22 Aug 2015

Both Sides in the Bitcoin War

Bitcoin 19 Comments

This is really interesting, though you won’t really appreciate it if you have no idea how Bitcoin works. (Remember Silas Barta and I wrote a guide. And HT2 Tatiana Moroz for alerting me to all of this.)

Without having had time to read it, I previously linked to this article describing the imminent “fork.”

However, I now realize that that article was not a third party describing the conflict, but was instead explicitly coming from the point of view of the Bitcoin XT camp.

In contrast, this article explains things from the point of view of the Core camp. It also is biased, using the term “Judas block” in an illustrative example…

But here’s something really fascinating from the latter piece. After explaining why the two sides are at such an impasse, it says (and I’m adding line breaks for ease of reading):

So with all these scary uncertainties, you may ask why hasn’t Satoshi come out to speak on the behalf of one side or the other in order to settle the dispute? Indeed it would be akin to him coming out to act as a 3rd party mediator, such as when a parent comes in to break up a fight among siblings.

There has in fact been a post by someone claiming to be Satoshi, from a valid known Satoshi email address, claiming pretty much that the XT fork is unnecessarily dangerous, see here: Satoshi? Despite the many allegations that if this was really Satoshi, he would have signed his message with a known PGP key or perhaps moved some of his coins to prove that it was him, he has not done so. I for one do not believe that he would. If you read the message, (ignoring for a second who it is from) he is saying that Bitcoin’s vision is not one where it is subject to the egos of charismatic leaders, including Satoshi Nakamoto. People who harp on the fact that Satoshi has not made a provably authenticated statement is clearly missing the whole point of this message. If he were to do so, rest assured the whole of the community will rally with him, but that is exactly what he doesn’t want to happen, a whole community blindly following authority! Consistently so, the author points out that if it takes a benevolent dictator to pull us out of this mess “deux ex machina” then Bitcoin, as a project in decentralized money resistant to authority, has failed. That tautological statement, is provably true if you can wrap your head around it. Therefore, if Satoshi wants it to succeed, he won’t use his ‘God card’ and settle disputes.

If Bitcoin continually needs Satoshi to keep us from going astray, then Bitcoin isn’t worth saving. Considering that Satoshi has likely the most coins at risk than anyone else, and him coming forward to break the impasse would likely save us (and the value of his own coins) it is truly commendable that he has not done so. The fact that he hasn’t tells me that he (where ever he or she is) is truly acting in an altruistic manner. He is more willing to let Bitcoin die, than to let it continue on as a system that does not value consensus as its first and foremost priority.

Setting aside the technical dispute, it’s pretty cool that we are at a point where a guy writes matter-of-factly on the Internet about some hidden founder who nobody knows and yet this founder has the ability to settle a dispute because of his authority. (Or it could be a woman.) Furthermore, even though nobody knows who this guy is, he could prove that it’s “really him” if he wanted. (That’s what the writer means above with the “PGP key” stuff.) Also, he’s possibly worth $200 million because of what he created and gave to the world, yet–to repeat–nobody knows who he is.

19 Responses to “Both Sides in the Bitcoin War”

  1. skylien says:

    People write about this Satoshi as if he was some kind of infallible savior.

  2. Dan says:

    I am Satoshi.

  3. Khodge says:

    The most important act that any US president has done was George Washington refusing to run for a third term. It took a wannabe dictator a century and a half to break that tradition. It sounds like Satoshi ( or whoever) has chosen that same path.

    • Harold says:

      I was reminded of this by Nelson Mandela refusing to stand for a second term.

  4. Andrew_FL says:

    I found Jim Harper’s article on this subject to be pretty even handed.

    I think transactions capacity is a serious issue. I’m inclined to favor the XT side but I can also understand (and sympathize) with those who are worried about it.

    • Harold says:

      Having now read both articles, it seems from a naive perspective that a solution is to increase the block size to 8MB, but not have the automatic, un-stoppable 2 year increase until 8GB is reached. Why not have a new look every 2 years? I am sure there are good reasons.

  5. Major.Freedom says:

    In order for ANY free market commodity to function as a money, it must be improvable, that is to say it must be flawed.

    If any commodity were a “perfect” money, it would transcend we humans, and come to dominate us, and enslave us.

    Please do not fear or recoil against the possibility or actuality of flaws in Bitcoins.

    A free market is not a set of material things. It is a process. A way that we humans behave, specifically, respecting and protecting individual property rights.

    It is quite possible that Bitcoin usage will be followed by a set of circumstances and events that only something better than Bitcoins can solve. And then when those problems are solved, more might arise, after which yet another solution is required.

    There is no such thing as a permanent, perfect, flawless automobile, or medicine, or produced food, or house. These objects have undergone tremendous change and innovation.

    The commodity that serves as the money is no different.

