I believe your argument is essentially: The more desirable the currency is to hold, the more people will want to acquire it. Thus the more they will tend to negotiate to get the currency in transactions. Thus increasing the demand for that currency relative to other possible ways value could be exchanged.

But if that was correct, so would this argument be: The more the currency appreciates, the less those who have it wish to part with it, so the more likely they'll negotiate to use something other than the currency in their transactions. This will reduce the demand for the currency because fewer transactions will use it.

Since they lead to opposite conclusions and are both equally justified, the justification for both must be inadequate.

Whatever currency might do in the future, people will tend to agree that X units of currency have, as currency, value Y (taking into account the future value, risk, fungibility, and so on). They will, in general, be indifferent to receiving Y value in that particular currency or in any other form.

If it costs me $20 to sell a goat, all things considered, and I can sell that goat for $60. Then I don't care whether you give me a goat or $40. Normally, we'll use the money because it's just easier. But if money is super ridiculously scarce for some reason, there is no rational reason for us to use money in preference to a goat. Naturally, this goat would have a very low efficiency because of your costs to transfer it to me and my costs to sell it. So more likely we'd use something more efficient, like gold, Bitcoins, or whatever.

This is a very useless message. Does this mean delays of a day, a week, or a month?

Maybe, maybe not. It's hard to say. In a free market, deflation is a sign that it is hard for capital to be profitable. It's not that deflation makes it hard for capital to be profitable, it's that these two things go together. If some external force compelled deflation, such as Bitcoin's inherent monetary deflation, a free market will respond by creating alternatives to Bitcoins that serve the same purpose, assuming it is free to do so. The net result will be that the *effective* deflation will accurately reflect how hard it is for capital to be profitable.

Sure, but that will only happen if someone forces the market to do that or if the market cannot avoid it. One force, like the existence of a scarce currency even if it's the primary currency simply can't do that on its own. If Wendy's can't sell enough hamburgers, the result won't be $100 hamburgers -- it'll be more Burger King's or more chicken sandwiches.

I agree. If a coercive force compelled a gold standard, it would be about as bad as compelling a fiat standard. You wouldn't have the evils of unchecked spending causing inflation, but you'd still have the problem that you'd need centralized control over monetary policy with all the mistakes central planners inevitably make.

If you imagine a Bitcoin-based world where other currencies are outlawed or heavily regulated, you would have the same problem. The Bitcoin built-in deflation would act as a retarded central planner, forcing a monetary policy that is very unlikely to make sense. But so long as that doesn't happen, there's no problem with Bitcoin's built-in deflation. If the currency becomes too scarce, the market will introduce alternatives to the currency that serve the same role unless some force prevents it from doing so.

Right, so the question is -- why would a free market allow the price of money to rise when it's trivial to introduce new currencies or use debt instruments as currencies? And the answer is -- if the price *should* rise and thus there's no efficiencies to be gained (and thus no profit) in stopping it from rising.

Whatever its utility, there will be some price point at which many people are ambivalent to whether they have X Bitcoins or the instrument.

Right, but in principle, anything with the same value can act as a substitute for that currency. There isn't, however, universal substitution because there's friction. If you have a currency where demand exceeds supply, you will quickly overcome that friction.

The most likely scenario, based on the technologically publicly known to exist to day, is alternate crypto-currencies. Perhaps including partially-centralized ones backed by something (including things like gold or fiat currency). Say you owe me 100 Bitcoins, but Bitcoins are hard to get due to scarcity. There will be some number of DollarCoins, GoldCoins, or whatever, that I'll be willing to take in exchange for those 100 Bitcoins and some number of those coins you'd be willing to pay me. The more scarce a currency is, the more incentive we have to make a deal in some other currency, and that reduces the effective demand (or alternatively, increases the effective supply).

Better if the players are rational, but they aren't. As I said, someone will spend $4 on a coffee without thinking but won't spend $1 to buy an app they've enjoyed for hours.


Gamers tend to have the most advanced video cards, and when they're playing games like Farmville or in-browser MMOs, the video cards are basically snoozing. Yeah, it will be hit or miss. But remember, your cost is near zero.

I agree that the economics are bad, but I don't think they're nearly as bad as others seem to think.

That pretty much defines this field though. A person who wouldn't think twice about spending $8 at Starbucks for a coffee and a muffin because they have 30 minutes to waste won't spend $1 to play a game they enjoy for hours. It's very easy to attract people and very hard to get them to part with as much as a dime. So this might actually make sense.

I think that's the only way this makes sense.

The basic idea is that hobbies are generally money losing operations. If they were money makers, they'd be businesses, not hobbies.

