What is money. Why Bitcoin is, and is not.

[WolfeTone]

Please show me a donut shop that does barter

Obviously I can't, but that was not your original point. You claimed the Mona Lisa couldnt be exchanged for a donut.
I was just pointing out that as absurd and unlikely for it to ever happen, that yes, it could be exchanged for a donut.
I have no quarrels over the Mona Lisa being a very poor, inefficient, inadequate medium of exchange for the transfer of money.
But money it is.
And my initial point above is, before humans developed the convenience of currency, money obviously existed. The creation of currency in coins and notes allowed us to abandon the inefficiencies of barter to such an extent that we apply the notion of 'money' to currency and can comfortably classify the Mona Lisa as a tangible asset, rather than tangible asset and (extremely inefficient medium of exchange).
So convenient is the currency system as means to exchange money that we have tended to consider money as currency of notes and coins and digital entries on a ledger.
My view is however that money is everything and everywhere that humans relate to and apply value to.

 

[joe sod]

Money is a form of communication of the human species that conveys value from one human being to other human beings. It is information.

Explain, this is like something Michael D would come up with. How can money be a form of communication? afterall the 5euro note in my pocket contains no information, it does not tell me who owned it or what goods and services the previous owner did to earn it. Imagine if I knew it was owned by a criminal and was the proceeds of drugs sure that would undermine the basis for money in the first place. If it's not broken don't fix it

 

[DazedInPontoon]

it conveys the information of the amount and of who is in possession of it, you could also say it conveys some information about the authenticity of itself.

 

[WolfeTone]

Explain, this is like something Michael D would come up with.

I dont blame you Joe, you are not far off.

I subscribe to the views of three historians. Two of which were not even talking about the definition of money at time, but indirectly referenced value.

I go with Professor Niall Ferguson in his series "Ascent of Money".

In he defines money as "trust, inscribed. It does not matter what it is inscribed in - metal, shells, clay tablets, computer screens". All that matters is that the recipient or beneficiary of it trusts in its value.

So if I trust you will turn up on time for work to produce goods and services in my business, that is money to me.
If you trust I will transfer a portion of that value to you in exchange for your labour, that is money to you.
The transfer of that money occurs through the medium of exchange of a €5 note that we both understand and as a trusted means of communicating the agreed value of that money.

Money is a means of communicating value. Currency is the medium used to exchange that value.

 

[Duke of Marmalade]

Professor Niall Ferguson defines money as "trust, inscribed. It does not matter what it is inscribed in - metal, shells, clay tablets, computer screens". All that matters is that the recipient or beneficiary of it trusts in its value.

I 100% agree with that definition. It is an IOU from society that you can trust. I think the "inscribed" bit is important conveying as it does the analogy of someone signing an IOU. I am not sure how a village border meets the definition but as soddy remarks that is definitely in Michael D country.
I just don't believe that long term bitcoin can command a trust in its value.

 

[WolfeTone]

I think the "inscribed" bit is important conveying as it does the analogy of someone signing an IOU. I am not sure how a village border meets the definition

The village border provides trust to inhabitants in the form of security. That has value. Until of course, the border is overrun with invaders. Then trust, and value is lost.

Signature provides trust in an IOU, until of course, the signatory reneges on the IOU. Then trust, and value is lost.

 

[WolfeTone]

I just don't believe that long term bitcoin can command a trust in its value.

Without defining 'long term', it is possible to say that about anything and everything.

 

[DublinHead54]

Bit like the guy who paid 10,000 bitcoin for a pizza 10 years ago - these things happen

The pizza story was the reference for my comment!

 

[Duke of Marmalade]

The MSO* has published a very interesting graph of relative exchange rates in terms of the price of goods. In the case of bitcoin the only reliable series is the price of a latte These are the results.
Start 2018 $4 Sat 20k
Start 2019 $4 Sat 140k
Start 2020 $4 Sat 40k
Start 2021 $4 Sat 20k
Today $4 Sat 10k
Clearly bitcoin has a bit to go for its medium of exchange credentials to break out of their latte confines

* Marmalade Statistics Office

 

[WolfeTone]

Clearly bitcoin has a bit to go for its medium of exchange credentials

Is anybody disputing this?
The thread title is 'What is money. Why Bitcoin is, is not'.

You seem to be ruling out the prospect that bitcoin is money because it has failed to become a stable medium of exchange?

This is the Kelleher proposition. But even Kelleher did not give a defining deadline to establish itself as a medium of exchange before declaring it to have no utility.

We have discussed the theory of shells as a medium of exchange before. It seems silly to me that something as freely abundant at a local beach could have ever established itself as a monetary medium of exchange. But on hearing that is was shells, in decorative form (ornament, necklace, bracelet etc) that was used as a medium of exchange then that made more sense to me.
In that regard, its possible that shells were being hoarded by humans (on display on their stone age village mantlepiece for instance ) for thousands of years as valuable possessions.
However, their use as a medium of exchange may only have happened thousands of years after they were first collected?

I'm not saying it will take bitcoin thousands of years to qualify as a medium of exchange, but I can't understand why it you dismiss it because it isn't a stable medium of exchange today?
As mentioned before, what would have to happening in the global economy for bitcoin to reach some of the $100,000+ outlandish price claims? And is there a $ point where bitcoin becomes acceptable to more and more retailers?
Your good friend Roubini admits CB's cannot go below -0.75% interest rates. To do so would provoke widespread demand for paper money to be kept under the mattress.
Is there a $ value where retailers begin to accept bitcoin as medium of exchange on a widespread scale?
I would suggest there is, although I don't know what that $ value is. I would suggest we are moving closer to that point.

