Ep. 124 Bitcoin Is Evil, and a Bubble, Says Krugman

2 February 2018     |     Tom Woods     |     70

Krugman thinks Bitcoin serves no good purpose, except perhaps for people who are up to no good, and is powered by libertarian fantasies and paranoia. Bob and Tom have some fun banter on this one.

Krugman Column

Bubble, Bubble, Fraud and Trouble” (January 29, 2018)

Related Krugman Item

Krugman Mocks Michael Goldstein

Contra Columns

Michael Goldstein – Bitcoin: An Experiment in Anarchism (YouTube)
Understanding Bitcoin, by Bob Murphy and Silas Barta
Ep. 46 What the fork?! Bitcoin vs. Bitcoin Cash (The Lara-Murphy Show)
Ep. 1064 The Debate Within Bitcoin: Jameson Lopp vs. Roger Ver on Bitcoin and Bitcoin Cash (Tom Woods Show)
Early Speculative Bubbles and Increases in the Supply of Money,” by Doug French

Need More Episodes?

Tom and Bob have their own podcasts! Check out the Tom Woods Show and the Lara-Murphy Report.

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  • Matthew Tanous

    I asked this of Dr. Murphy on Twitter, but I thought I would repeat it here:

    Mises in TToM&C defines fiat as “money that comprises things with a special legal qualification”, saying “Here the deciding factor is the stamp … The nature of the material that bears [it] is a matter of … minor importance.”

    How does this apply to Bitcoin?

    It seems the only way it makes sense to apply it to Bitcoin is to deem all digital information “fiat”, because it is determined to be useful only as software dictates. That seems a step too far to me, but maybe only because I’m a software developer myself.

    • Tasos Obscure

      Don’t get stuck in definitions, they are often very constrained and obfuscate fundamental truths about the underlying concept. In this case fiat is informally money without fundamental value(industrial or other use).
      I would add the definition he gave was the formal and official one but if you think about it you find that it’s a bit paradoxical, as in, how can something be used by people as a means of exchange yet have no fundamental value, surely the fact that people make transactions with it means it has value because it satisfies human needs.

      • Matthew Tanous

        The definition of the concept is vitally important for any deductive reasoning. “Informal” concepts are less than useless for drawing conclusions.

        Nowhere does Austrian economics define “fiat money” as “money without industrial or other non-monetary use”. And “fundamental value”, like its twin “inherent value”, is a term that economics has rightfully excised as being not just unhelpful, but actively wrong.

        • Tasos Obscure

          To structure a formal deductive system you need axioms, be it methodological of foundational, and you also need undefined concepts. The undefined concepts need to be universally accepted and very “low level” in order for them to not have any nuance. An example from mathematics is the peano construction, where one takes the peano axioms and the undefined notions of ‘0’ and ‘1’ from which one constructs the natural numbers.

          Economics is wholly unsuitable for such a construction because of the massive amounts of unknown assumptions and undefined concepts.

          Informal concepts are absolutely central to everything human because it’s quite clear that humans don’t work fully formally as someone like you I bet knows. Even the purest mathematics are not fully rigorous in that sense, the bourbakistes played a very important role in introducing clarity, but not absolute rigor.

          Now trying to make a sort of deductive system ala austrian economics is ok but we have to recognize it’s necessary lack of nuance and validity.

          I do agree with you with the notion of inherent and fundamental value but colloquially they communicate something very important. I still use them.

  • NoMoreFed

    I think Tom hyped up his zingers too much in one of his podcast episodes. It is kind of like the FISA memo – I was expecting more after all of the hype.

    In regards to the Krugman column, I hate to say that I mostly agree with Krugman on this. There is something of a cult following of Bitcoin. There are a bunch of obsessed techies who spend many hours a day talking about/ promoting cryptocurrencies. And when the whole thing comes crashing down, it will be people like Krugman laughing at libertarians, even though I know there are many libertarians who feel the same way I do.

    Here is the logic of cryptocurrencies (not safe for work or around the kids):

    • Tasos Obscure

      What more could one wish to be verified in such a short memo? It’s a massive conspiracy, the biggest scandal in modern US history.

      Bitcoin was massively hyped because it prospectively offered something unimaginably good, it didn’t achieve it because of fundamental issues like the lack of voluntary adaptation of the miners.
      Whatever the case cryptocurrencies are here to stay, providing alternatives to fiat currencies that are hard to track.

      The early internet was much more hyped and 15 years ago everyone thought it was a nothing burger, yet look at it now. People need time to adapt to new technology.

