tag:blogger.com,1999:blog-6189690633638834539.post8944992501005676781..comments2024-03-15T09:21:57.888+01:00Comments on Economics of Bitcoin: Response to Patrik Korda #4Peter Šurdahttp://www.blogger.com/profile/17346161576941109337noreply@blogger.comBlogger128125tag:blogger.com,1999:blog-6189690633638834539.post-79868624961419332722013-04-13T06:49:25.413+02:002013-04-13T06:49:25.413+02:00Indeed, the bubbles are irrelevant for the future,...Indeed, the bubbles are irrelevant for the future, but I am not arguing that they cannot occur. I did have an empirical bubble analysis in an earlier draft of my thesis, but I scrapped it because it has nothing to do with Austrian economics. It appears that you actually agree with me, so I don't understand what the problem is.<br /><br />I analyse the issue of competition among media of exchange in my thesis, and if you had read it, you would maybe be a bit clear about the issue.<br /><br />If you want a digital transaction system, then you either have one that depends on the discretionary policy or predetermined rules. There really is no way around it. A system of a monetary base with money substitutes on top of it (such as may become of GoldMoney or BullionVault that you mention) must always be built on a discretionary policy, because there must be a social institution that maintains the link between the monetary base and the substitutes. With this come all the problems that I mentioned earlier. The only way to achieve a system with predetermined rules is to have a virtual unit that is subject to an independent valuation, and with this inevitably comes price volatility during lower liquidity phases.<br /><br />But large part of the the volatility is just another way for the social institutions to manifest themselves, if the virtual unit is to coexist with one that is based on a discretionary policy. It occurs because the exchange must occur through a social institution. But the point is that while a system based on a combination of money in the narrower sense and money substitutes needs these institutions to work at all, a system that is fully virtual does not need them and can be self-contained. While it still needs infrastructure, the infrastructure is policy-agnostic and that's the point. Even Ripple cannot avoid this issue, although it has the potential to fix a lot of technological problems.<br /><br />At least Mises and Hoppe appear to understand the dilemma, because they recommend the increased usage of gold coins (i.e. a deliberate avoidance of money substitutes). This however is unrealistic due to transaction costs, and is only more apparent now that we have the internet.<br /><br />Something like Bitcoin presents a different solution, because it does not require money substitutes to reduce transaction costs, which is unusual and confuses the heck of many economists, not only Austrians. The transaction cost reduction also solves a second issue, how to perform a migration without political support. The gold standard branch has so far viewed such an option as impossible.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-87088311158502341772013-04-13T03:57:20.547+02:002013-04-13T03:57:20.547+02:00Now we are back to square one. You argued that bub...Now we are back to square one. You argued that bubbles are irrelevant towards bitcoins future viability. I argue that the opposite is the case. It may very well be the case that bitcoin survives and thrives despite bubbling, but there can be no doubt that its prospects would have been better without bubbling. In fact, this insight is at the heart of the ABCT. I did not have space to write a book in the article, so I used my marathon analogy. The lecture that I previously posted by Hulsmann goes a long way towards explaining this. I also posted a chart of silver that is now below its stable trendline precisely due to having turned into a bubble, and is likely to linger below that trendline for some time.<br /><br />I believe that digital currencies are the wave of the future. I do not like this, but one must be capable of distinguishing what ought to happen and what will happen. That being said, I believe more reputable exchanges and currencies will come on stream without all the baggage that mtgox/btc currently possess. The unforeseen events are still yet to unfold. The knockoffs in the backround can easily claim to immune to those unforeseen events if and when they surely occur.Anonymoushttps://www.blogger.com/profile/03215621615954339119noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-67891061791345854482013-04-13T02:31:05.568+02:002013-04-13T02:31:05.568+02:00By the way, had read my thesis, you might have see...By the way, had read my thesis, you might have seen this sentence:<br /><br />Price and liquidity correlate weakly. It can be interpreted as a certain level of stability of its foundation, BUT BEING PRONE TO BUBBLES.<br /><br />[emphasis added]Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-63860851456825181342013-04-13T02:26:04.370+02:002013-04-13T02:26:04.370+02:00You may have a solid understanding of the ABCT. I ...You may have a solid understanding of the ABCT. I have not read your work on ABCT so I cannot comment on that. However, your work on Bitcoin is riddled with holes and a profound lack of understanding, and what's even more important, a lack of desire for understanding. In addition to that, had you read my thesis, I would have wasted less time with your nonsense (and pointing out to you repeatedly that you misstate my arguments) and could have concentrated more on your positive contributions (of which there were little, but nevertheless exist).Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-8512753660872887432013-04-13T02:13:10.192+02:002013-04-13T02:13:10.192+02:00I first shorted bitcoins at $49/btc and covered at...I first shorted bitcoins at $49/btc and covered at $35/btc during the so-called fork. I have not since shorted simply because the sideways price action following the so-called fork was highly unusual. As one man said leading up to the great depression, "When I do not understand, I do nothing"<br /><br />I did, however, make a killing in litecoins during March, having pocketed a percentage-wise profit of more than all of my previous investments combined. The decision to buy litecoins was based on my parable and on my experience in coal stocks (small caps skyrocket relative to large caps during an uptrend). I'm with Doug Casey on this one: digital currencies are the ideal speculative vehicle.<br /><br />As for myself being an empiricist, I definitely like to look at data more than the average person. However, I would also point out that aside from a handful of peoplet, such as Mark Thornton, I consider myself as qualified to speak on and about the ABCT as any other person on this planet. The ABCT goes back to at least Richard Cantillon, who's insights allowed him to make a fortune during the Mississippi bubble and sell-out before the devil the the hindmost. There was also an American fellow prior to Ludwig von Mises by the name of William Leggett who also did a lot of work towards the ABCT. So far, the most theoretically (and empirically) rich body of economic text I have read is Business Cycles (Volume I&II) by Joseph Alois Schumpeter. It is not an easy read, however, it will teach you to think like an economist. <br /><br />To believe that simply uttering two words, network effect, will make bitcoin immune from competition is intellectual diarrhea.Anonymoushttps://www.blogger.com/profile/03215621615954339119noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-43634502036871424222013-04-12T23:33:17.041+02:002013-04-12T23:33:17.041+02:00Also, kindly note that I'm not taking a cheap ...Also, kindly note that I'm not taking a cheap shot and criticising your misprediction, such as when you announced shorting Bitcoin at around 40-ish, and that the liquidity from Bitcoin will flow into Litecoin. Those are empirical issues and from my point of view irrelevant.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-51633055867384755222013-04-12T23:21:20.111+02:002013-04-12T23:21:20.111+02:00It's not an ad hominem, because the purpose of...It's not an ad hominem, because the purpose of the sentences is not to refute your arguments. I already refuted your arguments independently. The purpose of my sentences above is to explain what is happening, why there is a disconnect between our two approaches and why the disagreements are unlikely to be resolved through a debate.<br /><br />Your argument about the future of Bitcoin is exactly what I am talking about: empiricism. I have no idea if Bitcoin will be around in ten years. But that's not something that is relevant for Austrians. An article by Daniel Sanches (including an approval from Salerno) from last year: http://mises.org/daily/6190/Horwitzs-Misreading-of-Mises emphasises that the Misesian approach is a twofold classification into praxeology and economic history. An argument about Bitcoin in ten years is neither.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-7455861431348448142013-04-12T22:57:08.820+02:002013-04-12T22:57:08.820+02:00'Several times I have asked you to address the...'Several times I have asked you to address the issues in your arguments I pointed to. You refuse, instead attempt to weasel out, derail the conversation to other topics. I pointed out where you contradict other Austrians, and yet you remain completely oblivious to it and instead you accuse me of deviating from Austrian teachings (which may be true, but I explain why I did it and am prepared to defend my position). You fail to formulate your own position in a coherent manner, yet accuse me of reformulating'<br /><br />A paragraph full of ad hominems. I stick to ideas.<br /><br />'Furthermore, you finally admitted that it does not follow that the bubble has a significant impact on the future of Bitcoin, and you admitted you are not interested in understanding the underlying principles'<br /><br />My personal opinion is that bitcoin will not be around in 10 years, but I have no theory of proving this. I did, on the other hand, have a theory for calling bitcoin a bubble.