A Twitter exchange on Bitcoin caught my eye. I wade into deep waters of the debate, but first we need to agree on a definition of money.
What is Money?
Money is a commodity whose primary purpose is a medium of exchange.
For centuries, gold was money. It had other uses, but it was widely accepted universally as a medium of exchange. In places where gold is not available, other substitutes came into play. In prisons, cigarettes can serve as money.
Gold has industrial uses, dental uses, and art uses, but primarily it was used as a medium of exchange.
Fiat currencies have no use other than as a medium of exchange unless one counts currency speculation or gambling as a use.
Attributes of Money
Money is a unit of account, a store of value, and a medium of exchange. We can argue how much the dollar acts as a store of value, but all fiat currencies lose value over time.
In the case of the US dollar, the rate of loss is slow. Wages tend to rise over time as an offset.
The dollar is the most widely circulated, readily accepted money on the planet. Notably, central banks hold dollars and gold, not silver, not copper, not Bitcoin.
Properties of Good Money
Good money is scarce, easily divisible, easy to transport, difficult to counterfeit, and durable.
What is Bitcoin?
Bitcoin is a digital commodity whose primary purpose is speculation. A secondary purpose is fraud, money laundering, etc.
Bitcoin is seldom used in transactions as a medium of exchange. That rules Bitcoin out as money by any reasonable definition of money.
Bitcoin is not a unit of account. Nothing is priced in Bitcoin. Bitcoin is a store of volatility not a store a value.
Bitcoin has many properties of good money. But having some properties of good money does not make Bitcoin money.
Bitcoin flunks the medium of exchange test but medium of exchange is the key thing.
What Does Bitcoin Fix?
Can Bitcoin Be Confiscated?
Caitlin says ” So, what is bitcoin to me now? It’s digital gold that cannot be confiscated. It wasn’t always that to me (eg, in 2014 it was a cheap payment method; to many people living in countries without low-cost banking services today, it still is a cheap payment method). But to most people today, base-layer bitcoin isn’t about low-value payments anymore–due to tx costs, it evolved to be digital gold to some (including me), or a hi-vol trading asset (to others). Bitcoin has roughly the same inflation rate as gold (1.74% now), and after the halving in April, Bitcoin’s inflation rate will fall to 1.1%–at which point it will be the scarcest monetary asset in human history. If you think the USD system will produce an inflation rate of less than 1.1% perpetually from here forward and will forever be systemically stable, then by all means please don’t spend more time on Bitcoin.”
Not Digital Gold
Bitcoin is not digital gold and it can be confiscated. Does anyone really believe Bitcoin cannot ever be taxed to death?
The higher in price Bitcoin rises, the more likely it will be taxed hard. In cold storage, no one can touch it, but of what use it that?
Governments could ban transactions. That’s not “confiscation” but if the US did so and Europe followed, it would immediately render Bitcoin nearly worthless.
Every time I mention that, I get scoffed at. However, if the US Treasury ever told merchants to not accept Bitcoin, none of them in the US would. And it would be extremely difficult to convert dollars to Bitcoin or Bitcoin to dollars. It’s foolish to think otherwise.
OK, sanctions fail. But those caught circumventing sanctions end up in jail. Will you fly to El Salvador to use your Bitcoin? Converted to what? How?
Bitcoin’s Fatal Flaw
The fatal flaw of Bitcoin is that it was designed to be money, but it is not money!
Other than direct peer-to-peer barter, Bitcoin must be converted to fiat to use.
Occasionally, I see people promoting they no longer use dollars for anything. If they believe what they say, then they are ignorant of what’s happening. In nearly 100 percent of cases, any merchant accepting Bitcoin immediately swaps that Bitcoin for money.
Every purchase made with Bitcoin is really a preference by the Bitcoin holder to have some good or service instead of Bitcoin. The same is true for dollars. But there’s a difference. Because Bitcoin is not money, only speculators betting on appreciation hold it.
Speculation makes sense in places with high inflation. Elsewhere, belief that the price will always go up is at best debatable, if not outright foolish.
Monetary Evolution in an ETF?
That struck me as both accurate and funny.
Ben Hunt Chimes In
“For starters, there’s $28 billion in Grayscale bitcoins available for sale. Maybe cap gains will keep some of that in place for a while, but eventually it all goes to a lower cost asset exposure vehicle.”
No Criticism Allowed
The above Tweet has nothing to do with Bitcoin, yet, everything to do with Bitcoin.
Anyone who criticizes any aspect of Bitcoin is instantly attacked or branded as a fool who “does not understand Bitcoin”.
The only people who understand Bitcoin are those in the BitcoinTribeTM. If you don’t belong to the tribe, you cannot possibly understand.
The following Tweet is a great example.
Buy Bitcoin and Get Rich
Option A, find reasons to argue against #bitcoin, get poor and angry.
Option B, buy #bitcoin as it is magic Internet money and get rich.
Bitcoin Part of the System
Some of that article is paywalled. What isn’t paywalled is worth a read. But I can sum it all up in two sentences.
“Bitcoin is a special-interest group. A lot of people’s wealth now depends on mass adoption.”
The second sentence says what’s really going on. The early investors want and “need” more believers so they can cash out.