      Anyone who is involved with it knew it would come crashing down, the transaction fees were more than 10 dollars per transaction ffs. I do support that in time cryptocurrencies will be a massive influence in society, as they have already become in international transactions, already providing faster and cheaper transactions.

  • http://2vnews.com 2VNews

    21st Century Battle: Digital Gold Money vs Cryptocurrency

  • Slayer

    Ok, so now when the price of bitcoin is crashing the bitcoin simpletons are capable of seeing some of its problems. They still don’t understand that it is not a medium of exchange, but merely a payment system, and that when you send bitcoin to somebody you are not sending him money, but a crypto currency that needs to be converted to money paying large fees and waiting about a week, and that is valid for any crypto currency so obviously you won’t do it unless you really have to.

    • Tasos Obscure

      You usually need two working days to register in an exchange and about one day for the swift system to make the usually international transaction. The time it takes for a bitcoin transaction to be completed varies but it’s never longer than an hour. Many altcoins are instant with very very low fees(<0.1$). There are no fees in exchanging bitcoin to fiat or the opposite other than liquidity if you are in a particularly thin market making huge purchases.
      How did you come up with the week? Let alone that it's universal in cryptocurrencies.

      This is very widely available information, since open source ledgers are as transparent as can be.

      • Slayer

        A week is an information from the real world. For sure that is the case with coinbase, and even the faster exchanges take 2-3 days to buy/sell bitcon or any other crypto. So in order to send money using any crypto it is about a week and 5-10%. It is totally dishonest to pretend that sending a cypto through the network is all you need to do. You can’t keep your rent money in something that may plunge 10% or more per day. Before when bitcoin was going up you couldn’t understand this point. maybe now you can. So tell me how the cryptos can replace bank wire, credit cards, wu, money gram, etc. if you need to use those to buy and sell bitcoin? So I agree with Krugman that bitcoin and other cryptos are going down almost to zero.

        • Tasos Obscure

          I have no idea where you get your information from but they are blatantly false, exchanges at most, at times of congestion, take 5 hours to receive bitcoin and make them available for your account. Usually it takes less than an hour and that’s mostly because of the exchanges. To transact directly with somebody else you can use altcoins and transfer them instantly, often times without any transaction fees if the software is available. If you have to go through the network it again can be dirt cheap with altcoins. Your claim about coinbase is certainly not the case, since it’s the most popular when even the worst exchanges take less than an hour to buy/sell bitcoin. Your claim about transaction fees as a percentage is obviously false since they all cryptos charge flat fees independent of the amount.

          The fluctuation of bitcoin is irrelevant, there are asset backed cryptos or pinned exchange rate cryptos that can easily be used and bear the same volatility as real currencies.

          This is silly, nobody in his right mind has been using bitcoin for transactions after the end of 2016, the transaction fees got way too high(5$) and alternatives are ubiquitous. You’re conflating bitcoin, which has been a speculative and investment asset for a while now to bank services when there is no comparison to be made because the bitcoin software hasn’t been updated in multiple years.

          Ripple and etherium are used by banks and various financial services at this point in time for multiple products or internally. Santander will apparently roll out 4 products this year based on ripple.

          “It is totally dishonest to pretend that sending a cypto through the network is all you need to do”
          This is the only thing you have to do actually, you don’t have to use any type of intermediary if you want to, there are websites where people find people willing to trade cryptos for fiat and make the transactions face to face.

          Tether and a few others are already used as fiat bank accounts by many crypto to crypto exchanges and offer the speed and dirt cheap fees bank services offer.

          I pointed out the same things to you one month ago, now I think I may have fallen to a troll trap. Either way please stop spreading misinformation, people unjustly lose money that way.

          • Slayer

            People lost money if they bought bitcoin as you and other bitcoin shills told them. You were using it as an argument in favor of bitcoin a month ago that it mostly goes up. In your unimaginative little brain you couldn’t imagine that the trend could reverse. Now it is crashing, and you admit it is a bubble. Last time you were saying something different.

          • Tasos Obscure

            I sold btc at 17k and knew way earlier that it woud fall, it got too popular too quickly without having been updated in 5 years. I made some very good money too.

            Bitcoin remains great, the same way prototype sterling machines remain great. A great first try that similar to the internet, will change society in time. As bob says, cryptos are here to stay.

          • Slayer

            I sold mine too around $ 17 k. I too have a big dick, don’t worry. But what counts is what you wrote here.

