Steve Forbes: Bitcoin Not Money

MouseTheLuckyDog writes "A brief editorial by Steve Forbes, one of our moneymeisters, on why bitcoins are not money.. Hint: For those who are too lazy to read the opinion,. Bitcoins are too volatile to be money." From the article: "Money is most optimal when it is fixed in value just as commerce is facilitated when we have fixed weights and measures. When you buy a pound of hamburger you expect to get 16 ounces of meat. An hour has 60 minutes. A mile has 5280 feet. These measurements don’t 'float.' So too money best lubricates commerce when it has a fixed value."

Comments

Fiat Currency

[jasonlfunk]

What what exactly is the value of the US dollar?

Re:Fiat Currency

[Chris Mattern]

Money still fluctuates in value when you're on the gold standard. It just fluctuates in lockstep with the fluctuations in the value of gold. This means that it's unlikely to steadily decrease in value, but it doesn't mean it stops fluctuating.

Re:Fiat Currency

[Richard_at_work]

I think its useful to say that the value of a currency is really in how stable it is within an economy - once hyperinflation takes over, it doesn't matter how established the currency is, its value as money disappears (see Germany in the 1920's, Russia in the 1990's and Zimbabwe in the past decade) and people move to alternative means of payment.

$1 today will buy me a loaf of bread. That loaf of bread might cost $1.01 tomorrow, or even $0.99, but while that's an inconvenience its not disastrous. If that loaf of bread goes from $1 one day to $5 the next, and $20 the next, then its value as actual money is gone - theres no way to establish a stable economy on such a basis because there's no way to plan for the future.

Re:Fiat Currency

[Anonymous Coward]

Yep, that's why keeping the gold standard was so asinine. It didn't do anything but obligate the U.S. government to hoard gold.

Re:Fiat Currency

[Teancum]

You can't buy anything with BTC without converting them between it and another currency.

This isn't true. Bitcoins are a medium of exchange. It is commonly used as a currency converter (IMHO it does a very good job in Foreign Exchange markets), but that isn't its only role.

It is possible to pay salaries in bitcoins and other currencies. Look up Ithaca Hours for an example of how alternate currencies can and have been used in the past to pay for labor. You can also purchase items and services directly in Bitcoins (some webhosting services are currently offered directly in Bitcoins) and it is commonly used for voluntary donations to many organizations as well.

The one thing that is difficult to do with Bitcoins though is to pay taxes, and that unfortunately is something that needs to be in the "legal tender". Also, if you sue somebody in a courtroom those debts will be settled in whatever form of payment acceptable by the judges involved, and that will likely be something like a Euro or U.S. Dollar and Bitcoins will not be likely recognized. This isn't to say Bitcoins could not be used in this fashion, but it takes a deliberate government act to recognize Bitcoins as a valid legal tender.

Say what, Steve?

[Chris Mattern]

*All* money fluctuates in value. Yes, even if you run on the gold standard (which I know you favor). Money that fluctuates too much isn't very good for money's intended purpose (as a means of exchange and a store of value, particularly the latter), but you can't say that something isn't money because it fluctuates. Was the Deutschmark not money during the hyperinflation of the 1920s?

Re:Say what, Steve?

[chill]

Re-read the article. His point is that once a currency becomes *too* volatile it ceases being money. He doesn't say money *has* to be fixed to be useful, just that it is OPTIMAL when fixed. The *less* it fluctuates the more useful it is as a standard medium for exchange.

"Money is most optimal when it is fixed in value..." (Emphasis mine.)

His issue is with bitcoin's volatitilty

[Shivetya]

not that their value changes, but that the changes are to volatile to make it a worthwhile currency. Its more like a commodity than anything else.

"We don't really know how this coin is created"

[Dogtanian]

Saying "we don't really know how this coin is created" displays the author's fundamental misunderstanding of the phenomenon. You don't need to know the exact technical details- and I don't either- to understand that the process of bitcoin production is clearly defined and entirely transparent (for those who *do* understand the technical details). (*)

Of course, you *should* understand the principles of what has to be done, the nature of Bitcoin and the factors involved in it in general (such as the fact there will only ever be a finite number of Bitcoins). But saying that "we" (i.e. humanity) don't understand how it's created is nonsense; what he means is that *he* doesn't understand. "We" created the damn thing entirely ourselves along arbitrary lines!

IMHO, the real question is the philosophical one of whether Bitcoin's creation is an arbitrary, Sisyphian task and whether this makes any sense.

Also, the Bitcoin's value *is* fixed- a Bitcoin is worth 1 Bitcoin, just as a US Dollar is worth 1 US Dollar. Granted, in the real world the dollar is almost certainly a better measure of "absolute" value than the Bitcoin is at present. Still, this doesn't change the fact that in principle it has no more inherent value and stability than Bitcoin, only what it's worth against other currencies- and of course, the dollar is always going to be stable if you choose the dollar as your "stable" currency to measure it against.

(*) I was going to post this on the Forbes site too, but I notice the *first* comment there already made *exactly* the same point.