This explains all of the ridiculous $1,000,000 price targets “coming up soon”. They desperately need more people (many millions of them now) buying tiny fractions of a Bitcoin so their handful of Bitcoins will be worth $5 million or whatever.
Noah struggles with a definition of Bitcoin, but I don’t, as defined above.
Bitcoin is a thing you can own and trade. But beyond that, no one really seems sure what it is, exactly. It was conceived as a means of payment, but almost no one really uses it to pay for anything. Some people think of it as an inflation hedge — a sort of digital gold, insurance against the collapse of fiat currencies. Others think of it as a sort of tech stock — the basis of a future flowering of decentralized finance and other crypto applications. Still others believe it’s just a worthless fad or ponzi scheme.
Bitcoin is not a Ponzi scheme. But a comparison based on the need for more and more buyers at higher and higher prices seems striking.
I have to laugh at Noah’s worry that Bitcoin would cause an institutional breakdown.
Yet, that is precisely the expectation if not outright hope of many proponents rooting for the dollar to go to hell ASAP setting off a wave of hyperinflation benefiting Bitcoin.
Great for Oppressive Regimes?
A widely-circulating claim is that Bitcoin is great for the poor people in Africa, Venezuela, or wherever.
The theory is Bitcoin offers an escape for the poor suffering from the ravages of hyperinflation. Via the Lightning Network Bitcoin can be sent anywhere easily.
Great. How much spare money do the Venezuelan poor have to convert to Bitcoin?
The answer is almost none. The Average Monthly Salary in Venezuela from January 2022 to March 2023 is $145.
If someone was able to save 10 percent every month (unlikely), and put it all into Bitcoin, they would have $174 worth of Bitcoin plus appreciation.
That is certainly better than holding a Bolivar headed to zero, but adoption of Bitcoin in poor countries (even if that happened), would not do a damn thing for the price of Bitcoin
What is the Supply of Bitcoin?
As of January 14, 2024, the supply of Bitcoin is about 19.6 million coins.
The demand for Bitcoin is the same, 19.6 million coins. The rate of increase in Bitcoin supply is determined by a process called halving in which the rate of increase of new coin issuance by mining periodically drops in half.
The maximum supply is 21 million. In the year 2140 (approximately) mining stops and no new coins will be created.
Supposedly, transaction fees rather than mining competition will will hold the integrity of the system together. To that I say, yeah, right. However, 2140 is far enough away so that no one gives a damn right now whether or not the transaction fee idea is remotely feasible.
The above math is slightly off because there is a pile of lost keys. Estimates are on the order of 3,000,000 lost coins. That makes final supply about 18 million and current supply about 16.6 million.
Bitcoin is Not Getting Scarcer
Contrary to popular myth, Bitcoin is not getting any scarcer although the rate of increase of coins is dropping.
False Promise
The false promise is that Bitcoin will soon be money. I initially wrote “false hope” but it is much more of a promise the proponents are selling.
Get in Now! Bitcoin is money. It’s not to late. A halving is coming up. The ETF is not priced in. Bitcoin to $1,000,000 soon!
It’s nearly 100 percent certain that no meaningful governments will adopt Bitcoin.
Why would they?
Two Key Things
- No central bank or government will ever give up their ability to inflate at will.
- No central banks wants money supply determined by an algorithm that stops in the year 2140!
It is delusional to believe Bitcoin can overcome those two points. Thus, Bitcoin will never be money.
Where is Bitcoin Headed?
The Only Reason
Silly Comments
“The only reason Bitcoin is not already trading at $60,000-$80,000 now is because there is a 1.3% chance the spot ETF is not approved in January. Once this slight doubt is extinguished on approval day, BTC will absolutely rip higher. The kid analysts and traders who say this is a sell the news event have no idea how the institutional investment business works.“
If Alfred was correct, Bitcoin would be $60,000 to 80,000 right now.
All such predictions are made by cheerleaders promoting an idea. At best, they are talking their book and beliefs. At worst, they are charlatans who purposely promote BS hoping to profit from it.
I believe Alfred is just talking his beliefs. But does it matter? Is wild hype really helpful to the special interest group?
The Real Deal
Here’s the real deal. He doesn’t know, I don’t know, and no one else does either.
However, I do know that it’s extremely unlikely that Bitcoin will ever be money for reasons stated.
Thus, Bitcoin will remain a digital commodity whose primary purpose is speculation.
If you are looking for hype idiocy, here you go: ‘Bitcoin to Hit $1 Million in Days,’ Says Samson Mow
Should Anyone Care?
Bitcoin could crash. So what? So can the stock market. Speculation is high in just about everything including home prices. The SEC should worry about fraud and systemic risk.
Bitcoin is not a systemic risk although it could become one if the price got high enough. Ponder that for a bit.
Bitcoin has crashed many times but also recovered to new highs. Perhaps it just drifts between $20,000 and $67,000 for years. Regardless, the past is no guarantee of the future.
Curiously, a stable Bitcoin would be the best thing that could happen to it. Transaction use would jump. But that is not what the BitcoinTribeTM wants or expects.
For now, Bitcoin will survive as a speculative vehicle (perhaps at the mercy of Blackrock and option betters) unless and until governments are ever fearful of it.
If that were to happen, or if Bitcoin did become a systemic risk (think Silver and the Hunt Brothers), it would be lights out by taxation or transaction bans.
