Let's end one debate: Commodity vs Money

[evoorhees]

Since the dawn of time, forum members have debated whether Bitcoin is a commodity or a currency/money. Let's ignore what the courts might call it (who the hell knows), and examine it in terms of economics.

If we were fortunate enough to live in a world where the government had not destroyed everyone's economic education, we'd know that "currency" and "commodity" are not mutually exclusive concepts.

It's important to understand where money comes from, when it doesn't come from the diktat of kings. In a world without government monopolization of money, would we have money? Of course we would. But how, without coercion, would the marketplace know what to use as money?

First, let's define commodity. A commodity is a subcategory of "goods." Specifically, commodities are goods which have little or no "qualitative variation" across units of them. Coffee beans. Rice. Wheat. Gold. Iron. Every unit is more or less the same as every other. Cars, houses, and computers are not commodities. Sand would be considered a commodity but it is so common that nobody cares enough to trade futures on it =)

And now let's look at "money." If there is no money in an economy, people trade goods with each other in barter. What you find is that they will start accepting commodities in trade frequently, because they know they are more widely desired and tradeable. Coffee beans are more easily traded than sheep (because sheep are heavy and can't be cut in half). Eventually, that commodity which becomes most widely accepted in barter becomes the de facto "money." Societal markets may gravitate toward one or several forms of money - but always money emerges, and it emerges from its prior categorization as a commodity.

So we see that money IS a commodity - it is that most widely desired commodity. It is the commodity which everyone wants to use in exchange. Review the history of gold, as it was always a commodity and gradually was accepted to the point where it was used as money. But its use as money didn't suddenly remove the label of commodity from it. Gold is both money and commodity. (gold was not chosen arbitrarily either - it's specific properties have made it the best form of money).

Just as "skiing" is a subcategory of "sports," so too is "money" a subcategory of "commodity." So let's please stop debating whether Bitcoin is a commodity or a money. It is absolutely a commodity, for each bitcoin is equal to every other - and it is also money to the extent it is used as barter for payment. Bitcoin is already used in many transactions every day, and thus it is very clearly a money as well as a commodity.

We can argue whether it will continue to be a money, or will replace other monies, etc, but it is silly to ponder whether it's a commodity or a money.

It's both.

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[bc]

ended

[evoorhees]

ended

bc you've got a very handsome avatar there 

[FreeTrade]

Bitcoin is something new. The closest analogy is probably with gold. People disagree as to whether gold is 'money'. Ben Bernanke for example. It really boils down to your definition of money.

Wikipedia defines it as
"Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context."

I think that is a fine definition. Based on the 'generally accepted' requirement, gold was once money, it is not any more. Bitcoin isn't money now. It might be in the future if it starts to become 'generally accepted'.

Right now, I wouldn't describe it as a commodity. It's a protocol (or from the wikipedia definition, it's a 'record').

[cbeast]

Money is a reification of the need for future commodities. Animals don't need money, they just go get what they want/need. Humans can get by without money just fine if they live like animals. Money has helped us become civilized, but fiat money succumbs to human foibles. Bitcoin is money on a whole new level. It is still a reification, but just doesn't have the "official" look of an authoritarian regalia.

[bc]

ended

bc you've got a very handsome avatar there 

Aw, shucks.

[2112]

I don't know if this is a joke thread, I presume no.

Bitcoin is neither money nor commodity.

Bitcoin is a synthetic security, that is unfortunately receiving a lot of fraudulent promotion. The existing laws about illegal offerings of securities will be used to prosecute those promoters who perpetuated and are perpetuating the deception.

At this time the amounts involved aren't big enough to trigger criminal prosecutions. The litigation under private or commercial law rules had already occurred.

I presume that all those discussions will be resolved in most jurisdictions in the next 2-3 years, unless the unit price of bitcoin drops to such a low levels that the outcome will not be worth litigating.

[Steve]

Bitcoin is definitely not a synthetic security...a synthetic security is something designed to mimic the returns of some other underlying asset.  The GLD ETF is a good example of a synthetic security.  Shares of GLD are designed to mimic the value of actual gold.  Bitcoin is nothing like that.

I would say that bitcoin can be money and is used as money by some people.  It also happens to be specifically designed to be money and works extremely well as money.  I would not say that bitcoin is a commodity, but it does share a lot of the characteristics of a commodity.  A commodity typically has some real value (i.e. oil is useful for its stored energy).  A bitcoin doesn't have any such use outside of its use as money.  I might characterize bitcoin as an artificial commodity.

[Stephen Gornick]

Bitcoin is a synthetic security

Here's an argument that counters your assertion ... at least in the U.S.:
 - http://www.lextechnologiae.com/2011/06/26/why-bitcoin-isnt-a-security-under-federal-securities-law

[2112]

Here's an argument that counters your assertion ... at least in the U.S.:
http://www.lextechnologiae.com/2011/06/26/why-bitcoin-isnt-a-security-under-federal-securities-law

This is a beautifully written essay, but it focuses only on the lawfull applications of whatchamacalit called bitcoin.

