The promoters of crypto currencies have gushingly touted them as the mechanism by which the present central banking cabal and the system of nation states which derive much of their power from will be brought down and replaced by digital money. Despite their meteoric rise as speculative “assets,” there are fundamental economic reasons why they will never act as a general medium of exchange despite the wild enthusiasm for them by the crypto-currency cultists.
Money – a general medium of exchange – is the most marketable (exchangeable) commodity in an economy. As a good, money is not sought after for its direct use – to satisfy individual wants – but to satisfy wants indirectly through exchange for other goods. Over time, one good becomes money since it possesses qualities superior to all other goods as a money. When gold became demanded not for its “use value,” but for its “exchange value,” it became a general medium of exchange – money.
As a consumer good, gold possessed a value or a “price” prior to it becoming a money, as the eminent monetary theorist Murray Rothbard explains:
. . . embedded in the demand for money is knowledge
of the money-prices of the immediate past; in contrast
to directly-used consumers’ or producers’ goods, money
must have pre-existing prices on which to ground a demand.
But the only way this can happen is by beginning with a useful
commodity under barter, and then adding demand for a
medium to the previous demand for direct use (e.g., for
ornaments in the case of gold.)*
Thus, Bitcoin’s “price” is not in terms of its original commodity price, but its price is in terms of dollars, Euros, yuan, etc. In the dollar’s case, it was at one time linked to gold, but has since been severed from it while Bitcoin has had no such relationship.
Once money is established, then prices are expressed in terms of it and thus economic calculation can rationally take place and the division of labor and specialization can be expanded. Rothbard continues:
The establishment of money conveys another great
benefit. Since all exchanges are made in money, all the
exchange-ratios are expressed in money, and so people
can now compare the market worth of each good to that
of every other good.**
Once gold became money, the price of goods became expressed in gold not in other elements – nickel, zinc, lead, etc. With the proliferation of crypto currencies, there will be a myriad of different price ratios for each good. There will be a Bitcoin price for a car, an Ethereum price for a car, a Dogecoin price of a car, and so on. This is the antithesis of the purpose of money – one unit of account that reflect prices for all commodities as Rothbard shows:
Because gold is a general medium it is most marketable,
it can be stored to serve as a medium in the future as well
as the present, and all prices are expressed in its terms.
Because gold is a commodity medium for all exchanges,
it can serve as a unit of account for present, and expected
future, prices. It is important to realize that money cannot
be an abstract unit of account or claim, except insofar as it
serves as a medium of exchange.*** [my emphasis]
Crypto currencies, therefore, directly violate one of the main principles of monetary theory. The vast array of digital money, all with unique price ratios (to say the least of their volatility), would make economic calculation and rational planning next to impossible. In this sense, the current world of fiat dollars would be preferable to a Tower of Monetary Babel that digital currencies would create.
Central banks and governments do not fear crypto currency challengers to their monetary hegemony. They, of course, jealously monitor the crypto market worried that any gains accrued may not be subject to tax. Central banksters do fear gold for it remains, despite being demonetized, the last check on profligate central bank monetary expansion. And, because countries who wisely understand gold’s importance and seek to get out from under the yoke of King Dollar (most notably China and Russia), continue to voraciously accumulate the yellow metal.
The return of true prosperity will only come about when gold is once again at the center of the monetary order and fiat currencies such as the dollar, Euro, and now Bitcoin are forgettable memories of a misguided and corrupt age.
*Murray N. Rothard, What Has Government Done to Our Money? Novato, CA.: Libertarian Publishers, 8th printing, January 1981.
**Ibid., 4-5.
***Ibid., 5.
Antonius Aquinas@AntoniusAquinas
Antonius Aquinas 
YOCoin posted something about backing its crypto currency with silver. if a crypto coin is backed, and the blockchain whatever process of accounting and ledger balance can be squared with inventory, would this bring the better aspects of blockchain accountability to the gold, or silver standard?
The only way Bitcoin could be backed by Gold or anything similar , it would have to happen in an opportunistic time windows before the Bitcoin bubble collapses.
I can see this happening if a cadre of Billionaires takes the initiative or a country even perhaps.
How likely is that to happen?
Based on Jeff Garzik, who is one of the developers who built the blockchain technology supporting bitcoin there are four steps in the model of development of blockchain technology that he conceived
Step One – Digital currency, the very first use case of blockchain (i.e. bitcoin) – done
Step Two – is about where you have financial institutions putting digital assets on the blockchain and the use of digital currency and tokens in interbank transfers. Financial institutions and individuals are doing this in order to make the modern methods of money transmission more efficient.
