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Bitcoin - If the government hates it, don't you think you should at least consider learning about it?

I just wanted to share this blog someone wrote about Bitcoin:


    Bitcoin - The Libertarian Introduction

What it is, how it's used, and why you should care.

Erik Voorhees - April 11, 2012

"When a state currency is challenged, the state itself is challenged,
and market forces move swiftly around sickly, depreciating inhibitors."

1 Introduction
2 What is Bitcoin?
3 How does it work?
4 Why is Bitcoin valuable?
5 No really, WHY is Bitcoin valuable?
6 How does one obtain it?
7 Being careful with money
8 What can one do with it?
9 Bitcoin vs. The State
10 Bitcoin and Disruption
11 Useful Resources


There has been much talk about Bitcoin within libertarian and economic circles. It's becoming a buzzword, but like all new systems that break onto the public stage quickly, Bitcoin brings with it excitement, speculation, rumor, and downright confusion. To be sure, Bitcoin is complicated. After all, it's an entirely new global monetary system - both a currency and a payment network for that currency.

Like all powerful tools, it's important for those interested in using Bitcoin to spend some time engaging in the due diligence of education. Similar to a bicycle, once you know how to use Bitcoin, it will feel very easy and comfortable. But also like a bicycle, one could spend years learning the physics that enable it to operate. Such deep knowledge is not necessary to the actual rider, and in the same way one can enjoy the world of Bitcoin with little more than a healthy curiosity and a bit of practice.

This article is a primer on Bitcoin: an overview of the fascinating new phenomenon from the perspective of a humble libertarian who cares more about the ramifications for human liberty than about the technical protocol and brilliant science underlying the network.

The basics of Bitcoin are all covered here, ranging from a light technical overview to due diligence to monetary economics and theory. You'll also find an extensive list of resources to bring you up to speed on this most fascinating thing to happen in the realm of anarcho-capitalist technology since the internet itself.

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Fiat money need not be issued by governments

Here's a discussion of private fiat currencies (from Hayek, no less):


A free market "competition in currencies" would allow privately issued fiat currencies, but would not have legal tender laws forcing anyone to accept them (or government issued currency, for that matter).

Individuals and businesses would make the economic decision as to which types of money they would accept or reject.

my reply is under the wrong post

can a mod please delete it?

Good article, thanks. But Hayek used "fiat" poorly.

I've always found "fiat money" to be used synonymously with "legal tender," and I regard that as the normal usage, so I'm still reluctant to call bitcoins "fiat." Fiat's primary meaning is "1. an authoritative decree, sanction, or order: a royal fiat." (from Dictionary.com) "Fiat" is a command or permission given by some "authority," which normally means "government." Hayek uses the word "fiat" to describe the quality of "having no intrinsic value," which is actually quite a different definition of "fiat" than the common one, and therefore confusing.

That same confusion is all over this thread, and I think that's the root of the hostility many folks have against bitcoins; people who think the basic problem with FRNs is that they are non-commodity money rather than the fact that they are fiat (i.e. legally mandated) money, naturally overlook the distinction between a voluntary market trading system which uses a limited supply of trade credits (called "bitcoins") and the government-imposed fraud of hyperinflating paper money. People who fail to make that distinction just see that non-commodity money is what government forces us to use now, and it sucks.

Recommended reading: The Most Dangerous Superstition, http://www.amazon.com/Most-Dangerous-Superstition-Larken-Ros...

"Fiat money" isn't necessarily legal tender. so I've never

considered the two to be synonymous.

Consider a "gift card" or "gift certificate" from a retailer. It is not legal tender - you can't force force Home Depot to accept your gift card from Lowe's. It only has value because the retailer who issued it says it does, and it willing to exchange it for goods or services. If the retailer goes out of business, the holder of the fiat "gift card" is typically SOL (unsecured creditor).

You're right about the confusion being all over this thread.

I don't have any particular hostility toward bitcoins, as a free market would allow competing currencies, fiat or otherwise.

That's because you accept Hayek's usage of "fiat."

Hayek used "fiat" and "intangible" as synonyms. That is NOT the most common usage. Have you EVER heard anyone refer to gift cards as "fiat money" -- aside from yourself, just now? I bet you haven't. Such cards are used in trade, which makes them some kind of "money," but I would describe them as "intangible trade credits," rather than "fiat money," to distinguish them from something that government commands you to accept in return for valuable goods and services.

I didn't take your comments as hostile toward bitcoins, but clearly other people on this thread have real issues with them, like it's heresy against the religion of Gold. I'm not an advocate for bitcoins myself; I'm just learning about them for the first time, myself. I'm liking what I'm learning, though.

