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Bitcoin since birth, it has been the focus of the community, experienced two year spike in April and November, but also attracted many people's eyes. It is a controversial thing, some people think it is an epoch-making innovation, will lead the next round of technological revolution and financial reform, some people think it is a thoroughly Ponzi scheme, and there is no bubble in the past century essential difference. However, the most important debate also focused on "what is the value of Bitcoin" on.
The value of money is not the money itself, it is precisely that it can be used as a measure of value, in the final analysis is a monetary unit of account. I think that the perfect money should be able to accurately measure the value of each period, and can circulate freely cheaply and easily stored and can not be forged, not only to help the hand of the market adjustment is completed successfully, even by itself solve a number of changes market failure phenomenon. Let's look at legal tender coins and bits of strengths and weaknesses compared to:
- Free circulation: Distributed-based design, Bitcoin can circulate completely free, and is legal tender by governments, central banks and regulatory restrictions, and therefore can not be completely free movement (such as foreign exchange controls, anti-money laundering).
- Convenient storage: Bitcoin (save key) and French coins are safely stored (by the bank).
- Unable to forge: Based on the workload proved algorithm Bitcoin is more difficult to forge than the legal tender.
- Currency stability: Bitcoin due to its product features, its currency affected by the market volatility, the price spike. Due to its mandatory legal tender, currency relatively stable over time, but in the long term legal tender because of inflation and slow the loss of value, and even the risk of hyperinflation.
- Transaction costs: bitcoin block chain (Blockchain) designed to determine the per-transaction fee need only not more than 0.0001 Bitcoin confirmation about 60 minutes of time (six confirmed), without any loss. Legal tender of large transactions depends on the banking system, in particular, it is cross-settlement system between expensive and low speed. Banknotes or coins in circulation will produce losses.
- Ownership: Distributed systems, Bitcoin account can not be frozen, tracking and mandatory forfeiture. Ownership of legal tender is ultimately controlled national authorities.
- Mandatory: Bitcoin is not mandatory, so there is no generally accepted problem, increase the conversion costs. Mandatory legal tender, within a country or region is usually only one official currency, eliminating exchange costs.
Commodity money and credit money
Bitcoin current and any kind of goods on the market, as its price is determined by supply and demand. Bitcoin is often used and gold contrast, because it is also a gold and commodity currencies, not the dollar, sterling and other credit money. Credit money itself is not a commodity, but on an individual or institution issuing the debt, the Fed's dollar debt.
The nature of commodity money is a commodity, so there is harm and commodities, such as unstable value, easily replaceable. Credit money is the essence of debt, and debt is therefore the same problems, such as might default (central bank monetary spamming lead to inflation).
The origin of money
The origin of money, there are two schools:
- General equivalent, said: currency originated in the barter transaction process in order to facilitate money as a general equivalent of natural birth.
- Imperial rule says: the first is composed of a monetary unit of account of the development of human rulers, emperors would some rare items selected for the currency.
How was the birth of the currency, it is now difficult to find conclusive evidence, but these two hypotheses has affected people's money in today's Nature.
Right and the left of the currency debate
Or the right-wing libertarian (Libertarian) should be generally recognized equivalent currency, such as gold, silver is a natural currency. Money itself function should be to promote the transaction, a measure of the value of goods, and then by hand of the market to solve due to invalid wealth creation, rather than a means of government rule, or mainly responsible for regulating the economy functions.
Or left-wing totalitarian who tend to think money is a manifestation of the regime. The primary function of money is a measure of stable commodity prices, economic adjustment, and therefore should be issued by the state monopoly Authority to ensure its stability and mandatory credit.
Money problems right wing identity is inherently unfair and can not be macro-adjustment, easy to control big capital profit, which rises and falls, also because of excessive speculation lead to a collapse of confidence. The left-wing identity currency issue is mismanagement Authority, or those in power for their own profit rather than serve the public, and even the risk of tyranny and deprivation of liberty.
Bitcoin is a currency is clearly right identity, the nature of it and the gold is very similar, there are more gold do not have the advantages of (transaction no wear, low cost, can be broken down), natural gold standard by many advocates of all ages.
Whether it is credit money or commodity currencies, according to Mises recursion theorem, its value depends on its value at time t time t-1, has been traced back to the birth of the first transaction. That is, the Bitcoin from someone carries it to the first transaction, he would valuable.
According to the theory of subjective value, it bitcoin have utility value, and no intrinsic value.
Intrinsic value and subjective value
Value and price are a pair of twin brothers, the first study on the value of people originated in the price fluctuations. It is believed that in the back of the vagaries of the price, there must be something inside dominance, so people took this abstract thing called value. Father of economics, Adam Smith in "The Wealth of Nations," in reference to the commodity use value and exchange value that prices reflect the exchange value, and determine its exchange value, is the amount of labor required for goods, That "labor theory of value." Ricardo, Marx inherited the labor theory of value, and to flourish. Marx believed that the use value "has Incomparability", and the value is the human manifestation of undifferentiated labor, the magnitude of value is determined by the socially necessary labor time.