 

[Leo]

it conveys the information of the amount and of who is in possession of it,

What? Fivers are doing introductions now?

If someone hands me a fiver, I ascertain whatever information I can on the identity of the bearer from looking at the person, the fiver they are holding tells me nothing.

 

[WolfeTone]

If someone hands me a fiver, I ascertain whatever information I can on the identity of the bearer from looking at the person, the fiver they are holding tells me nothing.

The fiver doesn't tell you that you can now afford the €5 donut and coffee offer at the coffee shop?

 

[Duke of Marmalade]

Is there a $ value where retailers begin to accept bitcoin as medium of exchange on a widespread scale?

That will not be the key determinant. The key determinant is "volatility" with respect to a numeraire. The numeraire is the standard measure by which all else is judged. It is usually the local currency. And in fact it is very rare to find a situation where a retailer accepts other than the numeraire. I don't know of any shops that will accept dollars, for example. Of course a US tourist, for example, can transact fairly easily in this country by credit card but that is not the same as retailers accepting dollars.
Bitcoin will never be a numeraire. If it ever threatened to be one it would be clamped down upon. Bitcoin will never be a medium of exchange in any meaningful way.

 

[WolfeTone]

The key determinant is "volatility" with respect to a numeraire. The numeraire is the standard measure by which all else is judged. It is usually the local currency. And in fact it is very rare to find a situation where a retailer accepts other than the numeraire.

I don't disagree with this but I sense you don't accept any prospect of the volatility emanating from local currency?
As Roubini suggests, a negative interest rate below -0.75% will invoke a flood of demand for holding under-the-mattress cash. This does not sound like a stable local currency to me. Roubinis solution would seem to be an end to cash holdings with everything operating off a digital e-currency issued by CB's. He claims that CB's could then go to - 5%!
This screams volatility to me. The pitchforks will be out. Capital flight. Only, if G8, G20 CB's, are coordinating negative interest rates on a global scale, where will capital fly to?

$100,000+ bitcoin.

And if bitcoin goes $100,000 +, it will start, at some point thereafter, to become the numeraire upon which all else is judged. Just as gold and silver has done in the past.
The difference being, with a phone and Internet connection, anyone can access some bitcoin.

The idea that retailers will not switch to using a different numeraire simply because the government or the central bank says that the local currency is the numeraire is to completely misunderstand the economic forces that drive their trade in the first place.
If you sell lattes at $4 a pop, knowing the $4 is reducing 5% a year - because the CB says so - then more people will be inclined to take their money, and their entrepreneurial spirt elsewhere, and find different mechanisms of storing value and trading currency.
In a global digital world, the obvious case will be bitcoin.

 

[DazedInPontoon]

What? Fivers are doing introductions now?

If someone hands me a fiver, I ascertain whatever information I can on the identity of the bearer from looking at the person, the fiver they are holding tells me nothing.

All I was saying was that the a physical fiver is a bearer instrument, unlike for example a digital fiver.

 

[Duke of Marmalade]

I don't disagree with this but I sense you don't accept any prospect of the volatility emanating from local currency?

Well, by definition a numeraire cannot be volatile against itself. If bitcoin achieved numeraire status then it would lose its volatility and we would be talking instead of, for example, the volatility of the euro versus bitcoin. We will never get there, and so IMHO bitcoin will never be a meaningful medium of exchange.
But you highlight a different issue - the lack of confidence in the long term value of a currency irrespective of its lack of volatility. That is undoubtedly a factor in bitcoin's performance over the last while. I understand any flight to gold on that count but the flight to bitcoin is a complete mystery to me. other than it is being manipulated by the wicked forces described by Roubini.

 

[jpd]

What do you mean by bitcoin's volatility against itself?

I have no idea what you mean - 1 bitcoin yesterday is 1 bitcoin today and will be 1 bitcoin tomorrow

obviously, the exchange 1 bitcoin v euro, usd, gold, or whatever is volatile

 

[WolfeTone]

If bitcoin achieved numeraire status then it would lose its volatility and we would be talking instead of, for example, the volatility of the euro versus bitcoin.

Yes

But you highlight a different issue - the lack of confidence in the long term value of a currency irrespective of its lack of volatility.

It is not a different issue, it is the same issue - lack of confidence in the value (long-term or otherwise) signifies emerging volatility.

 

[NoRegretsCoyote]

Bitcoin will never be a medium of exchange in any meaningful way.

It is ideal for illegal transactions, specifically drugs at wholesale level and weapons.

There is massive volatility risk of course, but try moving and storing €3m in €100 notes. It weighs 30kg.

I was a huge bitcoin sceptic when I heard of it in 2009, but it's still around. This can only be due to its use as a medium of exchange in niche markets.

 

[Duke of Marmalade]

What do you mean by bitcoin's volatility against itself?

I have no idea what you mean - 1 bitcoin yesterday is 1 bitcoin today and will be 1 bitcoin tomorrow

obviously, the exchange 1 bitcoin v euro, usd, gold, or whatever is volatile

BTC/$ is very volatile, you agree. But we talk about BTC being volatile not the $. That is because the $ is the numeraire, the basic entity against which we measure other currencies. But the real numeraire are goods and services. We can see from the MSO data on the prices of latte that it is indeed much more correct to talk about BTC being volatile rather than the dollar.
The point is that something can’t really be called a currency until it is a numeraire for a sizeable constituency. BTC will always be seen in terms of of what it is worth in a conventional currency. We will never see for example ads advertising goods in their BTC prices, even if such ads are targeted at the criminal community.