Bitcoin Forum
March 19, 2024, 03:34:26 AM *
News: Latest Bitcoin Core release: 26.0 [Torrent]
 
   Home   Help Search Login Register More  
Pages: [1] 2 »  All
  Print  
Author Topic: Bitcoin does NOT violate Mises' Regression Theorem  (Read 41107 times)
xc (OP)
Jr. Member
*
Offline Offline

Activity: 40
Merit: 4


View Profile
July 27, 2010, 02:09:27 AM
Last edit: December 03, 2010, 08:19:34 PM by xc
Merited by Husna QA (1), DireWolfM14 (1)
 #1

The Money Regression and Emergence of Money from the Barter Economy
The entire purpose of the regression theorem was to help explain an apparent paradox of money: how does money have value as a medium of exchange if it is valued because it serves as a medium of exchange?  Menger and Mises helped break this apparent circularity by explaining the essential time component missing from the phrasing of the paradox.

As Rothbard explains in Man, Economy, and State (p 270),
"...a money price at the end of day X is determined by the marginal utilities of money and the good as they existed at the beginning of day X. But the marginal utility of money is based, as we have seen above, on a previously existing array of money prices. Money is demanded and considered useful because of its already existing money prices. Therefore, the price of a good on day X is determined by the marginal utility of the good on day X and the marginal utility of money on day X, which last in turn depends on the prices of goods on day X – 1. The economic analysis of money prices is therefore not circular. If prices today depend on the marginal utility of money today, the latter is dependent on money prices yesterday." [all emphasis added]

Rothbard then goes on to explain that in order for money to emerge from a barter economy, it must have a preexisting commodity value.  This commodity value arises from barter demand for the potential money in direct consumption (i.e. ornamentation).  This value seeds future estimations of the value of the money as a medium of exchange.  The natural market emergence of money is thus fully explained.

The Monetary Economy
However, once an economy has been monetized and a memory of price ratios for goods and services has been established, a money may lose its direct commodity value and still be used as a money (medium of indirect exchange).  Rothbard explains (p 275):
"On the other hand, it does not follow from this analysis that if an extant money were to lose its direct uses, it could no longer be used as money. Thus, if gold, after being established as money, were suddenly to lose its value in ornaments or industrial uses, it would not necessarily lose its character as a money. Once a medium of exchange has been established as a money, money prices continue to be set. If on day X gold loses its direct uses, there will still be previously existing money prices that had been established on day X – 1, and these prices form the basis for the marginal utility of gold on day X. Similarly, the money prices thereby determined on day X form the basis for the marginal utility of money on day X + 1. From X on, gold could be demanded for its exchange value alone, and not at all for its direct use. Therefore, while it is absolutely necessary that a money originate as a commodity with direct uses, it is not absolutely necessary that the direct uses continue after the money has been established."

This explains the history of fiat currencies.  They originally started off as simple names for weights of commodity money (silver) that developed out of the pre-monetary barter economy.  Despite later losing their ties to direct commodity value through state interference, paper currency retained status as money because of memory of previous money prices.  This factor is so strong that the relationship between gold and the USD, for example, is somewhat inverted.  Gold no longer circulates as a common medium of exchange.   Prices are set in USD, not in gold.  Most individuals wishing to trade in gold do so based on their knowledge of USD/gold price ratios.  ("Hey, let me buy that $100 couch from you in gold?"  "Ok, USD/gold is $1000/oz. Give me 1/10oz of gold.")  Legal tender laws, state taxation, and the entire financial regulatory environment maintain this inertia of USD prices and make it challenging to return to gold money directly, despite the destructive inflationary nature of fiat currencies.

The Emergence of the Bitcoin Economy
The very first businesses in the Bitcoin economy were exchangers (NewLibertyStandard, BitcoinMarket, BitcoinExchange,....).  This is not an accident, but flows from the analysis above.  In order for Bitcoins to serve as a medium of exchange without commodity value for uses besides indirect exchange, there must be a translated knowledge of money prices.  Market exchangers fill this gap and give Bitcoin users access to this knowledge.  Bitcoins may therefore currently serve as a money intermediary for paypal dollars\pecunix\euros.  But why is there demand for Bitcoin over USD??  This is a subjective valuation arising from properties such as anonymity, decentralized system of clearance, cryptographic trust, predetermined and defined rate of growth, built in deflation, divisibility, low transaction fees, etc.... inherent to the Bitcoin system.