Step Three – This is all about smart properties where physical assets (i.e real estate, commodities, stock, debt, etc). This comes down to managing property on the blockchain. Smart property refers to ownership determined by blockchains with smart contracts. Smart property can also include shares in a company or access rights to a software or computer. Smart property streamlines the ownership process, diminishing the chances for fraud and reducing mediation costs. The estimate of the worth of asset backed cryptocurrency trading by 2022 is something of the order of $5 Trillion
Step Four – Step Four ties all of that together into a mesh network of cross-chain smart contracts that guard the assets and the assets mature,’ It moves beyond simple encryption needs to managing and securing assets.
Garzik believes that we are moving from Step Three to Step Four with some of the exciting things going on in the Ethereum community and similar technologies on the smart contract side. Are you starting to see how flawed the article is about blockchain and bitcoin???
Pingback: Bitcoin: A Tower of Monetary Babel – Olduvai.ca
The contention that bitcoin is the same as a dollar is simply incorrect. If you take a look on the dollar, you’ll see the word “note” plainly written. The legal definition for note is “debt” as in, IOU. The dollar is not an item of value, nor is it a place holder for value, the dollar is a DEBT and therefor cannot be settled with another dollar. The IRS, which is tasked with collecting IOU’s does not take things of real value, gold, as payment, they can only take IOU’s in the form of debt notes. There is a reason, but suffice it to say, the Dollar is value owed. The dollar says “I cannot pay you now, so please take this and I’ll pay you later”. This is an undisputed fact.
As for bitcoin, it is a thing. You can argue it has no real value like gold, but gold for trinkets is hardly more valuable then sea shells for trinkets, as neither gives you use – use like food. Bitcoin is a calculation, which is a thing, and item, it is NOT A DEBT OWED. Sea shells are not a debt owed, gold is not a debt owed, but a good old american dollar is a DEBT UNPAID.
I cannot grasp why people do not see this. No one says gold is fiat currency, they can argue whether it has value or we all should agree it has value. A dollar, as it sits in your wallet only has value based on guns, but when pulled about, the gun protects a debt that is still owed.
Pingback: Bitcoin: A Tower of Monetary Babel | Malaysia Bullion Trade
On the table in front of the teller in my bank at one time was a plastic covered statement. It read, “Backed by Full Faith and Credit in the U.S. Government.” The fact is all money is “fiat currency”. That means nothing is backing it except the faith that it has value. If you look at any dollar bill in the U.S. you will notice that it says “Federal Reserve Note.” If it was backed by gold or silver it would say, “Silver Certificate” or “Gold Certificate”. It does not say either. It was Nixon who took the U.S. off the gold and silver standard and created the dollar as a “fiat currency”. Criptocurrency has nothing backing it, either. What’s the difference?
What’s the difference? Well, first off the federal reserve note is backed, or created, by your signature or birth or both. Bitcoin has nothing to do with birth or death or signature. Gold is not backed by anything either, except your belief it has value. The difference between gold, bitcoin and the dollar is there is no debt owed by having the first two in your hand. I you have a dollar bill in your hand, you have a debt, you owe real money, energy, and it has to be paid back right now if asked. If you have a bitcoin you OWE NOTHING! that is the difference, “backed by” is a catchphrase created by bank PR people, “bitcoin isn’t backed by….” Do the same people say “gold isn’t backed by…?” They should because gold isn’t backed by anything but a belief. So all things are belief oriented, so this “backed by…” is a cunnard. The difference is one is debt, the other is not. If one cannot see this they don’t understand. According to the US government, 1933, THERE IS NO MONEY! The government took all money away, so, technically, gold is not money either according to the law, and the IRS does not accept gold as payment. So…
Dollar = less then money. Debtor.
Bitcoin = a value people place on it. Creditor.
What cracks me up is people are willing to trade the value of a bitcoin, or gold, for DEBTS in the form of dollars. When you exchange, you go from having positive worth, to negative worth in seconds. When you trade a bitcoin for a dollar you go from being a creditor to a debtor within seconds. If you take your gold and trade it for 1000 dollars and the government collapses your dollars are debt owed and the gold, the item, is gone. What’s better, debtor or creditor.
Pingback: Is Bitcoin A Tower Of Monetary Babel? -
Pingback: Is Bitcoin A Tower Of Monetary Babel? – Earths Final Countdown
Pingback: Is Bitcoin A Tower Of Monetary Babel? - Tradebuddy.online Stockmarket news - Forex - News - Realtime market Data- World News - Trading Ideas
Pingback: Is Bitcoin A Tower Of Monetary Babel? – Independent News Media
Pingback: Is Bitcoin A Tower Of Monetary Babel? - Telzilla
You obviously missed my article from earlier this week which ZH also posted.
https://tomluongo.me/2017/10/15/ethereum-mises-cryptos-bubble/
BTW, you’re wrong. Not trying to be mean. Just blunt.
