

    Sorry I see someone got there before me with almost all those points LOL

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    Ben Best

    I agree that it doesn’t matter whether Bitcoin is called a commodity or not. In the quote from Rothbard that begins this thread, Rothbard is not making reference to the “regression theorm” in saying that goods can be used to purchase money just as money can be used to purchase goods. Advocates of the regression theorem are correct that historically money has arisen from goods with an intrinsic value independent of the use of those goods as a medium of exchange. But that is history, and need not apply to cryptocurrencies. The regression theorem is wrong to claim that only items with intrinsic value can be used as money. (And by Austrian subjective value theory, the whole concept of “intrinsic value” is a bit dubious, anyway). The fact that cryptocurrency protocols can be used for contracts, etc. is also beside the point. What matters is that a cryptocurrency is valued as a medium of exchange by enough people that it can be used as a medium of exchange.

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      Matt Gilliland

      “The regression theorem is wrong to claim that only items with intrinsic value can be used as money.”

      That’s not at all what the regression theorem claims.

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      Ben Best

      Thanks for replying, Matt. But why don’t you explain yourself rather than just naysay my comment.

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      Ben Best

      As a reference, I would use: http://bastiat.mises.org/2013/12/regression-theorem-and-bitcoin/  As I see it, this says that the regression theorem states that bicoin can only be money if it has first been valued as a commodity. Perhaps you think that it is too much of a leap for me to say that “valued as a commodity” is the same as “intrinsic value”?

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      Matt Gilliland

      Funny that this should be the link you cite; that’s an excerpt from an exchange Walter and I had.

      Value as commodity is “use value” – it’s simply valuation done by individuals for a purpose that they perceive will further their ends. “Intrinsic value” is value independent of the value imputations of individuals. Substituting the one for the other in the definition makes a really big difference in the meaning.

      People who think the regression theorem is a problem for Bitcoin don’t understand the praxeological method very well. As I mentioned in the email to Walter, there are two possible views on the RT; apodictic and conjectural (as I now know them to be called; only two economists take the latter). If it is apodictic, then by the fact that Bitcoin is used as a medium of exchange, we know that it had use value to individuals previous to valuation qua money. If it is conjectural, then it doesn’t matter if it did or not (though it likely did).

      Bitcoin haters who use the RT as their argument against it are attempting to define “medium of exchange” by the RT, while as advocated by Mises, Rothbard, etc., it’s actually a praxeological statement about things we see being used as media of exchange. The critics are going about it backwards.

      EDIT: Come to think of it, I think you heard me present my paper at the AERC, no?

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      Ben Best

      Yes, Matt, I heard your presentation at AERC 2014 and
      subsequently chatted with you for a while at the end
      of that conference. In our conversation I expressed
      the view that the “regression theorem” is an historical
      artifact, at best.

      I accept your criticism that I should not equate “intrinsic
      value” with “use value as a commodity”.

      When I read HUMAN ACTION many years ago, I had major criticisms
      of Mises’s claims to “a priori” truth. In my view, this is not a
      misunderstanding of praxeology, it is skepicism about the method.
      I am not inclined to argue this point at this time and place,
      except with respect to Bitcoin. I don’t accept that there is
      an “a priori” reason why anything cannot be money if it has
      not first been valued as a commodity.

      And I don’t think much of Walter Block’s claim that
      Bitcoin “is not yet money. It is not now a generally accepted
      means of final payment” unless by “generally” he means that
      some governments have accorded it status as legal tender.
      Bitcoin is accepted as a means of final payment to
      purchase airline tickets (from Virgin Atlantic), hotel bookings
      (from Expedia), automobiles (from Tesla), electronics (from Tiger Direct),
      as well as products from tens of thousands of other merchants.

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    Kamuela Franco

    Bitcoin is a commodity and commodity money. Each unit is infinitely divisible into completely identical parts. Some coins can be colored and turned into other tokens, but that’s like using up the raw material that is Bitcoin… which again, is a commodity. Some of the properties of this commodity? Well it’s easily transferable, cheap to store, cheap to secure, worldwide applicability, has smart scripting capabilities both innately and through new technologies, etc.

