Libertarian Goldbugs Hating On Bitcoin – Free Market Money

Let me start off by giving you a little background as to my knowledge on the subject of monetary theory.  As you can see in the header bar of this page, I’ve put together my own little online college in Austrian economics that is composed of over 150 individual lectures on economic theory by Austrian economists.

I have pretty much watched every single one of those lectures (and hundreds more), in addition to reading such works as Man, Economy, and State, along with numerous other books, in-person lectures, and journal articles.  I have a business school undergrad and I work as a software developer, which forces me to think logically on a daily basis (there is a reason why so many software developers are libertarians).

I feel I have a pretty damn good grasp of Austrian economic theory and its core tenants.  Thus, it was incredibly surprising to me when I set about visiting numerous libertarian forums to discuss the new peer-to-peer currency called Bitcoin and was met with wide ranging hostility.  To be fair, not everyone was hostile to the idea, but it was clear from the responses that the majority saw the new currency as some kind of a scam.

I was accused of promoting a ponzi scheme, accused of promoting a pump and dump, accused of promoting unsound currency that would eventually implode, etc.. etc.. etc.. All the while, none of my detractors actually bothered to comment on the economics of the Bitcoin monetary system.  It was like they had been brainwashed into believing the only legitimate money is gold while everything else must automatically be junk.

I suspect that many libertarians who denounce Bitcoin as a legitimate currency system have purchased large quantities of gold and silver, and are looking to recoup some of their investment by having those metals make up the groundwork for a new monetary system.  It would stand to reason that anyone who holds large amounts of precious metals would be opposed to any new currency system that is not based on those metals.

At the time I started promoting the currency I had NO HOLDINGS of Bitcoins.  Only recently did I manage to actually purchase some – AFTER they had already inflated in price.  Further, I own a good chunk of physical silver myself, and I’ve always been a strong advocate of a gold standard currency system.

That said, I want to cover the economic reasons why Bitcoin (at least in my view) is a superior currency to precious metals.  (The equivalent of shooting myself in the foot with my silver holdings).

The primary questions people should concern themselves with is;  why did the markets chose gold as a currency and what properties does gold have that make it a currency?

Let’s begin by defining what a commodity is, then I will explain why Austrian economic theory believes that real money MUST be a commodity.  Wiki defines a commodity as “a good for which there is demand, but which is supplied without qualitative differentiation across a market.”

So a commodity is typically something tangible, fungible, and divisible.  Gold would be an example of a commodity.  I don’t care which gold coin I am paid with, I simply care that I am getting a gold coin as payment.  I don’t care what shape the gold coin has, but I do care how much it weighs.

Austrian theory demands that money be a commodity for a few reasons:

It is logically impossible to have prices arise from anything other than a commodity.  If there were no money in the world, it would be impossible for a government to print up some paper notes, write some numbers on them, and then tell people to start trading them as a money.  People would have no idea how much a single unit of the currency was actually worth.

Is a candy bar worth 1 unit or 10,000 units?

Prices must be set by trading weights of one good for another.   Only after prices have been established in weights can paper notes be used to represent the actual amounts of the commodities being traded.

The dollar used to represent 1/32nd an ounce of gold.  Thus, the dollar was actually a representation of weight.  And through this, price levels in terms of dollars were able to be established.

If it is logically impossible for prices to arise any other way, then we can say markets demand that real money be some kind of a commodity (a product that is fungible, divisible, and for which demand exists).

The argument I hear from the peanut gallery is that Bitcoins aren’t actually a commodity because you can’t pick them up and hold them.  They are intangible; therefore, they must not be a commodity.  I would argue this is false because the nature of Bitcoin’s coding actually turns them into tangible goods that meet all the criteria of being labeled a commodity.

So let’s break down the dictionary definition of a commodity and compare it to the properties of a Bitcoin:

Is it a good? – yep.

Is there demand? – yep.

Fungibility? – yep.

The nature of the Bitcoin network ensures the uniqueness of each coin and completely prevents arbitrary replication of the digital product called a Bitcoin.  Bitcoins are NOT like a software product which can be installed on multiple computers while incurring almost no physical cost to replicate.  The soundness of the currency lies in the strength of its cryptography.  If the cryptography is secure, then so too is the uniqueness of each digital coin.

For example, a Bitcoin wallet file can be replicated a billion times over, but the network knows exactly how much that wallet file is worth.  No matter how many times the wallet file is replicated, the number of Bitcoins that are accessible to that file remain the same.  The file itself is a tangible product that must be physically stored at some location, either on a USB thumb drive, remote server, smart phone, or home PC.

