Tech Visionary George Gilder: "Bitcoin is the Libertarian Solution to the Money Enigma."

"The currency the Internet deserves and needs."

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Tech Visionary George Gilder: "Bitcoin is the Libertarian Solution to the Money Enigma."

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"Bitcoin is a breakthrough in information theory that allows [users] to conduct provable transactions that can't be changed…without reference to trusted third parties," says tech writer and investor George Gilder. "[Bitcoin] is the perfect libertarian solution to the money enigma."

When Gilder makes tech predictions, it's worth paying attention. In Microcosm: The Quantum Revolution in Economics and Technology (1989) he described how the silicon chip would usher in a new information age. In TELECOSM: How Infinite Bandwidth will Revolutionize Our World (2000), he predicted the rise of hand-held

computers and fiber optics. In Life After Television: The Coming Transformation of Media and American Life (1990), Gilder predicted that "telecomputers" would one day provide a limitless alternative to broadcast television. That was 15 years before the launch of YouTube.

Reason TV's Nick Gillespie sat down with Gilder to talk about why he thinks Bitcoin is a revolutionary technology. The interview took place at FreedomFest 2014, an annual convention for libertarians held each year in Las Vegas.

Shot and edited by Jim Epstein; additional camera Zach Weissmueller.

About 19:30.

Scroll down for downloadable versions and subscribe to Reason TV's YouTube Channel to receive automatic notifications when new material goes live.

Comments

[invisible furry hand]

"[Bitcoin] is the perfect libertarian solution to the money enigma."

The Money Enigma would be a great band name

[Poppa Kilo]

I saw them open for The Invisible Hand in Petaluma in '84.

[Drax the Destroyer]

Oh yeah, I remember that. That was the Commons Tragedy tour.

[sasob]

Sponsored by The Dismal Science?

[briannnnn]

I can't believe so many libertarians see no problem with a valueless currency. The only thing that keeps this from being fiat money is the fact that it has absolutely no backing. So it's basically the only thing more worthless than fiat money. But of course, any libertarian worth his salt would tell you that the government isn't in the business of stopping people from being stupid 🙂

[Christophe]

What backs gold?

- It's not redeemable for anything.
- No government backs it, or accepts it in payment for taxes.
- The industrial use value is a small fraction of the market price.

Here's a good place to read if you're a libertarian skeptic: http://evoorhees.blogspot.ca/2.....ction.html

[Jorono]

Thank you. What makes gold valuable is that no one else can produce it.

Same for bitcoin. There will only be so many produced, then that's it. Gov can't print it.

[briannnnn]

That is not what makes gold valuable. Supply and demand requires both supply and demand.

[waffles]

The demand is drugs, remittance, and any transaction that needs to be psuedo-anonymous and irreversible.

[briannnnn]

But someone can make their own new, more popular digital currency and wipe out the value of bitcoin instantly.

[waffles]

It's hard to beat that first mover network effect. It has use because it is useful. It has value because someone values it. Try to use some new digital currency and you'll get blank stares. You can buy most anything with bitcoin.

[briannnnn]

There are very few popular products that are not successfully imitated. It's just that in this case, the value of one can be completely wiped out with the creation of the other.

Even if Luvs kicks the shit out of Pampers in the market (it doesn't, just an example), I can still put some Pampers on my kid. If bitcoin somehow gets trumped by something else, then i'm all like "fuck..."

[Brian D]

Because when people started trading gold coins, silver was never used in commerce again.

[briannnnn]

That's a fair point. But, at least silver has inherent worth. So even though I get what you're saying, I still see a problem

[Knarf Yenrab!]

If human beings act purposefully toward particular ends, and the objects they trade for and use are intended for the fulfillment of those ends, it stands to reason that all value that people put in objects is subjective.

Probably the best way to understand that core concept is to look at the underlying nature of a trade. If you trade me an orange for my apple, there are no losers in that trade. It's a win-win precisely because of subjective, ordinal value--you value my apple more than you do your orange, and for me it's vice versa, so there's a double discrepancy in subjective value that makes the trade worthwhile for each of us. And that's why markets work at all.

But neither fruit has some quality of inherent value; the only value is how I can use that fruit to attain my particular ends, whatever those might be.

Anyway, bitcoin has value because it helps people fulfill their subjective ends, full stop.

