In response to my recently posted article on Bitcoin and the Regression Theorem of Money, Smiling Dave has written what he believes is a rebuttal of the points contained in that article. I welcome this exchange. Unfortunately, he has mostly misunderstood the points I was making, and so I must address those errors. The arguments that Smiling Dave brings up have already been addressed by me and others on the mises.org forums. I shall still, however, counter them here:
1. He argues that the difference between Bitcoin and gold certificates is that the latter could surely be redeemed for gold, while the former has no such certainty. I agree that the extent to which people are willing to receive gold or Bitcoins depends on the belief of its future exchangeability. My point is that there are indeed people who receive Bitcoin because they are confident that it can be exchanged in the future for fiat money. There is, of course, no certainty in this, and I never claimed there was. That belief nevertheless exists.
He also writes:
Because when the grocer was offered a gold certificate in exchange for his wares, he did not look at and say, “I’ll take it because it facilitates the exchange of true money. Rather, he thought, “I’ll take it because I can get gold with it anytime I want.
But why use certificates at all, instead of physical gold? Because they are easier to transport without losing the features of gold (since they are redeemable for gold). In the same way, Bitcoin can ease the use of other money if there is confidence in exchange between the two (which evidently exists).
2. Here he has completely misunderstood what I was saying, and takes it to mean that all people who acquire Bitcoin do so because they are speculating on its price. That is not my argument. The point is that through some people speculating in Bitcoin, a reliable exchange between Bitcoin and fiat currencies is established, which then allows people to have a greater belief that they can easily exchange between those two media. This then allows them to have confidence that they can use Bitcoin to facilitate the use of already established money.
3. Here he criticizes an implication that Bitcoin is a generally accepted medium of exchange. As I pointed out, whether or not something is a ‘generally accepted’ medium of exchange is not clear-cut, and can also depend on the context. Within certain circles, Bitcoin is generally accepted, just as with other moneys. Is the AUD a generally accepted medium of exchange? Not in the USA it isn’t.
He also writes:
If there is demand for it, why that means it’s a generally accepted medium of exchange. right? Wrong. A market exists for bananas, too, but they are not a medium of exchange.
I ask then: what is the reason for this demand if not for use in exchange (or for speculation, which he already discounted)?