My guess now is that won’t happen. Why? I doubt Bitcoin ever gets high enough for the Fed or government to fear it.
But I don’t know, and no one else does either. Ironically, most of the true believers who think they understand Bitcoin don’t even understand the bet.
Satoshi Nakamoto set out to create the GreatestMoneyEverTM. Instead, he created the greatest tool for speculative mania in history. The BitcoinTribeTM does not understand the difference.
Thank you so much for sharing such a helpful article. It’s been incredibly valuable.
Bitcoin miners are currently engaged in a race to navigate the upcoming “halving” event scheduled for 2024. This periodic update substantially reduces mining rewards, the newly generated tokens that serve as compensation for miners who validate transaction data on the network. This reduction occurs every four years, ultimately leading to the cap of 21 million tokens around the year 2140.
Amidst this dynamic landscape, there exists a compelling investment case for individuals considering stocks in publicly-traded companies dedicated to the cryptocurrency industry. This includes entities like Centralised Cryptocurrency Exchanges (“CEXs”) and manufacturers specialising in crypto-specific hardware.
The impending halving event implies a significant adjustment in mining economics, with the primary revenue stream for miners shrinking from 6.25 to 3.125 bitcoin. This reduction underscores the importance of strategic planning and operational efficiency for miners actively involved in processing a specific amount of data.Are you ready to know about bitcoin mining ,investment , reach out to Cryptobinaryexpert AT Hotmail.Com for additional knowledge
Every kind digital ‘money’ is an illusory Naked Emperor. Digital ‘money’ can easily be used to back up & enforce a Chinese style social credit system. I believe US currency is being degraded, inflated & being turned into it’s own illusion is so that physical currency can be totally replaced by invisible digital money. .
All this talk of digital & fiat money is part big brother’s plans for how it can be used to subdue & control national populations.
I am NOT convinced it’s some kind of stroke of ‘genius’ to trade my freedom & civil rights for the convenience waving your hand in front of a retail store scanner, your car to start it, your front door & on we go, down a big bro rabbit hole. BB can jerk that diggy money’ away at it’s leisure.
If I have to choose between the small inconveniences of physical currency (backed again by gold I pray) and the ease of waving my hand in front of a Big Bro scanner, I take the physical $$.
Digital money is a trap I don’t want ANY part of. The social conditioning & propaganda are just starting. BEWARE!
SamFox
»gold was money … widely accepted universally as a medium of exchange«
Historically speaking, it is truer to say gold was a store of value.
It tended to be hoarded and lay inert.
Paper with gold as “backing” was used a good deal more, as was silver.
Except for turbulent periods, gold tended to stay put wherever it was.
BTC was interesting in 2012. That’s when it was being used to buy & sell stuff, effectively a dollar priced medium of exchange since it had to be converted from dollars to be used. The price was cheap and didn’t move around much. Volatility entered the scene once it started trading above $1. That was the end of BTC as money.
Gold has been used as a medium of trade, not money. Silver was always money until quite recently. People used silver or silver-based paper for all transactions and savings. Gold vs silver was always a problem and the US struggled with bimetalism until 1933 when it simply ended the conflict. European countries did not because they kept their gold & silver strictly separate: one for trade, one for currency.
As usual, (this is in regard to Bitcoin and pretty much nothing else) I completely disagree with your dismissal of BTC as money. And when the current fiat money collapses in a great and calamitous ‘taking’, the world will start to urgently look for something – anything that might allow them to avoid the CBDC nightmare. And until and unless we find a way to make real gold portable and acceptable as payment for a big mac, what’s the alternative? I’d love to see you refute the arguments Cardone makes here. link to youtube.com
Why not make the case for why Bitcoin is money or currency or whatever?
It’s all very well disagreeing… but on what points? Why?
Watch the video. Just one point it makes: while USD is guaranteed to continue to decline in value until it gets simply fades away, Bitcoin will continue to gain in purchasing value. In fact it’s only when you measure BTC against USD that it looks volatile. Measured against things you could buy with it, it’s stable and rising, and will continue to be so.
Huh I don’t understand “measured against things you could buy with it”. Those things are priced in dollars (or other currencies), which BTC is as well, so volatility is the same.
Oh Mish. You make some good comments, but I think you miss the key point. A few reactions:
You are not describing money or even currency.
Remember that gold is money in units of mass, grammes or ounces.
That took time and energy to create.
Bitcoin took time and energy to create, but it is not in units of mass, but in units of fiat currency, which are just contracts and derivatives of gold.
Gold of course is a derivative of money, and as a money system of value is units of mass that meaningfully relate to and express time and energy used to create a commodity that can be assigned a value based on mass, and then have contracts issued as derivates of it, that can be used as currency. Bitcoin doesn’t do that.
As JP Morgan is reported to have said: “Gold is money; everything else is credit”.
A lot of bitcoiners love to mention how much electricity goes into mining a BTC. That’s like saying a trench is worth far more dug by hand than by backhoe because the digger worked so much harder and longer!
So, Cigarettes is money? But Bitcoin is not?….. I suppose anyone’s entitled to… exactly what again?