          • Slayer

            Here is what you wrote last time:

            That’s also the case for every currency, bitcoin and altcoins are simply too new for stability to be there. Also people who traded with them more often than not find themselves with more money because of the appreciation.

            Question: If bitcoin goes under $ 1 k are going to admit you are a moron?

          • Tasos Obscure

            Is that your smoking gun?

            Full quote:
            “That’s also the case for every currency, bitcoin and altcoins are simply too few for stability to be there. Also people who traded (past tense) with them more often than not find themselves with more money because of appreciation. There are criticisms of bitcoin as a currency, but that is not it.”

            If bitcoin plunges to less than 1k I will have an “I told you” party against my friends. Even though they hardly have any at this point.

          • Slayer

            It proves that you are a liar and an idiot. Both at the same time.

            I said that you can’t keep your rent money in bitcoin because you don’t know what it is gonna be worth when your rent is due. And you replied that is not a valid criticism (actually you said it not a criticism – look up a definition in a dictionary you moron), and that people mostly gained money with bitcoin!!! You may add anything you want to your quote liar (past tense – imbecil!!), it doesn’t change the fact that you couldn’t even imagine that the trend could reverse, and because one can’t gamble with his rent money, bitcoin or any other cryptos backed by nothing can’t be a medium of exchange as stocks are not a medium of exchange.

          • Tasos Obscure

            My quote required that i point out it was past tense since you’ve misrepresented me on multiple occasions.
            You claim I couldnt imagine that the trend could reverse even though anyone who knows about the behavior of its price knows that it drops 30 or 40% at least once each month. So, according to you ive been through that at least a few times yet never imagined it falling, makes sense! You make inspector gadget proud.

          • Slayer

            How is the fact that most people made money on bitcoin in the past for it suitability as a medium of exchange? Why did you make that point? Do you understand that you don’t wanna have your rent money in something so volatile? Just because it went up in the past doesn’t mean it can’t go down, to the contrary. You want your money to be stable or at least predictable. And not jumping up and down 30% within a month!

          • Tasos Obscure

            I never argued that bitcoin is a great medium of exchange, thats why im not using it that way. The fact that people made money out of it certainly made it more popular for transactions until it got over 5k$ and transaction fees got hefty. Its an investment asset, mainly a speculative one at this point, I would go with other cryptos like ether or ripple for transactions. But then again I would probably store my money into pinned price cryptos if i had to.

          • Slayer

            Bitcoin is not only not a great medium of exchange, it is not medium of exchange at all. Period. It is a payment system at best and mostly just a speculation vehicle. Tell me why would you prefer to use credit card/wu/bank wire etc to buy a crypto currency, then send the cryptocurrency and then again use some conventional payment method to sell it? If you can just use any conventional payment method and cut the crypto middle man?

          • Tasos Obscure

            Because i make international transactions and would rather they take 10mins than take 1 full working day. Many such cases exist.

          • Tasos Obscure

            I went back to the comments of last month to verify, i was not positive or negative about bitcoin, i even mentioned that there are valid criticisms against it. Your claim is false.

          • Slayer

            I am not gonna waste more time with you bitcoin shill. The quote is bellow.

      • Lee

        I would be careful as marketing as altcoins as being instant. Most of them are not, they merely appear so because the other party is willing to accept an unconfirmed transaction despite the risk. PoS should be less secure, but there do not appear to be many joker types wishing to see the world burn. At least not yet.

  • Slayer

    By the way Bob, I don’t remember you writing in your study guide about these problems with bitcoin either. Does it mean that you were also dishonest at that time or you just didn’t understand what you were writing about?

  • LP

    So, from the etymology of ‘fiat’, bitcoin is a fiat currency. It’s latinate, meaning ‘let it be’, or ‘let it be done’. Essentially, a fiat currency is one that became a currency through some entity publicly declaring they will accept it in future transactions. This is where some of the disagreement about what qualifies as fiat currency originates. One the one hand, linguists consider any non-commodity currency fiat, and on the other hand, Mises et al tie it to specific legal rules.

  • https://www.facebook.com/david.rogers.hunt David_Rogers_Hunt

    Repeating a question from a month ago from Episode 119,…

    Since all the arguing is about whatever intrinsic value Bitcoin may or may not have,… any thoughts or comments on Gold-Backed Cryptocurrencies listed here? Are these just gimmicks without any substantial merit?

    Also, after a year’s absence, Ben Swann is back (I thought he had been assassinated!? Glad to be mistaken about that!) and he is promoting Dash is Digital Cash. Any thoughts upon Dash, which seems to have all the benefits of Bitcoin without many of the problems?

