Internet classroom circa 2075 (USD/BTC exchange rate = infinity):
'Lil Jimmy (via Skype): Mrs. Paul, why are bitcoins money?
Mrs. Paul: Excellent question Jimmy! When I was your age the only real money we had was gold!
Gold was money because of its intrinsic characteristics of scarcity, fungibility, divisibility, portability and durability.
Over the course of time, the free market recognized that these were the characteristics that made for the best money.
Then in the year 2009 a new commodity was discovered by the great Satoshi. An element known as the "Bitcoin Protocol". This element had all the same characteristics as gold except that it was electronic and not tangible much like your Facebook friends. In fact, it was even better than gold in some respects. I mean can you imagine paying someone with gold on the internet? Or carrying around little bags of gold in your pockets to pay for a pizza? (class laughs). The funny thing is that initially most of the people couldn't even recognize that Satoshi had discovered a new type of money. In fact, just like gold, it took years before people really started using bitcoins as money! Can you imagine that Jimmy? I know it seems crazy but that's how it all happened.
'Lil Jimmy: Mrs. Paul?
Mrs. Paul: Yes Jimmy.
'Lil Jimmy: What the @#$% is fungibility?
Mrs. Paul: Oh Jimmy!
Topic: Regression theorem & Bitcoin revisited - page 6. (Read 5406 times)
Conclusion: The regression theorem is useful in explaining todays prices, or the value of money: It is based on yesterdays value.
But regressing all the way back to the start of the money system: Either there has to be intrinsic value to the money, or not. No conclusion.
But regressing all the way back to the start of the money system: Either there has to be intrinsic value to the money, or not. No conclusion.
Maybe at the time the regression therem was worked out, there had only been examples of paper money developing from commodity money.
Maybe when the population of the world had seen paper money working, it was possible to start a new money system without intrinsic value, but not before that time.
Wasn't the Deutche Mark restarted after the crash without intrinsic value?
It is possible that bitcoins have a miniscule intrinsic value, especially in the beginning when this was something new and could be used to brag. If it hasn't, it seems to be possible to create some by making noise on the internet.
Maybe when the population of the world had seen paper money working, it was possible to start a new money system without intrinsic value, but not before that time.
Wasn't the Deutche Mark restarted after the crash without intrinsic value?
It is possible that bitcoins have a miniscule intrinsic value, especially in the beginning when this was something new and could be used to brag. If it hasn't, it seems to be possible to create some by making noise on the internet.
Saying that Bitcoin cant work, because it does not fulfill regression theorm is like saying that vaccines cant work because they are not the result of natural evolution. The thing is that humans are beings of intelligence and reason - we are not bound to one natural path of evoution, we can push it forward, go right, left... or sometimes backward. Reality will validate our choice, the same way market will validate existance of bitcoin.
This is a discussion I had on another forum:
Him:
Me:
Him:
Me:
Did I get any of the facts wrong? Is my reasoning flawed?
Him:
Quote
Bitcoin violates the regression theorem. Bitcoin is purely synthetic, it was never tied to any consumer good, nor was it derived from any other currency that was tied to a consumer good.
Me:
Quote
You are misinformed. I think it's best you read http://wiki.mises.org/wiki/Regression_theorem yourself cause it seems like you don't understand what it means.
Him:
Quote
Nope.
Why are people willing to accept money as payment for goods today: i.e. why does it have purchasing power? Because those people expect it will have purchasing power tomorrow, and this expectation is grounded in their knowledge that money had purchasing power yesterday. So why did it have purchasing power yesterday...and so we begin the regress. But it's not an infinite regress, it concludes when the answer to the question "why does money have purchasing power today" is "because this 'money' is a consumer good, something valued in its own right."
But, as I said, bitcoin is not a consumer good, nor does it have any connection (present or historical) to any consumer good.
Why are people willing to accept money as payment for goods today: i.e. why does it have purchasing power? Because those people expect it will have purchasing power tomorrow, and this expectation is grounded in their knowledge that money had purchasing power yesterday. So why did it have purchasing power yesterday...and so we begin the regress. But it's not an infinite regress, it concludes when the answer to the question "why does money have purchasing power today" is "because this 'money' is a consumer good, something valued in its own right."
But, as I said, bitcoin is not a consumer good, nor does it have any connection (present or historical) to any consumer good.
Me:
Quote
Ok seems like you get the regression theorem but you are misapplying it to Bitcoin.
I don't know if you know this but back in early 2010 when 1 bitcoin was theoretically valued a fraction of a fraction of a cent (this was just an approximation of how much it cost to produce it, no actual trades happened that would set this price) something strange happened. Some guy decided to put up a forum ad asking to exchange 10.000 BTC for 2 pizzas. And then something "stupid" happened, someone said yes and they carried out this transaction.
But what exactly did happen there? There was this guy with two perfectly good pizzas and he decided to exchange them for 10000 bitcoins?! Now why would he do that if not because he personally saw "something valuable in their own right" in them? And I argue that's exactly what he saw back then. To him bitcoins were a digital token, digital jewellery like gold earrings.
And then something even more stupid happened, there were more and more people who showed up wanted to "wear" this digital "jewellery". Now why is that, why would all these people show up and want to own these tokens worth practically nothing?? Was it just because it was a novelty? Was it because they were speculating they might get filthy rich one day if Bitcoin happened to catch on. Remember there was no trading back then and the currency was used by so few in effect it was dead so any expectation of a higher exchange rate were a lot less likely than merely a long shot.
But it doesn't matter why more and more people showed up wanting to hold them and exchange something of value for them. The important fact is they did and this is what drew the initial demand. Bitcoins, to them, for what ever reason were valuable in their own right.
And voila, regression theorem satisfied.
I don't know if you know this but back in early 2010 when 1 bitcoin was theoretically valued a fraction of a fraction of a cent (this was just an approximation of how much it cost to produce it, no actual trades happened that would set this price) something strange happened. Some guy decided to put up a forum ad asking to exchange 10.000 BTC for 2 pizzas. And then something "stupid" happened, someone said yes and they carried out this transaction.
But what exactly did happen there? There was this guy with two perfectly good pizzas and he decided to exchange them for 10000 bitcoins?! Now why would he do that if not because he personally saw "something valuable in their own right" in them? And I argue that's exactly what he saw back then. To him bitcoins were a digital token, digital jewellery like gold earrings.
And then something even more stupid happened, there were more and more people who showed up wanted to "wear" this digital "jewellery". Now why is that, why would all these people show up and want to own these tokens worth practically nothing?? Was it just because it was a novelty? Was it because they were speculating they might get filthy rich one day if Bitcoin happened to catch on. Remember there was no trading back then and the currency was used by so few in effect it was dead so any expectation of a higher exchange rate were a lot less likely than merely a long shot.
But it doesn't matter why more and more people showed up wanting to hold them and exchange something of value for them. The important fact is they did and this is what drew the initial demand. Bitcoins, to them, for what ever reason were valuable in their own right.
And voila, regression theorem satisfied.
Did I get any of the facts wrong? Is my reasoning flawed?
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