<br /><br />'In summary, you're an intellectual fraud. You're an empiricist posing as a theoretician. I'm interested in a debate about fundamental logical and economic principles, not in linguistics or repetition of superficialities'<br /><br />Yet another ad hominem. Anonymoushttps://www.blogger.com/profile/03215621615954339119noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-23061160337779446862013-04-12T22:40:58.753+02:002013-04-12T22:40:58.753+02:00Several times I have asked you to address the issu...Several times I have asked you to address the issues in your arguments I pointed to. You refuse, instead attempt to weasel out, derail the conversation to other topics. I pointed out where you contradict other Austrians, and yet you remain completely oblivious to it and instead you accuse me of deviating from Austrian teachings (which may be true, but I explain why I did it and am prepared to defend my position). You fail to formulate your own position in a coherent manner, yet accuse me of reformulating.<br /><br />Furthermore, you finally admitted that it does not follow that the bubble has a significant impact on the future of Bitcoin, and you admitted you are not interested in understanding the underlying principles.<br /><br />In summary, you're an intellectual fraud. You're an empiricist posing as a theoretician. I'm interested in a debate about fundamental logical and economic principles, not in linguistics or repetition of superficialities.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-61516452283771524772013-04-12T22:19:35.729+02:002013-04-12T22:19:35.729+02:00Lastly, I do not have a fetish for having the last...Lastly, I do not have a fetish for having the last word, even if it be something as childish as "You have no argument"Anonymoushttps://www.blogger.com/profile/03215621615954339119noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-13507271923742081472013-04-12T22:17:57.897+02:002013-04-12T22:17:57.897+02:00'And in conclusion, you mention examples of fa...'And in conclusion, you mention examples of failed empirical predictions, whereas I criticise you on poor economic analysis. So it's a non-sequitur and an appea to authority fallacy'<br /><br />I didn't appeal to any authority when writing my thesis, I was convinced bitcoin was overvalued based on my experience. It is not me who is addicted to appealing to authority. But if you must know, none of 'us' think bitcoin is either or money nor that it satisfies the regression theorem. The two exceptions being Tucker and perhaps Murphy. Tucker went so far as to tell me that the writings of a man that are over a hundred years old aren't too relevant. As for Murphy, I have no idea, stopped listening to him in early 2010 when he was calling for hyperinflation.<br /><br />'If you had read my thesis instead of wasting my time'<br /><br />Objectively speaking, who has been more considerate, you or me? <br /><br />I wrote an article about a bubble in bitcoins, you said the bubble was irrelevant. That's like criticizing an article about a soundtrack by stating the soundtrack is irrelevant.<br /><br />Moreover, I have stuck to ideas, whether time proves me wrong or right. On the other hand, you have repeatedly commited ad hominems. I never stated that authority x would laugh at you, that you are ignorant, a non-economist, x, y, and z. Honestly, take a moment and ask yourself who has been more considerate.<br /><br />My thesis, which extrapolated a real estate bubble in China, a bubble in US treasuries, and a potential bubble in gold was based on the ABCT, the way me and Doug French understand it anyway. I didn't say x,y, and z will happen. I merely said, if the ABCT is correct, this is what we should expect. On the other hand, I would never be arrogant enough to reformulate my own version of the regression theorem of Gresham's law, let alone in a thesis about the next magic the gathering fad.Anonymoushttps://www.blogger.com/profile/03215621615954339119noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-21477768038401714132013-04-12T21:58:14.064+02:002013-04-12T21:58:14.064+02:00You are wrong both on my account on Bitcoin, as we...You are wrong both on my account on Bitcoin, as well as on your account of Schilling. If you had read my thesis instead of wasting my time, then maybe you'd be able to make more progress. But you're not. You're just blabbering nonsense without attempting to understand anything.<br /><br />And in conclusion, you mention examples of failed empirical predictions, whereas I criticise you on poor economic analysis. So it's a non-sequitur and an appea to authority fallacy.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-90754557088267834372013-04-12T21:39:00.129+02:002013-04-12T21:39:00.129+02:00'Arguing that the market value of somali shill...'Arguing that the market value of somali shillings is derived from their physical aspects is a labour theory of value'<br /><br />LTV: The labor theories of value (LTV) are heterodox economic theories of value that argue the value of a commodity is only related to the labor needed to produce or obtain that commodity.<br /><br />First off, there is no doubt that you attempted the establish a relationship and justify the market price of bitcoin with the amount of time and energy required to produce it. This is obviously incorrect, the market price can go to $0.00 while the cost of production can be much much higer. It wasn't merely a description of some guy charging x for his bitcoins because that's is what he calculated they cost him to produce, there were obvious implications in putting that in the thesis.