P2P currency

Questions about Objectivism
1

I recently saw this video from reason.tv about Bitcoin, some sort of P2P online currency as a substitute of our current monetary system (USA).

https://www.youtube.com/watch?v=yYTqvYqXRbY

While I like the fact that it’s privatly controlled, I can’t get past that it’s not based off of any type of commodity. I’m new to Objectivism, so please forgive me if I’m making a mistake somwhere, but this almost has a collectivist bend to it. With actual gold, if everyone stops using it, I still have gold I could sell or trade. This seems like it suffers from some of the flaws the current American system.

2

I too am unable to fathom the fascination some people have with this concept, for similar reasons. I suspect that the main attraction is that it’s not the Federal Reserve Note, a/k/a “fern”

3

I too am unable to fathom the fascination some people have with this concept, for similar reasons. I suspect that the main attraction is that it’s not the Federal Reserve Note, a/k/a “fern”

Right, it reminds me of the Libertarian tendancy to fight for “Freedom of Ideas” which is more of a fight agaisnt intellectual property.

4

I’m bumping this to ask for other posters thoughts about Bitcoins. I recently learned about it and I haven’t come to a firm conclusion yet. I’m having trouble seeing whether it is in fact a clever, productive form of exchange. Or if it is somehow a scam of some type. Having a foot in the world of Objectivism and free markets means you get to see how incredibly wrong many people are when it comes to economics and financial instruments. (Many people decry interest, or short selling for example).

I recently learned about BitCoins and some people I knew were talking as if it were some make money fast scheme. I followed them up to a point when I had more questions than answers at which point I dismissed as just wanting to make some easy short term money. Today however a friend of mine and I began talking about it and he explained it in more detail. I found the idea to be very interesting but I’m still erring for “needs more info”.

As I understand it Bitcoins are being used as a kind of international, online-only medium of exchange correct? What I found intriguing is the way it is created to emulate a natural resource by using “mining”. As far as I understand they set it up so that the Bitcoins can’t be just created like fiat currency, a person has to use their GPU to actually “mine” them. (interestingly, computer parts also do contain actual precious metals such as small amounts of gold, so in a way it’s almost as though it does tie-back to the real world of commodities). And so as GPU power increases so will the ability to Bitcoin “mine”.

I’m still quite confused however, and so I’m asking what smart forum goers here at OO.net think about it. I truly loathe using the word, but is it “sustainable”? Is it a solid idea that has actual real world productive results? Or is it at root a scam?

5

I’ve been spending the day reading up on bitcoins.

What we’ve got here is an artificial digital commodity created by solving computerized math problems. It is akin to owning prime numbers, and finding ever larger prime numbers is computationally hard and the difficulty increases monotonically. (that is an analogy) The supply of bitcoins is inflation proof. There is no central server validating bitcoins. The math problem selected is hard to solve but easy to check and each transaction is checked for validity by the first trading partner and eventually the entire network.

Once created, the bitcoins themselves are passed around in a public/private key encrypted peer-to-peer network dedicated to bitcoin transactions. It is like each bitcoin of this digital commodity has your name on it both when you get it and when you pass it along to another. Of course it does not have a name on it, but rather a PGP hash key. Anonymity is possible with precautions, but it is usually possible to link specific personal identities to particular hash keys. The bitcoins effectively lengthen the more transactions they participate in because PGP hash keys are appended onto the coin, and each coin is its own record of the transactions it has been in. Apparently there is a provision in the bitcoin software to compact the bitcoins at some point so they do not increase in length without bound.

The worth of bitcoins is completely determined by its moment to moment exchange rate, and there is no particular reason volatility should be damped. Bitcoin trading volume is still thin and the total number of bitcoins low. Bitcoins would appear to make a poor long term store of value, but a good speculative opportunity. Given the poor long term prospects of fiat money regimes the world over, bitcoins seem to be a very good speculative opportunity. Another use of bitcoins is to move money around circumventing transaction fees.

