Bitcoin and the Regression Theorem

  1. Better references, Walter Block and Laura Davidson, Tom Woods and Bob Murphy, Alt-right blogs.
    To read more, go to:
    https://mises.org/library/bitcoin-regression-theorem-and-emergence-new-medium-exchange
    https://tomwoods.com/ep-1035-how-ludwig-von-mises-fixed-economics-but-ingrates-wont-thank-him/
  2. Technology: Greek “applied knowledge”
    1. Modern: Intermediary mechanism of utility
  3. Money: medium of exchange
    1. A technology, given that it has no utility in itself
      1. Not even for scrooge Mc. Duck… only a weird fetishist
    2. History of money: it just happened
      1. Menken and Mises reverse-engineered a history of money using praxeology
        1. They did so because contemporary economists basically pretended money didn’t exist
        2. In explaining money’s economic value, Mises had to reverse-engineer money’s history.
  • Regression problem: “money has value because people believe it has value and people believe it has value because it has value.”
    1. If Mises’ entire body of contributions to economics could be summarized in one sentence, it would probably be “you guys know time exists, right?”
    2. People believe money has value today because it had value yesterday, and that belief is the source of the market clearing price of money (AKA, purchasing power)
  1. Regression Theorem (or solution): If you go far enough back “money today has value because it did yesterday, and yesterday had value because the day that came before”, you’ll watch a transition from fiat money, to precious metals money, to the commodities that came before the gold-backed currency.
    1. Essentially, money is a technology that proved its utility as a medium of exchange as an organic move from trading in stable commodities to being a sort of commodity in its own right (notwithstanding arguments about “consumablilty”)
  2. Technically, this only applies to the origin of money writ large, not individual brands of money… but I think one can make a case that Bitcoin (and crypto in general) has its own legitimate regression, distinct from money, writ large.
  1. Bitcoin has a lot of moving parts:
    1. Blockchain: ledger of every Bitcoin and where it lives
    2. The actual tokens: the money part
    3. The open source software
    4. Miners: the machines securing the network, building the blockchain, and processing the movement of the tokens from place to place.
      1. These pieces are, collectively, the Bitcoin network: a super high-security, cryptographically enforced protocol which also happens to have money living on it.
  2. As a technology, each of these individual parts have been the “currency” of the internet for some time. Anyone familiar with hacking culture knows how security, reputation, anonymity/pseudonymity, and adaptability were social capital that were, on some occasions, tokenized in various ways.
    1. These tokens never became a full-fledged medium of exchange for all the obvious reasons: “favors” are hard to quantify, a small adoption pool rendered such capital non-fungible in any outward-facing application, lack of organizing principles made interoperability of tokens difficult, etc.
    2. Satoshi took a bunch of existing technologies and social principles and found a way to provide a platform which had a low barrier to entry which organized and tokenized the mainstays of internet coder culture in a format that was also accessible to outsiders.
      1. Bitcoin’s initial implementation was also based on several economic and praxeological principles, one of the most important being the long history that gold and precious metals have had as money.
        1. Deflationary/stable supply
        2. Difficult/impossible to counterfeit
        3. Easy to identify as such
        4. Easy to exchange/transport/store
  3. Given this origin story, one could Track the regression of Bitcoin
      1. Either through its utility as a means by which to move large quantities of fiat currency quickly and discreetly (Buy bitcoin for USD here, send it to Mexico and convert it to Pesos there faster and cheaper than ACH systems can), and then back through Fiat’s history back to gold, and then commodities.
      2. Or, as a new type of money outright… much like an automobile as compared to horses and mules. An internet money to (mostly) replace physical monies.  In this case, one could trace the value of Bitcoin back to the previously non-capitalized assets of security, anonymity, etc.
  4. A consequence or corollary to the regression theorem of Mises needs to be addressed, still: the value of money yesterday, and the day before, and the day before that, etc. implies a certain stability that has proven to be absent in BTC over the last several months.
    1. According to Mises, if I believe my monthly paycheck to be worth a month’s worth of rent, groceries, gas, etc. it’s because it was so last month, and the month before, and before that.
    2. If I were getting paid in bitcoin at any of the points where it dropped 40% in valuation against USD, I may have begun shopping for more stable alternatives… like USD.
      1. Part of this is due to the mechanisms by which the US government masks the instability of USD, relative to a good number of consumer goods, commodities, etc. Between inflating currencies in tandem with the other major currencies around the globe, the violent imposition of price floors in currency by way of policies like legal tender laws, and the exportation of inflation by foreign policies like the petrodollar.
        1. It’s distinctly possible that the upward trend of BTC (fluctuations aside) is an indicator of global inflation patterns, given that the supply of bitcoin, while growing, is stable and scheduled to stop growing relatively soon, whereas fiat is all over the place and peoples’ expectations of how much more to expect in even the near future hinges on the way that Janet Yellen words her noncommittal “I don’t know what the hell I’m doing.”
        2. There are also several internal economic mechanisms by which consumer-facing prices tend to appear stable, which I don’t have time to get into right now, but they include retailers and vendors engaging in dollar price averaging for the sake of their customers’ sanity; government subsidies, regulations, and tax schemes; complex trade arrangements with foreign nations to manipulate domestic prices, and manufacturers adapting product designs to maintain stable shelf prices.
          1. Bitcoin has no such protections (yet), and so market signals are not hidden from the end-user of the currency in the same way fiat currently is.
        3. The trend, by design, is an upward one, though, which means two things:
          1. The understanding that the purchasing power of bitcoin was less last year than this year, going back to 2009 sets up the expectation that it will be worth more next year over this year.
            1. As a Hoppean Austro-Libertarian, I see this as a good thing, as it re-creates one of the important features of the economy at the time and place in history which most resembles a libertarian social order.
            2. This also doesn’t cause problems from the perspective of the regression theorem’s corollary that stable prices lend themselves to broader adoption as money, because those who produce (economically) are able to extend their time horizons and perceive the value of using a currency that increases in value over time instead of remaining static or decreasing.
              1. In the same way that Keynesians want to devalue the dollar so as to encourage rampant spending in the here and now, Bitcoin encourages lowering of time preferences, which has a eugenic effect on society at large.
            3. As the total liquidity of the Bitcoin network and altcoin markets increases, the fluctuations will shrink and slow. As current implementations stand, Bitcoin is set to become more a store of value while certain alt coins are more likely to become the spending money of the future.
              1. Much like gold and silver of the past, one is used to store and move large amounts of value while the other is used in day-to day transactions and is more prone to fluctuation.
  5. Racist