Bitcoin is absolutely a means of exchange. In several markets, vastly larger than whatever prison cigarettes may have served as money in (say Silkroad…), Bitcoin was pretty much the only viable medium of exchange. Still is, although such markets are more decentralized now.
As for “stability”, how “stable” a unit of account are cigarettes? I mean, they literally go up in smoke!
Bitcoin has all the attributes “required” of money. It wouldn’t have launched otherwise. Which does, of course, not automatically imply that it will immediately become the preferred money for all people and all uses.
Bitcoin’s only 15 years old. How long after it’s initial appearance did it take before Gold, or tobacco, became popular as money?
Bitcoin has “issues.” It was the first distributed ledger currency. Launched in an era when, among other things, computing was “done differently.” There has been lots of learnings since then. And it was also launched with primary concern for whether it would actually work at all, for a sufficient number of transactions to effectively serve as a proof of concept. Very little thought, beyond some flippant reference to “computing improves exponentially”, was put into possible issues which could appear when trying to scale from a multi billion ecosystem to a multi trillion one.
Major issues are, as many point out, for one: The extreme concentration in the hands of accidental early adopters. “Satoshi” himself may have stayed away from “making moves” for long enough that his accounts may be considered permanently abandoned. But there are still plenty of early accounts big enough that excessive concentration is potentially destabilizing in a fundamental way.
In hindsight, minting should not have been nearly as front weighted. But in 2008? Coins were worth almost nothing. In order to entice anyone to sell anything in exchange for them, as well as mine them, those anyone’s would have to be incentivized with a lot of coin. Even a meaningful share of total issue. That did end up working. But it has now come back to haunt Bitcoin.
In 2008, “The Cloud” was not such a big thing yet. Computing were still “priced” in how many/powerful chips you had. And Bitcoin was mined in a distributed fashion. So, the thought went: All these end users, add up to much more processing power than any single monolithic entity could amass……….
Except for a few, again largely unforeseen/ignored/not-considered-at-the-time issues..: The Prof-of-work-function is too darned simple. Again, Bitcoin was a math proof. Along the lines of “there exists a way….” So the POW was picked accordingly. Not for reason of deep concern for ensuring it properly exercised the entirety of the instruction set of an end user CPU, thus reducing the risk of centralization. Resulting in: it quickly became more efficient for budding miners to buy GPUs (graphics cards) to mine on. That put the initial crimp on the distributedness of mining: You’d have to be more than a regular end user, to mine on GPU. Then ASICS (physical hardware designed specifically for mining) were released, on the back of the first valuation boom. Which put the final nail in the coffin of the idea that coins would mainly be mined by “the community” in a fully distributed fashion. Instead centralizing mining in “farms” with access to cheap power and network. Or subsidized-by-”illicit”-money power and network.
Simultaneously, compute power in general, was also moved back into the server room. In the form of heavy workloads being moved back to big, public clouds. Away from distributed endpoints which users were carrying with them. Resulting in technological developments which tended to further centralize mining. Such that these days, the only real distributed mining left, occur in places where buying coins are illegal/dangerous, such that people are willing to pay well “above market”, just to obtain coin in the safety of their own computer. Never mind them being fully aware that their computer uses $2 in electricity for every $1 in coin obtained.
Another decision which looked reasonable, even necessary, in 2008; was to focus on fairly quick and low cost settlement. After all, what good would the new money be, if transactions didn’t settle at least somewhat timely. And again, Bitcoin was a success. Transaction settlement wasn’t “hand over a wad of $20s” fast, but they were quick enough for pizza stands at Bitcoin conferences. As well as for buying a bag of weed. Not to mention e-commerce. Of course, that only worked for transaction volumes insanely lower than what VISA handles. Fully distributed processing of transactions, get exponentially more intensive, as volumes go up. A lot of bright people made a lot of progress, but ultimately, it’s really hard to beat a single, monolithic ledger at an assumed trusted party. Gold has a similar problem: It’s just not viable to do high volume transactions by shipping Gold around between end users. Any “bearer” instrument suffers the same problem. Truly large volumes of small transactions, will probably never be possible, without a “trusted” central party.
And finally: Anonymity. To serve as a digital “cash equivalent”, Bitcoin would need to be anonymous. Initially, it was. But it quickly turned out the anonymity offered, was very shallow. Such that, for “regular” users; Bitcoin now effectively no anonymity at all. Naively, it’s even “worse” than credit cards; since with Bitcoin “anyone” can see your transaction history. Not just the privileged classes of banks and governments. There are mixers out there which can help, but none of them are fit for general consumption: They are expensive, a crap shoot, and make you stick out like a sore thumb to anyone watching, since so few are using them.
If Bitcoin2, say Bytecoin, was designed today; all those lessons would no doubt be heeded: Much longer and more gradual decline in issue to reduce concentration. Designed for provable anonymity; for everyone, not just those trying very hard for nudge-nudge reasons. More CPU-specific proof of work. Even if those last two would lead to less suitability for day to day immediate settlement of a trillion pizza slices on-chain. Instead, “Bytecoin” would be left to serve; not as digital cash, but rather as digital Gold. With a focus more on it’s suitability as a long term, anonymous, store of value. As well as for of settlement of large transactions. Rather than as a day-to-day digital cash equivalent. The latter use just isn’t very suitable for any distributed, anonymous ledger.