But hobby profits are taxable. For example, if you raise show cows as a hobby, and sell a prize winner for $15,000, you have a $15,000 taxable gain. It wouldn't be fair to tax you fully on that gain and not allow you to deduct any of your expenses. Imagine if it cost you $20,000 last year to buy food and supplies for that cow. Is it fair to charge you a $15,000 taxable gain next year when you sell it?

But it's also not fair to let you deduct the $20,000 when you incur it. What if you never sell that cow? Hobbies are one of the ways we spend money; if they were always deductible, everything would be deductible. (My hobby is driving expensive sports cars. Maybe one day I'll make a profit at it, but until then, I need to deduct the costs of all my sports cars.)

Hence .. hobby losses. When you have hobby losses, you can use them to offset hobby profits (either in that same year or carried over). So if you spend, say, $20,000 buying food and supplies for your cow, you can report that as a hobby loss. Then, next year when you sell the cow, you can use the carried over loss to offset the $15,000 taxable sale and thus not pay any taxes as it would be a loss overall.

If you mine Bitcoins and it's not a business, it's a hobby. If you have losses (electricity, equipment) you should be able to carry them over as hobby losses and use them to offset an eventual profit when you sell your Bitcoins. However, I think you're okay even if you don't report them because you should be able to deduct them anyway as a cost basis. (When you sell something, you can generally deduct what it cost you to acquire it.)

http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_183

I don't agree. If it's a business, you have business losses (equipment depreciation, electricity, and so on). If nothing else, you can file them and carry them over in case you make a profit in the future. If it's a hobby, you'll have hobby losses. Again, if you don't file them, you can't use them to offset your (you hope!) future profits when you sell those Bitcoins.

If you have gains from other activities in the same category, you can usually use the losses to offsets gains from other activities. For example, if you are a self-employed consultant and mine Bitcoins in the reasonable hope of making a profit, every dollar you spent mining is effectively one dollar you didn't earn consulting. (Not counting capital expenses which you have to depreciate, but that's still better than nothing.)

Exactly, and it costs you money to do this -- costs you have every right to offset against future profits .. *if* you report them.

"Getting pushed around by the banks" might explain a lost payment or two or the temporary inability to process payments. It doesn't explain losing client funds.

Nobody blaming the operator for getting scammed, as far as I know. They're blaming the operator for losing client funds. The operator's primary responsibility is to secure client funds so that they don't get scammed. When it comes to client funds, an exchange operator is the security guard. You certainly do blame the guard if the thing he's guarding is stolen.

I can't imagine why any rational person would wonder that. When a person makes an argument, I wonder whether the argument is sensible or not. To answer that, I reason out the logic behind it. It really doesn't matter whether the argument is made by a good person or a bad person when you're considering the validity of the argument. Usually such vague accusations with no evidence are used to distract people from a logical argument.

Okay, so you're a bad person.

Simple. You pay an exchange a high fee to take that risk for you and you rely on them to have sufficient reserves to protect client funds. That's their job.

I think that's a very bad strategy for reasons I've detailed elsewhere. Implementing strategies that hinder reporting or obscure connections are good ways to get yourself in trouble very quickly. But you are definitely right that you have to have "hot" and "cold" means of storing cash just as you do coins, so that interruptions in your operational accounts don't affect client funds you hold. It helps to be totally up front with the banks, actually.

The former is the much more sensible strategy. In any event, the reason you get paid such high fees is because it's hard to protect client funds -- but that's your primary responsibility.

It all depends *how* you make it. If it was earned income (like a salary paid in bitcoin), then it would be taxed as a barter even if you haven't sold the bitcoins. If it was a gift, it would be taxed as a gift.

It doesn't matter whether the government considers it a thing of value or not. If you bought it for price X and sold it for price Y, that could be a capital gain. If you received it in exchange for labor, it's a barter.

That's not how the tax system works in the United States. Other than the specific cases where there is mandatory reporting, neither you nor the IRS needs to prove anything.

Well, if theft were legal, they'd presumably be even cheaper. The prohibition on theft holds up the price of stolen goods because people who wish to acquire and deal in stolen goods take risks that legitimate businesses don't.

Right, but they'd be cheaper still if it were legal to sell cigarettes with no taxes. The legal prohibition still increases the costs.

The hypothetical would be if one company were unusually efficient and as a result had a higher than normal profit margin. In this case, a tax on just that business would not be passed on to customers. But this is like the "what if there's a ticking bomb in a school somewhere" argument of why we need to be able to torture people. It almost never happens, but it's brought up to justify a practice that will inevitably used in a wide variety of situations, in none of which does the justification apply.

