Timmy elsewhere

At the ASI.

The more the economists talk about Bitcoin the more it seems likely to fail as a currency.

11 thoughts on “Timmy elsewhere”

  1. A question: has anybody started what might be described as commercial banking using Bitcoins? meaning has anybody started offering interest on deposits and lending in Bitcoin?

  2. Tim, I wish people would stop referring to bitcoin as a “currency”. It definitely fits the definition of “money” but it is not a currency in the legal sense. “Currency” and “Legal Tender” have defined legal meanings, have a look at the Currency Acts of most foreign jurisdictions. In the UK there are two types of currency: Pound Sterling which is both currency and legal tender in the UK and “foreign currency” which is the currency of a foreign jurisdiction. Bitcoin is not either so it is not currency in a legal sense.

    The same goes in Oz and NZ and probably for most jurisdictions. There may be different definitions of currency in the tax legislation but I doubt very much that bitcoin will be currency under those definitions. It is more likely to be some sort of virtual commodity and it behaves a bit like gold, no genuine industrial use and it is only worth what people think its worth. Unlike gold bitcoin doesn’t even have a use as jewellery so it is even more useless than gold.

    It is money in an economic sense but it is not “currency” and it probably never will be.

  3. ” I wish people would stop referring to bitcoin as a “currency”. It definitely fits the definition of “money” but it is not a currency in the legal sense.”

    Why is the legal sense important in the least? Why is it important for some state apparatus to sanction what you use as money? If people use it as a medium of exchange then it is currency.

  4. Bitcoin may well fail. My main problem with it is that is finite and therefore eventually deflationary but I take the point that it is relatively easy to replicate and have bitcoin competitors.

    However, given the likely instability of current fiat currencies as we face the problems of the welfare state and its associated debts (the Euro being just the most visible, but there are problems with Sterling, Dollars, Yen etc. too), there is definitely a demand for a better currency.

    What that is I don’t know, it isn’t gold (or any phyical commodity), so we need a currency that has many of the attributes of bitcoin (reasonable anonymity, digital transfer etc.)

  5. Tom Smith,

    It is a medium of exchange and it meets the economic definition of money. Currency however is defined in legislation in most jurisdictions, bitcoin is not currency.

    You can choose to transact however you like, provided that two parties agree to use Bitcoin as a medium of exchange then go for it as far as I am concerned. People are free to transact in whatever form they choose, barter, foreign currency, commodities, bitcoin whatever

    However everyone has the right to refuse payment in Bitcoin if they choose. Of course you cannot refuse payment which is legal tender, that is why it is called “legal tender”. Of course you can’t pay your debts in bitcoin if the other person chooses to demand payment in legal tender.

    Bitcoin is definitely a signpost for the future of transacting. I hope like crazy for thier to be an alternative payments mechanism for the internet and to cut out both debasement and the monopoly profits in the finance industry from facilitating payments. Bitcoin is a big step in the right direction but like netscape navigator, alta-vista, and lotus notes something better will come along.

    Plenty of people are going to get burned when the bitcoin crash happens, same as when most bubbles burst.

  6. There are two interesting things about bitcoin. The first is whether it can survive deflation. If it can, it disproves the whole of State monetary policy over the past century, in a Popperian way.

    The second is, as pointed out by someone in a previous thread, that it implements a property rights system without any central authority. This is probably its most important element, particularly for liberals/libertarians. It’s a money system that nobody owns, or can control. In a society in which, increasingly, your ability to transact relies on the kind permission of the State, credit card companies, Paypal, conforming to an AUP (“you may not buy X, Y and Z”), etc, this is a profound development for freedom.

  7. Metcalfe’s Law is surely the protection against the launch of lots of other cryptocurrencies?

    There are many more people using Bitcoin than all of its competitors combined; that means that there are more places you can spend it, and more of your customers will want to spend it with you. Because the value of the network is more than linear (it’s only O[N²] for small N, but it’s always more than O[N]), Bitcoin will stay ahead of competitors unless one is actually better in another dimension of utility.

    If another cryptocurrency is better (e.g. better anonymity than BTC) then it may be able to reach the necessary adoption scale; but if it’s just a similar design to BTC, why would anyone adopt it over BTC?

  8. @IanB
    Been trying to deal with this on the ASI comments, but why do detractors keep dissing Bitcoin because it doesn’t share the same faults as government money? Surely, that’s the point.

  9. BIS, I think the straight answer is, a lot of people like the faults that government money has, just as many people like the faults that other government things have.

  10. “It is a medium of exchange and it meets the economic definition of money. Currency however is defined in legislation in most jurisdictions, bitcoin is not currency.”

    i.e. bitcoin is not state controlled money. This is an appealing feature, not a problem.

    “However everyone has the right to refuse payment in Bitcoin if they choose. Of course you cannot refuse payment which is legal tender, that is why it is called “legal tender”.”

    This is a problem with state money, not with Bitcoin. Bitcoin is every bit a currency in the broad sense of the word. I have no desire to use state currencies and defining how they work compared to a free money system like Bitcoin doesn’t make them any more appealing.

  11. Tom Smith, I agree with you, Bitcoin is an interesting experiment and like fiat currency it has its advantages and disadvantages. Fiat currencies are useful for governments as they can inflate their debts away. They are also useful for debtors as inflation works in thier favour. They are bad for savers, try being a pensioner for the last 5 years.

    Bitcoin with a fixed money supply is simply the reverse. It favours savers over debtors, which is great. After all if the end result of bitcoin is deflation (fixed money supply, growing number of goods, means prices must fall) then savers are quids in (coin in?).

    If it succeeds then it does pose a bit of a threat to a credit driven economy. People will be disinclined to borrow money when they know that in real terms that debt will grown over time. They will need to produce more goods and services to produce the same amount of bitcoin (even without taking interest into the equation).

    What does that mean for a capitalist economy that is built on credit? It certainly is a new way of thinking about things.

    I am all for bitcoin (or some alternative) succeeding. I was just being a pedantic lawyer. As the old saying goes: “he who is good with a hammer sees everything else as a nail”.

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