But still: Compared to virtually any other non-Gold which have been tried as “money”, Bitcoin has worked out rather well. It, and close derivatives, are still enabling settlement of transactions which which would be much more tricky in their absence. Many of those may nominally be “illegal” in some jurisdictions, but considering who gets to write so-called “laws” these days, that’s hardly a negative: A currency’s mettle is measured in how well it facilitates transactions between two transacting parties. One which only facilitates such transactions after first begging “permission” from some arbitrary self anointed “ruling” third party, is hardly doing a good job.
And, again: 15 years…… It’s still very, very early….
You are still describing currency… currency is a medium of exchange, not money.
Is Bitcoin currency?
Well, it isn’t traded much, not much is valued in it, and it’s usually valued in a currency called USD. There isn’t a Bitcoin economy. There is a USD economy, you could argue more than one, the USD economy of hte USA, and the USD economy or economies outside the USA.
Why is USD a currency and Bitcoin not? Well debt isn’t issued in Bitcoin, so that’s a problem. Bitcoin isn’t legal tender anywhere. There’s no backing of it – at least no open and transparent backing to it, such as a large industrialised economy with a legal system. So never mind all the “definitions of money” that are actually definitions of currency, before you even get to that point, you haven’t even got an economy in Bitcoin.
Is Bitcoin money?
Well, money is an intangible system of value, and what is value? It’s the product of, time and energy. It needs a currency “protocol” to be usable; but a currency “protocol” needs a value “system” to be meaningful.
Governments issue all kinds of things that are tradeable, like food stamps and securities, but their value is tentative and contingent on being usable in the future to release energy stored in some form (whether it’s in the form of gold, or oil, or cigarettes).
Bitcoin does take some time and energy to create, but to be money, it would have to be able to release something of use in the future.
The problem with Bitcoin, is that it is not a commodity, and as such, it has no intrinsic value.
So Bitcoin fails to meet the criteria for either currency or money.
So what is Bitcoin? It’s Rock n Roll memorabilia, Football stickers, an autograph book. Something like that. But it’s not money, and it’s not currency, and it’s not a commodity like gold. Claims for Bitcoin to be like gold or valued like fiat, only illustrate that Bitcoin doesn’t meet those criteria on it’s own – it leans on the stolen valour of those established commodities and currencies.
Monero, on the other hand, the child of Bitcoin, does have some intrinsic value: it’s ability to conceal. So if cryptojihadis argued for Monero rather than Bitcoin, they mighth have a slightly stronger case, but they are still failing to meet the currency threshold, so even Monero, whilst better than Bitcoin, is not currency, but it could be money, if there is value to you in concealing transactions.
Ricky, are you paying any attention at all? Bitcoin isn’t legal tender anywhere? There are no Bitcoin economies?
Bitcoin is legal tender in El Salvador – dual with the dollar.
And despite being legal tender and laws that it must be accepted, only 20% of merchants will take it.
Nearly all the Bitcoin accounts were created due to $30 free money for opening an account.
But only 1% of trade is kept in Bitcoin.
I’ll take your numbers at your word. It’s early days. Expect more growth in places like El Zonte, as well as places like African villages where Bitcoin is gaining use as a medium of exchange, and Bitcoin mining is enabling towns to have an electric grid they never had before. Look it up if you haven’t heard of that.
For this space, I’m expecting a lot of goalpost shifting in the going years. Good luck!
Go on and lecture investipedia… not my definition, but closer than yours:
“Money is a broader term that refers to an intangible system of value that makes the exchange of goods and services possible, now and in the future. Currency is simply one, tangible form of money.”
link to investopedia.com
Money is a system of value. Value in terms of time and energy used and stored for future use via a promise. A promise that is formalised into a contract, and contracts are the core of civilisations. A man and a woman promising to be mates, and property rights, originally passed by family inheritance: effectively a DNA ledger. It is only relatively recently that currency has emerged in a formalised sense.
Currency is medium of exchange, and all the things that you think money is.
When commodities like gold and silver were used, the metal was merely the transport layer for the system of value. Currency as a derivative of commodities like gold, is the seperation of that currency layer from that commodity transport layer, and yes oil, cigarettes, and cowrie shells can all be that transport layer.
We price gold and other commodities in currency, not the other way round – that’s because it’s not the gold that is the value system – i.e.: it’s not the gold that’s the money. The gold remains a commodity, that is useless and valueless in some contexts, as are all commodities and currencies, but money, is the expression of value, and that is constant, because it’s intangible.
Bitcoiners incorrectly believe that they have encapsulated the intangible concept of value in a hash code, but they are just as mistaken as those who mistakenly confuse the definition of currency with the definition of money.
Currency is not Money.
Price rises are not Inflation.
….still waiting for silver to get off its behind…..
Don’t hold your breath. Plenty of reasons silver is a poor currency, money, store of value, whatever
The future of Bitcoin, private property and everything else will probably be determined by the motley crew, The World Economic Forum over in Davos. They can talk about climate change, artificial Intelligence, digital passports and everything else, but the number one issue by far has always been about the escort services. Please check out today on zerohedge-Dark Davos:Escort Services Completely Booked as WEF begins.
