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What is the Point of a Bitcoin?

by ChrisCook Wed Jan 9th, 2013 at 06:01:23 AM EST

I've never been able to understand why anyone would regard a Bitcoin as having any value, since it is evidence of past (useless) work and energy expenditure with no value other than the creation of a Bitcoin.

Mind you, it is generally accepted that a Bitcoin is made valuable purely by its acceptability to Bitcoin participants as currency. ie it is completely 'faith-based'.

Do Not Throw Stones At This Notice comes to mind in terms of pointless circularity.

In respect of faith-based value - rather than value which derives from use value over time - a Bitcoin as a value token is not dissimilar to gold, of course, but at least gold has amenity value, being nice to look at for a few million years, and possessing some specialised uses.

There's an interesting fork of Bitcoin as well - Freicoin - which introduces Gesell's concept of 'money that rusts' (demurrage) in order to discourage hoarding and encourage spending.

Bitcoin's P2P architecture on the other hand? Now that is valuable: and I haven't even mentioned anonymity and Big Government.

For me, the challenge is to create a unit of account, platform, framework/protocol and generally acceptable instruments (currency) which combine credit, utility and trust.

I think that to do so is both completely necessary and achievable, and moreover represents what is now an implementable Adjacent Possible.

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the challenge is to create a unit of account, platform, framework/protocol and generally acceptable instruments (currency) which combine credit, utility and trust.

are there no systems out there yet like this, even in development or theory?

(i am guessing Ripple.org does not fulfill the criteria)

Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire

by marco on Sun Jan 6th, 2013 at 07:26:17 AM EST
Well, after about ten years' work I reckon I can see all the necessary elements, and more to the point, a way to implement a generic system by bringing them all together.

I first posted here on Ripple getting on for four years ago and I think that a Circular Multilateral Barter (CMB) application of Ripple is key.

What CMB does is to generate - within a community of interest/trust framework agreement - settlement chains of bilateral obligations A>B>C>D>E>A to be 'netted out'.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jan 6th, 2013 at 09:40:22 AM EST
[ Parent ]
Good to see you posting Chris.

I lost interest in Bitcoin as a phenomenon the first time after the system got hacked. For what other reason would Bitcoin still be interesting than for people making/scheming a profit from them?

by Nomad on Sun Jan 6th, 2013 at 08:03:48 AM EST
Some people - including Michel Bauwens - find Bitcoin useful for efficient and discreet value transfer.

For as long as 'it works', it will be used. To me the interesting thing about Bitcoin is the P2P architecture.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jan 6th, 2013 at 09:57:21 AM EST
[ Parent ]
This P2P Facebook group exchange is relevant.


(Michel Bauwens - Leading Light of the P2P Foundation)

There is nothing wrong with fiat currencies, which is what all currencies really are, even the value of gold is a convention, as you can't eat gold.

Bitcoin may even said to be based on the "labor value" of the electricity needed to produce it, since if it moves under that bar, mining would stop. The real value of bitcoin is that it is the first globally scaleable, easy to use, socially sovereign currency.

Unlike the local currencies which do not scale (a study showed their average number of users to be 80-120 per currency); on the other hand, Bitcoin is designed to be scarce and thus a hoarding currency. It is perhaps why it is successful, but also makes it a transition currency. Freicoin could be it, but I'm afraid they messed up the introduction phase with their 80% initial tax.

(My response to Michel)
My point is that in order to work as a sustainable currency it must be based upon a claim over future value, not past value.

I see two principal sources of value for acceptable currency: land rentals and energy.

I see the capacity to provide goods and services as being the basis not of currency, but of the framework of trust for credit clearing. Neither currency, nor deposits are required for 'people-based' credit creation, clearing and settlement.

Although a unit of account IS necessary to value exchange transactions, this is not the same thing as the 'asset-based' (Peer to Asset) currencies and people-based' (P2P) credit obligations which may be exchanged by reference to it.

'Hoarding currency' is not currency: it's capital, and it represents only potential currency which requires acceptance from a counter-party in exchange in order to be valuable.

Since Bitcoin does not represent a claim over future value, I don't see it as ever going beyond the existing constituency for whom its value lies in Bitcoin maintaining anonymity and security.



"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Jan 6th, 2013 at 09:13:40 AM EST
One reasonable question might be the capacity and resilience of the P2P multi-lateral clearing capability. Could it reliably clear transactions in the >$1 million range? How about $1 billion range?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jan 7th, 2013 at 10:25:48 PM EST
[ Parent ]
Surely any currency only has value, to the extent that users have trust that it will be a reliable store of value. This principle seems to apply to any material object, given the status of money, as well as to any electronic equivalent.