     

    It’s a commodity first that happens to function well as a currency second. Trustless isn’t free though: it costs an hour of time for 6 confirmations even if you like a guy and visit his shop everyday.

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    Ben Best

    I have now elaborated on my views in a LIBERTY.ME article:

    http://benbest.liberty.me/2014/07/23/austrian-economists-and-bitcoin-by-ben-best/

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    Ben Best

    Part of a reply I made to one of the comments on my article is relevant to this discussion, so I will reproduce it here:

    ***************************************************************

    I disagree with the quote from Menger that Peter Surda provided:

    “The reason why the precious metals have become the generally
    current medium of exchange among here and there a nation prior
    to its appearance in history, and in the sequel among all peoples
    of advanced economic civilization, is because their saleableness
    is far and away superior to that of all other commodities, and
    at the same time because they are found to be specially qualified
    for the concomitant and subsidiary functions of money.”

    As I said in my article, most of humanity for most of human
    history has been more concerned with food and shelter than with
    jewelry and works of art made of precious metals. Although the
    use value of precious metals preceded the exchange value,
    the superior “saleableness” of precious metals was
    overwhelmingly due to their exchange value rather than
    their original use value. Divisibility and corrosion
    resistance added to the use value. So I disagree with Menger
    that precious metals could have a superior saleability due
    to use value alone — apart from exchange value. (Although
    he did say “at the same time”.)

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    Ben Best

    I see that there was an article about Bitcoin and the Regression Theorem
    published on LIBERTY.ME about a month ago:

    http://stephenadkins.liberty.me/2014/06/26/bitcoin-and-mises/

    This article tries to justify the worth of Bitcoin because of the value
    of a worldwide ledger (the Blockchain) as a means of keeping track of
    assets (in somewhat ironic contrast to those who see Bitcoin as an
    anonymous means of financial transaction). The author even states
    that this was the original value of Bitcoin — in accordance with
    the interpretation of the Regression Theorem stipulating that money
    (a medium of exchange) can only originate from something that has
    prior commodity value.

    Although my knowledge of the early history of Bitcoin is fuzzy,
    I am skeptical that Bitcoin was first used as an asset ledger and that
    this use gave rise to its use as a medium of exchange. A less
    demanding interpretation of the Regression Theorem would simply
    state that an existing medium of exchange has an intrinsic commodity
    value. It is true that the Bitcoin Blockchain can serve as a public
    ledger of assets (for contracts, etc.) even if the medium of
    exchange use preceded this use. But this use or value is not
    a commodity value. No one trades a Blockchain ledger for other
    goods or services. I regard this as a contorted effort to
    justify the Regression Theorm, even more than as a contorted
    effort to justify Bitcoin.

    The author implies that the Regression Theorem means that
    if Bitcoin has no intrinsic commodity value then it is backed
    by nothing, and can easily become worthless. I think it is
    more plausible that a medium of exchange can have value
    entirely because it is accepted as money — and that the
    Regression Theorem is an historical artifact that has been
    rendered obsolete by cryptocurrencies.

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    Ben Best

    I have just read Peter Surda’s article
    “The origin, classification and utility of Bitcoin”
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2436823

    Dr. Surda is probably the only Austrian Economist in the
    world who is not only pro-Bitcoin, but who is devoting his
    work-time to researching the economic issues associated
    with Bitcoin. Although the article seems partly a strained
    effort to justify the regression theorem as well as to
    justify Bitcoin in terms of the regression theorem, it
    has many thought-provoking ideas. I will mention a few.

    The most relevant point Dr. Surda makes in the context
    of this thread is his convincing argument that Bitcoin is
    a commodity. Many immigrants buy bitcoins to transfer
    money to their home countries, and thereby avoid the
    huge transaction fees and delays associated with
    bank wires. Dr. Surda compares this purchase of bitcoins
    with the purchase of a cash register. A cash register
    is a commodity that reduces transaction costs, just as
    bitcoins are a commodity that reduce transaction costs.
    Actually, for immigrants who are unbanked, there may
    be no alternative means of transferring their money
    abroad.

