Definition of a Commodity & Are Bitcoins a Commodity?

[NewLibertyStandard]

I say that a commodity is a raw material of fairly uniform quality which is bought and sold in bulk and used directly to manufacture a wide variety of goods.

You can find definitions that say otherwise, but I consider them bastardizations of the true definition of a commodity.

I do not consider bitcoins to be a commodity.

What is your definition of a commodity? Do you consider bitcoins to be a commodity?

This topic was being discussed over in the animated movie thread and in these other threads which I just ran into again.

creighto, I concede that my gold coin example was a poor one since a gold coin is only made of gold and can still be used just as effectively as a raw material as gold bars. I was saying that the coin-ness of the of the gold coin is not a commodity, but yeah, bad example.

[FreeMoney]

New thread is good idea.

If it has to be a raw material then you can't even include purified gold, which is a coherent definition, but not normal usage.

My sense of the word commodity has strong emphasis on the homogeneous quality and fungibility and divisibility aspects.

The "commodities markets" only sell the useful and common commodities, so absence from there means a thing is either not a commodity, or not useful, or not common, but doesn't tell which.

[Red]

I think it is a commodity for the reasons I posted in another thread. I'll repeat them here.

Edit: In summary, I think Satoshi created a digital commodity by code fiat. I think the user base as a whole is utilizing Satoshi's commodity to mentally mint and trade coins.

Most common discussions tend to equate bitcoins to a commodity backed currency like gold coins.

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In reality bitcoins are the first master planned scarce COMMODITY. It is unique to this commodity that we know it's total available quantity in the universe. We also know exactly how hard it will be to discover this commodity over the next XX years. Also this commodity is generally seen as easily divisible and fungible, but otherwise it is useless.

The only thing not master planned about this commodity is what people will do with it. Since there are no other known uses competing for this commodity, some people think bitcoins should be used as money. Others think this is a highly implausible foundation for monetary policy.

----

commodity |kəˈmäditē|
noun ( pl. -ties)
a raw material or primary agricultural product that can be bought and sold, such as copper or coffee.
• a useful or valuable thing, such as water or time.


If I can barter for it. It is a commodity. What I choose to do with it is up to me.

Most of the discussion on this list as it relates to bitcoins comes from a barter mentality. Perhaps you haven't noticed.

Really, no European says, "My salary is an investment in Euros". American's don't say, "I'm putting penny's in this piggy bank waiting on an increase in demand for pennies."

Money is a medium of exchange. I swapped an ounce of gold for 1000 loaves of bread, using $1000 to speed the process. I did three months of work and I'm going to buy a car with it after my vacation, using the $20,000 in my wallet.

If there is "excess demand" for money, that is a flaw in a monetary system not a feature. It is only when you think of commodities that such terms make sense.

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Pretty good up to this point, but it's become obvious to me that you still don't understand the difference between a barter system and a currency system.  Money 'evoloves' is any free society to permit an unknwn third party trade.  So that the chicken farmer does not have to negotiate with the baker to accept a trade in chickens.  The farmer can sell his extra chicken to the doctor, and then by some bread, then the baker can go get his checkup.  No two parties must need be aware of the third in order for the trade to occur.  The thing that is traded between all three parties is the currency.  It's not neccessary that this currency be a commodity, but historicly that is the case.

Actually I was writing an example of third party trade but it was a lame example so I erases it. Yours was much better.

I think we are in "violent agreement" on the topic. :-)

I prefer my currency as an abstract accounting that, I feel, should not have commodity characteristics.

My best example is I don't think currency should increase in value as a result of demand. All commodities have this characteristic naturally.

Some feel differently and certainly commodity currencies have existed in the past but they died out. I think that is less conspiracy than a diminishing in utility compared to non-commodity based currencies.

[MoonShadow]

What is your definition of a commodity?

A raw or processed material that is useful in some widely known, common way; that is of fairly consistiant quality.  It does not need to be something that can be made into something else, although that is a good example.  Grain is a commodity that can be made into bread.  Oil is a commodity that can be made into petrol, but petrol itself is a commodity that is used to provide motive power as opposed to being made into anything else.  (Unless you consider carbon dioxide a manufactured end product)

Do you consider bitcoins to be a commodity?

