Bitcoin Forum

Conventional theories of money assume that money is backed by precious metal (the theory known as bullionism) or by the state (chartalism) but Bitcoin is backed by neither. Economists also often define money as anything that serves as a medium of exchange, but Bitcoin isn't much good at that either (so far, at least). So does that mean Bitcoin is not money, or is the problem with these theories?
I have posted a paper on this question here, comments/responses appreciated: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2624371

How Bitcoin isn't good as somethng that serves as a medium of exchange? it's the best ever. The fact we lack merchants isn't Bitcoin fault, it's people being idiot's fault. It will take time for merchants to spread, maybe one or two decades.
Bitcoin doesn't need anything physical to be backed with, scarcity has now been achieved digitally. I know the grandpas out there struggle to get this one.

True but some would say Bitcoin is too specialized at the moment to be considered a medium of exchange, see e.g. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2434194
But I think the problem is that the medium of exchange doesn't define what money is, it is more a description of what money does. Which is one reason we need a new theory ...

Agree with the first part, but scarcity itself does not make Bitcoin into money. I would say it does have backing, not by something physical such as gold, or by the state, but by its expanding network of users.

Yes, bitcoin is backed by the people. Gold was/is believed to be the most widely accepted asset and everybody recognized its value and importance. This value and importance was created by the people itself, who bestowed all their support and trust on Gold. Look how widely accepted it still is, even after more than a century. If the same kind of trust and support is provided to bitcoin by people all over the world, how can that not be regarded as the best currency in terms of store of value :)

Is it too soon to think that "backed b the state" may be losing it's value? As long as governments keep manipulating money there will likely be an interest and audience for bitcoin.

What data did you find for the purposes of your study? Thanks for sharing it!

Yes, "backed by the state" is losing some of its prestige! The paper came out of a book I'm doing about money. The data points are events that were not available to anyone writing about this even a decade ago - the emergence of Bitcoin and other cybercurrencies.

Well, fiat isn't scarce and is considered money because people use it to acquire goods and services which is all that matters for it to be money. But we can talk about what makes money quality money, and quality money needs to be scarce.

Bitcoin does not need new theory of money. We already have enough of theorycrafting about it we know it all. What needs to change is people's perception about bitcoin.
Bitcoin is viewed by people in the different light now: some treat it as commodity, some like asset, speculation tool and others as currency.

People's perceptions are shaped by theories of money. For example Alan Greenspan said: "I do not understand where the backing of Bitcoin is coming from. There is no fundamental issue of capabilities of repaying it in anything which is universally acceptable, which is either intrinsic value of the currency or the credit or trust of the individual who is issuing the money, whether it's a government or an individual." So he is making a judgement about Bitcoin because it does not conform to the traditional idea that money needs to be backed either by intrinsic value (e.g. gold) or by a centralized issuer (e.g. the state).
Agree there is a lot of theorizing about money, but not much of it applies very well to Bitcoin ... Also, money is something that is completely missing from most economic models (e.g. Stephanie Kelton: "Money, debt and finance don’t even fit into many economic models)" which is another sign that the theories aren't working.

I never thought about it before, and I think it is an important thing for bitcoin itself, which it can help to define what bitcoin is to all people in this world. People who dont have any idea about bitcoin often misunderstood bitcoin as poker chip, money for one specific website, etc.

I don't understand the critique of Bitcoin being "too specialized".
Anyone can start a business and start accepting payments instantly. No matter what you do in your business, you can start making money out of it.
Again, the problem of Bitcoin is lack of adoption, it's obvious Bitcoin is money and indeed the best form of money humanity as ever seen. Let's look at the traits of money and compare:

http://www.dugcampbell.com/wp-content/uploads/2014/12/Traits-of-Money.png

My understandings of bitcoin backup by following things:

1. electricty.  
2. limited supply - rareness -  /fiat cant have it/
3. blockchain network - /fiat cant have it/
4. math - unbreakable, no forgery, speed of light.   you cant break the math unless god.
5. people and idea - people's money, not property of any corporations and government, that makes ultimate world currency


gold has no future in 100 years if people become able to mine golds on  asteroids, moon.
even nuclear physicists made it in lab 70 years ago :)

One problem for many people not to be involved with bitcoin is the difficulty in obtaining it,we can't all be miners.

