A Conversation with a Bitcoiner

I have spent countless hours discussing money with Bitcoin enthusiasts. In general, I have found them to be closed-minded believers in an irrational cult ideology. However the following was an interesting conversation that I had with a Bitcoiner on Twitter. The reason why I feel it is worthwhile sharing this exchange is because of the discussion of the definition of a medium of exchange. This is a critical concept, but most people don’t take the time to examine what defines a MoE. Bitcoiners often say that Bitcoin is a MoE because they can buy stuff with it. But that is far from meeting the full criteria for a MoE, as I understand it.

Here are two screenshots of the beginning of the conversation. (I will transcribe the rest of the conversation below, rather than posting a bunch of screenshots.)

Me: The Gesellian perspective is that money should not be used as a SoV at all, because any instrument that is designed to be hoarded will fail to perform the more important function of MoE. More on this point here:

The Natural Investor: No one demands a monetary good that loses its value quickly over time. You wouldn’t use fresh oysters as your money if they go rotten in a few days. The SOV a of the monetary good reinforces it’s demand and therefore usefulness as a medium of exchange.

The only reason a person would hold something as a store of value is if it can serve as a medium of exchange in the future, otherwise it would be useless. The salability of a good is based on the market demand and deepness in market liquidity.

You don’t have to enquire about profit margins. It’s implicit that profit margins are the reason why it’s being sold in the shop. The price is structured to make sure they are making that profit.

Me: Once again, I disagree with almost everything you said. TBH I doubt we're going to see eye to eye. I've been round & round on this merry-go-round with Bitcoiners, and in my view 99 out of 100 are just looking to confirm their preconceived notions. But maybe you're the 1 in 100.

So, to address specifics, 1) demurrage money does not lose purchasing power rapidly like oysters. The depreciation rate is generally around 5%. So when used as a MoE, the losses due to demurrage are negligible. Only those who hold it for long periods of time lose significantly.

[For more on demurrage, see my article Demurrage vs. Inflation.]

2) I agree that SoV reinforces demand. The problem is what it does to supply. An SoV fails to circulate anytime prices fall. This is why a deflationary instrument like Bitcoin will never be an effective MoE. This point is absolutely central to the Gesellian perspective on money.

If you're interested in challenging your perspective, I invite you read Part 3 (p.58) of Silvio Gesell's Natural Economic Order. Here's a PDF version. In my view no pro-Bitcoin perspective can stand up to his analysis. That's why Bitcoiners don't read it.

https://www.naturalmoney.org/NaturalEconomicOrder.pdf

NI: Ok, well, I don’t use anything but bitcoin for every single expense that I have. It’s more convenient, quicker to use. Way more comforting to have that as my money and MOE, and there is ad least 15 others in the town that use it as their main MOE. So emperically that’s untrue.

Just think about this a bit deeper though, you might not hold it for longer than a year, but whoever you transfer it to has to hold it. So if there is debasing money circulating the town that’s being devalued, the town is losing purchasing power, with time just passing by.

Me: You're confusing money with wealth, which is the core misconception of the BTC perspective. As long as you equate money with wealth you'll never understand money. With demurrage no actual wealth is destroyed. It's just an incentive for reliable, continuous circulation.

You're not actually using BTC as MoE. I'm sure that more than 9 out of 10 people you pay BTC to immediately convert it to dollars. That's not a functioning MoE. In order for it to be an MoE, there needs to be a circular economy where one transaction after another is done via BTC.

NI: Excuse the delay. But need to reply to make this extremely clear. The money is circulating the town. People are holding it and using it for their basic goods. Restaurant owners accept, use BTC to buy their own grocers, they use it for petrol and so on.

Me: Again, 15 people does not come close to constituting any kind of significant scale circular economy.

NI: Where’s the line?

