2013-04-17 Peter Surda: The Mises Institute is clueless about Bitcoin

[n8rwJeTt8TrrLKPa55eU]

Another great response by Peter to the series of recent articles coming out of LVMI.  Bitcoin has clearly caused an Austrian schism, opinions taken on Bitcoin will make or break several big reputations during the next few years.  I wasn't around for Bohr vs Einstein on quantum mechanics, but this seems similar: a generational gap and inability of older scholars to accept a new paradigm.

But Bitcoin can do much more than become money. With algorithmic contracts, it can make large parts of the financial sector obsolete. With its ultra low transaction costs, it can make money substitutes redundant (and, obviously, without money substitutes there is no credit expansion and without credit expansion there is no business cycle). Again with its transaction costs and abstract base, anyone can make a payment to anyone, anytime, anyplace. Nothing that has existed so far in the history can do that. And even if we disregard it as a hypothetical, we just need to remember that gold already failed, because it was reduced from money to a secondary medium of exchange. This was only possible because money substitutes emerged. If nothing else, Bitcoin shows that money substitutes are is merely an empirical quirk and not an inherent feature of monetary systems, and for that alone is it should change the landscape of the Austrian literature forever, and open a wide spectrum of possibilities for research and our understanding of money.

http://www.economicsofbitcoin.com/2013/04/the-mises-institute-is-clueless-about.html

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[marcus_of_augustus]

Hmmm, as incisive as usual.

[xcsler]

"Indeed, Tony Gallippi from BitPay reported (can't find the link now) that their customers are increasingly opting to keep a larger proportion of the payment in Bitcoin, whereas at the beginning they just converted the whole sum to fiat money."

You'll know that Bitcoin has truly made it when there is no need for BitPay.

[herzmeister]

old people...

[deeplink]

old people...

Yes it seems arguments against Bitcoin are mostly made by old farts (or young people who are already old at heart)

Is it because they are so much wiser than we are or have their brains simply rotten away due to too many years of exposure to propaganda?

[aigeezer]

old people...

This refrain is really irritating. It is not an age thing. It is an "invested in a particular mindset" thing, which happens at any and all ages.

Those who push back against BTC tend to have a perceived stake in the status quo, which correlates with age but is not caused by age.

As you can probably tell, my ox is being gored here. My grandchildren are almost old enough to vote but they are totally oblivious to BTC.
I've been mining BTC for a couple of years.

Age issues will take care of themselves through human mortality. It is more useful to focus on why people (of any age) adopt or resist a BTC mentality.

[herzmeister]

Don't take it personally. I'm not exactly a teen anymore myself. I'll probably still ramble about "old people" when I'm 70. 

[kiba]

Unless a teenager is a programmer, he won't give a shit about bitcoin.

THERE I SAY IT!

[Severian]

old people...

Give us old people a break. An "old" person probably wrote Bitcoin.

[Timo Y]

Unless a teenager is a programmer, he won't give a shit about bitcoin.

THERE I SAY IT!

pffff, young kids these days...

[deeplink]

old people...

It is not an age thing. It is an "invested in a particular mindset" thing, which happens at any and all ages.

Those who push back against BTC tend to have a perceived stake in the status quo, which correlates with age but is not caused by age.

This is it.

[cypherdoc]

old people...

This refrain is really irritating. It is not an age thing. It is an "invested in a particular mindset" thing, which happens at any and all ages.

Those who push back against BTC tend to have a perceived stake in the status quo, which correlates with age but is not caused by age.

As you can probably tell, my ox is being gored here. My grandchildren are almost old enough to vote but they are totally oblivious to BTC.
I've been mining BTC for a couple of years.

Age issues will take care of themselves through human mortality. It is more useful to focus on why people (of any age) adopt or resist a BTC mentality.

you need to change your name; oldgeezer.

[myrkul]

You know, I read that first article linked from the post, http://mises.org/daily/6399/The-Moneyness-of-Bitcoins and they basically say what I've been saying all along: Bitcoin is perfect internet money, but not so great for face-to-face transactions.