Since their only use is as a medium of exchange and a store of value, no.  If I can't eat it, burn it, or build with it; it's probably not a commodity.

creighto, I concede that my gold coin example was a poor one since a gold coin is only made of gold and can still be used just as effectively as a raw material as gold bars. I was saying that the coin-ness of the of the gold coin is not a commodity, but yeah, bad example.

Duly noted, and thanks.  Perhaps a better example would be wood.  It can be made into many things, but once cut into a shape, cannot (easily) be made into anything else except firewood.  Therefore the 'added value/utilty' of the wood is in the utiltity of the object.  Like the wood handle for an ax.  If the handle ever breaks, the 'utility/value' of the ax is reduced to it's scrap value, until such time as the ax head can be mounted to a new handle.  The only thing that the broken handle is good for is a few minutes of heat in the woodstove.

[MoonShadow]

I think it is a commodity for the reasons I posted in another thread. I'll repeat them here.

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In reality bitcoins are the first master planned scarce COMMODITY. It is unique to this commodity that we know it's total available quantity in the universe. We also know exactly how hard it will be to discover this commodity over the next XX years. Also this commodity is generally seen as easily divisible and fungible, but otherwise it is useless.

The only thing not master planned about this commodity is what people will do with it. Since there are no other known uses competing for this commodity, some people think bitcoins should be used as money. Others think this is a highly implausible foundation for monetary policy.

----

commodity |kəˈmäditē|
noun ( pl. -ties)
a raw material or primary agricultural product that can be bought and sold, such as copper or coffee.
• a useful or valuable thing, such as water or time.

Your statement that bitcoins are a planned commodity is not supported by your chosen definition.  Would you care to explain why you think that bitcoins are a commodity?

[MoonShadow]

Edit: In summary, I think Satoshi created a digital commodity by code fiat. I think the user base as a whole is utilizing Satoshi's commodity to mentally mint and trade coins.

If you were to replace "commodity" with "currency" I could accept your statement as a valid way of viewing bitcoins.  Such as it is, I still cannot except it. 

[dwdollar]

Are they a commodity?  I think it depends on what definition you choose to use.

http://www.google.com/search?hl=en&defl=en&q=define:commodity&sa=X&ei=lw1nTObrHYG88gaOosCyBA&ved=0CBUQkAE

[gridecon]

I'm not sure what the most important question is here - the definition of the word "commodity", or the question of exactly what type of economic object Bitcoins are and whether that has consequences? Just on the basis of what springs to mind when I hear the word, I usually think of copper, wheat, and similar physical resources as the intended meaning of "commodity". If it is possible to extend the idea of a commodity to the digital realm at all, though, Bitcoins are in some ways more "commodity like" than a lot of other digital objects.

What about the in-game resources in an MMORPG? Is "wheat" grown in a videogame economy a commodity, or not?

In general, as an economic actor, I'm not so certain that currencies are actually as different from other things as some of the discussion seems to assume. A five dollar bill is a physical object I can barter with very easily - but I dont perceive I have done anything fundamentally different if I buy a chair with a 5-dollar bill or if I trade a t-shirt for the chair. An even better example is a traditional investment portfolio - in a highly diversified portfolio, stocks, currencies of different nations, gold, perhaps some fine art, will all be held by the investor and to the investor, there is no fundamental difference between the different categories. They are all chosen to try to achieve a different balance of costs, benefits, and risks.

To me the main reason we regard currencies as "different" is that they are treated differently BY LAW and most people think of currency only in terms of the government controlled monopoly fiat currency they deal with on a day to day basis. In a more open free market I don't think a currency would seem very different than any other kind of "paper investment" that represented some kind of ownership or contractual obligation or certificate of deposit - because that is what currencies usually are!

In fact Bitcoins might be said to be a "certificate of deposit" of mathematically provable trust issued by the "bank" of bitcoin users!

[Red]

In reality bitcoins are the first master planned scarce COMMODITY. It is unique to this commodity that we know it's total available quantity in the universe. We also know exactly how hard it will be to discover this commodity over the next XX years. Also this commodity is generally seen as easily divisible and fungible, but otherwise it is useless.

Your statement that bitcoins are a planned commodity is not supported by your chosen definition.  Would you care to explain why you think that bitcoins are a commodity?