What is the difference if I am holding a USB key that contains a file which the markets have deemed to be worth $1,600 or a physical ounce of gold?

Bitcoins are the first digital commodity to come into existence that do not require a central point of control.  The Bitcoin solves the double spending problem that has plagued digital currencies from their inception.  This is  a new class of software that is unique in its own right.  It is worthy of being branded a “digital commodity.”

I’ve recently seen arguments by supposed free market economists arguing that Bitcoins are nothing, therefore they are inherently worth nothing.  This is a fallacious argument.  To claim Bitcoins are nothing is like claiming your operating system is nothing, therefore it is worth nothing.  Clearly an inordinate amount of time and resources went into the development of your computer’s operating system.  The time and resources that went into the development of the software constitutes “something”, which is obviously more than nothing.  Software can have inherent properties that give it value in and of itself.

Let’s look at some other reasons besides the inability of fiat money to establish prices as the basis for demanding real money be a commodity.

Rothbard writes on monetary units as commodities:

Obviously, the more valuable the units of a commodity are, the smaller the size of the units used in daily transactions; thus, platinum will be traded in terms of ounces, while iron is traded in terms of tons. Relatively valuable money commodities like gold and silver will tend to be traded in terms of smaller units of weight. Here again, this fact has no particular economic signifi­cance.

The form in which a unit weight of any commodity is traded depends on its usefulness for any specific, desired purpose.

The weight of a Bitcoin is infinitesimally small, but indeed a Bitcoin does have physical weight if we consider that the digital hash which makes up a Bitcoin must reside on a physical storage medium.  The more Bitcoins you have, the more storage medium required.

So why is such an infinitesimally small digital commodity worth so much money? Because of Bitcoin’s usefulness for the specific desired purpose of measuring and storing value.

An ounce of gold is not worth $1600 today because it can be made into shiny jewelery.  Gold is worth $1600 dollars today because it is a scarce resource that can not be arbitrarily inflated, which makes it ideal for representing the value of other goods and services.  Its scarcity, fungibility, and divisibility give it properties which lend itself to acting as a measure of wealth.

In the same way gold acts as a measure of wealth, as determined by free markets, so too do Bitcoins act in the same capacity for the exact same reasons.  Bitcoins are scarce, they are fungible, and they are even MORE divisible than gold (in functional terms).  And they can be sent across a wire transaction, while gold requires expensive shipping costs and insurance to actually deliver.

So lets look at how commodity pricing comes into existence.  First, a commodity must be mined and extracted from the earth.  Then the markets must chose that commodity as a trade intermediary.  Then the miner must spend the commodity into the economy by having people freely decide just how much each individual unit/weight is worth.  As the law of supply and demand dictate, the more of something there is, the less valuable it will become.

This is exactly how Bitcoins currently operate.  Miners run specialized software that labors to produce the unique hash that makes up a Bitcoin.  The miners incur real world electrical costs and computer resource costs on producing a Bitcoin.   By being able to spend that coin into the economy first, they economically benefit in the same way a person mining for gold does.  As they spend the coins into the economy, the market then determines the value of each coin.  Bitcoin production does not differ at all from how gold comes into existence as a money.

Another way in which Bitcoins are superior to gold is that gold can be indefinitely mined forever.  The supply of gold is always increasing to some degree and always will be.  Bitcoin production on the other hand will reach a point where no new coins can ever be created.  This means that in the future, the supply of Bitcoins will never be subject to supply side economic factors.  This removes a huge layer of uncertainty when trying to gauge the future value of a Bitcoin in comparison to gold.  It also means that there will never be price inflation with Bitcoins due to an  arbitrary expansion of the money supply.

There is no government out there demanding that people transact in Bitcoins.  There is no government out there telling people that they must accept Bitcoins in payment of debts.  There is no government out there controlling the issue of Bitcoins.  The only forces that are giving Bitcoins the value they have are free people deciding on their own that Bitcoins do indeed have value as a store of wealth and as a trade facilitator.  The markets have decided that the time and labor that went into producing the Bitcoin software, along with the properties of the software itself, have real value in the real world.

