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richard branson virgin galactic

Good news, future space travelers: Now you can enter the void without bringing your wallet.

U.K. business magnate Richard Branson announced Friday that his commercial space travel venture, Virgin Galactic, will allow customers to pay for their flights with the digital currency Bitcoin.

“Virgin Galactic is a company looking into the future, so is Bitcoin. So it makes sense we would offer Bitcoin as a way to pay for your journey to space.” Branson wrote in a blog post.

“A lot of the people who have joined Bitcoin are tech-minded people, as are many of our current future astronauts.”

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By Rich McCormick on

A single bitcoin is now worth over $1,000, but the process of mining for the digital currency — in which people devote computing power to facilitate global Bitcoin transactions and secure the currency’s network — is growing increasingly expensive. Serious miners have started to build dedicated facilities for the sole purpose of Bitcoin mining. Journalist Xiaogang Cao visited one such center in Hong Kong, the “secret mining facility” of ASICMINER, reportedly located in a Kwai Chung industrial building.

The mine is the size of a shipping container, and filled with 1-meter-high glass tanks in which banks of blades are immersed in roiling liquid. Each tank can hold 92 blades; the blades themselves are kept at a temperature of 37 degrees Celsius or below by “open bath immersion” technology. Open bath immersion cools computer components by submersing them in liquid with a particularly low boiling point. The heat the components generate mining for coins boils the liquid, causing it to turn gaseous, rise up to a condenser at the top of the tank, and fall once again, removing heat from the components in the process. The ASICMINER open bath immersion system was reportedly built by Hong Kong-based company Allied Control, and operates at a Power Usage Effectiveness of 1.02, which “would make it one of the most efficient designs in the world.”

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BTC China, the nation’s largest Bitcoin exchange, has had low-level discussions with regulators seeking recognition of the digital currency that would allow it to be used to buy goods and services in the country.

The company has sought to discuss Bitcoin regulations with officials from agencies including the People’s Bank of China, the China Banking Regulatory Commission and the China Securities Regulatory Commission, BTC China Chief Executive Officer Bobby Lee said in a Nov. 29 interview in Shanghai. It’s not yet been able to arrange any high-level meetings, he said.

“They’ll ask us ‘how should you be regulated,’ and I’ll say ‘Hey, here’s what we’ve done proactively and here’s how we think you should regulate us,’” Lee said of the Shanghai-based company’s talks with regulators. Bitcoin is “not on the black list and it’s not on the white list. It’s in the gray area.”

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A college student quickly made over $24,000 just by waving this sign on TV.

Here’s the deal: Yesterday on ESPN’s “College GameDay” (an ESPN college football show that’s filmed at a different college campus each week) some student held the above sign that has both the Bitcoin logo and a QR code.

A QR code is a visual representation of any kind of information (frequently a URL for a website). In this case, the code represented a Bitcoin wallet.

On Reddit, Bitcoin fans managed to enhance the QR code from the screen in order to identify his wallet, so that people could donate money to him.

Supermanagement! by Mr. Andres Agostini (Excerpt)


“…What distinguishes our age from every other is not the world-flattening impact of communications, not the economic ascendance of China and India, not the degradation of our climate, and not the resurgence of ancient religious animosities. Rather, it is a frantically accelerating pace of change…”

Read the entire piece at

Hieronymous Bosch's Garden of Earthly Delights

The following dystopian vision of the future was just shared with my by a friend:

…“What is a Citadel?” you might wonder. Well, by the time Bitcoin became worth 1,000 dollar, services began to emerge for the “Bitcoin rich” to protect themselves as well as their wealth. It started with expensive safes, then began to include bodyguards, and today, “earlies” (our term for early adapters), as well as those rich whose wealth survived the “transition” live in isolated gated cities called Citadels, where most work is automated. Most such Citadels are born out of the fortification used to protect places where Bitcoin mining machines are located. The company known as ASICminer to you is known to me as a city where Mr. Friedman rules as a king.

In my world, soon to be your world, most governments no longer exist, as Bitcoin transactions are done anonymously and thus most governments can enforce no taxation on their citizens. Most of the success of Bitcoin is due to the fact that Bitcoin turned out to be an effective method to hide your wealth from the government. Whereas people entering “rogue states” like Luxemberg, Monaco and Liechtenstein were followed by unmanned drones to ensure that governments know who is hiding wealth, no such option was available to stop people from hiding their money in Bitcoin.


You should read the rest of the story. I think it goes pretty thoroughly into a scenario that isn’t discussed enough.

The “Bitcoin Circle Jerk” on and often goes like this like: “imagine how goddamned rich we’ll all be when 1 bitcoin is worth 100, 000 dollars”!

The ugly flip side however, of us all being fabulously rich because we bought a bitcoin once, is that a lot of our friends and family get hideously poor.

Technological disruption always has winners and losers. Bitcoin is a big disruptoin, it has the potential to do to money what the internet did to music, possibly to a much further extent.

Although it’s a very important conversation to have, extrapolations like the story quoted above almost always fail to understand how other factors will mix in. While many foresaw some of the negative consequences of globalization, few people would have foreseen the emergence of the craft movement; including local food, makerspaces, DIY everything, etc.

In the bitcoin community, I’m heartened by the emergence of a culture of generosity. It shows up in the willingness that bitcoin companies have for helping one another. It also shows up in projects like Sean’s Outpost and in the tipping culture created by the reddit bitcoin tip bot and the bitcoin party bot.

I won’t pretend to think that I know where this is all headed. I’m not a prophet, and I’m always skeptical of the pundits who make bold claims about the future.

