Wow. As a
newbie member this is certainly not the conversation I expected to find here!
I think DTournier was the OP, and asks/answers "What is money? is Bitcoin money?" I happen to have read and thought a bunch about money (and some about Bitcoin), and wrote a little note about money back in 2012:
Canadian MoneySaver Article | Bacq2Bacq: Ben (and Xty's!) blog (link to PDF of published article there...)
Here's a little dose <rant on?>:
- There is plenty of disinformation about money and finance out there. Most of the people practising in the industry literally don't know what they are doing, because the financial flat-earthers have been doing the teaching and preaching for so long. Money and currency are really not that hard to understand. But, perpetual-motion machines, for example, are pretty hard to understand and explain, because they violate laws of physics. This is why a lot of people are confused about things financial right now. Most of us have been in Plato's cave being taught about perpetual motion on this stuff for so long we squint and blink and disbelieve when we are shown the light. Lots of people with advanced degrees in economics or finance are unable to understand anything resembling truth about all this. Russell: "We are born ignorant. It is education that makes us stupid." There are a few good guys I know of out there: Russ Roberts, Nassim Nicholas Taleb...
- "Money" is an idea only, "the centroid of value". Just like other ideas about our physical world, like mass, acceleration, velocity. We knew all about these ideas eons before they were made concrete and given vocabulary by Newton. We grabbed the spear, hefted it, and launched it in a perfect parabolic
arc towards dinner. Paleolithic Man understood these ideas perfectly, we just hadn't made them concrete and expressable yet.
- "Currencies" are the things that make that money-idea expressable and concrete, and conveniently manipulable using equations and (potentially lying!) statistics. The goods that are most liquid (and best meet some of those typical requirements OP posted) at a point in time and space evolve into currencies. I choose the word "evolve" carefully, because currencies are in fact selected-for. Even when imposed by act of fiat, it is in the end market participants who choose, or not, to use it for
trade, even if it is just a particular coercive authority insisting on having its rent paid in one particular currency. When our fiat fails, it will be because of market rejection, not that someone or some
government made it so.
- It may seem pedantic, but when people talk about "money" they are usually talking about a specific currency.
- Bitcoin is a currency. It's not a fiat currency, by my or other common definitions, as there is no coercive authority insisting we use it. Bitcoin is indeed limited in supply.
- For a while, the flat-earth financiers maintained the fictional notion of a "money supply" of fiat debt-based currency. I used to see published measures of M0, M1, M2... all measuring debt of various maturities to try and get a handle on it. They've largely given up. When currency can be created through opaque and complicated derivative-swaps for example, the supply is no longer a knowable quantity.
- In Man's history there have been *lots* of different goods selected-for (naturally or un-naturally) and used as currency by markets. I noted a few in that article. Bitcoin and cryptos in general though have some very interesting properties. Assuming we have a free
internet, that is. Without a free
internet, their value plummets.
- As an aside (feel free to try to refute! I don't know of any...) every
single instance in history of un-naturally imposed fiat currency has imploded. The metals have all survived to this day, but it was evolution and natural selection that picked them. Someone earlier posted that gold, like bitcoin, has no intrinsic value. Quite wrong, No, it is in fact the best conductor of both heat and electricity, extremely inert and malleable, and I could go on and on, but what markets long ago decided was that the precious metals had greatest value to various local economies as currency (read about currencies' economic value in reducing N^2 pricing and simultaneous-need in that article) Much of the value ascribed to various precious metals continues to come from their currency-value, but not all.
- It is extremely important when asking and trying to answer questions about complex systems that one carefully consider scale. Much "disagreement" is rather a failure to properly consider scale. Things that are true at one are not always true at another. I fully expect the electron occasionally to be on the wrong side of the quantum-well. I never expect to see my car suddenly appear in the the driveway after I park it in the garage. (Note: my
kids have all already left home...)
- Many (most?) economists, financiers, etc are still stuck with a very Newtonian mindset about how the world, and their branch of it in particular, really works. Newton's world is very predictable, and gives one a marvellous feeling of being "in control" when we are lucky enough to be operating at a scale when it all works, but the model just doesn't apply at most physical scales. Control mechanisms that
work well at local scales usually don't
work well at global scales.
