Ethereum, Mises, & Why Cryptos Are Not A Bubble

Tyler Durden's picture

Authored by Tom Luongo via TomLuongo.me,

Bitcoin satisfies Mises’ Regression Theorem as money and that’s why it’s so confusing to some many people.

So many people simply misunderstand what cryptocurrencies are and what they can be.  Even to the informed skeptic they represent a sea-change in thinking which betrays their fundamental misunderstandings about the nature of money and how it comes to be.

And because of this, and our familiarity with money since we use it everyday, that skepticism is deeply ingrained in their brains; logic be damned.

Ludwig Von Mises spent a lot of time trying to figure out what money actually is.  In the end he developed his Regression Theorem.  In short, a thing can only rise to be money if it had value as a commodity before it became money.

Mises and Latent Demand

The process of utilizing the thing as money eventually overwhelms the previous uses for the thing and its value is then determined almost purely based on its demand as a money.

This article at Mises.org does a great job of explaining why cryptocurrencies fulfill Mises’ requirement for ‘antecedent value’ far better than I’m willing to at this point.

What I figured out immediately when I saw Bitcoin back in 2010 is that, at its core, it is simply and encrypted packet of information.  And, so, by extension, if encrypted packets of information traversing the internet can have value, then Bitcoins — being an encrypted ledger of transactions themselves — have value.

I like to use the analogy that if IBM’s supply chain information is moved around the internet to communicate with subsidiaries via encrypted packets then they are a great analogue to Bitcoins.

IBM’s data has value, so therefore the packets themselves have value.  In effect, the internet itself creates the ‘antecedent value’ for Bitcoins by proxy.

Moreover, as Peter St. Onge states in his article linked above:

It’s the antecedent demand, even latent, not the previous buying and selling, which counts in importing value via the Regression Theorem.

 

To give an example that satisfies both liberalizations, a benefit such as anonymous wire transfers is both a money-related benefit and is also a service that didn’t previously exist. In a liberalized Regression Theorem, this benefit would count as the antecedent demand giving the spark of life to a scarce cryptocurrency.

Bingo!

This is what I’ve been telling people since 2010.

Which brings me to Ethereum.

Ethereum’s Big Trade

In truth, this blog post came from a comment thread on my latest article at Seeking Alpha where I responded to the tired criticism that ‘It’s all fake.”

If technology has value then the companies that produce the technology have value. Trading Ethereum tokens is not really that much different than trading stock… the difference is that the stock isn’t more liquid than the token.

 

Ethereum, or any of these IaaS tokens can function as both [tech and currency] at the same time because they’ve rolled up the transmission system, the exchange itself, into its structure.

 

So, they can rise in liquidity to the point of satisfying Mises’ Regression Theorem as a commodity capable of becoming a money.

 

They have no alternate use except as a medium of exchange, a unit of account and (potentially) a stable store of wealth. [a crucial point]

 

They already satisfy the first two criteria. The last one is the trickiest.

 

And that’s what the focus of the development is one at this point…. increasing transaction density and network performance to create real competition for existing government-issued currencies.

 

That’s all they need to rise to the level of money… that and the confidence of the people using it, which will ultimately be determined by the market.

And that’s what makes all of this so confusing to most people.  Our lives are proscribed by money, we use it everyday.  It is one half of nearly every meaningful decision we make, and yet, we understand how it works about as well as the non-mechanic understands a car.

Money is a tool.  Ethereum is a money that is a tool first and a money second.  But, it is its value as a tool, its network, that gives it its value which we can directly decide upon without having to go through a centrally-controlled medium of exchange, i.e. the dollar.

The Network is the Money

In other words, the collapsing of the network, the costs of maintaining that network and the technology of the network into the value of the token, be it Ethereum, ERC20s, EOS, NEO, OMG, WAVES or STEEM removes the need for paying the middle man.

Those middle men are first, the central bank issuing the credit money, and second, those that control the infrastructure itself.

Those are the guys who have been making trillions off controlling ‘The Wire” (bandwidth) when controlling the wire should be like every other first order commodity and have its cost to consumers driven down to just above its cost of production.

That’s not the case right now.  And those that profit most from that system are the cryptocurrencies ‘ biggest enemies.  The costs of maintaining control over money will rise and profits will fall. Like Mises’ Regression Theorem implies, market forces will always demand the superior money.