[briannnnn]

Except I can't replace an apple with another fruit because it is not an apple. I can replace what I put my faith in as a means of exchange because that is just a concept.

[Knarf Yenrab!]

Someone who hates noble metals might still collect gold solely because he values it as a means of exchange based on other people's anticipated desires. That's still subjective value.

You can't just replace the means of exchange by announcing it--if you're trading, your money has to have value for the person you're trading with. You just have to value it less than the thing you're trading for. That's what market money is, and it's why traditional moneys are always a target of states, as they know that stable money supplies will always be a threat to fiat currencies. Bitcoin shares many similarities with traditional, stable moneys (inflation resistance and ease of divisibility among them), plus it has a built-in accounting system that replaces the old ledger system that bankers once used.

[briannnnn]

Sure. It wouldn't happen overnight, but gold and apples have always had value. We'll have to wait and see if Bitcoin holds it. My prediction, simply, is that it will not.

[Overt]

Briannnn-

What you don't realize is that NOTHING has a fixed inherent value.

Let's say everyone traded hammers for other goods and services. Hey, a hammer is a tool, so it isn't a "valueless" currency like paper fiat money or bit coins, right?

But really, how many hammers do you need? Maybe one or two. After that, the value of that hammer to you no longer has anything to do with its usefulness as a tool. It's only value is in whether other people NEED a hammer. But what happens if everyone else has 2 or 3 hammers. They don't need any more. The only reason they MIGHT take a hammer from you in trade is that they know SOMEONE ELSE will take a hammer in trade. At this point, the hammer's only value comes from its intangible currency, not from its value as a tool.

Bitcoin is the same, without the "tool" part. You say that tomorrow someone could come up with a new cryptocurrency, but that wouldn't end bitcoin. There would be a bunch of people with Bitcoins. Sellers and Buyers. If as a seller, I demand Darkcoins but no buyer has Darkcoins, I won't sell anything.

[briannnnn]

A hammer can hit nails. Also, I can make more hammers, so it's a shitty commodity for backing currency. Gold is good because there's a limited amount and I can make shiny things that women like with it.

[Overt]

A hammer can hit nails.

No shit. Did you read what I said? The value of a hammer means nothing once you have several.

Also, I can make more hammers, so it's a shitty commodity for backing currency.

Did you say you were a finance professor, because I think you are having trouble. The scenario I described is not a "Commodity backed currency". A commodity backed currency is scrip that says "I owe you one hammer" or "I owe you one oz of gold".

In any case, my point wasn't to advocate hammers as a form of currency. It was to point out that nothing has a fixed value. Even gold.

Gold's tangible uses- yes, even as jewelry- do not explain its current valuation. The more you have, the less valuable it is for you. If all you had was gold and no food or shelter, another piece of gold would have no value to you. The whole engine of commerce is caused by the relative difference between two peoples' surpluses. I have more time than food, so I work for food.

What gives gold its value is not its use for jewelry but, as you said, that it cannot be counterfeited or created without work (digging it up). Bitcoin is the same- it just has a different work associated with creating it.

[Cytotoxic]

Okay....that's still cryptocurrency. Forest for the trees.

[briannnnn]

Gold has a use outside of being currency. That makes any money backed by gold commodity currency. If I can trade an IOU for something of fixed value, I can always be assured that I have something of worth.

It is much less likely that the worth of a car vs. the worth of a gold bar will fluctuate dramatically than the worth of a car vs. the worth of some several pieces of paper that the government says are money. Fluctuation in value, to me, seems even more likely when there is absolutely zero backing as with bitcoin.

[Christophe]

something of fixed value

You're assuming the consequent. Gold doesn't have fixed value, even back when it was used as currency.

The first people to turn bullion into coinage became incredibly wealthy, because by doing so they made gold more valuable as a currency. Ever heard of Croesus?

The core insight of people building unbacked digital cash, in my opinion, is that ultimately money is a good like any other, and that it's value as a currency derives from demand, which derives from usefulness.

[briannnnn]

Fixed value perhaps is the wrong term. Closer to fixed value in a relative case. 1 unit of gold has a (close to fixed) relative value to 1 unit of water in a way that 1 unit of money does not.

[sasob]

Physical gold doesn't need any backing.

[Christophe]

But why is that true of gold and not Bitcoin? If you say "industrial uses":

1. That wasn't true for the longest time (gold had few uses outside of jewellry for most of humanity's history).
2. If demand for physical gold for uses other than industry dried up, it'd lose a lot of value (IIRC around ~80%). Certainly there's a huge premium baked in on top of whatever industrial use value there is.