Whether Bitcoins are currently experiencing a bubble in prices or not is immaterial to their efficacy as a currency unit.  They have value because the market says they have value.  And because they have value, and because they are divisible, fungible, and scarce, they ARE free market money.  If I thought there was some aspect of Bitcoin production that would throw a monkey wrench into the free market economics espoused by Austrian theory (such as arbitrary inflation, interest rate price fixing, centralized control, etc.. etc..) I would be denouncing Bitcoin at the top of my lungs.  – I can tell you that no such problems exist with the system.

Austrian economists don’t want a gold standard because they simply like shiny yellow metal.  They want a gold standard because historically when people were free to choose, they chose gold.  The markets chose gold because of its properties of scarcity, divisibility, fungibility, and recognizability.  In the same way the markets chose gold, and for the same reasons, we WILL see Bitcoins come to dominate the currency markets to the exclusion of all other currencies.

Bitcoins are free market money.


  • Lardybardfast

    Gold cannot be mined ‘forever’ as there is a finite supply. The same is true of bitcoins.

    • For practical purposes, it can be considered infinite.  People will find new gold as long as the price for gold makes it worth their while.

      Bitcoins have a true finite supply, unlike gold.

      • Daniel

        The bitcoin network can potentially be modified to permit the creation of more coins than it’s originally designed for.  The network works by sending out ‘proof of work’ blocks, which are then accepted by other nodes.  If a sufficient number of nodes were changed to a new system (Even one that inflates forever) then the behavior of the whole network will change.

        It will be a fascinating technical challenge to try to alter the behavior of the bitcoin network after it’s already established.  Hold-outs that prefer the old system will essentially ‘fork’ the bitcoin block chain, and two separate networks may result with the same coin being able to be spent on both networks unless everyone makes the network change at once.

        • This is true, but as you point out, people would have to voluntarily accept such changes and agree to use a new client that supported such changes.

          If you were used to transacting in gold coins that retained their value, and then one day some of the people around you decided it would be a good idea to use a different kind of coin that did not retain its value over time, would you voluntarily switch to the coin that could be debased?

          I doubt it.

          Due to people’s own self-interest, most people would refuse to switch to such a currency.

      • kisai

        be careful there with that scotsman fallacy there. Both bitcoin and gold are finite. Not even in practical purposes could be considered that. The amount on matter in the universe so far is limited is finite.

        The only thing that could be considered is gold isn’t as scarce as bitcoin is.

    • smellyBobby

      If you believe that man will visit Mars, then this is not true, Earth is not the only source of gold. 

    • Jeffrey Cliff

      This is not true.  Nuclear physics does have means of producing gold via neutron bombardment of other elements, it’s just absurdly expensive to do so.  But to flat out say that the supply is finite is simply not true.

    • A B

      Just about all gold in the ground has already been sold on in option schemes. Increased mining productivity is unlikely to affect the price of gold.

      The same will soon be true for Bitcoin, I imagine.

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  • Husk_Erzulie

    Hi Michael,
    I love the Bitcoin idea, if it could be accepted by the global population at large it might be truly revolutionary.  One thing about gold which is important is its relative resistance to destruction.  It doesn’t oxidize and even if one were to attempt to destroy a valuable amount of pure gold, by say, breaking it down into nano sized particles and scattering it in a radioactive desert, someone, or some concern, would probably find a way to recover it eventually.  Bitcoin relies on the global network functioning for its existence.  Still, while it might not be an ultimate store of value in terms of near indestructibility, from a Libertarian standpoint, and from a standpoint of human spiritual and social evolution it’s on the right track.  Thanks for the hard work on this great blog…still getting used to the new look but I like the flag (although it makes the site slightly NSFW :~p

    • Thanks Husk, just scroll down really quick 😉

      I think bitcoins basically rise to the indestructibility of gold from a macro perspective in that the bitcoin market is impossible to destroy as far as I can see.  However each individual user’s file is more prone to possible loss or theft.

      I think the advantages of bitcoins over gold, in that they can be transmitted via the web, override the benefits of holding physical gold in this regard.

      I think in the future we will see metals used for cash transactions and Bitcoins act as the primary electronic currency system.

      There will be gold exchanges for bitcoins established just like there is for fiat money. People may decide to hold physical gold in lieu of bitcoins for long term savings accounts.

      • Husk_Erzulie

        I like your optimism 🙂

  • dkmeller

    I am second to none in my support of 100% gold standard–the dollar being undertstood to BE ( NOT be “worth”) a specific, agreed upon WEIGHT in gold, constant in terms of fineness and over time, and I have to say that the “Bitcoin” sounds good to me!