And drive the controllers out of business.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
c2nnib2l's picture

bitcoin is a buble

tmosley's picture

When you start with the conclusion, and then go back and fill in the evidence, you are ALWAYS going to look stupid.

aurum4040's picture

The article closely resembles the logic that I have explained numerous times here at ZH over the last year - the logic being the compelling reasons to own Ethereum.  Understand why ETH has more utility than gold by a factor of 100 or more. Understand why ETH has far more utility then BTC as well. And you will understand why ETH is up over 3k% this year with plenty of room to run going forward. Its a development platform that is changing business NOW, first and foremost, the ETH coin is just a byproduct - no other technology nor mediums of exchange have ever come close to having properties on such a level in their respective domains. Synergy is incalculable at this point. 

IH8OBAMA's picture

We'll all have a good laugh over the Bitcon in a few years when it is all over and it finds its true value again.

 

Stuck on Zero's picture

Crypto currencies have the cool feature that every little transaction costs money to maintain indefinitely. If the entire world switched to cryptocurrencies a hundred nuclear power plants would be require to process and retain the transactions.  Who pays for that?

tmosley's picture

That's incorrect. Data stored on a disk costs nothing to maintain. It is the hashing, which secures the network, that costs electricity, and the number of transactions does not effect the rate of hashing, only the number of miners.

Thinkpad's picture

We'll all have a good laugh over Bitcoin in a few years when it reaches 15,000 it's true value in a few years maybe sooner.

maxblockm's picture

We'll have a good laugh at your comment in a few years. 

https://99bitcoins.com/bitcoinobituaries/

Bitcoin has died 176 times. Long live BTC.

dumbhandle's picture

Post above you is talking about Ethereum not Bitcoin. They are very different and one is way more advanced than the other.

Dead Canary's picture

"Like Mises’ Regression Theorem implies, market forces will always demand the superior money."

But doesn't Gresham's law state: "Bad money will drive out good money"

Mister Ponzi's picture

Only if there's a fixed government-set exchange rate between both monetary units. Otherwise, the market will move to the good money.

malek's picture

I can confirm that tmosley has excellent knowledge on how to use that approach, and get to said result.

tmosley's picture

Do give some examples. I only switched to crypto after years of agonizing as the evidence built up, and the evidence for the silver bull case withered away.

Or are you just saying anything that sounds like an attack?

Mustafa Kemal's picture

"bitcoin is a buble"

I think you meant to say that bitcoin is a booble

Raffie's picture

These crypto haters will never get it.

Or maybe she meant to say doodle.

VD's picture

leave off the last b for buttcoin

ebworthen's picture

I'm with the crypto-believers in spirit.

Problem being, it requires everything that TPTB control.

It's not that I don't "understand" it - it is because I do understand it.

tmosley's picture

In theory, you can cure cancer in your own body by shooting it.

But that causes catastrophic problems. Most people don't, and just let the cancer kill them.

Bitcoin is the cancer that is killing the bankers.

inb4 TMOSLEY ADMITS BITCOIN IS CANCER, LOLOLOL

GeezerGeek's picture

"In theory, you can cure cancer in your own body by shooting it."

Every so often I hear an ad on the radio from some financial entity claiming they can help you avoid running out of money during retirement. The first thing I thought when first I heard it was "Easy, eat a .45". And, ummm, shoot the cancer or shoot your body? Just in case I ever need to consider it.

Thinkpad's picture

Bitcoin is not a bubble.

factorypreset's picture

 

"bitcoin is a buble"

Like that damned French Canadian Michael Buble?

Global Douche's picture

Michael will join The Voice as one of the coaches come next season. Bitcoin is not a Buble although Michael would be wise beyond his years to HODL some.

lester1's picture

Bitcoin is doing what gold and silver SHOULD be doing if the price was not being manipulated by central banks.

 

With Bitcoin you buy and hold. And it's not a bubble because the big hedge funds haven't even got in yet. The price is only going higher as people understand it's potential.

 

www.coinbase.com

VWAndy's picture

 You do understand its at insane levels now right?

tmosley's picture

Its market cap is less than 2% that of gold.

We've got a long way to go.

gn28's picture

it doesn't really matter if bitcoin or etherium will stop going up at 6k or 60k.