[briannnnn]

jewelry is enough to create inherent value. I can't wear a bitcoin. Or do anything with it.

[Corning]

You can buy gold and make jewelery out of it which you can then wear.

[robc]

See my other post.

Chicks dig gold.

[briannnnn]

As soon as I read the part that said Paul Krugman thinks it's a bubble and a fad, I started questioning my own beliefs. There is no way that guy can be right about anything regarding economics.

[robc]

Gold gets you laid. It is fucking redeemable.

[Idle Hands]

So your saying pussy drives the currency market? I could see that, but would the Wutang Clan agree?

[briannnnn]

Cash rules everything around me, C.R.E.A.M. get the money, dolla dolla bill ya'll

[Christophe]

This is a novel and credible argument.
Kudos to you.

[mad.casual]

The only thing that keeps this from being fiat money is the fact that it has absolutely no backing.

Bitcoin - All the propaganda, none of the fiat.

[bassjoe]

All currencies are inherently valueless. The people who use them -- for commerce, investing, etc. -- give them value.

So what if USD is "backed" by the US government? What exactly does that mean? That the US government will go to war, bail out criminal banks, do multiple rounds of quantitative easing, etc., to make sure your toiletries' prices always go up by about 2% a year? Great.

[briannnnn]

Right. That is why fiat money is inherently worthless but commodity money is not. You can't print gold and people like to wear it. We could also back a currency with silver, which has more industrial uses if you want a more concrete example.

[sasob]

So what if USD is "backed" by the US government? What exactly does that mean?

It means the same thing as a hot check artist forcing you at gunpoint to accept his bad check as payment.

[Eggs Benedict Cumberbund]

"Money is trust inscribed." Niall Ferguson

[Fist of Etiquette]

"[Bitcoin] is the perfect libertarian solution to the money enigma."

Perfect Libertarian Solution would be a great orphan temp agency name.

[Poppa Kilo]

Temp agency? Would that include 'rent to own'?

[Swiss Servator, spare a franc?]

Now, now - doesn't jesse have that market cornered with Adorphan, Inc.?

[Swiss Servator, spare a franc?]

"Perfect Libertarian Solution"

Gun store.

[Tim]

Bitcoin is a threat to Government control, their ability to borrow and inflate. I would suspect that more than one agency is trying to subvert or destroy Bitcoin.

[sasob]

Bitcoin is a threat to Government control, their ability to borrow and inflate.

So is gold - that's why government and the economics flimflammers have always hated it.

[robc]

Gold can be seized. That is one advantage of btc.

[briannnnn]

Bitcoin is invisible and inherently worthless. That is one advantage of commodities.

[robc]

Have you read my posts?

[briannnnn]

Yes. We're each pointing out the advantages of the two currencies. I do like the idea of a completely unregulated, anonymous currency, but not the idea that its value can be wiped out at a moment's notice.

[sasob]

Gold can be seized.

Only if someone knows you have it.

That is one advantage of btc.

Only if you think the government wouldn't "seize" your life and offer to trade it to you for your bitcoins.

[Cytotoxic]

They can seize and trade you for gold too.

[Swiss Servator, spare a franc?]

A whole room full of gold?

http://latinamericanhistory.ab.....hualpa.htm

[sasob]

Small room. Besides, much of it was probably hollow ware which takes up more space.

[sasob]

They can seize and trade you for gold too.

Or if I don't have any, they can penalty tax me? A tax on not owning any gold for them to seize? What would be next - a tax on not owning any health insurance? Oh, wait...

[Homple]

"Only if someone knows you have it."

If you try to use it, somebody knows you have it.

[mad.casual]

Bitcoin is a threat to Government control, their ability to borrow and inflate.

Explain to me how bitcoin prevents anyone, let alone a government, from borrowing/inflating/speculating?

Seems like it would only work through some sort of social bureaucratic enforcement.

[Tim]

When you control the currency and you run up a huge deficit, you can inflate your currency to effectively reduce your debt. Because the citizens money is reduced in value it is a tax.
A government can't control bitcoin so they can't inflate it.

[briannnnn]

No government, or any other entity has to do anything for a currency to become inflated/deflated. Look at the value *ahem* price fluctuation of Bitcoin over its short life.

[robc]

Price has nothing to do with inflation.

Inflation is monetary. We know the exact rate of future btc inflation and that it has a cap.

[briannnnn]

No, price is the only thing that matters in inflation. Inflation is simply the relative value of a currency to the price of the products it's used to purchase. In fact, having a limited amount of total bitcoin could mean that at some point the price of a product is every single bitcoin in existence (obviously not likely, but still theoretically possible).

[tarran]

Inflation is simply the relative value of a currency to the price of the products it's used to purchase.

No it's not.

True, if you listened only to the perfectly coiffed newsreaders, you'd think that, but while inflation can lead to price increases, they are not synonymous.

Inflation is the growth of the money supply. Period. It leads to higher prices when people use that newly created money to try to outbid other buyers for goods both sets of people want.

Bitcoin is a crappy store of value. It's right now the best way to engage in transactions anonymously. And the upper limit on the number of BTC that can be produced allows those who seek to hold bitcoin for those transactions to predict that their holdings won't be rendered valueless by inflation.

[briannnnn]

Thank you. I will go ahead and actually go with what inflation is, and you go with what you somehow think it is.

I can give you two cites if you like.

1) http://www.investopedia.com/terms/i/inflation.asp

2) I am a finance professor.

[tarran]

I'll go with Ludwig von Mises over your investopedia link.

And, your superciliousness, while very impressive, really isn't a convincing line of argument.

[briannnnn]

Ironic from a man who insists on using the word supercilious.

[briannnnn]

And in von Mises day that probably was the accepted definition. It isn't anymore. Please see the link posted by robc.

[tarran]

It isn't anymore.

Then the 'accepted' definition is crap.

It would be as if in physics teachers started to define energy as a measure of the change in momentum. Eventually, you'd have physicists blending the two concepts, and their ability to analyze phenomena and make predictions would pretty much be crap.

[briannnnn]

Hmmmm...at the risk of sounding supercilious, that is how the term is used in every economics class at every university in the world and the only definition you will regularly find. Inflation refers to price inflation. If you want to talk about monetary inflation, then say monetary inflation.

[robc]

Repeat after me: inflation is monetary.

It has nothing to do with price. You have been corrupted by 50 years of misuse of the word.

[briannnnn]

Inflation involves nothing but price.

[robc]

You are an idiot. "Price inflation" is not inflation. The word inflation means "monetary inflation" but shouldnt need the modifier.

[briannnnn]

Although I agree with milton friedman on just about everything, simply using his explanation for why inflation exists does not mean it is the definition of inflation.

[briannnnn]

One more cite just for fun.

http://en.wikipedia.org/wiki/Inflation

wikipedia is good for some things!

[robc]

http://en.m.wikipedia.org/wiki/Monetary_inflation

See the 2nd sentence.

[robc]

And by 2nd I mean 3rd.

[briannnnn]

You mean this one "Originally the term "inflation" was used to refer only to monetary inflation, whereas in present usage it usually refers to price inflation"

Which explicitly states that present usage usually refers to price inflation?

[robc]

Im saying reasonable people havent switched usage. Around here, inflation is monetary. If you are readind Mises, for example, you need to know what economists meant by the term.

Non-statist economists aren't happt with the terminology change.

[briannnnn]

I'm an economist. My colleagues too. I don't understand who these economists you speak of are. Are you referring to yourself?

[robc]

How does an economist not know about the history of the word inflation?

[briannnnn]

I do know the history. As well as its current accepted use.

[Knarf Yenrab!]

There's been a massive bitchfest about the history and meaning of inflation at Bob Murphy's site for the past several weeks. As usual, it's probably Peter Schiff's fault.

What this does indicate is that modern economics is basically a bunch of language-fired hokum (the MMT explanations of the origins of money are crazy--as though people would've started accepting money thousands of years ago by fiat of some hut-dwelling warlord rather than actual utility) and that economics as a legitimate field of investigation is much narrower than the positivists would like.

Which also happens to be why they go all Krugman when you trot out Hayek and falsifiability arguments as tests for the positivist methodology.

[mad.casual]

A government can't control bitcoin so they can't inflate it.

There are approximately $1 Trillion dollars in circulation. The U.S. Gov't carries a debt of $17 Trillion based on a GNP of roughly the same. Explain how the situation changes when you change $ to BTC? Because the Trillion will be capped at 21 million? What happens when we reach the 21 million cap and the/a government (or George Soros and the Koch Bros.) holds 10.6 million of them (or 15 or 20...)?

Bitcoin is only revolutionary because of it's nascent nature and governments have been subjugating private currency and investment vehicles for a long time.

A government can't control bitcoin so they can't inflate it.
Technically, bitcoin would be easier to control than drugs, gold, or liquor. I can buy or make liquor in complete (not just pseudo) anonymity. Nothing says 'impossible to control' quite like 'network'.

Personally, I think BTC and a lot of it's proponents have things very backwards. There's a magical mentality that if we get the accounting right; we'll finally have control. The IRS, Federal Reserve, CBO, FTC, etc. will dissolve and it's employees will quietly amble off into other jobs and the rest of the gov't will still work and work well.

[robc]

Meh. Its still fiat money so fails to solve the fundamental problem. Being better than every other fiat currency is a low bar.

[briannnnn]

It's not fiat money, it's worse. Fiat money at least has government backing!

[robc]

That makes btc better, not worse.

[briannnnn]

Course it makes it worse. If something new replaces bitcoin, all of your money disappears and there's nothing you can do about it.

[Jorono]

If everybody stops using gold, ditto. It's what everybody agrees to use that makes the medium valuable.

If everybody is using bitcoin, that's its value.

[briannnnn]

You can't wipe out the value of gold unless you create something that mimics its use. I understand that created diamonds, which are virtually identical to natural ones, still aren't even good enough to wipe out demand for natural. I somehow don't see it being the same with invisible currency.

Then again, who knows. This is a new experiment. It could be fantastic. I can't guarantee that the value of bitcoin will be wiped out, but I can damn well guarantee the value of gold will not.

[robc]

Governments seize gold. But otherwise you would be correct.

A cryptocurrency backed by gold would be awesome. But that requires physical storage. And that is succeptible to theft or seizure.

[briannnnn]

Sure. that is the problem with physical backing. There is no perfect system.

[robc]

There is no perfect system.

Exactly. You finally understand.

Both gold and btc are better than dollars, but both have flaws. Its why competing currencies is the answer.

[briannnnn]

Has nothing to do with finally understanding. Gold is proven. Bitcoin is not. My view is that it will fail miserably. But I can't prove that because it hasn't been around long.

[mad.casual]

Both gold and btc are better than dollars, but both have flaws.

I don't agree with this. BTC can be every bit as flawed, if not more so, than $$$.

If the U.S. Nazi Party took power tomorrow and started exterminating the Jews. I wouldn't recommend the Jews liquidate their assets to BTC and go to ground.

IMO, hype was and is a problem with BTC. It has been championed as a giant (government) killer by lots of people with very little expression as to how that end is achieved. It's like a hacker just discovered how to make a webbot kill government bureacrats and told everyone about it; and everyone's just waiting for the gov't to topple.

I think most all of us lived through a time when the information superhighway was going to do much of the same. I can remember my parents telling stories about econ classes describing cashless societies where logistics obviated the need for inefficiencies like warehousing. Good thing I didn't start holding my breath a generation ago.

[robc]

No, you still have the exact same number of btc you had before.

[briannnnn]

Yes, but they are completely worthless if something else takes their place, and since they are not commodities, that is theoretically possible.

[robc]

So, exactly the same as dollars but without the threat of inflation.

Like I said, the best of the fiat currencies.

[briannnnn]

There is always inflation. Having a limited number of dollars does not prevent that.

[robc]

A fixed monetary supply is the definition of no inflation.

[briannnnn]

Really? So when new technology appears, the CPI does not change even if the money supply stays the same?

[robc]

Cpi is not a measure of inflation. Its a measure of prices. And a bad one at that, but that is beside the point. Change in M2 is best government produced measure of inflation.

[briannnnn]

Yes it is. "The annual percentage change in a CPI is used as a measure of inflation" from wikipedia if you trust that source.

[robc]

That source is making the same mistake you are making, which is confusing price inflation with inflation.

Read any economics pre1965 and the word inflation refers to monetary inflation.

Inflation is monetary.

The government prefers using price because if they indexed to inflation, they would be even more fucked.

[briannnnn]

I wasn't even born in 65 bro

[robc]

So? I wasnt either, but my dictionary is older than me. Seriously.

Do you not read stuff from pre-65? I wasnt around in elizabethan times but I read Shakespeare.

Language changes and sometimes you got to roll with it. But not here, here Im hding ground. Standing athwart history yelling STOP.

Thats another reference from before you were born.

[briannnnn]

In Shakespeare's time the words "what for" meant "why" because they came from "porquoi" in French. "what for" still means the same thing, but it is not commonly used.

[briannnnn]

And I dig you quoting WFB. He's one of my favorites.

[sasob]

Really? So when new technology appears, the CPI does not change even if the money supply stays the same?

Oh, indeed, it changes. It also changes whenever the government tinkers with what is to be included in it. It's almost useless, except as a means for government to con the citizens into believing they aren't getting screwed as badly as they are.

[briannnnn]

Yes. I'm just saying money supply isn't the only factor in inflation. Although Papa Milton does think so, so maybe I'm wrong. He's got a Nobel prize after all.

[robc]

When Friedman uses the word inflation, he means the sane thing I do.

[briannnnn]

That makes no sense. The quote I'm referring to is

"Inflation is always and everywhere a monetary phenomenon"

There would be no reason to use that qualifier if he were referring to monetary inflation only.

[robc]

Although with fractional btc banking, there could still be inflation if the velocity of money was increasing.

[robc]

With btc M0 is capped, but M2 could sill be increasing or decreasing. But inflation/deflation would be very limited.

[generalisimo14]

briannnnn why the Bitcoin hate? Bitcoin offers the ability to have secure, anonymous, auditable transactions easily and electronically without the potential for fiat manipulation. It can be divided infinitely and cannot be reproduced so it is naturally deflationary. Using triple ledger accounting systems, and a digital currency such as Bitcoin with implicit block chain evidence of transactions, accounting fraud would be virtually impossible under the correct controls. It is also relatively easy to circumvent capital controls using Bitcoin. There will be enormous resistance to its acceptance and onerous regulations if it even allowed to exist in its current form. Your claim that at least fiat has government backing and therefore is more valid is insane. Whereas Bitcoin is ethereal and has no blessing of an authority, it has utility. Who in their right mind thinks that a U.S. Government promise to pay its current debts (excluding future debts!) is even remotely possible without massive inflation? The ways TPTB will destroy Bitcoin will be to counterfeit it (which makes it just another fiat), take down the net (not likely but possible), or to corner the market. "Give me control of a nation's money and I care not who makes it's laws" ? Mayer Amschel Bauer Rothschild

[briannnnn]

I don't hate the idea. I hate that its value can be wiped out very easily because it has no commodity backing. Very similar to fiat in that way and that way alone.

[generalisimo14]

The only thing that proffers value is that people are willing to give it value, they trust. Currency is a confidence game one and all. You can have faith in a currency because X said so and you must pay your taxes in X's currency. Or you can have faith in something that has solid physical, mathematical, and cryptographic assurances of authenticity. Given X's track record of lies, manipulation, theft, and overall tyranny, I'm going to trust the math on this one. BTW US dollars have no commodity backing. It has been unpegged from gold since Nixon's administration. Hence, our current conundrum of default or jubilee.

[briannnnn]

Yes. And gold has inherent value.

[generalisimo14]

Gold has no inherent value! It has value because people give it value (read More's Utopia). Inherently gold is dense, soft, malleable, and ductile with an atomic number of 79. Gold has value because it cannot be counterfeit and people could verify authenticity with a simple acid test. Hence they TRUST its authenticity and hold it in value for that property. TPTB can't inflate it into oblivion through fiat decree, but they can confiscate, steal, and mine it. By your logic Bitcoin should be an even greater store of value due to its deflationary nature.

[briannnnn]

And because you can make shiny things people wear with it. Inherent value.

[generalisimo14]

Gold by itself is a rock, no inherent value. But people choose to value it due to its inherent properties. Bitcoin is an algorithm. People choose to value it much the same as gold, only better because it is easier, faster, and transactions are logged within the Bitcoin itself (an inherent property of Bitcoin). And I just read you ramblings on inflation with robc so I'm gonna leave you alone. Economist!?! Reeeealy 😉

[sasob]

Inflation - or monetary inflation if you will - is not only expansion of the money supply but can also be the expansion of the supply of credit.
I may be missing something, but what would prevent governments or central banks from creating credit, denominated in bitcoin, out of thin air?

[robc]

They could, but when they have to pay it off, they cant just run the printing press.

It would be no different thsn if I wrote you an iou for 10 btc. I either pay or default.

[mad.casual]

They could, but when they have to pay it off, they cant just run the printing press.

They just do what Mt. Gox did and throttle the traffic through their exchanges.

[sasob]

It would be no different thsn if I wrote you an iou for 10 btc. I either pay or default.

And of course, governments never default - nooooooo.

It strikes me that the same thing would happen as in 1933, when the government had issued far too many "IOUs" to redeem them in gold at the official and artificial price of $20 an ounce. So it forced everyone to turn in all their physical gold at $20 an ounce, outlawed private ownership of monetary gold, and then raised the official price to $35 per ounce. In essence defaulting.

[robc]

See my fractional banking post.

[The Late P Brooks]

Perfect Libertarian Solution would be a great orphan temp agency name.

That's what I call my orphan powered palanquin transport service.

Cease and desist, immediately.

[Alice Bowie]

Governments won't tolerate losing the ability to print money.

Plus, given the volatility of a BITCOIN itself, I really question if this is the way to go.

I'm all for a cyber currency, however, I don't see the actual accounts being anonymous. Even if the BITCOIN Traders and providers claim so.

[IAmNotDoritos]

There is no trust, therefore any currency system depending on trust is ultimately worthless. The underlying value of bitcoin may approach the world's wealth divided by 21 million, as it is the first trustless digital currency, with the largest amount of infrastructure and investment. To anyone suggesting a gold backed cryptocurrency, please also include the means by which trustlessness is achieved.

[IAmNotDoritos]

Actually the value 21 million will need to be reduced in that calculation to account for lost private keys, but you know what I mean.

[mad.casual]

Actually the value 21 million will need to be reduced in that calculation to account for lost private keys, but you know what I mean.

Incorrect. 21 million is the correct number, any reduction is an external control on the system.

[robc]

Was this my first monetary v price inflation throwdown of 2014? They used to be much more regular.

[Ivan Pike]

Was this my first monetary v price inflation throwdown of 2014? They used to be much more regular.

Reason has declined in quality since registration.

[generalisimo14]

Perhaps the bar is raised?!?

[Citizen Nothing]

As others have said, any commodity-backed money will suffer if the commodity loses value. If your Petrobuck is backed by a barrel of crude, what happens to its value when John Galt invents his miracle power-generating machine?
One inherent advantage for paper money: you can always use it to wipe your ass.

[sasob]

If your Petrobuck is backed by a barrel of crude, what happens to its value when John Galt invents his miracle power-generating machine?

Nothing happens as long as someone didn't issue more Petrobucks than exists barrels of crude to redeem them. You'd still get your barrel of crude, but it might not be as desirable as it once was - either for its intended use or in terms of other commodities. Nothing has guaranteed, unchanging value in this world - not even one's own life.

[briannnnn]

Correct! Like sotweed or beaver pelts. but not like invisible fantasy money.

[Overt]

There are two problems with Bitcoin. One, it is only pseudo-anonymous. While your name isn't on the transaction, all of your transactions are linkable to one person allowing a dedicated investigation to identify you personally. Second, there have been several studies showing that a well funded attacker could capture it with a couple billion dollars- peanuts to even small governments.

I think the ideal currency would be a cryptocurrency backed by energy generation. Here is how I could see it working:

You build a power plant capable of outputting a certain rate of energy per time period. As the owner of the plant, you sell IOUs to an exchange, signing the IOU with your public key. This sets the monetary supply- each power plant can only issue enough IOUs as they could fulfill during some market-determined timeframe.

The value of this system is it allows the money supply to grow as the economy demands more power. The people inflating the supply (power plant investors) will not do so if there is already too much money in the system.

[mad.casual]

Will nuclear power be regulated or unregulated?

[briannnnn]

It's the same as a commodity backed currency except you have an unlimited supply of the commodity.

[Overt]

It's the same as a commodity backed currency except you have an unlimited supply of the commodity

No, it is not the same as a commodity backed currency. It is a commodity backed currency. (And by the way, we have a functionally unlimited supply of Gold in this universe too).

In general there are two conflicting monetary problems with commodity-backed currencies. If the commodity is too easy to create (like, say, wheat) it becomes too easy for someone to flood the market, devaluing the currency. If tomorrow someone discovered a massive gold mine, even gold would lose its value. On the other side, if we cannot get more of the commodity, then as the economy grows, there isn't enough money to go to everyone. This requires splitting the commodity into smaller and smaller bits which may not be feasible.

By choosing power generation as your backing, you are basically backing your scrip with the economy itself. A growable resource like corn is only valuable for food- and you can quickly get to a point where you have more food, but your economy still needs to grow. Energy on the other hand is a direct requirement of the economy. It can be produced in many ways and transported in many ways.

[Overt]

A growable resource like corn is only valuable for food- and you can quickly get to a point where you have more food, but your economy still needs to grow.

I mistated this- what I meant was that the wealth production of your economy and the production of your fields are only loosely coupled. Productivity gains in your economy or in your food production could cause over demand or over surplus between the two. If I am forecasting demand for food, that might be very different than the demand for currency. However, when I forecast demand for energy, it is largely a forecast for economic activity since pretty much every form of economic activity requires energy.

[sasob]

(And by the way, we have a functionally unlimited supply of Gold in this universe too).

Yes, except that it would cost more than it is worth to obtain or produce with the existing means at our disposal. So for all practical purposes it is a limited supply at this time.

[sasob]

On the other side, if we cannot get more of the commodity, then as the economy grows, there isn't enough money to go to everyone.

In other words: deflation. But all that really means is that the existing money's purchasing power or value becomes greater - and the prices of goods and services likely will be lower as the economy grows.

The only people who seem to have a problem with that state of affairs are those (such as the government) who have borrowed until they are in hock up to their eyebrows. They find it takes more and more production of goods and services - or higher taxes - to get the money to repay their debts. Gee, maybe they should have lived within their means.

[Cytotoxic]

RE above: there are altcoins backed by gold, one of which is called MinaCoin. More importantly is SafeCoin, which will be the coin for use of the MaidSafe network. This will act as an unseizable standard composed of a massive computer network.

[Corning]

This will act

Be wary of coins that release to the public before their features are coded.

I am thinking the hammer of the market will be coming down on altcoins that do this sooner rather then later.

You might not remember the tech bubble.

These promises that many of these coins make sound very much like the promises made during the dot com bubble.

[Corning]

Bitcoin is not deflationary yet.

Mining for bitcoins prints a shit load new coins everyday and is set to for a few more years.

[Steve Rider]

Bitcoin is revolutionary but is doomed to be obsolete in a few years only because something better will expand on its capabilities. Leading the charge seems to be Ethereum. Everything this guy talks about of smart contracts, identification, reputations, can be utilized using the peer to peer verification approach which Ethereum aims to address. Bitcoin's activity in the form of currency trading is just the tip of the iceberg. As private currencies start to emerge (which Ethereum and others are offering), it could have a massive impact on the world. If government currencies suddenly aren't in demand, and people can trade anonymously around the world, things could get pretty interesting.

[REMant]

Like the rest of these "tech" gurus, it would help if Gilder ever really knew what he was talking about. In this case he'd find Austrian economists long ago developed the idea that productivity decreases prices, and, of course, classicals like Ricardo before that. Hayek talked about markets as information networks long ago, and, of course, many others, like Arrow, have developed the theory of imperfect information. But despite transparency you can't trust Bitcoin either. It is still a private bank, if not in business for itself, and it has competitors, which together make for return to the free banking of the 19th c. Friedman was for the latter, but unfortunately believed in simple quantity theory. Gilder is right tho that he was normative, ie, a mercantilist, and believed no less than Keynes that the key to economic growth lay in spending, instead of saving and productivity.

[Hugo S. Cunningham]

A fiat currency that inflates in a roughly predictable range is a more useful trading medium than an ideological toy whose value goes up and down like a yo-yo. (But owning a small amount of the toy might be fun.)

If a wish-currency like Bitcoin became large enough to stabilize the yo-yo variations, then it would be large enough to attract predators (thieves, counterfeiters, etc).

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[Plutonius]

All new developments must be used, because they can really help people to make purchases through the Internet easier. Also there is an online service that help people to get no checking account cash advance. The service is matching the potential borrowers with the direct loan lenders, so all terms and conditions are individual. The money is transmitted directly on your bank account just in 24 hours, so you may use it for any purchases in the Internet very quickly.

[Sanjuro Tsubaki]

Gilder is the go-to guy for bold pronouncements that don't come true at the right time. He's everybody's crazy uncle.

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[REMant]

stupid