Paradigms are more important than definitions because they are the ideas behind the system being analyzed, and in anomalous paradigms like we have now in the monetary, economic and financial systems, what enforce all of the anomalous realities that complicate and de-stabilize them. Please try thinking paradigmatically/conceptually. It clarifies, focuses and resolves unlike system’s analysis which only does the first two.
When you purchase Bitcoin, you are buying volatility. That’s it. It’s use is for trading, that’s all.
Cryptos are a pure speculative investment vehicle . . . they are not money and they are not a store of wealth . . . when the lights go out so do Cryptos . . . You own nothing . . . You choose . . .
Almost… the code can still exist in hardcopy form, and there’s always someone willing to take a bet on anything.
“ It’s digital gold” – probably one of the better descriptions. Pretty decent language to wrap around it, honestly. I’m probably a bit more optimistic on it’s ability to become more commonly transactable, but it’s a hard thing to classify. My gut is that economically it really does function as a gold substitute/competitor. Likely has the same trading fundementals – part inflation hedge, part currency fear, part financial instability/bank signal…
It’s both oxymoronic and moronic to call bitcoing “digital gold”… in the same way as it is to always value it in fiat currency – it is completely dependent on the credibility of other assets – gold and USD. Nobody calls gold “physical bitcoin” nor does anyone value and trade gold and dollars in units of bitcoin… QED.
What would it look like if a new monetary asset was monetizing from zero?
Frankly having my wealth tied up in something where if I forget my password, I lose it all is not very appealing from a personal point of view.
You now have an ETF to avoid that problem
I wonder what happens if the ETF gets hacked and the bit coins are stolen.
With stocks etc, if there is a hack the powers that be (banks etc) just recognize you as the rightful owner and put those stocks back into your account and freeze that of the thief (similar to what happens if someones steals your bank card and tries to and tries to transfer out money the thief’s account is frozen and yours is re-credited)
Bitcoin doesn’t current have a mechanism for that.
Yes that’s true but it negates one of the supposed attractions of bitcoin, namely that it is not under government control and certainly no longer has even a hint of anonymity.
Money is a claim on the productive capacity of a nation.
Sometimes and definitely in the modern era. But that would exclude the historical use of gold and other asset-based currencies.
Ridiculous, but I was confident someone would make that fool statement.
Money is not a claim on anything more than Bitcoin is a claim on anything or gold is a claim on anything. Money is a medium of exchange not a claim.
Divide available goods and services by the money supply. Each dollar represents a share. Mike, you are arguing semantics and engaging ad hominem. A “mediium of exchange” is a claim on available goods and services. Spend it however you please.
A medium of exchange is a currency, as the word almost implies.
I don’t agree entirely that an economy divided by each unit of currency is the definition of money, but it’s a lot closer than using the definition of currency to describe money – but then Mish doesn’t seem to understand what inflation is either. Mish seems to to think that inflation is price rises, but very obviously when you create more currency units without growing the economy at the same rate, you have actual inflation of the currency.
You’ve got to stop this Mike – nobody is insulting you for your contribution, even if it’s incorrect. You are incorrect about definitions in this instance.
Currency is a medium of exchange; Money is a system of value.
bonds are a claim on the future work of a states’ people, are they not? Who pays for them in the future?
What the H does Bitcoin have todo with bonds?
“Money is a medium of exchange not a claim.”
But an easily transferrable claim on a given share of the future work of a popuation of captive workers, both can be; and VERY commonly are; used as exactly such a medium of exchange….
Pretty much any, entirely arbitrary, construct, can be forced into assuming the role of money, if one party is assymetrically militarily powerful enough to force the issue of what everyone else needs to keep on hand, in order for him not to find and deem and judge and hold them “guilty” of some arbitrary “wrongdoing” “justifying” “punishment.”
OTOH: What ultimately ends up freely being adopted as a mediumof exchange, hence money, among a population of free, noncoercible, individuals; is constrained much tighter. And that’s what’s interesting. Not what arbitrary scrip some massa can print up at will, then force his slaves to work, for in order for them to avoid being whipped raw at the end of every day.
Medium of Exchange is a currency, not a money… money is a system of value that the currency is a derivative of, and depends on.
Wrong, a “claim on productive capacity” is a form of credit, not money.
The determinant is faith. Objectively, crypto is better money, as it disallows printing…. but like money, it’s worth exactly what the population thinks it is.
Disallows printing? Lol….see Tether.
You might be constrained in how much Bitcoin is “printed” but it appears easy enough to print alternatives. That’s what keeps me out of it.
Satoshi is effectively “moneyprinting” in bitcoin. What’s next if bitcoin was magically valued at $1M USD? “nano-satoshi”?!
Objectively it isn’t, for the reasons described in the article. Subjectively, it’s anything you like. They invented Satoshi… what’s that if not “printing”… just doing it by creating new smaller units rather than more of the same units!
exacltly! slice and dice into .00000000000000000000000000000010 of a shitcoin
Bitcoin is a tulip bulb, wrapped in an algorithm that is sold to the greater fool. It is not digital gold since gold is a buy and hold asset. Once people tire of all the hype surrounding Bitcoin, its price will collapse. It took tulip mania 20 years to play out. If bitcoin follows a similar trajectory it has about 5 more years before it runs out of victims.