I can give a rational, but probably not a better definition than those I already included.

I'm assuming you meant my use of the word "commodity" rather than "first" (hyperbole), "master planned", or "scarce" (supported).

I already defined commodity stealing from the dictionary above.
"A useful or valuable thing, such as time or water"

But my best definition is still:
"If I can barter for it. It is a commodity."


Allow me to rationalize by stealing from wikipedia as well.

"A commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market. Commodities are substances that come out of the earth and maintain roughly a universal price.[1]It is fungible, i.e. equivalent no matter who produces it."

Bitcoins seem to fit here. Except for the "come out of the earth" part which just seems silly there.

"one of the characteristics of a commodity good is that its price is determined as a function of its market as a whole. Well-established physical commodities have actively traded spot and derivative markets."

Bitcoins seem to fit here as well.

"There is another important class of energy commodities which includes electricity, gas, coal and oil. Electricity has the particular characteristic that it is either impossible or uneconomical to store, hence, electricity must be consumed as soon as it is produced."

They've included electricity, so commodity is an acceptable term even for something virtual.

Interestingly, currencies are often traded as commodities rather than being used for their value in facilitating trade.

Wikipedia defines "commodity trader" and from their references lots virtual things like debt that "can be seen as a commodity." It also references currency market from there.

So nothing seems to exclude my use here.


But really I use the term for the reasons I gave above. People tend to draw more parallels to bitcoin's "gold-ness" then to it's "coin-ness"  "Scarce like gold", "invest in it like gold", "discovered over time like gold"

Nobody says it's round and shiny like coins.

[Willsway]

Very Simple Simon said to me:

A commodity is a thing I can sell, be it time, my body or my gold ring.

Currency is the value I place in things, so how much I will pay for time, a body or a gold ring.

Since currency is only a proof that I have sold a thing and a promise if I give it to you, you will be able to buy a thing, it cannot be a commodity because all it is, is a promise to another commodity.

However, a currency can be a commodity since I can sell is for another currency.  The currency you have seen for sale upgraded its status to that of a thing, so to the status of a commodity for the period of time it is offered for sale. Once it is sold, it is no longer a thing since once again it has become only the promise to a thing.

I am pretty sure I have not helped this debate at all.

[fresno]

COMMODITY. In the most comprehensive sense, convenience, accommodation, profit, benefit, advantage, interest, commodiousness. -Black's Law Dictionary, Revised Fourth Edition.

Black's goes on to define commodity in the commercial sense, and I think we should stop right there! For Bitcoin to survive, it must not in any way threaten "TPTB"; the Federal Reserve and the financial establishment. I caution us to not use the same loaded language that they very effectively employ to control competition.

I think commodity is exactly what Bitcoin is; money, currency, and dollar equivalents it is NOT. It is vital that we understand that Bitcoin is both an implementation and a commodity, and to concern ourselves with the former only. The public will discover Bitcoin's utility and make whatever trades and exchanges they will, but for us to claim that Bitcoin is convertible or useful in this way leaves us exposed to allegations of fraud, and I can cite cases where they have gone to ridiculous lengths to accomplish just that.

[MoonShadow]

What about the in-game resources in an MMORPG? Is "wheat" grown in a videogame economy a commodity, or not?

It is a commodity within the game if you can transfer it to another player *and* it has some other use within the game.  A game weapon, for example, that can be given to another player at the will of the owner, is a commodity.

[MoonShadow]

In reality bitcoins are the first master planned scarce COMMODITY. It is unique to this commodity that we know it's total available quantity in the universe. We also know exactly how hard it will be to discover this commodity over the next XX years. Also this commodity is generally seen as easily divisible and fungible, but otherwise it is useless.

Your statement that bitcoins are a planned commodity is not supported by your chosen definition.  Would you care to explain why you think that bitcoins are a commodity?

I can give a rational, but probably not a better definition than those I already included.

I'm assuming you meant my use of the word "commodity" rather than "first" (hyperbole), "master planned", or "scarce" (supported).

I already defined commodity stealing from the dictionary above.
"A useful or valuable thing, such as time or water"

But my best definition is still:
"If I can barter for it. It is a commodity."