Recommended reading: The Most Dangerous Superstition, http://www.amazon.com/Most-Dangerous-Superstition-Larken-Ros...

I understand the confusion, because fiat money is typically

issued by governments, but not exclusively by governments.

If you didn't like the example of gift cards, what about company scrip used to pay workers or poker chips used in casinos? Those are issued by private concerns, and only have value because the issuer says they do - hence the term "fiat".

Nope, we're still not connecting on this.

Take another look the definitions of "fiat" and "fiat money." It means something imposed by coercive authoritarian command, rather than by voluntary, mutual agreement or private contract. Fiat implies coercion. Poker chips, gift cards, company scrip are all voluntary, contractual means of facilitating trade. They may utilize different forms of trade credit in conducting business, but since they are all done by private, mutual agreement, the essential coercive aspect of "fiat" is absent.

Recommended reading: The Most Dangerous Superstition, http://www.amazon.com/Most-Dangerous-Superstition-Larken-Ros...

Definition: Fiat money is money that is intrinsically useless;

is used only as a medium of exchange.


I see nothing about coercion mentioned here. Just because someone or some government says (or dictates) that something has value does not imbue it with value.

Suppose an alien arrived and was presented with two pieces of paper, one of which his universal translator decodes as "One trillion dollars, Zimbabwe currency" and anther as "One hundred dollars, unites States currency". Which has more value to him?

FRNs would still be fiat money (having no intrinsic value) even if the coercive legal tender laws were repealed.

Okay, you've conviced me

that another definition of "fiat" than the one I've been using exists. Not that it is a good or useful definition, however: witness the confusion it has caused us here. On an economics website, the definition was probably provided by someone who respected Hayek a lot and didn't care that Hayek didn't speak English very well (he actually was an Austrian economist.) The linguistic roots of the word "fiat" are all about "command" or "decree" rather than "lacking intrinsic value."

If the legal tender laws were repealed, FRNs would still be . . . paper. They would most likely lose all their purchasing power, and thus would be "fiat money" only in the historical sense. If you can't buy stuff with it, it ceases to be "money."

Recommended reading: The Most Dangerous Superstition, http://www.amazon.com/Most-Dangerous-Superstition-Larken-Ros...

You're on the right track now - if the legal tender laws were

repealed it is more than probable that FRNs would lose their "presumed" purchasing power, and not just in a historical sense, but in the same way that Continentals and Confederate money did. The South might rise again, but I'm not holding any Jefferson Davis notes for that possibility.

If you can't by stuff with it, it is no longer a medium of exchange (money), but it is still fiat. Others have just realized there is no intrinsic value and have refused to accept the paper.

The removal of the coercion (legal tender laws) does not change the status of FRNS as fiat money (intrinsically worthless), nor does the issuance of gold coins as legal tender by the U.S. mint make them fiat money, as gold coins have intrinsic value (for jewelry and rapper's teeth, if nothing else).

Dueling definitions

No, we're still running on different, but parallel, tracks. I don't see that we disagree on our economic principles at all, just the nomenclature we use discussing them. Neither of us is wrong, exactly, but we haven't agreed on which definition of "fiat" is to be preferred. So I'm going to take one more swat at explaining why I prefer one definition over the other, then we can agree to disagree.

Here's your definition: Fiat money is money that is intrinsically useless; is used only as a medium of exchange.

And here's mine: Paper currency made legal tender by a fiat of the government, but not based on or convertible into coin.

The essential differences are these:
Your fiat money is anything used as a medium of exchange that has no significant commodity value. Fiat money, under that definition, would include checks, credit and debit cards, warehouse receipts, casino poker chips, stock certificates, property title deeds, gift cards, money orders, gold and silver depository receipts, promissory notes, postage stamps, the electronic bookkeeping entries by which banks "loan" and transfer money, government bonds, airline tickets, claim checks, and of course paper currency which may or may not be fully convertible into precious metals. If it's a medium of exchange made of paper, plastic or electricity, it's fiat money.

My fiat money is paper currency that the government demands we accept in exchange for our valuable goods and services. It is "legal tender."

Argument: Your definition is so broad as to be worthless. It fails to make extremely important distinctions regarding whether the paper/plastic/electronic money entitles its bearer to a particular good or service or contractual obligation. According to that definition, a silver certificate fully redeemable in silver coin is just as much "fiat money" as the product of Uncle Ben's printing presses. If I were to ask you whether you favor or oppose "fiat money," you could have no coherent answer; only that you favor some kinds, but not others. Now ask yourself: on what criterion would you be basing any objection? Would it not be more useful to frame your definition in terms which distinguish the kinds of "fiat money" that you consider acceptable from those which are not? And may I suggest that my preferred definition does exactly that? Fiat money based on government coercion is a different kind of money than paper receipts, contractual obligations, and other voluntary transaction documentation.

