Hacker News Reader

Comment by ars | Hacker News Reader

The most important by far rule for currency is stability. With stability comes acceptance of the currency.

You don't have that - the owner first looked up the exchange rate to US dollars.

What you have is a medium of exchange, but you don't have a currency.

A medium of exchange is useful, and can eventually become a currency. But bitcoins are not yet a currency.

Perhaps someone can make a bank, where you store US dollars. Using that bank you can send and receive bitcoins. Only the bank can create bitcoins, but once created anyone can trade them without input from the bank.

If you are familiar with history this is how paper currency actually got started - goldsmiths would store gold and give chits of paper. Those chits started getting exchanged, and a currency was born.

View on HN

> You don't have that - the owner first looked up the exchange rate to US dollars

What? Any London store that accepts euros will check the rates daily to make sure they can convert back into the GBP price. Currency rates fluctuate all the time, every second of every day.

http://uk.finance.yahoo.com/q/bc?s=GBPEUR=X&t=1y&c=

Then they aren't accepting euros as currency. At the end of the day they will immediately convert the euros to GBP.

They are willing to use euros as a medium of exchange, but only because they know they can exchange them for (to them) real currency. (Currency is relative, obviously. And just as obviously it helps that somewhere in the world there are people who use that type of money, which gives you comfort that even if you don't exchange it now, you can later.)

If this was the fate of bitcoins then it would be a failure. People may use it to send value over the internet, but no one will keep their savings in bitcoins.

To be money you have to be willing to save it. If all you do is use it as an intermediate it's not money - yet. It may eventually become money (historically intermediates often do that - especially if the conversion is difficult), but it's not money yet.

The reason it's so important for people to store the currency in savings is very simple: If no one want to keep your money long term, practically speaking there will be very little of it in circulation, which makes it hard to use.

Plenty of people save in BitCoin, some would even argue that's where much of it's value comes today. Look at the article from Richard Falkvinge that he linked to for an extreme example.

Nowhere did he suggest that the restaurant owner exchanged his BitCoins for USD. Maybe he saves them and uses them to buy something else. Who knows, maybe he buys the ingredients for his Meze using Bitcoins?

> Who knows, maybe he buys the ingredients for his Meze using Bitcoins?

If he does that, then why does he look up the exchange rate first?

No, plenty of people do not save in BitCoin, for values of plenty and save that most people would understand.

You might more accurately have put 'a few people hold bitcoins for reasons of speculation'. This is not the same as saving.

[Disclosure - I hold no bitcoins]

PS - it's probably about time that people disclose whether or not they hold bitcoins when commenting.

Holding == saving. Sounds like you are trying to emphasize the difference between investment and speculation, instead.

No, they are not equal, because that difference he is emphasizing is the definitions "that most people would understand."

> * They are willing to use euros as a medium of exchange, but only because they know they can exchange them for (to them) real currency.*

Any person or business is only willing to use a currency as a medium of exchange because they know they can exchange them for other goods. "Currency" and "medium of exchange" aren't mutually exclusive, the former is a special form of the latter that is recognized widely (and in modern times, usually has no intrinsic value).

> * To be money you have to be willing to save it. If all you do is use it as an intermediate it's not money - yet.*

That's an insane definition for "money." You would claim that the fast food wages of a teenager who always spends it immediately is not money.

> You would claim that the fast food wages of a teenager who always spends it immediately is not money.

Just because he doesn't save it doesn't mean he's wouldn't be willing to if he had a lot of it. He isn't spending it because he thinks it doesn't keep value, he's spending it because he wants to buy things.

Don't know why this is getting upvoted as it contains a bunch of factual errors.

It's definitely being used as a currency already, as the article proves.

It's a highly fluctuating currency, but that doesn't remove it's properties as a currency.

Care to explain the errors?

People tends to vote on divisive issues in whichever post they agree.

Although not perfect and not entering in details, maybe because of generalization, I found his explanation resonating with what I know about monetary history, but I'm not a monetary economist.

Does that mean that the Euro is not a real currency? Or that the US dollar isn't real in Canada?

After a fashion, yes. Just because a merchant accepts a non-native currency (such as USD instead of CAD) doesn't mean that the non-native currency is inherently valuable in the native country. The merchant can't remit taxes in USD; can't pay her employees in USD. It must all be converted back to CAD before the merchant can do anything useful with it.

Don't mistake what is offered as a convenience by some merchants as normal and accepted.

How do you distinguish between currency and a medium of exchange?

From the sound of it, you defined currency as "a stable medium of exchange" which by definition prevents any unstable currency from being a currency.

Is there a definitive reason why a less stable medium of exchange cannot be a substitute for a stable one? Especially with today's technology when increasingly many things are being done in "real time".

I'm not an expert on currency and I'd appreciate further education. To me, it seems that knowing (and potentially being able to predict) the variable forces that are affecting the volatility of a medium of exchange is, in the long run, more valuable to its users than artificial relative stability provided by a governing body.

ars obviously wasn't thinking critically in that comment. You're absolutely right: his proposed definition of "currency" isn't useful at all, because it would preclude talking about "the stability of a currency."

A currency is simply a medium of exchange that is widely recognized, where "widely" is subjective. Most modern currency also is notable because it has no intrinsic value (gold coins, for example, have intrinsic value). I think bitcoin certainly qualifies as a currency, albeit an unstable one.

Gold coins have no intrinsic value, either. Gold is just another divisible and non-perishable carrier of human-assigned value.

Your definition of "intrinsic value" is clearly different than mine. If no human-assigned value is intrinsic, then nothing has intrinsic value, and your definition becomes non-functional.

When I said that gold coins have intrinsic value (the same is true for copper coins, etc.), I mean that regardless of what nation minted the coin and what value appears on its face, it will always be worth at least its weight in gold.

Change 'recognized' to 'stored' in your second paragraph. If people don't store it, it's not a currency, even if they use it.

No one willingly stores unstable currencies. The only time people use unstable currencies is if they are forced to by law, or if they are speculating.

When you hear people talk about "the stability of a currency" they are talking about fluctuations of a few percent, not 10s of percents.

> How do you distinguish between currency and a medium of exchange?

A currency is stored, a medium of exchange is used right away (or traded for a currency).

> Is there a definitive reason why a less stable medium of exchange cannot be a substitute for a stable one?

Yes. Since it is unstable no one can rely on it. Since no one can rely on it people are unwilling to collect (and store) large quantities of it.

> To me, it seems that knowing (and potentially being able to predict) the variable forces that are affecting the volatility of a medium of exchange

If you can predict it, so can others. If I predict it will go up, everyone else will too. So everyone will hoard it - easy way to make money right? That means everyone wants to buy it, no one wants to sell - the price will skyrocket. Till it collapses, since it eventually will.

Then it collapses, people see the collapse, and everyone sells, the price goes to zero, and the process reverses.

To be a currency it must be stable.

The most important by far rule for currency is stability. With stability comes acceptance of the currency. You don't have that - the owner first looked up the exchange rate to US dollars.

Maybe he looked up the exchange rate rate because he wants to be fair: he wants to charge the same price for a lunch regardless of whether people pay with Bitcoins or dollars.

Whether it fits the strict definition of "currency" is not very important, imho. The value of Bitcoin, being a very undeveloped market, is highly volatile. This is certainly true.

Reply on news.ycombinator.com