    Any failure of Bitcoin will not “prove” or “verify” or “confirm” the optimality of coercive, non-market money such as Dollars or Yen or Euros. They are the worst because improvements are forbidden by law.

  6. guest says:

    I think today is the day I save Bob Murphy from bitcoins.

    Joseph Fetz is next. Heh.

    It seems to me that the argument that is most convincing to Bob with regard to bitcoins is that since gold ends up with a trade value that is greater than its use value, that the use value cannot be the source of gold’s trade value, and therefore, by extension, it should not be a sticking point that bitcoins do not derive their trade value from their never-existing use-value.

    But I think I can convince Bob that the above is not a convincing argument in favor of the money-ness of bitcoins.

    Check this out:

    Got an old cell phone? Trade it for a Porsche
    July 21, 2010

    “… a 17-year-old from California, has pulled off a minor miracle. He has, through a series of trades, exchanged an outdated cell phone for a 2000 Porsche Boxster. It took him two years and 14 trades, and in the end he actually traded down from a more valuable 1975 Ford Bronco.”

    Notice that there was no money involved, and yet, in terms of money, he ended up with something that was far more valuable than a cell phone.

    Remember that all trades are for things which are more valued than that which is given up – there’s never an equality of value in trades because then there would be no point in trading.

    So, it is not an impressive argument to point to the greater trade value of gold as money than its use-value; This should actually be expected.

    All that’s happening with the trade value of gold is that some people are finding that they are in a position to trade gold for something that they, personally, find more valuable than gold’s use-value (and probably from the perspective of those who use gold as a commodity).

    So the greater trade value of gold as a money than its use-value as a commodity is not a good argument against the claim that gold’s trade value is derived from its use-value.

    And nor, by extension, is it a good argument in favor of the money-ness of bitcoins.

    Again, I ask: What is the difference between an arbitrarily valued bitcoin and an arbitrarily valued handful of dirt?

    Bitcoin adherents think that bitcoins can be money, but dirt cannot; This is inconsistent.

    Hang in there, Joseph Fetz. I’ll save you, too, buddy. Heh.

    • Keshav Srinivasan says:

      guest, I’m curious, what do you think gives Bitcoin it’s trade value?

      • guest says:


        The same thing that causes people to invest in Ponzi schemes.

        That people voluntarily attempt to use something as a money is a necessary, but not sufficient, aspect of money.

        Similarly, when before, I agreed with some comment that was made at TomWoods dot com to the effect that simply trading gold and silver with your neighbors, and then multiplying that activity, would result in government becoming irrelevant, something that needed to be qualified at some point is that using gold and silver right now as a medium of exchange won’t make it money until its trade value can be linked to its use-value.

        But since we know the spot prices are being manipulated, and that gold and silver do have a use-value, we know that their trade values, in terms of goods and services (absent government restrictions) are greater than the current spot price makes it seem.

        So, we at least have a direction in which to value gold and silver in terms of goods and services.

        Until a link to use-value is known to exist, they will not function as money; Which is the same argument I make against the money-ness of bitcoins, but at least gold and silver *can possibly* be money (again) due to the fact that it has a use-value.

        Bitcoins have never, and can never, be money, because they have never, and can never, have a use-value.

        (The technology that “runs” bitcoins can have a use-value for those things which can be tracked by something like a Product_ID key. Bitcoins are like IDs without an actual product.)

        • guest says:


          Maybe I should elaborate.

          To say that money gets its trade value *merely* because the next guy will accept it in trade would ultimately be recursive.

          It would be functionally equivalent to saying that we just make up the trade value.

          This is why I bring up handfuls of dirt so often. You can arbitrarily assign value to anything – even dirt. So why would those who hold the above position have a problem with using dirt as money?

          Yes, the next guy has to be willing to accept it. But since the function of money is to satisfy double-coincidences of wants *in terms of goods and services* (people don’t ultimately want the money, itself) when barter is not acceptible, it is necessary for the next guy to accept the “money” ultimately because someone else values it for its use-value.

          This way, the trade value of money isn’t arbitrary, and we don’t find ourselves in the awkward position of saying that money is whatever we think it is.

          No, money is, as Mises said, the most marketable commodity.

