Is Bitcoin Money?

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16 replies
  1. runeks says:

    I have a few questions for you Keith, hope you’re up for it :).

    At 8:38, you say bitcoin is irredeemable, but you also mention that bitcoin is not a debt instrument (5:21). How do you consolidate these two view points? Surely, something that is not a debt instrument – something that is not a promise to something else – doesn’t need to be redeemable. Gold isn’t redeemable either. So yes, bitcoin is irredeemable, but I don’t see how that speaks against it. In one sense, it’s a good thing, as far as I can see, because it means it’s not a debt instrument.

    With regards to your point about Schillings being exchanged for bitcoins, which, in turn, are exchanged for dollars – this is not inherent to bitcoin. This is how bitcoin is used *currently*. I imagine *all* new monies were used like this to begin with, including gold (who would want to take the risk of storing a new money to begin with). Here’s a question for you: if the guy in Kenya buys bitcoin with Schillings and sends them to WordPress, and WordPress pays its hosting company with bitcoins, would bitcoin thus be money? You can buy website hosting with bitcoin right now.

    Also, I don’t see how the labor theory of value or the quantity theory of money are inherent to Bitcoin. Gold mining also costs money, and there is a finite supply. I just don’t get how you can ascribe a theory to an object (bitcoin(. Humans use theories to explain reality, theory is not something that is possesed by objects (such as Bitcoin). Please expand on this.

    • Keith Weiner says:

      Thanks for your questions runeks.

      I agree it’s unique that Bitcoin is both irredeemable and not debt. Nevertheless, Bitcoin is not a tangible good, a commodity. It is an abstraction, literally a record in a computer hard disk. The terms on which one can exchange it for a particular good of known fineness are not known, nor is it known if it will indeed be exchangeable in the future at all.

      I only outlined a brief sketch of the origin of money, but to look at it further, before gold (or anything) was money, it was a commodity that was in demand. Not only in demand, but highly marketable. I don’t think there was ever an issue of wanting to to swap in and out rapidly without holding it. Any good that had this problem was not the most marketable good! Bitcoin has no use, and there is no desirability per se to having its particular type of record on one’s hard drive, aside from the possibility of using it to exchange for something else.

      From what I have seen, these twin claims (labor and finite quantity) are important to Bitcoin. Most mainstream people believe in the labor theory of value at least to some degree. And virtually everyone today, including most fans of the Austrian school hold to some kind of linear Quantity Theory of Money. I am not arguing that these attributes make Bitcoin bad. Nor am I arguing against Bitcoin per se. t merely looked at the question of whether it is money.

      I define money as the most marketable commodity, which means least-declining marginal utility, narrowest bid-ask spread, and highest stocks to flows. This happens to be gold and to a lesser degree silver.

  2. bronsuchecki says:

    Regarding the labour theory of value, I think this was just a mechanism to bootstrap Bitcoin. Satoshi could have just created Bitcoin with 21 million Bitcoins in one go, but then it would have been harder to get its inherent value appreciated. So creating the mining process and the expanding but fixed quantity features were a way to play to, as you say, mainstream ideas of labour “value” by virtue of the work of mining (the choice of that terminology is telling I think). Possibly these design features also to provided another bootstrap in the form of providing an incentive for speculators, who’s activities would give it some (volatile) support.

    Once Bitcoin stops growing, then mining (and labour value) work justification for its value ceases – miners only get bitcoins from an explicit fee for validating transactions. Bitcoin then will have to derive its value from its inherent features.

    I note you say “Bitcoin has no use” but I would disagree with this. Inherently it does have value to some people in its supposed (one has to go to some effort) anonymity, low transfer fees relative to other payment platforms (eg credit cards), relatively quick validation/non-repudiation of transactions. Ultimately this subjective individual judgement will determine Bitcoin’s “value”.

    The interesting question for me is whether Bitcoin can survive this bootstrap phase, see this for a negative view, and a counter view

  3. Peter Surda says:

    You’re the one who’s invoking labour theory of value and quantity theory of money. Bitcoin is not “based” on a theory, because Bitcoin is an empirical phenomenon, not a fundament of human action.

    The emergence of Bitcoin conforms to the liquidity theory of media of exchange (Mengerian/Misesian approach) and the implied assumption of practically all economic schools that media of exchange emerge and are chosen because they decrease transaction costs.

