The Big Gunt on Nostr: The Bitcoin Paradox It is now possible to explain the paradox of Bitcoin and the ...
The Bitcoin Paradox
It is now possible to explain the paradox of Bitcoin and the reasons that it has often been analyzed inadequately by Austrians. In order to analyze bitcoins properly, it is necessary to use only the cold, hard logic of the regression theorem rather than let ones love of gold interfere.
The Bitcoin paradox is that bitcoins appear to have no use other than as a medium of exchange. Its technological features, though elegant, are barren as long as there is nothing that bitcoins can buy. Thus, it would appear to be a violation of the regression theorem if bitcoins were to become a medium of exchange.
There are two fallacies inherent in the statement of this apparent paradox. The first is an argument from lack of imagination. Just because the nature of bitcoins’ original value is unclear does not mean that there isn’t one. The second is a violation of subjectivism, which is fundamental to Austrian methodology. The economist need not demand to understand the reasons why people value anything—demand is proven by the fact that something has a price, not by the fact that the economist understands why people pay for it. I don’t deny that a lottery ticket is an economic good even though I can’t understand why anyone would buy them.
Bitcoins are known to be a medium of exchange today. This proves that the regression theorem must apply to them even if it is hard to understand the original demand.[3]] It is also empirically known that they were sold for dollars before ever being used as a medium of exchange.[4] This confirms what must necessarily have been true according to the regression theorem.
The correct approach should have been clear to any Austrian economist, but until recently, Austrian analyses of Bitcoin have been superficial. It is not yet generally understood among Austrians that Bitcoin is fundamentally different from both gold and fiat currencies, and therefore requires a fundamental analysis going back to first principles. This may have to be reiterated a few more times before the Austrian movement is convinced.
The anti-Bitcoin Austrians are incapable of mounting a reasonable case against Bitcoin. They are convinced that something must be wrong with Bitcoin, but when they attempt to articulate it, they arrive at conclusions which are either subjective or fallacious.[5] The most common reaction is that the regression theorem implies bitcoins cannot become money or are somehow unsustainable,[6] but this conclusion misunderstands the nature of praxeology. Praxeological arguments are only capable of saying that certain causal relationships are possible or impossible. It is not possible for something in real life to violate a praxeological law, even momentarily.
I believe that this reaction has to do with a misattribution of the reasons that fiat currencies (and bitcoins by analogy) are unsustainable, as compared with the reasons that gold is superior. Gold has obvious productive uses; dollars and bitcoins do not. However, gold is not stable and the dollar unstable for those reasons. Rather, the dollar is unstable because the organization issuing it is presently tampering with it. If the tampering should stop and the government should provide real evidence that it will manage the dollar responsibly, then there will be no reason to expect the dollar to be unstable after that.
On the other hand, because gold has obvious and widespread productive uses, its price cannot go to zero as long as it still has these uses. The same argument cannot be made of bitcoins, but it does not follow that bitcoins’ value will go to zero or is likely to go to zero: once again, the best argument is provided by Šurda, who asks “If Bitcoin fails, what would replace it?”[7] As long as Bitcoin has uses which are impossible with any other currency and as long as it remains competitive against other currencies and payment systems, it will not entirely collapse in value.
#bitcoin
It is now possible to explain the paradox of Bitcoin and the reasons that it has often been analyzed inadequately by Austrians. In order to analyze bitcoins properly, it is necessary to use only the cold, hard logic of the regression theorem rather than let ones love of gold interfere.
The Bitcoin paradox is that bitcoins appear to have no use other than as a medium of exchange. Its technological features, though elegant, are barren as long as there is nothing that bitcoins can buy. Thus, it would appear to be a violation of the regression theorem if bitcoins were to become a medium of exchange.
There are two fallacies inherent in the statement of this apparent paradox. The first is an argument from lack of imagination. Just because the nature of bitcoins’ original value is unclear does not mean that there isn’t one. The second is a violation of subjectivism, which is fundamental to Austrian methodology. The economist need not demand to understand the reasons why people value anything—demand is proven by the fact that something has a price, not by the fact that the economist understands why people pay for it. I don’t deny that a lottery ticket is an economic good even though I can’t understand why anyone would buy them.
Bitcoins are known to be a medium of exchange today. This proves that the regression theorem must apply to them even if it is hard to understand the original demand.[3]] It is also empirically known that they were sold for dollars before ever being used as a medium of exchange.[4] This confirms what must necessarily have been true according to the regression theorem.
The correct approach should have been clear to any Austrian economist, but until recently, Austrian analyses of Bitcoin have been superficial. It is not yet generally understood among Austrians that Bitcoin is fundamentally different from both gold and fiat currencies, and therefore requires a fundamental analysis going back to first principles. This may have to be reiterated a few more times before the Austrian movement is convinced.
The anti-Bitcoin Austrians are incapable of mounting a reasonable case against Bitcoin. They are convinced that something must be wrong with Bitcoin, but when they attempt to articulate it, they arrive at conclusions which are either subjective or fallacious.[5] The most common reaction is that the regression theorem implies bitcoins cannot become money or are somehow unsustainable,[6] but this conclusion misunderstands the nature of praxeology. Praxeological arguments are only capable of saying that certain causal relationships are possible or impossible. It is not possible for something in real life to violate a praxeological law, even momentarily.
I believe that this reaction has to do with a misattribution of the reasons that fiat currencies (and bitcoins by analogy) are unsustainable, as compared with the reasons that gold is superior. Gold has obvious productive uses; dollars and bitcoins do not. However, gold is not stable and the dollar unstable for those reasons. Rather, the dollar is unstable because the organization issuing it is presently tampering with it. If the tampering should stop and the government should provide real evidence that it will manage the dollar responsibly, then there will be no reason to expect the dollar to be unstable after that.
On the other hand, because gold has obvious and widespread productive uses, its price cannot go to zero as long as it still has these uses. The same argument cannot be made of bitcoins, but it does not follow that bitcoins’ value will go to zero or is likely to go to zero: once again, the best argument is provided by Šurda, who asks “If Bitcoin fails, what would replace it?”[7] As long as Bitcoin has uses which are impossible with any other currency and as long as it remains competitive against other currencies and payment systems, it will not entirely collapse in value.
#bitcoin