    There is no reason, however, why bitcoins–and their purchasing power–can’t be denominated eventually in terms of specific weight in gold, rather than FRN “dollars”, “euros”, rubles, and so on! this should satisfy the goldbugs who are worried about excessive “minting” of bitcoins or their supply inflation by tying them too closely to government “money”! By that time, even if takes a million “dollars” (or Obamas”,” Bernankes”.”Greenspans” “drecks”or whatever else they are called)  to buy a moldy loaf of bread, the purchasing power of the bitcoin will be secure everywhere! tying it to gold will be a convenience, NOT a necessity!

    David K Meller

    PS- Fellow libertarians, we, of all people, are supposed to give entrepreneurship, discovery of opportunity, and innovation in improving consumer well being a “heads-up”! Let’s not flop just when the long overdue collapse of government “money’ is about to prove us right! DKM

  • Ryan Radia

    As a libertarian who’s “hated on” Bitcoin, I should state that I would *love* if the currency were to take off. It’s a brilliant idea and it could change the world for the better if more people were to start using Bitcoins. I don’t much care for gold personally, nor do I own any (aside from a scant amount contained in various electronic devices I own). 

    However, I just don’t think Bitcoin has a viable chance of becoming a real rival to a major currency or commodity anytime in the near future. Only geeks, libertarians, and other niche hobbyists have any reason to value Bitcoins. The entire value of the Bitcoin money supply today is around $120m. The U.S. money supply (M2), by contrast, is $8,945,900m. 

    The reason so-called “goldbugs” are skeptical of Bitcoin is because they understand why gold became a widely accepted currency: it’s shininess, luster, and attractiveness make it innately appealing to humans. It’s also scarce (but not too scarce), easy to authenticate, and not hard to measure and divide. 

    I’d love it if I could buy my groceries with Bitcoins, but I doubt that will be possible anytime soon. Meanwhile, I may even buy some as novelties (or to donate to certain worthy causes). But Bitcoins are destined to remain a niche product that, at best, merely augment existing fiat currencies for at least a couple more decades. 

    • If you don’t think bitcoins have what it takes to be a major currency and you don’t like gold, then I fail to see how you are a libertarian.

      Tell me you don’t want a violently imposed government fiat currency.

      • A B

        Howbout a non-violently-imposed government-fiat currency? Since that theoretically does not break the non-aggression axiom, one could perfectly be libertarian and advocate that in stead of either gold or bitcoin. It is Austrian economics — not necessarily libertarianism — that provides us with the insight that government fiat is inferior to market-backed media.

    • Jackson

      “I’d love it if I could buy my groceries with Bitcoins, but I doubt that will be possible anytime soon. ”

      Groceries denominated in bitcoins:

    • So, 3 years on, when the market cap is well into the billions and you CAN buy groceries and other goodies with bitcoins (or via easy coins to coupons systems), how do you feel now?

      And if you didn’t buy any, I bet you wish you did..

  • Servan Keondjian

    Its nice to see someone making the obvious link that if gold is money, bitcoin is better money more solid. I enjoyed this article, thanks..  I recently wrote a more ‘out there’ but less thorough version.

  • Rearden_Steel

    I love the idea of Bitcoin as a currency, but unlike gold there’s no way to trade it if you don’t have a computer or power to run a computer.  What would you do if the power grid failed and you have a large amount of your wealth tied up in a currency you can’t access?

    • There is no reason a person can’t use silver and gold as cash while holding a bank account in bitcoins.

      Further, if there is no power, you can’t access a normal bank account either.  Good luck getting your money out of an ATM if there is no power.

      I see silver coins being used for petty cash and bitcoins replacing gold as the ultimate trade facilitator. Exchanges will be setup in the future to convert metals into Bitcoins and vice versa.

    • Anonymous Coward

      Good point. There is a lot of things that can go wrong: power outages, internet outages, software bugs and design limitations (including  security issues), government ban. Precious metals don’t have these problems, and IMO are more reliable store of value because of their sheer simplicity and lack of any prerequisites whatsoever. I would like bitcoins more if they would be like banknotes in 100% gold standard.

      • The problem with bank notes (as our nation experienced several times over) is that the banks who issue them have a massive incentive to inflate the supply of notes above their reserves.

        This ALWAYS HAPPENS – over and over again – because the banks always move to take control of the governments and courts.  The government has a massive incentive to let the banks get away with it and the bankers have a massive incentive to do it.  The government then benefits from depressed interest rates it gets on its loans by letting the bankers artificially inflate.