It depends on what you mean by "regulated". If the regulation acts to hamper the market, then no. For example, there's a legal market in oxycodone, but it has not driven the illegal market in oxycodone out of business. If the regulation subsidizes the market, then yes. If the regulations do a mix of both, then it's a matter of which side wins out.

Yes, but you have the cause and effect precisely backwards.

You're assuming you can hold the monetary system constant as you imagine various changes in economic productivity. But the monetary system responds to the economy. For example, Bitcoins can become scarce because of their built-in scarcity. But they can also become scarce because demand goes up due to economic productivity. And either way, the result will be in increased effective supply of Bitcoins in the form of things like demand notes, mortgages, or bonds circulating as currency.

What will happen, unless you imagine a coercive government mucking with the process (say by printing currency, borrowing endlessly, or strong arming interest rates), is that the economy will drive the currency to encourage sensible investment, or non-investment, as makes sense.

Right, but who cares? That's the point. With private ownership, it doesn't matter. The owners can be smart or stupid and the damage they can do is limited. Resources will tend to drift towards those who can make best use of them because they'll generally be willing to pay more for them.

The reality is that a non-owner "manager" is much more likely to destroy something of value than an owner. And in any event, I'm not terribly concerned about people destroying their own stuff. I'm concerned with putting people in a position where they can easily get the benefit of consuming things that aren't theirs without having to pay the costs at all.

Not usually, because the set of winners and losers is more confined. Say you do something on your property that benefits you, but I'd benefit if you didn't do it. If you and I are both rational, I can offer you some sum of money in between those two values so that you don't do that thing, and we both win.

This doesn't work with things like air because the transaction costs will kill you. It's not like I can negotiate a deal with billions of people. If we somehow imagined that there were no transaction costs and any set of people automatically entered into any arrangement that was in their mutual interest, then yes, it would work for air too.

The reason this works with private ownership is because the benefits and costs are paid and borne by the same parties. With community ownership, you instead fight over rules that define who can do what. The beneficiaries always want the most, and generally the rules become inefficient. To fix this, the powerful people who want to give less negotiate exceptions and loopholes to the rules others must follow. The result is that politicians allow short-term destruction of public goods to get the money they need to stay in power and our children are left with the fallout. You may think private owners are interested in short-term profit, but that's nothing compared to a politician who needs to win an election.

Right, but that's because of choices our world has made. I'm suggesting that if we care about this problem, we should start making different choices.

I don't understand why you think that is. I understand that what happens upstream affects you downstream. If you're downstream and upstream is owned, you can pay the upstream person part of the value you gain from their conduct. If you can't afford to get them to improve your downstream value, it's likely that you're overvaluing it or undervaluing their costs. It's easy to think the benefits exceed the costs when you don't have to pay the costs. I'm saying we'll get smarter behavior all around if those who reap the benefits are the same as those who pay the costs.

Again, that's because of choices we have made. I'm suggesting we should make different choices.

There's actually no problem with oil, except where it's not privately owned. That oil which is not privately owned -- again, that's the result of choices our society has made. If we care about conserving resources, we should start making different choices -- specifically, private ownership of resources.

Now, where I don't think it works is with certain types of pollution. For example, private ownership of breathable air doesn't seem possible to me, unless you imagine one private entity owning all the air on the planet. So I'll concede that one.

But for most resource conservation problems, private ownership is the solution. We have made a lot of bad choices and should start fixing them.

Aren't pretty much all of these problems solved by private ownership of the resource?

Down?! So drugs would cost more if they were legal?

No, it's the reverse. Prices are pushed up by the need to provide your own protection and to compensate for the increased risks associated with a black or gray market. (Can't enforce contracts in court, might get arrested, etectera.)

You are correct, but your argument isn't relevant. Increasing the tax on oil doesn't just raise one company's costs, it raises *every* company's costs. You are quite correct that if something just raises the costs of one provider of a competitive good, most of the price cannot be passed onto the consumer. However, if something raises the prices of an entire market sector, most of the price will be passed on.

The exception would be if there was easy good substitution from markets not taxed, but in that case, the tax wouldn't raise much money and would instead shift the market to less efficient goods. For example, if you did heavily tax oil, the result would be that for some uses where oil was maximally efficient, less efficient energy sources for that use would be substituted.

Here's the reductio ad absurdum to see why: Say gasoline is selling for $4/gallon. If the government taxes just Exxon $4 per gallon of gas sold, Exxon can't charge $8/gallon to make up the tax. They'll just have to stop selling gasoline and the prices will go up just a bit due to the increased competition. But say the government charges every company that sells gasoline $4/gallon in taxes. Surely you don't think the price at the pump will still be $4 per gallon.