The Voluntary Life: 109 Getting Started With Bitcoin

24 May 2013

109 Getting Started With Bitcoin

An interview with Stephanie Murphy, co-host of the show Let's Talk Bitcoin, about getting started with using Bitcoin. Topics covered include:

  • What is Bitcoin?
  • How Stephanie first got involved with using Bitcoin
  • Exchanges and exchange services: changing fiat currency into and out of Bitcoin
  • Software, wallets and technical issues
  • Security issues
  • Buying things with Bitcoin
  • Selling your services and products for Bitcoin

Show Notes:
Let's Talk Bitcoin podcast
Porc Therapy podcast
Fr33 Aid charity
We Use Coins (intro video about bitcoin)

Podcast Episode

4 comments:

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  2. Listening to Stephanie is always a pleasure, and her survey of the Bitcoin landscape is very informative, but you raise a red flag (or a pet peeve) with me around 45:00.

    "Saving" does not imply accumulating currency. Saving (investment) involves accumulating title to durable goods, like real estate or commodities, and other securities like stocks and bonds (ideally voluntary bonds, not entitlement to statutory rents like Treasury securities). Accumulating these titles requires spending money.

    Telling people to save Bitcoin seems a capital mistake to me. I'm skeptical of the long-term viability of Bitcoin as a medium of exchange precisely because the inelastic supply of bitcoins creates an unstable relationship Bitcoin and other currencies, and this unstable relationship favors use of the other currencies as a medium of exchange.

    People buying bitcoins to hold them expecting appreciating are not using Bitcoin as money, any more than people buying shares of Apple are using shares of Apple as money. Apple shares have value, because the shares represent valuable productive means owned by the Apple corporation. Bitcoins have value only because people may use them as money.

    If the value of bitcoins only represents demand for an appreciating good, rather than demand for a medium of exchange, then Bitcoin is more like a Ponzi scheme than a monetary system. Bitcoiners hate to hear that, but denial doesn't change anything.

    Since Bitcoin can play both roles, it's something like a hybrid between a medium of exchange and a Ponzi scheme. When expectation of Bitcoin appreciation becomes strong enough, many people holding bitcoins cease to spend them, and this pressure on the supply available for monetary use raises the price of bitcoins in other currencies until an inflating bubble ultimately bursts.

    The utility of a good as money requires short-term price stability. Longer term price instability (like a low rate of inflation) can affect long term contracts (like credit agreements), but it does not impede saving, because people do not save money. People save real productive means. If the supply of real productive means doesn't permit people to save, saving money can't help them, because people only save money to purchase the future yield of real productive means.

    As something like a Ponzi scheme, Bitcoin could persist for a long time and make some people wealthy, but I don't see it becoming a widely used currency this way. AmWay has been around for a long time, but WalMart doesn't worry about the competition.

    I very much want something like Bitcoin to succeed, so this post is constructive criticism rather than a slam on Bitcoiners. Bitcoin could morph into a currency with a more elastic supply with stable prices not susceptible to speculative bubbles, and I hope it does.

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    Replies
    1. Thanks for your feedback Martin! There is a lot there and I am not sure I completely understand all of it but I will try to respond to your comment about what we discussed in the podcast.

      When you say ""Saving" does not imply accumulating currency" I think you might be use the term saving differently to me: I would define saving as simply spending less than you earn (as opposed to going into debt, which is spending more than you earn). Therefore, to me the term saving simply denotes something about the relationship between your earnings and your spending, not about whether you choose to keep those savings in the same currency that you earned them. Since you write "saving (investment)" I think you might use those words synonymously but I don't think saving implies anything about what you do with your savings.

      I don't think that either Stephanie or I were "telling people to save bitcoin", the point we were making is simply that any deflationary currency incentivises saving over consumption. If Bitcoin is continues to become a deflationary currency (at the moment it is only a nascent one, but it seems that it has this potential) then it will be one that encourages the almost forgotten virtue of thrift.

      I would not actually recommend that anyone consider Bitcoin as an investment vehicle (I also don't think keeping all the money you save in fiat currency would be a wise investment choice). I was just making the point that if the bitcoin economy continues to grow and bitcoin does become a more widely used currency, then it will be a currency that incentivises people to spend less money than they earn, because it will be deflationary.

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    2. I think most people mean what you mean by "saving" in this context, but few people accumulate money when they save this way.

      We think in these terms. We say, "I have so much money in my 401k," but people don't actually hold money in a 401k. They hold things with a monetary value, like stocks and bonds, not money itself.

      Even "money in the bank" typically is not money, strictly speaking. It's a claim on the bank's borrowers, typically backed by collateral. "Money in the bank" is not like gold in a vault or even bitcoins in an electronic wallet. In the network of economic transactions, money deposited in a bank flows into a money sink. It ceases to be money altogether.

      Money can flow out of a bank as well, of course, when a bank extends credit and when creditors liquidate their deposits. This flow of money into and out of the banking system, to satisfy demands for indirect exchange, is what I mean by an "elastic supply of money", though other sorts of elasticity are possible.

      Fiat money complicates this story, of course. Ideally, in a free banking system, this description of bank notes used as money is more accurate.

      More to your point, I don't believe that a deflationary currency much encourages saving over consumption. Spending money on a share of Google stock or an investment in real estate or a server (or server space) for your blog (if you expect to profit by it) is not consumption. Investment is choosing this sort of expenditure over a consumption expenditure, and investment is what people commonly mean by "saving". People save when they want to defer consumption and see opportunities to invest.

      In a free market, deflation is a good reason to stop using one good as money and start using another good as money, regardless of one's preference for investment over consumption.

      Holding currency is not investment. It is refraining from investment. Selling an investment for cash is "divesting". When an investor holds cash, he's "on the sidelines", refusing to invest. When an investor is "fully invested", he's not holding any cash or cash equivalents.

      But Bitcoin isn't quite a currency at this point. People holding Bitcoin are investing, because they expect Bitcoin's utility (the utility of the entire network, not just bit sequences in a wallet) to increase, but this utility seems to increase only if Bitcoin becomes more widely used as money, and I'm not sure that's happening. I rather think that people are buying to hold, and the more Bitcoin appreciates, the more I think so, but when people buy Bitcoin to hold it, they're using something else as money.

      The expectation of Bitcoin's greater utility as money assumes that people use it more and more as money, but the appreciation relative to other currencies seems to encourage the opposite behavior. Bitcoin's success seems to have a negative feedback.

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