        With Bitcoins, it is impossible to artificially inflate the supply of them.

        It is MORE SOUND than a gold standard because it is literally impossible to inflate the supply of them, unlike bank notes.

        • Anonymous Coward

          That what I was saying. Because bitcoins eventually are limited then scenario you presented for bitcoins as a banknotes is invalid. You can’t simply inflate them. I’m not convinced about them having value whatsoever. The only thing I would do today is accept them only to sell them for fiat money, which can buy me anything unlike bitcoins.

          • They have value for the purpose they serve.

            The purpose is to have a stable and secure medium of exchange that can not be arbitrarily inflated by a bank or a State and to be transportable across electronic wires while having the flexibility to be divided by 8 decimal places while retaining its value and be fungible.

      • If bitcoins were on a gold standard where would the gold be stored? Somewhere it could be confiscated. As for software security, it’s better than that of your bank. Regarding government ban, Thailand already banned it. The price went up. Banning bitcoin is like banning email.

    • If the world ends then your microwave won’t work either. So there’s that?

  • You heard it here first: Confidence is fungible.

    Unlike diamonds, but akin to gold and fiat.  Bitcoin is a near frictionless expression of confidence in an algorithm + anonymity as compared to the lack of confidence in banking cartels and bank holidays.

    Dave Harrison 

  • AK

    Another way that bitcoin is very much like gold is in the way it’s produced — mining. Time, energy and money must be spent in order to create new bitcoins. People are known to have invested more than $6,000 in bitcoin mining equipment, yielding a hefty profit in the process instead of the higher investment of over $100,000 for even a modest gold mining operation, which includes the difficulty in arranging for such an operation and the purchasing of land rights.  But you can still mine bitcoins on a free computer you found at the dump from 2001, the difference being, more computing power = more bitcoins, faster.  This effectively takes the mining operations (money creation) and as a result the control of the rate of inflation from larger corporations and places it in the hands of more private parties (though arguably the corporations HAVE the most computing power). The 21 million bitcoin cap is a final gate to the control of the money supply — whereas the supply can no longer be increased, minimizing inflation risks and taking away money creation control from whoever had it at that point (undue or due influence). Don’t forget that bitcoin can be traded to what the eight decimal place? 5 microcoins for a pack of smokes?

    Gold = physical money standard
    Bitcoin = web transaction standard
    Paypal and others (hopefully not Paypal in the future) = alternative money transfer systems

  • Aridzonan_13

    BitCoin is a competing currency.  And according to Ron Paul, they’re not enough of them.  My understanding of the BitCoin phenom is growing.  However, is it true the only thing that polices the system is it’s inherent transparency??  Where the BitCoin community makes sure no one is producing naked / counterfeit BitCoin.   If so, when enough free market forces are put into place to ensure the credibility of the BitCoin system, then the sky is the limit. And anything that promotes Linux is a good thing.

    • The cryptography makes it impossible to counterfeit a Bitcoin.

      The code that produces the cryptography is publicly available.

      The public ensures that the currency is sound because the public-at-large reviews all of the code.  If someone spotted something fishy in the code you can be sure they would be screaming bloody murder about it.

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  • Jocko

    and what’s the special up front loaded introductory price of necessary software to bask in the overflowing cryptic riches,    
    not everyone is totally self-absorbed into the oblivion of cyber-space, it could work because of the sheer numbers of the hand held device slave zombies 

    • Rearden_Steel

       It’s called free-market capitalism.  Just like companies make money on manufacturing the equipment to mine precious metals, so do the companies that make equipment and software for bitcoins.

    • The software is free open source.

      Doesn’t cost anything.

  • Smardy

    Money only has value when traded and gold is a pain to move/trade.
    Bitcoin is good but it has a major flaw. The late adopters are immediately poor. Whereas by virtue of early hearing about it or technology access. Early adopters are rich.
    Very few bitcoins still exist to be mined. which has the above problem. But more importantly no inflation is bad.
    The only thing that keeps money invested and working in the economy, not on a shelf increaseing in value for nothing. Is the central banking counterfeiting scam. Which causes inflation.
    The problem with the scam is that newly counterfeited money is not shared out evenly as existing money I’d devalued. You may think that would be unfair. But how much less fair is it that a cartel keeps the lot!

    Anon trading is good as it would stop income tax – or taking money without consent.

    • Late adopters of gold must also be “immediately poor” then as well.