The essential point is that once exchange can occur between a money (USD) and Bitcoins, providers of goods have a means by which to value Bitcoins as a potential medium of exchange.  The money regression is satisfied, because taken back far enough we reach traditional commodity money: BITCOINS -> USD -> MONETIZED GOLD & SILVER [start monetary economy] -> [end barter economy] COMMODITY GOLD & SILVER.  

Of course, if a major meltdown occurred and knowledge of all price ratios was wiped out, Bitcoin probably would NOT directly emerge as a money (assuming Bitcoins have limited value outside of exchange).  Fiat currencies with zero direct barter value certainly would not.  Commodities such as gold and silver that have widely recognized direct value in barter would likely emerge first.  The economy would then be monetized with price ratios in gold and silver.  Bitcoins then, being valued for intrinsic properties amenable to exchange, might then become prevalent in trade.  Initially, creators of value would continue to make their price value ratios in terms of the true money (gold oz/BTC ratio), but with time Bitcoin prices (BTC) can emerge (see vekja.net as example).  We are in this initial phase now.  

Therefore, so long as exchange of BTC and USD/Euros/etc… occurs, knowledge of existing price ratios can be utilized in the Bitcoin economy.  In time as Bitcoins become increasingly marketable, these fiat<->BTC price ratios will seed direct BTC price ratios.  The Bitcoin Economy thus emerges.  The Misean regression theorem is satisfied.

XC

edit: clarified possibility of direct emergence of bitcoin as money from barter economy.
1710819266
Hero Member
*
Offline Offline

Posts: 1710819266

View Profile Personal Message (Offline)

Ignore
1710819266
Reply with quote  #2

1710819266
Report to moderator
In order to get the maximum amount of activity points possible, you just need to post once per day on average. Skipping days is OK as long as you maintain the average.
Advertised sites are not endorsed by the Bitcoin Forum. They may be unsafe, untrustworthy, or illegal in your jurisdiction.
1710819266
Hero Member
*
Offline Offline

Posts: 1710819266

View Profile Personal Message (Offline)

Ignore
1710819266
Reply with quote  #2

1710819266
Report to moderator
1710819266
Hero Member
*
Offline Offline

Posts: 1710819266

View Profile Personal Message (Offline)

Ignore
1710819266
Reply with quote  #2

1710819266
Report to moderator
1710819266
Hero Member
*
Offline Offline

Posts: 1710819266

View Profile Personal Message (Offline)

Ignore
1710819266
Reply with quote  #2

1710819266
Report to moderator
kiba
Legendary
*
Offline Offline

Activity: 980
Merit: 1014


View Profile
July 27, 2010, 04:05:16 AM
 #2

YOU WIN 20 BTC!  Grin

Now all I need is your address for you to claim Kiba's AWESOME POST prize.

Edit: got it.

Red
Full Member
***
Offline Offline

Activity: 210
Merit: 111


View Profile
July 27, 2010, 04:26:34 AM
 #3

Yes, quite an impressive analysis! Alas I have no coins to send.

Why is there no PPC build for the Mac? I really need new hardware.
Anonymous
Guest

July 27, 2010, 10:01:16 AM
 #4

Excellent economic breakdown.

A hash cookie for you!
joechip
Newbie
*
Offline Offline

Activity: 50
Merit: 0


View Profile
July 27, 2010, 06:06:28 PM
 #5

Excellent breakdown.  That helps satisfy my worries about the process by which one type of money can supplant another.  I have not read Man, Economy and State (though I really should) and therefore, missed that portion of Rothbard's analysis. 

Thanks again.