There is very little real value in an arbitrary lump of metal; with a specified shape, composition and surface decoration. Even something like gold is only likely to be melted down and used for something else, if its monetary value is considered to be less than the value of the metal if used for a non coinage purpose.

If the authority which issued the currency is overrun by an enemy, its money will be largely valueless. For example the Confederate dollar only had value after mid 1865 as a curiosity for collectors.

An electronic currency presumably has no value at all if faith in it is lost, since unlike metal or paper currency it cannot be recycled or collected.

by Gary J on Sun Jan 6th, 2013 at 02:30:28 PM EST
Perhaps in the future people will collect bitcoins.

"I have a bitcoin with 48 trailing zeros!"

by njh on Sun Jan 6th, 2013 at 04:36:55 PM EST
[ Parent ]
Surely any currency only has value, to the extent that users have trust that it will be a reliable store of value.

Store of value is only one of the possible functions of money. Others are to provide a method of accounting and to provide a medium of exchange. Store of value can be declining at a steady, even increasing, rate yet the money can still be used as a medium of exchange. Just do it quickly. And in a rapid deflation the money can increase in value and not to a beneficial effect.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jan 6th, 2013 at 05:28:47 PM EST
[ Parent ]
Store of value,
Accounting unit,
Medium of exchange, ...

We're forgetting one very important function of money which is to serve as a token of state power issued to mobilize resources. This has been in evidence from the time Alexander the Great flooded the Eastern Mediterranean with gold coinage in the process of bankrolling his military campaigns.

Seigniorage is a nonviolent way to commandeer resources, by using the power to issue coinage to appropriate resources in the market.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Sun Jan 6th, 2013 at 05:36:44 PM EST
[ Parent ]
Do you have examples of sovereigns' principal source of funding being collecting seigniorage through coinage issue?

Coinage as I understand it, apart from small denomination coins, was the minting function, whereby the sovereign's Mint would assay, stamp and issue coins from raw material for private citizens.

Sure, there was debasement, such as clipping, which benefited the sovereign, but for the most part sovereigns have tended to pledge their credit in one way or another.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jan 6th, 2013 at 06:00:12 PM EST
[ Parent ]
In a credit money system, you don't need to issue coinage in order to issue money. Most 'high-powered money' (created directly by the Central Banks) is not in the form of coinage. And most money is not high-powered money.

The national deficit is basically the State issuing money in excess of its revenues to mobilize resources.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Sun Jan 6th, 2013 at 06:49:11 PM EST
[ Parent ]
In my analysis there is no such thing as 'high powered money'.

It's a canard.

Central Banks issue fiat currency as a tax credit in their capacity as fiscal agents of the Treasury and they spend this by crediting the memorandum accounts of clearing banks. The Treasury then issues dated interest-bearing Debt which is purchased by private banks.

Private banks also create - as sub fiscal agents of the Treasury - what are 'look-alike' tax credits and these  are indistinguishable from central bank money. This virtual cash is then either spent - by crediting Central Bank memorandum accounts - on purchasing goods, services or assets (particularly treasury debt) or lent by entering into a sale and repurchase agreement of the cash asset.

The misunderstanding which permeates Economics is to regard the relationship between Treasury and Central Bank as a counter-party relationship when it's an agency relationship.

Likewise, central banks do not 'owe' cash reserves to private banks: private banks 'own' cash deposits.

Two different 'liabilities': the undated creditary/ownership liability of cash reserves; and the dated liabilities of loans and term deposits have been wrongly conflated.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jan 6th, 2013 at 07:08:23 PM EST
[ Parent ]
The misunderstanding which permeates Economics is to regard the relationship between Treasury and Central Bank as a counter-party relationship when it's an agency relationship.

True, but then you have thing like the Maastricht Treaty where the relationship is regarded as adversarial...

Sort of auto-immune.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Jan 7th, 2013 at 12:01:40 AM EST
[ Parent ]
Do you have examples of sovereigns' principal source of funding being collecting seigniorage through coinage issue?

Several leap to mind. I believe the King of Macedonia had at least one silver mine, the product of which his mint turned into coins. Similar for King Midas and at least some of the revenue of the Hapsburgs derived from coinage of precious metal mined from their own mines. In a time when most transactions were barter and/or feudal tribute these counted for a very significant part of the money supply, especially the 'store of value' part.

The Spanish kings famously brought back precious metals from the colonies, what they didn't use to pay for exports from China via Manila, thence to Acapulco, etc. This factor was sufficiently important that, when Raleigh intercepted the shipment one year, the booty, it has been argued, produced a boom in England.

Likewise, the early accession of California and Nevada as states to the USA and the need and urgency of the transcontinental railroad was justified on the basis of the perceived value of the gold and silver they produced. While the Civil War was financed mostly by greenback dollars, precious metal was seen as important for assuring the value of those dollars, especially to foreign counterparties.

