1 vote

Why Bitcoin will fail

History is littered with monetary schemes that were started for altruistic reasons. Bitcoin will be no different. The eventual outcome will be enriching the earlier owners of Bitcoin at the expense of the later owners. If you have studied monetary history at all what comes to mind is the Mississippi Bubble of John Law. In France in the early 1700’s the King had died and left the Thrown to a 12 year old. The Duke of Orleans was left to figure a financial mess for the new 12 year old King. With taxes just enough to cover spending and nothing to repay the massive debt, The King was not the only thing being buried in France, the people could not carry the load any longer. Money was becoming scarce as it was being horded from the threat of the future tax burden, and from the threat of a recall to deprecate the content. Along comes John Law with a scheme to create a paper monetary system called a land bank and almost overnight transformed the economy with this new medium of exchange. The French owned vast amounts of land in the new world west of the Mississippi and a company was formed to take advantage of that. In order to invest in the new company you had to exchange the debt of the King along with new paper money created by John Law, the frenzy was on. Until one day someone asked for a return of their investment and they wanted gold as promised….game over. Study John Law and the Mississippi Bubble….fascinating story.


Charles Kindleberger, an economic historian at Yale University, believes Law's intentions were legitimate and that the Mississippi Company was intended to be a real enterprise.

(If you don’t know this author…….please get to know him. His book titled “Manias, Panics and Crashes” has put him as the foremost expert on bubbles and on this topic.)

Here is the relevance to Bitcoin. Almost all (at least the ones I have study) monetary systems start out the same way….the existing system is just becoming too burdensome. But all started out with a common feature…..an anchor. They are all tied some way to something that has some intrinsic value, to the only real thing that has any monetary intrinsic value….species (gold or silver). These are not just shiny metals objects that look good once decorated with a king's features……it represent a real store of value. An ounce of .9999 fine 24 karat gold has a barter exchange equal to other means of production in the economy. The effort it takes to mine, refine and transport an ounce of gold, back in the day would exchange for 400 loafs of bread. An ounce of gold would buy a really nice suit of clothes with all the accessories, believe it or not, but about the same as today. This represents real value……value in other goods and services produced. The gold represents the efforts of the miner to provide a preferred medium of exchange while exchanging it for the goods and services he desires to live a more comfortable life. The baker accepts the medium of exchange because he knows the tailor will accept it for a suit of clothes. All know that the only way for the medium of exchange to expand is if the miner puts in the effort to mine an additional ounce. The same effort to make another 400 more loafs of bread or tailor another suit. This represents a store of value because you could count on it to remain across time and even across continents.

This is the problem I see with Bitcoin,there is no anchor. Here is what I found on Wikipedia for the concept of mining Bitcoin.

The processing of Bitcoin transactions is secured by servers called bitcoin miners. These servers communicate over an internet-based network and confirm transactions by adding them to a ledger which is updated and archived periodically using peer-to-peer filesharing technology. In addition to archiving transactions, each new ledger update creates some newly minted bitcoins. The number of new bitcoins created in each update is halved every 4 years until the year 2140 when this number will round down to zero. At that time no more bitcoins will be added into circulation and the total number of bitcoins will have reached a maximum of 21 million bitcoins. To accommodate this limit, each bitcoin is subdivided down to eight decimal places; forming 100 million smaller units called satoshis per bitcoin.

OK tell me if I am wrong here but the only effort in the mining of more bitcoins is the process of exchange of bitcoins. An analogy of this would be a gold miner’s medium of exchange increases in value every time there is a transaction made in gold. This is not mining…..this is inflating the number of units based on the velocity of exchange, but bitcoins rate of inflation is decreasing by half every 4 years until all are in use…. at an arbitrary number of 21 million in the year 2140.

Just a thought here….if this were to become successful, how many people in 2140 would think it was a conspiracy?

From wikipedia also:

Bitcoin has no central issuing authority. Nodes on the network are programmed to increase the money supply according to a pre-determined schedule until the total number of bitcoins reaches 21 million. Operators of these miner nodes can then hold their new bitcoins, sell them on exchanges or trade them for other goods and services at their discretion. Currently, 25 bitcoins are generated with each block found which occurs every 10 minutes on average. This amount, called the block reward, will be halved to 12.5 bitcoins within the year 2017 and again roughly every 4 years thereafter until a hard-limit of 21 million bitcoins is reached around the year 2140. As of March 2013 over 10.5 million of the total 21 million bitcoins had been created; the current total number created is available online. In November 2012, half of the total supply was generated, and by end of 2016, three-quarters will have been generated. By around 2140, all bitcoins will have been generated with the final years producing only fractional units. To ensure sufficient granularity of the money supply clients can divide each bitcoin down to eight decimal places (providing a total of 2.1 × 1015 or 2.1 quadrillion units