I wish some tort lawyer wrote a contrasting opinion when whatchamacalit was used to defraud a class of citizens from their lawfully earned USD.

John Nagle had posted a link to the actual case where "not a security" argument was actually litigated:
https://bitcointalk.org/index.php?topic=46486.msg555870#msg555870 , except that he grossly overshoot the financial damages target: 80 mln USD is currently beyond the wildest dreams for BTC litigation in the USA.

It is certainly an interesting area to watch. I wonder if there still a chance for lawfull applications of bitcoin to race ahead of the unlawfull uses. In the common-law country like the USA, the law will be set to suit the legal precedent case. The race is on. I truly with that the precedent would be set by some boring details-of-contract-dispute case not by scandalous investment promotion case mixed with mail&wire fraud and perjurous affidavits.

In the counties with civil law system bitcoin is quite neatly falling into the old Roman law category of "depositum irregulare". And thus it invokes a set of quite traditional rules. It remains to be seen what else can be mixed in to create the new rules. It just barely escaped litigation in Poland where MtGox came as a white knight to save the insolvent bitomat.pl.

[2112]

Bitcoin is definitely not a synthetic security...a synthetic security is something designed to mimic the returns of some other underlying asset.
[...]
I might characterize bitcoin as an artificial commodity.

You bring a very important distinction.

The definition of "synthetic security" under financial contract law is different than the definition of "securities" under criminal law.

I wish the precedent in the USA would be set under the contract law. It would be nice to ponder if "credit default swap" is similar to "chain reorganization swap". Or maybe bitcoin is some way equivalent to a participation in an advance royalties pool created by movie studio?

But it will be probably a case of some obviously unscrupulous promoters tried under the criminal law that will set the precedent.

We'll see.

[log0s]

Since the dawn of time, forum members have debated whether Bitcoin is a commodity or a currency/money. Let's ignore what the courts might call it (who the hell knows), and examine it in terms of economics.

If we were fortunate enough to live in a world where the government had not destroyed everyones' economic education, we'd know that "currency" and "commodity" are not mutually exclusive concepts.

It's important to understand where money comes from, when it doesn't come from the diktat of kings. In a world without government monopolization of money, would we have money? Of course we would. But how, without coercion, would the marketplace know what to use as money?

First, let's define commodity. A commodity is a subcategory of "goods." Specifically, commodities are goods which have little or no "qualitative variation" across units of them. Coffee beans. Rice. Wheat. Gold. Iron. Every unit is more or less the same as every other. Cars, houses, and computers are not commodities. Sand would be considered a commodity but it is so common that nobody cares enough to trade futures on it =)

And now let's look at "money." If there is no money in an economy, people trade goods with each other in barter. What you find is that they will start accepting commodities in trade frequently, because they know they are more widely desired and tradeable. Coffee beans are more easily traded than sheep (because sheep are heavy and can't be cut in half). Eventually, that commodity which becomes most widely accepted in barter becomes the de facto "money." Societal markets may gravitate toward one or several forms of money - but always money emerges, and it emerges from its prior categorization as a commodity.

So we see that money IS a commodity - it is that most widely desired commodity. It is the commodity which everyone wants to use in exchange. Review the history of gold, as it was always a commodity and gradually was accepted to the point where it was used as money. But its use as money didn't suddenly remove the label of commodity from it. Gold is both money and commodity. (gold was not chosen arbitrarily either - it's specific properties have made it the best form of money).

Just as "skiing" is a subcategory of "sports," so too is "money" a subcategory of "commodity."

I didn't notice any problems with any of the above.

But...

So let's please stop debating whether Bitcoin is a commodity or a money. It is absolutely a commodity, for each bitcoin is equal to every other - and it is also money to the extent it is used as barter for payment. Bitcoin is already used in many transactions every day, and thus it is very clearly a money as well as a commodity.

Yes, metaphorically speaking, bitcoins are fungible like a commodity.  But in reality, they are just meaningless numbers on a ledger that are subtracted from and added to, not traded as real commodities are.  About the closest you can get to any part of this system being considered a commodity is that you are trading mathematical/cryptographic abilities to subtract from and add to meaningless numbers on a ledger.

We can argue whether it will continue to be a money, or will replace other monies, etc, but it is silly to ponder whether it's a commodity or a money.

It's both.

Actually, it's neither.

[becoin]

Since the dawn of time, forum members have debated whether Bitcoin is a commodity or a currency/money.

