BITCOIN Is it real money?

When money doesn't develop as a commodity, it gives one pause to wonder why.  Is it real money?  Is it viable in a free market?  How did it come into existence if it didn't develop as a good with uses other than money?  Today we observe persistent thievery of goods (e.g. land, cars, gold, and silver) by the state.  Individuals are often on the lookout for mechanisms that reduce the chance that their property will be forcefully appropriated.   The possible reduction of state theft risk is one of the main selling points of Bitcoin.

Money has historically been a tangible good that was desired by people on its own merits as a good.   Salt had uses and could be traded and divided and lasts longer than a chicken. Eventually, the link to a good was lost as pieces of paper with no connection to anything prevailed when the state had its way – via legal tender laws – at concocting new and improved methods of theft via inflation and banking cronyism.  But, paper is still tangible and is seized frequently as well.

In the 1990s, I remember seeing little deed certificates for micro-acres of ranch land that could be traded like money.  That concept seems like it might be a workable idea for money if you don’t consider the state factor.  What if the state doesn’t like the idea of mini paper titles to ownership of micro-acres of a large Texas ranch?   The state can steal the whole ranch.  Or, the state can add a new confiscatory tax to the land that varies vastly from the original agricultural tax scheme thereby reducing the exchange value of the asset-connected paper deeds.  The state can proclaim the whole idea to be a money-laundering operation.  The state can see the link to something tangible and seize all the assets pertaining to the persons who implemented the idea as was done with the Liberty Dollar which had a connection to real precious metals redeemable on demand.

Those real acres can be confiscated by the state just as gold and silver are; just as “real” paper and virtual fractional reserve computer digits can and are confiscated by the state.

So, if Bitcoin didn’t follow the normal route for money origination as a good in the market, why did it develop and can it survive in a free market?

The principle marketed features of Bitcoin are its limited supply and its resistance to state predation when being held and transferred.  The limited supply is a mathematical reality.  That, plus the hoped-for resistance to state thievery supposedly overcome the fact that it didn’t originate as a good on the market.  It has no link to something real that can be taxed, seized, or plundered.  But does this benefit really overcome its non-good status?

Prison Economics

Thin cylindrically-shaped food packages may develop so that food may be passed to an inmate through a rat-hole in the wall of a concentration camp, but such a device – devised and utilized to get around a state-caused hardship – would probably not survive with its original state-caused value intact when, and if, the economy reverts to a free market because of the extra cost involved in shaping food into thin cylindrical packages.  The exchanged value of an item whose primary beneficial feature is state avoidance would be lower in a freer society than an innovation whose primary value is to serve the other preferences of a freer people.  Such a weird-shaped food is not an outgrowth of an entrepreneur’s efforts to satisfy the free market preferences of people outside of state confines.  It is an innovation to circumvent state predation.  If the suffering imposed by the state is ever lifted or escaped from, the anti-state innovation has less utility and less desirability than an innovation inspired by the desire to enhance the exchanges of value and the lifestyle of a freer people.

Medical tourism to foreign countries may be a booming business during a time – like our present time – when the state is restricting the free market for medical services in the U.S., but would that mechanism be a big success if you lived in an area and in a time that had an unhindered free market for medical services?  I advise people on medical options in foreign countries, but if I created a medical tourism business and shuttled people around for that purpose, that business may suffer if medicine reverted to free market principles in the U.S.

Some things develop in a time and place because of horrendous state intrusions into or restrictions on the free market.  But if liberty prevails in the future in that area, will the state- circumventing innovations survive if that is one of their primary claims to value?  Would they be needed and desired and valued if there was more freedom?

Bitcoin is Anti-State Money and State-Caused Money

Bitcoin’s coming into prominence was mainly due to a desire to avoid confiscation, tracking, and inflation; all things that are hallmarks of the state’s dedication to the principle of stealing value from you.   It has the benefit of being something with no link to something real that can be confiscated.  So, Bitcoin has the ironic dual honor of being anti-state money and state-caused money.  The anti-state aspect is one of its main claims to fame.  The innovations that may possibly circumvent the state’s main methods of taking value are considered to be its main features.  The fact that it is devoid of any tangible value is portrayed as a good thing in a statist environment.  Gold’s primary claim to fame isn’t a claimed ability to avoid theft, tracking, or inflation although its high value-to-size ratio and relative scarcity assist with those things.