- Our more recent
learning from quantum, relativity, non-linear dynamics, complexity, chaos and information theories are yet to really penetrate the models of reality that exist in most people's minds. It's hard for egos to handle it, as it requires admitting that we really truly are in control of very, very little, and that we actually understand very, very little, at least, in that way that allows us to make accurate predictions about the future of complex systems. A quark is a system. So is a galaxy, and so is everything in between, including human societies and economies, and their currencies.
- Before we had the technology that enables Bitcoin (everything from wire and transistors and microprocessors to the IP protocol and distributed cooperative routing and computation, to the latest discoveries in math that allow shared truths to be known) there was great social value in having order imposed on societies. We lacked an efficient-enough means of communication to allow order to spontaneously emerge as we see throughout nature, so hierarchy and coercion was a way to scale human operations efficiently.
- There has been great value in the last hundred years to a very small subset of humanity in ensuring that both common-folk and "experts" alike remain stupefied (as opposed to "ignorant"...) of the true nature of today's currencies, banks, means of trade-settlement, etc, as it serves to enrichen some at the expense of others. This doesn't mean that there is necessarily some "conspiracy". Once shared self-interest is in play, it may have all the appearances of conspiracy, yet everyone is just acting on their own. Every neuron in your brain acts on its own yet they conspire to cause you to think.
Having said all that, we don't have to just throw up our hands and think it is all impossible to sort out. But we really do need to take some steps way, way back, and re-analyze a great deal of what we have been taught, as most of it was conceived while the world was in a very Newtonian frame-of-mind, and history is also always at first written by the winners, until sensible folk come along to tidy up the mess and
paint a more accurate picture.
The way nature works is through patient but uncaring iteration, evolution, and natural selection. And man is not above and immune to her laws. Math is quite natural, and we didn't invent it, we discovered it. What does the math tell us now?
Well, first, that order is an emergent phenomenon, and if we try to impose order on a system, it takes energy. We should not be surprised that, faced with coercively-imposed fiat currencies in their death throes and madness in markets that a new specie of currency (pardon pun) should evolve. If it hadn't been "Nakamoto" and Bitcoin it would have been someone/something else.
Just as the distributed and free and cooperative and largely democratic principles of the Internet have now allowed dramatic improvements in economic efficiency, so too might distributed, free, open, public ledgers and currencies deliver superior value based on nifty new math. Yes, for example we would not right now be jumping through hoops to "de-register" and "re-register" our
boat with US and Canadian national authorities if we had, say, an "ether-boat.org" public crypto-ledger. "Click." A subsistence
family could live for a year on the savings. Efficiency matters, if you value human lives, anyway.
While in the past there was great social value in imposing order through coercion, Nature will gradually do away with many of the functions currently served by
government, and these functions will be better served instead by emergent self-organizations. Currency may well be one. It really is inevitable, provided we have a free Internet. You can see it happening everywhere, all the time, if you look.
But it is not likely that those with vested interests in maintaining the current imposed order will let go easily. Anyone following the story of Bill Browder? I'm beginning to think the guy is a hero...
I think it is quite important that everyone, but Americans in particular, spend some time trying to wrap their heads around things monetary and financial (and the importance of maintaining a free and open Internet!), because America arguably has the most to lose during global currency crisis, as centralized coercive authority wanes, Bretton-Woods fades, and all those decades of exported dollars come home to roost looking for something of worth to trade for.
If you are an American, and you believe that the Federal Reserve is either Federal (ie in the end owned by the American people) or has reserves (ie vaults that contain gold bars or other goods of intrinsic value in some reasonable proportion to the outstanding float of US currency) please, please, please seek out a more accurate story! Your country and likely many others' are on the line. The Founding Fathers are rolling in their graves...
<rant off>
Disclosures:
- I was a proud owner of digital currencies in the 90's knowing they were going to be huge at some point. Anyone remember Digi-Cash? Cyber-bucks?
- I went so far as to open an account at a bitcoin exchange long ago, but never got around to doing a transaction. I may just have met too many rich arseholes in the interim, and so now think there is a causal connection. I am sure there are exceptions, and that had I actually invested, I would be one of those ;-)
- I swapped from mono- to multi-hull a few years ago and may now be suffering some kind of multiple-disorder.
- I promise any follow-up posts will be much more concise. Just had to get that holiday rant off my chest...
- These conversations are better over
beer, so I'll buy a Kalik or Sands for anyone reading this that we bump into in the
Bahamas in Feb-March.
cheers,
ben