<br /><br />Second, the value of somali shillings post fiat is derived from the market price of the commodities (not labor) needed to produce it. The proof is in the pudding: They stopped being hyper-counterfeited after it was no longer profitable to do so. Ben Powell has done a ton of work on this. Once again, you are projecting your flaws and errors upon someone else.<br /><br />'This is what happened with Somali Shillings, and this is also how Bitcoin works'<br /><br />Bitcoin is made of binary digits. There were several million already "mined" before bitcoin had any price whatsoever.<br /><br />'Now I see that you really have no idea what you're talking about. You cannot provide an explanation of any underlying economic phenomena. If a real Austrian economists read this, he's going to laugh you out'<br /><br />I consider Mark Thornton a "real Austrian economist", whom I exchange with every day. Robert Murphy, on the other hand, questioned both Thornton and Schiff about the housing bubble as it was fully inflated in 2005-2006. Moreover, he predicted hyperinflation within a year in 2010. It's 2013 and CPI is running at single digits. Which one is sympathetic towards bitcoins? Murphy or Thornton?Anonymoushttps://www.blogger.com/profile/03215621615954339119noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-48764486699277033612013-04-12T21:05:31.341+02:002013-04-12T21:05:31.341+02:00Your reply is a non-sequitur (or, as you like to s...Your reply is a non-sequitur (or, as you like to say, ignoratio elenchi), on multiple levels.<br /><br />Arguing that the market value of somali shillings is derived from their physical aspects is a labour theory of value. It's not how it works. You can't convert the Shillings back to paper and ink, at best you can use recycle them and get a fraction of their costs back. How it works is that for commodity money, the marginal production costs follow the market price, while their demand is influenced by the fact that they already are liquid. This is what happened with Somali Shillings, and this is also how Bitcoin works.<br /><br />Now I see that you really have no idea what you're talking about. You cannot provide an explanation of any underlying economic phenomena. If a real Austrian economists read this, he's going to laugh you out.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-13984489622704315282013-04-12T20:48:47.143+02:002013-04-12T20:48:47.143+02:00'So, if everyone printed their Bitcoins on pap...'So, if everyone printed their Bitcoins on paper (e.g. printcoins), does that mean that Bitcoins could become commodity money?'<br /><br />No. I have physical certificates of the various shares that I own, their value far exceeds that of the commodity value of the paper on which they are printed.<br /><br />In the case of the Somali Shilling, the money lost its fiat characteristics partly due to no longer having a tax form nor a bond market attached to it. The value that did remain was derived from the physical aspects of the note itself (very little). If bitcoin loses its characteristics of a severely limited medium of exchange as well as a speculative vehicle, it goes to zero, since it is not a commodity that can be used in industry i.e., it lacks any use-value. There may be some people who will look at them on their monitors, just as there are people who would pay for a bag of Justin Bieber's fart. However, those are exceptions to the rule.Anonymoushttps://www.blogger.com/profile/03215621615954339119noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-49533463711587208042013-04-12T19:59:14.212+02:002013-04-12T19:59:14.212+02:00So, if everyone printed their Bitcoins on paper (e...So, if everyone printed their Bitcoins on paper (e.g. printcoins), does that mean that Bitcoins could become commodity money?<br /><br />Furthermore, can you maybe show an example of Bitcoin that is not made out of anything? Hint: as explained by Kinsella, Hoppe and Mises, only physical objects can be objects of human action.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-19955568161454569612013-04-12T19:34:36.606+02:002013-04-12T19:34:36.606+02:00I'm not sure whether the Somali Shilling has c...I'm not sure whether the Somali Shilling has cotton in it like the usd, but I would suppose they are made of paper and ink. Anonymoushttps://www.blogger.com/profile/03215621615954339119noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-78502231439818775272013-04-11T22:36:32.342+02:002013-04-11T22:36:32.342+02:00As a side note, I don't think you understand w...As a side note, I don't think you understand what I'm doing. I am not asking you to explain to me how Somali Shilings work. I am attempting to get to you formulate coherent arguments. You claimed that the regression theorem talks about a transition from commodity to commodity money. Then, since Bitcoin was never a commodity, it cannot be commodity money. But you also claim that Somali Shillings are a commodity money. So I'm asking, which commodity they were before they were commodity money?Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-67410817846294483082013-04-11T22:32:54.550+02:002013-04-11T22:32:54.550+02:00Did Somali Shillings they transfrom from a commodi...Did Somali Shillings they transfrom from a commodity into commodity money or not? And which commodity is that?Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-82705072627131926962013-04-11T22:26:14.660+02:002013-04-11T22:26:14.660+02:00Actually, both Mises and Ben Powell have dealt wit...Actually, both Mises and Ben Powell have dealt with this issue, which I think is rather simple. Somali Shillings used to be a fiat money that eventually lost this status due to anarchy. As a result of not having a bond market or a tax farm behind the money, it transformed to the underlying physical asset: the paper itself. In fact, it doesn't make any sense to counterfeit Somali Shillings as the costs entailed outweigh their market value.<br /><br />Under the Misesian scheme Somali Shillings can be properly defined as a commodity money. You do not need to make a special category for them.Anonymoushttps://www.blogger.com/profile/03215621615954339119noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-57242365785868423642013-04-11T21:54:54.276+02:002013-04-11T21:54:54.276+02:00I only have one last question. Does the regression...I only have one last question. Does the regression theorem prevent from classifying Somali Shillings as commodity money too?Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-35574524234983397632013-04-11T21:54:43.800+02:002013-04-11T21:54:43.800+02:00'You and many other Austrians have problems gr...'You and many other Austrians have problems grasping immaterial goods and the fact that a medium of exchange can exist which is not a substitute'<br /><br />Sure it can, either in the form of credit money or fiat money.<br /><br />'So, you aren't actually interested in research of Bitcoin'<br /><br />I haven't been interestet in bitcoin from the start, not in any serious form. I bought the stuff in 2011 because I thought it would go up, same thing with litecoins this March. TruTouch is an amazing company, and while I have certainly done my due diligence, I could honestly care less about the inner workings of the machines. That's what the engineers are for.<br /><br />'Just one last remark, I forgot to say that it's possible that the doctors might prefer faxes for regulatory reasons, but that's a tangential issue'<br /><br />I tend to think it's because doctors are busy people. They don't have time to constantly be checking their voicemail and/or e-mails. Ironically, c-level executives are easier to reach via fax than any other form of communication as well. I think it's because of the higher barrier to entry. Any Joe can send an e-mail, not everyone has a fax machine.Anonymoushttps://www.blogger.com/profile/03215621615954339119noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-5067405352578817112013-04-11T21:41:36.699+02:002013-04-11T21:41:36.699+02:00'Patrik, you're contradicting yourself now...'Patrik, you're contradicting yourself now, because you claimed that the regression theorem applies to euro too, and Euro is not commodity money. You have yet to formulate the theorem in a coherent manner, and yet you complain that I reformulated it. You don't really come off as a very competent person in this area'<br /><br />The euro is not a commodity money, the euro is a fiat money, or more technically a currency peg amongst 17 fiat currencies. Mises dealt with fiat money and the regression theorem quite extensively in TMC. There is no need to reformulate the regression theorem, the one Mises laid out is just fine.<br /><br />'But irrespective of whether we agree on the substitutes and commodities, it is methodologically invalid to use the regression theorem to predict the future of Bitcoin'<br /><br />The regression theorem is very useful insofar as proving that bitcoin cannot be a commodity money. This is useful because a lot of bitcoin proponents claim it to be a digital gold, which is false. Gold has been and is the most saleable commodity on earth, it has use-value outside of exchange-value. Anonymoushttps://www.blogger.com/profile/03215621615954339119noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-84664833034791746942013-04-11T21:31:37.860+02:002013-04-11T21:31:37.860+02:00Just one last remark, I forgot to say that it'...Just one last remark, I forgot to say that it's possible that the doctors might prefer faxes for regulatory reasons, but that's a tangential issue.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6189690633638834539.post-62674914515355784512013-04-11T21:30:19.362+02:002013-04-11T21:30:19.362+02:00Patrik,
while full reserve deposit certificates a...Patrik,<br /><br />while full reserve deposit certificates are not prone to credit expansion, all the other problems that I mentioned remain.<br /><br />You and many other Austrians have problems grasping immaterial goods and the fact that a medium of exchange can exist which is not a substitute, yet it beats substitute on transaction costs. It's a paradigm shift, like the internet.<br /><br />So, some industries might keep faxes, and some libraries still exist. That does not invalidate the comparative future of the internet or endanger its market share. I didn't claim that the migration must be full.<br /><br />So, you aren't actually interested in research of Bitcoin. That's good enough for me to stop communicating with you, because now it's clear that I'm unlikely to learn anything from you.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.com