Another use of bitcoins is to participate in gray and black markets and to launder money. This is not fool-proof because of the transaction chain attached to each coin, but there are already U.S. Senators looking to shut down bitcoins permanently. International cooperation will be required to accomplish that however, and due to the way Bernanke and the Obama administration have mismanaged U.S. finances cooperation on financial matters will be hard to obtain with China, Russia, Isreal, Arab countries, African countries, and anybody looking to remove the U.S. dollar’s reserve currency status. Furthermore, there is no central authority to go after. Individual exchanges can be targeted as Pirate Bay was for its bit torrent activity but bit torrent as network can not be stopped by taking down nodes one at a time, and neither can the bitcoin network.

Bitcoins are not like fiat money in two important respects. Bitcoins are not legal tender for anything, and the supply of them is objectively limited by the algorithm governing their creation. Bitcoins is a digital property system that does not require trust in any central authority.

While the bitcoin network itself seems to have solved the major potential security problems relating to double-spending (i.e. counterfeiting), or concentrated attacks on the network, there are problems for users managing their bitcoin hash keys. Anyone that has the hash keys of a bitcoin can spend it as if it was theirs, leading to a new revenue opportunity for makers of viruses, trojans and keyloggers. Secure bitcoin wallet management is a hassle many (most?) computer users are not capable of performing safely. (Wikipedia: Up to one quarter of all personal computers connected to the internet are in a botnet.)

http://www.bitcoin.org/

http://www.youtube.com/watch?v=9LaSrxtWfgc (clumsy explanation, and watch out for that flat money!)

https://www.youtube.com/watch?v=vTr\_hTC90oQ

(Peter Schiff radio show on bitcoin)

6

While I like the fact that it’s privatly controlled, I can’t get past that it’s not based off of any type of commodity. I’m new to Objectivism, so please forgive me if I’m making a mistake somwhere, but this almost has a collectivist bend to it. With actual gold, if everyone stops using it, I still have gold I could sell or trade. This seems like it suffers from some of the flaws the current American system.

There is no collectivism involved, but you put your finger on one fact that makes Bitcoins not a likely candidate for a free-market money: it’s lack of connection to any commodity. The value of a money ultimately depends upon its non-monetary use, that is, its use prior to becoming a money (i.e. under barter.) See for example, Mises’ money regression theorem in Theory of Money and Credit, and explained in Rothbard What Has Government Done to Our Money?:

A most important truth about money now emerges from our discussion: money is a commodity. Learning this simple lesson is one of the world’s most important tasks. So often have people talked about money as something much more or less than this. _ Money is not an abstract unit of account, divorceable from a concrete good; it is not a useless token only good for exchanging; it is not a “claim on society”; it is not a guarantee of a fixed price level. It is simply a commodity. _ It differs from other commodities in being demanded mainly as a medium of exchange. But aside from this, it is a commodity–and, like all commodities, it has an existing stock, it faces demands by people to buy and hold it, etc. Like all commodities, its “price”–in terms of other goods–is determined by the interaction of its total supply, or stock, and the total demand by people to buy and hold it.

The reason for this is due to the fact that people have to have some way to know what its purchasing power is originally to have some frame of reference for using it as money. Henry Hazlitt also makes the point in The Inflation Crisis, and How To Resolve It:

A long-established government money has an established purchasing power, even though additional paper money issues reduce it. But how does a private issuer establish the value of his money unit in the first place? Why would anybody take it? Who would accept his certificates for their own goods or services? And at what rate? Against what would the private banker issue his money? With what would the would-be user buy it from him? Into what would the issuer keep it constantly convertible? These are the essential questions.

…Under a gold standard each currency unit is constantly convertible, on demand, into a precise weight of gold… But you cannot make a currency convertible into an abstraction. You cannot make a currency convertible into an index number. A true “commodity” dollar or ducat would have to be convertible into a precise quantity of each of a thousand different commodities. A private issuer cannot assure any specific or definite value for his money unit by limiting the volume of its issuance.