All I know is that change is coming.

This is why I’ve chosen to engage deeply with bitcoin, and why I’ve started Coin Forest. I’m an optimist, and I want to contribute to building this generosity I’ve seen.

The Garden of Earthly Delights Reversed
A slightly remixed version of Hieronymous Bosch’s vision

I’d love to think that the progression will be more like this reversal of Hieronymous Bosch’s “Garden of Earthly Delights”.

Frankly, it’s probably somewhere in the middle. But creating a better world requires the optimism to believe it’s possible.

The decision is whether you want to play a part in shaping the outcome or not.

-John Mardlin

Originally posted as Part IV of a four-part introductory series on Bitcoin on June 19, 2013 in the American Daily Herald. See the Bitcoin blog for all four articles.


I am reminded of Sisyphus, King of Ephyra (later, Corinth), who was referred to by Homer as the craftiest of men. He committed terrible crimes against mere mortals and ‘worse’ still, and with great cunning, he offended Zeus and cheated Death. For his crimes he was eternally condemned to thrusting a heavy boulder up a hill, only having it come rolling back down as he got near the top. Had his earthly actions against his fellow men not violated the non-aggression principle, I could have probably warmed up to him as some sort of tragic hero, doing all he can to live life as he wanted it, while beating the gods at their own game. But given his crimes as a ruler over men, it does seem appropriate that his punishment is an ever-repeating cycle of arduous labor, engendering within him hope of a brighter future, yet concluding with dashed dreams and a return to square one. After all, to this day, rulers are notorious for repeating past mistakes while expecting different outcomes (a condition humorously defined by Einstein as insanity).

National currencies

Argentineans have had a troubled relationship with their money over the last half century. The Argentine Peso has been revalued numerous times, with 13 zeroes having been dropped (a devaluation factor of 10 trillion) since 1969. Last month the ‘blue dollar’ (the black market price of US dollars) hit 10 peso, whereas the official exchange rate was half that, at around 5 peso, causing speculations of further devaluations. Devaluating the Argentine Peso is a Sisyphean task if there ever was one. Tragic, to be sure, but would have been comic too if so many real people weren’t hurt so badly by this inevitably repetitive chain of events.

The Argentineans are trying to get dollars because these are more stable than the peso. Had they been free to hold any currency they wished, the peso would have gone down the proverbial toilet as ever more people protected their assets by divesting away from the troubled currency. Instead, the populace is forced to hold only the peso, thus the tragedy continues, hitting hardest the honest and naïve, who cannot or do not want to go down the black market route. If government wanted the best interest of their people, they would let them hold the dollar. In the name of patriotism, having a national currency is clearly more important than the welfare of the people.

While not as bad, in the U.S. some don’t think the dollar has great prospects. A preferable alternative would be gold or something else that maintains its value. The truism still holds that if government, here, wanted what’s best for us, they would let us hold gold without the penalty of a 28 percent tax, or they would let us transfer our wealth to Bitcoin without targeting exchanges and denying what would otherwise be a purely voluntary free-market transaction. The fact that the peso in Argentina, the dollar in the U.S. and all legal tenders in their respective countries have to be protected by the full might and force of the law illustrates clearly that national currencies are relatively worthless and that, given the choice, many people would not be holding them.

Then why are legal tender laws and ‘forced’ national currencies so commonplace in this enlightened age? What is it that makes them so irresistible to the legislators who dictate what is right and wrong for us (not them) to do? If an unavoidable consequence of the ongoing monetary printing press is constant inflation and potential revaluation of the currency, what is it about printing your own money (and preventing others from doing the same) that is so desirable to the political elite? To ask that question is to answer it. Everyone, if they could get away with it, would want to counterfeit money or add a few zeros to their bank account balance. However, creating money from thin air is fraudulent and immoral regardless of who does it. The outcomes of private individuals counterfeiting money include buying a new car or a new house. The implications of government being able to print its own money are far worse. These include funding wars, enriching the politically well-connected and creating policies which favor one class of citizens at the expense of another class (both of which, by the way, represented by the very same government), for example: consumers vs producers; importers vs exporters; home owners vs renters; and the list goes on.

The only alternative that is both morally superior and economically sound, ensuring no person or group of people can defraud one group and enrich another, is having either one or a competing set of commodity monies (virtual or physical commodities) whose creation and dissemination are dictated by the forces of a voluntary and free market. The number of competing currencies will also be dictated by the free market, much as how the number of shoe manufacturers, software developers and security services are not centrally planned.

The alternatives for national currencies

It goes without saying that gold and silver would be the first in line to become functioning money the world over if national currencies are no longer protected by law. These are the epitome of sound money and they are not tied to any single nation. But can Bitcoin play a role as one of a competing set of sound, international currencies?

I do believe Bitcoin has what it takes, as I’ve written previously. Despite it being virtual, Bitcoin can acquire value. Value, after all, is an attribute given to a scarce good by individual actors in the marketplace. Anything subject to finite supply and demand will acquire some value. Hence scarcity is key, rather than tangibility. Bitcoin meets all of the requirements for a medium of exchange and potentially money in the future (depending on its adoption). Furthermore, while it did not arise as a commodity with alternate uses – as gold did – Bitcoin is a different and new breed of money, and it can still fulfill the role it seeks. More generally, an economy of commodity money would naturally tend towards deflation. While not solely a Bitcoin phenomenon, it is favorable for the value for each money unit to continually rise, in contrast to the inflationary environment around us. Bitcoin’s divisibility ensures that no matter how high the value goes, Bitcoin is still perfectly usable. Objections have been raised about its volatility since money must be stable. This is true, but we must appreciate that its current volatility is simply a symptom of the pre-adoption stage. Any newly discovered commodity will have a period of extended volatility as people try to contend with its potential on one hand and the uncertainty on the other. As Bitcoin becomes better known, more readily accepted by the common man and as uncertainties subside, the volatility will decrease to levels of your average foreign currency. I contend that this is no insurmountable challenge for Bitcoin since it is a built-in payment system as well as the money itself. While people may refrain from holding it long-term or price their goods solely in Bitcoin, people can convert in and out of the currency and use the Bitcoin payment system while denominating their goods in stable currencies.