    I greatly encourage Tom to invite Ben on his show and ask what’s he been up to and what he plans to do now. All the slayers of fake news need to keep in contact and support each other.

    • Tasos Obscure

      If you’re looking into investing by looking at the fundamentals of coins be wary, at this point in time cryptocurrencies are mainly speculative assets, the volatility of bitcoin affects the rest too massively and bitcoin (being impossible to update) is really showing it’s weaknesses at this point in time.

  • mary

    About Krugman and his barber, you two are absolutely right. For the looks of the guy, I doubt Krugman has a barber.

  • Slayer

    Bitcoin was a perfect opportunity for libertarians to make idiots of themselves, and they didn’t let it pass. So for years we were told that sound money needs to be backed by something, but now all of sudden it didn’t matter. We were told that bitcoin is scarce. How can a series of digits be scarce? And what can you do with it? What about 1300 of crypto currencies being in existence? We were told that it was a medium of exchange. But no prices are ever quoted in it. How come a medium of exchange is not a unit of account? Isn’t it one of the definitions of money? A unit of account? Now, Mises says that it is redundancy to talk about those other properties of money, as they all derive from its function of medium of exchange. So how can something be a medium of exchange, and not be a unit of account? I heard Bob Murphy to explain the regression theorem like 10 times. I am going to literally vomit if I hear him to speak about it again. Yet he is not capable to apply it to analyse one real world situation. One wonders if it makes sense to study economics. We were told that it is cheap and fast to send money around the world using bitcoin. Yet they omitted to mention that it costs 3-5% to buy and sell bitcoin, and it takes 2-3 days to do so. We were told that is anonymous to use cryptos, while many people got arrested because they used them for an illegal transaction. And the biggest bitcoin exchange will close an account of anyone who uses it for anything else than speculation or to buy a coffee with it. We were told it is going to replace Visa, Master Card, Western Union, Money Gram, bank wire, paypal.. Except that you need these to buy bitcoin in the first place. So instead of using one of these conventional payment methods I am supposed to do what? Use one of these conventional payment methods to buy bitcoin, pay 3-5% for it, wait 2-3 days, then the person who receives the bitcoin has to do the same in order to be able to buy anything except drugs? Are you of your f.. mind? In a short time there will be new Peter Schiff videos on you tube except this time it will be about bitcoin and it will be libertarians who will be for fools there.

    • Tasos Obscure

      You are very badly informed on the topic, very few things I’ve read from you are factually correct, you need to write fewer comments and study more.

      • Slayer

        Do you think I care what you think about me? I think you are an idiot.

        • Slayer

          And screw you telling me to study and not to post here. Maybe on your bitcoin shill forums you can censor it any way you want, not here.

          • Tasos Obscure

            I dont know any crypto forums, ive heard about reddit and antonopoulos’ talks but I never bothered with them.

      • Slayer

        You have a need to reply to every single post here. And if someone disagrees with you or says something negative about bitcoin you tell him no to post here? What kind of commie mentality is this? You can have an opinion as far it is positive? The commies called it constructive criticism.

    • Lee

      There seems to be lots of rambling here, but:

      – Digital scarcity is the one thing that Bitcoin has been good at.

      – People seem to have forgotten what the word “theorem” means. I would not even bother salvaging such an idea, but … yeah I don’t know.

      – 2-3 days is from Fiat->Crypto via some bank transfer or setting a really low fee in your wallet software. Some people find this desirable, because they were able to send funds on the cheap even during the high congestion at the end of last year. I sent a $5 myself during that $20-$30 period, and it only took ~25 mins to go through (2nd block after broadcasting). Some people sent for even lower amounts and waited for a few days.

      – 3-5% seems quite high, although if you are doing OTC trades on localbitcoins perhaps it is that high. Even Coinbase is not that high.

      – Buying coffee and competing with Visa was never the exciting part. I do not know why people sold it as that, other than the fees they saw initially were low and got them excited due to their anti-corporate viewpoint. Maybe even I “sold” Bitcoin in this way; although I never talked about it much personally, and never online IIRC. It was unfortunate, because even 2013 (and perhaps earlier) the technical people involved with Bitcoin were warning that this was probably not the ideal use case for Bitcoin.

      – Receiving Bitcoin from my client (not drug related or illegal) has been convenient in comparison to international bank transfers. I have never attempted those, and my only other experience is through a service called Transferwise. I suppose they are about equal in my use case, with Transferwise angering me once about some policy change (whatever that was, don’t remember …).

