Mr. Cowen is somehow overlooking the relative scarcity factor.
But you can create an arbitrarily high number of bitcoin-like electronic currency units, simply by taking the exact bitcoin implementation and changing the genesis block. Bam, Patiocoins, with guaranteed scarcity, anonymity, and a new goldrush phase -- so if you got dumped rather than pumped, you have a new opportunity to start at the top of the pyramid scheme this time.
The equilibrium is that sooner or later expected returns on starting a new distributed pump-and-dump dwarf expected returns of getting in late on bitcoins. And then poof.
Couldn't I make the same argument for choosing another precious metal other than gold and convincing the world treat that as money. It seems to me that the only argument against it is that historically it hasn't happened. (except for cigarettes, Yap Rai, silver, platinum, and others I'm probably forgetting.)
It's somewhat arbitrary which precious metal we use, but it's not entirely arbitrary.
There's the usual reasons we use e.g. gold for money. It's fungible, ductile, rare and essentially impossible to forge. That rules out cigarettes and Yap rai as stable currencies.
As far as gold vs. silver vs. platinum, the inflation rate (i.e. the rate at which new metal comes out of the ground) is also important. Gold inflates slower than silver, simply because there's more silver in the ground.
As far as gold vs. platinum, it's important to look at what happens if the world decided to move to gold or platinum as a currency. Gold is already used as a store of value, while platinum isn't. If everyone moved to gold as currency, it would become far more valued. If the same happened to platinum, its value would go stratospheric. There are essentially no platinum reserves (compared to gold), so its price would be even more volatile, and its price would spike far more than gold.
Platinum is also much more concentrated, geographically. There are like 5 working platinum mines in the world, and like 4 of them are in South Africa. South Africa has more of the world's platinum than the middle east has of the world's oil supply.
Those objections are not insurmountable, but human civilizations have been using gold & silver as currency for thousands of years, but the same is not true of platinum. Don't underestimate inertia.
Currency has, in fact, never been a wholly stable affair. Before paper money, allowing non-gold monies was a way of inducing inflation. But silver or platinum or cigarettes are clearly exact matches for gold while Patiocoins could automatically be that (and Patio is "famous" - that should be enough for a few people).
So this should only reinforce the point that money and currency can't just exist as a "natural" abstraction generated by an algorithm but rather must depend on social conditions (any society's currency system is transparently dependent on the overall configuration of that society's member's beliefs about the world).
But you can create an arbitrarily high number of bitcoin-like electronic currency units, simply by taking the exact bitcoin implementation and changing the genesis block
Yes, you can. If your X-coins will be in some respect better than the original ones they may even supplant bitcoins. But you'll have to put of effect in order to convince people to use them. With uncertain results. Currently bitcoin has network effects working for bitcoin and against other crypthographic/p2p currencies. To change that will require a major effort.
The history of bimetallism (gold & silver) is relevant in this respect. The final result is that your are better using the medium of exchange the majority using, so usually there only one money left.
Comments
Mr. Cowen is somehow overlooking the relative scarcity factor.
But you can create an arbitrarily high number of bitcoin-like electronic currency units, simply by taking the exact bitcoin implementation and changing the genesis block. Bam, Patiocoins, with guaranteed scarcity, anonymity, and a new goldrush phase -- so if you got dumped rather than pumped, you have a new opportunity to start at the top of the pyramid scheme this time.
The equilibrium is that sooner or later expected returns on starting a new distributed pump-and-dump dwarf expected returns of getting in late on bitcoins. And then poof.
Couldn't I make the same argument for choosing another precious metal other than gold and convincing the world treat that as money. It seems to me that the only argument against it is that historically it hasn't happened. (except for cigarettes, Yap Rai, silver, platinum, and others I'm probably forgetting.)
It's somewhat arbitrary which precious metal we use, but it's not entirely arbitrary.
There's the usual reasons we use e.g. gold for money. It's fungible, ductile, rare and essentially impossible to forge. That rules out cigarettes and Yap rai as stable currencies.
As far as gold vs. silver vs. platinum, the inflation rate (i.e. the rate at which new metal comes out of the ground) is also important. Gold inflates slower than silver, simply because there's more silver in the ground.
As far as gold vs. platinum, it's important to look at what happens if the world decided to move to gold or platinum as a currency. Gold is already used as a store of value, while platinum isn't. If everyone moved to gold as currency, it would become far more valued. If the same happened to platinum, its value would go stratospheric. There are essentially no platinum reserves (compared to gold), so its price would be even more volatile, and its price would spike far more than gold.
Platinum is also much more concentrated, geographically. There are like 5 working platinum mines in the world, and like 4 of them are in South Africa. South Africa has more of the world's platinum than the middle east has of the world's oil supply.
Those objections are not insurmountable, but human civilizations have been using gold & silver as currency for thousands of years, but the same is not true of platinum. Don't underestimate inertia.
Well yes, http://en.wikipedia.org/wiki/Bimetallism
Currency has, in fact, never been a wholly stable affair. Before paper money, allowing non-gold monies was a way of inducing inflation. But silver or platinum or cigarettes are clearly exact matches for gold while Patiocoins could automatically be that (and Patio is "famous" - that should be enough for a few people).
So this should only reinforce the point that money and currency can't just exist as a "natural" abstraction generated by an algorithm but rather must depend on social conditions (any society's currency system is transparently dependent on the overall configuration of that society's member's beliefs about the world).
In this podcast, http://www.npr.org/blogs/money/2011/02/07/131363098/the-tues... the NPR Planet Money team go through all the elements with a chemical engineering professor, who concludes that it has to be gold.
But you can create an arbitrarily high number of bitcoin-like electronic currency units, simply by taking the exact bitcoin implementation and changing the genesis block
Yes, you can. If your X-coins will be in some respect better than the original ones they may even supplant bitcoins. But you'll have to put of effect in order to convince people to use them. With uncertain results. Currently bitcoin has network effects working for bitcoin and against other crypthographic/p2p currencies. To change that will require a major effort.
The history of bimetallism (gold & silver) is relevant in this respect. The final result is that your are better using the medium of exchange the majority using, so usually there only one money left.