Bitcoin (BTC) as Money

Continuing the discussion from Crypto Currency Fraud:

Topic Summary: @lmf and I have been discussing whether USG could permanently harm Bitcoin, the nature of BTC’s value, origin of value, and whether it’s good money or not. We also have touched on some other stuff, like whether ETH is a commodity or not. Context: Max currently reading Theory of Money and Credit which @Elliot referenced in the root node (not quoted in tree). @Elliot suggested we make a conversation tree.

Goal: primary: reach agreement on topics and subtopics raised. auxiliary: use a conversation tree to keep the conversation under control and help us achieve the primary goal.

Why are you posting this in Unbounded? It’s continuing a discussion from unbounded.

Do you want unbounded criticism? (A criticism is a reason that an idea decisively fails at a goal. Criticism can be about anything relevant to goal success, including methods, meta, context or tangents. If you think a line of discussion isn’t worth focusing attention on, that is a disagreement with the person who posted it, which can be discussed.) Yes. Criticism is how we learn.[1] (note: I can’t answer for @lmf)

Here’s my first draft of the conversation tree.

2021-12-01-cf-bitcoin-money-tree-1255.pdf (70.5 KB)
(edit: it looks like this image got downsized – PDF is zoomable)

A text version is below – I can import tab-indented stuff so @lmf feel free to edit in plaintext if you want.

Also @lmf – pls LMK if you disagree with any nodes I put there, or anything important I missed.
(Note: I use simplemind pro for mindmaps, I can share the raw file too if that helps)

conversation tree as text -- NB: tab indentation + names not attached to nodes
Bitcoin as Money
	> Bitcoin is not a commodity money. Its value is meant to come from being a medium of exchange and that’s it. That’s bad.
		bad prep. USG could perma harm BTC. USG couldn't perma harm gold.
			in 2010-13, Bitcoin community didn't really have an answer to extreme harm (EMPs, etc)
				Can't perma destroy BTC value b/c ppl (in the future) can revive the old blockchain
					What's the diff between this and starting a new chain with same distribution of coins?
						please explain
							identical UTXO set
								gotcha. is there an important diff between the two? they seem equivalent
								either method could restore some/all value of BTC to owners, "which was my essential point"
					Max: I don't think it'd be rational for ppl to do that. Even if they did, that'd be creating something rather than preserving old bitcoin.
						it's rational to resurrect an old chain for the same reason as keeping the chain running
							resurrecting is not worth it for outsiders, tho (ppl who don't have btc keys)
								if only the old-guard resurrect the chain, then there's no real value in that network (small, better alternatives; outsiders can start a new chain from scratch)
									answered by vested interest  > The reason why (I think?) it’s rational to resurrect an old chain is the reason why it’s rational for them to keep running the main chain tomorrow: The people maintaining it have a vested interest in maintaining it.
										who is "them"
											if 'them' means miners in 2021, doesn't address 'old-guard' crit
											i don't define it b/c miners maintain BTC directly but users make it valuable
										vested interest doesn't explain why ppl would want to rez a dead chain (even if they were prev miners/hodlers)
											continuity matters
											why do ppl want to continue a chain block-to-block? i.e., a chain "that's been dead for 10 minutes" (block period target)
												miners make blocks
												miners interested b/c BTC has value per kWh that's better than alternatives
												bitcoin has value because [???]
													claiming USG can perma harm => explain why [???] goes away after X yrs but not 10 min
													one reason for [???] is BTC as medium of exch -- value comes from ppl who own/use it
														those ppl prefer to use BTC over alternatives
							today: one reason to use BTC is that it's the most secure chain. that doesn't apply when resurrecting a chain tho.
								also the mining rewards would be super low -> problematic for small/young network
								security comes from code and miners.
									USG can't perma harm either of them.
						vested interest of maintainers / nodes / miners / etc
					ETH can be seen as a commodity
						ETH doesn’t have value other than as a medium of exchange b/c tx fees (or burn) pays for miners (mb indirectly). Unlike CM, ETH would be worthless if no one else valued it. It's function would cease.

  1. attrib: @Elliot. I can’t remember the exact source (I think it was in one of our tutoring sessions mb, tho not sure) ↩︎

While you’re welcome to make more than one type of tree, my suggestion was a tree that only contains nodes explicitly written for the tree by the person making that point (and for the tree to gain nodes at a rate well below one per message).