Bitcoins as Money

Prima facie, bitcoins possess all the qualities required from a money (a generally-used medium of exchange). They are perfectly homogeneous, easily cognizable, conveniently divisible, storable at practically no cost, and imperishable. Also, they seem to be fully shielded from counterfeiting. In addition, because they exist as a consumption and investment good, they are appraised on their own, thereby satisfying the Misesian regression criterion for the free-market inception of a medium of exchange. However, in order to become a viable alternative to existing monies, bitcoins must generate a sufficiently large demand so that their usage becomes generalized. Without the certainty that they can be transacted for any other good in the economy, a demand to hold them as money could not develop. It is with respect to their capacity to become and remain commonly used that bitcoins suffer from a relative disadvantage.

Indeed, bitcoins are embodied in a specific and highly capital-intensive technology. They can become convenient enough for standard personalized transactions only if both parties of the exchange possess the necessary technology that gives access to bitcoins. Bitcoins can do the job already for internet-based impersonalized purchases, because the marginal cost of the exchange technology they go along with is already almost zero for those who possess it. However, the transposition of that technology in the physical world of common face-to-face shopping (getting a haircut, buying a sandwich, or purchasing vegetables at the local grocery shop) would imply extra costs. True, these costs would decrease progressively as portable smartphones with permanent internet access become more widely used, not only by buyers, but also by sellers. The key point, however, is that bitcoins could become a generalized medium of exchange only through the accessory use of other, specific and physical, goods in an economy that has reached a very high level of technological development.

Bitcoin, in my opinion, doesn't need to be the one, true currency. It compliments physical currencies, such as gold or silver, perfectly.

[lonelyminer (Peter Šurda)]

You know, I read that first article linked from the post, http://mises.org/daily/6399/The-Moneyness-of-Bitcoins and they basically say what I've been saying all along: Bitcoin is perfect internet money, but not so great for face-to-face transactions.

Gertchev's article was actually the best out of those, and he did the most research. But it's still lacking, because he missed two things: Bitcoin is form-invariant and can exist in almost any imaginable and unimaginable form, and electronic form of money is by far the most dominant one already. Even in Kenya, 31% of GDP is now facilitated via mobile phones (M-PESA), and this flies in the face of Gertchev's position.

[myrkul]

You know, I read that first article linked from the post, http://mises.org/daily/6399/The-Moneyness-of-Bitcoins and they basically say what I've been saying all along: Bitcoin is perfect internet money, but not so great for face-to-face transactions.

Gertchev's article was actually the best out of those, and he did the most research. But it's still lacking, because he missed two things: Bitcoin is form-invariant and can exist in almost any imaginable and unimaginable form, and electronic form of money is by far the most dominant one already. Even in Kenya, 31% of GDP is now facilitated via mobile phones (M-PESA), and this flies in the face of Gertchev's position.

Good point.

[marcus_of_augustus]

You know, I read that first article linked from the post, http://mises.org/daily/6399/The-Moneyness-of-Bitcoins and they basically say what I've been saying all along: Bitcoin is perfect internet money, but not so great for face-to-face transactions.

Gertchev's article was actually the best out of those, and he did the most research. But it's still lacking, because he missed two things: Bitcoin is form-invariant and can exist in almost any imaginable and unimaginable form, and electronic form of money is by far the most dominant one already. Even in Kenya, 31% of GDP is now facilitated via mobile phones (M-PESA), and this flies in the face of Gertchev's position.

Yep. There seems to be a real cognitive dissonance about how Western fiat is already on an electronic ledger basis. Since most people learn as very small children that "money" looks like coins and notes it seems to be huge mental barrier to explain to people that the vast majority of money in the world is held as numbers in a ledger in not so secure electronic databases.

If nothing else bitcoin may teach, or coax people to learn, the nature of the illusion of money we have existed under for the last 3-4 decades.

[Rodyland]

Brilliant read . Gives one pause, and hope for the future of Bitcoin.   

[lonelyminer (Peter Šurda)]

I appreciate the praise, but please do not feel any hesitance to criticise. I actually rushed this post so it's not as smooth as I'd like it to be. I attempt to (sometimes) approach the topic in a scholarly fashion and value constructive criticism highly.

[BTCLuke]

I appreciate the praise, but please do not feel any hesitance to criticise. I actually rushed this post so it's not as smooth as I'd like it to be. I attempt to (sometimes) approach the topic in a scholarly fashion and value constructive criticism highly.

Wow, great minds think alike! I wrote a very similar piece a month ago:

Why Austrians are wrong about bitcoin - Bitcoinfinger

In it I posit that bitcoin is perfect for the needs of an internet-native money that lives inbetween local script and legal tender: