Bitcoin Forum

Is Bitcoin money?

An analysis from the Austrian school of economic thought


http://skemman.is/en/stream/get/1946/18234/42843/1/MS_%C3%8Dsak_Andri_%C3%93lafsson.pdf

Abstract
This thesis aims to explore whether digital crypto-currencies such as Bitcoin can be considered money from the perspective of the Austrian school of economics. It begins by describing the functions and design of the Bitcoin system in detail. Other innovations that either build on or improve Bitcoin will be explained as well. The functions of money are then defined from the origins of money, providing a categorical approach toward a comparison between Bitcoin and incumbent money. The risks and complications of Bitcoin will be discussed in this thesis with an emphasis on the role of policymakers. One of the main reasons why Bitcoin has yet to be regarded as money in a traditional narrow sense is the barrier generated by network effects, in particular, the presence of excess inertia. Other risks and complications that are present within the context of this thesis will also be discussed.
A significant part of the criticism of Bitcoin as a medium of exchange that comes from the Austrian school arises because Bitcoin does not seem to follow the regression theorem Mises put forth to explain the emergence of money. An attempt will be made to reform the regression theorem so it accounts for digital innovations such as Bitcoin, if proven unsuccessful, another perspective is offered in which Bitcoin does not violate the theorem. When the complication of the regression theorem is solved, it is possible to address whether Bitcoin is money or just a secondary medium of exchange. From an Austrian perspective, Bitcoin is not money, however, an argument will be made that Bitcoin is an imperfect form of memory, one which fits somewhere in between commodity money and fiat money, a synthetic commodity money. The possibility of Bitcoin substitutes to incite an expansion of the money supply will also be analysed from an Austrian perspective.

Nice...Is there a text version, not .pdf?

Cannot find any text link.Sorry about that..

OK, thank you..I will look at the .pdf.... Great topic.

I have asked the same question to myself too: is bitcoin really used as a money or just another kind of investment or property that is highly volatile in value? I should save this file for reading to see what other people's thoughts are. Anyway, thanks for sharing this analysis :D

Anything of value can be used as money from Austrian school.

Bitcoin just make it simple as information travel fast and reach just about any city in the world.

From an Austrian perspective, Bitcoin is not money, however, an argument will be made that Bitcoin is an imperfect form of memory, one which fits somewhere in between commodity money and fiat money, a synthetic commodity money
I think that they should adapt their monetary theories because we lives in the changing world so even it's not sure if US dollar will stay as main world currency.
Many rules changed in a last a few years because of World financial crisis, so now we have more centralized banking system, specially in eU.
Thank you for sharing this info but I guess time will show if bitcoin will become mainstream or not.
 

Money is an acceptable form of payment. Since some merchants already accept it, it can be classified as money for some.

So we need someone to tell us something is money, when we use it to buy or sell something, without us having to have their approval?

If I am the owner of a coffee shop, and a plumber came to fix my shops plumbing, and he accept payment in coffee vouchers, the voucher become money.

Anything with value, can be used as money. {It's been used in trade for centuries} We do not need anyone to tell us Bitcoins is money, we know it's money, because we use it in trade as payment. {So it has value}

Most people here are austrians and regard bitcoin as money. The problem with the regression theorem has been discussed in depth. It is either wrong, or bitcoin is a follow up to fiat money.

Yes its money, you can use it as a medium of exchange for many things, so we can call it money.

Bitcoin is money, and entering to Wall Street will inforce that idea.

Recently i heard some exchanges that instantly turns your Bitcoins to USD and you can ask them for a debit card so you can pay at any place where Bitcoins are not accepted yet...

Thats called a barter

In order for something to be considered money it would also need to have a store of value, and needs to be accepted for payment.

No, barter is when you exchange good for good, both having direct use value.

I'm very tired of this kind of "theory of money" bs. Theory is helpful to determine which scientific experiments are worth implementing to understand how reality/economy works. Bitcoin is the experiment. No matter what any theory says, bitcoin will either be money or not - based on what really happens in the real world. So far, bitcoin is the best money, I have ever seen - and most people who actually use bitcoin understand this immediately. But I don't know what I don't know, and ultimately time and experience will tell. That is the great thing about bitcoin. We are actually doing the experiment instead of arguing about theories developed in the last century. Want to build a better money? Now you can!

Your experience fits right into the theory: Money is whatever the traders use as money. The stuff that is to be money, need to have some useful characteristics, else people will not use it as money.

If someone has this wrong, like many hot shots do, they just make the wrong decisions. So knowing "theory of money", like other knowledge, can be good for you.

