How come austrian economists do not believe in bitcoin?

[scarce]

-- I can't post it anywhere else, so mods should move the thread to Economics section or delete it if it's already somewhere around here (but I searched the forum and did not find it) --

So, here's a quite long article that appeared on Ludwig Von Mises Institute's website. It's trying to look like serious debate against real potential of bitcoin, and how this is only a short-term bubble. I personally don't buy in arguments presented there and I don't feel they are much substantial, e.g.:

"This leads us to another criticism of bitcoin: It can never be the most saleable good. The reasoning for this is quite simple. Until the majority of the 7 billion or so people that inhabit this planet have either a smart phone or frequent access to the internet, a digital currency is out of the question. "

If you are interested, review the article and post your comments!

http://mises.org/daily/6401/Bitcoin-Money-of-the-Future-or-OldFashioned-Bubble

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[josvazg]

I think they are wrong in this case.

The guy doesn't stop talking about gold, and nobody says bitcoins are going to compete directly with gold or even other fiat money. Bitcoin will be successful ONLY just by taking away a part of paypal's and Visa markets. Those are their competitors and only with that its future is guaranteed as an exchange medium for some type of transactions. That might help stabilizing its price and allowing it use as the "digital poor's man value keeper".

BUT...

Taxes are NOT going to disappear and they are going to be paid in fiat currencies. No question. So fiat money will keep on being king over gold and bitcoins. I don't think bitcoin will ever be the unit of count in the near future, the dolar or some other fiat will be doing that.

People will be using gold the way they were using it (as an insurance) before bitcoin, maybe a little bit less, and way less than most austrians say we should. And there are reasons for that...

Today gold is rare and strange to most people, this builds some extra barriers to its use on top of the ones the governments/States created:
How do I recognize gold? I am not used to handle it.
How do I know my gold is pure 24 carat and not some yellow jewellery type 18?
How do I hoard it? shall I keep it hidden at home?
Most people (in "stable" countries) is not used to that with fiat money and with gold is even worse, even small quantities are very valuable and too easy to steal.
Shall I rent a bank security box? how much is that a month? how long till they get to keep all my gold?
OR Should I invest in companies or gold ETFs instead?... Warren Buffet will tell you YES!, even if they are not gold related, companies produce stuff and choosing the right ones will grow wealth (for you and everyone else), while gold just tries to keep old wealth from fading, "it doesn't do anything".
...
All those are REAL barriers of entrance to most people using gold instead of fiat money.

Due to that and the forced uses of fiat money you end up in a situation so that you cannot use gold to buy goods or services, neither in physical shops neither online.

Gold usefulness TODAY is not that great.

And even worse, even if you could use gold on shops, with current prices it's too valuable to be useful. Will you buy bread with a coin the size of a microchip? you'll need tweezers and very good aim!
Even with silver that is starting to be difficult.

AND gold CAN'T, by definition, be used online directly. You will most likely need to use gold-tickets or promises in paper or in digital form while the gold is deposited somewhere that it will not move around too often (it would be too expensive). That is you need to trust a company/bank, pay them a rent for the gold monthly, etc.

Bitcoin, on the other hand, has obvious advantages over fiat money and is more practical for many of todays uses that gold. Its strengths shine most on online trade and the ones to be worried are, as I said, Visa, Paypal and other current fiat money based online payment services.

Is bitcoin a bubble?
Well I can tell you what I believe its going to happen.
The current price, "bubble" or not, can't keep on going up like this. Sooner than later it will collapse violently, there is no question of that.

The real question is, how deep will it collapse? will it drop to zero?
I don't think so, whatever naysayers say, bitcoin solves real problems and it is useful per se, there will be always people behind it for some types of transactions.
I bet it won't go even below last peak price on 2011, or it won't stay so low for too long.
Yes, many people will get nervous and lose lots of money and flee to never come back. But many other will stay, cause bitcoin is useful.

Bitcoin current volatility is for sure not a good thing.

But the only thing that I think could kill-off bitcoin for good is an alternative cryptocurrency with better properties like, for instance, having decentralized instant payments confirmed in seconds, having a way to represent personal debts and webs of trusts and move them around, etc.