Ahh – thanks for clarifying. I had a bit of a diff idea to start with. This makes more sense.

So, one way @lmf and i could go about this might be: start again from scratch – we start by agreeing on a starting point / topic / thing. then, we each explicitly say what we want to add to the tree and under which nodes – tho not every reply needs to add a node to the tree. we could add extra explanation in each reply too, but the nodes in the tree should be short, simple, and an idea we back. (I guess we can discuss hypothetical stuff if we contextualize those nodes as being hypotheticals.)

I think this is like one level more abstract than I was thinking: instead of the discussion tree being a map of the literal discussion, it is the 1:10 scale map we make for ourselves to structure the discussion (and help in other ways).

We don’t need to start again from scratch – we could each just list the main points from the prev discussion that we want to cover / discuss at some point. Those can all go under a root node. Then we can go from there.

It’s not really starting over at all. Part of the point is to discuss stuff initially to help figure out what you want to say and how to say it, before you write something for the tree about it. So you just did some of that pre-discussion and are in a reasonable position to now decide what you want to say as a carefully-worded main point.

This helps keep the discussion (at least the part of it with a larger expectation of any reply, re-reading, or being remembered) curated, high quality and not overwhelming.

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Yes more like that. Note that the intention is the nodes stand alone as written instead of relying on supporting text elsewhere. It requires writing clear, simple statements like Goldratt uses in his trees.

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Thanks :slight_smile: I have a much better idea of what to do now.

Here’s my current idea for what @lmf and I should do next:

  • agree on the topic. @lmf’s earliest post replying to @Elliot and I is the start of @lmf and my discussion, so it’s an intuitive place to start looking for the topic / disagreement that we’re discussing. Our main points might not be so obvious, but this post seems like a good anchor.
  • if @lmf and I agree on that, we can write like a main position point – e.g., the topic could be Can the USG permanently harm BTC?@lmf’s main point might be USG cannot permanently harm BTC because the main chain can always be revived, and mine might be USG can permanently harm BTC because – if it’s money, then – it’s fiat money. something like that – maybe our main points are just USG {can, can not} harm BTC, then we add the reasons as nodes under that – this means we can easily add more than one reason, too
  • We can discuss this mostly normally, but with the added goal of finding key nodes to add to the tree.

Yes, I do.


Yeah, let’s do that.

Starting with what you said:

USG cannot harm BTC.

I would first want to make this statement a bit more precise (probably without changing your intended meaning):

USG cannot plausibly do permanent harm to the value of BTC.

However, I’ve realized that even that is too strong of a statement for me to believe. I haven’t refuted the idea that the long-term value of BTC is 0, and e.g. if the bubble pops and the USG is the proximate cause of it popping, then perhaps it could be said that USG “did permanent harm to BTC.” There are similar scenarios like that that I could imagine so long as BTC is a bubble. Therefore, unfortunately, I find myself forced to add another qualification:

If BTC has real value, then USG cannot plausibly do permanent harm to the value of BTC

But at this point it seems kind of pointless to discuss, since I don’t accept the premise that BTC has real value.

Sorry.

I also don’t know of a decisive argument that BTC doesn’t have real value, so maybe that’s somewhere to go?

Or maybe we could discuss some of these:

I think it’s sorta self-evident that, long-term, the only way BTC avoids → 0 is for it to always be used by some part of civilization as money. (it can do other basic stuff like timestamping but lots of other things are better for that)

Its only value is its objective exchange value, so if it’s not useful for that (e.g. civ collapses; all semiconductors get fried, etc), then the value goes to zero (since it’s not functional in any way). How does it start back up again without crypto-mania-hype?

(Btw, it occurs to me that the specific topic isn’t as important as figuring out what we agree and disagree on)

Also, I’m sorta curious you said this bc I see it as agreeing w the idea USG can do perma harm to BTC.

This isn’t self-evident at all to me.

This is also not obvious to me.


We agree that gold has value. Supposedly the value of gold ultimately comes from its value as a commodity. But why does gold have value as a commodity?

The reason we value gold as a commodity seems like it has to do with these standards that are arbitrary. That is, gold has value as a commodity because it looks pretty*, but why does it look pretty? I have no explanation: It’s conceivable that gold would not be pretty at all to an alien civilization, and so to them it would have no* value as a commodity.