There is a reason why many economists prefer the broader definition of "fiat money," but it's ugly: They are paid propagandists for the government's "Keynesian" economics, and they would prefer NOT to acknowledge that the government/banking cartel's paper money derives its value from threats of violence, not from any economic assets backing the currency. In the Keynesian monetary universe, where money is debt and conjured from thin air, the real purpose of money is not to facilitate trade, but to transfer the real wealth of the world into the hands of those who control the printing presses and the issuance of credit. For exactly the same reason, I think it is important to STRESS the coercive nature of government fiat, and its essential illegitimacy. /rant.

Recommended reading: The Most Dangerous Superstition, http://www.amazon.com/Most-Dangerous-Superstition-Larken-Ros...

Wrong again, so I'll take one more stab at it as well.

You believe that fiat money requires some coercion by the government, while I has postulated that, as the Hayek article stated, private concerns can issue fiat money.

FRNs are fiat money - we seem to agree here. But coins issued by the U.S. mint, also under the coercive legal tender laws, are not fiat money - which we also agree.

The conclusion I reach is that it is not the coercive legal tender laws that make something fiat money, but the lack of intrinsic value.

You don't agree with this conclusion, but I can reach no other logical determination.



Patriot Cell #345,168
I don't respond to emails or pm's.
Those who make peaceful revolution impossible will make violent revolution, inevitable.

I used your definition of

I used your definition of fiat even before I ever heard about Bitcoin. I always thought the main meaning of fiat was that an authority made a decree commanding something to be used as currency. For instance I'd stop calling dollars a fiat currency if the US government repealed the legal tender laws. I'd simply call it a (paper) currency.

The government is schizophrenic about gold coins.

The gold Eagles and Buffalos are "legal tender" -- and their marked price is "Fifty dollars." Except you can't buy them for fifty FRNs -- it's more like $1700. And if you try to pay people with a "Fifty dollar" Buffalo -- and tell the IRS that you paid just "fifty dollars," they will throw you in a cage. Check out what happened to Robert Kahre, who tried to pay his employees with gold coins.

The real question you should be asking is whether the government regards gold as legitimate currency at all. It seems like its use is more forbidden than mandated, doesn't it?

Recommended reading: The Most Dangerous Superstition, http://www.amazon.com/Most-Dangerous-Superstition-Larken-Ros...

Yes or No would be an answer to the question I asked

The gold coins issued by the U.S. mint are either a fiat currency or they are not.

Which is it?

I'll go with "no," then.

Because gold's use as currency is effectively forbidden by the IRS. The words of the bill which authorizes the minting of the coins say that the coins are legal tender, but words on paper (like the Constitution, sadly) have no force unless the real human beings who comprise "government" choose to enforce them. The decree of fiat exists here, but the decree is not respected, much less enforced. Again, sadly.

Recommended reading: The Most Dangerous Superstition, http://www.amazon.com/Most-Dangerous-Superstition-Larken-Ros...

No is correct, but not for the reason you stated.

If the IRS forbids using gold coins as currency, please give the statute or ruling. I'm aware of the IRS rulings on the stated value of gold coins, but not of any prohibitions on use as currency (legal tender). The fact that the IRS would value two forms of legal tender differently serves to reinforce the difference between fiat money and money which has intrinsic value.

I have not tried this, but I do imagine that if I were to offer a $50 gold coin as payment for a $50 debt or $50 purchase in a store, it would not likely be refused.

The point is to make the distinction that legal tender laws do not make an item fiat money, it is the intrinsic value of the item that makes the difference.

The test case for the use of gold coins as currency

was the case of Robert Kahre, which I referenced elsewhere in this thread. In a nutshell, Kahre paid his employees in gold coins, and claimed only the face value of the coins as wages paid. The IRS raided and shut down his business, and prosecuted Kahre & his associates for tax evasion. It went to a jury trial, and the jury acquitted Kahre on all 161 charges. So the IRS trumped up some "new" charges for the same case, not particularly different from the old charges, and picked a more compliant judge and jury, who convicted Kahre on all 49 of the new charges. He was sentenced to 15 years in prison. The message from the IRS is perfectly clear: if you value your property and your freedom, doing business in gold coins is verboten. Even being found innocent by a jury will not keep you out of prison, when they are determined to "make an example."

You could indeed pay a $50 debt with a $50 gold-piece -- or a $1700(FRN) debt, if both parties agreed to it. But if the recipient claimed only $50 income from the transaction to the IRS, they would likely prosecute him for tax evasion, if they found out about it.

