Originally posted on my website, TheLibertyAdvocate.com.
When I first heard about BitCoin, I thought it was an interesting experiment that would never pan out. I pretty much ignored it for a couple of years, until I came across an article explaining why BitCoin couldn’t possibly be money. The article stated that because BitCoin doesn’t have value outside of being money, it cannot be money according to the Austrian Regression Theorem. It made sense to me, so I became anti-BitCoin, because I believed that BitCoin would eventually collapse, leaving those who were bullish on it devastated.
However, BitCoin didn’t go away, but grew, and more and more voluntaryists were coming out in favor of it. This astonished me, leading me to think that there was some kind of “BitCoin Bubble” going on. I eventually decided that I had to look more into the arguments in favor of BitCoin. Jeffrey Tucker is/was my go-to man on the subject. The more I learned, the more I found that BitCoin can be considered money (even in the eyes of the Regression Theorem), and offers a wonderful alternative to Federal Reserve Notes, and when that money system fails, may possibly become the most accepted medium of exchange.
I will now attempt to address the Austrian Economic critique of BitCoin and put forward my theory as to why BitCoin may become in the (perhaps distant) future the most commonly used money.
The criticism of BitCoin goes something like this: BitCoin has no value prior to being money. In order for something to become a true money, it must have a commodity value previous to becoming a medium of exchange. BitCoin is used only as a money, and has always been used purely as a money. Therefore, BitCoin cannot be considered a real money, and when faced with the competition of a true money like gold and/or silver, will be discarded as worthless.
This is a powerful argument. However, this argument is wrong because BitCoin does have value prior to being money — just not as a commodity. The value of BitCoin independent of being money is derived from the fact that it is information (code) that is infinitely divisible, decentralized, anonymous, scarce, and instantly and directly transferable. The code, by itself, is worthless. It is the qualities that this code possesses that has value. These code qualities give the BitCoin value, but only for use as a money — prior to being used as money! Thus, there is nothing wrong with BitCoin, and there is nothing wrong with the Regression Theorem — the only thing that is wrong is some people’s application of the Theorem, and their incomplete knowledge of BitCoin.
Now, you may be thinking, so what? Even if BitCoin could become a money, what makes you think that it actually will? Gold has already been proven to be the most prevalent money in history, so why won’t it be the same way in the future, after the collapse? The answer is that gold was money when most commerce was physical, taking place in person, as opposed to the mostly digital commerce that takes place today, and will take place to a greater extent in the future. The exact features that make BitCoin money are the precise features that characterize the perfect form of money — that’s the whole reason BitCoin is a money in the first place! This, and the fact that money gets value from its being used as money means that BitCoin will have affn advantage over other forms of money because it is already being used as such. Gold, on the other hand, is not the perfect form of money, it has just been the most perfect form of money in history — until now. Gold also does not have the advantage of currently being used as money. BitCoin already being used as money will add value to it as such.
This is not to say that gold will not be used as money, although there is a tendency for there to be only one money in existence (although I wonder if that would only come to be in an evenly rotating economy), but rather that BitCoin is the preferable money. I believe that gold will be used as money, because it does have many favorable qualities, along with having a “tried and true” status. After the collapse of fiat currency, I believe that their will be many different monies, all competing with each other, with a small handful winning out. My bet is on gold, silver, and BitCoin. I think that it is unlikely, but there is a possibility that a new crypto-currency will come about that will outdo or match BitCoin, but as of right now, the only one that I can think of as even plausible is a crypto-currency called Steemit, which is something like pieces of ownership of popular content (like articles).
In any case, be sure to get your cash out of Federal Reserve Notes and into a real money before it’s too late and your Notes become worthless!
Great post! I just started using Bitcoin literally today (like 2 hours ago lol) and I feel like Bitcoin can be used as real money and that Bitcoin and gold each have their own pros/cons. I used to be the exact same way, but my experience on Steemit has made me explore cryptocurrencies a little more and now im a big fan! Once the dollar collapses, people are going to seriously regret not jumping on the Bitcoin train sooner.