Today it is reported that almost all gold mined in China is kept by the government to build Chinese reserves. That said, it is highly unlikely that China would consider resumption of even a gold reference standard.

One amusing suggestion for dealing with the 'fiscal cliff' has been that Geithner use a section of the code dealing with the authorization of the Secretary of the Treasury, via the Mint, to mint coins of any value in platinum. Thereby he could mint a $1 Trillion dollar coin, drive over to the Fed, deposit it in the US Government account and then the government could write checks on that deposit as opposed to increasing the national debt. A coin a year for a few years could pay for quantitative easing for the public, which, if done along the lines Steve Keen suggests - requiring that such money be used first to pay down debt - would resolve the debt crisis. I would suggest minting $1 million dollar platinum coins to sell as status symbols for the wealthy. No lady should go out without a $1 million coin somewhere on her person.

 

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jan 6th, 2013 at 11:40:11 PM EST
[ Parent ]
Congressman To Introduce Law To Ban The Trillion Dollar Platinum Coin

Earlier today, Paul Krugman hopped on board and said Obama must be ready to mint the coin if the GOP decides to try to force the country into defaulting on its obligations.

And now a US Congressman has come out against the coin idea and is proposing a law to ban it (via Matthew O'Brien). Ironically, this action actually legitimizes the coin option.

A new wonder of the world: a solid platinum fiat money coin! How deliciously confounding. Of course Obama could veto any legislation proposed to remove the cited authority. But why be a piker. GWB's legacy bequeathed tens of trillions of new debt for the US government. Why just mint one coin? Mint ten or twenty, enough to redeem all of the increased debt from GWB's inauguration to Obama's.  Triumph over debt!

See! These problems really are easy to resolve if just seen in the proper light.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jan 7th, 2013 at 10:22:34 PM EST
[ Parent ]
The above comment could well illustrate Sven's discourse in his diary  LOL. What is the point of comedy?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jan 7th, 2013 at 10:31:25 PM EST
[ Parent ]
Out of these, Store of value was important early on as there was a Bitcoin-bubble. According to friends that paid more interest Bitcoins survived the inevitable crash due to the general currency insecurity that the GFC caused.

Its longterm use is as Medium of exchange because it can be traded more anonymously then most. Two parties can for a short term use Bitcoins in order to hide a transaction. So those interested in selling a service that potential customers wants to have hidden has a reason to provide the option of buying in bitcoins.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Mon Jan 7th, 2013 at 08:32:37 AM EST
[ Parent ]
I'm not saying Bitcoin doesn't have its uses, but most techies working on monetary solutions seem to think that the ideal currency is a global, frictionless unit in which transactions are quickly settled, perhaps between anonymous users.

However this comes from limited understanding of money as a commodity, and drawing analogies from the bastardised form of money we use today.

by Terence on Mon Jan 7th, 2013 at 08:06:55 AM EST
Welcome to ET, terence. Your account is now free of the unfortunate restrictions spammers oblige us to place on new sign-ups.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Jan 7th, 2013 at 08:29:41 AM EST
[ Parent ]
the ideal currency is a global, frictionless unit in which transactions are quickly settled, perhaps between anonymous users

That's ideal for organized crime.



I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Jan 7th, 2013 at 08:36:12 AM EST
[ Parent ]
And indeed, that is the main current use of Bitcoin. Organised crime.
Alongside a few faithful supporters of the system, who try to use if for things like web hosting and other small items.

I say main use for a reason, because the estimate is that most Bitcoins are not being used, but hoarded as the owners hope that the limited number means their value will appreciate.

by Metatone (metatone [a|t] gmail (dot) com) on Mon Jan 7th, 2013 at 12:08:22 PM EST
[ Parent ]
Metatone:
And indeed, that is the main current use of Bitcoin. Organised crime.

That looks reasonable. Has anyone had a look at it or is it just assumed?

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Mon Jan 7th, 2013 at 02:34:58 PM EST
[ Parent ]
There have been some informal studies, nothing published yet, but by the middle of the year some studies should be out.
by Metatone (metatone [a|t] gmail (dot) com) on Mon Jan 7th, 2013 at 03:19:17 PM EST
[ Parent ]
I don't think Bitcoin is advertised as providing anonymity. And efforts to move towards that (using multiple addresses, multiple deposits & withdrawals, etc.) add friction to transactions. Plus, who knows what actually goes on inside the Mt.Gox computers?

For criminal activity, the good old $100 bill is still the best option.

by asdf on Wed Jan 9th, 2013 at 12:58:40 PM EST
[ Parent ]
In the sidebar with a small font I read this as 'What is the Point of Bacon' ...

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sapere aude
by Number 6 on Tue Jan 8th, 2013 at 06:07:49 AM EST


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