Mises on BitCoin

[Steve]

Someone on the Mises Institute forum had this to say about BitCoin:

"One day, while I was learning about cipherspace, I discovered BitCoin.  BitCoin is a completely decentralized, anonymous online monetary system that relies on a distributed database to facilitate transactions.  The creator put a great deal of effort into ensuring that the system is secure and reliable.  Unfortunately, there are no real assets backing he currency of BitCoin (and no coercive government backing it either).  Thus ends BitCoin."

(url to the post is here: http://mises.org/Community/forums/t/9853.aspx)

Myself, I believe the inherent value of gold is the fact that no one can manufacture it out of thin air (yes, they can mine it, but there are significant costs to that), it can be traded anonymously, relatively small amounts of it have a high value (which is due to its scarcity on earth), and it has world wide marketability.  It does have some value as a conductor and jewelry, but I believe that is insignificant relative to its value as a money.  I believe BTC has these same monetary attributes and hence I believe the view of this poster (that a money needs some tangible asset backing) is incorrect.  I am curious what people here think.

[kiba]

I made a 500 dollars bet on the success of the bitcoin economy.

[MoonShadow]

I made a 500 dollars bet on the success of the bitcoin economy.

How is "success" defined for this wager?

[Local]

If something doesn't have use value it can't bootstrap to having trade value.

Oh wait, nevermind

[ribuck]

How is "success" defined for this wager?

It's a success if kiba can one day sell the $500 worth of BTC that he bought for more than $500.00 :-)

[kiba]

How is "success" defined for this wager?

10,000 people using it. Media coverage said or perhaps estimate.

[MoonShadow]

How is "success" defined for this wager?

10,000 people using it. Media coverage said or perhaps estimate.

So if the NYT's runs an op-ed about bitcoin and the author estimates more than 10K people using it at any given time period, you when?  How could you lose, is there a time limit?  Does the Mayberry Register qualify, or TheBlaze.com?  I could esimate that more than 10K people have used bitcoins for something since Jan 2009 right now.

[mndrix]

Myself, I believe the inherent value of gold is the fact that no one can manufacture it out of thin air (yes, they can mine it, but there are significant costs to that), it can be traded anonymously, relatively small amounts of it have a high value (which is due to its scarcity on earth), and it has world wide marketability.  It does have some value as a conductor and jewelry, but I believe that is insignificant relative to its value as a money.

This is one of the best descriptions I've ever read about the value of gold as a currency.  Thank you.

[kiba]

So if the NYT's runs an op-ed about bitcoin and the author estimates more than 10K people using it at any given time period, you when?  How could you lose, is there a time limit?  Does the Mayberry Register qualify, or TheBlaze.com?  I could esimate that more than 10K people have used bitcoins for something since Jan 2009 right now.

10,000 people by 2015.

[grondilu]

Myself, I believe the inherent value of gold is the fact that no one can manufacture it out of thin air (yes, they can mine it, but there are significant costs to that), it can be traded anonymously, relatively small amounts of it have a high value (which is due to its scarcity on earth), and it has world wide marketability.  It does have some value as a conductor and jewelry, but I believe that is insignificant relative to its value as a money.  I believe BTC has these same monetary attributes and hence I believe the view of this poster (that a money needs some tangible asset backing) is incorrect.  I am curious what people here think.

Well, I just think exactly the same.

[Zerbie]

The value of BitCoins will be limited to:

1. The future infrastructure to deal with the massive number of potential transactions.
2. The security of personal computers.

If these two things can be overcome, BitCoins could theoretically replace the current currencies.  If not, BitCoin will be relegated to the fringe.

[grondilu]

The value of BitCoins will be limited to:

1. The future infrastructure to deal with the massive number of potential transactions.
2. The security of personal computers.

If these two things can be overcome, BitCoins could theoretically replace the current currencies.  If not, BitCoin will be relegated to the fringe.

I agree with 1.  Indeed I'm not sure bitcoin could be used simultenaously by billions of users.