Bitcoin is a great debate topic. The reality is, that Mish’s post highlights, is that when you strip away the evangelicalism associated with crypto and in particular Bitcoin, you are left with a FOMO speculation with zero intrinsic value.
Nothing has zero intrinsic value.
…wait …think about it.
Money is energy.
If you want to call energy a commodity, go ahead, but it isn’t really, commodities are made of energy, and store energy for future use.
The “medium of exchange” aspect illustrates that money is energy, because everything we do is a form of currency and an exchange.
If I make you a drink, I have used energy; and energy has been used to make the liquid, the glass, the bar, the clothes we’re wearing, the payment mechanism and system, the city and country and it’s infrastructure and bureaucracy. All is energy.
Money is time.
In the most ancient times, humans formed contracts – I give you food, you give me sex, is a basic one between men and women. It is present in most animals as a basic fundament of society. Contracts are debt/credit events. They are fundamentally dependent on time – a promise to do something in future.
Money is small slices of the economy comprised of energy expressed in contracts.
Hence inflation is when the amount of contracts (the currency) grows faster than the amount of energy (the economy), at some basic atomic level.
Those who go on about gold, bitcoin, cash, etc… are fundamentally missing the point about what money as a fundamental concept is. It is the way we ennumerate promises to repay and store time and energy, which is the fundmentals of life.
Surely that’s obvious?!
When those contracts became commodities themselves in the form of currency (i.e.: time linked to energy), then you had your first derivatives of money. So, “commodity whose primary purpose is a medium of exchange.” means not money, but *currency*; i.e.: a derivative of money. Those first fiat banknotes, were derivatives of stored commodity gold, but it is often missed that even gold itself is a derivative of a fundamental contract to store value; i.e.: a promise to give energy at a point in time.
No it’s idiocy. Money is neither time nor energy. Try spending a battery, the oil in your car, or a gallon of gasoline.
I concur Mish. This is why reductionist statements like Rinky’s are so silly. They can never see the forest through the trees.
Quite the opposite… if you don’t understand and define what value is, then what are you basing any definition of “money”?
This is more than a semantic issue, but you confuse “money” with “currency” – they are not the same thing.
No, try reading it again. What you are describing is currency… you can spend currency as you with, but currency is a derivative of money, which is an expression of time and energy used to make that battery and get that oil… products and commodities like those have value because of utility, and because of the cost in time and energy to cause them to be available to use. You seem to not understand what inflation or money is – that’s the idiocy.
Energy was money — in some localities in Weimar Germany after hyperinflation wiped out the money supply. I have a certificate from Wetzlar valued at 1 kilowatt-hour of electricity, valid for 3 months after date of issue in December 1923. I think it was good for a pint of beer…
Money is just a database of credits and debts.
No, a database of credits and debts is a ledger… a ledger is a record of currency, the currency is a derivative of money, the money is the expression value, the value is a function of time and energy. That’s your algorithm.
Money is a ledger. Money is a ledger that keeps track of who owes and who is owed in the aggregate. Money is just completely transferable IOUs. It’s quite simple and no need to mystify it.
There’s no mystification going on here.
A ledger is a record of transaction.
Money is not a ledger, money is the intangible system of value within which the ledger is used.
Again…
Money is an intangible system of value.
Currency is a tangible medium of exchange.
Currency is a derivative of money in the form of a tangible contract, such as an IOU.
Yes, ledgers record transactions of contracts, such as IOUs, i.e.: promissory notes / credit notes / bank notes / dollar bills etc…
The currency can be fiat notes, bananas, or gold coins, but the ledger records the transaction in whatever the currency is in the money system being used. Usually we use numerical credit notes, because it’s easier. The ledger is not the money, the money is the value system. Start with definiing what “value” is, and work from there.
Ultimately, value comes down to time and energy, and everything derives from it – hence money is a derivative of value; currency is a derivative of money; and so on…
It is simple, why are you getting it so confused?!
The IOUs are not your money, they are your currency.
The only reason I imagine this won’t blow up with comments is my guess is bitcoin maximalists don’t read your stuff :). However, I concur with your views and have laughed at the irony of the ultimate in freedom relying on the SEC and ETF’s to drive their bus
Thanks Andy, good call. Very little stirring of the tribe on Twitter.
Appreciate much of your content Mish and your input to the debate. Putting on my noise cancelling I see Bitcoin as a stable supply exchange medium with very easy to verify and exchange properties and relatively easy storage. What I think is missing in your comments is that if the number and influence of Bitcoin users/holders grows (due to the disheartening mismanagement of the dollar system) it could also grow to be tax/outlaw/confiscation resistant. Politicians and central bankers will not gladly accept alternatives like Bitcoin but what we see with Gensler’s SEC is they may be grudgingly forced to. You helped me recognize how badly our dollar system has been managed, please help people recognize alternatives will help strengthen our dollar system or potentially replace it if it’s destroyed by it’s managers. It’s helpful for us all to recognize the strengths of Bitcoin and how it can be made better.
Bitcoin doesn’t have that many strengths. Monero is a better crypto – it actually does something useful – conceal.
The number and influence of bitcoin users/holders doesn’t grow, you need to get out of your bubble, like those wedded to EVs and covid masks, and Ukraine war debt splurges.