Bitcoins have no non-monetary use, because it was invented specifically to be a medium of exchange. Of course, you can always use this as a medium of exchange so long as you can find someone to accept it, as the current frame of reference is that Bitcoins are convertible to dollars. But the whole point is that they are being billed as an alternative to the current statist money regime. So let us imagine the fiat system collapses, will Bitcoins be our savior? No, as we can see, Bitcoins will then be completely useless (as much as they are now to anyone who doesn’t accept them), unless they become accepted as convertible into gold. But then, a bank uses data on a computer anyway to keep track of the money in a person’s account and to settle balances with other banks. Hypothetically, you could purchase Bitcoins for electronic purchases with gold, then buy in Bitcoins, then the seller converts them back into gold with the bank, but what would be the point, except to go through the extra step of dealing with Bitcoins to gold exchange ratios? This appears to be an ill-conceived, trendy alternative to dollars, but as Peter Schiff points out, gold allows you to store value more reliably, and you can’t pay taxes in Bitcoins, nor are they legal tender insofar as the current regime goes.

7

Hypothetically, you could purchase Bitcoins for electronic purchases with gold, then buy in Bitcoins, then the seller converts them back into gold with the bank, but what would be the point, except to go through the extra step of dealing with Bitcoins to gold exchange ratios?

The point would be near zero-transaction costs, anonymity, tax avoidance, and shifting money around internationally without regulation. Can that be enough utility in itself to make bitcoins valuable as a microtransaction commodity?

8

Well yeah sure, and that’s what it is being used for. But that only gets us so far, and that only holds so long as Bitcoin has some connection to an actual money which it depends on already being in place. So I’m just saying the whole idea that Bitcoin is some “new money of the future,” destined to be a superior replacement of gold and dollars, doesn’t work out.

9

I think Bitcoin should be outlawed because of its anonymity. It is already being used to sell illegal drugs online, it is only a matter of time before it gets used to launder money from the proceeds of crime or to fund terrorist activity.

10

I think Bitcoin should be outlawed because of its anonymity. It is already being used to sell illegal drugs online, it is only a matter of time before it gets used to launder money from the proceeds of crime or to fund terrorist activity.

This is a very strange position for someone posting here to take as 1) drugs shouldn’t be illegal and 2) cash is already anonymous and I bet you don’t object to cash or even gold coins.

11

This is a very strange position for someone posting here to take as 1) drugs shouldn’t be illegal and 2) cash is already anonymous and I bet you don’t object to cash or even gold coins.

  1. I agree that drugs shouldn’t be illegal. However the fact that they are illegal means that my respect for the rule of law makes me condemn those who deal them. I am not an anarchist, and to not condemn law breakers would make an ass of the law. The fact that the law IS an ass sometimes and has non-Objective laws, means that we need to campaign to change the law.

  2. Yes, cash is anonymous but it has to be withdrawn from a traceable bank account, it is much less anonymous than Bitcoins. Besides, cash makes up only a fraction of the money supply, a bigger fraction is made up of non-anonymous electronic funds (http://en.wikipedia.org/wiki/File:Components_of_US_Money_supply.svg).

The fact that you think my opinion is strange Gramlich, goes to show the extent of libertarian/anarchist ideas prevalence within Objectivist thought. To the extent that this is true, it is a shame.

12

I agree that drugs shouldn’t be illegal. However the fact that they are illegal means that my respect for the rule of law makes me condemn those who deal them. I am not an anarchist, and to not condemn law breakers would make an ass of the law. The fact that the law IS an ass sometimes and has non-Objective laws, means that we need to campaign to change the law.

You want to out bitcoins, which would compound the error of outlawing various drugs. This is the same process as occurs in all government interventions, one bad regulation or bad law requires more bad legislation to help make the original more enforceable or its unanticipated consequences less intolerable.

Respect for the law is no justification for more bad law, only the enforcement of the actual law as it stands.

Yes, cash is anonymous but it has to be withdrawn from a traceable bank account, it is much less anonymous than Bitcoins. Besides, cash makes up only a fraction of the money supply, a bigger fraction is made up of non-anonymous electronic funds (http://en.wikipedia.org/wiki/File:Components_of_US_Money_supply.svg).