          Also, see this:

          The Re-Monetization of Gold

          • Peter Šurda says:

            It is very sad that despite lots of published material, there are still people who attempt an Austrian analysis of Bitcoin without the understanding of basics of Austrian school with respect to indirect exchange. I’ll just list a couple of errors:

            – money is not a category of action (medium of exchange is), so we cannot make praxeological statements about money (if someone claims something can or cannot be money, it is not a praxeological statement)
            – Bitcoin is a medium of exchange (it is held for its liquidity), therefore we deductively know that there must have been a time in the past where it wasn’t a medium of exchange, but had use-value and was liquid (or salable, to use the terminology from he past). Historical research shows that this was indeed the case.
            – the use-value of Bitcoin is in reduction of transaction costs, similarly like telephones, the police, or the lawyers. The founder of the Austrian school, Carl Menger, explained very well that disregarding reduction of transaction costs as a source of utility is a fundamental blunder
            – the desire to resell something at a profit is economically different from the desire to hold liquid assets, even though they often manifest themselves in the same action

            You do not provide an explanation of the use of bitcoin as a medium of exchange: why it is now the case, or how it began. You do not even define medium of exchange. You attempt to define money, which is however not a category of action (it’s a colloquialism). Again, merely because something trades and there are people who want to resell it at a higher price does not necessarily mean it is a medium of exchange and is not an explanation therefore (or at least not a complete one).

            • guest says:

              “– money is not a category of action (medium of exchange is), so we cannot make praxeological statements about money …”

              “Money” is the label we put on those mediums of exchanges that are widely used.

              If someone believes they are using something as money that isn’t a medium of exchange, they are wrong. It isn’t money.

              This seems straight forward enough until you realize that some people are using the wrong definition of “medium of exchange”.

              The wrong definition is what the bitcoin adherents use: some intermediary thing that is traded for until it can be traded again for what is really being sought.

              This is a necessary, but not sufficient, aspect of mediums of exchange.

              The right definition recognizes what is meant by the word “medium”:


              “2: a means of effecting or conveying something: as

              “a (1) : a substance regarded as the means of transmission of a force or effect”

              That is, a medium of exchange is a conduit of subjective use-value.

              The whole point of using mediums of exchanges is to end up with a good (or service) that is valued more than the good that is given up for the intermediary good when barter is unacceptable by one of the parties.

              Simply using some thing as an intermediary good does not make it a conduit of subjective use-value, a medium of exchange.

              If there is no link to use value, then having enough trade value in your medium of exchange is as simple as changing your mind, since you’re just arbitrarily assigning values to it.

              “– Bitcoin is a medium of exchange (it is held for its liquidity), therefore we deductively know that there must have been a time in the past where it wasn’t a medium of exchange, but had use-value …”

              Again, just because you believe you’re using a medium of exchange doesn’t make it so.

              That’s not even how praxeology works.

              First, you determine that something does, in fact, have a use value, then, logic says that it could, potentially be a medium of exchange (again, read “conduit”).

              You’ve got the cart before the horse.

              “Historical research shows that this was indeed the case.”

              Historical research shows that someone arbitrarily assigned the value of a pizza to some portion of bitcoins.

              Arbitrary valued things cannot be conduits of subjective use-value.

              Use-value is subjective, but not arbitrary. There is a real, subjectively valued preference, and there are a finite number of ways that real subjective value can be satisfied.

              Again, if subjective value could be arbitrarily assigned, then satisfaction of preferences would be merely a matter of changing one’s mind.

              “– the use-value of Bitcoin is in reduction of transaction costs … The founder of the Austrian school, Carl Menger, explained very well that disregarding reduction of transaction costs as a source of utility is a fundamental blunder”

              The use-value of Ponzi schemes is in reduction of transaction costs, too.

              And like bitcoins, the reduction comes at the expense of the gullible, the later adherents to bitcoins.

              Their success with bitcoins depends on the next sucker. This is the Cantillon Effect.

              “You do not provide an explanation of the use of bitcoin as a medium of exchange: why it is now the case, or how it began.”

              I have in the past. And I did so, again, in this commment.

              “You do not even define medium of exchange.”

              Again, I have in the past. At any rate: rectified in this comment.

              “Again, merely because something trades and there are people who want to resell it at a higher price does not necessarily mean it is a medium of exchange and is not an explanation therefore (or at least not a complete one).”

              I never said it was.

              What I say, more recently, is that “medium” means “conduit”, not simply “something in between”.

              What I used to say was based on an attempt to work with the flawed definition of “medium of exchange” as best I could, since this is how a lot of people think of it.

              I would say something to the effect of “OK, that middle thing you’re talking about also has to have a link to use-value; Simply having the function of being in the middle is not sufficient”.

              Either approach could work for me, I think, but right now I think it helps to convey that there is a sense in which mediums of exchange “carry” subjective use-value in a way that cannot be diminished or enhanced by simply changing one’s mind.

              Let me add what I think is a critical point to this discussion:

              Unless money has a link to use-value, there can be no such thing as business cycles.

              As another commenter has noticed, besides me (I paraphrase), Austrians say that inflating the money-substitute supply [beyond the supply of the good for which it is a substitute] causes price distortions.

              But this implies that the price is supposed to be such and such when it isn’t; So, what is it that is being distorted in an artificial boom.

              The thing being distorted is the representation of the actual marginal utility for the good for which a money-substitute is acting as a substitute.