1. There is a difference between currency and money.
2. Bitcoin is a commodity but it is a digital commodity. IMHO bitcoin is the equivalent of digital gold. Bitcoin is a commodity for one very simple reason. It can exist without any trust-based model (see Satishi's white paper). On the other hand every currency requires an element of trust between transacting counter parties. Indeed, why would anyone using BTC in Europe, for instance, keep a record of a transaction where someone has bought a beer with their BTC in Australia? There is no economic sense, it's expensive! BTW, this is the major reason why isn't bitcoins used by established merchants.
3. To succeed bitcoin needs the second form of their monetary dichotomy. The form that has an element of trust. Then it would be very easy. Commercial transactions will be in point-of-sale bitcoins and all outstanding balances will be cleared in 'real' bitcoins i.e. in digital gold.

https://bitcointalk.org/index.php?topic=28565.msg470117#msg470117

[Boussac]

Bitcoin is a synthetic security

Securities require issuers to exist as such.
Bitcoin is just a shared, public database and that's annoying for all the paid supporters of the current banking systems.
Bitcoin value is derived only from a consensus not from a promise.
The fact that fiat money value, ever since 1973, is also based on a consensus AND a promise does not imply anything about bitcoin.

[mobodick]

Bitcoin is something new. The closest analogy is probably with gold. People disagree as to whether gold is 'money'. Ben Bernanke for example. It really boils down to your definition of money.

Wikipedia defines it as
"Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context."

I think that is a fine definition. Based on the 'generally accepted' requirement, gold was once money, it is not any more. Bitcoin isn't money now. It might be in the future if it starts to become 'generally accepted'.

Right now, I wouldn't describe it as a commodity. It's a protocol (or from the wikipedia definition, it's a 'record').

I don't quite agree on the 'generally accepted' remark.
I think that it is mostly bound by acceptance and not by general accpetance.
If the two of us decide that we use blue pebbles for payment then it is effectively a form of money.
The point is, i think, that as long as you agree to the scope of the use then you can call it money.

Take a small country like Belgium.
They have money (beligan franks).
Now divide this coutry in two and give each half a separate money system.
Now do this again.
How often can you split it up before you can't call it 'generally' accepted?
Well, as long as the people are willing to accept it there should be no problem.
So 'generally' is a term that signifies mostly about an agreement amongst the people using it.
So for any given group there can be a money defined as long as the people within that group agree on it.

Bitcoin doesn't need worldwide acceptance as long as there are people that agree to use it.

[mobodick]

But in reality, they are just meaningless numbers on a ledger that are subtracted from and added to, not traded as real commodities are. 

Maybe to you they are meaningless nubers, but intrinsic to those numbers is the hashing that created them.
Bitcoins have very specific properties that allow them to be used in some way.
Yes, it is pure information, but that doesn't mean they are 'just numbers'.
Bitcoin could not exist and be used as money without the inbuilt mathematics.
I mean, a CD also only contains information and is basicly just a bunch of numbers.
But that information represents sound.
And bitcoin is made to represent particular forms of safety and to represent value.
As long as they are valued for these properties they can be seen as commodity.

[2112]

Securities require issuers to exist as such.

In the contract law yes. Not in the criminal law. Please re-read the links provided by John Nagle pertaining to the USA. Similar distincion exists in the laws of other countries. The criminal law always focuses on the promoter and the process of selling.

[log0s]

But in reality, they are just meaningless numbers on a ledger that are subtracted from and added to, not traded as real commodities are. 

Maybe to you they are meaningless nubers, but intrinsic to those numbers is the hashing that created them.
Bitcoins have very specific properties that allow them to be used in some way.
Yes, it is pure information, but that doesn't mean they are 'just numbers'.
Bitcoin could not exist and be used as money without the inbuilt mathematics.
I mean, a CD also only contains information and is basicly just a bunch of numbers.
But that information represents sound.
And bitcoin is made to represent particular forms of safety and to represent value.
As long as they are valued for these properties they can be seen as commodity.

Do you even know what "value" is?  Do you understand that value, price, and cost are all different concepts?  Please explain how a number "represents value".

If your understanding of value is different than mine, the meaning and implications of this post may not be obvious to you, but here's the link anyway:

https://bitcointalk.org/index.php?topic=47360.msg566490#msg566490

[evoorhees]

Looks like my post didn't end the debate at all! =)

I will say, as sure as I am that Bitcoin is a commodity and is a money - I've even more sure that it is NOT a security. It's not backed against any promise from anyone to pay anything. A security requires an issuer.

Of all the categories that Bitcoin could fall into, security is not one of them.

[2112]

A security requires an issuer.

For the purpose of criminal law the issuer is clear: it was Gavin Andresen until 2011-07-03, then the next two tranches were signed by "fabianhjr".

https://github.com/bitcoin/bitcoin/blame/master/src/main.cpp

and look for lines 1309 to 1318.

Edited to add: I mean Gavin is a very smart guy. He's not going to get involved in anything related to the sales and promotion of Bitcoin. He even explicitly said that something like "as an investment Bitcoin should be considered high-risk and suitable only for the few". He also closed his company before he had to sign off on anything related to the audits or tax liability and now works for a properly set-up limited liability corporation.

I'm half expecting that in the future the next tranches of Bitcoin will be signed off by some unknown Arsene Lupin who will access the github only through Tor and be essentially nontraceable.

For now the blame is too easy to pin on one person. Even the URL above says "blame". (Sorry, weak joke. The alternative revision control implementation has "praise" in place of "blame").