Theoretical and labor theory of value as opposed to the subjective theory of value. Labor theory of value and use value generally ignored is different, subjective value theory emphasizes the value of goods, so called "utility theory of value." The use value is subjective and different people is not the same, it is also known as "subjective theory of value", the corresponding labor theory of value also known as the "intrinsic theory of value."
Error labor theory of value is that it was believed that only labor creates value, the minimum value is determined by labor time, so the business is not creating value, entrepreneurs, traders will become something for nothing "exploiters." This is clearly inconsistent with the facts is more consistent with the fact that both parties are making a profit trading, because both parties will own surplus goods into the shortage of goods to meet the needs of both, thus creating wealth.
Business can create wealth, labor is not
The figure is well-known economist Mao Yushi to Business Times inscription, after the spread on the Internet has caused great controversy. I think this argument is logically impeccable, as is the nature of business transactions, trading of course, can create wealth. "Business can create wealth" does not mean "business must create wealth," if it is a hard sell, one is bound to damage, may be to transfer wealth from one party to another, a person who damaged a profit, it may be both were damaged, wealth is not created. Labor can create wealth, but not necessarily to create wealth, because the outcome is not necessarily effective use of labor, the labor could be doing useful work, not create value. At the same time also a commercial trade labor, so labor can create wealth.
Marginalist and Equilibrium Price
Utility theory of value according to different people, even the same person at different times of the utility of a commodity is different, so the value could not be measured. Marginalist (Marginalism) based on utility theory of value to further illustrate the relationship between price and value. Marginal core doctrine is "diminishing marginal utility", for example, like eating in a bread when hungry utility of a person is great, but when he began to eat the second bread, which increases the effectiveness of his it has been reduced, and if you eat a third, fourth or even more, the utility will become increasingly smaller, even become negative (eating too much insisted).
On the basis of the marginal doctrine, Alfred Marshall (Alfred Marshall) proposed Equilibrium Price Theory (Theory of Equilibrium Price), that is the price determined by the market supply and demand sides, which is more on a commodity market suppliers, the lower its price, the more demanders, the higher the price, the equilibrium price is reflected in the marginal value. Equilibrium Price Theory reflects the very simple fact, from the stock, bond, commodity market can be seen easily.
Bitcoin how to price
In reality, bitcoin prices are set by the case of several orders exchanges decisions. The world's oldest, but also the most influential Exchange is MtGox , many changers, market makers are based MtGox of prices. MtGox is a bitcoin exchange, its business model is to match buy and sell transactions, and payment of commission (about 0.2% to 0.55%). Traders can limit transactions (Limit order) or market trading (Market order) on the exchange. Limit transactions are linked to foot the bill (Bid) or sell (Ask), included the sale of a single trader wishes to purchase or sell price and quantity. If the trader hanging pay the price above the minimum price of sell orders or sell orders in turn linked to the price is lower than the highest price to pay, the deal concluded. The transaction price is low and sell directly match the highest single or pay for fast turnover. Therefore, at any one time, we pay the highest price is always lower than the lowest sell order price. Below is a diagram of market orders, the blue part of the pay, the red part of the sell orders, the cumulative curve reaches the height of the total price to buy or sell a point of single:
If you pay more and more sell orders will be gradually eaten, so prices rise, which in turn will lower prices. With those transactions to make the sale, the price is constantly changing. The figure is MtGox recent (December 2013) of prices:
I think of bitcoin
Outset that I am a cautious supporter of Bitcoin, Bitcoin has many excellent recognition of the intrinsic value. The most important point is that Bitcoin is a centralized anti-money issuer.
Economist Murray Rothbard (Murray Rothbard) said: The government tends nature of inflation, because inflation is powerful officials access to public resources and subtle means.
The central bank aims to serve as the first born of lender of last resort to avoid bank failures harm society, only to realize that responsibility to reserve a sufficient amount of money, but then in order to maximize the pursuit of stability and regulation of the economy, central banks have degenerated into currency issuer. The nature of the currency issued by the central planned economy, because people attempt to predict the currency market total demand and total supply, so as to formulate a "neither has a lot more" currency scheme, which is clearly excessive human self-confidence. Despite this, it still can not prevent the outbreak of the crisis.
Nobel laureate Hayek book "The Road to Serfdom," he pointed out that any form of unintended consequences of the planned economy must be the loss of freedom and personal totalitarianism. Hayek later years also published a book , "denationalization of money" , discussed in detail the harm currency monopoly law, as well as the abolition of the central bank, issuing currency and the possibility of private competition in the market allows, it can be described as decentralized currency who first conceived.