    The best analogy is language. You use language. You made a video where you talk, and a post where you typed. But language is a purely abstract construct, and only has utility due to the network effect (of which liquidity as another example) and the fact that the presence of a language as opposed to the absence of a language decreases transaction costs. If someone argued that language is not “tangible” so noone would want to use it and therefore it makes no sense to use it, he’d be doing a performative contradiction (you can’t really argue without using a language).

    You mention “marketability” and don’t realise that you’re talking about liquidity (= the network effect). Then you contradict yourself by claiming that you want something tangible. You actually want something that decreases your transaction costs (which normally means that which is liquid). But liquidity is not the only component influencing overall transaction costs. There are technological aspects too.

    The answer to the main question is that Bitcoin is not money, but a secondary medium of exchange (Mises) or quasi-money (Rothbard). Same with gold. You don’t use gold to pay, you trade gold on secondary markets, get money there and then use the money to pay. Bitcoin has an advantage that by using it in the payment process, you can actually decrease transaction costs of the payment system, both compared to gold and compared to fiat. So there is a much higher chance that Bitcoin will evolve into money than that gold will evolve into money. In order for gold to cross the threshold from a secondary medium of exchange to money, the whole worldwide financial system and physical currency and all crypto currencies like Bitcoin need to irreversibly collapse.

    re. “The terms on which one can exchange it for a particular good of known fineness are not known,”
    Of course they are. They are actually better than gold. I can sell Bitcoin 24/7, with a very low waiting time, from anywhere, very close to the spot price and without special legal prerequisites. You can’t do that with gold. You can’t even do that with all forms of foreign fiat money (I remember an episode where I went to an exchange shop and they wouldn’t exchange foreign coins, said they only accept notes).

    re. “nor is it known if it will indeed be exchangeable in the future at all.”
    This is true of every good.

    But you forget liquidity/network effect. That creates inertia.

    You really should read my master’s thesis,

  4. Keith Weiner says:

    bronsuchecki: Thanks for your comment. I should have stated it more clearly: bitcoin has no use outside of its exchange value. Gold, in contrast, is pretty, reflective, conductive, workable into all manner of items, etc. As a medium of exchange–i.e. a currency–I tried to touch on this at least partially in the video. I wanted to center around the question is it “money”, and so did not dwell on its usefulness in exchange.

  5. Keith Weiner says:

    Peter Surda: Thanks for your comment. You clearly study Bitcoin far more than I, so I will defer to your expertise. When I say the labor theory of value, I refer to innumerable statements such as this one (

    “To implement a distributed timestamp server on a peer-to-peer basis, bitcoin uses a proof-of-work system similar to Adam Back’s Hashcash, rather than newspaper or Usenet posts. This is often called bitcoin mining.

    The mining process or proof-of-work process involves scanning for a value that when hashed, such as with SHA-256, the hash begins with a number of zero bits. The average work required is exponential in the number of zero bits required and can be verified by executing a single hash.”

    I realize that they mean work in a different way, in this case to prevent hacks. But many other statements corroborate this view, that the cost in CPU cycles is essential to bitcoin (which is not to say that cost is the only or primary characteristic). Here is another quote from the same wikipedia article:

    “The steady addition of a constant of amount of new coins is analogous to gold miners expending resources to add gold to circulation. In our case, it is computing power and electricity that is expended.”

    Clearly, bitcoin per se and its technology as such have nothing to do with the labor theory of value. It simply is. The question is whether people’s support for bitcoin is based on it.

    I think we mostly agree regarding language, but I will add that even alone on a desert island one still has need to form concepts. Words are the means of referring to and using concepts.

    Marketability is a broader concept than liquidity. There is marketability in the large, which is liquidity. There is also marketability in the small, which is hoardability. I think marketability is closer to the issue (which you raised) of transaction costs, specifically the bid-ask spread. Marketability in the large refers to the widening of the spread as quantity offered or bid increases. The most marketable commodity (gold) has a spread which widens the least. Marketability in the small refers to the widening of the spread as the quantity decreases. Silver is the most hoardable, because for the value of 10% of a man’s weekly wage, silver has the tightest spread. I couldn’t find a bid and ask quote for BTC…

    The question I wanted to address was: is Bitcoin money. It sounds like you agree, it is not. Though I am puzzled that you think gold is not money either. Gold is the extinguisher of debt. Payment in gold is final payment. There are some transactions for which payment in gold is the only acceptable payment, for example the marginal saver sells his bond out of protest of too-low interest rates. Only the gold coin will do, there is no form of paper that will work in this case.

