Bitcoin is an Austrian Invention
saToni Nakamoter
With the 2008 publication of the infamous Bitcoin whitepaper and its raise to economic importance we can easily say the fabric of the world has changed. We know that a similar idea was published in the early 90ies, but even that is still not the historic origin of the basic idea of the Bitcoin/Blockchain movement. Some ideas can be transfered to the modern day era, tracing back to the very publishing of Carl Mengers “Principles of Economics”, the initial spark for the Austrian School of Economics.
The Austrian School of Economics — Diamonds are forever
What it is in short: The less (governmental) interference the better!
In a little more elaborated way, it´s a libertarian but not a liberal approach. It focusses on the subjective value and the marginal costs, solving this way the paradox of value inherent and mostly famous in the millenium old “Diamond — Water Problem”. Why is a diamond more precious than water when water is of far more use for survival than a diamond? This puts its emphasis on the value for mankind and not on the availability or accessability of goods. If you want to know more, I put a list of books at the end of this article.
100.- USD can be more than 100.- USD
Methods of measurement which were used before got put aside, meaning the evaluation of an economy based on historic events is invalid. As Menger pointed out in his “Theory of subjective value” — We evaluate a certain good (or coin) by estimating the satisfaction we receive after we bought it. A very subjective view. 100.- USD for nothing is nice, the outlook for a something precious to us costing 100.- USD is higher.
Intrinsic value is not necessary as long as both sides gain from the Exchange and accept the deal as fair and correct. It´s trading money or goods for the mutual benefit. Diamonds aren´t precious because people have to do hard labour to get them out of the mountains. People work in diamind mines because they are precious to other people. It´s inverted logic.
Of snakes and porous rocks
Back to today: The contemporary situation can be summarized in 3 Words:
Central Bank System
Central Banks are like nurses or better like drug dealers. Providing the drugs for the addicted with the promise to get them out of the victimizing system as soons as they are ok again. Look at the current EU interest rate tragedy.
Most modern economics, traders, fundsmanagers, hedging specialist, insurance representatives as well as random “Experts” are behaving like snakes that can not shed its skin.
You can go even so far to call them cathedersocialists, economist tied to a (hypocritical) socialistic movement in various governments. It´s a catch-22 though, since it´s somehow crowd-pleasing but nethertheless not feasible till all eternity….
Sometimes old fashioned bankiers point out that they embrace the Blockchain technology but are eager to add that they don´t take Bitcoin and Co seriously.
Examples of such bankiers being no longer as steady as a rock could be found manifold, e. g. JP Morgans CEO Jamie Dimon.
This follows the doctrine of “The trend is your friend”, even if you don´t like it.
Keep it in control (or not)
How often did it happen in history that a whole industry got shocked by a disruptive development that causes irretrievable changes? The fact that the crypto currencies are rising and gaining more and more momentum are a Black Swan, a centurian event.
An unprecedented gain, needs to face an unprecedented correction to bring back a healthy and stable market value. This is depicted perfectly in the rise of Bitcoin in late 2017 and the fall in early 2018.
It´s simple economic fluctuation just as it can be witnessed in every other securites too. People tend to just look at the current moment and not on the whole picture, as well as ignoring simple and observable market behaviour.
Paradox of a Crypto Central Bank
One of the main tasks for a CentralBank is to keep inflation under control. Some call inflation the most unethical and dishonest tax ever invented and they are right. It´s a slow confiscation of the people.
On the other side, crypto currency are still too unstable to predict price movements with the usual methods, like technical or fundamental analyses and therefore are hard to press into a inflation/deflation system.
Even hyperinflation is somehow possible without damaging the believe and therefore the trust into e .g. Bitcoin or Ethereum.
Ratings could be a solution but again, the historic data is far from abundant. Whats even more important, the ratings must come from the crypto community itself, definately not from a governmentally supported rating agency.
Asking Standard&Poors to rate Bitcoin and Co. is like a run-up to economic suicide.
On the current market, just Ripple (from the more famous coins) is a currency that would somehow support the old fashioned Central Bank approach, simply because it gets controlled by one single company.
About a madman throwing his lantern
Austrians like it haptic, so in dependence to the infamous Nietzsche parable, I want to refer to the dissolving of the goldstandard: A pyrrhic victory for Nixon, causing the Dollar to become easy prey for Traders. The madman threw his lantern onto feeling ground….
Palpability of Bitcoin — More physical than you would expect
But how close is a Crypto Coin to a natural resource or a natural commodity? Closer than you think. What is a Bitcoin? It´s a piece of code, in binary world 0 and 1s transfered by electric energy. What could be more natural than this? A lightning is just as much natural, eventho no commodity, than gold.
Given, whatever you do, you still can not keep a single Bitcoin under your matress, but you can put your hardware-wallet under your pillow.
From broken lanters to broken windows
From an investment perspective.
If you are buying risky High Yield Bonds / Junk Bonds or a Penny Stock with a high default risk you are by defintion not risk-averse. So why not put a low percentage of your overall investment capital into Crypto Currencies?
The incentives are there, think about the opportunity costs. Holding a position in Coins is free of charge, means you can store it like gold in a vault without administrative costs. This approach endorses you with a comparative advantage when holding Bitcoin instead of Forex or Gold. The volatility of the main coins is not so different to some exotic forex pairs.
If you are new to the idea of opportunity costs, please read the “Broken Window” parable from Frederic Bastiat at http://bastiat.org/en/twisatwins.html
Keep ém stupid!