      Early adopters of Bitcoin should become rich for having the foresight to see the future value of the currency.

      This is no different than people who bought Apple’s IPO becoming rich because they had the investment smarts to get in early.

      No inflation is a good thing, anyone who says differently is talking out their ass. You need to read some Austrian economics and stop listening to the Keynesian lies that got us into this currency crisis. If you don’t understand why people devaluing the currency supply by counterfeiting is a bad thing, I suggest you pick up a few books.

      • Aridzonan_13

         This article has been very educational.  All of the pros and cons are very interesting and have been an invaluable education tool.  I’m spreading the word.  Because I believe more monetary choices are good and using the dollar is just facilitating our destruction. I for one, am tired on being on $FedGov.Inc’s (note domain suffix) plantation. I’m still trying to wrap my head around the self policing aspects.  Could you elaborate?

  • Kenneth Michaels

    Bitcoin is not just a currency, it also is a service. Those that analyze it as a currency alone ignore the service aspect. Bitcoin provides a service that people currently pay for – securely transferring “money” over a distance between two identities. People currently pay banks, paypal, etc., for this service, but bitcoin does it for “free,” meaning that it inherently has value (the inherent value that everyone is looking for). As long as the exchange rate stays relatively stable over short time periods (long enough to convert from dollars to bitcoin then back to dollars), no matter what that exchange rate is, then it works and people will use it to securely transfer money over distances. In other words, bitcoin has no historical precedent and cannot be dismissed by the rules established by that history. 

  • Anonymous

    There’s quite a few missteps in your article, but they add up to merely less complete support for a correct conclusion.  I’m not yet an expert on it, but there’s a few myths I’ve seen – in these comments as well – that require little specific knowledge of Bitcoin to debunk.

    1. It has to “take over the world” to be successful.  No, it has to meet some of the needs of some number of people, and do so in a sustainable way to be successful. If 500 people happily use Bitcoin for decades, it’s quite successful.

    2. It has to be better than **insert favorite commodity here** to be useful.  No, it has to meet some of the needs of some people to be useful.  Nobody needs to give up their gold for Bitcoins, and nobody needs to give up their Bitcoins for gold.   Things are valuable because they are useful for a purpose.  “Trade” is not a purpose, it is a class of varied but related purposes, requiring various instruments to meet them.

    3. If it is too successful, it will face enormous deflationary pressures due to its fixed quantity.  No, and there are two reasons for this.  First, there WILL be fractional reserve banking applied to Bitcoins if it meets any decent success that people belive will last under the inevitable onlaught of legal attacks that are coming .  Nothing about bitcoin prevents this, and, like it or not Austrian Twitterati, markets demand it.  But the second is more important.  Unless I am misunderstanding, the number of algorithms to which this mathematical process can be applied is infinite.  Therefore, Bitcoin represents a new class of currencies, not just a single currency.  Bitcoin class currencies will proliferate, competing with as well as supplementing the original. 

    This proliferations addresses all three of these myths, in fact.  There is no “one true currency”, and there is no need, outside of the requirements of interventinist governments, to ever consolidate all the owrold;’s trade to one currency.  Markets do a fine job of letting them interoperate, when they are allowed to.  And markets do a fine job of expressing its preferred volume of currency. Some of those newly minted competitors will fail, or languish until demand catches up with them.  Some will implode from crises of confidence wrought by abusive players in its banking establishments, or flaws in implementation of the algorithm.  But regardless, the idea of competing currencies in the world, not just ten or a hundred, but potentially millions, renders the arguments like “gold is better!  No, Bitcoin is better!” beyond moot.  Free people of the future will have wallets with numerous currencies in them simultanously, including paper, and also have metals in their safes.  The quantity and value of money in the world will be determined by supply and demand, just like everything else.

    Markets abide.

    • I never made any of those statements in my article.

      • Anonymous

        Those weren’t statements in your article, they were a summary of what some of the commenters said. 

        Like I said before, nothing at all about bitcoin stops a bank from taking a deposit and loaning it out while still treating it as a demand deposit (with the depositor’s consent so there is no fraud).  There’s no reason the depositor has to get the same bitcons back that he deposited, just like the borrow won’t pay it back with the same coins.

        Deflation is just as bad as inflation, and worse for any loan market that exists.

        • They aren’t summaries either.  I never implied any of that.

          Further, a lot stops banks from fractionally lending Bitcoins, namely SHA2 encryption and a networked transaction digest.