Ta,
hugolp
Legendary
*
Offline Offline

Activity: 1148
Merit: 1001


Radix-The Decentralized Finance Protocol


View Profile
August 06, 2010, 11:39:14 AM
 #6

But why is there demand for Bitcoin over USD??  This is a subjective valuation arising from properties such as anonymity, decentralized system of clearance, cryptographic trust, predetermined and defined rate of growth, built in deflation, divisibility, low transaction fees, etc.... inherent to the Bitcoin system.

Exactly this. Bitcoins have value because they offer some qualities, and some people value them. Also, I would add ideological value.


               ▄████████▄
               ██▀▀▀▀▀▀▀▀
              ██▀
             ███
▄▄▄▄▄       ███
██████     ███
    ▀██▄  ▄██
     ▀██▄▄██▀
       ████▀
        ▀█▀
The Radix DeFi Protocol is
R A D I X

███████████████████████████████████

The Decentralized

Finance Protocol
Scalable
▄▄▄▄▄▄▄▄▄▄▄▄▄▄▄▄▄▄▄▄▄▄▄
██▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀██
██                   ██
██                   ██
████████████████     ██
██            ██     ██
██            ██     ██
██▄▄▄▄▄▄      ██     ██
██▀▀▀▀██      ██     ██
██    ██      ██     
██    ██      ██
███████████████████████

███
Secure
      ▄▄▄▄▄
    █████████
   ██▀     ▀██
  ███       ███

▄▄███▄▄▄▄▄▄▄███▄▄
██▀▀▀▀▀▀▀▀▀▀▀▀▀██
██             ██
██             ██
██             ██
██             ██
██             ██
██    ███████████

███
Community Driven
      ▄█   ▄▄
      ██ ██████▄▄
      ▀▀▄█▀   ▀▀██▄
     ▄▄ ██       ▀███▄▄██
    ██ ██▀          ▀▀██▀
    ██ ██▄            ██
   ██ ██████▄▄       ██▀
  ▄██       ▀██▄     ██
  ██▀         ▀███▄▄██▀
 ▄██             ▀▀▀▀
 ██▀
▄██
▄▄
██
███▄
▀███▄
 ▀███▄
  ▀████
    ████
     ████▄
      ▀███▄
       ▀███▄
        ▀████
          ███
           ██
           ▀▀

███
Radix is using our significant technology
innovations to be the first layer 1 protocol
specifically built to serve the rapidly growing DeFi.
Radix is the future of DeFi
█████████████████████████████████████

   ▄▄█████
  ▄████▀▀▀
  █████
█████████▀
▀▀█████▀▀
  ████
  ████
  ████

Facebook

███

             ▄▄
       ▄▄▄█████
  ▄▄▄███▀▀▄███
▀▀███▀ ▄██████
    █ ███████
     ██▀▀▀███
           ▀▀

Telegram

███

▄      ▄███▄▄
██▄▄▄ ██████▀
████████████
 ██████████▀
   ███████▀
 ▄█████▀▀

Twitter

██████

...Get Tokens...
Anonymous
Guest

August 07, 2010, 03:14:25 AM
 #7

But why is there demand for Bitcoin over USD??  This is a subjective valuation arising from properties such as anonymity, decentralized system of clearance, cryptographic trust, predetermined and defined rate of growth, built in deflation, divisibility, low transaction fees, etc.... inherent to the Bitcoin system.

Exactly this. Bitcoins have value because they offer some qualities, and some people value them. Also, I would add ideological value.

What if someone wants to buy something and they dont want it showing on their credit card statement? Bitcoins are the ultimate thing for it. Cheesy
aurelian
Newbie
*
Offline Offline

Activity: 1
Merit: 0


View Profile
August 21, 2010, 06:24:31 AM
 #8

The simpler answer is that Rothbard is wrong here.   Not a statement about Rothbard in general, but on this particular point he's off.  There need be no preexisting "direct" value for money, where the value of money itself is artificially deemed as of some second-class "indirect" sort.   The value of a commodity _as money_, because it more securely scarce (and portable, hard to steal, etc.) than an alternative commodity, is quite sufficient to make it valuable as money and thus to get it going as money.    Enabling exchange, i.e. lowering transaction costs, is a form of economically useful consumption just as much as satisfying hunger, decoration, or some other "direct" use is a form of economic consumption.    In the same way, a stock exchange doesn't have to satisfy your hunger or make a good decoration or have any other "direct consumption" value, it just has to be good at exchanging stocks.