      • Slayer

        ”Digital scarcity is the one thing that Bitcoin has been good at.”

        I think nonsensical meaningless sentences are what you are good at. Wtf is digital scarcity?

        ”People seem to have forgotten what the word “theorem” means. I would not even bother salvaging such an idea, but … yeah I don’t know.”

        And what are you trying to say with this sentence?

        • Lee

          >> ”Digital scarcity is the one thing that Bitcoin has been good at.”

          > I think nonsensical meaningless sentences are what you are good at. Wtf is digital scarcity?

          Can you create a valid Bitcoin easily? Yes you can create a “fake” through deceit, but can you get someone who is running a full Bitcoin node to accept it as a real Bitcoin? The limited supply of Bitcoins created on the network are the only Bitcoins users accept as being valid. Is there some other name for this property that I should be using?

          >> People seem to have forgotten what the word “theorem” means. I would not even bother salvaging such an idea, but … yeah I don’t
          > And what are you trying to say with this sentence?

          That Mises was incorrect or that people misunderstood the theorem. The last part of the sentence was that people insisted on figuring how to solve the regression theorem for Bitcoin, as if it was some fundamental law for money. It was probably worth thinking about before putting obtaining any Bitcoin, but the specific reactions seemed off at times.

          • Slayer

            There is not such a thing as digital scarcity. Digital things are infinitely reproducible. You have 1300 other cryptocurrencies that work same or better than bitcoin. And it is not even true for bitcoin as splits sometimes in two (bitocoin cash, and bitcoin gold created as offshoot). So what so special about bitcoin that it can’t be replaced by another cryptocurrency?

            Why was Mises incorrect and what people misunderstand about the theorem? You don’t need to reconcile the theorem with bitcoin. It is wishful thinking. Some people like both Mises and bitcoin and think they have to reconcile the two. The regression theorem explains why bitcoin is not and can’t become a medium of exchange. There are no prices of goods quoted in bitcoin anywhere, that is an absolute must for a medium of exchange, it must be a unit of account.

          • Lee

            You sidestepped my first question – how are you easily creating something and selling it as BITCOIN? Creating another currency is not Bitcoin, just like me throwing paint at a canvas is not a Picasso. The important distinction is how difficult forgeries are to detect – if detection is costly then a transaction is going to be costly. The Bitcoin software is easier to “clone”, but “real” Bitcoins are also easy and cheap to validate (right now, assuming people do not insist on a very large blocksize, which is a tough assumption to make given the insatiable demand for more transaction volume). Calipers + scale will do a decent job with Gold, but tungsten apparently can be problematic for things larger than coins (and perhaps coins too?).

            As for the regression theorem – I am coming from a very different perspective. Several years ago – completely unrelated to Bitcoin – I began searching across the internet for a discussion on the bubble property of money. That money itself was always a bubble, and gold had no unique properties that made it different in this regard. I found only a few people that have discussed this on the interwebs, and two of them are programmers. I think Mises regression theorem is only a partial observation of possible human pscyhology. Why do humans continue to collect some item with the primary objective of selling that item in the future, knowing that large number of people were doing the same? Does the majority of the group not recognize this phenomenon, while a few people take advantage with a 2nd small group of large holders keep the price stable realizing its importance?

            Also a small nitpick, Bitcoin is already a medium of exchange. Based on your description, you seem to doubt that it can become a “money”. My best guess on that criticism is “probably”, but it is also difficult to predict future market events.

          • Slayer

            Can you replicate a bugger that I picked from my nose? You can’t. You can pick your own bugger, it will be different but as useless as mine. Same with the cryptos. They have absolutely no utility on its own, and they are not a medium of exchange. There is nothing you can do directly with a bitcoin, as it is not a material thing (gold is and has use a jewelry and in industry), and it is not a medium of exchange either. You can’t go to any store and pay with a bitcoin there, that is a reason why you can’t just keep the bitcoin to use later unless you are willing to speculate so if you wanna avoid fluctuations you have to convert it to money to be able to use it as medium of exchange. So it is a payment system, and very bad one because it doesn’t avoid the conventional payment systems, just adds another layer, delay and cost. If bitcoin was a medium of exchange the cryptos would be great, you wouldn’t have to exchange them for dollars or euros, you would just use them later to buy groceries or what ever needed. However they are not a medium of exchange, the regression theorem explains why. Does it even bother they almost no one uses cryptos to transfer money, to purchase things? That people buy it because they believe it will replace all existing currencies and payment systems but they prefer to use the current once and hold the bitcoin? Isn’t this a definition of a bubble?

