Podcast #1: Bitcoin and the Origins and Nature of Money

This week I had a conversation with Vijay Boyapati about how the emergence of Bitcoin has revealed some serious problems in the traditional Austrian account of the origins and nature of money.

Topics include: how Menger and the Austrians failed to understand the bubbliness of money; how speculation rather than use as a medium of exchange is what bootstraps bitcoin; what bitcoin can or cannot tell us about the origins of money; how money is actually better off without 'intrinsic value'; how the success of gold shows that bitcoin can have a future; how bitcoin isn't quite money yet and what this means; and much much more.

Do Early Bitcoin Adopters Deserve Their Wealth?

If bitcoin is successful as a currency it will take market share from other currencies. This means that its price will continue to go up while the price of other currencies such as the dollar will go down. What bitcoin gains in purchasing power comes roughly at the expense of the dollar and other national currencies.

In the extreme case, if bitcoin were to completely take the place of the dollar, the entire wealth in the economy would shift from holders of dollars to holders of bitcoins. The earlier people buy bitcoins the more they can profit from this price increase and the longer people hold on to dollars and other currencies, the more they will suffer from its depreciating value.

Bitcoin's success then implies a massive transfer of wealth from late adopters to early adopters.

Is such a redistribution of wealth and power fair, if it is based on nothing but the order in which people adopted bitcoin? Can it be justified?

Bitcoin and Its Referents

The term 'Bitcoin' is used in different ways, which can cause confusion. For the sake of clarity below I list the six different types of things the term 'Bitcoin' refers to, and then describe how these relate to each other.