Whether in small drops at a time or in large torrents all at once, Bitcoin is being adopted by people who have realized its advantages. Some with the need for international money transfer appreciate the cheap and almost instantaneous global transmittal; those with privacy concerns flock to it for its virtual anonymity; and then there are the ones who are tired with the banking system’s fees or afraid of its potential bank runs who realize they no longer need a bank to store their money.

People are voting with their cash and showing that Bitcoin can indeed fill the need. There are those who use it as a store of value/potential speculation and there are those who use it to spend. The hoarders increase its value and the spenders increase its popularity. Eventual equilibrium, as always, is reached between spending and saving where the supply and demand curves for Bitcoin meet…that is, assuming a free market.

Free markets can make or break a currency

Legal tender laws, taxes on precious metals and regulation of firms dealing in Bitcoin all manipulate the supply and demand curves of money and of non-monetized goods. However, they won’t eliminate the demand of the forbidden fruit altogether. One needs only note the prevalence of speakeasies during the Prohibition era to understand that it is not in the human nature to simply abide by arbitrary legislation. It is quite evident that fewer people in Argentina want the peso, hence the market for a ‘blue dollar’. In much the same way, in various circles, fewer people in the US want dollars. Fortunately our alternatives (such as Bitcoin, gold and silver) are not yet illegal, which makes me a proponent with a clear conscience.

On the face of it, when commodity prices rise, they are simply more valuable. But when prices rise for Bitcoin, gold and silver (which are commodities with a history or express purpose of being money) this shows they are more desirable than peso, dollar and pound. Small fluctuations mean nothing, but large movements like those seen over the course of a month for Bitcoin and over the course of 5 years for gold makes you think whether these commodities are becoming ‘monetized’.

Fiat money (e.g. national currencies) hangs on the faith people have of it. If the faith goes, the value of the fiat money will plummet like a rock. When a currency experiences this sudden and aggressive drop, it is defined as hyper-inflation. This can simply be thought of as ‘hyper demonetization’ of the currency in favor of a replacement commodity money that gets monetized or replaced by barter conditions. Any fiat money could be subject to this, given the right environment. As long as the U.S. dollar is the world reserve currency, circumstances must become drastically worse for gold or Bitcoin to unseat it but the potential is always there. All it takes is enough people to lose trust. Take, for instance, the official national debt. At $16.7 trillion, this is a sum that can never be repaid (let alone if you include Social Security liabilities and other ‘off-the-books’ debt totaling an estimated $222 trillion), no matter how much you tax or how little you spend. To illustrate with an extreme scenario, by taxing 100 percent of the U.S gross national income and eliminating spending altogether, the U.S. is still left with a $1.5 trillion debt! To pay its debt the government is putting one credit card’s bill on another credit card. Needless to say, the thread by which fiat money is hanging is thin and flimsy. It won’t take much to snap.

As noted, individual people are realizing there is something amiss and are moving to gold, silver or Bitcoin. The Chinese government (saddled with more than $1.2 trillion in U.S. bills, notes and bonds) is showing it wants out too, while being conscious not to cause panic and hurt itself. The heavily censored nation aired a documentary last month on its state-run TV informing its populace about Bitcoin (!) and it allows (possibly even encourages) the purchase of gold and silver from local Chinese banks. Clearly the largest holder of U.S. debt is trying to divest away from the dollar. Central banks are buying gold like there’s no tomorrow. Clearly the ‘banks of the banks’ know that even paper money must be backed by real money.

Sure enough, Bitcoin is the big unknown and it is fraught with legislative risk. And, yes, gold and silver prices have seen better days. Hardly anyone alive today knows what it is like to live in a world of sound money. But as Hamlet asks, “[what] makes us rather bear those ills we have, than fly to others that we know not of”? In the long run, even Sisyphus would give up on any attempts to maintain a paper money. Whether or not one holds real assets to preserve material wealth, the first stage to anything is educating oneself to the options out there and to the reality at hand. The greatest amount of wealth is that which is contained in one’s mind. The emergence of Bitcoin, for its part, has got a lot of people thinking, and that alone has made all those involved more wealthy.

Originally posted as Part III of a four-part introductory series on Bitcoin on May 21, 2013 in the American Daily Herald. See the Bitcoin blog for all four articles.

With gold prices back in the $1,300-$1,400/oz range it is sometimes difficult explaining to non-gold bugs why owning physical gold is still a good long term strategy. Some define buying gold as ‘an investment’, and others as ‘a hedge against inflation’. I tend to look at it as an insurance policy against hyper-inflation or just simply as sound honest money. However, when describing a strategy of accumulating money (in gold form) in some far-away vault, only to be used in some end-of-the-world scenario, it goes without saying that an image of a miserly old man replaces my likeness in the eyes of my conversation partner. Few people stuff dollar bills in their mattress any more, but hoarding of gold and silver when these were de-facto money was not unusual. Commodity money, which tends to increase in purchasing power over time, is predisposed to this ‘problem’. When you ‘love money’ so much that you hold on to too much of it or for too long a time, then you are hoarding.