          • Hal Gailey

            There are plenty of places you can buy things with bitcoin. But more importantly BitCoin is MORE USEFUL as a store of value than direct currency. Having a single wallet of currency that you can use to convert to any local currency without fear of the fiat currency you were previously using being verboten in the new land you find yourself. Visa, i believe, already offers a credit card that does this, you charge it with bitcoin and use it anywhere and it automatically converts from bitcoin to local currency when the charge goes thru.

          • Slayer

            I heard this store of value argument on Peter Schiff podcast, but it didn’t imagine I would encounter this kind of lunacy on my own. What kind of store of value is something that you buy at $ 18000 and in a month it goes to $ 8000? You may say it went up even fast. Fair enough, but that is not definitely a store of value, that is speculation vehicle.

    • Hal Gailey

      Backed by the blockchain. BTC isn’t a great currency. But its blockchain showed how the process would and could work. And other blockchains and their incumbent currencies are showing all the different valuable goods and services can be anchored to it. BitCoins blockchain is rather simple and crude. It cannot offer all the things Ethereum can offer. But it can and does still have a valuable commodity behind it.

      • Slayer

        What kind of commodity is behind it? Blockchain is not a commodity, it is an idea indefinitely reproducible. That is why you have some 1300 cryptocurrencies. If a cryptocurrency is not backed by some real commodity it will never work as money. And if it is, it will lose most of the advantages of cryptocurrecies.

        • Evan Rogers

          The “commodity” behind Bitcoin is “a completely trustless, immutable ledger that’s 100% decentralized through self-verifying nodes all of which is backed by massive investments in electricity and hashing equipment.”

          This makes everything banks do – except provide loans – pointless.

          If you agree that banks provide valuable services beyond “loan money”, then Bitcoin is backed by a valuable service.

          • Slayer

            Ok, so the dollar used to be backed by gold, and now it is backed by ”bank infrastructure”. That is interesting figure of speech. It is like saying that a tire, is backed by the infrastructure of roads and factories that make tires. I am calling BS on this one. A tire is a tire. That is all you got. It doesn’t give you an ownership in a road or in a tire factory. In the same way a bitcoin doesn’t give you an ownership in the computers that sustain the network nor in the power plants used to manufacture the energy to be used by the network. All you got is a bitcoin, series of digits that has no utility what so ever, and is not a medium of exchange either.

        • Hal Gailey

          The blockchain can provide many services and functions. On top of that it can provide secure transfer and records of most any info you wish to make use of it for. IF quickbooks, a CPA, escrow services, title insurance, or a hall of records are things you think have value then the blockchain is your buddy

          – Deprecated Text – stamps are backed by the commodity of shipping. Without the ability to use them to post packages they would have no value but as curios. Barely worth more than the paper and glue they are made with.

          • Slayer

            I agree with you that the blockchain can provide usefull services. No doubt about it. You could use it for transferring titles for example. But when you transfer bitcoin or any other crypto you are using it to transfer nothing.

            What your example with stamps says about bitcoin? Lets say that people start to use stamps as a medium of exchange. First, it has already a price. Because even if you didn’t know the price of a stamp in money and only knew how much shipping it can purchase it would be sufficient to trade for other commodities. So it would already have a purchasing power before becoming a medium of exchange. So now it would have to uses. Use a as a medium of exchange, and as a stamp. Now, if the post office stopped to exist, the stamps could still continue fulfill the function of a medium of exchange. They would be backed by nothing, but would already have set purchasing power. Now, this is not case with bitcoin. Bitcoin has no preset purchasing power dating back to a time when it was commodity. That is why it fluctuates even 20% per day and is absolutely unfit to be a medium of exchange.

          • Hal Gailey

            If people start using stamps as a medium of exchange, when they cans till be used for postage, as many people do NOW on a small scale, it will retain much but not all of its face value. If stamps could not be used for postage they would be worthless without a legal tender law. You have fun telling someone how it has such and such value because that is how much is printed on the front of it. USD is already worthless except it has a legal tender law backing it up. The archetypal fiat currency.

            they have no set purchasing power. If you can no longer use them as postage why would I ever give you 50 cents worth of value for one in an exchange? Unless you had a legal tender law turning them into fiat currency. You might as well claim beanie babies as currency. Those all cost a specific amount in the past that I can point to in an exchange and can’t be used for postage either.