So, cash is anonymous but it doesn’t matter because it comes from a central source that is not anonymous, and things that are not cash are not anonymous. That makes no sense, and does not establish that anonymity is bad. Anonymity is a means of defending privacy, which is a political right.

The fact that you think my opinion is strange Gramlich, goes to show the extent of libertarian/anarchist ideas prevalence within Objectivist thought. To the extent that this is true, it is a shame.

Who is Gramlich and why should I care?

13

Bitcoins seem to be a pyramid scheme, form the computer standpoint, they are using your processing power for something and it is very sketchy. I won’t waste my power and time computing something where I don’t know what its doing or where it came from/

14

I won’t waste my power and time computing something where I don’t know what its doing or where it came from/

That is rational.

Bitcoins seem to be a pyramid scheme, form the computer standpoint, they are using your processing power for something and it is very sketchy.

That is not. You don’t need further justification for not acting than that you don’t understand it.

15

You want to out bitcoins, which would compound the error of outlawing various drugs. This is the same process as occurs in all government interventions, one bad regulation or bad law requires more bad legislation to help make the original more enforceable or its unanticipated consequences less intolerable.

Respect for the law is no justification for more bad law, only the enforcement of the actual law as it stands.

So, cash is anonymous but it doesn’t matter because it comes from a central source that is not anonymous, and things that are not cash are not anonymous. That makes no sense, and does not establish that anonymity is bad. Anonymity is a means of defending privacy, which is a political right.

Who is Gramlich and why should I care?

If it were just drugs, then you are right. But bitcoins are/will be used to fund terrorism and to launder money from the proceeds of non-drug crime. If you want to help terrorists then allow bitcoin. This is a terrorists wet dream.

I would have no problem with bitcoin if each coin was tagged with the name and address of each of its owners on a central database that was accessible to the police who had a search warrant. This is acceptable in a free society for the same reason that govt can pass a law to require stricter security at airports than the airports themselves would like. This is a matter of national security so privacy can be reasonably lifted.

16

“Guns don’t kill people, people kill people.”

Prohibition in any form is unworkable and immoral in itself.

“allow bitcoin” : It is not under your power to stop bitcoin, anymore than prohibition stopped alcohol or drugs.

17

“Guns don’t kill people, people kill people.”

Prohibition in any form is unworkable and immoral in itself.

“allow bitcoin” : It is not under your power to stop bitcoin, anymore than prohibition stopped alcohol or drugs.

This is false. For example it is completely moral to have prohibition of nuclear weapons. Or anything else that threatens national security. Such as bitcoin.

Serious question: Are you a libertarian or an anarchist?

18

Serious question: Are you a libertarian or an anarchist?

Serious question: Are you a fascist or a conservative?

1 Like
19

Serious question: Are you a fascist or a conservative?

I agree with Objectivism, ie within a free society it is permissible for the government to prohibit anything that threatens national security. Now will you answer my serious question? I ask because I have debated people here only to find out later they are libertarians or anarchists.

20

I agree with Objectivism, ie within a free society it is permissible for the government to prohibit anything that threatens national security.

You don’t agree with Objectivism because Objectivism denies collectivism and inherently collectivist concepts. To regard national security as an end in itself that can terminate a logical chain of justification is wrong. What exists is individuals and their rights, and the government can have no other rights which do not originally exist among the citizens. No citizen may initiate force and neither may the government.

Computers, guns, cars, clothes, and money are all used by criminals but it would be stupid to outlaw those things for that reason. It is stupid because there is no relation between one man’s use of his property and another man’s use of his different property. The law is a means to defend individual rights, and only persons can possess or exercise or violate rights. The proper subject and object of the law is persons, not things.

Prohibition laws falsely attribute to objects the power to violate rights. As politics is based on ethics then that false attribution can be identified as being premised upon ethical intrinsicism. Ethical intrinsicism is the idea that something can be known to be good or bad regardless of context, that a value assignment can be discovered apart from any and all valuers.

Now will you answer my serious question? I ask because I have debated people here only to find out later they are libertarians or anarchists.

No. And at ObjectivismOnline.net it is not safe to assume that a disagreement must be caused by the other person’s failure to understand Objectivism.