# Lifestyles & Discussion > Bitcoin / Cryptocurrencies >  Don't buy Bitcoins

## Nielsio

See also the last 5 minutes (the Q&A) of: _The Economics of Legal Tender Laws_ (by Jorg Guido Hulsmann) http://mises.org/media/1521 .

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## hazek

Wow what a stupid argument. I mean wtf?! How do you price gold? or silver? or anything really? I mean if BitCoins are a scarce commodity, which they are, why can't the market through supply and demand determine the price just like any other commodity.

And it has absolutely no relevance if BitCoins were used for the sole purpose as a store of value or just plain stinky collectible items. Supply and demand is what sets the price. But even so there are goods and services being offered for BitCoins, sometime exclusively. I suggest you check out: https://en.bitcoin.it/wiki/Trade

Of course dollars are a commodity! What planet are you from? And the only thing the legal tender laws prevent is using BitCoins to settle public debts and paying taxes where as you can trade them for virtually anything else.

Ah and finally a strawman argument in the form of a pyramid scheme where he first doesn't fully understand how BitCoins even work from a technical standpoint and second doesn't understand how a commodity much like got becomes valuable.


Seriously, guy doesn't have a clue what he's talking about.


As long as BitCoins can maintain their technical integrity they will remain valuable as much as the market will think they are and I don't see them losing it.

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## efiniti

What he is saying is true and based off of logical arguments from mises, however I'd have to counter with a few points

1) There is a level of scarcity in bitcoin.  As long as you can't cheat the system then no individual can simply amass a million bitcoins in an instant. 

2) There could be a market for bitcoins.  As the State crept into the digital world making rules for copyrighted works they created an artificial scarcity for files like driving p2p sites underground.  Bitcoins could serve as a currency for pirates, arrr.  

If bitcoins couldn't be used as money then it'd be self evident but you can actually buy a few things with them at the moment.  I do agree with him in that buying them now is kinda dumb.  Especially since its designed to inflate for a while.

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## Teaser Rate

Although Im not a proponent of Bitcoins, Im not sure your argument is valid. Youre right that any form of money requires a guarantee that it will store wealth, however this guarantee does not have to come from an internal source within the money itself. 

Most forms of money are primarily backed by trust, not intrinsic value. Even gold and silver derive most of their value from the fact that other people will trust it and accept it as a form of payment. If Bitcoins can ever achieve universal acceptance (which I really doubt) then the fact that they are worthless in isolation does not make them any less useful than other forms of money. 

Your point about it being a Ponzi scheme is interesting, but if you were to apply that same standard everywhere, then most of our economy would be a Ponzi scheme; as it relies on trust and implicit contracts more than it does on explicit rules.

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## low preference guy

> Although I’m not a proponent of Bitcoins, I’m not sure your argument is valid. You’re right that any form of money requires a guarantee that it will store wealth, however this guarantee does not have to come from an internal source within the money itself. 
> 
> Most forms of money are primarily backed by trust, not intrinsic value. Even gold and silver derive most of their value from the fact that other people will trust it and accept it as a form of payment. If Bitcoins can ever achieve universal acceptance (which I really doubt) then the fact that they are worthless in isolation does not make them any less useful than other forms of money. 
> 
> Your point about it being a Ponzi scheme is interesting, but if you were to apply that same standard everywhere, then most of our economy would be a Ponzi scheme; as it relies on trust and implicit contracts more than it does on explicit rules.


In the long run, all forms of money that don't have any non-monetary value collapse. Gold and silver both have value also when they are not seen as money, which is an essential requirement for sound money.

Gold and silver developed naturally as money in the free market without any intervention from the government. As Hayek puts it, money is the result of human action but not of human design. They did not become money because of "trust", they became money because they were valuable in themselves and had good properties such as duration, divisibility, and relative scarcity. The "trust" and the added value for being used as money only appeared later; it's a secondary characteristic.

Returning to real money is inevitable. If it isn't done voluntarily, the Ponzi scheme will just collapse.

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## jmdrake

I think people who "buy" bitcoins as some kind of investment are missing the point.  (At least how I understand it).  Get creative.  Write an e-book, set up a blog and try to *earn* some bitcoins.  If someone offered an interesting e-book for $5.00 USD and I could buy it for what is essentially $4.00 USD worth of bitcoins I'd do it.  Plus this transaction couldn't be shut down like Wikileaks PayPal account was.

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## hugolp

> Gold and silver developed naturally as money in the free market without any intervention from the government.


