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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."
What what exactly is the value of the US dollar?
So... he doesn't use any money i guess?
The main premise in Judo is to use opponent's strength against them. Forbes knows he sounds snooty. Which is why he takes on a position contrary to the one he actually wants to advocate. Let's say he loaded up on Bitcoins and he wants them to go up. His choices are (1) stay silent; (2) promote it; (3) oppose it. Staying silent obviously will not help him cause. Promoting it will not help his cause because the kinds of people who would take him at his word are not the kinds of people to seek out an alternative currency (he is all about orthodoxy). But he can use the fact that anyone seeking to oppose orthodoxy would do the opposite of what he'd recommend (this is Judo). Oh, and if he really didn't think much of Bitcoin, he would simply not comment.
Any guest worker system is indistinguishable from indentured servitude.
*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?
One of my childhood friends does internal auditing for a large bank. One time I asked him what his biggest fears were (having been able to look at all the books) and he told me at the time it was actually price anarchy. This was around the 2008 time frame and he was trying to describe a situation where nobody knows how much money to charge for something. I later heard a This American Life episode that details life in Brazil when something like this happens.
... and you can go to the store management and they're looking at some graphs at the beginning of each day to set their prices but they're doing guesswork because the money fluctuates so quickly. So my friend's real fear was that there's some point where that swings wildly out of control and -- similar to the bank runs that happened before regulation -- weird swings cause people to act erratically and irrationally. And those actions cause the swings to get even wilder and suddenly you have price anarchy where nobody knows what anything is worth at a given point in time. The funny part is that on some days he would watch the terminals and freak out and go withdraw as much money as he could from the ATM to hedge into some liquid assets since he kept everything in the bank. That amused me because by using inside information he was performing what were erratic behavioral patterns ... but I guess that's another discussion.
... if you want some entertainment, keep this tab open throughout the day. So many people are gaming Bitcoin right now that it makes for an excellent show! Behold, the completely unregulated market!
So my friend told me that his biggest fears are when you go into a market one day and eggs are 68 cents a dozen and you go in the next day and they're $5.92 a dozen
Anyway, yeah, back to Bitcoin
My work here is dung.
Considering that one of their freelance journalists (Tim Lee) on forbes.com is one of the biggest supporters of Bitcoin.
Check out all of the articles he's written about how great Bitcoin is:
http://www.forbes.com/sites/timothylee/
I find it amusing that they let this one freelance writer attempt to pump up his personal Bitcoin stash on such a popular financial site.
Of course, this is Forbes... They'll post anything for page views and ad impressions. I still remember the crap they posted about the merits of SCO's pathetic Linux patent infringement case against IBM back in the day, mostly because they loved the negative attention from the Microsoft and Linux fanboys.
...here it comes. Legions of teenage and college Slashdotters, who think they are MBAs, Accountants and public policy experts, engaging in Fan Boy, Face Painting, Homer rants about how bitcoins are really money...really!
1) First they ignore you
2) Then the laugh at you
3) Then they fight you
4) Profit!
I'm sure the storm above this post has already pointed this out, but just because something is not the best form of it's kind does not automatically mean that it is not of that kind.
Gold, while extremely useful in many ways, is less useful for everyday transactions than our fiat dollar. That doesn't make it any less of a monetary base though for transactions. Bitcoin is no different.
Some people really can't get over the hump of intangible objects. You'd think with thousands of years of intangible religious experience behind humanity that virtual property wouldn't be that much harder either...
Patience is a virtue, but haste is my life.
Relative stability in value is a necessary property of any real currency to remain effective. This is true whether you tie supply to amounts of a particular type of dirt extracted (varies with mining of said dirt - which will kill the bitcoin ultimately just as it killed the gold standard) or determined by human thinking. Bitcoin has none of the properties of a currency - it's just a classic market bubble in a worthless commodity.
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.
* Winners compare their achievements to their goals, losers compare theirs to that of others.
There have been enough "millionaires" minted by BitCoin to ensure it has a place for some time as a purely speculative market, and a speculative market can be just about anything - goods, services, money, pork chops, anything that people want. Regardless of whether the fanboys think it will become a real currency or not - usually by asking retarded and self-explanatory questions like "What is the exact value of a U.S. Dollar?" - BitCoin has now drawn the attention of every get-rich-quick schemer and arm-chair investor on the planet, and rightly so - there is likely still some good money to make if you don't mind extreme risk. Unfortunately, all of this just adds to the volatility, which will ultimately keep sane, stable, financially-minded people out of the BitCoin market.
Remember, kids, the markets tied to the real-world are based on investments - the idea of buying into something which will generate a return for you in the long run, usually a corporation beholden to the shareholders which must prove they have used your money to generate value every quarter. This stability draws more and more investors, which in turn builds confidence and ensures that you will have a buyer when you actually want to cash-out. You could have a million BTC today, but without a buyer, you don't have a penny - and judging from the news, the only way to attract buyers is by constantly screaming "Look at us! You're going to be rich!" over and over until you attract someone willing to accept greater risk than you by purchasing your BTC.