Bitcoin as a commodity currency, its ownership was firmly in the hands of individuals, the government can not direct plunder. In early 2013, the government of Cyprus by the European debt crisis brazenly decided to charge "deposit tax" to the bank depositors, deposit 20000-100000 euros depositors tax of 6.7%, more than 100,000 depositors tax 9.9%. The news came out, it immediately led to a run on the bank, while not subject to government control Bitcoin prices rose, which has great relevance.
Low transaction costs
Transaction costs is a very important thing, but it has long been neglected, until the Nobel laureate in economics Coase (Ronald H. Coase) is proposed transaction cost theory, before they get the attention they deserve. Coase Theorem is described: "As long as the transaction cost is zero, the initial configuration property does not affect the final efficiency." According to the Coase theorem, the existence of the enterprise purpose is to reduce transaction costs, external costs into internal management costs, as long as the low management costs in transaction costs, to gain a competitive advantage. If the transaction costs low enough, the personal property compared to this organizational form will significantly reduce the disadvantages, many responsibilities of enterprises will be replaced by the market.
For example, large factories like the Chinese, like the past, not only the production sector, as well as supporting the canteens, hospitals, schools, homes, almost like a small city. Why is it like this? The reason is that the era of planned economy, China is no market, so that the transaction is extremely expensive, so only by large enterprises to solve the issue of transaction costs. With the birth of the market, reducing transaction costs, such as large enterprise suddenly lost its competitive advantage in favor of the birth of many small businesses.
Bitcoin albeit reduced distribution costs money, is one of the various transaction costs, but it is an important step. With the reduction of various transaction costs, inclusive of large enterprises will gradually disintegrate (although there may be such a countercurrent Apple in the short term), humanity will eventually entered the era of individual freedom.
Anonymity and Privacy
With the development of the Internet, various monitoring tools emerging, privacy has become extremely rare. After the June 2013 leaker Snowden (Edward Snowden) broke the US National Security Agency "Prism Scheme", immediately triggered a major global panic privacy. Worldwide opinion, we have entered an unprecedented era of centralized government control of personal information has to be added, "1984" in the scene depicted in the early unannounced.
In the financial system, strengthen supervision led to anonymous become impossible. The name of the regulatory body "money laundering", etc. banner, wantonly infringe on personal privacy, all anonymous behavior has been accused of "underground economy" or "money laundering" is prohibited. It appears Bitcoin and other electronic currencies is gradually breaking down the situation, making the transaction without government or others to monitor again become possible.
Some people think that speculation is immoral, even should legislate against, but I think that speculation is a good thing for the market thing , morality should not be blamed. Bitcoin is a very good tool for speculation, while a large number of arbitrage. Speculation and arbitrage in favor of Bitcoin price stability, it is more fixed measure of value and convenient.
The easiest is to look out for cross-market arbitrage arbitrage tool, commonly known as "moving bricks." The following figure is a bit each time the price of currency exchange:
You can see the price of each Bitcoin exchanges are not the same, in violation of the "law of one price", the arbitrageur can buy in a Bitcoin exchange, then the other exchanges to sell, and thus make the difference. With the increase in arbitrage, the difference between each exchange will be gradually disappearing, thereby enhancing market efficiency. And to ensure that this phenomenon, it is based on the free circulation market and lower friction on the Bitcoin design mechanisms to ensure its implementation.
In addition to cross-market arbitrage, you can also set up a mathematical model to predict the price, design trading strategies to be used to hedge risks through futures, options, etc., to make a profit.
Bitcoin electronic money is not perfect, it has inherent technical problems, such as the scale of scalability, segmentation and so on. It is the most lethal risk from similar alternatives, rather than government regulation, Zuozhuang Trader. This is like almost half a century of gold and silver to be legal tender as an alternative (in fact there are factors that government regulation), the risk of commodity currencies is not supplied (limited number), but demand (market confidence). The risk is not legal tender requirements (mandatory), but supply (inflation or tightening).
Bitcoin is unique in that it is the first popular, followed by hundreds of imitators, although there is a Ponzi scheme, but there are some for the elite, such as Litecoin (to solve problems of mining and velocity) , Namecoin (increase use value), PPCoin (solve deflation), Zerocoin (increase anonymity).
I think Bitcoin currency or to become a reserve currency for everyday use there is still a long way to go, and ultimately to achieve this goal may not necessarily Bitcoin Bitcoin I believe made a great start, there will be more good electronic money was born.
Here are two I in April 2013 and in May made a presentation on Bitcoin:
- Bitcoin - history of the most crazy virtual currency (Chinese)
- Internals Bitcoin: the Currency at The Digital Distributed System (English)
About Bitcoin further topic, please discuss with me.