Can ‘hoarding’ be defined?

Robert LeFevre once joked that while he was courting his soon-to-be-wife, he was impressed when she told him how much she loved money. Yet after they were married, it turned out that she really didn’t love money. In fact, she would try to find any excuse to get rid of it… in her shopping sprees, of course! Apparently money is no different than other goods and services; you trade one for the other. You trade the lesser valued good for the more valued good. When you make a purchase, you make a choice. You value your money less than the good you are buying. Similarly, when you refrain from purchasing an item, the indication is that your money is of more value than the foregone good. This is the basic premise in anticipation of a transaction, that both sides benefit – otherwise the transaction would not take place.

Hoarding money, be it paper, an electronic account balance, gold or bitcoins is therefore just the same as buying an excessive amount of books, stockpiling on your favorite pasta sauce jars when they’re on sale or refraining from throwing out your old National Geographic magazines. You never know when you might need them. You just prefer what you are hoarding to the alternatives out there. A larger stash of money means you prefer saving the money you have now for a later monetary exchange. That monetary exchange can be a purchase, paying your employee’s wages or giving your granddaughter a gift. But the amount someone saves/hoards is a reflection of their preferences and their understanding of reality with its inevitable uncertainties (and uncertainty is in no short supply these days). The negative term ‘hoarding’ is used, as Rothbard noted, when you are keeping more cash than someone else thinks is appropriate for you to keep. How very objective.

In actual fact, if a significant amount of money is hoarded and ‘taken away’ from circulation, the result is that there is an increased demand for money, which, in a world absent of price and wage controls, results in falling prices. Said differently, the purchasing power of money increases, meaning one would be able to buy the same amount with fewer money units. No evil has been perpetrated.

The dreaded ‘deflation’

The general decline of prices is described by mainstream economists as deflation. According to the Austrian School, on the other hand, deflation is merely the reduction of the money supply. Whether through significant hoarding, widespread bankruptcies or Federal Reserve actions, a drop in the money supply would cause a drop in prices, all else being equal. The distinction is that falling prices are the effect, not the cause. The effect could have other (often positive) causes, such as increases in productivity – the reason for falling prices in the high-tech world, for instance. In a market unhampered by political forces, as long as the quantity of goods rises relative to the quantity of money, prices will fall and the value of money will rise.

A common misconception is that reduction in prices equates to reduced profits and a general decline in the economy. ‘Revenues are not profits’ is one of the first things young accountants learn. Profits are a product both of revenue and of expenses, the money coming in and the money going out. With an increased purchasing power of money, input costs fall as well. Profits can and are made in a deflationary environment. The dreaded ‘deflationary spiral’ is a situation where a drop in prices leads to reduced demand, leading to more drops in prices as well as layoffs, which further hampers demand, and so the situation exacerbates itself. This scenario may occur when the general environment is an inflationary one, where people generally expect prices to rise as a normal, natural phenomenon. Then, through a deflationary cause, symptomatic of an ailing economy (e.g. widespread bankruptcies, rather than increased productivity), prices temporarily start to drop. Most people will see this as a temporary drop and will therefore postpone purchases. However this scenario cannot be an ongoing condition – eventually people need to start buying. In contrast, where the environment is deflationary (e.g. the high-tech industry), the assumption is not that ‘prices must rise’ and that ‘the drop is temporary’. How long has anyone really put off buying a computer, knowing that if they wait just one more month, they’ll get a better one? Eventually, you live with the fact that prices fall. And should prices drop due to positive causes, such as increased productivity, falling prices would actually engender demand. Increases in demand will ensure the firms’ profitability and the workers’ employability.

Deflation is not as bad as you think…

As we have seen, if the general economic environment is one of falling prices and the increase in money’s purchasing power, people would not continuously put off making purchases. Profits will be readily made as goods will cost less and practically create their own demand. But this is not all. Holding on to your money is like having a savings account or owning bonds. Saving for a nest egg in a deflationary environment does not require a high risk approach. Merely setting aside a part of one’s paycheck each month will yield more than social security ever could.

A further impact is that as people save more, interest rates fall. This drop in interest rates is a scenario that central banks across the globe are trying to replicate by ever more money printing. However, a naturally occurring low interest rate does not harm the holders of money much like the coercive version we see before us. Though deflation is thought to be bad for borrowers, debt would actually be cheap and readily available. If profits are made, debt will also be more easily repaid. True, a bad deflation (one which results from bankruptcies and economic woes) is generally bad for borrowers, since the real value of their debt rises and they have no additional profits and cash-flow to enable its repayment.

During inflation, on the other hand, money loses value. There is no doubt that the opposite scenario of constant inflation would be good for borrowers, regardless of the state of the economy. Is it any surprise that a government indebted to the tune of $16.7 trillion would prefer inflation to deflation? Where money is not a commodity, but is 90% debt (due to banks’ 10% reserve requirement), is there any surprise that anyone in the economics profession but the very fringe would tout inflation over deflation?