    Before I segue into the area where I think the main disagreement lies, I want to note that I am not “against” Bitcoin. Nor am I contending that it doesn’t work, there is no use for it, etc.

    I made a statement that I see now needs clarification. I said:

    “The terms on which one can exchange Bitcoin for a good of known fineness are not known.”

    In June of last year, a Bitcoin could have purchased about 0.0031 ounces of gold. Today, it’s about 0.025 ounces. Bitcoin is not a redeemable currency, like the dollar prior to 1933. Unlike the pre-1933 dollar, Bitcoin’s value in exchange is subject to wide fluctuations (as has occurred since June).

    Bitcoin is not redeemable, which was my point. It is acceptable in trade by a growing number of people, which I think is yours.

    As to network effect, clearly that’s growing. Inertia, well, right now we’re in a deliberate and controlled expansion of credit across the globe. Let’s revisit when the next real crisis hits.

    Thanks for posting your thesis. I can’t make any promises, but I will try to find the time to read it.

    • Peter Surda says:

      The “proof of work” is merely a technical label. What it means is that there is a relationship between the amount of computer calculations and the length of the blockchain at a specific time, and this relationship has certain statistical properties. Bitcoin has a further feature, that the proof of work scales so that the increase of supply (i.e. the length of the blockchain) follows a predetermined path. The side effect of this is that the production costs scale to match this path. In other words, the idea behind the proof of concept is to influence production costs, not the market price. The market price is, as with all goods, determined by the interplay of supply and demand. But because the variable production costs scale, the result of these two factors (adaptive costs and market price) is that the marginal production costs closely follow the market price. Exactly as the Austrians predict that commodity money should behave.

      It has nothing to do with labour theory of value.

      I humbly disagree with your distinction between marketability and liquidity, but I am baffled by you not finding a bid/ask spread for Bitcoin. You really should do more research before talking about a topic. Check out .

      Money, in the Austrian perspective, is the most liquid good, something that everything trades against. This only fits national fiat monies. Gold is not traded against everything. I never used gold to pay for anything or settled debt with it, but I used Bitcoin both to pay and to settle debt. Both are liquid alright, but are not money. There’s a guy on youtube makes videos where he tries to sell gold to random people, but noone wants it.

      I doubt that even you use gold to settle debt to a significant level. You probably use fiat to settle debt.

      Bitcoin is not redeemable because it is not debt or contract. It is a pseudo-commodity. Its price fluctuates alright, but the absence of fluctuations is not a defining attribute of either a medium of exchange or money. Bitcoin is at a very early stage of maturity. But for commodity money a visible maturation period is a necessary aspect. It is unrealistic to expect that commodity money springs up fully mature overnight, and when you wake up, suddenly everyone uses something else. Economists have long speculated how commodity money evolves. But now when they see Bitcoin actually evolving, the typical reaction is that “this is not how it works”. I find that, for the lack of a better term, absurd.

      What you need to realise is that immaterial goods exist, and they can have a comparative advantage against material goods. There is nothing fundamental in material goods. I think that it is more likely that Bitcoin will become money than that gold will become money (due to transaction costs), but this is an empirical issue and I’m trying to make general praxeological arguments. Praxeologically there is no issue with Bitcoin. Empirically, that’s a different question and a more difficult one and for a longer answer.

  6. Keith Weiner says:

    Thanks for your further comment, Peter.

    The key point, I think, is how one defines money.

    Gold today is not a typical medium of exchange, because governments have enacted coercive laws to prevent it (though it is interesting to read recently of several countries trading for food and oil with settlement in gold). This is indisputable. But is this critical to the definition of money? I will note that there is never any such thing as a “glut” in gold. In all other commodities, if rising production results in increasing inventories, the price collapses. This does not occur in gold; the market is willing to absorb new gold production without any particular limit. This is one essential characteristic of money. Note that money is not something of (artificially capped quantity).

    Phrased in other words, can government law repeal or supersede natural law?