    But it isn’t only immigrants who use Bitcoin to
    reduce transaction costs. The investment banker/Austrian
    Economist Peter Schiff was a harsh critic of Bitcoin
    in 2013
    https://en.wikipedia.org/wiki/Peter_Schiff

    http://bit.ly/1vym7zM

    but according to Jeffrey Tucker Schiff became a
    Bitcoin enthusiast in 2014 after discovering that
    Bitcoin could save him transaction costs in his business.

    Of course, some people acquire bitcoins for reasons
    other than to reduce transaction costs or simplify
    transactions, such as for contracts, to implement
    other cryptocurrencies, etc.

    Dr. Surda makes the regression theorem more plausible
    by summarizing it with the words “illiquid goods cannot
    become a medium of exchange” and by saying that it is
    hard to imagine “a medium of exchange that did not
    start out as a liquid good”. Hard to imagine, but not
    impossible. Because I think Bitcoin started out as
    an invention intended to be a new form of money.

     

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    B.K. Marcus

    Thank you so much for this update, Ben. We talked about the regression theorem and cryptocurrency in a Bookworm Hangout where we were discussing Rothbard’s What Has Government Done to Our Money?.

    At this point I tend to think of the regression theorem as describing how money arises in a nonmonetary economy. Bitcoin, in contrast, is a post-political phenomenon, an attempt to create a post-fiat currency.

    Federal Reserve Notes clearly behave as money, whether or not we like it or consider them a good money, and they were never a commodity. I don’t see why accepting Bitcoin as part of the political evolution of money is any harder than seeing how non-redeemable paper came out of redeemable paper, which came out of the thing it was being redeemed for.

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    Konrad Graf

    I have addressed many of the above issues in some detail previously. Links to what I have done so far are collected here: http://konradsgraf.com/bitcoin-theory/ The top two articles are the main ones. In particular, in “On the origins of Bitcoin: Stages of monetary evolution” (3 November 2013) [PDF] [ePub], I incorporated some of Szabo’s Shelling Out ideas, Menger’s original explanation of the evolution of money due to relative liquidity, and Mises’s action-based explanation of why no medium of exchange _can_ begin to operate in that role without having a prior non-MoE valuation component, by definition. The alleged regression theorem versus bitcoin story tends to rest on significant misunderstandings of the regression theorem in particular and often also of bitcoin.

    I do not ascribe much significance to the reciprocal altruism angle, in part due to considerations raised by Ridley himself in the Rational Optimist, Chapter 2; I get my evolutionary biology from Dawkins, not my monetary theory. This is being addressed more fully in a later article, as I think it will be important to get these quite different things differentiated. Following Mises, I take a strictly action-based interpretation of the regression theorem and the concept of commodity money, as contrasted with much looser historical-category models described by some others. Bitcoin’s valuation history as elaborated in the appendices provides a new empirical example of the process.

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      Ben Best

      I was a bit put-off by the arrogance of Konrad Graf’s posting, but
      reading his material has deflated my own arrogance (giving me more
      humility). I now have an appreciation that there is much more pro-Bitcoin
      Austrian Economics literature than I had known-of, and that many of the
      arguments I had been making are part of that literature.

      I am now more accepting of the regression theorem. I can now accept
      the view of Surda and Graf that the regression theorem is misunderstood
      by the anti-Bitcoin Austrian Economists who claim that the regression
      theorem invalidates the moneyness of Bitcoin. Chapter 11 and 12 of Graf’s
      “On the origins of Bitcoin: Stages of monetary evolution” (http://bit.ly/1kRBOgP)
      give a detailed history of the evolution of Bitcoin as a cryptocurrency
      idea into a medium-of-exchange.

      In the early stages of Bitcoin, bitcoins were accumulated by the developers
      as part of their experimentation, becoming something of a status symbol
      (like LIBERTY.ME Karma points), but with the intention of possibly becoming
      a medium-of-exchange. That intention eventually led to attempts to use
      bitcoins for that purpose. As such attempts increased, so did the liquidity.
      Liquidity is a prerequisite for becoming a medium-of-exchange.