The moment it really stops is the monet nobody will be able to sell it.

e.g. the central banks will not allow national currencies and commercial transactions for bitcoin and ISPs will filter it out along with all websites supporting it or governments will start taxing it like regular products (VAT, import and export tax, back-taxes for undeclared assets, gambling taxes, demand for back-payments into social insurance, medical insurance and pension based on any transactional values, etc.)...

so, when that happens the only cryptos that will stand and even so value very little will be the central bank based cryptops.

the only thing cryptos are good for is speculation at this very moment and, if you're crazy lucky and you find someone willing to sell you a car, some land or a house then you made a good investment because you don't pay taxes.... but in reality nobody sells anything for cryptos to give it value... you can only sell it for fiat and then buy something with that toilet paper

WAKE UP !

tmosley's picture

Appeal to cowardice doesn't work on me. It only works on cowards.

Secret Weapon's picture

I get a kick out of your comments.  Glad you are on th Hedge.

tmosley's picture

Thanks! If only more people used their Secret Weapons, the world would be a better place. Too bad we remain largely controlled by our reptile brains.

VD's picture

dood lives on zh so he can shit and piss all over it -- the secret weapon of shilling another ponzi. maybe he will crash jpm by shitting and pissing all over himself and his fantasy "coins" from his moms basement.

dussasr's picture

If governments clamp down on crypto exchanges then the trade volume will shift to decentralized exchanges that already exist.  If ISPs try to filter the traffic people will switch to VPNs/encrypted traffic.  Also, there will always be some governments that see an advantage over other countries by promoting cryptocurrencies so they will always have protected jurisdictions in which they can thrive. 

They can slow cryptos down, but the genie can't be put back in the bottle.  

VD's picture

dream on. you'll have to move to said permissive country. delusional crypt0-tardz.

gn28's picture

no amount of free VPNs will make cryptos viable if it has to deal with bank level regulations (high operational cost overhead) and/or goods level taxes (VAT, import/export taxes, wealth taxes, etc.), not to mention that criminalizing it will make it as appealing as kiddie porn for all companies and private individuals.

what can and does work easily is to do exactly what bitcoin does, but with your friends, family and business partners... aka keep a nice list of things you own each other and even it out at the end of the year... that way you only issue invoices for the delta / difference... so whatever you evened out will imply zero taxes, zero legal paper-work and zero time waste maintaining it.... an instant gain and it is not dependent on any IT system or laws... it is called bartering... just don't add dollar signs next to those amounts. :-)

WAKE UP !

factorypreset's picture

"The moment it really stops is the monet nobody will be able to sell it"

 

Like that damned French impressionist Claude Monet?

herkomilchen's picture

Insane levels vs what.

Think about what having Bitcoin is worth to one person.  Ie., what might one entrepreneurial, productive person pay to have the means to escape using a government currency devaluing at 10% a year, usable only with a local population, taxed at 50%-80%, held by banks controlled by government thus really not held by him, and heavily regulated thus sharply curtailing his real life freedom of behavior.  Now multiply what one person would pay to escape all that by the size of the global population.

buttmusk's picture

if its not nationalized by major economic powers all it does is reduce us to a modern day barter economy. what great progress!

how will infrastructure be built or maintained to support your community if you don't pay taxes?

dicksburnt's picture

I understand there is nothing there... air money? ...rrrr.... Federal Reserve Cryptocurrency?

Thinkpad's picture

Just like fiat currency in Venezuela and Zimbabwe to name just 2 countries. Fiat currencies discount poor political regimes and mismanagement of fiscal policies I'd rather own a peer to peer. Bernanke just gave the thumbs up to Ripple at a conference last week. Yellen cannot comment she is currently running the show. 

kochevnik's picture

BTC is in pullback.  I understand you will miss again

kochevnik's picture

BTC is in pullback.  I understand you will miss again

buttmusk's picture

if bitcoin isn't a bubble real assets should be hyperinflating in value. it's a bubble

Edit: Apparently some angry bitcoin holder had this deleted when I originally posted

buttmusk's picture

when real assets are being transacted for bitcoin in the trillions of dollars a day without fiat currencies serving as an intermediary I'll pay attention. until that point its a bunch of speculators gambling that the global population who holds  valuable real assets and commodities will have interest in parting with them for digital coins backed by no government, economy, or military power.

bitcoin is a get rich dream for poor gamblers who think the rich will be stupid enough to fork over real assets for a worthless coin at some point in the future. the rich didn't get rich by being stupid.