Agree with all of these, what I'm not clear on is whether bitcoin needs to be backed by electricity (since it is backed by the other things). I understand that the mining process puts a price on the blockchain and is a security feature, but on the other hand it is wasteful of electricity! So is this there just so that bitcoin will be backed by something real (i.e. electricity and computational power)? Is it necessary? And could other approaches that require less energy (e.g. Litecoin, proof-of-stake) work just as well?

Bitcoin is money all right. It is backed by nothing, i.e it is unbacked. It is free market, world money.

It has all the good qualities of money, see above.

It's value derives from the reserve demand, from people wanting to hold the money in reserve, and the supply, which is opposite, the desire to hold less.

A lot of us can be miners, but it should be like a minimum that doesnt ruin us with a huge electricity bill.

Id expect to collect a miner fee aka bitcoin producing a year thing, rather then a month collection. But still get free btc..and atleast you help the network.

Yes, I think bitcoin and the cryptocurrencies in generally need a new economic theory because the actual economic system isn't compatilble with them.


Who gives value to something?

The days of government-controlled ‘money’ are over. In the 21st century, you are the controller of your own money. Since the dawn of civilization, the use of a local currency has turned into a tradition. People used to trade physical tokens and objects among them, but now they can use digital currency. You are free from any government regulation and fees. It is a currency made by the people, belonging to the people and for the people.

Theres a recent bitcoin documentary movie made, on the theory of money.

movie title: Bitcoin The end of money as we know it

You should check it out if you havent, but its basically a evolution process on what people traded back then eventually leading to the 1st coin.

So its going through a similar process like the 1st metal coin did which were produced by the kings etc.

Can I ask you where do you live? Maybe not the Earth... you are so idealist. It should pass a lot of years before a real change, at the moment we are only in a sort of experiment (and it is not still completed).

The government wont let it happens if bitcoin bother its country economy or the taxes government get is decreased. There is no place where we are really free from government regulations. It will only happens if there is no government or country, or you could make your own country with the other bitcoin enthusiasts like Liberland.

People often feel that using bitcoins is an escape from avoiding tax, but if two parties are caught in money laundering, they will be jailed.. Bitcoin also requires tax payments, its treated as capital tax. I have very less knowledge about it because I have not yet involved myself in such practices, but I would like to know about it. If someone knows more, knowledge is welcomed. As far as Liberland goes, only 7 people live on it bro :P

If you have a bitcoin with a value of 200$ which over a span of 2 years changes to 2000$, your assets will notice capital gains and be taxed accordingly. There is more detailed information provided, ofcourse rules and regulations might differ in different countries. More knowledge could be acquired over here: https://bitcoin.tax/faq To calculate taxes, use a bitcoin tax calculator: https://bitcoin.tax/

Every bad deeds always get punishment, thats the absolute law in this world.

Yeah but atleast the tax is not high imo

Me too, thats the purpose of the discussion, where we can share or learn anything here  :D
 
I think you could read this https://en.bitcoin.it/wiki/Tax_compliance

Yeah and the president are being arrested by Croatia government. Seems bitcoin still couldnt get rave by some country.

Quoting everyline is really irritating, pls stop. You're being delusional by saying that every bad deed always gets a punishment, there are more than a million criminals in this world who have got away with horrendous crimes, money laundering being one of the most insignificant ones. Its not like the tax is not high, it depends on how much you've made when your capital interests has increased. The more tax, the more you gain.

Its weird, I think its neater, and answering per line looks systematically. Thanks for your advice, but each person have their own writing style.  ;)

You are the delusional person. Do you think 'punishment' is just be arrested by police? There are many kind of punishment, you should learn psychology.

I just compared the taxes in bitcoin with the taxes by government. Dont you think the taxes by government are higher than in bitcoin?

Yes. This theory: https://en.wikipedia.org/wiki/Cambridge_equation

You are really started to get on my nerves now, bro. Why do you not shut up when you have nothing better to say? If punishments are not legal and according to your psychology, karma will settle its deeds with me, awesome. Greece will say the same to eurozone that their debts will be settled by karma. The taxes Miracal was talking about, were the taxes government implies on bitcoin, you have no idea what capital gains mean and anything about economy, yet you lie about comparing taxes and shit. Grow up dude, its 2k15.