…but they still make you think it’s bad

The case for inflation and against hoarding or deflation is normally made more through an appeal to emotive factors than to the intellect. ‘Unspent dollars means reduced sales, drops in profit and massive layoffs. If firms go bankrupt, the raw material, capital goods and factories vanish into thin air’. You wouldn’t want that, would you? We already showed that increased saving on a massive scale and a reduction in the money base relative to the goods on the market, in and of itself, would only affect the purchasing power of the money and would not affect sales or profits. Companies may or may not go bankrupt – it all depends on whether their products satisfy the customers, not on quantity of money ‘in circulation’. Assets of those companies that do go bankrupt will only be bought up by another group of people who will try to utilize them better by building a better or cheaper product. Those parts of the economy that people do not value will get a signal that their value is dropping. These signals are important for the efficient functioning of the economy and for the satisfaction of the population at large. Where this signal is manipulated through injection of money into the economy or unnatural interest rate manipulations, a boom occurs, naturally and inevitably followed by the bust.

Going back to their arguments, that money must therefore be spent, is quite the visceral argument since everyone is an employee and everyone’s livelihood depends on other people spending money on them. It appeals to the desire for people to get something for nothing, or at least to earn money for as little work as possible. But in a free market, where people are not forced to buy a good they do not value, the customer is always right. You do your utmost to ensure you appeal to potential or repeat customers. An entrepreneur and all of her employees must strive for others’ satisfaction in order to make a profit – and many do so, successfully. There are no shortcuts in the lives of truly free market participants; you cannot force someone to fork over their money against their will (the case, of course, being different for government agencies funded through taxation). Yet the lazy slob in us all desires just this and the tool to achieve this is inflation. Through a constant devaluation of money’s purchasing power, people trade their money for real goods and services as fast as they can, thus ensuring dollars are not left unspent. Inflation causes fear-driven spending. ‘Spend now before it’s too late and your money becomes worthless’. A mild form of inflation would have the monetary base rise at the same level as ‘economic growth’, thereby keeping the purchasing power relatively stable, but the practical difficulties and the moral dubiousness of robbing one of their money’s value is still present.

An appeal to the intellect and common sense

Money, as a transmitter of value through space and time, must be ‘hoard-able’. It has to be durable so that one can hold on to it without its value dwindling. Holding on to depreciating money is like storing your candles all lit – not the best long-term solution. As I tell my non-gold bug friends, holding on to money in the form of gold is a good long-term strategy. It cannot be printed at will, its production is subject to free market forces of profit and loss, and its purchasing power increases over time. Who would not want money that increases in value? If you are uncertain of the future, the market or the economy, hoard away. One must put aside the red herrings incorporated into the inflationists’ arguments which lead to conclusions that: deflation is evil, saving is bad, debt is good, spending is necessary, etc. Savers, who forego current pleasures and build up future capital, are the backbone of a strong economy. As Doug Casey said, “You don’t become wealthy by spending and consuming, you become wealthy by producing and saving”. As my parents repeated to me time and again, “You cannot spend what you do not have”. And as common sense dictates, “You cannot borrow what someone else hasn’t saved”. Sound money is worth its weight in gold. Resist the arguments put forward on behalf of entities that are massively indebted – there is no evil in hoarding.

Originally posted as Part II of a four-part introductory series on Bitcoin on May 7, 2013 in the American Daily Herald. See the Bitcoin blog for all four articles.

The emergence of money and its importance in enabling trade between people has been well researched and documented in the literature of the Austrian School of economics – Theory of Money and Credit by Ludwig von Mises and Man, Economy and State by Murray N. Rothbard being prime examples. The contribution of the Austrian greats to the understanding of money and its origin made clear exactly what money is (e.g. the most marketable commodity), the different types of media that are employed in exchange between people (e.g. commodity money, credit money, fiat money and money substitutes) and a theoretical explanation for their origin (the Regression Theorem). The Austrian School has also given arguably the most convincing analysis of the relationship between the money type in use, the manner by which it is controlled and the business cycle – emphasizing the importance of sound money. But except for a few sparse outliers, what the Austrian School has yet to do is fully recognize Bitcoin as a valid scholarly and academic topic. With this article, I hope to contribute to its recognition.

Money’s characteristics

Money enabled people in early stages of civilization to go from direct exchange, with difficulties such as the double-coincidence of wants, to indirect exchange. This improved mechanism paved the way for facilitating man’s specialization in his tasks, thereby enabling division of labor within society since each specialized laborer was able to trade his goods for others indirectly with the use of a medium of exchange. Money has taken many forms but there are certain characteristics all forms should have. Aristotle, for instance provided the following four:

  1. Durable – The item must remain usable and retain its characteristics, for which it is valued, over long periods of time (e.g. shouldn’t fade, corrode, rot, etc).
  2. Portable – One should be able to carry it upon their person. A related point is that it would be desirable to have a high value per unit weight, making large quantities portable too.
  3. Divisible – By having uniformity of quality or homogeneity, the item should retain its characteristics when divided into smaller parts or when recombined to a larger unit. Thus, a similar point is the fungibility of the item, meaning that the units can be substituted for one another.
  4. Intrinsically Valuable – The intended meaning is that it should have value as a commodity regardless of its property as money, although as I argued in a previous article, value is subjective and therefore extrinsic to the item, so it cannot in itself be intrinsically valuable. A related point is that the item, ideally, would be rare and certainly not subject to unlimited reproducibility – meaning it should be scarce.

Though Aristotle did not specifically mention fungibility, scarcity or other points such as recognizability, stability of supply, malleability etc., these points generally cover the qualities of good money. The fact that there are monies out there (e.g. fiat money) that so blatantly lack an important characteristic (e.g. not being subject to infinite reproducibility) makes the Mises Regression Theorem so interesting, in that it explains how such a money came about.