Me: A medium of exchange is what you (and the rest of your community/society/nation) earn at your job, what companies use to pay for labor & supplies, what you pay rent with, what you use to put gas in your car and food on your table, what you pay the government for taxes & services. A MoE is what makes the division of labor possible. And the DoL (combined with the gifts of nature) is the source of virtually all of the wealth in the world. So you tell me. How many individuals need to divide the labor to grow your food, build your house, manufacture your car? That's how many people need to participate to make something a true MoE. Unless you live an extremely primitive lifestyle where your forego the benefits of a highly developed DoL, I cannot imagine that number being less than a few hundred thousand people at the very minimum.

NI: I literally use bitcoin for every single one of those items. In a situation where the dollar isn’t touched from the beginning of a food chain to the end, how can you deny it being a medium of exchange.

Me: Read my words again. "You and the rest of your community/society/nation." Do the people who grow your food use it to pay for supplies? Does the company who made your car use it to pay for labor? The fact that you and a few others use it to pay for things does not make it a MoE.

NI: Yes. This is El Salvador. The farmers raise the pigs, they sell the pig to the slaughter for BTC. The slaughterer cuts it up and goes to the bitcoin farmers market and sells it for bitcoin. That individual goes to the restaurant. Owner uses it for their ingredients.

Me: [I admittedly failed to read his last comment carefully and guessed he was talking about the situation in El Salvador without having actually been there, which a lot of Bitcoiners do. El Salvador is a cause celebre for many Bitcoiners. I quickly realized that NI actually lives in El Salvador. My bad.] Have you ever been to El Salvador (and interacted with ordinary people, not just rich tourists at Bitcoin Beach)? Most businesses in El Salvador report never having done a single Bitcoin transaction. You are just reciting propaganda from the likes of Max Keiser. By any reasonable definition the US dollar is the MoE in El Salvador.

NI: What disqualifies bitcoin as a medium of exchange in this instance? On top of this. As any sane person, why would you accept a quickly degrading money over one that will hold its value into next month. What is preventing the dollar from hyper inflating?

Me: I do not support the dollar or the debt-based fiat model. Gesell proposed an entirely different monetary system in which price stability (neither inflation nor deflation) is the sole objective of monetary policy. Did you read Part 3 of The Natural Economic Order?

NI: You need to regulate money to maintain its purchasing power. How can you put in checks and balances to avoid those regulating that market to not favour themselves and their family?

Me: I have offered you specific materials to challenge your own perspective. Have you read them? It seems to me you’re desperately clinging to an irrational cult ideology rather than engaging in a sincere search for truth.

NI: I am giving you a living example of what I use and what many many others use in the town as their main MOE. There are whole supply chains that don’t touch the dollar. How is that holding onto a cult ideology? [There’s a missing tweet here in which NI mentioned that he bought a motorcycle with Bitcoin and buys gas for the motorcycle with Bitcoin. (I can’t find this tweet. Perhaps NI deleted it.)

Me: You are not reading my words carefully. Was your motorbike manufactured using BTC to facilitate the division of labor? Was the gasoline you put in the tank refined via DoL enabled by Bitcoin?

NI: Ok, so the global reserve currency is the only medium of exchange? Because one uses an item that has a source part that was traded using a separate MOE disvalidates any other MOE? Where’s the logic here?

Me: No. In any community/society/country the currency used to facilitate the division of labor that generated the majority of the wealth used in the lives of its members is the dominant MoE. That can be the USD, the Euro, the Peruvian Sol or many other currencies.

NI: Every currency is reliant on the USD. That’s just a façade. That’s not where the wealth was built.

Me: You're not listening to what I'm saying. Like I said in the beginning, MAYBE one Bitcoiner in 100 is sincerely seeking truth. I have given you enough stuff to think about for months (if not longer). I have spent 15+ years intensively thinking about this stuff. Yet you keep responding off the cuff in minutes. That's not sincere pursuit of truth. If you can't be bothered to spend an hour or two reading the materials I have referred you to, I can't help you.

NI: Maybe it’s the fact that you’ve been studying this for 15 years, that when a money that does appear to be the perfect fit, you refuse to see it for what it is. The sunk cost fallacy. I’m not looking for any help. You can sit on your theory all day while in practice your theory disintegrates.

Me: Cool. You can lead a horse to water...