15 Dec 2014

Jeff Tucker and I Talk Bitcoin

Bitcoin, Shameless Self-Promotion 9 Comments

The updated version of my guide co-authored with Silas Barta (which fixed a slight mistake in a footnote, as well as some typos) is here.

Jeff has a forthcoming book on peer-to-peer technology, of which Bitcoin is simply the most developed example.

9 Responses to “Jeff Tucker and I Talk Bitcoin”

  1. guest says:

    Bob Murphy says [03:40]:

    “Right, and that’s actually why I think that … it’s, in a sense, even a harder currency than even gold or silver would be, I mean, for two reasons.

    “One is, in principle, they could always find more gold or silver, or they could go out and mine it from asteroids or something. So, even if the world did embrace, and went back to using gold as money – which, for a long time I thought, “Well that’d be fantastic; That would be the best thing” – in principle there could still be an inflationary influx that would make gold untenable as the money …”

    But then Tucker answers this objection later when he refers to the price system’s ability to respond to changes in demand.

    If an “inflationary influx” of gold were to happen, then its value would go down in terms of other goods and services, including the next-most-valuable-and-widely-traded-commodity, and then *that* would be the new money. AND you would have a cheaper commodity in gold.

    [Aside: I say “inflationary influx, in quotes, because commodities cannot logically be inflated – at least not in the sense that we mean when talking about paper IOUs. When prices go down for goods and services, this is functionally equivalent to saying that the supply has increased relative to some other good, which is NOT economically destructive at all (cheap goods are a good thing) – not even were it to happen to gold.

    [Since the use-value of gold is the basis for the price of gold, and it’s apodictically certain that, all other things being equal, the next increase in units of a good for an individual will be used to fulfill a less urgent desire (i.e. the value for the next unit decreases), then you actually DO WANT gold’s price to plummet if the supply suddenly and vastly increases. This doesn’t hinder economic calculation at all, any more than price gouging after Hurricane Sandy would have done (HT to Bob Murphy).]

    [To be sure, Tucker was talking about his belief that prices in bitcoins are sufficiently responsive to changes in demand; but since the price system consists of people’s demand for goods and services, the fact that bitcoins have no link to such things means that this is not the case.]

    Regarding the argument from Ponzi Scheme, the reason this is an effective attack against the claim that bitcoins are money is because the selling point being used to get people to use bitcoins is “other people will use it”. But if that were sufficient for economic calculation, then Ponzi schemes would work, because the victims actually believe in the scheme.

    So, it’s not enough of an argument to say that “other people will use it”. That’s all that the argument from Ponzi Scheme is trying to say.

  2. Tel says:

    I’m glad that Jeff Tucker pointed out Bitcoin is more than just a payment system, you can use it to backup your hard drive if you want to (might be a slow and expensive way to do that, but maybe you just want to backup a few important things).

    There’s a lot that hasn’t been explored, for example some algorithms used to be regarded as munitions by the US government (I think they gave up on that) so you could permanently link the bitcoin #42 to something with export restrictions in the USA (let’s ignore whether Bitcoin itself is considered a munition under the same rules). I mean you could tie some highly illegal porn image into a blockchain if you wanted to, or some computer virus, or classified military information, potentially causing anyone who trades with that blockchain to be up for a bunch of legal problems. You might well have a plausible deniability defence on the basis that you just used a bitcoin as a medium of exchange, you never actually looked at the porn. You also have the pseudo-anonymity to hide behind (arguable what that’s worth). Some of this could come back to bite the user many years later.

    More usefully you can link bitcoins to contracts with neutral third party private arbitrators, which as far as I know has never been done, but the theory is all there. You can use Bitcoin as some sort of public notary if you want to, and you can choose to not be anonymous.

    I’m also glad that Bob made the comparison to other payment systems in terms of fees. A lot of people miss that, but credit cards do pull pretty big fees, so does PayPal for that matter. Having competition to force down fees is pretty exciting in terms on online merchants. Many people don’t also know that international fees for merchants are quite nasty and chasing down non-payment on an international debt is seriously expensive (even amongst first-world nations).

    I think that Jeff Tucker was a bit off-base having a go at VISA over security. There’s room for a whole book or two just on that topic but in brief, although Bitcoin has a lot of protections built in for preventing subversion of the payment system itself, it has pretty close to zero protection for individual users who get ripped. That may change with new algorithms, there are some clever people out there, but with VISA, if your card is stolen the end user usually gets the money back (the merchant takes the whack). VISA can have a team of people who ring you up when they see a suspicious transaction (AmEx was doing it first) and the reason they can hire those people is because of the fees. Bitcoin charges low fees, but if your wallet is stolen, kiss it goodbye buddy! No one will call you up on a suspicious transaction, no one will warn you when the transaction happens in a high risk country. PayPal has genuine dispute resolution, we can argue about how good it is, but right now Bitcoin has zilch in this department.

    In future Bitcoin may get dispute resolution, and quite likely by using those third-party contracts to entangle the transaction with an arbiter… that would be a very interesting development and would be a competitive option going head-to-head against PayPal, but that must necessarily impose higher fees. You just cannot employ people to do work without transaction fees to cover it.

    I foresee a fragmentation of transactions where you have “raw transactions” that are cheap but dangerous and various “protected transactions” where you employ the services of someone to ensure fair dealing. I’m sure various people are working on this.

    • Tel says:

      Speaking of bitcoin #42, I should note that bitcoins may well trade at different prices, due to sentimental and superstitious reasons. Chinese traders don’t like the number 4 (just as an example) and probably the low numbered coins will have geek value, while other coins might be your birthday or something like that.

      This kind of happens with regular coins as well.

  3. skylien says:

    Bob you said: “Everyone would start using if everyone is using it” This works both ways, doesn’t it? Everyone would stop using if everyone stops using it and starts using something other. In both cases it is self-reinforcing due to the value it gets/loses on the way.

    I feel like I am the only one for whom BitCoin neither is the sure thing nor is it for sure going down soon, nor would I dare to rule out it going down soon. Well maybe George Gilder is with me though.

  4. dave s says:

    I can’t help feel like the regression theorem still questions the value of bitcoin despite Bob being correct that bitcoin is already a medium of exchange. It just seems like the price could wander around aimlessly forever. But that could just be an emotional reaction to encountering what is clearly something revolutionary. And maybe that’s the answer: this is a truly new phenomenon.

    One of the interesting things about bitcoin is it’s lack of protection – the permanence of the transaction. If someone 10 years ago tried to come up with a new credit card with very low fees for merchants but zero protection for consumers, it would never fly. But along comes bitcoin.

    • Bob Murphy says:

      Dave S, I understand what you’re saying, but notice that that would certainly be true of gold if it ever ceased having industrial/consumer applications.

      Also, even if gold were the world money and still used for industrial/consumer purposes, a large component of its market value would still be for its monetary purposes. So that component would still “wander around.” As Mises says in that quote I put in the Bitcoin guide, to try to explain the purchasing power of gold based on its uses (not its role as money) is to evade the central problem.

      • guest says:

        “Also, even if gold were the world money and still used for industrial/consumer purposes, a large component of its market value would still be for its monetary purposes.”

        It’s the use-value that justifies holding it (monetary value) in the first place. It “holds” or “carries value” because it has use-value to someone else in the economy. (This is not to say that money has intrinsic value).

        This is why I say that the distinction between use- and monetary-value is unnecessary.

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