Man’s desire for convenience

Mises defined money, in its narrower sense, as taking three forms: commodity money; credit money; and fiat money. In its broader sense, money substitutes like fiduciary media are also used. Of all these forms of money, the most convenient are fiat money, credit money and money substitutes. These forms can be represented by pieces of paper (e.g. banknotes or contract) and therefore, as long as there is trust in the issuing entity or in the counterparty, these monetary forms will be accepted ‘as good as’ the money that backs them or the money that is promised in the contract. Banknotes, token money and the like stemmed from the fact that the common man did not want to store large amounts of precious commodities in his home nor carry it on his person. Banks stored the commodities and issued redeemable notes instead. Let’s face it, humans choose the path of least resistance and so convenience is desirable.

The unfortunate situation that arose is that when banks (or their ‘money warehouse’ predecessors) realized that not everyone wants all of their stored gold at once, they started issuing multiple banknotes backed by the same unit of money stored. This fraud has become pervasive and eventually legally licensed by the state. So while ‘hard currencies’ are good, their lack of convenience has led, as a matter of historical fact, to fractional reserve banking. This practice and the expansion of the monetary base introduce anomalies into the economy and bring about the business cycle.

Another aspect that is inherent to commodity money (and most all other money types) is that the payment system has always been separate from money. Whether carrying a bag of coins in one’s pocket or arranging for an armored van, payment requires delivery of money. Banks and clearing houses took on the role to perform this service, charging lucrative transaction fees in the process. Here, too, it became more convenient to use credit money or internet banking, where one just transfers the information about the transaction and where it is just as convenient regardless of the sum involved. No physical asset can be transferred instantaneously and without effort.

As desirable as physical commodities such as gold and silver are, the fact that they become increasingly less convenient the more you have of them has turned out to be their Achilles’ heel.

Division of labor and specialization of tools

As we can see from the above arguments, while commodity money has been the soundest of options, it is not without its flaws. But, remember, this is not an unusual phenomenon. Being self-sufficient and growing one’s own food is also prudent, yet most will concur it has its disadvantages. Humans have discovered that division of labor and specialization makes everyone better off. Specialization, though, is most effective when the tools one uses are also custom-made for the task at hand. Imagine using a gardening trowel as a ladle for your soup, or a battle axe as a butcher knife… This is a facetious comment, to be sure, but why then must we ‘make do’ with an ornamental commodity or a block of highly conductive metal as money? Humans once used flint to start fires because that is what nature provided. Surely, we agree a lighter is much better. Why should we not seek to invent a tool to facilitate monetary transactions, call it money, which would cover the characteristics noted above (Aristotelian or others) as ideally as can be? Then just set it free and see if it acquires value through a catallactic process, much like gold and silver did in the past. As Rothbard said in relation to gold: “If gold, after being established as money, were suddenly to lose its value in ornaments or industrial uses, it would not necessarily lose its character as a money”. If one invents money and it establishes itself, who cares if it has no other purpose?

Whether for the reason of making a more perfect money or just to make a digital form of it, an unknown hacker (or group of hackers) brilliantly devised a new money — Bitcoin. We see that it has already acquired some value and a quick search will show an ever increasing number of businesses willing to trade in Bitcoin. It is already a medium of exchange for a growing number of countercultures. Whether it continues to gather momentum is an empirical question, one for which only time has the answer. But let us not forget this is a free market phenomenon. Nothing about its ownership, mining or its use violates private property rights. As with any good on a truly free market – the only test it must withstand is the test of marketability and popularity within the confines of the non-aggression principle and private property rights.

But does it serve customers’ needs?

By far the best and most academically rigorous description of Bitcoin I’ve seen has been given by Peter Šurda in his Master’s thesis. Konrad Graf has also written extensively on the subject with clarity and insight. I will not do justice to arguments they put forward, but will share their opinion that Bitcoin has superior qualities as it relates to the characteristics of money.

  1. Durable – Bitcoin can exist in any number of forms, be it physical or intangible (yes, you can actually have a Bitcoin coin or card). It can be printed on paper or committed to memory. But at its core, it is abstract and can be made to be as secure as the network it depends upon. Its peer-to-peer nature makes it all but impossible for governments to shut down.
  2. Portable – If it exists in its intangible form, there is nothing more portable than 1s and 0s. A million bitcoins weigh as much as a millionth of one. It is also the most easily transportable good – no shipping costs, insurance, etc. It is, after all, its own payment system. In fact, it is so portable, you can carry backup copies with you or trusted parties, hidden in USB keys and on anonymous servers – this is the only form of money that could pose an insurmountable challenge to those wishing to confiscate your money.
  3. Divisible – Each coin is divisible into 100 million smaller units, meaning that even if each bitcoin rises to $1 million each, we would still have the equivalent of a penny. Likewise, Bitcoin is perfectly fungible.
  4. Scarce (Intrinsically Valuable) – Bitcoin is rare (total quantity will not exceed 21 million units) and is not subject to unlimited reproducibility. This is by design and due to its complete decentralization, there is no one entity that can override this characteristic.

Šurda additionally showed how it was superior in logistics, manipulation, authentication, transaction costs of property rights, counter-party risk, and others. Graf noted its superiority also in purchasing power and stability of supply, lending itself to become a catalyst for deflation (in the good way). And since Bitcoin isn’t a raw material in creating other products, premiums aren’t charged for industry use. Therefore, no other lower-order goods’ costs of production are affected by its potentially ever-increasing value in a deflationary environment.