Bitcoin is not a credible alternative to the USD – there’s no BTC economy!
sometimes a weapon (chose any example) has more power than a money (chose any)
The State has weapons (guns, police, prisons, rules, taxes)
if they “outlaw” something, they will use their weapons to subdue it.
You can’t have a currency or viable money without a legal system behind it to protect and enforce property rights. Bitcoiners are trying to imagine that value can survive anarchy just because they can hold the hash codes in their heads, and then hide away in bunkers in remote areas, whilst the apocalypse plays out beyond. This is a delusion and a misunderstanding of what money and currency needs.
“…SEC and ETF’s to drive their bus…”
Bitcoin fixes this….HEAVY sarcasm. 😆
Great post with quite alot to unpack.
I love how the proponents of Bitcoin use the phrase “have fun staying poor”. It’s a ridiculous statement to make, but it is a statment that shows Bitcoin has taken on religious like characteristics….at least in my view.
It’s been 15 years since Bitcoin came on the scene and it hasn’t achieved its intended purpose as detailed in the white paper (decentralized currency). That’s not to say that it couldn’t at some point in the future, but I see that as highly unlikely. How long will proponents continue to ignore this fact? See the paragraph above for the answer.
For me Bitcoin is way to volitle to mess with. To each thier own though….good luck.
Bitcoin is the economic equivalent of a protest vote.
It’s not that there’s anything wrong with crypto, it’s a useful innovation, and some have had nice lottery wins out of it, but it is just “rock n roll memorabilia”, not money.
Great comment Woodsie.
The scarcity value of bitcoin has made its usefulness as a medium of exchange worthless. Exchange needs liquidity to function but scarcity encourages hoarding. That feedback loop causes even more scarcity and more hoarding as the price rises liquidity falls and trading is concentrated into fewer and fewer hands. The only way out is to increase liquidity. Getting an ETF authorized is a step towards that if the holders of bitcoin do want bitcoin to become a real medium of exchange.
I’ll give you another definition of money: a claim against the production of society. The more money you have, the more you can claim. All claims are implicit or explicit contracts. And all contracts are enforced by the government’s power of violence. The “enforcer of contracts” is the purpose of government. That may be the mafia in some neighborhoods.
Neither bitcoin, nor gold, are claims against the production of society. And therefore aren’t money. Gold was for the very wealthy a long time ago, but is no longer. Bitcoin never has been nor ever will be, unless it is backed by the government. But for that to happen, it would have to be in the best interest of those who can control the government’s decision making. And that is highly unlikely to ever happen.
Prior to fiat money, most money was debt in the form of IOUs. A farmer would give a blacksmith an IOU against the sale of his future crops in exchange for fixing his plow today. The blacksmith could trade the IOU for food today or materials. That was money for the poor. And the IOU was an explicit contract for payment upon presentation, and enforced by the government.
A lot of what you are saying aligns with what I posted above. I suggest that you are describing derivatives of time and energy, as I described. If a model, your IOU layer would be layer 2 or 3, and things like commodties, and their currency derivatives, are higher layers in the model.
You are just saying that money is a measure of entropy which sounds cool to some but has no practical application because kit is too far removed from reality.
It’s the very essence of practical – when we do anything, we are using something (time and energy), we are transfering to somewhere (a medium or a person), it’s not an attempt to be cool, but to define.
I’m not a bicoiner… and my argument is not one for that crowd… I am making the point that people keep describing currency when they talk about money, and that’s where the confusion begins.
You want to say that what you are paid is directly related to how much energy you put into the job?
No… and that’s where inflation and price fluctuations come in.
..and also price rises (which are often determined by relative scarcity as well as time and energy, and derivatives of time and energy, such as training and resources).
You get price changes when there is supply glut or lack; but that is not inflation. You get inflation when currency units are created at rate greater than the growth of the economy (and demographics often plays a big role in the growth of an economy).
However, it is observable that in most stable economies, the minimum hourly wage tends to be close to the cost of one meal.
The claim system Jon mentions is real but it is a description of “Credit”, not “Money”.
Most of the planet has been in a Credit-based financial environment for so long that nearly everyone has forgotten the difference. But Money differs from credit because it has intrinsic value already, it’s not a claim on anything. Credit is a claim on value, but the physical tokens that represent Credit have minimal intrinsic value.
Up until the 1960s, a “silver dollar” was money … but not because it was a claim on anything, merely because the silver inside the coin had real value. Those same silver coins today, 60 years later(!), have about the same intrinsic value (relative to other goods and services), even though they are no longer used as currency.
Put a different way – if a legal change can destroy the value of something, it’s credit not money.
The 20th century dollar bills make a good example. The dollar was for a long time a legal claim convertible to 0.05 ounces of gold ($20/ounce). It wasn’t money because suddenly in 1933 it was devalued to $35/ounce (.0286 ounces), and then later in 1971 the dollar was de-linked from gold altogether. Today a dollar bill only buys about 1/50-1/100th what it did in 1971. But the .0286 ounces of gold still buys nearly as much as it did in 1971. The dollar bill was a “claim against” something, but it was only credit. The gold itself is not a claim against anything, it’s just a lump of rare metal, but it’s money.
Good article Mish! Yes, it’s a digital commodity used as speculation. It seems to attract interest when the speculative stocks have a run or at times when there’s interest in gold (global conflict or economic reason).