I'll deal with your final point in another post, to be titled "Dueling definitions."

Recommended reading: The Most Dangerous Superstition, http://www.amazon.com/Most-Dangerous-Superstition-Larken-Ros...

The IRS treats PM coins differently, becasue although they

are subject to the same legal tender laws as FRNs, the IRS realizes that PM coins are not fiat money, having intrinisic value, and are assessed as such for tax purposes.

Excellent point, well put.

Excellent point, well put.

This is cute.

"Being mocked because we used our "liberty" to support bitcoin from a website about freedom is interesting."

I love it when people use Liberty terms to describe their not so great encounters with the free market of world opinions.

One thing about participating in Liberty in general is that you also have to have tough enough skin to do it.

If bitcoin is your thing, go for it. It has it's pluses. In the end, for I'm sure many of us, all we're doing is trying to help you out. Everything is rose colored glasses on the inside while you're making some easy money but rest assured, many of the reasons not to be in a fiat system will become vividly apparent soon enough. That's of course if you actually believe we're headed for an economic crash.

Hell I may do it too for the mining end of it. What's it gonna cost... a bad ass computer and leaving the system up 24/7? I do that anyway, might as well make some easy money right?

Patriot Cell #345,168
I don't respond to emails or pm's.
Those who make peaceful revolution impossible will make violent revolution, inevitable.

wholeheartedly agree.

wholeheartedly agree. sometimes there's too much overzealous antagonism against anything that goes slightly against the grain of the consensus.

anyway, the key to investing is always diversification. i'm not going to put all my eggs in one basket. i already have much of my assets in gold and silver. i think bitcoins have potential even though it's only considered a niche market at the moment, but there is already a thriving economy surrounding it. i primarily use it for quick transactions online.

an interesting tidbit about

an interesting tidbit about what i was able to do with bitcoins:
a european friend wanted to donate to one of ron's money bombs back in the fall. since he couldn't due to fec campaign donation regulations, he decided to send me 5 bitcoins (at the time, that was valued at about ~ $20), which i received instantly. i sent a payment of $20.12 (adding to the the difference myself) to the campaign. i was satisfied with possessing 5 btc's over $20.

why didn't he just send me the money in dollars in the first place? because dollars can be traced, and in the case of an audit, they could find out easily where the money came from. bitcoins are not entirely anonymous, but it is very easy to cover your tracks.

There are reasonable arguments for & against.

But bitcoin online poker sold me.


There's also bitcoin sports

There's also bitcoin sports betting: http://btcsportsbet.com/

For the purposes of full disclosure, I did end up losing all my money (after winning some), NOT because bitcoins are EVIL and a SCAM, but because I don't know how to pick a team if my life depended on it.

Never forget:

To disagree, one doesn't have to be disagreeable.

- Barry Goldwater

I think this is very telling...

"Workers at Morgan Stanley and Goldman Sachs in London and New York have been visiting online Bitcoin exchanges as often as 30 times a day, according to documents seen by Reuters. Neither bank wanted to comment."

If anyone's aware that the dollar is tanking, it's these guys.

Never forget:

To disagree, one doesn't have to be disagreeable.

- Barry Goldwater


article: http://www.reuters.com/article/2012/04/01/traders-bitcoin-id...

Never forget:

To disagree, one doesn't have to be disagreeable.

- Barry Goldwater


What would happen if, in 20 years, an asteroid mining entrepreneur delivered a payload of some 10,000 tons of gold, silver, nickel and platinum to the Earth market?
The massive increase in supply would cause prices of these commodities to drastically drop in value.

Precious metals have value for a variety of reasons. One of the primary reasons they are good as a monetary unit is that it is difficult to replicate them. We CAN manufacture Gold in the laboratory, but the gold it produces doesn't offset the cost in energy and resources. The best way to "produce" gold is to mine it out of the ground. Techniques for this have continually increased in efficiency, but those increases are offset by the difficulty in finding new veins.
Bitcoin is an electronic monetary system which requires energy and computing power to produce. The more advanced our computing technology becomes, the easier bitcoins are produced, and the more bitcoins are released onto the market (reducing the overall value...inflation).
Bitcoin supporters hope that this increased supply would be offset by an increase in demand for such a currency.

I don't personally believe bitcoin has overcome all of the hurdles necessary for a strong currency system, but the concept is ingenious and such competing currencies are exactly what would help stabilize our monetary system. I'm going to keep it on my "watch list."

"Always vote your principle, though you may vote alone, and you may cherish the sweetest reflection that your vote is never lost." -John Quincy Adams.