420 sats \ 8 replies \ @elvismercury OP 4 Oct 2023 \ on: Lyn Alden book club part I bitcoin
Lyn covers the usual ground about how commodity money acquires its value. The story is that it starts as a collectible (cowrie shells is a famous example) that people value for aesthetic reasons; or perhaps they use a different commodity (e.g., wheat or tobacco) because people have need of those things, though those types of commodities also have their drawbacks, as she discusses. Eventually, the thing acquires an additional monetary premium on top of its commodity value.
In philosophical language, you would say that the value of the cowrie shell is grounded in its aesthetic appeal. The satisfaction you get bc something makes pretty jewelry, or because you can smoke or eat it, is the foundation that allows it to eventually take on a monetary premium. In terms more familiar to most bitcoiners, grounding is what Mises was talking about with his regression theorem. (Although note that many Austrians got wound around the axle whether btc could have value bc it violated the regression theorem.).
It makes sense to care very deeply about this initial process of monetization when the idea of money is new. But these days, we're obviously familiar with the concept of money. And practically speaking, this new money (btc) is grounded in an older kind of money (fiat) that happens when one is exchanged for the other. But this has always seemed precarious to me -- it's relatively easy for the government to squash formal exchange at scale. Not entirely, but to turn the fire hose off.
Given bitcoin's overwhelming grounding in fiat at this point of time, and its novelty and foreignness, what would it mean for the torrent to become a trickle?
Bob Murphy had the best Austrian response to that Austrian hang up. Basically, he pointed out that it was moot to argue that Bitcoin violated the Regression Theorem, because the Regression Theorem is about how things become a medium of exchange and Bitcoin is already a medium of exchange.
What so many Austrians missed, is that the commodity value can originally be novelty, as was the case when buying those first two pizzas. Once that happened, the process of price formation was set in motion. It's incredibly ironic that Austrians missed that, since their whole thing is being dedicated to subjective utility theory.
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I think Bill Luther made a similar argument? Though I can no longer find the article that I think I read of his (there are many others, though.)
I don't personally find the regression critiques compelling bc I had always viewed it from the grounding perspective, which is basically what you said Murphy said: you can ground anything in anything. It gets really interesting in btc's case where in the very earliest days its value was basically grounded in some combo of lulz, novelty, and rampant speculation. But that was enough to get it started. Now we see the very first sprouts of circularity, though honestly those effects are themselves grounded in those other thing, too.
The most interesting extension of this is the example Lyn gives of monetization of that magical item in that online game (the name escapes me now and I don't have the book in front of me -- anyone?) I think @k00b linked a book on virtual economies that probably has a similar energy, though I haven't read it.
And actually, this is why I thought the Brave token was interesting: grounding the value of that token directly in human attention. (Well, that's the theory. In practice it was speculation, on the short term at least.) It's an interesting philosophical example of monetization, but hard to find anyone who wants to talk about it in those terms.
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The most interesting extension of this is the example Lyn gives of monetization of that magical item in that online game
It was a rare (but not too rare) and universally useful ring in Diablo II. It had more favorable properties than the in game currency which the designers had tainted with conditional durability.
virtual economies
This book goes beyond in game currencies and explores how these currencies sometimes "escape the lab" and begin competing with sovereign currencies as was the case with QQ coin.
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The main point was that the Regression Theorem was never intended to be wielded as a criticism of an existing commodity. Rather, the point of it is to explain that monies were always grounded in something originally.
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No but that might change now.
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Given bitcoin's overwhelming grounding in fiat at this point of time, and its novelty and foreignness, what would it mean for the torrent to become a trickle?
I wish I could make better sense, but if bitcoin succeeds I think it proves money is best grounded in fundamental things like time and energy that are the base case of value regression.
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I keep going around in a loop on the value of BTC.
When I think of how the dollar has become the world reserve currency, I think of a system (modern banking) that has allowed this vehicle ($) to gain traction.
We can provide a $ market cap of the banking industry, etc. but its value/market cap only exists because of the system/dollar in place.
Maybe this is a weed-induced rabbit hole, but it came up when my wife asked me what if Bitcoin consumes the rest of the market in dollar terms. I said it would, which led to the discussion of Bitcoin replacing legacy finance and then figuring out how you would value a system used solely to provide value and stability.
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