Best of all, this is a commodity money that does not need money substitutes and it doubles as its own payment system. This leads to two very desirable outcomes. Banks would no longer be needed as ‘money warehouses’. Individuals could store their own bitcoins, much like they store their cat photos on their hard drives or online. Many libertarians wonder how to make fractional reserve banking illegal. You would not need to – it would come about naturally since this ‘service’ would no longer be required. Banks’ role in the business of transferring money would dwindle as well, since paying in Bitcoin is as easy as sending an email. Transaction fees and capital controls would become a thing of the past. Banks would therefore revert to providing useful services, such as pairing up those who want a loan with those who have money to lend. They would finally be forced to innovate, same as businesses across the spectrum have been doing since the dawn of civilization.


Bitcoin has the making of becoming money in its own right. As of now it is a medium of exchange for a limited group of individuals, but it has already acquired value and is already being purchased for its exchange value. Bitcoin is a free market phenomenon. The value it has was not forced upon anyone and its use is not protected by legal decree.

Professor Hoppe notes the following: “Economic theory has nothing to say as to what commodity will acquire the status of money. Historically, it happened to be gold. But if the physical make-up of our world would have been different or is to become different from what it is now, some other commodity would have become or might become money. The market will decide.”

What becomes money is indeed an empirical question that we can only analyze with hindsight. From the great work done by the economists quoted above, we can uncover another empirical fact – that money has arisen in a spontaneous manner, through the evolution of successive generations of human actors. But let us not conclude that money can only arise spontaneously – it can be purposefully invented and then left to the market to adopt or reject. What we are witnessing is the adoption of a new invented form of money. Money, after all, is a tool to facilitate economic transactions. We must accept – and build into our theories – the possibility of using a tool that is custom-built for this purpose. We must not merely denounce a form of money because its building blocks are not naturally provided or because it does not have other uses. If it meets and exceeds all of the characteristics of money, if it adheres to principles of economic scarcity and decentralization, and if actors on the free market see the value in it and freely exchange goods and services for it – we need to accept this, too, as having potential of being included in our books and scholarly articles alongside the time-honored alternatives. Let us have academic debates about its practical or economic merits and flaws. This is not a winner-take-all situation. Competition in currencies is just as valuable as competition in other areas. Let’s just remember that Bitcoin could well help us achieve a better and freer society with a sounder economy.

Originally posted as Part I of a four-part introductory series on Bitcoin on May 1, 2013 in the American Daily Herald. See the Bitcoin blog for all four articles.

The last couple of months proved a very exciting time for Bitcoin and its new owners, with values increasing from $30 to $260 within a month only to come crashing down in days. It went from virtual anonymity to virtual ubiquity and back again — the only constant being that it’s virtual. The dust has now settled and the talking heads have changed topic, and Bitcoin is slowly regaining strength. But does this mean we can finally, in a quiet and rational way, contemplate what this Bitcoin really is and where it has room to fit into our lives? The answer to that is no, because the concept of Bitcoin is so strange, unintuitive and foreign, no matter when you discuss it and with whom, it will lead to very divisive arguments. So I say now is as good a time as any to dive in and discuss it.

So what is Bitcoin, anyway?

Bitcoin is a virtual currency. It is a string of 1s and 0s, much like a lot of what we interact with in this day and age. It’s something new. It’s unique. It’s controversial. The detractors say it’s only useful for terrorists or drug lords who want to move money around undetected, which no doubt they do. But much like the Internet is so much more than pornography, so is Bitcoin so much more than drug money. E-mail liberated the letter from the postage stamp, Skype liberated telephone calls from crippling AT&T long-distance rates, Facebook liberated photos from the dusty photo album sitting on your shelf unopened. You can think of Bitcoin as what will liberate financial transactions from the grip of the financial institutions and the state.

Technical/dictionary definitions can be found in many places. This short article cannot give a full account. But it will present analogies to make the concept of Bitcoin easier to grasp. Given that Bitcoin is virtual, the analogies can only go so far, but the first step is to think about bitcoins as though they were actual coins forged out of the shiniest and prettiest gold. This is the cornerstone to understanding that bitcoins are in fact a commodity, like a gold nugget turned into a coin and made to become money. The analogy is that the element from which the gold coin is forged requires to be mined. Sure enough, it exists in nature, but it is hidden from plain view. It has to be explored to be brought into useful existence, and this gets exceedingly hard as time goes by and as the easy pickings have all been found. Much the same is with Bitcoin. It is decisively unlike any other piece of software or any other electronic file to which we are accustomed. You cannot just copy and paste it and you cannot just reinstall it ad infinitum. The sense we should be getting is that Bitcoin is a scarce good.

Don’t let go of that mental image as I endeavor to explain a bit about the technical aspect. Bitcoin belongs to a new kind of asset class, one that is called a crypto-currency. Its very existence is predicated upon a network of computers that resides within the internet. This Bitcoin network consists of thousands of individuals who are online and connected to one another at every given second of the day, constantly communicating with one another through pieces of software designed with this one networking purpose in mind. Through complex cryptographic means, each coin and all of its transaction history is known to the network while keeping the identity of the owner of this coin completely private. Due to the fact that transmission from one owner to another (the financial transaction) is broadcast to the entire network, it is made virtually impossible to then use the coin again since everyone knows you’ve already given it away – thus it overcomes the problem of double-spending (think “copy & paste”) the same coin. The analogy to a gold coin (or any physical good) is that only one person can ever hold and own the coin, thus it is scarce (in the economic sense) and one person owning the coin prevents another person from owning it.