I value many theories of the Austrian School but the regression theorem is nonsense.
bitcoin got its value when it was first invented because people recognized its a better system than anything else to maintain balance of trade.
it does not need to derive its value from anything before it was invented.

I can use bitcoin on newegg, overstock, dell, etc. I can also use money on these sites. I consider it money.

Money is anything people consider something to be worth something. If a group of people consider a few rocks to be worth something, then it is currency to them. With the amount of traffic bitcoin has received, yeah, it'
s definitely money haha.

I also think that the regression theorem is basically wrong. But you could also view it in a birds perspective, taking account of the humanity knowledge. So fiat money (no redeemability, no backing) is a result of gradually fooling the public into using it, but as everybody knows that it works, it is possible to introduce new fiat money types directly. Since the public knows that unredeemable and unbacked money can work, it is possible to directly issue sound money like bitcoin, which has good money qualities, and a supply that is decided outside the reach of politicians.

I love it that all the "Austrian economists" here backtrack when one of their own says bitcoin is not money.  Pure comedy.  LOL

The regression theorem has been a showstopper for some austrians.

bitcoin is the money of the future

Wrong. Sorry. The Regression Theorem is right, just the understanding of many people (even learned people) is wrong.

The Regression Theorem answer a simple question: "what is the value of a fiat currency based on"?.
It explain the currency today's value is based on the value of the currency yesterday (or one hour ago).
Then you can take back to the last time it was convertible in gold (or something else like silver, salt, fur, etc.)
Then you can take the value of gold (or whatever was used at the time) from the last  moment it was convertible in fiat at a fixed rate until the first time it was used as an indirect mean of exchange.
Then what could be the value of gold, at the time, based on?
It was based on its direct use value (because there was nothing else to give it value).

People usually understand this as "to be money you need to start from some commodity with value, better if it have a large value".
And they are not completely wrong, because larger is the value (compared to its weight and size) better as a money these commodities will perform.
But it don't say "something without a direct use value" can not become money or a mean of indirect exchange (money being the most accepted and available of these).

If it has the ideal characteristic of money (by design) it can start from zero and climb from there just starting from a non-zero value introduced just by chance. What I call "noise".

You just stated (in bold) that the regression theorem is wrong.

If you read http://mises.org/humanaction/chap17sec4.asp (http://mises.org/humanaction/chap17sec4.asp) carefully, you will not find anything denying my i nterpretation

"This certainly does not involve explaining the specific monetary exchange value of a medium of exchange on the ground of its industrial exchange value." (cit. L.v. Mises)

That's something different.

Hi, just noticed this. I'm the author of this paper. This thread brightened my day! If you have any questions, requests, or comments don't hesitate to contact me, although I am rather busy these days. First and foremost I'm happy that my work has resulted in some discourse  :)

Can I just say this exactly why I find it annoying when people try to be clever using complicated words like fallacious and ad hominem without actually fucking researching properly what it really means or conveniently ignoring the fact that they're doing it themselves, just saying, it's been spammed around this board a lot lately, it doesn't make you look clever when you use it, just rather ignorant and irritating.

Please internet, get a damn dictionary and look at the meaning of a word or phrase before you use it, as for this whole argument amongst Austrian economics about Bitcoin the one thing that people tend to bicker on is the intrinsic value of Bitcoin and I personally think that is the blockchain, the ledger and the ability to transfer the money anywhere in the world.

Edit: OH LOOK AT WHAT I FOUND!

http://wiki.mises.org/wiki/Regression_theorem

In five seconds -_-

I've not read everything but what I have read is not bad at all.  I was rather hoping to see some detailed economic analysis of the block generation system but I imagine what I'm looking for is beyond the scope of an M.Sc.  This was more of a literary review, and a reasonably fair and thorough one at that.  Some quick notes:

Page 18: What do you mean by:
I would certainly consider bitcoins property.

Page 41: laszlo bought 2 pizzas for 10 000 BTC: thread (https://bitcointalk.org/index.php?topic=137.0) and pics (http://heliacal.net/~solar/bitcoin/pizza/.t/IMG_0988.html).

Page 72: It's not clear to me what point you are making with:

Page 75: Chapter 9 seemed to me to carry a political bias which did not keep with analytical nature of the work up to this point.  I draw attention in particular to a sentence from page 78:
It appears that the necessity of regulation is taken as axiomatic and a case is only made for light regulation versus heavy regulation (please correct me if I'm wrong; it's late).  To clarify, I wouldn't expect you to apply a libertarian ethos to this section simply because this is an Austrian perspective, but would hope for something more politically neutral and broad minded where the notion of a state not regulating Bitcoin activity at all is entertained.