Without state predations, adaptations to avoid those predations possess less utility, less desirability, and possibly no value at all; especially, as in the case of Bitcoin, when there never was any tangible value.

Will There Never be Freedom?

So, could Bitcoin survive in an unhindered free market even if it is largely a state-caused medium of exchange that has no status as a commodity good?  Would an alternative that was related to a good be preferred by users if there was no state predation or reduced state predation?  And, is it logical to assume that the level of state predation will never go down?  Will state theft risk be so pervasive in most every transaction or savings action from now into eternity that the lack of connection to anything seizable in a purely virtual money will be the paramount consideration from now on over actual value offered by a tradable money that is also a saleable, usable, tangible commodity?

Virtual currencies are an interesting idea.  But, if they lack an inherent connection to the tangible world, a doubt is created about their value and there will be similar assumed-value pitfalls as exist with supposed “intellectual property” which also has no claim on anything tangible.  One or more currencies with a “virtual” aspect may persist and survive.  Only the market will determine that.  The real long-term test, however, may be their ability to pass over into a freer society without a big loss of value.

I am optimistic that freedom will prevail, if not universally, then at least in pockets competing against the state to which people will migrate so as to preserve their wealth and personal freedom.  In those pockets of relatively higher freedom, the thin, cylindrical, labor-intensive prison food packages would probably fetch a lower price than real ham sandwiches or real pizzas.  They would likely be competed out of existence.  People would probably eat normal food and rarely invest resources into squishing it into odd, thin, narrow, “state-caused” tubes that would be required when passing it through a secretive conduit in a state-imposed wall.  Innovations that get around state-imposed harms are good things, but would they be preferred and exist otherwise without other features?

To go a bit further, is Bitcoin really the equivalent of a squished-up ham sandwich?  Bitcoins don’t actually contain any ham.  They are claims that a person hopes to trade – though they represent nothing tangible – for a ham sandwich.  The hope is that the ham sandwich trader will perceive the risk of state theft also and agree to hold value in nothingness, so that his value can’t be stolen by vigilant Leviathan during the process of storing and transferring wealth used to buy and sell ham sandwiches.  So, there needs to be a universally accepted disconnect of tangible value during transactions and between transactions (savings) in order for bitcoin to be viable in the long term.  An understood suspension of real goods-for-goods must happen every time a money transaction occurs, with pretty much the sole intent being of avoiding state predations that may intervene in those transactions.  And this doesn’t even address the issue of whether Bitcoin is really immune to state plunder.

So, can real capital be moved in a stable manner between people and across generations this way?  Real ham sandwiches cannot be received by a starving inmate through a hole in a prison wall in this manner.  Can a secret number passed through the hole in the wall be traded inside the concentration camp to other prisoners for ham sandwiches?  Possibly, for a while, if everyone agrees in that context that secret numbers not originating with any otherwise usable traits equate to ham sandwiches, but a prisoner that has access to a friend on the outside who can smuggle in real things, for example eggs, will probably get more ham sandwiches in exchange for his real contraband items since the real things meet tangible preferences and represent the free market breaking into the restricted statist market.

So, if state seizure action is partly or completely negated in a freer society – thereby degrading the value of Bitcoin – the only other value left to Bitcoin is the limitation on its supply.

Robinson and Friday Try a Trendy Limited Supply Virtual Money

On that point, here is a little thought experiment involving Robinson Crusoe and Friday on an island.  Assume that the two live in a voluntary society with each other and, consequently, all exchanges are mutually agreed upon and maximize value from the viewpoint of each party.  They decide to use a trendy virtual currency instead of salt which they previously used.  They choose an agreed-upon finite number of planets as their currency.  They agree that no new planets can ever be added to the money supply even if more are detected.   They decide that their money supply will consist of eight planets.  They both like Pluto as a planet, but they decide to not use it so that they can each start out with an even number of planets; four and four.  They like the idea that their medium of exchange has a limited supply and that a state, if one should ever descend upon them, would not be able to pluck the virtual planets out of their brains.