[Idioteque]

I recently skimmed /r/austrian_economics for bitcoin, and surprising to me, the majority seemed to have negative views on bitcoin.
I've always thought that with Hayek being a big supporter of competing currencies, Austrians would love bitcoin. Especially with articles like this.

About the mises article:
I am sceptical about the authors understanding of bitcoin (connecting bitcoin to its forks/disputing the anonymity of tor). He doesn't seem to be well-informed about the technology behind it.

[larrysalibra]

The person in the video you linked to says Bitcoins aren't useful because you can't do anything but trade them and because of this they're not valuable.  Hard to imagine a real "Austrian Economist" making such a comment. 

Every major currency used in the world has this same feature - being useless beyond its ability to facilitate trade. The ability to facilitate trade in and of itself is a valuable service.  Anyone who disagrees is more than welcome to send all of their bitcoin and fiat currency my way. 

He may be "Austrian" but an economist? No.

[larrysalibra]

There's a great podcast called "EconTalk" that examined bitcoin a couple years ago, if you want to hear the thoughts of real economists: http://www.econtalk.org/archives/2011/04/andresen_on_bit.html

[aigeezer]

One "Austrian economist", Jeffrey Tucker (formerly with the Mises Institute) is endorsing bitcoin very strongly.

I first heard about bitcoin (early on, I'm glad to say) in newsletters from Agora Financial, which generally support the Austrian school. They have tended to be goldbugs, but are definitely anti-fiat.

It's complicated.   

Anyway, I did a quick search for a suitable link to Tucker's stuff and found an amazing barrage of YouTube propaganda for and against bitcoin.
The vids are bizarre but the commenters are outrageous, even for YouTube. There's a war on!

For whatever reasons, the conspiracy folks seem to be coming down against bitcoin. Strange potential alliance: wingnuts, establishment, goldbugs... against the geeks.
Makes me proud to be a geek.

[naphto]

I think they are wrong in this case.

The guy doesn't stop talking about gold, and nobody says bitcoins are going to compete directly with gold or even other fiat money. Bitcoin will be successful ONLY just by taking away a part of paypal's and Visa markets. Those are their competitors and only with that its future is guaranteed as an exchange medium for some type of transactions. That might help stabilizing its price and allowing it use as the "digital poor's man value keeper".

How the hell are you believing that bitcoins will ever compete with Visa or paypal when the fees are like:
- 0 for Visa
- 25 cents for paypal
- 1 million time the amount you're sending when you're sending 0.0000001 btc

[ThreeJay]

After reading that article...I figure that the author has missed the point about Bitcoin. Economically speaking it reduces the transaction costs of money transactions so massively that there is indeed a place for it...

Personally, I can't predict the future of Bitcoins but as I possess the technology necessary to participate I reckon it is an experiment to participate in 

[adamselene]

I don't think /r/austrian_economics is a good judge of overall Austrian School sentiment.

It's only a good sentiment of what the moderator over there, Nielsio, believes. He's literally the emperor of that sub.

[larrysalibra]

I think they are wrong in this case.

The guy doesn't stop talking about gold, and nobody says bitcoins are going to compete directly with gold or even other fiat money. Bitcoin will be successful ONLY just by taking away a part of paypal's and Visa markets. Those are their competitors and only with that its future is guaranteed as an exchange medium for some type of transactions. That might help stabilizing its price and allowing it use as the "digital poor's man value keeper".

How the hell are you believing that bitcoins will ever compete with Visa or paypal when the fees are like:
- 0 for Visa
- 25 cents for paypal
- 1 million time the amount you're sending when you're sending 0.0000001 btc

If you're accepting Visa and the fee is 0, you should become a merchant account/gateway provider because everywhere else in the world charges 2-3% + US$0.15-0.30+ per transaction not including the risk and fees from chargeback.

[naphto]

If you're accepting Visa and the fee is 0, you should become a merchant account/gateway provider because everywhere else in the world charges 2-3% + US$0.15-0.30+ per transaction not including the risk and fees from chargeback.

?