      Graf compares bitcoins achieving commodity value starting as a status
      symbol to the historical evolution of money from beads on a necklace
      and later gold and silver. These items did not have much value apart
      from durability and beauty, but eventually became valued for their
      use as media-of-exchange. This argument is quite distinct from the
      justification of bitcoins as having commodity value because of
      reducing transaction costs — a commodity value which is unrelated
      to the regression theorem (emergence of bitcoins as commodity to bitcoins
      as media-of-exchange).

      I have been irritated by the claim that bitcoins are a medium-of-exchange,
      but are not money. I now accept Graf’s definition of money as “the most
      liquid good in a given society context” and thereby used as a unit of
      account (basis of pricing goods). Even in cyberspace, fiat currencies
      are the ultimate unit of pricing — bitcoin unit pricing is still
      derived from fiat pricing.

      A very interesting point made by Konrad Graf is that gold and silver
      failed as monetary systems because they did not prevent take-over
      by government fiat money. My ardent hope and expectation is that
      Bitcoin does not — and cannot — have this flaw.

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        B.K. Marcus

        Extremely helpful post. Thank you.

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        • Lincoln Gardner

          Thanks Konrad. Are you referring to Ridley’s distinction, in chapter 2 of the Rational Optimist, between reciprocity and barter?

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        • Konrad Graf

          Yes, Ridley’s chapter 2 clicked a lot of other pieces into place for me in a new way. That the essence of trade is precisely that it is a simultaneous transfer. I link this right back to title-transfer theory of property, such that the essence of trade is agreeing to trade ownership rights to different things right now (even in cases when deliveries (possession thransfers) are planned for later).

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        Konrad Graf

        Thanks for reading, Ben, and a nice review of some of the points. Yes, I gradually came to think of “backing” as not being so much something to return to as a root cause of difficulties in the past that led to where we ended up holding the paper. As soon as there is “backing” there is a disconnection between the good itself and the substitute and this has just always been (and always would be) a very tempting corruption target.

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        • Ben Best

          I now feel the need to backpedal yet again. I read Rothbard’s
          Man, Economy and State over a decade ago, and even wrote a
          Book Review/Summary for my website:

          http://www.benbest.com/polecon/rothbard.html

          However, I should have re-read what Rothbard had to say
          about the regression theorem before engaging in this debate.
          I have only now done so, and am struck by the following passage:

          http://mises.org/rothbard/mes/chap4b.asp#5B._Money_Regression
          > Demand for a good as a medium of exchange must be predicated on a
          > previously existing array of prices in terms of other goods.
          > A medium of exchange can therefore originate only according to
          > our previous description and the foregoing diagram; it can arise
          > only out of a commodity previously used directly in a barter
          > situation, and therefore having had an array of prices in terms
          > of other goods. Money must develop out of a commodity with a
          > previously existing purchasing power, such as gold and silver
          > had. It cannot be created out of thin air by any sudden
          > “social compact” or edict of government.

          Although an argument can be made that bitcoins gained
          value as experimental tokens and status symbols, I think
          the “barter” history of Bitcoin (starting with the May 22, 2010
          pizza purchase for 10,000 bitcoins) was highly motivated by a “social compact” amongst a community of computer geeks who had a prospective medium-of-exchange, wanted it to become a medium-of-exchange, and played with it as a medium-of-exchange  until it became a medium of exchange. I think it is incorrect to say that Bitcoin arose from a commodity as Rothbard would describe it. Bitcoin is not something Rothbard could have imagined.

          So I am back to thinking that it is a very strained argument
          to describe Bitcoin as arising from a commodity in the manner
          that the regression theorem per Rothbard would require. For
          some Austrian Economists, Rothbard, Mises, and Menger are
          held in a reverence bordering on religion. But just because
          they were great economicists does not mean that there have
          not been technological developments that renders some of their
          thinking obsolete. I believe this applies to Bitcoin. I think
          it is too much of a contortion to try to say Bitcoin arose
          from a commodity to justify Bitcoin, the regression theorem,
          or highly revered economists of the past.

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