Maybe the real reason gold looks “pretty” to us is more because we feel good when looking at gold or something, and maybe the reason for that is because gold is rare and expensive in first place.

But if the standard making us value gold (as a commodity) is really this arbitrary, why can’t it be modified arbitrarily it to encompass BTC as well? BTC is also rare and expensive, and people probably feel good when they look at how much BTC they have in their wallet or something.


*There are also some modern industrial uses of gold, but I don’t think that’s relevant. Gold has been highly valued for all of human history, and yet historically, the only use of gold as a commodity was the fact that it could be used to make stuff look pretty. Also, even today, the vast majority of consumption of gold is for cosmetic purposes.

Sorry I’ve been absent.

Because there is demand for consumption (what that demand is doesn’t matter that much). One core idea behind gold-as-sound-money (as I understand it) is that there will always be some demand for its consumption. I agree that industrial uses aren’t a significant factor in the price of gold (industrial use is minimal and sparing), but the fact that there are (at all) industrial uses (among others) is important.

WRT TMC[1], gold is considered the best candidate for sound money for reasons including: wide acceptance (note the network effect here), and wide understanding of soundness (including scarcity, persisting demand, etc). But it’s by not the only candidate.

Crucially, WRT the disparity between the current price (including the demand for gold as an exchange medium) and like an equilibrium-commodity-price, TMC doesn’t say that such a disparity is forbidden. Rather, it’s expected. One reason that gold is a good candidate for money is that the demand is somewhat ~inelastic (see wedding ring paragraph below), so a change in it’s objective exchange-value doesn’t affect the perception of it as a good medium of exchange (for the most part).

WRT aliens, it might be unlikely (or not) that there’s a good common fit for agreement on the best medium of exchange. But our and their mutual understanding of what is valuable to the other means that there is some benefit in the others’ preferred medium as an economic good – i.e., a thing one buys only for the purpose of future exchange. Similar to how, if you go to New Zealand, you’re going to buy some NZD. It’s not money back home, but it is money in a place where you want to do trade.

Looking pretty explains gold-colored plastic rings, but IDK if it explains gold rings (similar for necklaces, bracelets, earrings, etc). I think that’s b/c there’s an extra reason: a display of, or locking-up-of, wealth. Like a gold (or platinum, etc) wedding ring is a significant expense, and one common reason (mb) is to demonstrate significant investment. Like, wrt wedding rings, it’s literally entangling that value ($) with the fate of the relationship.

Good q. If we presume that – for the rest of time, some small group of ppl somewhere value BTC as other than an exchange good (like it makes them feel good), then the value should remain > 0. But, is that something ppl can/will bank on? Is there going to be such a hold-out group? I doubt it – past this generation of BTC maximalists (I think it’s fair to say the hypothetical group fit this term), if there’s a competitor to BTC that’s all-the-good-bits-and-more, why would any newcomers join the BTC camp? What do they have to gain?

So rly, I think it comes down to: Can BTC always remain competitive?, because if it can’t, then I don’t see it sticking around – outside this, ofc:

BTC can only have value if: it’s useful for exchange, or ppl subjectively value it.
(IMO this is consistent with TMC)

I don’t think ppl will always subjectively value it, tho, and I think there will be – just in the blockchain space – better alternatives developed.


(Note: I’m worried this post is a bit long; I’m okay with it this time b/c there’s some TMC explanation.)


  1. saying “as I understand it” every time will get tedious, so I’m going to treat it as implied. I’m not an expert on TMC. ↩︎

FYI, these are the bits I disagree with. The current discussion seems like it might get a bit busy right now, so I’m cautious to start discussing them atm. Good to record tho.

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One quick note:

Sure, gold would be valuable to aliens who trade with humans, even if it doesn’t look pretty to them. The alien civilization I’m imagining is not aware of the existence of humans, and doesn’t think gold is pretty, and doesn’t know about the industrial uses for gold. To them, gold would be no more valuable than dirt.


I should probably read TMC. There are some things you wrote in here

that I don’t really understand. I’m going to mostly ignore it for now because I want to keep the discussion focused (but let me know if any of it is important for what I say below).


Agreed.

I think that here ^^^, you’re saying almost the same thing as what I getting at with this sentence:

But yeah, there’s this weird feedback effect going on: much of the reason why gold has value as a commodity is because it’s already valuable. Let me call that type of value “2nd order commodity value” for lack of a better term.