    Another point on which we do not agree is whether an “immaterial good” is a “good” in the sense that money is the most marketable “good”. A discussion of this is way beyond the scope of a comment thread, but suffice to say I do not think Bitcoin is a “good” in this context.

    If you insist that gold is not money, then I am baffled and won’t continue to try to persuade you.

    • Peter Surda says:

      Why is the definition of money relevant? Bitcoin decreases transaction costs and thus has a utility and a comparative advantage. Why is it relevant whether it does or doesn’t fit into the definition of money? It isn’t.

      My point that gold is not money was merely following from the Misesian/Rothbardian writings. I don’t actually think it’s important in the debate of Bitcoin, I was merely reacting to your points.

  7. Keith Weiner says:

    One additional thought re: a physical good. Man has a physical body, lives in a physical world, and requires physical values (e.g. food, water, clothing, shelter, etc.)

    At the end of the day, things are settled in terms of a physical good. Until that point, settlement is pending.

    • JR says:

      If money is defined as THE standard of quality, the only ‘Gig’ you need expend is to ask; Is Bitcoin THE standard of quality? The answer is no & all in three lines!

      “In all other commodities, if rising production results in increasing inventories, the price collapses.”

      I don’t think this is strictly true Keith. The price depends on the bid, so the correlation between increasing supply & price is not necessarily so direct.

    • Peter Surda says:

      The situation is slightly more complicated (I was actually thinking a lot about immaterial goods before I started getting involved in Bitcoin). I don’t want to divert too much as the debate can become too complex.

      All human action is physical. There is no immaterial human action. All goods also must have material components, goods that do not have material components cannot be an object of human action. Immaterial goods are merely interpretations of physical phenomena that occur in our brains. So, it is entirely valid to take both extremes: there are no immaterial goods (because we can only gain utility from physical phenomena), or all goods are immaterial (because only our brains can gather utility and that occurs as we evaluate). Take your pick. It does not really help with Bitcoin, it just confuses.

      Now, whether Bitcoin is a good, we can evaluate for example based on Menger. He provides four requirements:
      – existence of a human need
      – the good being capable of satisfying this need
      – human knowledge of this relationship
      – ability to use the said good to satsify the relationship

      Humans have a need to trade (as that increases utility, see Ricardian theory of comparative advantage). Bitcoin is capable of acting as a trade facilitator (it can be exchanged). People are aware of it (even though many pundits are oblivious to it, others are not). And, it is possible to control one’s Bitcoins (through the private key).

      Therefore, Bitcoin is a good. From this alone, it does not follow automatically that it fulfills the role well, but that’s a separate issue.

  8. tyonker says:

    The worst attribute of BTC as I see it so far is that the barrier to entry of competing crypto currencies is quite low, which should work to the disadvantage of the limited nature of the bitcoin. If it were to become universally accepted, copycats will easily be able to duplicate it. That in itself should give pause to anyone considering them as a store of value. The best attribute that I can see, is that as of the current time compared to fiat currency BTC is faring quite well in solving the coincidence of wants for a currency that is outside the reach of the “system”. I suggest that this is it’s most desirable trait. Whether one believes in the manipulation of the precious metals or not, BTC’s current rise speaks in favor of the perception of the buyers that for now BTC is doing a better job than fiat or precious metals on that score. I can’t see that marginal utility is any worse for BTC either. I for one could not see any burden in having to store a million BTC for a rainy day. In fact when comparing the cost of storage or of transaction costs, BTC is superior to precious metals and at least slightly better than even digital fiat, mostly because of the lack of need for banks to be involved. That fact in my opinion is the most relevant reason for the current apparent success of BTC. I am proposing that we should all be trying to understand the lessons we are being given by the BTC market in order to better understand the functioning of our current monetary systems and how they can be made to better serve us. I am in no way trying to promote or discourage the purchase of BTC, but they are we must admit for now, fascinating and I say, proof that we will someday come up with a system that incorporates the best of all of these competing monetary systems.

  9. houston6 says:

    In the United States the word money is legally defined first in the 1839 edition of John Bouvier’s Law Dictionary, which was adopted as the official dictionary of the United States Congress as follows: “Money . Gold and silver coins. The common medium of exchange in a civilized nation.” It is a basic axiom of law that a word once defined cannot be re-defined as that would convey the power to change the meaning of law and contract after the fact.

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