          And no, deflation is not just as bad as inflation.  Deflation is a good thing.

          • Glilley

            Great article, but I’m not sure your comments about fractional reserve banking are completely accurate. See the article below in the Bitcoin forums about Botcoin myths.


            Fractional reserve banking is not possible

            It is possible. There is no fundamental difference between classical
            currencies and Bitcoin as it applies to banking. Banks will still be
            free to take in bitcoins and present them to customers as “available for
            withdrawal” while still lending most of those bitcoins to a different
            customer for a profit. Some of those bitcoins will be held in reserves
            in case of a bank run. It will be up to the bank to hold a sufficient
            supply of reserves in order to prevent insolvency in the event of a bank
            run. Central banks were established to enforce reserve requirements and
            so, with Bitcoin lacking a central bank, some banks will almost surely
            collapse, taking their customers’ deposits with them.

            See Fractional reserve banking.

            Conventional banks in the United States guarantee that account
            holders can withdraw 100% of their dollars based on their “word” and the
            fact that they are backed up by the FDIC.
            This program insures depositors up to a certain amount (currently $250K
            USD per depositor). The FDIC is widely known to have reserves
            sufficient to cover only a very small fraction of the total deposits it
            insures though the FDIC itself can be considered to be backed up by the
            US Congress in the event of its insolvency. After politically desired,
            the FDIC’s role could be extended to insure Bitcoin banks and establish a
            minimum reserve requirement. Such a change would only happen after
            public outrage occurs after the inevitable collapse of major Bitcoin

            Because Fractional Reserve Banking is possible with bitcoins, the
            money supply of bitcoins (which includes demand deposits) can greatly
            exceed 21 million.

  • To the author – very well said! It’s nice to find someone who understands that it is the very properties of gold, and of bitcoin, which make them valuable as a medium of exchange, and that their assignment as such is not just arbitrary.

  • I have to say that the existence of Bitcoin has exposed a lot fallacious thinking, and quite frankly, hypocrisy in the libertarian circles. The Rothbardian analysis of Bitcoin as money is interesting. It certainly blurs some of the traditional definitions. But whether Murray would have called it money or a money substitute makes no difference to me. It exists as a free market currency.Will it replace the Dollar? No. Will it take over the world? Not likely. Will it render gold valueless? Hardly. Does it serve as a medium of exchange and store of value for those who use it? Yes!Bitcoin has at least one major advantage over gold that I think many will come to appreciate and that is its lack of recognizable physical form. Gold is wonderful for its ability to eliminate counterparty risk, but its physical nature is also a liability, as it can be stolen or confiscated. Fleeing a politically unstable situation with your life’s savings in gold bullion – on your person – puts you in an extraordinarily vulnerable and desperate position. On the other hand, Bitcoin is invisible, and as such, far more adept at eluding capital controls – something every self respecting libertarian should appreciate.

  • Doomdumas

    Bitcoins have no know flaw, if no major Govt vote laws (illigit laws) to call them illicit, they may be widely use in a near future.  As being digital, it’s the way of the future !  Dont miss it while it’s cheap 😉

  • Stevoblevo

    Thank you for writing this article so I didn’t have to…  It needed to be done.
    Mises (and I assume Rothbard and others) however claimed a money must come about because it has non-monetary value (money being the most marketable good–meaning the most marketable good BECOMES money not just that money is something everyone wants).  The only thing I can really think of for gold is that it ‘looked pretty’ and felt substantial.  I argue that money does NOT have to have non-monetary value.  Bitcoin has no substantial weight in one’s hand and I hear the cryptography side isn’t all that elegant (doesn’t ‘look pretty’–but is effective).  The only non-monetary value bitcoin has going for it is novelty I suppose.  People chose gold because of its good money-attributes (durable, fungibility, etc as you outlined) and maybe it was initiated by some non-monetary value but now that we know what makes good money we can see Bitcoin does have good money-attributes.  We can CHOOSE to use it as money despite it having no “value” (non-monetary).  Clearly gold’s price at 1600 has nothing to do with it’s industrial value or value in jewelry-making as you said.  Bitcoin CAN become a major global currency, even pushing out fiat money from the arena.  In a truly free market Bitcoin has a place.
    Again, thankyou for writing this.

  • Actually, I was a little shocked to discover that libertarians weren’t all over Bitoin.  But then I recalled that it took a decade for the music industry to realize that a song wasn’t the same thing as a CD — and that an MP3 was just as valid a mediated form of music as something you could bang on your desk.  