Since BTC is rare and expensive, BTC already has value as a 2nd order commodity (e.g. allowing people to flaunt wealth, allowing people to look at their wallet and feel good about themselves).

Does what I’m saying make sense so far? Do you agree that BTC has some value as a “2nd order commodity”?

Copper’s Essential Role in Protecting Public Health says:

Then, a lethal dose of copper ions interferes with normal cell functions.

Gold and silver are in the same column of the periodic table as copper. I’m no chemist, but that typically means that have similarities for stuff like ions.

Also, even if gold and silver were just art supplies … those do have value. I vaguely know e.g. that dye trading was important enough in the ancient world to merit carrying dyes for trade on boats.

Yeah, it makes sense. IMO the way you use 2nd order commodity is convergent with the economic good idea. Tho I’d suggest saying “2nd order good” instead of “commodity” b/c BTC isn’t a commodity (tho I understand what you mean).

“2nd order commodity value” also sounds convergent with something like objective exchange-value (tho “2nd order commodity value” is more vague/looser).

In light of that, does the TMC/Mises stuff I wrote make more sense?

IDK if this is that safe – I brought it up and explained it for a reason.

The main point of the last paragraph is just to point out that if there’s like a “1st order value” for some good, and it has some “2nd order” type usage (like gold-as-money or btc-as-money), then we expect a difference between the 1st and 2nd order values (with the 2nd being higher) and also that the value in the real world (how much it costs to buy) is its 2nd order value.

Does that make sense?

In this case, we can say:

medium 1st order value (v_1) 2nd order value (v_2)
gold v_1 > 0 v_2 \ge v_1 > 0
BTC v_1 = 0 v_2 \ge v_1 = 0

do you agree with that? (note: v_2 \ge v_1 = 0 means v_2 \ge v_1 and also v_1 = 0 so v_2 \ge 0)

Yeah – there were like entire trade routes dedicated to it IIRC.

Here’s a relevant quote I found via a wiki cite:

“History of Indigo & Indigo Dyeing”. wildcolours.co.uk . Wild Colours and natural Dyes. Retrieved 30 December 2015. “Indigo was often referred to as Blue Gold as it was an ideal trading commodity; high value, compact and long lasting”

Huh, I just realized that wiki doesn’t have a permalink function – like on github I can hit ‘y’ to change the URL to a permalink. The problem with wiki is that linking to a citation is super fragile – if someone adds a cite before the one you link to (23rd of 32 in this case), then the anchor link will go to the wrong cite :confused:.

Okay – this seems significant. Maybe conversation-tree worthy.

WRT gold, there are general reasons (common among many people) to subjectively value it: it’s dense, it’s shiny, it’s elemental and nonreactive, it’s soft, etc. So it will always have some niche of utility.

BTC isn’t like that though: there’s no reason to think there will always be a niche. And the existence of bitcoin fans here (as a reason that there’ll always be some ppl who subjectively value it) doesn’t help. That’s circular – if all those fans went away at the same time (e.g., died) why would we expect bitcoin to maintain a nonzero value? (presuming it also wasn’t being used as money at the time)

But with gold, it has utility as material – and it always will.
Like you can’t make something out of other atoms that acts exactly like gold in all ways (i.e., there’s no chemical solution). There might be chemical solutions to compete with specific properties (e.g., good conductor + malleable), but we shouldn’t expect those to also have the other properties (shiny, inert, dense, etc).
So there’ll always be some niche where gold is useful – there’s a reason to expect it will maintain a nonzero value.

The latest South Park episode is also relevant.

Edit: The episode is Post Covid: The Return of Covid

You should edit your post to identify which episode you mean (using information like season number, episode number, link, title, or air date). No one reading this in the future will know which ep you mean.

Even reading it right now I didn’t know if the latest South Park episode that I saw is actually the latest one. So I looked it up and there’s an ep today (Dec 16) so still I don’t know which ep you mean. I think that had probably aired where you live – as of 5 hours ago when your post was written – but I don’t actually know. And even if it did air you might not have known that.

I think it’s worth considering what happened with communication like this. E.g. one cause could be taking your own context for granted. It may currently be really easy to tell which episode is the latest one in your context. But you may not have thought about the contexts of current or future readers. That’s a pretty common and important error. If you suspected that was the error, you could look at other posts you’ve written and see if you could find any other examples of it.