The problem, as I see it, is that bitcoin only value is it’s medium of exchange, without any real effort. It is ripe for fraud and manipulation, but what fiat monetary system isn’t. The automatic systems of growth to a finite number of units along with the division into smaller increments are intended to eliminate the problems of past monetary failures but cannot control human nature. As the medium of exchange and perceived value increases, HORDING will occur. The earlier owners of the bitcoin will have an advantage…….their bitcoins exchange value will represent more economic value then it took to produce them along with the other good produced in the economy. So they will either receive a greater return on investment (which violates the medium of exchange) or they will HORD them and will look for a different lesser medium of exchange. Grasham’s law will take over; bad money will drive the good money out of circulation. Then you will hear the cries that the medium of exchange is INELASTIC ; there are just not enough bitcoins in circulation…….then comes the INFLATION!

And everyone that owns bitcoins will be damaged by the receivers of the additional new bitcoins. The new receivers will be able to purchase the production of the baker and the tailor at the expense of existing bitcoins owners because there is no effort that would require resources being diverted from other production opportunities. A disruption will occur in the pricing mechanism in the market place and the medium of exchange will be destroyed. And the conspiracy theorist will have a another field day!.......those dirty bitcoin bankers!

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coffee_sponge's picture

There is no such thing as intrinsic value.

Value is a subjective imputation by active market participants.

Fluctuating market prices clearly demonstrate that anything in economic trade has imputed values based upon intrinsic properties. With the lone exception of human beings having intrinsic value at birth because it is imputed to them by God, there is no such thing as intrinsic value.

Gold has intrinsic properties which historically have consistently caused people to impute value to it. Gold has no intrinsic value however.

Paper money works as long as market participants are willing to impute an exchange value to it. Unfortunately, paper doesn't have the intrinsic properties that have given gold its stellar track record in monetary usage.

For a better explanation, read Eugen Böhm von Bawerk's material. "Value and Price" is a great summary.

The way I see it, the Gov't just endorsed Bitcoin!

This is a bit tangential, but bears on the discussion of Bitcoin. In a case against BitCoin Savings & Loan, a FEDERAL Judge declared that BitCoin is money! That will now be precedent. Bitcoin will likely NOT fail... it will explode!

The judge wrote...

"Bitcoin was designed to reduce transaction costs, and allows users to work together to validate transactions by creating a public record of the chain of custody of each Bitcoin. Bitcoin can be used to purchase items online, and some retail establishments have begun accepting Bitcoin in exchange for gift cards or other purchases. The value of Bitcoin is volatile and ranges from less than $2 per Bitcoin to more than $260 per Bitcoin....
"It is clear that Bitcoin can be used as money. It can be used to purchase goods or services, and as Shavers stated, used to pay for individual living expenses. The only limitation of Bitcoin is that it is limited to those places that accept it as currency. However, it can also be exchanged for conventional currencies, such as the U.S. dollar, euro, yen, and yuan. Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money."

Love to hear from the group on this!

Biggest Threats

Biggest threat to Winchell's: Starbucks
Biggest threat to McDonalds: In and Out, White Castle, Burger King...
Biggest threat to Kentucky Fried Chicken: Koo Koo Roo, El Pollo Loco
Biggest threat to 31 Flavors: frozen yogurt, Cold Stone Creamery
Biggest threat to Sears: Amazon
Biggest threat to Bitcoin: Bytecoin, the government (IRS), Congress, time

Sears should have been what Amazon is. Winchell's should have moved faster to see what they needed to do to keep their lead. The problem is, the leader is always the target.

Bitcoin will have competition if the government doesn't destroy them, first.

What do you think? http://consequeries.com/

Remember this is a discussion in the monetary realm

Therefore gold does have intrinsic value in the context of monetary thought because it represents the economic value of the effort to mine it. Once again…..just as the bread of the baker. When the baker buys all the ingredients to bake 400 loafs of bread, the ingredients(natural resources) represent intrinsic value once he uses his human capital and his capital formation( his building, mixers, ovens and trucks to deliver) to produce his product.

For all the discussion of intrinsic value…..it amazes me that this has to be stated. A piece of gold lying on the ground does not have any value at all. Unless someone put in the effort to pick it up and trades it for something he desires. This discussion is in the context of monetary thought…….gold does represent intrinsic value because of the effort to mine it…..it can be traded for something else desired. For all those stuck on the “subjective”…..get with the program and stop the semantics. It’s boring!