              That is, there is a discrepency between the marginal utility of the paper claims, and the marginal utility of the goods they represent.

              They are supposed to have a 1:1 relationship. In an artificial boom, this is not the case, and so price discovery, in terms of goods and services (which, as Andrew_FL rightly says, is what the real economy is based on) is reduced to a gamble (a reference to a Keynes quote).

            • guest says:

              “… Carl Menger, explained very well that disregarding reduction of transaction costs as a source of utility is a fundamental blunder”

              Just thinking out loud in case someone else can put their finger on why this concept sounds fishy.

              It seems like what this is saying is that cost-reduction adds value, which is not consistent with the Action Axiom.

              This is why it is improper to say that a more productive worker adds value. This is just another way of appealing to the Labor Theory of Value.

              All value is subjective to the highest ranked preference of the individual.

              Means of satisfying preferences, therefore, are always costs, in that the satisfaction requires additional steps.

              A means which imposes a lower opportunity cost is preferable to one which imposes a higher one, but it is still a cost, not an addition of value.

              Another way of saying this is that you can reduce the transaction costs for certain means all you want, but if the transaction wouldn’t aid in the satisfaction of preferences, then the individual will derive no utility from it.

              I’ll want to mull this over some more, but I’m pretty sure that it is impossible for cost-reduction, per se, to have utility, notwithstanding Mengers’ contribution to this issue (which I have not seen).

              My above comment on this matter stands on its own.

              • Harold says:

                You desire a bacon sandwich more than a cheese sandwich at the moment. However, the bacon sandwich is half a mile away, whereas the cheese sandwich is in your fridge. It now turns out that you desire a cheese sandwich in your frodge more than a bacon sandwich in the shop. The order of preference depends on the transaction cost (i.e. the cost of you going to the shop).

                The shop however will deliver free! Suddenly you prefer the bacon sandwich again.

                Since all we have is order of preference, then reducing transaction cost with free delivery has the same result as adding value to the bacon sandwich, since it now moves above the cheese sandwich again.

              • guest says:

                “The order of preference depends on the transaction cost (i.e. the cost of you going to the shop).”

                Value determines costs, not the other way around. Costs are objective only relative to subjective preferences.

                It could be that, despite the bacon sandwich being half a mile away, you would still prefer it to the cheese sandwich which is in your fridge.

                Maybe you’re sick and tired of cheese sandwiches, for example.

                But I did discover I was wrong about one thing while being right about another:

                Utility is not the same as value. Value is a reference to the preference, while utility is a reference to means.

                Value for a particular outcome determines the utility of the means to achieve that outcome.

                Utility is the ability of a means to satisfy preferences.

                Regardless of the cost, a tool that is half the price of an otherwise identical tool has the *same* utility in that either one will satisfy your preference.

                (For comparison, consider that ease of preference satisfaction may accompany ethical concerns, in which case the otherwise more costly means may be preferred.)

                Cost-reduction, therefore, can’t be the same as an increase in utility.

                This is consistent with the Austrian analysis that value can never be added.

              • Harold says:

                We must remember that the transaction includes all factors. You prefer a bacon sandwich to a cheese sandwich. You prefer a cheese sandwich to a bacon sandwich and a half mile walk. Removing the half mile walk does not increase the value of the bacon sandwich, but it does increase the value of the transaction.

              • guest says:

                “Removing the half mile walk does not increase the value of the bacon sandwich, but it does increase the value of the transaction.”

                I think that’s pretty close, though I would word it different. I would say it lowers the opportunity cost of the transaction, which I don’t consider to be functionally equivalent.

                Another thing I was thinking is that perhaps Peter Surda was talking about Bitcoin, the technology, rather than bitcoins, the supposed currency.

                In which case I would agree that it would be possible for the technology to reduce transaction costs, in the same way that having a database use Product IDs to track transactions involving the goods to which the IDs refer would do.

                In other words, find a way to create a 1:1 relationship between the IDs that are bitcoins and actual goods or services, and do so without coersion or fraud, and then, yeah, the Bitcoin technology would be useful.

                But notice that it’s the value of the goods that makes the tracking technology valuable.

                It’s like how the value that consumers place on diamonds are what make diamond mines and diamond miners valuable.

                Bitcoins have no use-value, so the Bitcoin technology, as applied to transactions in bitcoins, has no value. The transactions only happen due to fraud in the same way that FRN-printing causes acts of misallocations of resources.

  7. Humberto Angleton says:

    Alice will send bitcoins to Bob, she sees a confirm, but Bob will never see a confirm, if the coins are originally minted from a post-Judas block. If it is from Jesus block or less, then her transaction with Bob will work and be seen by both of them, BUT then Alice can re-spend those same coins with a counterparty on the John chain!

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