    Your post is right on.

  • Peter Pan

    I understand the excitement of the
    author to have an independent currency without a centralized
    control. I also like the idea of showing a middle finger to the
    government structures that did everything to destroy our economies
    but yet they want their share of the internet trade, the same one
    they are working so hard to shut down. All this is understandable.
    But let’s chill out for a second and employ our brains-collectively.
    That’s what the blogs are for. Would anyone here would like to hold a
    commodity, the existence of which and value would totally depend on
    another commodity? Let’s say you hold a pound of wheat and it is
    totally dependent on a pound of soy beans or a pound of coffee beans.
    If the crop of coffee beans fails your pound of wheat is worth
    nothing and you cannot sell your pound of wheat. That’s what the
    Bitcoin is. It maybe a commodity as the author claims. Yes, it does
    have some intellectual labor invested in it. But it totally depends
    on another commodity-ELECTRICITY. No electricity-no bitcoins.
    Moreover, no internet-not bitcoin. Do you really believe that the NWO
    control freaks would let it sleep through their fingers? Why do you
    think they worked so hard on Ipv6? To let you run your Bitcoin
    networks? Let’s also remember viruses (like STUXNET that can target
    specific hardware/software). We all remember that on 9/11 they shut
    down the flight network for several days and they didn’t give a $hit
    about the losses it caused. What stops them from implementing the
    Internet switch? Nothing. What stops them from shutting down power
    grid and blaming it on terrorists? Nothing. An ounce of silver (or
    any other tangible commodity) in my hand is always an ounce of silver
    no matter what.

  • Peter Pan

    Speaking of electricity….The first
    country that figures out that they can base their currency on 1 KWA
    of electricity can have an alternative to gold based currency.
    Especially if the country doesn’t have any gold in its reserves, like
    Canada. Canada f.ed up all their gold and staffed its coffers with
    foreign toilet paper. But Canada does have electricity, which it even
    export to California and never gets paid in return, but this is a
    separate issue. Any industrialized country today depends on
    electricity more than on anything else. It’ll do two things-money
    will have a commodity base and the tariffs will become stabilized.
    Through electricity then all other energy commodities could get

    • Stevoblevo

      First off, what are you going to do with that silver?  Can you eat it?
      ALL money depends on other commodities for it’s price.  That’s how money is defined or “priced” as an index of what it can exchange for.

      Secondly, you may not realize it but you just said Bitcoin IS essentially backed by electricity.  That’s kinda like saying gold and silver are backed by gravity (their weight) [actually it would be whatever physics phenomenon is responsible for holding molecules together for ‘mass’]  Granted, the electrical grid is less reliable than nature’s ability to hold stuff together consistently and I understand you are saying if the grid goes down your bitcoin will be worthless.

      What I’m saying is if the grid goes down the shit has probably hit the fan, in which case your silver would be worth less than your butter, your sugar, your coffee beans, your grains and let’s not forget your hard liquer!

      We are VERY dependent on electricity in our modern society (though not as much as whatever holds the universe together, I’ll give you that.)

      Alright, my analogies aren’t that great, I should argue that silver depends on triple-beam balances or something.  whatever.  I’m tired, I shouldn’t even post this, hahah 

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  • radoslav.dimitrov

    Check out this new BitCoin exchange website – – it just opened up and the rates are like two times smaller than MtGoxs’! At the moment they are even paying you when you make an exchange as part of some promotion!

  • radoslav.dimitrov

    Check out this new BitCoin exchange website – – it just opened up and the rates are like two times smaller than MtGoxs’! At the moment they are even paying you when you make an exchange as part of some promotion!

  • I read this article intending to learn something about bitcoin, but then i came to the point where you say it is “logically impossible” for currency to be based on nothing, and yet that is exactly what the world’s reserve currency is based on, absolutely nothing.

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  • Nice, that’s helpful for me!

  • Brill Galt

    _____Money Can Be Whale Vomit?!____

    Money is just a medium of exchange.  Instead of trading eggs for flour, people buy the products or services based upon AN AGREED UPON “thing”.  If everyone agreed that “whale vomit” (WV) was money, then eggs might be “2 grams of WV” per dozen and 1lb of flour might be “3gWV”.  What makes money is THE AGREEMENT.  What makes PRACTICAL money are things like fungibility, scarcity, etc.
    Bitcoin IS money/currency and it is as unstoppable as an idea whose time has come. 

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