Antecedent demand for a medium of exchange with certain attributes constitutes pre-existence of its commodity value. Also, Bitcoins didn’t spring up out of nowhere. They came from the pre-existence of the protocols, servers, wires, and other technology that then leveraged software into a new form of ledger.
That constitutes prior existence. Rothbard would agree with me. I made this same argument to Gary North, Michael Rozeff and the rest of the LRC/Mises Org. crowd in 2011. I hate to break it to you but you’re simply wrong.
Pingback: Is Bitcoin A Tower Of Monetary Babel? | ProTradingResearch
Pingback: Is Bitcoin A Tower Of Monetary Babel? | WarMachines.com
Pingback: Is Bitcoin A Tower Of Monetary Babel? - Political American
Pingback: Is Bitcoin A Tower Of Monetary Babel? | Newzsentinel
Pingback: Is Bitcoin A Tower Of Monetary Babel? | StockTalk Journal
Pingback: Is Bitcoin A Tower Of Monetary Babel? - Alternative Report
I’m going to go and pay for my groceries with Bitcoin. I’ll let you know how that works out.
Pingback: Is Bitcoin A Tower Of Monetary Babel? | Zero Hedge
Pingback: Is Bitcoin A Tower Of Monetary Babel? | Wall Street Karma
Antonius, so your basic argument is that bitcoin and/or other cryptocurrencies cannot be used as a unit of account? I would suggest that you spend a bit of time actually learning about the properties of various cryptocurrencies since if you actually understood the purpose of many of the cryptocurrencies, you would understand that they are not all supposed to serve as replacements to the dollar. Bitcoin is the one that presently is more focused on possibly replacing the dollar. Others are tied to commodities. The ones that actually leverage blockchain at its core function as a means to build distributed ecosystem that is outside the means of government of government control! What is amusing about your comment is that we ALL know that mathematically there will only be 22 million bitcoin. The increase in the supply (i.e. inflation) is cancelled out by the increase in the demand for bitcoin. Whereas for the dollar, how many have been printed since 2008 to save the banks? $10-15 trillion. But yet you imply that it is bitcoin that is volatile (in relation to the dollar!?!). And that bitcoin would not be a good unit of account. Are we using the dollar as a unit of account by choice (and because there is an ecosystem that is already in place that already assumes that it is a unit of account)???
Gold has many attractive attributes as money but portability is not one of them. Try taking your gold out of a particular country and you will grasp what I mean. Whereas cryptocurrencies cannot be stopped by government. As well, the thing you also seem to have faiedl to grasp is that the means of exchanging cryptocurrencies (i.e. atomic transactions) is in the process of being built directly into the cryptocurrency wallets which allow for individuals to be not only be their own banks (which they already are) but to exchange value in a peer to peer manner without the needs of third parties. And guess what? The exchange rate of those currencies will automatically be calculated by algorithms which will know the supply or the those cryptocurrencies in the market as well as having visibility into its demand and not by traders front running the trades. What’s clear is that you really don’t understand blockchain and cryptocurrencies and would be wise to spend some time learning more about before commenting further.
Hey, I want to create money out of thin air. Oh, I know, I’ll write a computer virus
and get people to accept it as money. Since it costs me nothing, IT IS A FRAUD.
LOL! So you think that it costs you nothing to ensure that there is no double spend of the money in a open distributed cryptocurrency such as bitcoin??? What do you think proof of work is for? 🙂
Free choice in value standards is even better than any of the diverse kinds of gold standards. Also required are free choices among all exchange media and all clearing options, i.e. full monetary freedom.
Pingback: Canon212 Update: For a Pope Who’s Not a Heretic, His Bible’s Sure Full of Holes – The Stumbling Block
In the end, the ONLY things that have real value to someone with an intact skin are: land, breathable air, clean water, viable seeds or nearby edible plants and (for those not averse to killing them) edible animals. The rest is just made up bs. A mate capable of procreating is helpful, but only because your DNA says so.
Very good article! You must always go back to the roots of a medium of exchange to see if it has real value or is only hot air. Gold has value as a commodity since thousands of years. Bitcoin not at all! What is Bitcoin? Zeros and Ones! Would I buy Zeros and Ones from anyone? No! I can write them myself.
Pingback: Bitcoin Block Chain Fairy Dust vs Fractional Reserve Infinite Fiat Controlled Deceptions | Money | Veterans Today