George Selgin discusses privatization of the money supply based on Bitcoin

[ffe]

From the Market Monetarist, economist George Selgin discusses a privatisation of the money supply based on what he calls a Quasi Commodity Standard (QCS). QCS is inspired by the technological development of Bitcoin. Basically he sees a three step procedure for the privatisation of the money supply and going from the present fiat based monetary monopoly to what he calls a Free Banking system based on a Quasi Commodity Standard rather than gold.

http://twitcam.livestream.com/8eouu

You need a bit of patience if you want to watch the whole thing. It starts out in Italian but at the 5 minute mark switches to English. The presentation lasts around 45 minutes. He talks about QCS at 37 minutes and Bitcoin at 40 minutes.

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[matonis]

Thanks for finding this. I read all of George's work.

[mila]

was worth watching for me for sure. thanks for posting.

he got the part about bitcoin quite right (surprisingly to me) and I got the impression he suggests that central banks schedule their open market interventions and announce the rules and limits in advance so that the amount of base money is predictable over time. no emergency direct lending. interesting

edit: no graphs, could be a podcast

[matonis]

he got the part about bitcoin quite right (surprisingly to me)

...except the part about calling it a "uniquely American phenomenon"

[sethsethseth]

Paid £3 for the skyfire browser just so I could watch this flash video on my iPad:). I'll contribute 1btc to anyone who makes a transcription of this.

[TradersEdgeDice]

Isn't the problem that the money supply is an oligopoly/cartel of private central banks?

Basically, money is already privatized.  The important order business is breaking up the cartel and the monopolies that each cartel member holds in their respective countries.

[cypherdoc]

i consider this to be significant endorsement for Bitcoin.  for someone of Selgins reputation to be advocating for the USD monetary system to be based on a computerized concept such as Bitcoin is highly relevant.

he advocates a hard target for 5% spending which i don't see meshing well with Bitcoin's set supply.  whats wrong with a fixed supply of money?  prices will just decrease over time as the economy grows. there is nothing wrong with this.  the main bullish argument for a fixed supply of money is that businesses and savers can count on their money retaining its value.  i, being an inherent saver, would be more than willing to lend out my savings for additional return or even for investing in risk assets such as stock.  with the exchange value of my money whipping all over the place under the current regime, i am LESS willing to speculate with my money b/c now i have to worry about exchange value along with speculative risk.

he also misunderstands the part where he says that alt cryptocurrencies can appear alongside the "original" Bitcoin which will "always survive".  if an alt chain rises up that is better than Bitcoin, it will take over and eliminate Bitcoin.  he should describe this market based phenomenon as a "democratic" voting process whereby the best product will win.  this is a good thing.  if a gov't tries to subvert the Bitcoin code to re establish an advantage for itself, the rest of the open market will reject the code and the longest chain will prevail essentially thru a democratic voting process to adopt the code or not.

all in all he's on the right track in endorsing an automated system that eliminates the "discretionary" printing press that favors crony capitalists for a system that is inherently democratic and favors no one group.  this is the essence of Bitcoin and we now can see that the establishment is beginning to come around.

the Bitcoin pessimists here will say that gov'ts will fight Bitcoin and establish their own server farms to destroy it.  i say that the collective will of humanity will not reject a good idea like Bitcoin but will in fact over time embrace it.

[cbeast]

A 5% inflation would allow the largest computer networks (owned by governments and large corporations) to eventually decrease the value of anyone's savings. It would make mining unprofitable and more costly to maintain the network than just printing fiat money.

[FreeMoney]

A 5% inflation would allow the largest computer networks (owned by governments and large corporations) to eventually decrease the value of anyone's savings. It would make mining unprofitable and more costly to maintain the network than just printing fiat money.

I'm pretty sure people own a lot more computing power than govs and corps, even if they don't they certainly have more disposable computing power. And thinking they'll just buy more is silly if the premise is that it won't be profitable to mine.

I guess a agree that 5% inflation would make mining unprofitable, but only in a roundabout way. A 5% subsidy is way more then the current schedule starting about 12 years in, more subsidy might seem to make mining more profitable. I mean they'd get 5% of all wealth forever, you'd expect 5% of world resources to be dedicated to mining. But that's absurd, but it removes the reason to that gaping value hole will make sure people don't demand coins.

[cypherdoc]

A 5% inflation would allow the largest computer networks (owned by governments and large corporations) to eventually decrease the value of anyone's savings. It would make mining unprofitable and more costly to maintain the network than just printing fiat money.

but u would have to assume that the Bitcoin price would go up a corresponding 5% keeping mining profitably constant.

[cypherdoc]

A 5% inflation would allow the largest computer networks (owned by governments and large corporations) to eventually decrease the value of anyone's savings. It would make mining unprofitable and more costly to maintain the network than just printing fiat money.

he didn't really say 5% "inflation", he said 5% "spending" whatever the heck that means.

[lonelyminer (Peter Šurda)]

I emailed with George Selgin about Bitcoin last summer for my Bitcoin research. He knew about it, we exchanged some arguments and he said he's working on a new proposal motivated by Bitcoin's predictable supply growth, together with some other guy. Maybe this video is about it (I have not seen the video yet).