This is well explained here (interestingly enough by the guy who originally came up with the bit gold idea):
http://szabo.best.vwh.net/shell.html
FreeMoney
Legendary
*
Offline Offline

Activity: 1246
Merit: 1014


Strength in numbers


View Profile WWW
August 21, 2010, 06:48:36 AM
 #9

This might just be semantics. But I'd say that the "pre-existing value" was the expectation of some people that it would be a good money.

Play Bitcoin Poker at sealswithclubs.eu. We're active and open to everyone.
satoshi
Founder
Sr. Member
*
Offline Offline

Activity: 364
Merit: 6610


View Profile
August 27, 2010, 05:32:07 PM
Last edit: August 27, 2010, 06:17:17 PM by satoshi
Merited by mindrust (2), BlackHatCoiner (2), vapourminer (1), Gyrsur (1), Husna QA (1), solosequenosenada (1), RainbowKun (1)
 #10

As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties:
- boring grey in colour
- not a good conductor of electricity
- not particularly strong, but not ductile or easily malleable either
- not useful for any practical or ornamental purpose

and one special, magical property:
- can be transported over a communications channel

If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it.

Maybe it could get an initial value circularly as you've suggested, by people foreseeing its potential usefulness for exchange.  (I would definitely want some)  Maybe collectors, any random reason could spark it.

I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce, an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value.  But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something.

(I'm using the word scarce here to only mean limited potential supply)
MoonShadow
Legendary
*
Offline Offline

Activity: 1708
Merit: 1007



View Profile
August 27, 2010, 07:12:02 PM
 #11

As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties:
- boring grey in colour
- not a good conductor of electricity
- not particularly strong, but not ductile or easily malleable either
- not useful for any practical or ornamental purpose

and one special, magical property:
- can be transported over a communications channel


If you redact "over a communications channel" you end up with depleted uranium, and the US military has been "transporting" that stuff all over the middle east for two decades now.  Talk about your long distance communications, the Barret 50 caliber can really "reach out and touch someone"!   Cheesy

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
chaord
Full Member
***
Offline Offline

Activity: 218
Merit: 101


View Profile
August 27, 2010, 11:45:18 PM
 #12

As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties:
- boring grey in colour
- not a good conductor of electricity
- not particularly strong, but not ductile or easily malleable either
- not useful for any practical or ornamental purpose

and one special, magical property:
- can be transported over a communications channel

If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it.

Maybe it could get an initial value circularly as you've suggested, by people foreseeing its potential usefulness for exchange.  (I would definitely want some)  Maybe collectors, any random reason could spark it.

I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce, an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value.  But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something.

(I'm using the word scarce here to only mean limited potential supply)


This is actually starting to converge with this thread about the hypothetical "BitBox."  http://bitcointalk.org/index.php?topic=911.0
manuelgar
Full Member
***
Offline Offline

Activity: 336
Merit: 100



View Profile
June 24, 2011, 06:25:52 PM
 #13

The Money Regression and Emergence of Money from the Barter Economy
The entire purpose of the regression theorem was to help explain an apparent paradox of money: how does money have value as a medium of exchange if it is valued because it serves as a medium of exchange?  Menger and Mises helped break this apparent circularity by explaining the essential time component missing from the phrasing of the paradox.

Hello,

Menger did not detect any circularity at all.    That circular question is falacious because it would apply to any economic good, for example:   How does bread have value as food if it is valued because it serves as food?

Regression theorem was a missused Menger´s origin of money to develop his regression theorem, and he developed the regression theorem because he could not tolerate how fiat money was defeating commodity based money.   

But the truth is that monetary utility is valuable enough by itself.  There is no need to any previous link.  Bitcoins are money because they have good monetary properties and because they are present goods (i.e. they are not anyone else´s liability).

I´ve written a short post about this:   http://eleconomistaprudente.wordpress.com/2011/06/06/bitcoins-and-mises%C2%B4s-regression-theorem/

Vinnie
Full Member
***
Offline Offline

Activity: 126
Merit: 100


View Profile
June 24, 2011, 07:37:30 PM
 #14

Good thread, thanks for the bump!