One day, on the verge of the short tropical winter, Robinson notices that Friday has accumulated a lot of macadamia nuts.  Robinson had been concentrating more on bananas.  Robinson proposes to Friday that he will exchange half of Jupiter for ten pounds of macadamia nuts.  Friday declines the offer.  Then Robinson offers all of Jupiter for ten pounds of macadamia nuts.  Friday declines again.  Then, Robinson offers all of his planets for any amount of macadamia nuts.  Friday declines, but proposes that he will exchange macadamia nuts to Robinson at the rate of three nuts for every banana that Robinson gives him.  Friday reminds Robinson that winter is around the corner and that Friday cannot eat virtual planets.  Friday also sees no imminent risk of a state stealing his possessions.

So in this case, both Robinson and Friday know that the planets as a medium of exchange are not deliverable to the other as a tangible good to satisfy the other’s real preferences because neither Friday nor Robinson has a spaceship or other means of obtaining possession of real tangible planets for physical delivery to satisfy the other’s wants.  The virtual planets are merely a mutually understood method of describing a finite amount of money in a non-good form that has the advantage that it cannot be stolen by the state.  The planet names used by Robinson and Friday only serve to specify an intellectually-defined scarcity of something imaginary.  So, in this example we can see that the whole virtual solar system cannot be exchanged for a handful of real macadamia nuts.  Even though the agreed-upon number of planets that are possessed in a virtual sense represents a finite supply, those virtual planets can never meet any physical needs or tangible preferences in the free market context where Robinson and Friday reside.

In this situation, real bananas and real macadamia nuts trump a completely virtual currency, even one that has a limited supply.

Moral Hazard of Bitcoin

Competing currencies are wonderful, but we still can speculate about how each one would function in a free society or a non-free society and which ones would out-compete the others under different circumstances.  Bitcoinesque currencies may or may not have a role in a surveilled, concentration camp society, where prisoners’ possessions and incoming care packages are continually plundered by the prison guards, but they may be lacking utility in a free economy.  Non-good virtual currencies have the “shortfall” that they don’t have legal tender laws to force their wide acceptance with guns as do imaginary state monies.  Modern man may have become used to these state plunder laws to the point that he may contemplate that non-good items can and do function as money, since he sees the state forcing this to happen around him.  But economic reality is different when people are allowed to function without the state mandates and threats, improving their lives in the process.

If society as a whole gets freer, or when pockets of freedom develop, there may also be a moral hazard that will affect Bitcoin holders.  They may begin to favor some level of statism that will preserve the value of Bitcoins by maintaining some of the perceived state plunder risk involved when dealing with real commodity exchanges in a free society.  The pressure of freedom on Bitcoin may reduce its value and motivate some intelligent holders to value state seizure actions that made this non-good currency so enticing in the first place.  There is a risk that Bitcoin holders may become tacit or vocal advocates of barriers to entry for commodity monies as those competing monies may reduce the value of their Bitcoin holdings in a freer or “opt-out” economy where people aren’t baring their souls to a plundering system.  Bitcoin holders – seeing their “wealth” dissipate in that context – may militate against the idea of real goods dominating as a medium of exchange.

State caused phenomena often have warped aspects to them because they are the outgrowths of, or response to, an evolving coercive or bubble-causing process.  But those things, which sometimes appear as a small previously unneeded detour around the state or as a larger widespread degradation in the human condition don’t always, or even usually, or possibly ever contribute to the long-term benefit of mankind when the specific state pressure ends or decreases.

And when the topic is money, it is one of utmost importance since money is one-half of most daily transactions and one of the primary means by which men express preferences and honor commitments during their lifetimes and across generations.  A temporary non-good mechanism that does not pass any real tangible value is a doubtful way to plan one’s future or to convey wealth to one’s heirs.

The doubts on long-term viability of Bitcoin become more relevant when more and more people opt out of state structures – as is common in Latin America – and begin to deal directly with each other without allowing a predatory third party to monitor and intervene in every transaction.