These already posted definitions are incomplete and overly broad.  They don't help, nor (much) harm your opinion.

Allow me to rationalize by stealing from wikipedia as well.

"A commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market. Commodities are substances that come out of the earth and maintain roughly a universal price.[1]It is fungible, i.e. equivalent no matter who produces it."

Bitcoins seem to fit here. Except for the "come out of the earth" part which just seems silly there.

Except that bitcons are not a 'good' in the economic sense.  For that matter, the terms 'good' and 'commodity' are largly interchangable in the economic sense, and this is a circular definition.  Even if it were a well written defintion, it doesn't support your position that bitcoins are something more than a currency.

"one of the characteristics of a commodity good is that its price is determined as a function of its market as a whole. Well-established physical commodities have actively traded spot and derivative markets."

Bitcoins seem to fit here as well.

There are whole markets founded upon the spot trading of floating currencies as well.  This does not mean that the US dollar or the Euro are commodities.  I think that you are going to have a very hard time supporting this position.

"There is another important class of energy commodities which includes electricity, gas, coal and oil. Electricity has the particular characteristic that it is either impossible or uneconomical to store, hence, electricity must be consumed as soon as it is produced."

They've included electricity, so commodity is an acceptable term even for something virtual.

Electricity is not 'virtual'.  It is a very real thing, one that can do very real harm if not handled carefully.

Interestingly, currencies are often traded as commodities rather than being used for their value in facilitating trade.

Wikipedia defines "commodity trader" and from their references lots virtual things like debt that "can be seen as a commodity." It also references currency market from there.

Different people can look at things differently from a mathmatical or investement perspective while still understanding the differences.  And as good a reference Wikipedia may be, it's not remotely authoritative on the subject of economics, or anything else that I've ever studied.

So nothing seems to exclude my use here.

Nothing that you have referred to would, no.  Yet nothing that you have referred to really supports your position, either.

But really I use the term for the reasons I gave above. People tend to draw more parallels to bitcoin's "gold-ness" then to it's "coin-ness"  "Scarce like gold", "invest in it like gold", "discovered over time like gold"

And the point that I had made that started all of this talk is that all of those people that draw those parrallels are *wrong*.  One can be in the majority and still be wrong, Economics is a science, not a consensus.  And science doesn't care about our opinions.  Semantics is how we frame the science.

[Willsway]

COMMODITY. In the most comprehensive sense, convenience, accommodation, profit, benefit, advantage, interest, commodiousness. -Black's Law Dictionary, Revised Fourth Edition.

Black's goes on to define commodity in the commercial sense, and I think we should stop right there! For Bitcoin to survive, it must not in any way threaten "TPTB"; the Federal Reserve and the financial establishment. I caution us to not use the same loaded language that they very effectively employ to control competition.

I think commodity is exactly what Bitcoin is; money, currency, and dollar equivalents it is NOT. It is vital that we understand that Bitcoin is both an implementation and a commodity, and to concern ourselves with the former only. The public will discover Bitcoin's utility and make whatever trades and exchanges they will, but for us to claim that Bitcoin is convertible or useful in this way leaves us exposed to allegations of fraud, and I can cite cases where they have gone to ridiculous lengths to accomplish just that.

Very true. It is very dangerous to classify bitcoin as a currency. Far better to declare "sale of virtual goods" on the tax return than to declare a currency exchange cause the man will find a way to accuse you of laundering money. For the sake of safety I vote we declare it a commodity, whether it is or not

[MoonShadow]

COMMODITY. In the most comprehensive sense, convenience, accommodation, profit, benefit, advantage, interest, commodiousness. -Black's Law Dictionary, Revised Fourth Edition.

Black's goes on to define commodity in the commercial sense, and I think we should stop right there! For Bitcoin to survive, it must not in any way threaten "TPTB"; the Federal Reserve and the financial establishment. I caution us to not use the same loaded language that they very effectively employ to control competition.

I think commodity is exactly what Bitcoin is; money, currency, and dollar equivalents it is NOT. It is vital that we understand that Bitcoin is both an implementation and a commodity, and to concern ourselves with the former only. The public will discover Bitcoin's utility and make whatever trades and exchanges they will, but for us to claim that Bitcoin is convertible or useful in this way leaves us exposed to allegations of fraud, and I can cite cases where they have gone to ridiculous lengths to accomplish just that.

