It is now clear where the lines dividing freedom minded people on the issue of Bitcoin are drawn.

On the one side, you have mostly older computer illiterates who are out of their comfort zone, and on the other, you have younger computer literate people who are comfortable with both free market ideas, sound economics and computers.

The former camp, the computer illiterates, all use the same form of argumentation and fallacious reasoning to attack Bitcoin, including straw men. Here is a good example:

Approximately 2,000 years ago, Aristotle said good money must be:

• Durable
• Portable
• Divisible and consistent
• Have intrinsic value

The astute reader will immediately realize that Bitcoin does not possess any of those characteristics and was subject to trouble from the getgo — not to mention the security issues that immediately arise with anything computer– and Internet related. A computer generated currency is not durable, as the recent hack demonstrates. And it’s certainly not portable. Can you imagine bringing your computer to the door to pay for your next Chinese food delivery? You get the idea for the remaining characteristics.

[…]

http://howestreet.com/2011/06/grim-decade-employment/

The straw man here is the line about Chinese food delivery. There is no reason of course, why you could not pay for your Chinese food in advance by Bitcoin. Its like saying, “imagine ordering books by computer from a company, lets call it ‘Amazon’. Imagine the delivery man having to keep change for all the sales! Its a security nightmare. IT WILL NEVER CATCH ON!”

The astute reader recognises faulty reasoning when he sees it, and is not persuaded by straw men.

As for the Aristotelian qualities that money must have, lets go through them for Bitcoin.

Bitcoin is durable. In fact, because it is not a physical good but is instead, an idea fixed in media, it can last for an indefinite time as long as it is copied to another medium. You can keep backups of it, which of course, you cannot do with physical money. Once again, the fact that you can have two copies of your money and cannot spend it twice is the breakthrough of Bitcoin.

Anyone who says Bitcoin is not portable, is not thinking clearly. Bitcoin is the most portable ‘money’ ever created. It can be sent anywhere in the world in an instant. There is no other money like it in the world in this respect.

Bitcoin is divisible. Each coin can be divided into one million equal parts. Bitcoin is consistent in value, if we accept that the value of a commodity is related to its supply.

The only test Bitcoin fails, some would argue, is that it has no intrinsic value. Lets go to the dictionaries to be absolutely sure:

What Does Intrinsic Value Mean?
1. The actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value. Value investors use a variety of analytical techniques in order to estimate the intrinsic value of securities in hopes of finding investments where the true value of the investment exceeds its current market value.

[…]

http://www.investopedia.com/terms/i/intrinsicvalue.asp#ixzz1PzdrOzEy

In finance, intrinsic value refers to the value of a security which is intrinsic to or contained in the security itself. It is also frequently called fundamental value. It is ordinarily calculated by summing the future income generated by the asset, and discounting it to the present value. Simply put, it is the actual value of a security as opposed to the market or book value.

[…]

http://en.wikipedia.org/wiki/Intrinsic_value_(finance)

An intrinsic property is an essential or inherent property of a system or of a material itself or within. It is independent of how much of the material is present and is independent of the form the material, e.g., one large piece or a collection of smaller pieces.

[…]

http://en.wikipedia.org/wiki/Intrinsic

I think the last one puts the nail in the coffin of the argument that Bitcoin has no intrinsic value.

Bitcoin has intrinsic value, by definition, because the system has value to the people who use it. It also has intrinsic value, by definition, because the amount of material in a thing is not relevant to wether or not a thing has intrinsic value; Bitcoins are immaterial, and they are part of a system that has value.

The fact that a single exchange, MTGox was hacked does not demonstrate that ‘A computer generated currency is not durable’; this is another instance of fallacious thinking. For fun, can you pick the correct one?

Once again all of these fallacious arguments are being made on the internet, and the irony of this appears to be lost on the people making them.

Even if Bitcoin is only used by one one hundredth of the entire internet population regularly, the number of people using it will be enough. More than enough. “For what?” I hear you ask… anything we need.

The people who build the systems that change the world do not need luddites, computer illiterates and sticklers to urge them to do what they do. The internet was built by a small number of people, and it has spread everywhere. Bitcoin was devised by one person, and it has already changed everything.

While we are at it, there is another prediction that has gone out of the window, the lone wolf inventor was declared extinct a few years ago, the claim being that the research and development costs involved in creating new things meant that unshaven men in their garages would not be able to produce world changing technologies.

How wrong they were. Bitcoin and Bittorrent are only two examples.

This is true for Bitcoin and the systems that are going to come after it. You need only look at at a widely adopted system like Skype, which is a decedent of ideas behind Gnutella, which itself was a decedent of Napster.

This is another problem that afflicts the discussion of Bitcoin; not only do very few people have a knowledge of how software works in general, but even fewer know about the recent history of some of the amazing tools we now take for granted.

Take a look at Nautilus, the file browser. Did you know that a company raised 11 million dollars to develop it? The company was called Eazel, and now we all benefit from that massive investment whenever we use the file browser in our Linux desktops, since Nautilus is now free and open source. Before this company, file browsers on Linux were not so user friendly. The people who invested in Eazel might not have made a profit, but that is not the point. The point here is that a world class piece of software was released that made something that was hard much more easy. The same dynamic can happen with the Bitcoin client, and when it does, we are going to experience massive, permanent disruptive change.

When thinkers like Mark Shuttleworth or Justin Frankel or a consortium of developers with many millions of dollars in the bank decides to fork and polish Bitcoin, you are going to see the emergence of a new version of the Bitcoin client, which will be as usable as the Skype client, that will sit on top of the existing Bitcoin network. Adoption will then go exponential, and all the short sighted people who claimed that it will never catch on will be forced to eat their words.

This new Bitcoin client will not only address all of the problems of the present client, but it will introduce new features that will make the adoption of Bitcoin accelerate; like being able to print out your Bitcoins so you can spend them like paper money.

Thinking is hard. Reading and understanding technical specifications is not easy; you have to spend many hours cross referencing different documents, each of which is liable to cause you to have to read other difficult to digest documents.

If you are not willing to do this, its not a problem; the world will go on without you. Thats why all these people are able to send out email newsletters, publish websites and make Skype calls without knowing how it all works or the history of the tools they are using.

What you cannot do however, is claim that something, in this case Bitcoin, cannot work when you are not capable of understanding it or even worse, are unwilling to make the effort to research it properly, and then expect people to take you seriously.

Something as important, significant and world-changing deserves proper attention and analysis, not flippant twaddle masquerading as insight.

This entry was posted on Wednesday, June 22nd, 2011 at 10:04 am and is filed under Economics, History, Libertarianism, Money, Remember, Someone Stupid Said, The Facts.