Bitcoin is mined by using mathematical equations, how many loafs of bread is a brain teaser worth?

Definition of FIAT CURRENCY is money (usually paper currency) not convertible into coin or specie of equivalent value. Legal tender is currency that cannot legally be refused in payment of debt. To say that fiat money is money that derives its value from government regulation or law is not entirely accurate because the dollar was legal tender long before Richard Millhouse Nixon severed the link to gold turning the dollar into a fiat currency.

In monetary economics, fiat money is an intrinsically useless product, used as a means of payment. Monetary economics provides a framework for analyzing money in its functions as a medium of exchange, store of value, and unit of account. It considers how money, for example fiat currency, can gain acceptance purely because of its convenience as a public good. In some micro-founded models of money, fiat money is created internally in a community making feasible trades that would not otherwise be possible, SOUNDS A HELL OF A LOT LIKE BITCOIN TO ME!

The discussion around

The discussion around intrinsic value boring? It's not like the arguments being used are rocket science. No difficult language has been used. In fact, even a child can understand the arguments.

This really is the standard tactic of people that don't really operate according to logic, but work according to an agenda. They never engage the arguments being represented. Instead, they just ignore it and fall back to their original arguments like a broken record, arguments that have already been addressed.

This is a streak of dishonesty that shouldn't belong on these boards. If people can only make their points based on falsehoods, then these kinds of people cannot be called an asset to ANY kind of community. They can only be a burden.

And it's a sad thing alltogether, because the case for gold is strong enough without the usage of any falsehoods.

Oh, and one other thing. To

Oh, and one other thing.

To some of you, this issue might seem like a really trivial thing. Afterall, it's only about ONE word. Well, I'm telling you, dishonesty surrounding one word is all that is necessary for it to spread to other areas of thinking. It's a slippery road paved to hell and it's this behaviour of allowance that allowed society to sink deep in shit to begin with. If people had standards, there's no way something like the patriot act would have passed to begin with.

Once you accept the notion of dishonesty and let people get away with it with even ONCE, no matter how trivial, they will soon start getting bolder. Because if you lower your standards on critical thinking, you will start using those standards on other areas of thinking.

And the person in question that is dishonest might not even notice the process himself. I mean, it's clear that people genuinely believe the things they say and write on these boards. But it's also apparent that these people DODGE arguments they are directly presented with. And people here just accept this and don't say anything about it. This is how societies degrade over time.

It's keeping your mouth shut and not calling them out on their BS right in their face that landed us in all this crap to begin with.

Ok, rant over. Just needed to get that out of my system.

OK for those kids that prefer to sit in back of the class

I did not say the discussion around intrinsic value was boring ….i said “For all those stuck on the “subjective”…..get with the program and stop the semantics. It’s boring!”. This is where I take issue with your whole “honesty in the debate post”…….who’s the one with the agenda here? Since you can’t define what brings value to an electronic fiat currency……you pick one word to attack at it’s root and try and redefine the debate with semantics. The semantics are whats boring. It’s a kin to “it depends what the definition of the word “is” is. I appreciate you bringing the whole “honesty” of words issue up……now stop being childish and advance the concept to thought…….this is a discussion of economic thought, are you prepared to participate and define the intrinsic value of bitcoin?.....yeah thats what I thought.

I already did in previous

I already did in previous debates. Just check my post history. I prefer handling this issue first, since I realized one particular thing:

An important reason why this movement got legs, is in part because of Austrian economics and that RP had actual economic knowledge unlike most politicians. One of the most important arguments against fiat, is based on the concept of intrinsic value. I don't think I would be exaggerating much if I said that this word is one of the key stones of the argument against fiat and in extension, one of the keystones of the Liberty movement.

Now, here's my issue with this. You don't think it a problem that one of the keystones of our movement is in fact based upon a lie? That we need to perpetuate a lie just in order to advance our cause? Once you lower your standards to that degree, it infects everything, especially if it concerns a major keystone.

You can see how it infects arguments on these boards, how people just abuse this word. They use it as a marketing tool. Marketing tools are used to accomplish something, they don't advance truth.

Dishonesty is a state of mind. You cannot fight it with logic. You have to actually smear it in their faces, call them out on it until they become honest. I preferrably like to do it in places where it can be easily demonstrated that dishonesty is at play. What better place to begin then starting with the most simplest of concepts, a single word? What use in arguing the major arguments if your opponent is dishonest to begin with? Especially if they don't realize it themselves? You have to force people to soul search themselves and it's easier done with simpler concepts.

If people aren't even honest with the simple concepts, you expect to convince us on your version of the more complex ones?