As to the technical aspect of ‘mining’ bitcoins, these again are computers running specialized software on this network. Miners solve complex algorithms to discover which string of characters would be the next Bitcoin to be produced. The computations are so complex, and increasingly so, that the computers required are expensive, state of the art computers using up time, space and energy. Inherent in the Bitcoin network design, there is a capacity to the network (21 million bitcoins) and inherent to the mining process, it becomes exponentially more difficult to solve these algorithms. Therefore, by nature, the rate of creation of new coins is decreasing and an upper limit is in place. Today over half are in existence, within 25 years over 99 percent will have been mined and by the year 2140 no more coins will be added to the supply. The analogy to gold mining is that gold is finite and it takes effort to discover it; ‘real world’ resources, time and money, are expended in the process. While, of itself, this doesn’t give Bitcoins their value, it does make it either profitable or not and it incentivizes entrepreneurs where the profit exists. Bitcoins cannot be created out of thin air by a Federal Reserve-like entity. It is a commodity that will attract miners should it be profitable, and likewise detract miners when loss-making conditions arise. It is a product of the free-market.

The value of money and Bitcoin

A brief mention was made that this is a new type of asset class. Also mentioned repeatedly is that this is a commodity. These definitions cause great discomfort to many who view assets and commodities as necessarily objects in the physical realm. Accountants have long held the view that a balance sheet can also be comprised of intangible assets. Value, it was argued, does not come from an object’s tangibility, but rather from its subjective utility by its owner and from its scarcity. Businesses, after all, pay great premiums to acquire others’ brands or to employ people for their talents or ideas. To be sure, a Bitcoin is a string of 1s and 0s and interacts only with software, but when this string of 1s and 0s is useful and its ownership boundaries are clearly delineated (meaning what I own, you cannot own at the same time), then it can be thought of as an asset and it can acquire value based on the subjective view of market participants.

Most discussions on forms of money invariably include references to ‘stores of value’ and to the money commodity as having ‘intrinsic value’. It is important to realize that any good arising from the free market will appreciate in value as more people want it and will act as a store of value as long as its popularity remains so. But with popularity dwindling or with marginal utility dropping any good is subject to its store of value diminishing, gold notwithstanding. Intrinsic value is itself a misnomer. Goods do not have intrinsic value. Goods may have intrinsic properties or characteristics that are valued by society or enable them to be well utilized for a specific purpose. Money’s properties, for instance, would include being fungible, divisible, recognizable, durable, portable, rare/scarce, etc. If a good or a commodity intrinsically has all of these properties, then it is likely, over time, to evolve to become a medium of exchange (money). This good will then acquire value with its increased recognition as a popular and well accepted form of money. But calling this ‘intrinsic value’ is fallacious, albeit somewhat common.

Historically, precious metals, especially gold and silver, have retained their values due to their intrinsic properties mentioned above. This has given rise to people’s perception of them as being a ‘store of value’ and of having ‘intrinsic value’. Another red herring introduced to the argument is that gold has other uses, say in dentistry, aerospace, or jewelry. True enough, this would imply that should the metals lose all perception as being money (a highly unlikely scenario, but theoretically possible), then at least the owner is able to sell off their existing holdings to goldsmiths and other industry participants. The resultant oversupply relative to demand would probably mean gold owners would salvage a few percent of the value at best. Therefore, for all practical purposes, the fact that gold has value other than money (a characteristic Bitcoin doesn’t share) is of little relevance when discussing it as a medium of exchange.

With Nixon’s closure of the ‘gold window’ in 1971, gold has ceased its official role as money. However it is quite evident that as an asset class, precious metals are still highly regarded and form a part of many prudent investors’ portfolios. Payment for goods and services with a Krugerrand or a Silver Eagle would constitute ‘barter’ if one were to go by today’s strictly legal definitions of money payments. But if (or when) the US Dollar system collapses, there is no doubt to an ever increasing proportion of the population that ‘payment’ with gold and silver would arise as legitimate forms of money. The creation of bitcoins has introduced another alternative, one which would be unwise to ignore.

Bitcoin adoption and its rise in value

As long as its acceptance as money is only to a narrow audience, its value will remain low and the possibility of a price collapse is a real risk. But one shouldn’t make the error in deducing, therefore, that it cannot acquire value as people learn about it and accept it. Every commodity starts its life as having no value until someone finds a use for it and starts exchanging it with others who also see the value in its use or its properties. If a commodity acquires value as a medium of exchange through voluntary free-market interactions, and is not forced upon the populace through legal tender laws (as fiat money is), then it no longer matters that it doesn’t have other uses. It will be acquired and exchanged for the sole purpose of acquisition and exchange. In a free market, after all, if people lose confidence or interest in the product – any product (money or otherwise), its value would decrease and potentially reduce to zero.

So why has its value gone up so greatly? Is it all attributed to an irrational bubble-induced craze? Perhaps. But perhaps ever more people are starting to realize that this invention fits the bill. It is fungible, divisible, recognizable, durable, portable, rare/scarce (an in-depth look at each will have to be the topic of another article). When one considers the design of this ‘product’ in light of these attributes, one begins to realize that the properties that led gold and silver to the fore as ‘natural money’ can exist in other goods. People gawk at miraculous inventions that enable us to perform heretofore unthinkable tasks. Transacting in money is no different. Money is simply the most marketable commodity. It shouldn’t surprise us, in this day and age, that someone was able to invent an alternative form of it – and let the free market decide what is more marketable. What we have witnessed over the last few weeks are volatile price fluctuations, as people rush into this craze wanting to make a quick buck. But with more people owning bitcoins and more businesses willing to accept payment in them, Bitcoin is gaining currency. This is exactly the process that took gold from ornament to payment, only instead of taking centuries, it is happening before our very eyes. For those seeking a return to free market currencies, consider Bitcoin as a successful alternative.