Exactly as bitcoin.




> As Hayek puts it, money is the result of human action but not of human design.


Now you are playing with semantics. Bitcoin can be considered the result of human action. One person designed a system that he though could be useful and bitcoin has become famous because of human action, not because someone designing it that way.




> They did not become money because of "trust"


Yes they did. Its Mises regression theory. People value something as money because previously it served as money. People trust something as money because it was useful as money previously, but there is absolutely no explicit gurantee. This applies as well to gold and silver. There is no explicit guarantee in gold and silver.




> , they became money because they were valuable in themselves


Value is subjective. Nothing has value in themselves.




> and had good properties such as duration, divisibility, and relative scarcity. The "trust" and the added value for being used as money only appeared later; it's a secondary characteristic.


Why is it important that gold and silver had some previous uses that ease their way into being money while bitcoin didnt? The point is that people find them useful as money (or dont).




> Returning to real money is inevitable. If it isn't done voluntarily, the Ponzi scheme will just collapse.

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## hugolp

Just watched the video. Its really sad when someone that follows austrian economics does not understand subjective value and entrepreneurship. From a keynesian one can expect such basic errors but from an austrian? Sad.

The whole argument of the video is based in the idea that for something to become money it has to have a previous utility (besides being money). Why?!?!? If people find someting useful as money and that creates a demand who is anyone to judge how we got to that situation? Why it is so important the difference between: it had a previous use and then became useful as money or some entrepreneur designed it and the market accepted it? Now entrepreneurship is bad?

You can critize bitcoin because you think the market wont select it as money. That is fine and time will tell. But Bitcoin respects Mises regressiom theorem, attacking it that way its dumb. And it is specially dumb if you are an austrian and to attack bitcoin you violate the subjective theory of value and diss entrepreneurship.

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## hazek

Well said hugolp, I was too upset at an "austrian" for making a video like that to keep such a calm tone in my reply as you did. Good job.

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## Nielsio

*Don't Buy Bitcoins, part 2*

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## hazek

My comment which I also posted under this video on youtube:




> I honestly can't tell whether this guy is delusional or just plain﻿ stupid.
> 
> Hey buddy, ever heard of local voluntary currencies such as Ithaca hours or BerkShares? And those are just 2 examples from hundreds and hundreds of such currencies across the globe. I strongly suggest you learn about how the real world works and what the reality is and you stop embarrassing yourself with all these nonsense videos.


EDIT: Here, I suggest you read this: http://en.wikipedia.org/wiki/Local_currency

And please, don't hurt yourself once you see what the reality really is.

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## hazek

Oh and another thing you could read is this awesome post:

source: http://paulbohm.com/bitcoin-decentralization/

Recently I've read a lot of claims that Bitcoins don't have intrinsic value. I've come to a different conclusion. Bitcoins have intrinsic value if they enable desirable interactions that are not possible without them. Bitcoin is a theoretical and practical breakthrough that makes it possible to decentralize services we couldn't previously decentralize.

To elaborate: Bitcoin isn't just a currency but an elegant universal solution to the Byzantine Generals' Problem[1], one of the core problems of reaching consensus in Distributed Systems. Until recently it was thought to not be practically solvable at all, much less on a global scale. Irrespective of its currency aspects, many experts believe Bitcoin is brilliant in that it technically made possible what was previously thought impossible.

The Byzantine Generals' Problem roughly goes as follows: N Generals have their armies camped outside a city they want to invade. They know their numbers are strong enough that if at least 1/2 of them attack at the same time they'll be victorious. But if they don't coordinate the time of attack, they'll be spread too thin and all die. They also suspect that some of the Generals might be disloyal and send fake messages. Since they can only communicate by messenger, they have no means to verify the authenticity of a message. How can such a large group reach consensus on the time of attack without trust or a central authority, especially when faced with adversaries intent on confusing them?

Bitcoin's solution is this: All of the Generals start working on a mathematical problem that statistically should take 10 minutes to solve if all of them worked on it. Once one of them finds the solution, she broadcasts that solution to all the other Generals. Everyone then proceeds to extending that solution - which again should take another ten minutes. Every General always starts working on extending the longest solution he's seen. After a solution has been extended 12 times, every General can be certain that no attacker controlling less than half the computational resources could have created another chain of similar length. The existence of the 12-block chain is proof that a majority of them has participated in its creation. We call this a proof-of-work scheme.

If that sounds confusing, don't worry. What it means is just that consensus is reached, because computational resources are scarce. You vote with work. To rig the vote an attacker would need to control more computational power than the honest nodes. To ensure it's more expensive for an attacker to purchase the computational power needed to attack the system, Bitcoin adds an incentive scheme. Users who contribute computational power get rewarded for their work. If the value of a Bitcoin rises and thus attacking the system becomes more profitable, it also becomes more profitable for honest users to add computational resources. At any given point, one would expect miners to invest as much resources into mining as is profitable for them. Bitcoin is a currency, because it needs incentives to protect the consensus process from attackers. This computational process ("mining") is not wasteful at all, but an incredibly efficient way to make attacks economically unprofitable. Bitcoin never uses more computational resources than neccessary to protect the integrity of its interactions.

Now let's go back to discussing the value provided by Bitcoin. Essentially it's a means to make consensus in highly distributed large-scale systems, which would otherwise never be able to reach consensus. The value of this is, that it's now possible to build applications in a decentralized fashion, that we previously thought could not be built without a central authority. The most obvious value of Bitcoin is as a medium of exchange for goods and services that can't be easily bought or sold using cash issued by a central authority. But there's more. Bitcoin also makes it possible to fully decentralize the DNS (Domain Name System). In that case, every Bitcoin Domain Name already comes with a cryptographic key pair. That means it also allows us to solve the PKI (Public Key Infrastructure) problem - every name you connect to has an encryption key associated with it that can be verified without trusting a central authority. In case network traffic monitoring prevents people from accessing information either at all or anonymously, Bitcoin makes it feasible to pay for internet relays that anonymize or reroute traffic - that is, it makes it easier to remove central control and fight censorship. The list goes on, I've been hard-pressed to find any decentralization schemes that would not benefit from Bitcoin integration

The pattern here is: Pretty much all of these applications can already be built in centralized form. But often the centralized solution comes with a whole bunch of weaknesses. In the PKI case you'll have to trust over 300 Certificate Authorities every time you make an https:// connection, many of which are located in countries with repressive governments. If any of those 300 entities get compromised or malevolent attackers will be able to read your email, access your bank account, and violate your privacy. DNS is getting censored by governments because they can. And every time you store value in currency, you're trusting a central authority that it isn't mismanaged and thus depreciates in value.

Is there value in Bitcoin? Let me ask a counter question: Is decentralization valuable? If you think that we'll increasingly lose trust in the central authorities that manage the infrastructure we rely on, you might expect Bitcoins to rise a lot in value. If not, that is you believe that authorities will be able to tackle the challenges of the future better in centralized form, then from your perspective Bitcoins don't add value. We'll see.

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## Jeez

Well one of the points i agree with him it is that Bitcoin is not physical and one of the reasons i am not getting into it.

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## CBC4L

It seems to me that bitcoins are becoming the choice currency (with silkroad) for drug trade transactions since they are untraceable.  Wouldn't this be enough to keep them desirable?

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## low preference guy

> It seems to me that bitcoins are becoming the choice currency (with silkroad) for drug trade transactions since they are untraceable.  Wouldn't this be enough to keep them desirable?


I believe so. 

Let's say now I want to charge bitcoins because they have low transaction costs, even if I don't sell drugs. The demand of drug dealers for the coins already gave bitcoins value, so I can use them for an entirely different purpose which helps to keep their value and encourage others to use bitcoins for their own purposes.

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## iGGz

> Don't Buy Bitcoins, part 2


My question is, why do you care?

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## LibertyRevolution

I don't care what anyone says, there is no value in bitcoins, they are digital nothingness.
They are backed by nothing but the idea that someone will take them as payment.
Only a fool would trade something physical for digital nothingness. I feel this way about buying virtual video game items as well.
Gold and silver are physical and they have intrinsic value. They have value beyond being used as currency.
Bitcoin has nothing going for it except for the fact that you hope someone will trade you something for them.

P.S.  I really am sick of all these bitcoin threads.
I am getting to the point were I'm thinking that hazek is a shill just trying to increase his standing on the pyramid. 

I can't wait for someone to hack themselves a million bitcoins destroying the entire market.

Silk road drug trade, money laundering .... the us government will step in on this sooner or later and kill it.

I'm not that guy you asked but ill answer... Why do I care?
I care because we don't want to see other liberty loving people loss there money in this digital pyramid scheme.

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## low preference guy

> Silk road drug trade, money laundering .... the us government will step in on this sooner or later and kill it.


How come they didn't kill the ability to exchange music and movies through bittorrent, which uses the same technology?

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## Funkbat

I found the following blog post on LRC instructive:

http://www.lewrockwell.com/blog/lewr...ves/89471.html




June 9, 2011
Bitcoin: Just Another Bogus Medium of Exchange
Posted by David Kramer on June 9, 2011 03:00 PM

I'm sure by now many of you have heard about Bitcoin. The fact that it's called "virtual currency" gives you an idea about its actual value as a real medium of exchange. While many people who are touting it on Facebook are enamored with the fact that it was voluntarily created by the marketplace (i.e., is not forced down our throats by a private central bank), I'm afraid that those people are losing sight of how a real medium of exchange arises in a free market. A medium of exchange arises from something that had a material use/value in the market prior to becoming a medium of exchange, i.e., it was also a good being  bartered for other goods and services. Over the centuries, the commodities gold and silver won out as the two most preferred mediums of exchangewith gold holding the number one position due to its being more scarce than silver.

What was Bitcoin's prior material use/value? Zero. It is just bits in a computer. And what's with the "fixed" amount of Bitcoins? Who/what determined the "proper" amount of 21 million for Bitcoins to top out at? A computer program? (Next we'll find out what the proper minimum wage should be.) Only the free market can voluntarily determine how much of a real medium of exchange is needed in the marketplace over time. While the idea of  attempting to get rid of the Bankster monopoly on creating money out of thin air is commendable, Bitcoin is also money created out of thin air. Bitcoin is just substituting one bogus medium of exchange for another.

UPDATE: I've been getting a lot of reader response trying to "explain" to me the economic virtues of Bitcoin. Some responders have even mistakenly used Austrian economics to rationalize their views. I would suggest that before you write to me about the Austrian economics view of a medium of exchange, you should read the two books by one of the two giants of Austrian economics, Murray Rothbard, on what a medium of exchange is. Here is the pdf for Rothbard's What Has Government Done to Our Money and here is the pdf for Rothbard's The Case Against the Fed. For those of you who have not yet read any Austrian economics, please do not waste your time writing to me trying to explain the "scientific" breakthrough of the bogus Bitcoin computer program. (There already was a REAL digital currency, e-gold, that was backed by a real commodity until the Federalistas shut it down. Eventually, Bitcoin will be shut down too because of its anonymity capabilities.)

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## hazek

Oh yeah I such a shill, you wouldn't believe how giddy it makes me feel whenever I get a new sucker to lose their money into Bitcoin to increase my status in the pyramid.. Yep you busted me, for sure! 


Btw isn't interesting that all I do in my "recruiting" is trying to spread the *facts* about Bitcoin? Isn't it interesting that I almost *never* talk about them as an investment? Isn't it interesting that I personally only own 5.4 which I had to daytrade to get from the initial 2.4 of which 0.4 was from mining and 2 were a payment for some work? Isn't it interesting that there's others in this thread posting as many favorable posts about Bitcoin as I do?

Think about it.

EDIT: Funkbat please read that wall of text I posted above where you'll see that Bitcoin the software itself does indeed have intrinsic value.

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## Andrew-Austin

> I don't care what anyone says, there is no value in bitcoins, they are digital nothingness.
> They are backed by nothing but the idea that someone will take them as payment.
> Only a fool would trade something physical for digital nothingness. I feel this way about buying virtual video game items as well.
> Gold and silver are physical and they have intrinsic value. They have value beyond being used as currency.
> Bitcoin has nothing going for it except for the fact that you hope someone will trade you something for them.
> 
> P.S.  I really am sick of all these bitcoin threads.
> I am getting to the point were I'm thinking that hazek is a shill just trying to increase his standing on the pyramid. 
> 
> ...


Its of course perfectly okay that you don't care about Bitcoins, but don't simply repeat what others have said against Bitcoin - arguments that have already been debunked - just because you don't want to learn more about them. If you are annoyed by Bitcoin threads, just imagine how annoyed we are having to constantly see people espouse the same wrong arguments against them. If you don't care then stop insulting people over the subject (calling us fools, questioning Hazek's integrity). I would address your criticisms but its already been done, you are not the first to make them. If you don't care then don't read the threads (it seems that is what you have been doing anyways), no one is making you. Bitcoin is a non-political issue, no one is proposing we make it some standard currency through the power of the government, so you don't have to use it.





> I'm not that guy you asked but ill answer... Why do I care?
> I care because we don't want to see other liberty loving people loss there money in this digital pyramid scheme.


Give me a $#@!ing break, its patently obvious you have next to no research as to what Bitcoin is and how it works. If you cared about saving us money then you would have read about it, and you would have adopted a more honest and sincere tone instead of sounding dismissive and insulting for apparently little reason. Your manner contradicts itself, first saying "I don't care what anyone says" and that you hope the market suddenly collapses, Then later asserting you care for our financial well being (although disingenuously).

If you respected us for being libertarians and austrians, I would imagine you would be more interested to find out why we are interested in Bitcoin. Its not like the Bitcoin forum is full of Keynesians, quite the opposite in fact. But if you don't care, I respect that, just ignore the threads.




> I found the following blog post on LRC instructive:
> 
> http://www.lewrockwell.com/blog/lewr...ves/89471.html


I didn't, and we have a thread discussing that blog post here: http://www.ronpaulforums.com/showthr...hlight=bitcoin

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## Dr.3D

I'm going to get a ring made from Bitcoin and have a diamond mounted in it.   That should be a very valuable and unique item.

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## low preference guy

> I'm going to get a ring made from Bitcoin and have a diamond mounted in it.   That should be a very valuable and unique item.


i thought about responding... but i guess i'll just let the dummies be dummies

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## Dr.3D

> i thought about responding... but i guess i'll just let the dummies be dummies


 That was my first thought.

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## iGGz

//

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## kpitcher

> It seems to me that bitcoins are becoming the choice currency (with silkroad) for drug trade transactions since they are untraceable.  Wouldn't this be enough to keep them desirable?


They're not quite totally untraceable by default. If you ever exchange them for valid goods it's possible, unlikely but possible, to track back to see what else you've purchased or where your other coins came from.  For most people that's fine. For anyone who does anything that may be frowned upon - gambling, silk road, etc, there are ways to make it so.

You can go through the extra steps of washing them - there are bitcoin laundries on tor in which you send a fixed amount to one address and over a few days you'll get it back - minus a fee - from a variety of other smaller transactions from other accounts. Or you can transfer coins into one of the exchanges and then draw them out, breaking the chain of ownership. Heck there are even services that will transfer bitcoins for throw away credit cards or will mail you cash. If you want true anonymity you can get it. Having the anonymous nature of cash, but usable online, is a nice added bonus to bitcoins.

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## Jandrsn21

So far all I see is mining and trading. Once buyers dry up and miners are trying to dump 10s of thousands of new coins on the market each day, the price will not hold up. I see some people are really passionate about this new currency here and before I get ambushed. I'd just like to say, I like the idea, I see it overall as a very sound idea. I just have to be realistic at the moment, people don't want bitcoins, they want dollars and the things those dollars can buy. Until people can start using the coins and actually want to hold onto them, I don't see these as a good investment going forward! At the moment, people don't see that they have 10 bitcoins, they see that 1 btc = 18$ and I have 10 btc, so really I have 180$.

Things can change though, and when new markets for goods and services can be established around the bitcoins, then there might be something to it. It is in its early stages, so anyone's guess is good at this point, but my money is still in gold and silver and even if these do really take off, it will still be. I like real assets, ( please don't respond with a long abstract answer about intrinsic value, I define real as "tangible" ) I think when you would need an alternate currency the most, in a time of FRN collapse, 99.9% of the population will want gold and silver.

If I had a strategy with these things, mine them if you can, trade them if you can, create websites and programs if you can, but take profits and invest in gold and silver.

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## JWZguy

Don't tell me what to do.

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## Wesker1982

> My comment which I also posted under this video on youtube:
> 
> 
> And please, don't hurt yourself once you see what the reality really is.



Why are you taking his opinion so personally? Being rude just makes it look like you are insecure about your beliefs.

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## Elwar

Great video...I'm keeping my money in Federal Reserve Notes. Thank you good steward!

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## hazek

> Why are you taking his opinion so personally? Being rude just makes it look like you are insecure about your beliefs.


I have a really really small amount of patience for special idiots like the guy in the video. It's one of my personal flaws..

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## steve005

> I have a really really small amount of patience for special idiots like the guy in the video. It's one of my personal flaws..



you're the only special idiot here, and anyone else that thinks bitcoins are going to go anywhere. you're a retard, you don't address anything or debate, just post links to other threads or forums, thats lame

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## low preference guy

> you're the only special idiot here, and anyone else that thinks bitcoins are going to go anywhere.


so far the retards are right and you're wrong.

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