And after writing this all, I notice you still dodged the argument.

what lie?......what dodge?

the original post stated:

An ounce of .9999 fine 24 karat gold has a barter exchange equal to other means of production in the economy. The effort it takes to mine, refine and transport an ounce of gold, back in the day would exchange for 400 loafs of bread.

The gold represents the efforts of the miner to provide a preferred medium of exchange while exchanging it for the goods and services he desires to live a more comfortable life. The baker accepts the medium of exchange because he knows the tailor will accept it for a suit of clothes.

The ounce of gold got it's "intrinsic value" by the effort it took to mine it......that is not a lie.....it took into account every thing you "think" you know and proved my point.....bitcoin WAS NOT created with the same effort and therefore a creation from NOTHING......WITH NO BACKING.....FIAT.

and i don't lie

it's the people who play the Bill Clinton semantics that are muddy the waters.

Unfortunately you came across the one person who was not educated in Austrian economics by Ron Paul……I was educated by the people that educated Ron Paul and long before Ron Paul was cool!

Incidentally, the plural of

Incidentally, the plural of loaf is loaves. I've seen this error several times in this thread (and don't get me started on all of the other spelling and grammatical errors).

And you still dodge the

And you still dodge the issue. I don't particularly care about parties or labels like Austrians, etc. Labels are part of the problem IMO.

If you are really educated in Austrian economics, you should be able to meet the challenge. Is intrinsic value part of Austrian economic lore? And what do you say regarding my assertions that this word is a contradiction in terms?

When I say that you dodge the question, I mean to say that you haven't actually addressed the arguments concerning the last question in the former paragraph. That instead, you fall back on how gold has intrinsic value. How in h**l is that even an answer?!

i will say it slow so you get it this time

because of the effort it took to mine it

That doesnt't adress the

That doesnt't adress the points I've made. Perhaps it's too much to expect that you've actually read my comments. This thread has gotten quite big afterall.

First, let's start with your actual definition of intrinsic value. I'll reiterate my points after that, one by one and then you can respond.

no let's don't

i am not going to play the semantics game with you. This is a discussion in the monetary realm.....if you don't get it then go back to the kiddy pool.

And again, you dodge the

And again, you dodge the question. You really aren't confident that you can actually defend the concept of intrinsic value, can you? And this should inspire confidence that you can actually dictate to others based upon this concept?

People reading this thread, I leave to you who is honest and dishonest in this thread. It was not me who ran away. I think this action by the thread starter really speaks for itself. Draw your own conclusions. And if you think the thread starter was right, come debate me.

Value comes from the

Value comes from the interactions and/or negotiations between two or more parties.

Value could be assigned by an individual, but only through the act of buying, selling or trading is true value determined.


You don't come off well in this thread. Accusations of lying and dishonesty shouldn't be made lightly.

I think you've misunderstood either the meaning of "infrastructure" or else what exactly the infrastructure for bitcoin is or else the degree to which certain digital currency infrastructure is generic (and therefore not a barrier to competitors), or something like that. But I didn't and wouldn't accuse you of lying.

Furthermore, as I argued elsewhere in this thread, you have a valid quibble with the terminology and that's worth teasing apart, but generally when people talk about "intrinsic value" they do mean something meaningful. To some (not Austrians) it's about the cost of production -- which I think is a strange idea, as if gold wouldn't be valuable if it were found in one big cube with a bow tied around it rather than having to dig for it. I think they're wrong, but they're not dishonest, just misguided. :-)

Others are making a distinction along the lines of the one I made, namely that we can distinguish gold from non-gold entirely based on its intrinsic properties and independent of any definition from any human authority. It's "fiat by physics" if you want, where the key point is that physics isn't arbitrary. You can't tell bitcoin from non-bitcoin or benjamin from non-benjamin independent of the human authority (the algorithm designer, in the case of bitcoin) who made some arbitrary decisions.

So "intrinsic value" here means "identity as money based on intrinsic properties" as opposed to identity as money based on the declaration of some human authority, whether governmental or algorithm designer. And that's not only a valid distinction, it's a crucial one. So sure, pester people who say "intrinsic value" to clarify what they mean -- if they mean anything, people often use words thinking they understand it and then when they try to explain it it becomes clear that they don't. That's helpful clarification. But if you start talking about lying and dishonesty right off the bat you generally aren't going to get a positive reaction.

I don't make them lightly.

I don't make them lightly. You yourself have stated that I have a point. And while you think I'm too abrasive, notice how difficult it is to get straight answers out of the thread starter. That's not the sign of an honest man. If he's not confident enough to know, let him just say so.

How come I'm not treating you the same way I treat him? Because you give straight answers. Atleast you are making the attempt to answer the question. This guy just dodges them. And you say that you think I'm wrong?

