Money was always just a ledger. Bitcoin is simply a better ledger. When this is understood, most of the objections of the naysayers melt away, and many of the misunderstandings of Bitcoin and what drives its value even within the crypto-community likewise are dispelled.
I really love your point and can see this being the next level of thinking. Too bad most people will need lots of time to grasp it, since most people are just dumb
I know this could take some time for people to understand, so here is a more lengthy kind of walkthrough of the idea from an email I sent a few months ago, when I started to realize what was going on:
[My friend who is an Austrian was asking about whether a bitcoin should be considered a "medium of exchange." I replied as follows.]
Hi XXXXXXXX,
I'm starting to see some possible issues with the usual conception of a medium of exchange. Below I will argue that the view where we place the emphasis in Bitcoin on the system, rather than bitcoins the units, was the correct one to use all along, even for gold and other monies (or should I say Gold and other Monies). I will get to the point at the end.
--
Say you had traded your Ron Paul book for a gram of gold (about 24 GBP at today's prices) and then traded the gram of gold for a Stephen Pinker book. In the first trade, the usual reasoning goes, you made the trade because you knew you could always find someone who wanted gold -
at the very least for its decorative uses. Perhaps you know for a fact your local apple grower will give you two crates of apples for the gram, and you would rather have two crates of apples than the Ron Paul book. And a similar sort of situation holds for the person who accepted the gold for the Pinker book.
But I find something slippery about this reasoning. The idea is apparently supposed to be, underscored by the words "at the very least," that even if people suddenly stopped using gold as money you could still trade it for something of at least as much value to you as your Ron Paul book. Or maybe not too much less. But if gold were completely demonetized, a gram of gold would be worth only perhaps 4 GBP (one-sixth of the current price). If the apple grower is willing to give you two crates of apples for a gram of gold now, he would almost certainly give you far less in such a situation. No matter how much he values gold for its decorative qualities, he almost certainly must also value it for its monetary qualities. To subtract that element out will have to result in him being willing to part with several times fewer apples for a gram of gold than he would now.
What I'm getting at here is, these value elements (consumption value and imputed/monetary value) are all fudged together. The argument is made to look as if it is all based, finally, on consumption value; and while it may be indeed "backstopped" in regression theorem style by that relatively very small consumption value, I think it is nevertheless true that you're not really willing to accept gold primarily because of that last-resort base consumption value (one-sixth) deriving from what some impart to it, but primarily because of its imputed monetary value (five-sixths) thanks to it being the
standard method of conducting transactions. In other words, if you know gold was being demonetized, you'd probably ask for a lot more for the book. It's the standard that gives it most of the value for you. A standard is a sort of social arrangement or convention. The lion's share of that value, even in the case of gold, is in that convention.
Now of course we can argue, correctly I think, that such a convention to use gold as a medium of exchange (imputing it with a lot of extra valuation) will quickly arise spontaneously, and that the reliability with which it arises in all manner of societies makes it seem somewhat unwieldy to refer to it as a "convention" at all, but in the strictest sense it is common knowledge that everyone will accept gold in trade. It is a nexus of expectations. The very fact that it arises so naturally is why it is so subtle to note that it is in fact still a nexus of expectations or a standard; the inevitability and speed of the confluence of those expectations obscures its core identity as such a confluence.
This then means that you weren't so much using the gold as an indirect medium of exchange, but primarily as a
facilitator of exchange. I'm saying that I find it in some sense inaccurate to say that you used it as a medium of exchange when you really were hoping
not to have to trade it to someone who values it only for its decorative uses. For the main part of the motivation for the trade, you relied on the nexus of expectations being reliable. You relied chiefly on a standard or social convention. In other words, to get really far out, the gold-for-RP-book trade wasn't so much a trade as a way of tapping into the power of that social convention.
The fact that the base decorative value backstops this nexus of expectations only serves to bring the importance of that nexus of expectations into the forefront.