            It fluctuates because people are using it as an investment vehicle rather than a day to day currency. Which is not really a problem as it won’t work as a mass market currency, it isn’t built as such. It is much more useful and valuable as a store of value. You can still use it to make purchases, many retailers accept it, and on big ticket items its a quite efficient media. But if you wanted to buy a pack of gum? Less so. No different than silver or gold, in that respect. All the other money is so worthless it’s too valuable to be wasted as currency. You use it as reserve/storage of value.

            Any idea is indefinitely reproducible. Hence why people clamor for IP laws. Gotta protect those ideas! The blockchain, as a concept, is indefinitely reproducible. THIS blockchain, a specific chain of blocks with a specific foundation and set of rules is in no way indefinitely reproducible. It’s entire raison d’etre is that is maintains integrity and security. As soon as it starts churning and people start making use of it it turns into DNA, specific information that is wholly unique and ties to everything down its lineage as times goes on.

          • Slayer

            The legal tender argument is totally bogus. People don’t use their countries currencies because they are legal tender, but because it is convenient. You can use them in any store, and you can be pretty sure that tomorrow most prices will be the same as today. The legal tender laws don’t prevent you from using any other currency you want. You may be required to accept the legal tender currency, but you don’t have to use only that currency. However it is convenient to use as few currencies as possible. So if the legal tender laws got repealed people would still use dollars. They use them even outside us. No legal tender law obliges them to do so.

    • Quentin Lewis

      To me (an electrical computer engineer) it is a wonderful technology, and I indeed believe that money will be handled like this in the future……but like spreadheets when they were first invented, NO ONE uses VisiCalc. It just doesn’t operate like ANY of the spreadsheet software available today…..and so it is dead. I suspect all the issues with bitcoin will cause it to go the way of VisiCalc….which will NEVER be replaced in our hearts as the electronic spreadheet “first mover”, but is none the less worthless at this point. (in the end, it was all about the technology, and not the particular product…..this is why we love competition)

      • Slayer

        I know nothing about spreadsheets and I am happy I don’t have to use them.

        The problem with bitcoin is not mainly technical, but economic. Technology won’t change the fact that when you transfer cryptocurrency you are transferring literally nothing.

        • Quentin Lewis

          Not to be difficult, but transferring money electronically which is what you do when you use a credit card or pay with a check is kind of the same….money itself is physical, but even it’s physical nature isn’t where its value comes from…..unless you are going to burn the paper money for heat. So not being physical is not a problem for me…..money represents hours of labor, or pounds of cheese (and so many other real items) because it trades for them every second of the day….that is why I have problems with bitcoin right now, it isn’t a stand-in for anything of real value like hours of labor or loaves of bread…because it isn’t traded for anything right now. (if it were, it would solve that problem)

          I know the argument will be regarding gold similarly…..my answer there is thousands of years of history being a store of value. Neither gold nor fiat paper is a store of value unless people believe they are. (like magic) And quite simply, the magic of each is derived from different reasons.

          • Slayer

            So you answered your own question. You can’t pay in your local store with bitcoin. The problem of bitcoin is not that it is electronic, but that it is not money. You can’t just keep because you spend it later. Because first you don’t know how much it is gonna be worth, and second no stores accept it. So you will have to exchange it for money first. So what sense it makes if you don’t wanna use bank wire to use bank wire to buy bitcoin, then send bitcoin to someone and then the person who received the bitcoin sells it for another bank wire. So instead of person A – bank wire – person B, you do: Person A – bank wire to an exchange – the exchange – bank wire to person A – bitcoin to person B – person B bitcoin to an exchange – the exchange bank wire to person B. That is not exactly a way how to get rid of bank wires and credit cards, how to simplify and speed up things. Or is it?

  • Bob_Robert

    Some of the problems with “Bitcoin” have been known for several years, with great frustration that the Bitcoin core programmers have refused to implement them.

    Let’s not forget that a “Bitcoin” conference is far more about alternate currencies than it is about “Bitcoin” core program.

    • Lee

      What problems in particular do you see? And why do people want software that manages billions of dollars in assets to change so rapidly?

      There is a reason why Bitcoin has maintained its position, despite people perceiving it as fundamentally flawed. There are only a couple of projects with sane development practices and low probability of technical failure.

      • Bob_Robert

        The hard limit on the block size has been a known bottleneck since it was set. Efforts to increase the block size were stonewalled, and the inevitable results of congestion and skyrocketing fees happened.