Actually I'm working on one:

Because of money's universal exchangability, everyone's demand for money can be regarded as all his current and future demand added together, almost infinite. And for bitcoin, supply is limited, so mathematically, infinite demand and limited supply will make its value infinite

However, everyone have limited resource to exchange money, having infinite demand does not mean people have infinite resource to pay for it. Thus bitcoin will never have infinite value, even the supply is limited. Thus bitcoin's value is depend on total number of people who are willing to exchange bitcoin with their products/services/capital

Imagine that many bitcoiners are professional house maker and they are willing to exchange one house for one bitcoin, then the coin's value will be raised to be the same as a house

A good thing is that people could always purchase bitcoin, so if their goods/services/assets can not be easily exchanged to bitcoin, they can simply sell them for fiat money and purchase bitcoin, similar effect on bitcoin's value

Fiat money does not have the same property,  because it has theoretically infinite supply. When infinite demand meets infinite supply, the result is very uncertain, thus FED constantly change the money supply to keep its value stable. Anyway, stable value is the target of fiat money

So for bitcoin the theory of money is :  As long as its economy grows, there is no upper limit for its value

Wait till banks and fractional reserve banking come to Bitcoin. The limited supply won't look very limited after all. :)
People used gold as money for a long time... Until bank notes backed by gold started circulating. We all know where that ended.

I guess nowadays people are much more aware of bank's tricks than hundreds of years ago

MTGOX was using FRB, and it failed dragging down all its depositors (In fact exchanges are more complicated financial institutions than banks, since they deal with multiple currencies at the same time while banks typically deal with only one type of currency). That will be a lesson for all the bitcoiners who trust centralized organization. Unlike fiat money system, there is definitely no bailout for bitcoin banks, the bank failure rate will be too high for normal people to trust them, it is much easier for them to learn some cold storage skill

yeah, the whole point of having bitcoin is that it gives you the power of being your own bank, then there is no point discussing bailouts on a bitcoin bank. But yes if such an even occurs, I can see how the failure rate would be super high for an average citizen to really believe in them, and cold storage skills would be much required.

Why should I lie to you? Let me explain this, I just tell you what I have heard and read, so you can refute my opinion with your opinion too, so you all could teach me what you know with your knowledge. It sounds you're an expert in economy. Good luck!

So my take on this is that we do need a new theory of money, based on the idea that money is fundamentally dualistic, with real/virtual properties that both complement and contradict one another, rather like the wave/particle properties of matter in quantum physics. The theory works well for cybercurrencies because it explains how a currency can boot itself up and attain value without being backed either by precious metal or the state.

Here's the abstract:
A quantum theory of money and value
The answer to the question “what is money?” has changed throughout history. During the gold standard era, money was seen as gold or silver (the theory known as bullionism). In the early 20th century, the alternative theory known as chartalism proposed that money was a token chosen by the state for payment of taxes. Today, many economists take an agnostic line, and argue that money is best defined in terms of its function, e.g. as a neutral medium of exchange. This paper argues that none of these approaches adequately describe the nature of money, and proposes a new theory, inspired by non-Newtonian physics, which takes into account the dualistic real/virtual properties and complex nature of money. The theory is applied to the example of the emergence of cybercurrencies.

The full paper is here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2624371

I don't think Bitcoin needs a really new theory of money. It's a new currency and technology. It is backed by the number of people using it and the finite supply of Bitcoins that can be mined. As people catch on to what bitcoin is, there will be more merchants accepting it.

Don't worry falconer, go prove him wrong and reply back with your theory, research and study of your theory in which you compared taxes. The best way to shut up somebody is to prove them wrong, but it might get a little a little too time consuming so I hope you hurry up soon. Meanwhile me and grebit will just wait somewhere, nearby this thread :)

Cold storage and security measures are one thing. People might turn greedy.
If banks offer interest on bitcoin deposits, people might still be tempted to part with their money.

yeah, not everybody in the bitcoin community is as passionate about the technology as they are about money. In a scenario where the governments decide to ban bitcoin but in a hypothetical situation where half the world sides for bitcoin and invest all of it into bitcoin and half the world scared from the banks, the result of bitcoin's failure or success would be known the next day... Who would you pick in such a situation?

i like a  lot that chart but money its time too and that does not changes like money  can also buy a bit of health and be even life (living for money) yes we also need to keep doing that.

Bitcoin is certainly not conventional by any means, and there are no economic laws or theories supporting the currency. Most major economists advise to steer clear of Bitcoin, and use the many theories and factors they have been taught to support their claim. Bitcoin is certainly not a bad currency, but there is currently nothing substantial to verify it's past and future success.