TL;DR - go ahead and play hot potato with your money if you want to, but the rest of us will play in markets that won't lose 50% of their value overnight.
Gold hasn't been the basis for our money in many, many, decades. And while there's some merit in having some common "thing" for currencies to be pegged to, gold has always seemed especially stupid. The US forced itself to do so from the 1950s until the early seventies, creating a situation where every country that was having financial problems could devalue its currency except the US itself, causing relatively substantial problems for the US itself.
(Why? Bizarrely, national pride. The 1950s-1970s version of the Gold Standard came because the major economies wanted a single currency to peg their currencies against. What they wanted was an independent currency called the "Bancor". The US vetoed this, as it felt it would diminish the importance of the dollar, and demanded they peg their currencies to the dollar instead, and in return would make sure the dollar was pegged to gold. More evidence, perhaps, that national pride can be a destructive, stupid, thing.)
You are not alone. This is not normal. None of this is normal.
...when you can pay your taxes with them.
"We don’t really know how this coin is created. You can’t have a functional money without a basic transparency."
I remember when journalists actually learned about what they wrote about.
The biggest problem I can see with bitcoin is its value is directly related to its popularity. Where dividend yielding stocks will give you a return in a currency the government will always use, bitcoin's value is always tied into what you can get cashing it out. If it wasn't for bitcoin's strengths (as difficult to exploit, steal, and sieze) and the resilience of the Internet, it wouldn't be as successful as government backed currency.
A mildly amusing conclusion I inferred about bitcoin's design: the same conditions required to break the network (having over 50% of the mining performance) are the same conditions required to devalue the currency (excessive mining and dumping).
is the fact that bitcoins design explicitly resists things like command and control from a centralized banking institution. sure, it makes bitcoin far more volatile than other currencies, but the fact that one group of people cannot arbitrarily decide to revalue the currency means that risk inherent in bitcoin investment comes with it a monumentally more concrete level of consequence. The problem with the dollar, as we've seen, is that if ever we get too far in over our heads with irresponsible investment like 'credit default swaps' we can simply "hack" our way out of the free market by injecting a ton of extra cash and propping up institutions with lemon socialism (warren buffets choice of purchase price and terms for an auto maker, or a bank for example.) Bitcoin economies have the real potential to destroy houses of finance and investment that do not respect them. they also implicitly mandate a more even playing field for things like wealth and equality as free market capitalisms inefficiencies and dangers require not just tacid but overt acceptance and understanding. fairer prices for housing and the outright ban on deceptive lending would be nearly impossible to avoid, meaning many forms of credit might not continue to exist.
Good people go to bed earlier.
When a country collapses, so too does its currency. A sovereign is only as powerful as his ability to force people to use state currency, which is usually done through taxes.
That's called the "chartal theory", and last time I mentioned it in a comment to a Bitcoin article on Slashdot, not everyone agreed. The Somali shilling and Canadian Tire gift certificates are not acceptable for tax payment, but they are money because they can be used to buy necessities of life.
The value of Bitcoins is that they cannot be issued and they really cannot be confiscated (well, it's much harder to confiscate your Bitcoins than your fiat currency you have in a bank).
Bitcoins also allow for almost instantaneous transactions over the Internet that cannot be reversed, so one Bitcoin is in exactly one location at any one time. There is no tax a government can levy on movement of Bitcoins from one wallet into another.
For these reasons Bitcoins have value of their own. They are a way to move money around. They are really not money in the traditional sense, they are not a good store of value because they have no intrinsic value, it really is based on the size of the network that uses them I think, but they are a good way to transfer purchasing power.
You can't handle the truth.
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.
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Definition is something I look for when thinking about increasing the population.
"Money is most optimal when it is fixed in value"
While it may be true that currency can be too volatile, Cyprus would disagree that a fixed value is ideal. Cyprus is on the Euro, whose value is based on something more stable than Cypriot econmics (ie: the economics of the entire EU). The debt in Cyprus got too big to be supported by the modest production of the island nation.
That is a bad thing in itself, and governments should not let such things happen, but what happened next is worse. Normally a country would devalue its currency in this situation. That's bad, because it generally leads to further devaluation of the currency, and in extreme cases can lead to hyperinflation. But when the currency can't be devalued, and the country doesn't have the money to service its debt, things get really unpleasant.
In the end, the EU wound up bailing Cyprus out, but things were getting really nasty. The Economist has a good article.
Stop-Prism.org: Opt Out of Surveillance
If you plot $ vs bitcoins you will see that dollar change as much as bitcoin in a bitcoin vs $ plot.