Anonymous Cash-By-Mail Exchange: https://www.bitcoin2cash.com
billyjoeallen
Legendary
*
Offline Offline

Activity: 1106
Merit: 1007


Hide your women


View Profile WWW
June 24, 2011, 10:25:05 PM
 #15

this post is smothered in awesomesauce. bump.

insert coin here:
Dash XfXZL8WL18zzNhaAqWqEziX2bUvyJbrC8s



1Ctd7Na8qE7btyueEshAJF5C7ZqFWH11Wc
kwhcoin
Newbie
*
Offline Offline

Activity: 42
Merit: 0


View Profile
June 25, 2011, 04:37:37 AM
 #16

A few excerpts jumped out at me on pages 272 to 275 of Rothbard's Man, Economy, and State.

Quote from: Rothbard
We remember that the utility of money consists of two major elements: the utility of the money as a medium of exchange, and the utility of the money commodity in its direct, commodity use (such as the use of gold for ornaments).

One of the important achievements of the regression theory is its establishment of the fact that money must arise in the manner described in chapter 3, i.e., it must develop out of a commodity already in demand for direct use, the commodity then being used as a more and more general medium of exchange.
...
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.

On the other hand, it does not follow from this analysis that if an extant money were to lose its direct uses, it could no longer be used as money. Thus, if gold, after being established as money, were suddenly to lose its value in ornaments or industrial uses, it would not necessarily lose its character as a money. Once a medium of exchange has been established as a money, money prices continue to be set.

Therefore, while it is absolutely necessary that a money originate as a commodity with direct uses, it is not absolutely necessary that the direct uses continue after the money has been established.

Here is a paraphrased summary of the excerpts above:
point #1) It is absolutely necessary that a money originate as a commodity with direct uses.
point #2) If an established money were to stop being used as a commodity, it would not necessarily lose its character as a money.

I believe point #1 is a big obstacle to bitcoins because I don't see any direct commodity uses for bitcoins, and I don't consider the many monetary and exchange properties of bitcoins to be direct commodity uses. This is why I like thinking of ways to back bitcoins with something that has a direct use as a commodity.

Point #2 seems to leave open the possibility of something like bitcoins getting around point #1, establishing itself as money, and then maintaining its character as money with no need to ever have a use as a commodity. However, I believe the underlying commodity use of a money is an essential ingredient that interacts with its monetary and exchange properties to make it more desirable to use it as a money than as a commodity.
billyjoeallen
Legendary
*
Offline Offline

Activity: 1106
Merit: 1007


Hide your women


View Profile WWW
June 25, 2011, 05:27:42 AM
 #17

So bitcoin originated as nerd points or status markers, not completely unlike shiny bobbles were status markers thousands of years ago.

insert coin here:
Dash XfXZL8WL18zzNhaAqWqEziX2bUvyJbrC8s



1Ctd7Na8qE7btyueEshAJF5C7ZqFWH11Wc
Vinnie
Full Member
***
Offline Offline

Activity: 126
Merit: 100


View Profile
June 25, 2011, 05:43:22 AM
 #18

point #1) It is absolutely necessary that a money originate as a commodity with direct uses.

It seems to me that we're putting Rothbard's ideas to the test, then! The internet is a game changer. Everyone knows what money is, and everyone knows that spending money over the internet is expensive and dangerous. Bitcoin's "commodity" value lies in that it is inexpensive to transfer over the internet and, if you're reasonably safe about it, safe to transfer without worrying about someone robbing you blind.

Anonymous Cash-By-Mail Exchange: https://www.bitcoin2cash.com
MoonShadow
Legendary
*
Offline Offline

Activity: 1708
Merit: 1007



View Profile
June 25, 2011, 06:34:37 AM
 #19

Quote
Therefore, while it is absolutely necessary that a money originate as a commodity with direct uses, it is not absolutely necessary that the direct uses continue after the money has been established.