A dramatic problem we face is the educational area. Universities today are run by ”educational philisters”. How else can you explain that even in the Main University of Vienna the Austrian School of Economics is not on the educational plan? What they produce are alibis for people who usually can not be held accountable for their doings, but producing papers, surveys and statistics that sound important.
Actually you have to consider the “Austrian School” as enemy of the state, almost as much as Bitcoin is an enemy of the Central Banks status quo.
It´s a moral dichotomy, too much politics involved — since politicians main goal is to get re-elected — not necessarily pro-economic and people friendly. A plutocratic and ethic dilemma.
Statistics prove, that banks were more stable BEFORE governments start to regulate them, and fairer as well. More competition, more smaller merchants, more diversity, more options for the clients and a healthy market for where the better products get more customers.
What is a good investment/money?
History tells us, that the average currency exists for about 38 years.
Since almost all interconnection between physical commodities like gold and a nations currency got pollarded, the questionn is what´s left?
I just can go to a local store to buy a good for 10.- Dollar because the Store Owner agrees to the trade with me that the good I want to buy has the same value as 10.- USD. The paper itself has no value, but trust has, or to be more precise, sustainable trust has. Actually a monetary potemkin village.
However trust is subjective and an effect with a huge economic impact can easily shake that foundation.
The Identity of the individual drives the behaviour and financial behaviourism has proven many times that humans don´t operate in a logic or economic way when it comes to their monetary administration.
An insincere pledge for total Anarchy
Are not laws dangerous which inhibit the passions? Compare the centuries of anarchy with those of the strongest legalism in any country you like and you will see that it is only when the laws are silent that the greatest actions appear.
(Marquis De Sade)
But where is light, there is shadow.Crime is just one step away, abuse follows, eventually leading into miss-allocation like in a typical socialist environment.
It´s like walking on a razors edge. How much rules and regulations does the Crypto World need?
One thing is for certain. On the day were governments figure out a way to make money out of Crypto Currencies themselves, all necessary laws and regulations will be issued in an appropriate manner and in no time.
One thing is important though. The regulations need to be done in concordance with the Crypto Community. This way it´s possible to compromize and establish some Clearing alike procedere.
It´s inevitable to keep biased and incompetent folks out of this negotiations, or we suffer from the next GDPR nonsense. Vaguely formulated in in some parts purely asinine in others.
Conclusion
This should not solve the Methodenstreit of how to approach Bitcoin. A valid conclusion can just be done by reverse engineering using logical and hollistic economical theory based on mere observable reality and demographic interaction. Lets talk in 2025 about it again.
Until than, we might could need some Crypto Currency lobbyism on the right places. Let me show you an example of how a government could benefit from a Crypto Coin, Austrian style.
The Country-Coin — Deliberately opposing the crypto commandments
Can a full intentionally established, centralized Crypto Exchange serving just one governmentally controlled coin can be useful? And yes, this is still Austrian School, not 100% though, but because of the realistic approach that is able to depict social finance interaction as it is, it actually contributes to society.
The state is acting as a Social Central Bank with a well defined duty and a clear tight limit in its possibilities to interfere.
Adventures in Randomland
Imagine an emerging country, let s call it Randomland.
Why not issuing a Random-Coin in an amount of 100 billion units. 30% will be available for public to use it to easily transfer Coins via a mobile phone application from the wealthy urban environments to the poor rural areas. The coin can be traded on an Exchange which collaborates tightly with the local government. 70% of the coins remain with the government to have a safety pillow in case the price drops and the peril of inflation appears.
Even stock markets have such a safety net, remember the trading stop of various Exchanges when the leading index drops out of the safety levels.
In this modell, even privacy can remain untouched, it just needs a consense of government and people and a common will to empower the weaker members of it´s society.
3 more question worth thinking about
1.) What if the raise of Bitcoin, starting in 2015, was intentionally and not a fluke or a mere coincidence? What if it was not a trespassing of a saddle point of the global recognition curve but a controlled, well thought out process to disturb and disrupt the economic world?
2.) Central Banks are deeply interconnected with governments. Frank Zappa once said “Politics is the entertainment branch of industry”. I would rather say “Politics is the Muppet Show of the Elite”. However, what if there rose a certain conflict of interest inside this elite within the last years, between those who intend to continue walking the established ways and those who are more daring, pushing towards maybe even walking some untrodden paths?
3.) Imagine a market crash. Where will the big players will put their money? Even if they remain conservative, in its original sense, and even if they just put a small percentage into the crypto markets, the prices will implode. Remember that the volatility is still comparably high and a single big move can effect a violent quake at the crypto markets. You won´t be able to say “It´s just a tullip bubble” fast enough and we are back at 20K USD for one single Bitcoin.
Werner Hochleitner
http://double-edge.net & http://icovest.net
APPENDIX
Books list (excerpt):
Carl Menger: Principles of Economics & The Theory of Capital
Eugen von Böhm-Bawerk: Karl Marx and the close of his System
Ludwig von Mises: Human Action: A Treatise on Economics
Friedrich Hayek: The Road to Serfdom
Murry Rothbard: Man, Economy, and State: A Treatise on Economic Principles & “Americas Great Depression”
And pretty much everything else from the above mentioned gentleman as well as books from John Locke, Joseph Schumpeter, Adam Smith, Friedrich von Wieser, David Hume, Maynard Keynes or Karl Popper.