I am speaking as a customer. When I want to send 1 cent by paypal, I pay 26 cents (1 for the transaction + 25 as fees).
When I want to pay something in a shop or a restaurant I pay the price + 0 fee. I don't care if the shop does not receive 100 % of it. If I had paid with cash that would have been the same price.
Paying 1 million time the amount you want to send as a customer is just far away from acceptable.

[ThreeJay]

I am speaking as a customer. When I want to send 1 cent by paypal, I pay 26 cents (1 for the transaction + 25 as fees).
When I want to pay something in a shop or a restaurant I pay the price + 0 fee. I don't care if the shop does not receive 100 % of it. If I had paid with cash that would have been the same price.
Paying 1 million time the amount you want to send as a customer is just far away from acceptable.

But as a customer you do pay the cost of the transaction after all...

[scarce]

Reading your replies and analyzing it further, I've come to a conclusion that either the author of the article is rather unorthodox austrian economist or austrian economists still have to learn thing or two about bitcoin in order to fully understand its potential in economics.

I would only like to add that when gold (or silver for that matter) is referred to as the only true currency people often overlook the fact that nowadays it can be confiscated by governments just like the money in Cyprus (as this recent case from Italy shows us:
http://www.youtube.com/embed/Ilh5iUQIb4s).
And that's the problem. I believe austrian economists would not agree on state regulation of gold, which is now more or less happening. So imho, we cannot go back to gold if we want to improve our current currency systems. For the time being, bitcoin is the way to go although it's not perfect either.

[larrysalibra]

If you're accepting Visa and the fee is 0, you should become a merchant account/gateway provider because everywhere else in the world charges 2-3% + US$0.15-0.30+ per transaction not including the risk and fees from chargeback.

?

I am speaking as a customer. When I want to send 1 cent by paypal, I pay 26 cents (1 for the transaction + 25 as fees).
When I want to pay something in a shop or a restaurant I pay the price + 0 fee. I don't care if the shop does not receive 100 % of it. If I had paid with cash that would have been the same price.
Paying 1 million time the amount you want to send as a customer is just far away from acceptable.

We the merchants are charging you more to cover the costs of accepting your visa - that's why so many merchants give cash discounts. The same will happen with bitcoin. Dont know many merchants that would prefer to accept visa and pay 3% versus paying 0.0005.

[wesleybruce]

Gold and bitcoin are complimentary and you can buy gold with bitcoin and vise verse. That's what Nikolay Gertchev missed. Its the conflict between the perfect currency and a workable currency. Gold can be confiscated but so can your computer and all your bit coin backups if government really wants to shut you out of bitcoin. I know of people that have been placed under house arrest with a ban on electronic communication. Nothing is or can be perfect. I believe the world will use both gold, bitcoin, local employment trading systems and local government extinguishing script all at once.
There's a pro-bitcoin article on Mises daily today.

Many Austrian school people will point out that gold is only an inflation hedge if you can trade it with what ever replaces the inflated currency when it finally dies. You don't trade gold for goods in the hyperinflation crisis because you will get ripped off or killed by some thug for the gold your waving around. So when the crisis is at its peak you trade vegetables, solar cells, batteries and keep the gold hidden. The gold is for after the crisis when the new 'improved' dollar comes out. Then you buy that with your gold. If the new improved dollar is a gold currency you still trade ingots for it because coins and shire silver type cards are more convenient than gold ingots.  Bitcoin will become the key digital trading element and gold the key long term emergency store of value. 
Both can go down: bitcoin can fall if someone mass produces hacking tools and gold can go down if someone gets going on sea bed mining in a big way.

[Idalon]

Interesting debate. It is not surprising that there are non-believers but anyone with a sane mind can see that a digital currency is part of the future at some point - hopefully this point is now and BTC, LTC & Co are part of this future 

[DeathAndTaxes]

But as a customer you do pay the cost of the transaction after all...

Of course you do.  You think the merchant reaches into his big bag of charity money when paying the VISA bill?  The price you see includes a 3% VISA tax.  For online merchants with even a small amount of fraud it is more like 5% to 10%.  That steam game for $6 it really is $5 but Steam packs in the projected fraud losses, plus costs of anti-fraud software plus VISA $0.35 PLUS 3% which just kills on low value txs.