Very true. It is very dangerous to classify bitcoin as a currency. Far better to declare "sale of virtual goods" on the tax return than to declare a currency exchange cause the man will find a way to accuse you of laundering money. For the sake of safety I vote we declare it a commodity, whether it is or not

Trying to avoid labeling bitcoins to 'stay under the radar' of those whose little fiefdoms might be threatened by a competitive currency is a self-defeating exercise.  We are more likely to face charges of fraud by perpetuating Economic myths around here than by calling a spade a spade.  There are several local currencies that continue to exist within the United States that do not draw the hammer of fraud charges by avoiding claiming they are 'like' anything.  Avoiding reality will just attract more attention.

[Red]

Without denying that I deserve some of your grief... ;-)

Give me another crack at justifying my point of view.

These already posted definitions are incomplete and overly broad.  They don't help, nor (much) harm your opinion.

I really do stand by my definition, "If I can barter for it. It is a commodity."  as capturing the true spirit and semantics of the word commodity as used in standard everyday American English. Commodity is really used to mean, "something, that can be bought, sold, or traded." Perhaps that makes a better definition.

There are other more restricted definitions that have different connotations depending upon industry. Usually "the thing" is something fungible, but even that usage is flexible. Used cars are not fungible but to the used car industry, they are simply commodities. The same is true for diamonds and the diamond industry.


I hear you saying that "the thing" must have some use other than being a currency in order to be a commodity. I don't see this restriction. I don't think it is up to you to decide if or what use a commodity is.

However, federal reserve notes are often considered commodities when traded against other currencies. I don't expect that if a currency trader, said he was a commodity trader that you would call him an idiot.

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Two questions for you or anyone else:

Supposed someone told you his occupation was a "commodity trader" and you asked him what he traded. If he responded, I buy and sell widgets based upon their price fluctuations to the dollar.

Would you have to reserve judgement on whether he was "really" a commodity trader until you could learn more about widgets? Or are widgets obviously a commodity based upon context?

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If I told you each bitcoin contained a public key, and that pubic key could verify the authenticity of any file signed by the owners secret private key. Would this give each bitcoin enough outside utility to be considered a commodity? How much non-currency value is enough to make something a commodity?

[Willsway]

COMMODITY. In the most comprehensive sense, convenience, accommodation, profit, benefit, advantage, interest, commodiousness. -Black's Law Dictionary, Revised Fourth Edition.

Black's goes on to define commodity in the commercial sense, and I think we should stop right there! For Bitcoin to survive, it must not in any way threaten "TPTB"; the Federal Reserve and the financial establishment. I caution us to not use the same loaded language that they very effectively employ to control competition.

I think commodity is exactly what Bitcoin is; money, currency, and dollar equivalents it is NOT. It is vital that we understand that Bitcoin is both an implementation and a commodity, and to concern ourselves with the former only. The public will discover Bitcoin's utility and make whatever trades and exchanges they will, but for us to claim that Bitcoin is convertible or useful in this way leaves us exposed to allegations of fraud, and I can cite cases where they have gone to ridiculous lengths to accomplish just that.

Very true. It is very dangerous to classify bitcoin as a currency. Far better to declare "sale of virtual goods" on the tax return than to declare a currency exchange cause the man will find a way to accuse you of laundering money. For the sake of safety I vote we declare it a commodity, whether it is or not

Trying to avoid labeling bitcoins to 'stay under the radar' of those whose little fiefdoms might be threatened by a competitive currency is a self-defeating exercise.  We are more likely to face charges of fraud by perpetuating Economic myths around here than by calling a spade a spade.  There are several local currencies that continue to exist within the United States that do not draw the hammer of fraud charges by avoiding claiming they are 'like' anything.  Avoiding reality will just attract more attention.

Of course you are correct. Playing with semantics isn't going to turn something into something it's not. I think my previous attempt at humour was simply expressing the deep sinking feeling that although we work for something that feels right, governments ultimately will not accept anything they cannot control, and if bitcoin becomes something which threatens them, they will find a law to create to destroy it. Just look at how quickly they have destroyed the freedom which once existed on the internet.

