Is Bitcoin Money?

I like Max Keiser, I think he’s a great personality and shines a light on corruption like no other journalist but after re-reading this article which I posted 6 months ago, I have to unequivocally state that he’s wrong. The Aristotelian characteristics of money have 3 additionals which Max omitted. That is, medium of exchange, store of value and a standard of account.

It has not been around long enough to be a store of value and it’s volatile. It is now accepted by over 4000 vendors worldwide but its not universally accepted so it’s not a medium of exchange in the truest sense. Finally, it’s not a standard unit of account so you cannot derive a meaningful interpretation of prices, costs or profits. Is Bitcoin money, no it is not, is it a currency like fiat but in its infancy, yes it is. 

I must make a point in regard to intrinsic value, value does not exist outside of the conscience. What do I mean by this? If the human race disappeared off the face of the earth, how much would your home be worth? A pint of beer or a latte? It wouldn’t have any value, it would be just an object as our conscience is not their to assign value. Intrinsic value needs to expanded using marginal utility theory and therefore ‘marketability’.

What is money? Gold, silver, their respective bills and to a lesser degree, copper. Max Keiser in The Huffington Post:

image

Since Bitcoin is now a $400 million market, with its price hitting new all-time highs, now might be good time to ask, is bitcoin money?

According to Aristotle, for something to be considered money, is has to fulfill four characteristics:

1) It must be durable. It can’t fade, corrode.

2) It must be portable. It has to be ‘dense’ so that you can take it with you when you travel to the market.

3) It must be divisible or, ‘fungible.’ This means that if you break it up into smaller pieces each smaller piece when you add them up will equal the value of the original piece.

4) It must have intrinsic value. One must consider that value does not exist outside of the conscious, if human beings disappeared off the face of the earth, how much would your home be worth? Or a pint of beer? It wouldn’t have any value. Therefore we must look to marginal utility theory and the theory of marketability. Those goods which are classed as money have no or a very limited declining marginal utility, by this I mean your satisfaction of receiving another unit of that good is not diminished. 

Let’s look at these four characteristics and see if they apply to Bitcoin.

1) Durability.

Bitcoin is a peer-to-peer, decentralized form of money; as durable as the Internet itself. Remember, the Internet or DARPA as it was originally called, was created as a fail-safe, global network with no ‘single point of failure.’ If one part goes down, data takes another route and nothing is lost. So on this point the answer is “Yes,” Bitcoin is durable.

2) Portability.

Bitcoin is probably the most portable money in the history of the world. I can download any amount onto a thumb drive and walk across any border without any problems. Or, I could commit to memory a line of code that I can then input into the network and save or spend Bitcoins. So on the point of portability, Bitcoin gets an Aristotelian “Yes.”

3) Fungibility.

Bitcoin is probably the most fungible currency ever created. You can break it down by 10,000 decimal places and trade it just as easily without it changing in value so on this point the answer is also “Yes.”

4) Intrinsic Value.

This is probably the characteristic that most people find difficult to comprehend. The intrinsic value of Bitcoin is very 21st century. If you think about it, what’s the one thing that has become extremely scarce over the past thirty years that has grown in desirability? Privacy. 

Privacy is an age of universal email collection and spying, with millions of CCTV camera’s, and warrantless spying pervasive; privacy has become virtually non existent and therefore extremely scarce and desirable. Bitcoin can be a n anonymous transaction that maintains the user’s privacy beyond the reach of any authority. So on this point too, the answer is “Yes,” Bitcoin fulfills Aristotle’s need for having intrinsic value. Privacy is a desirable human right and people would want it even if it wasn’t encoded as Bitcoins.

In conclusion, using Aristotle’s four characteristics of money, Bitcoin fulfills all four. So then according to an Aristotelian definition, the answer is ‘Yes.’ Bitcoin is money.

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6 thoughts on “Is Bitcoin Money?

  1. Another good one from you! Well thought-out and developed.

    Check out the latest on SciAM (11/13) – Jason Lanier’s “What is Privacy in the Age of Big Data?” (in Science and Society) – and the chat on New Scientist and its ilk re: recent govt. hacking of sites designed to protect online identities & the implication to the “new money” technologies. I’d LOVE to hear your take on all that.
    ~~~~~
    Madelyn Griffith-Haynie, CMC, SCAC, MCC
    – ADD Coach Training Field founder; ADD Coaching co-founder –
    (blogs: ADDandSoMuchMore, ADDerWorld & ethosconsultancynz – dot com)
    “It takes a village to educate a world!”

    • I’ve had a read and my concern is that I do not trust the government to do anything right. Western governments are in the pockets of corporates, this can easily be seen when you look into policy or lobbying and the revolving door policies of government, corporation and back to government again. A corporation, in their primary role, is to generate a profit at any cost for its shareholders, therefore giving them access to our meta-data is foolhardy. If their primary goal is profit, our health and well being do not figure or do but as a much lower priority than profit.

      I do not prescribe to being left or right, my beliefs are subjective and I look to what may benefit the many over the few. I do believe in much smaller govt and that money creation and management should be retuned to the people. I do like the concept of bitcoin as its open source and decentralised but my main issue stems with its intrinsic value and marginal utility, its not gold or silver. If the electricity were to go off for a period of time, you could not exchange a bitcoin for goods or services, but if you had PM’s, you could. Bitcoin is safe as the US gov hasn’t been able to crack Silk Roads bitwallet and if its getting people talking about what ‘money’ actually is, its a good thing. In a nutshell, I sit in the corner of the New Austrian School of Economics under Professor Fekete. It’s indepth and logical, unlike the Keynsian, Friedmanite, monetarist policy we have now. In order to move forward, we may have to move back to Gold, Bills of Exchange and sound money x

      • I wish I could remember where I read this (in the last few days – maybe the latest New Scientist weekly mag) – but it seems the govt. HAS cracked Silk Roads – apparently causing quite a flurry, since they cloned it and now can access user records. Heaven help us ALL!

        I’ll keep an eye out for the source for you, and to make sure I didn’t dream it or something (I don’t blog money or politics, but I’m fairly certain I’d resonate to your ideas on same). See what you can scare up about it too. xx, mgh

      • I understand that the site was taken down but the issue was cracking his bitwallet, as far as I’m aware. If they have been able to get people’s addresses and identities it is concerning as its through the TOR network which was meant to be safe, worrying if not.

        If you were or knew a user of Silk Road there are new alternatives coming online http://atlantisblog.org/191/ x

  2. Pingback: Max Keiser Report on Bitcoin Revolution | Forex Auto Trading Singapore

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