David Kramer over at LRC is calling bitcoins bogus. I'm not sure I can buy into his argument completely.
He
writes:
I'm afraid that those people [bitcoin supporters] 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.
That's not exactly correct. What he is referring to is Ludwig von Mises' Regression Theorem on how money first began to circulate. It is not a forward looking theorem, in that sense.
For example, the dollar is beyond question a medium of exchange. Yet, it never had a use value in the economy before it was a receipt for gold, and now the link to gold is cut, yet it continues to circulate and be used as money.(If anyone doesn't think dollars are money, they are free to send any they have to me.)
Thus, if someone now starts an exchange that is nothing more than an electronic receipt for dollars. Those electronic receipts could eventually become a real money, if overtime the electronic receipts are generally accepted in the way that dollars have become an accepted currency. Indeed, it may at some point be possible to cut the link between the dollar and the generally accepted electronic receipt, which could be beneficial if the dollar goes into a hyper inflation.
What I'm thinking of is not a fraudulent situation like that conducted by the U.S. government where they completely reneged on their promise to pay out gold for dollars, but more of a situation where an electronic currency operator continues to redeem any receipts for dollars but announces that he will no longer create any new receipts. Under these conditions, traders would be comfortable in trading the electronic receipts, and I could see where the receipts
might immediately jump to a slight premium over the dollar---and if the Fed continues to inflate, to a huge premium.
That said, the Bitcoin appears to be a complex version of my simple electronic receipt. It's not exactly clear how many bitcoins will be created, and for what reason. And it is not clear that they are anywhere near a receipt guaranteeing a certain dollar redemption. At best, it appears,
if you understand the backstory, to be a sort-of receipt to buy a certain amount of illegal drugs. This in itself means the bitcoin has some value, especially if you need to score some LSD.
But one glance at the
bitcoin site, especially after looking at their scrolling news, should be enough to scare anyone from keeping any money in bitcoins. If on the other hand, I am in need of some wala wala shoes that are normally only found on the planet Venus, I would have no problem converting dollars into bitcoins in an amount necessary to buy wala wala shoes.
Bitcoins seems to be a first step at creating a truly digital money. There will be others attempts that will eliminate the unnecessary complexity of bitcoins and make them more like travelers checks, which are fully convertible into dollar. (Note: Bitcoins may have added the complexity to confuse those who want to charge bitcoins with being a money launderer.)
Somewhere something between a bitcoin and a traveler check type electronic currency could emerge, at some point. I'm not sure how it will emerge, or how payments and withdrawals will be made under such a system. My point here is that there is no theoretical reason that an electronic money could not exist as first a receipt for, say, the dollar, and then at some point become its own currency. The problems I see at this point are dealing with the purchase and sale of physiacl dollars for such a virtual receipt and how that would be executed, and how to develop this without getting caught up in a web of United States and international laws that are surely aimed at preventing such a virtual currency. I'm not technically savvy enough to know how well torrent or some other technological medium could speed things along. For now, I am a fascinated bystander that can not rule out, based on Austrian theory, the possibility of a future electronic money that is not created by governments or that had any prior use value other than having perhaps an interim period as a receipt for a currency or commodity.