Here is a paraphrased summary of the excerpts above:
point #1) It is absolutely necessary that a money originate as a commodity with direct uses.
point #2) If an established money were to stop being used as a commodity, it would not necessarily lose its character as a money.

I believe point #1 is a big obstacle to bitcoins because I don't see any direct commodity uses for bitcoins, and I don't consider the many monetary and exchange properties of bitcoins to be direct commodity uses. This is why I like thinking of ways to back bitcoins with something that has a direct use as a commodity.

Point #2 seems to leave open the possibility of something like bitcoins getting around point #1, establishing itself as money, and then maintaining its character as money with no need to ever have a use as a commodity. However, I believe the underlying commodity use of a money is an essential ingredient that interacts with its monetary and exchange properties to make it more desirable to use it as a money than as a commodity.

There doesn't need to be a loophole around #1, because Bitcoin does have a use value.  That use value is derived from the software that forms the client as well as the network.  Software represents organized work toward a goal, namely to create a logic machine that performs a desired function.  In the case of Bitcoin, that function is to transfer value (not wealth, which is different) over vast distances at unmatched speed and for a very low cost.  The kicker for bitcoin (the currency itself) is that bitcoins are required for this function, for no existing form of currency can cooperate with the Bitcoin client to this end.  Adding confusion is the fact that, due to the nature of a decentralized currency, there can be no form of backing or peg.  So the relative value of bitcoins verses existing currencies must float.  Thus the chicken and egg problem then becomes, how does one get an initial relative value for bitcoins?  It happens to be that said initial value was established when an early adopter, wishing to advance the currency, chose to offer some of his vast holdings in return for a pizza.  He offered 10K BTC, and someone else decided that it was worth that to him.  All of point #2 flows from this singular event, but the use value that those two traders saw in bitcoin wasn't in the pizza, but in the functions that the currency and the client together could perform.  I.E. to move value across limitless distance.  It is this function that no other prior currency on Earth, fiat or otherwise, could perform in an economicly competitive manner.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
manuelgar
Full Member
***
Offline Offline

Activity: 336
Merit: 100



View Profile
June 25, 2011, 10:29:49 AM
 #20


There doesn't need to be a loophole around #1, because Bitcoin does have a use value.  That use value is derived from the software that forms the client as well as the network.  Software represents organized work toward a goal, namely to create a logic machine that performs a desired function.  In the case of Bitcoin, that function is to transfer value (not wealth, which is different) over vast distances at unmatched speed and for a very low cost.  The kicker for bitcoin (the currency itself) is that bitcoins are required for this function, for no existing form of currency can cooperate with the Bitcoin client to this end.  Adding confusion is the fact that, due to the nature of a decentralized currency, there can be no form of backing or peg.  So the relative value of bitcoins verses existing currencies must float.  Thus the chicken and egg problem then becomes, how does one get an initial relative value for bitcoins?  It happens to be that said initial value was established when an early adopter, wishing to advance the currency, chose to offer some of his vast holdings in return for a pizza.  He offered 10K BTC, and someone else decided that it was worth that to him.  All of point #2 flows from this singular event, but the use value that those two traders saw in bitcoin wasn't in the pizza, but in the functions that the currency and the client together could perform.  I.E. to move value across limitless distance.  It is this function that no other prior currency on Earth, fiat or otherwise, could perform in an economicly competitive manner.

Hello,

It is not necessary justifying Bitcoins value looking at its underlaying infrastructure´s value.   No matter the costs of the infrastructure if nobody uses bitcoins, because in that case the infrastructure is worthless unless you use it for something different (web servers or whatever...).    Bitcoins are currency, and they were invented specifically for that, and they are valuable becuase they render monetary utility.  Once a good renders utility, it is valuable, no matter wich kind of utility.

Also, I think there is no such a "chicken and egg" problem.   The value of currency or money is discovered by the market, just as it is discovered for any other good.   It happens whenever something new is invented or discovered.

Pages: [1] 2 »  All
  Print  
 
Jump to:  

Powered by MySQL Powered by PHP Powered by SMF 1.1.19 | SMF © 2006-2009, Simple Machines Valid XHTML 1.0! Valid CSS!