I tell you, this is not the sign of an honest man.

Edit: Just look at his latest reply. See my point?


i didn't run.....well i did run down to the bar and picked up some snacks for the game....but that just proves i can multi task.

I think everyone can see who is being honest

no actually i have defined it

once again really slow

the original post stated:

An ounce of .9999 fine 24 karat gold has a barter exchange equal to other means of production in the economy. The effort it takes to mine, refine and transport an ounce of gold, back in the day would exchange for 400 loafs of bread.

The gold represents the efforts of the miner to provide a preferred medium of exchange while exchanging it for the goods and services he desires to live a more comfortable life. The baker accepts the medium of exchange because he knows the tailor will accept it for a suit of clothes.

but do tell how do you define "intrinsic value"

you are the one doging questions....i asked to define the value of bitcoin. completely ignored.....

I made the challenge first.

I made the challenge first. And considering that your supposed definition didn't address my assertions, I state that your definition didn't actually answer the question.

You don't have to worry that I'll dodge your question. Atleast make the attempt to answer and I'll also do so. I don't expect anybody to be perfect. Nobody is perfect. Each of us has some hypocrisy in him, including me. But I make some efforts to amend that. So I expect others to do the same. So congrats that you are making the attempt. This is what I call progress.

For reference, we'll start with this post:


and this:


The term intrinsic value is used by people to indicate that some value is inherent in the object. Others have expanded this definition to mean that since this value is inherent in the object, it cannot be stripped away. This is OBJECTIVE value, value that cannot be stripped away as opposed to subjective value.

I answered your question. Now state if you agree or disagree with this definition and I will move on to explain my beef with this particular definition and why it is problematic. I'll also explain why this is problematic enough that it undermines every theory that relies on it, yes, including your monetary talk and why your definition is unable to address the problems.

see this is what i am talking about

and you must just be to stupid to get it.

how many times do i have to say that golds intrinsic value comes from the effort of the miner......it proves the point you are trying to make...i covered it in the original article.....period.

but go ahead enlighten us all with you boundless knowledge of the meaning of the word "intrinsic value", lets hear all the semantics to end up right were we started.

And what point was I trying

And what point was I trying to make then?

And if you don't want to answer that, just say if you agree or disagree with the definition. A simple yes or no will do.

your defination is from wikipedia

And it is not germane to the discussion. Do I agree Wikipedia posted it…yes….do I think that

“Value theory encompasses a range of approaches to understanding how, why and to what degree people value things; whether the thing is a person, idea, object, or anything else. This investigation began in ancient philosophy where it is called axiology or ethics. Early philosophical investigations sought to understand good and evil and the concept of "the good". Today much of value theory is scientifically empirical, recording what people do value and attempting to understand why they value it in the context of psychology, sociology, and economics.”

Maybe if my “value system “ were defined by Wikipedia.

But I am not going to allow you to ask me if I agree or disagree with something, I will not allow you to define the conversation, by avoiding to answer the questions. You DID NOT answer me when I ask you “what is the value of bitcoin” …you avoided the question and then lied and said you did answer, you just defined your value system......semantics is dishonest.

But just to show you I am honest….I do agree with the “value theory” and mostly what on the wikipedia page……but not the “economics” portion and here is why, because it defines “preference value” which is what von Mises describes as “margin utility” but does not even come close to describing “intrinsic value”.

I trade options for a living……if you want to trade with me…..i will take you to school on “intrinsic value of an option” everyday and you will continue to live in your mother's basement.

I said I would answer your

I said I would answer your question if you answered mine. Unlike some people, I don't break my word concerning these things. Why? Because I'm not afraid to be wrong. Trying to pull straight answers out of you, is like trying to pull teeth. Why do you think I frame my answer the way I do? Because you keep dodging to answer. You haven't even tried to answer a single question I've asked. And you expect me to oblige you? I even volunteered to supply my own reasoning with minimum input from you. And yet you are still afraid.

Just try being straight for once. You might be surprised about the results. There are actually people that don't weasel out of answers.

i did answer the question

and you have exposed yourself to be dishonest......just because i would not let you frame the debate does not mean i haven't answered the question......you just didn't get the answer you wanted therefore you can't control the conversation.

so answer the question.......where does bitcoin get it's value?

If I give a straight answer,

If I give a straight answer, will you?

if you ask a straight


I did. We are apparently

I did. We are apparently making progress. I sincerely hope that we can go forward in such a manner without pulling teeth. To oblige you further and to further ACTUAL discussion, what do you want to know?

I would add something to the...

conversation, but all the words I know are too long to fit in the dialogue box.

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