[fresno]

Red: Until I looked it up myself, I would have agreed with your commodity as a thing. But it is not. It is a process: "convenience, accommodation, profit, benefit, advantage,.." (see above).

These are THEIR terms. We will have to exist in today's legal environment, and use their legal language. Why not use it to our advantage?

That is our ace. Bitcoin is a process, just like their definition of commodity; it is not a thing. People can use it to trade things, and that is fine, but that is not Bitcoin's domain. See how simple this makes things?

Willsway: Defend how Bitcoin is a good and why that would be a desirable claim to make. You already understand that it is undesirable for Bitcoin to be an exchange, or a currency.

creighto: Their "little fiefdoms" can compel you to appear before their magistrates. I don't think you are prepared to deal with them.

Red: 'I really do stand by my definition, "If I can barter for it. It is a commodity."'

No. Commodity is the process that facilitates the barter. There is no "it". I think that answers your two questions.

Hope I haven't missed any important points.

[Red]

fresno, your points are well taken.

However creighto pointed out that I tend to call people on their unsupported arguments. So supporting mine is a matter of saving face. :-)
If people feel my commodity assertion is supported well enough so I don't look like an idiot, then I'll promise not to assert it in public if doing so would have drawbacks to the community.

[MoonShadow]

I really do stand by my definition, "If I can barter for it. It is a commodity."  as capturing the true spirit and semantics of the word commodity as used in standard everyday American English. Commodity is really used to mean, "something, that can be bought, sold, or traded." Perhaps that makes a better definition.

Everyday laymen don't get to decide the definition of a jargon word.  "commodity" is a jargon word used and defined by consensus within the finance and economic worlds.  Any looser use of the terms, inside or outside of these disciplines, is incorrect; regardless of whether or not the speaker is understood.

I hear you saying that "the thing" must have some use other than being a currency in order to be a commodity. I don't see this restriction.

I know that doing this means I'm using an appeal to authority, but from Economist.com...

Commodity

A comparatively homogeneous product that can typically be bought in bulk. It usually refers to a raw material – oil, cotton, cocoa, silver – but can also describe a manufactured product used to make other things, for example, microchips used in personal computers. Commodities are often traded on commodity exchanges.

 I don't think it is up to you to decide if or what use a commodity is.

I'm not attempting to do so, and the same accusation can be leveled at yourself.  This is also borderline an attack upon the man, not the argument; something not done in polite circles.

However, federal reserve notes are often considered commodities when traded against other currencies.

Only as an abstraction, as all currencies ultimately are.  This makes it easier to think about on a day2day basis, but those professionals also know the differences.

I don't expect that if a currency trader, said he was a commodity trader that you would call him an idiot.

I'm a bit more tactful than that, but I sure wouldn't trust him with my 401k until I was certain he was only using the term because the proles at the dinner party don't know the differences.

Supposed someone told you his occupation was a "commodity trader" and you asked him what he traded. If he responded, I buy and sell widgets based upon their price fluctuations to the dollar.

Would you have to reserve judgement on whether he was "really" a commodity trader until you could learn more about widgets? Or are widgets obviously a commodity based upon context?

Again, currencies are an abstraction, and as such can easily *represent* an underlying commodity, or several.  Yet, sometimes the distinctions between the object of desire and the symbol are important.  Even though someone might say, "I just do this for the money."  They are both quickly imparting information and lying in  the strict sense.  No one *ever* does anything for the money.  The pursuit of money is never for the abstract symbol itself, but for what you can *get* for it later on.

If I told you each bitcoin contained a public key, and that pubic key could verify the authenticity of any file signed by the owners secret private key. Would this give each bitcoin enough outside utility to be considered a commodity? How much non-currency value is enough to make something a commodity?

It might if that were a common or intended use of a bitcoin, but not only is that not so, it's not even true that bitcoins contain anything at all.  To be precise, bitcoins are *themselves* an abstraction of currency ( a symbol of a symbol?) and no such object as a bitcoin actually exists, digitally or otherwise.  Your bitcoins are only a balance on a collective ledger, and a transfer is merely a notary upon that ledger that increases the balance of another account at the expense of one of your own at your direction.  So even if the bitcoin client program could be considered a commodity, which is another argument, the bitcoins themselves would still not be part of that.