[cbeast]

With all these professional papers and lectures I've noticed a commonality. None of them promote Bitcoin itself, they promote the idea of Bitcoin. It suggests they they don't really understand the real world evolution of the network of developers, miners, enthusiasts, and what they have been through. This is a revolution. It's like saying, "Hey Arab Spring, you have a good idea, but I think you should do it this way." They can bite me.

[cypherdoc]

With all these professional papers and lectures I've noticed a commonality. None of them promote Bitcoin itself, they promote the idea of Bitcoin. It suggests they they don't really understand the real world evolution of the network of developers, miners, enthusiasts, and what they have been through. This is a revolution. It's like saying, "Hey Arab Spring, you have a good idea, but I think you should do it this way." They can bite me.

this is how these things start off; they are grudgingly giving way, step by step.  pretty soon they will understand that Bitcoin satisfies all that they recommend.

[foggyb]

With all these professional papers and lectures I've noticed a commonality. None of them promote Bitcoin itself, they promote the idea of Bitcoin. It suggests they they don't really understand the real world evolution of the network of developers, miners, enthusiasts, and what they have been through. This is a revolution. It's like saying, "Hey Arab Spring, you have a good idea, but I think you should do it this way." They can bite me.

this is how these things start off; they are grudgingly giving way, step by step.  pretty soon they will understand that Bitcoin satisfies all that they recommend.

I think they do understand already. They're just miffed they didn't come up with it first.

[matonis]

With all these professional papers and lectures I've noticed a commonality. None of them promote Bitcoin itself, they promote the idea of Bitcoin. It suggests they they don't really understand the real world evolution of the network of developers, miners, enthusiasts, and what they have been through. This is a revolution. It's like saying, "Hey Arab Spring, you have a good idea, but I think you should do it this way." They can bite me.

cbeast, you are exactly right. They (Selgin, White, Horwitz, Wenzel, Murphy, etc.) promote a nonpolitical monetary unit of value but they lack an understanding of the cryptographic primitives that went into achieving bitcoin. Therefore, they lack an understanding of its staying power or of its potential. The leaders are the ones on the front line --- building the bitcoin exchanges, the networks, the miners, and hopefully soon the futures/options market makers.

[Piper67]

The problem is that it's pretty hard to find people who know enough about all the different aspects of Bitcoin. The cryptographers don't know about economics, the economists don't know about networks, the networks guys don't know about cryptography. So each of them will essentially say the same thing "Bitcoin seems OK in my particular field, but it is surely flawed in one of the other fields".

It will take a while, but eventually enough experts will come through that will either have a working knowledge of all aspects of Bitcoin, or will associate with those who are knowledgeable in the areas they aren't. When that happens, slowly but surely, they will start to agree that Bitcoin is a good idea.

[cypherdoc]

The problem is that it's pretty hard to find people who know enough about all the different aspects of Bitcoin. The cryptographers don't know about economics, the economists don't know about networks, the networks guys don't know about cryptography. So each of them will essentially say the same thing "Bitcoin seems OK in my particular field, but it is surely flawed in one of the other fields".

It will take a while, but eventually enough experts will come through that will either have a working knowledge of all aspects of Bitcoin, or will associate with those who are knowledgeable in the areas they aren't. When that happens, slowly but surely, they will start to agree that Bitcoin is a good idea.

one of the things i do periodically is spend considerable time on the different subforums here.  this has helped me gain a much better understanding of all the component parts of the community.

recently i even started up some of my own rigs for the educational experience.  i'm amazed at the commitment and intelligence of the mining community.  the constant evolution and fine tuning that goes into mining is extraordinary and widespread.  i can now appreciate a whole new level of devotion to what is happening here.

Bitcoin is not going away.  in fact, its building.

edit:  there is no investment i am aware that is as transparent as Bitcoin.  EVERYTHING you need to evaluate it is here.  contrast that with the stock, pm, UST, or bond market opacity.  i actually feel safer here.

[ffe]

His paper for those that are interested.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2000118

[jimbobway]

I read the paper and I believe George Selgin is incorrect in his analysis.  He invents a new term called "quasi-commodities" and claims that bitcoin is a quasi-commodity.  According to him quasi-commodities have no non-monetary uses, and his entire argument for his paper is based on this fact.  Bitcoin is a commodity, not a quasi-commodity.

Bitcoin in its current state has time-stamping capabilities, which allows documents to be time-stamped.  This allows voting systems to be developed with bitcoin as shown by researchers.  http://www.newscientist.com/article/mg21328476.500-bitcoin-online-currency-gets-new-job-in-web-security.html.  Software developers are just beginning to discover how to utilize this property.

In addition, Bitcoin is on the cusp of allowing multisignature transactions.  This will unleash the full potential of bitcoin which will allow contract systems never before seen.  See here for some contract possibilities: https://en.bitcoin.it/wiki/Contracts

Mr. Selgin also failed to mention Namecoin, which does have a non-monetary use in registering domain names.

Bitcoin has properties other than monetary value, and thus it is a commodity, not a quasi-commodity.