However, point 2. is not limited to bitcoin.  If security of personnal computers is compromised, then any electronic transaction is.  Not just bitcoins.

[Gavin Andresen]

I agree with 1.  Indeed I'm not sure bitcoin could be used simultenaously by billions of users.

Really?

You don't think if bitcoin gets really successful and there are hundreds of millions of dollars poured into engineering efforts for it (and if it is wildly successful, big companies WILL invest huge amounts of money on it), that any scaling problems won't get solved?

I bet I could find people predicting a few years ago that Facebook would never be able to scale to billions of users (it was written in PHP for pete's sake!).

[MoonShadow]

The value of BitCoins will be limited to:

1. The future infrastructure to deal with the massive number of potential transactions.
2. The security of personal computers.

If these two things can be overcome, BitCoins could theoretically replace the current currencies.  If not, BitCoin will be relegated to the fringe.

Another newbie with the sole insight into the great bitcoin flaw.  Seriously guys, this gets old.  Don't you guys ever think that we've already considered all this before you arrived?  Search the forum history before opening mouth/insert foot.  We get tired of explaining this stuff repeatedly.

[grondilu]

You don't think if bitcoin gets really successful and there are hundreds of millions of dollars poured into engineering efforts for it (and if it is wildly successful, big companies WILL invest huge amounts of money on it), that any scaling problems won't get solved?

Well, if you present it like this, I guess it could

After all, we only have one implementation.  There is a lot of room for improvement.

[ShadowOfHarbringer]

The value of BitCoins will be limited to:

1. The future infrastructure to deal with the massive number of potential transactions.
2. The security of personal computers.

If these two things can be overcome, BitCoins could theoretically replace the current currencies.  If not, BitCoin will be relegated to the fringe.

Another newbie with the sole insight into the great bitcoin flaw.  Seriously guys, this gets old.  Don't you guys ever think that we've already considered all this before you arrived?  Search the forum history before opening mouth/insert foot.  We get tired of explaining this stuff repeatedly.

Yep, I remember discussing it several times...
Move along, nothing to see here.

[Sjalq]

<quote>
Unfortunately, there are no real assets backing he currency of BitCoin (and no coercive government backing it either).  Thus ends BitCoin.
</quote>

Geez, this is some bad economics from the Mises forum of all places. I agree with you Steve, the above statement is incorrect. BitCoin is not valuable because it is backed by a real asset, it is valuable because it serves the role of money. Gold also is not valuable because it is a "real asset" it is valuable because it to serves in the role of money.

[Steve]

Geez, this is some bad economics from the Mises forum of all places. I agree with you Steve, the above statement is incorrect. BitCoin is not valuable because it is backed by a real asset, it is valuable because it serves the role of money. Gold also is not valuable because it is a "real asset" it is valuable because it to serves in the role of money.

The title is a bit misleading...I should stress it's just a forum posting, not anything official from the Mises Institute.  One thing I've thought about is what if another cryto-money just that functioned just like BitCoin appeared.  What would that do to the value of BitCoin?  The value of BitCoin is directly related to the community of people that use and exchange BitCoin.  In a very real sense, when you own and hold BitCoin, you are investing in that community.  You are increasing the value of the btc in circulation and thus enabling others to use their btc holding to further build out the btc infrastructure (should they choose to use their btc in such endeavors).  It is in a sense like buying shares of a company, except in this case, it's a community rather than a company.  The more people build out the infrastructure around btc, and the broader btc it is adopted, the more valuable the btc itself becomes.  I know what I'm stating is probably obvious to most, but I like saying it.

So, to the extent that another crypto-currency is able to gain broad adoption and builds out its infrastructure, it would compete with btc.  However, I think there is quite a bit of room for a number of crypto-currencies to grow.

[Sjalq]

Same thing would happen that happened to Social Networking. One dominant leader would emerge and once dominance is established the leader would need to really mess up to lose poll position.

This is imho the biggest threat facing BitCoin, not government interference.

[hugolp]

Some at the Mises Institute are too atached to gold, but there are a lot of misesians in the bitcoin community.