Topic: Why Bitcoin Fails as Currency of the Future (Read 4642 times)

Good quote, words to live by.

No there isn't, but this is not the same thing as saying a society of humans couldn't possibly agree on a set of economic rules that assumes things have intrinsic value and that ends up serving them well according to their expectations.
But I digress. (Your mistakes as a Mises-ian will be many more than I have time to point out and correct so I better give up on that type of reply right now.)

This says nothing about what makes a currency system better than others. I will tell you what makes a currency better than others (better than fiat and better than Bitcoin): it should have little or no deflation or inflation; and if it does these phenomena should only affect the people responsible for them and not also everyone else.

Grignon's Digital Coin system has these properties, unlike Bitcoin: the producers of goods and services are also the issuers of specific types of digital coin with which those goods and services can be bought. Therefore, all coin in circulation is always backed by real values available to be transacted on the market. Therefore, if a producer/issuer makes any calculation mistakes and issues too much or too little of their own coin relative to how much product they make available to be bought with it, the ensuing inflation or deflation will only affect them and not the whole economy. Two major problems solved right there. Bitcoin doesn't touch either of these.

That looks kinda like a circular definition: Bitcoin has value because effort was spent doing something that creates trust in the Bitcoin system. It's almost as bad as fiat currency. Coins should have value because they're backed by real values available to be exchanged for it on the market - that's healthy currency, not any of these other distorted systems based on little more than mental gymnastics.

I would like that too, but unfortunately you can't convert human expectations into energy units, so in a perfectly rational monetary system you will probably need at least two different types of currency that cannot be converted into eachother: one that reflects the physical properties of the goods being traded (and prices in this currency cannot be subject to the laws of the free market but must be established by extremely rigorous and precise calculations based on the laws of physics) and another that reflects all the human subjective factors that go into establishing "value" (and prices in this currency can be subject to free market phenomena, no problem).
But we digress again.

Yes I do, see above. Bitcoin is not backed by real values on the market any more than fiat currency is and when someone or something causes inflation/deflation in Bitcoin, that affects everyone at the same time, even people who weren't at fault. Grignon's Digital Coin system is clearly better, as it solves these two major problems.

I don't doublt its "value" as expressed in $ and while it still has that I will probably continue to trade in it - for purely speculative reasons. What I doubt is its "value" in the long term, its "value" as a monetary system.

No it's not. Speculation adds to instability, which lowers Bitcoin's "value" as a monetary system. All I'm doing is speculating - I want to see Bitcoin crash and burn ASAP (and get a little richer while I'm at it, if possible).

Maybe so then it is

My thoughts on why bitcoin will succeed

First thought is more of a reaction to studying environmental ethics. There is no such thing as intrinsic value. Value is determined as part of the economic calculation and it is always measured relative to something.

A good read on the subject of denationalized currency is Hayek's "Denationalization of Money" Available here:
http://mises.org/books/denationalisation.pdf

There are lots of different kinds of money, seed is one that the joint mentioned earlier, so are stones, gold, silver, platinum, paper, cloth, wood rings... For kids, at least my age crowing up baseball cards and marbles represented a form of currency.

I look at the economic calculation more from an Austrian perspective, specifically Ludwig von Mises "Human Action". Action is an interesting thing especially when we look at it from a perspective of physics. It is observable and countable. Because it has a defined measure that means we can apply statistics (in economics this is called Game Theory). With the application of statistics we can aggregate the action of a manifold of individuals acting and low and behold we get the fundamental equation of thermodynamics with utility having the context of measured action the exact same as energy in thermodynamics. I am in the process of translating a series of papers I wrote into html @ http://statisticaleconomics.org

For a thermodynamic analogy to economics here you go:
http://ajp.aapt.org/resource/1/ajpias/v67/i12/p1239_s1?isAuthorized=no

The interesting thing that I find is that in a thermodynamic analogy there is a marginal utility to information, we call this marginal utility temperature and the measure of information (rather lack of knowledge of a state) entropy.

So I still have not answered where the value of a currency comes form. It is the amount of action that can be traded between one individual to another. They agree on the value of the currency at the time of the transaction. For more on this read:
http://www.gmu.edu/depts/rae/archives/VOL17_4_2004/1-Horowitz.pdf

Currency is a means of exchanging action. The size of an economy is its money supply. The size of a physical system is its volume. The marginal utility of money is akin to pressure in physical system.

When we agree to use bitcoin and trade in it, more importantly when we choose to do business in it, we impart some of our action and our own knowledge of value to the currency. This acts to increase the pressure of the system.

So where you might ask did the initial value of the bitcoin come from. It came when Satoshi expended the first electron to decrypt the very first block (not counting his work in developing and testing bitcoin). See that electron just did not appear at his home with some preordained potential of 120 VAC just because. It came to him because he exchanged his action (I'm assuming he's from US please forgive me if you are not) stored in USD for the infrastructure to produce and deliver that electron to him. The cost of electricity to decrypt the very first block was the value of that first bitcoin.

I find it convenient to measure things next to something I can measure with a ruler. I like converting the value of a currency into the amount of primary energy that it purchases. $/J is the marginal utility of the dollar measured relative to the definition of a joule, the dollar being an american is the one I study the most. Ayers and Warr equate 80% of GDP to exergy (useful work) input to the economy: http://www.amazon.com/Economic-Growth-Engine-Prosperity-International/dp/1849804354

Useful work is the measure of action that can be achieved with that energy. Our action is not what we do with our hands but what we can affect with our knowledge. To change the world around us, it requires exergy. This is a combination of the first and second laws of thermodynamics. So my selection of energy as a measure of utility is not mere heuristics.

So "the joint" please refrain from denigrating bitcoin. You do not have a logically defensible position. If you doubt its value, don't trade in it. If you are trading in it then you don't even believe your own gas, because your act of trading is adding value to bitcoin. Go ahead and sell off. Please, I need to buy some BTC for my daughter. My kids keep there allowance money in BTC.

As for measuring the value of something relative to something else, this goes back to how we define Euclidian space and the Lebesgue measure. Everything is relative to something else, Pick a defined measure and reference everything else to it. In thermodynamics, the scale is not necessarily important it is the relative change. The same holds true in economics.

Welcome to the memetic age, where ideas have value.

And what I said is that I hope that better system comes soon because Bitcoin is clearly not well thought out and the longer it goes on before it crashes the harder it will hit those slowest to get out.

Annnd the first worthless answer is in from the first fanatic who can't even begin to acknowledge the possibility that Bitcoin might not be the perfect digital currency system, let alone have the patience to read about any alternative proposals.

You are excused.

I hope the Bitcoin value crashes to $1 and then rises to $40 again so I can cash out and then I hope this experimental/toy currency system dies for good and gets replaced with something actually well thought-out by people who understand what they're talking about, like Paul Grignon, the author of "Money as Debt":
http://digitalcoin.info

Haha, I meant 6970   I must've been daydreaming about what could have been.  My apologies if the manner of presentation offended anyone.  My approach to learning typically involves holding steadfast to a particular belief until I'm proven utterly wrong.  I posted the thoughts I was having at the time.  And, I'm not a doomsayer, though the subject heading may suggest otherwise.  I do believe Bitcoin is a preferable alternative to centralized currency, but not an optimal one.

How, in three pages, did no one call this guy out on only getting 385Mhash/sec out of his 6990?

the joint, I think you are well spoken and have some very intelligent thoughts on the subject, but your manner of presentation makes everyone want to hate you. Why so antagonistic? You know how the doomsayers get treated here.

I only mentioned one perspective of Oriental consciousness.  For myself there is no future or past just the eternal now.  For now BTCs are here n'est pas?

Bartering is a great process. Originally stemming from the lack of a currency, people traded goods and services. And thusly people would barter the price of a chicken for a couple pieces of cloth. Currency only serves to mitigate the need to directly trade those goods and services. The world would be significantly less complicated if you had to drag your chickens around with you all the time when you need to buy something. Thats where currency comes in. Originally, gold and silver pieces (you could go farther back with coins and the like but this is a good place to deem the start) were the first "currencies". It small, its fairly light (relative to a bunch of chickens), its precious to a large majority of people, its limited in supply, and can be used for other things like decorations, electronics, wires, jewlery, especially jewlery. Gems are very old traded good. People like shiny things. They like rare shiny things even more.

This is where gold is deemed to have its "intrinsic" value. (Since this thread likes to keep using that word). It has uses to many people all over the world. The trust in gold as a currency is largely derived from its limited supply and the fact that it will ALWAYS have a use besides a currency.

A problem arose however when there wasn't enough gold for everyone to use a currency. So silver was used as well. And even bronze at times in history. Eventually governments recognized that there needs to some sort of order and made them into coin shapes and pieces. When transactions became larger than gold pieces, people started writing "notes". These notes were backed by trust that people were good for the gold on their paper. Originally this was done by governments, and the notes had government seals of authenticity. As populations grew, more and more of the notes or bills were printed and used more frequently. Just like the USD was once backed by gold. (Thats a whole different topic)

The point is currencies have to exist. They are a necessity. Bartering is a form of trading that has been reduced to a cultural activity. Many ignore it for the ability to pay just a set price to save the time of having to barter.

Currently none (?<--not positive of this statement) of the fiat currencies are backed by gold. This is a problem because if the currency loses it value, people using the currency have nothing but their current goods and services to fall back on. Thats why there was a rush on gold. Because it holds intrinsic value. It will ALWAYS be useful. It will ALWAYS hold a significant value. Current fiat currencies do not have that same intrinsic value. Its simply a piece of paper only worth its ability to be burnt if it loses its trust.

This is where bitcoins comes in. The simplest way to put it is that Bitcoins are the gold of the internet. Granted they have been created by people, but thats how the internet and electronics work. There are only so many in existence. But since they are digital they can be sub-divided into as many small pieces as needed. They are decentralized, meaning no one is assigning a value to them. The value of a bitcoin is purely determined by the people using them. Bitcoin removes the trust that was once assigned to government notes/bills that said "this note is worth XX gold", and places the trust back in the people trading the currency. If no one has trust in the Bitcoins then they are worth less goods and services. If more people continue to use them, they the value goes up and your bitcoins can buy you more goods and services than previously.

This is were people get confused, and people bring up intrinsic and extrinsic value. However you have to consider this is also a virtual currency. It has very little meaning IRL currently seeing as they are purely digital. This is were people say on now it'll fail just like the USD. But thats were they are wrong. Intrinsic and extrinsic value are irrelevant. The point of a currency is to simplify daily trading. Bitcoin puts the trust back into trading. So long as people are trading, Bitcoin will ALWAYS have value.

This is also where people claim Ponzi scheme, because the similarities are there. However, unlike a ponzi scheme, you can ALWAYS take out you money or trade it for goods and services. Bitcoin is more like an investment or stock at the current time, because the number of people trading bitcoin goods and services is so small. If people suddenly decide not to TRUST bitcoin anymore, then yes all fiat currency invested into bitcoins will have disappeared with no return. But it is a currency. Its has value. A value assigned by you and your peers. You control what it will become.

TRUST.

Trust bitcoin. Trade bitcoin. Treat it just like your bank account information. Actually treat it even more securely. Talk to people about it. Get involved. It'll never go anywhere if everyone dismisses it. The more people that use it, the more stable and usefull it will become.

WE are literally watching the birth of a currency right now.

EDIT- I fully expect tl;dr. But that just means those who do are too ignorant to learn or you understand it already. For those that make it through, bravo. I hope I have generated a new thought or two.

I'm not sure.  I used to read that junk but I find it more valuable to think for myself.  Kant ain't got shit on me :-D  Though I like some of his ethical stuff.

To elaborate, consider this statement.

"What one proves, the other cannot know.  What one knows, he cannot prove." ~ Me.    Now, I (subject) know the I as a subject exist through direct experience as a subject.  I have direct knowledge of I.  Can I prove I exist to you?  Well, I (subject) can point to I (object) and prove I exist.  But you cannot know this since you cannot know the subject.  You (subject) can point to me (object) and prove I exist, but you don't know I exist for the same reason -- you don't know the subjective me.  Proving requires external evidence.  Knowing requires direct experience.  I know it's hot out when I feel hot.  This requires no evidence.  Proving I am hot (lets say my body temp. is 102 degrees F)  does not mean that you know I am hot.  Some people get chills when they are at 102 degrees.  I need no evidence to know I am hot, but I need evidence to prove I am hot.  Yet, no evidence in the world could ever make you know I am hot.

I agree that we have an abstract understanding of some universal syntax (law) that helps create our interpretation of the law of thermodynamics.  Observably, this law is infinitely more constant than an agreed value placed upon a currency.  The process of exchange is seemingly as consistent as the law, but far more consistent than the value individuals place upon exchanged objects.

A side note about faith...
I had an interesting thought.

If you do not have faith in something, you doubt it (e.g. I do NOT have faith in the Cubs.  I doubt they will win.   I do not have faith in polytheistic gods, I doubt they exist).
So, if one has faith in something, they do not doubt it.  They are certain.  (e.g. I have faith/no doubt that in God)
Is faith more directly related to knowing than a belief based upon evidence?

How did you know the future is here unless you contemplated the relationship of the future to the present?  Using a similar river analogy, you don't always have to 'be' the river, looking at the bank of the river as you flow past it.  You can take the perspective of the river bank which simultaneously holds the potential for past, present, and future river configurations.  When we learn past present and future are connected, 'living in the present' isn't as concrete of an idea as you may think.

A couple hundred years is hardly enough time to suggest that the currency works indefinitely.  Civilizations come and go every few hundred years.  And our current economic system is 'working' because the Federal Reserve still has a printing press with a broken off switch.

It seems to me like the very premise of the OP is that only direct bartering can work as an economic system. Humans have been away from direct bartering for a long time, and our current economic system still manages to work well enough.

The quantitative value of Bitcoin is that it enables people to easily trade without hassle that is involved in bartering.

EDIT: Which is also an essential value that humans require, because one human is practically unable to fully provide everything he needs/desires by himself, therefore trading in one form or another is inevitable for 'survival'.

 

Well said.  +1

One of the odd things about occidental folks generally is they tend to spend a bunch of time contemplating the future and thus not living in the present. One description of oriental (Chinese I think) thought is how a river looks when only looking down stream or how the voyage of a ship appears when merely looking at the wake from the stern.

Fact is BTCs are a currency now or, at least fit the definition of "currency" better than FRN (so called "USD").

I have lured a friend who sells batteries/electronics online to get into BTCs and he will soon be offering his wares in exchange for BTC.

The future is already here.