There are a lot of economic theories which support the currency, let alone focus on its block chain technology and expand ahead in more detail, there are some block chain theories you need to search up, now I don't know about economics and how they are taught to support their claim but I can agree on the fact that there's nothing to verify its future success, there was no way of knowing the success of notes and coins and gold and barter and everything else which has ever been used in trade, but it did work out for them as they slowly evolved their transaction methods into much simpler and better ways. Its time for a bitcoins, the digital currency and I have faith in the project :)

No thanks, I cant shut up an expert here. Beside that, I hope you can give me the theories about it instead of seeking it myself, since I just want to know economy and taxes of bitcoin deeper, not to become a smart ass  ::)

that's right! there are more and more places we can use bitcoin but also we still use 'traditional' currencies and they both should harmonize

The users, through their demand to hold in reserve.

Of course they need a some new system to track what is happing in bitcoin otherwise no government will consider it as a real currency.

What is money?Beside all the economists defining money in terms of academics, money is the transferable asset which can be used to buy anything tangible or intangible.Money must be widely accepted and convertable.There must be an authority to control emission of the money.
Is BTC widely used?YES
Is BTC convertible?YES
Is there an authority to control the emission?YES and/or no.No official authority but each member is oart of the authority.Each miner is a part of this authority however there is no selected / elected authority.

Bitcoin is digital technological currency. It help us to use digitally like a bank.we can change the tone of bitcoin to dollar rupees.etc.. so a new theory is not needed.

I believe many people misunderstand the philosophy of BTC.BTC may not have a bank, privacy is the most important part.You may have miner to generate BTC, however BTC is not for trade or mining.It is for keeping your privacy.If there is a digital or real life BTC bank, all legal would you park your BTCs.I would not.BTC is good as it is.There will be awider use in near future.BTC will never be the main currency, no countries will adopt it as their currency however it will be convertible, preferred currency on many geographies.

BTC is digital gold.

Money and Bitcoin are essentially the same thing. The only difference is that money/gold is concrete while Bitcoin is abstract. Bitcoin's existence is completely dependent on man-made structures while gold will still be gold with or without human support. This might not seem like a big deal but incorporating a purely abstract element into the physical world poses some rather awkward(?) challenges. The problem is that you can't back something that's not real with something else that's not real. To make the intangible real, you will need to pledge something tangible from the physical world.

Fiat is abstract as well. You attribute value to a piece of paper with a photo on it.
While it is tangible and can  be held in your hand, this feature shouldn't make a difference in this mobile world.  :)

Related article at Bitcoin Magazine:
Is bitcoin money? To most readers the answer will be a resounding yes, but to many people, including former Federal Reserve Chairman Alan Greenspan, the answer is less clear. Indeed, one of the things holding back the adoption of cybercurrencies such as bitcoin is that they do not conform with traditional ideas about money.
Read the rest of the article here: https://bitcoinmagazine.com/21616/quantum-theory-money-value/

Bitcoin is backed by 'consensus'. Because it is young, this consensus is volatile. The appearance of apparent 'governance coups' does not help consensus and thus destroys 'value'. http://www.zerohedge.com/news/2015-08-19/bitcoin-battered-after-governance-coup (http://www.zerohedge.com/news/2015-08-19/bitcoin-battered-after-governance-coup)

No, it doesn't need any new theory of money.it is free marketing and any of the people could attain it! And It has all good qualities of money.

Anything's value to its root comes from the desire to acquire it, e.g. demand. Many things are based on pure information, like music, movie, game, and a long list of abstract financial products. Bitcoin's value is based on a desire to get out of the debt slavery spiral in current monetary system, and how each individual value this is vastly different

In fact, the most important is the ability to exchange into other things. There are many things in the world which might have no use at all for you, or its use is totally beyond the reach of your understanding, but as long as there are some other people willing to pay for it, it will have some market value

In fact all the type of money is backed by people that accept it: Fiat money is backed by the promise of government accepting it as your tax payment, but without merchant accepting it, it would also be worthless. So the promise of the government is just a way to convince people into accepting fiat money.

Bitcoin is also backed by people that accept it, but with a promise of limited supply. And just with this promise, it can gain more and more support from merchant around the world, voluntarily

basically in short, even if a currency is not as good and as secure as bitcoin, it can be successful just like fiat if a lot of people support it, anything can have great value regardless if people believe and support that currency, after all its all about demand and supply too :P Bitcoin however is a pretty cool currency, I don't want to rank it out, I just think it could still get much better, while it matures more.

In my understanding bitcoin already has a new innovative plan for new financial theory. But we need to set it correct for the right area in order to apply the right formula on right applications. So bitcoin has already new theories, we just need to tune it up.