The nexus of expectations is maintained in Bitcoin through different means, but as I've argued it seems plain to me as a matter of history that this nexus of expectations is established to quite a degree.
To finally answer your question, then, I would say that while there is such a thing as "using something as a medium of exchange," that isn't most of what people do with gold or other money. Even centuries ago. They mostly use it to tap into the societal convention or nexus of expectations, using Gold in a capacity that can only really be called a facilitator of exchange. I capitalize Gold here for the same reason I capitalize Bitcoin when referring to the system. You're not just using a bit of metal, you're using the whole nexus of expectations around it as well, and it is the same with "bitcoins."
So I would say, instead of "bitcoins and gold are media of exchange," that "Bitcoin and Gold are facilitators of exchange." I would call these kinds of exchanges indirect ones, simply because they are not direct, but since that will conjure up images of "trading" for "some other good," I'd prefer to call them mediated exchanges or facilitated exchanges or community exchanges (because it's not a matter of just two people, or even three (you, him, and the apple farmer), but of a whole community's expectations/conventions), or some other terms that captures the idea of tapping into the community conventions or nexus of expectations. There may be no good word to choose from at this time.
This level of precision seems to be the only way to ultimately capture what is going on, and will seem unusual I think only because it was never needed before.
Hopefully this gives some food for thought. You can see that I think Bitcoin requires starting over at quite a deep level and rethinking some basic things.
[Friend asks, didn't you just replace "medium of exchange" with the term "facilitator of exchange" with basically the same meaning?]
The reason I ultimately don't want to speak of bitcoins (or even, usually, gold) as being "exchanged" is that it harks back to a trading-of-goods model. It is fairly easy to see that one can't really speak of "exchanging via bitcoins" without tacitly referring to Bitcoin the system. It is much harder to discern that one can't really speak of "exchanging via gold" without tacitly referring to Gold the system. Because Gold doesn't seem like a system; it seems like a gram of gold is accepted by merchants for a new wheelbarrow, etc. because some people will always value it at some similar level.
But that value from being able to find someone who wants gold for its beauty or whatever is much smaller than the value imparted by the social convention to use Gold the system. And again it doesn't seem like a social convention; it seems everyone just uses it because it has the best monetary properties. However, I think we can be sure that very few people are actually cognizant of any such thing. What they are cognizant of - but only refer to tacitly - is Gold the system: the fact that giving someone gold is the primary or most efficient way to get them to give you things you need in society.
Most rich people in a society that uses Gold are not smiling because they have so much shiny stuff to look at. They're smiling because they have a lot of points in the Gold system. They can get other people to do a lot for them. If their society were to move to a different point system, their wealth would be reduced ten- or twenty-fold. In a society in those times that could mean the difference between affluence and destitution.
Fundamentally, trading gold for goods/services wasn't ever (or not for very long) about giving someone something they want in exchange for something you want; it wasn't even about giving someone something someone else wants in exchange for something you want. Rather it was primarily (in terms of the lion's share of the value) about chalking up points to someone in a point system, and Bitcoin simply functions as a better point system than Gold.The phrasing "exchange bitcoins for X" leads people toward thinking there is something special or desirable about these points themselves, to someone at least. And surely there is to a few people, and that is relevant for the regression theorem, but it is beside the point: the vast part of the value imparted to a bitcoin is not from the fact that a few people want them for esoteric reasons, but from the realization that the world (or a sizable part of it) is switching to the Bitcoin system.
Under Gold, we could get away with the loose phrasing and the subtle fiction of "medium of exchange" that suggested a conflation of gold's monetary value with its decorative value. We could get away with it because there was no real penalty for getting it wrong. The conclusion was right for the wrong reason. The loose phrasing did no harm there that I'm aware of.
However, under Bitcoin this phrasing does do harm because this time the misconception happens to lead people to the wrong conclusion instead of the right one. It's just the common situation where subtle flaws in an old way of conceiving something that didn't really matter before start to matter now when a new phenomenon or deeper analysis requires more rigor.