        • Lee

          The bottleneck is in the broadcast of every transaction to all peers design, not the blocksize. If the transaction volume increases faster than the cost of CPU/bandwidth/memory/storage falling, the cost to users will go up regardless of the blocksize limit. I agree that in the short-term they were probably better off bumping the blocksize a bit (2-4MB) since the sky seemed unlikely to fall, but it never seemed like a long-term strategy if the goal was to get a large user base. Chasing Visa/Paypal was probably never a possibility. I found Nick Szabo (who collaborated with Hal Finney and Wei Dai on systems similar to Bitcoin in the years prior) writing about this back in 2011 in a blog comment – Bitcoin simply wasn’t designed to handle “day-to-day” transactions. Everyone wants it to be that, but its pretty darn hard to be that without losing its anybody-can-audit and anti-censorship properties.

          And the fees thing is quite tricky, because they are paid in Bitcoin and not in USD. The wallets all base the fees on the recent block history, so when the BTC/USD rate goes up the fees “go up” even if the Bitcoin fee rate remained relatively flat. The wallets are also quite aggressive at setting fees, and many people had success manually setting much lower fees than what others were paying during the peak. So the fee selection algorithms can likely be improved in many wallets too.

          FWIW – Nick Szabo seems to have always claimed Bitcoin was a “store of value” specifically. I point this out because his thoughts about Bitcoin may have differed from the anti-corporate crowd who were attracted to the lows fees in particular.

  • http://www.bogosity.tv/ Shane Killian

    If the price of Bitcoin goes up, it’s a bubble. If it goes down, it’s crashing. If it fluctuates, it’s unstable. And if it stays the same, it’s stagnant. The trick with woo is to have an answer for every conceivable possibility so you can avoid being wrong.

  • Quentin Lewis
  • Hal Gailey

    On the issues with the blockchain and saturated transactions you have to remember that BitCoin was as much as anything a proof of concept. It wasn’t going to be the one currency that took everything over. It was going to blaze the trail for those that followed and wanted a specific niche. BitCoin can and will remain a great store of value, low transaction volume, established blockchain, etc. But others are going to be what gestates that system to fully developed products, whether its BitCoin Cash that is focusing on being currency first, Ethereum which is focusing on being an accessible application supporting blockchain, monero, dash, lite coin, doge, etc. BTC proves that tech and gives you a foundation. BCC, ETH, DGC, etc. developed for their own niches and focused on their own bespoke uses.

  • Hal Gailey

    BitCoin is closest to Commodity money, its commodity is the blockchain. And the services, records, transactions, and ledgers that can be instituted, stored, and exchanged on, in, and via it.

  • Hal Gailey

    Is it a fixed number that can be mined or a fixed number that can exist at one time? Are not the transaction fees that “disappear” into the blockchain then reissued as payout for mining new blocks?

    • Lee

      Bitcoin has a fixed limit that can be mined, and at given time there is a fixed number of Bitcoin. The only way to have multiple ownership claims to coins is via a custodial account – Coinbase could be running a fractional reserve scheme. Typically this is why the recommendation to “take delivery” of your Bitcoins into a wallet where you are the sole owner of the keys.

      The transaction fees do not disappear, they go to the miner of the block. It is possible to have Bitcoin destroyed, either by losing the associated private key or by doing “proof of burn” in which the coins are sent to an unspendable contract.

      • Hal Gailey

        Disappear was meant to be allusory. In that they do not transfer from one wallet to another but the blockchain sort of reabsorbs them back into itself; presumably, to me, to pay out for later blocks as they are mined

  • Quentin Lewis

    The dollar is “tethered” in the fact that people transact in it for real goods….and there is a bit of a “flywheel effect” which keeps the value fairly constant. The transaction volume is SO high, it is in a way difficult to change it quickly as it was cause havoc to the system itself…so it is a sort of self-stabilizing effect. (not that it is fixed in any hard way…..like many (electronic circuits) systems with stabilizing feedback, there are input conditions that can destabilize the system and cause the runaway inflation, deflation or violent value swings. The bitcoin flywheel will be spun up when transaction volume for goods of “real value” occurs….and at substantial volume. We currently have high transaction rates, but the transactions are only for other fiat currencies which also flip and flop in value…..the only transactions we see like the one’s I describe are when people transact into or out of Bitcoin from a currency they get paid with. (since that is directly tied to the value of hours worked)

  • Quentin Lewis

    BTW: I think Cryprocurrencies are akin to spreadsheets…..they will be the core of currencies in 100 year as we all use spreadsheets today……but Bitcoin may be to those Crypros as VisiCalc is to the Spreadsheet world. (or the Mosaic web browser)


  • maninthewilderness

    This would have been an interesting episode to have Peter Schiff or David Stockman as a special guest on the show.