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STAuES 0F N0NETARY Ev0L0TI0N

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Web: koniausgiaf.com
Twittei: koniausgiaf
veision u.2, uS Novembei 2u1S: Empiiical appenuices auueu; othei ievisions.
This woik is libeiateu unuei the Cieative Commons S.u Attiibution fiamewoik.

ii




#./01 2.3 3045031 .2 /60 73089.:1 80319.;
Fiist time ieaueis can ignoie this page, but foi ieaueis of the pievious veision
who woulu like to skip to the new mateiial, the cuiient veision u.2 (uS
Novembei 2u1S) upuates the fiist public beta (2S 0ctobei 2u1S) as follows:
<551 /=. ;0= 0>7939?4@ 10?/9.;1, which pioviue event-pattein
inteipietations by yeai (Appenuix A) anu a single five-yeai piice-
foimation chait (Appenuix B). 0n this basis, the fiist cleai pattein of
meuium-of-exchange use is now specifieu as not aiiiving until 2u11.
Auus the compaiison of the secuiity of vaiious ECBSA cuives as one
example of a highly technical issue that cannot be successfully auuiesseu
with uninfoimeu aimchaii musings (Section 4, Footnote 12).
Auus a quote fiom Luuwig von Nises in section S anu aujusts the
suiiounuing paiagiaphs accoiuingly.
Auus mention of Ntuox's pie-Bitcoin company BNA as a gaming tiauing-
caiu exchange in the context of the pioto-monetaiy "collectibles" concept
uevelopeu in Section 8 (Footnote 26).
Nakes vaiious scatteieu coiiections, claiifications, emphasis shifts, anu
woiuing changes.

iii




With the extension of tiaffic in space anu with the expansion ovei evei
longei inteivals of time of piovision foi satisfying mateiial neeus, each
inuiviuual woulu leain, fiom his own economic inteiests, to take goou
heeu that he baiteieu his less saleable goous foi those special
commouities which uisplayeu, besiue the attiaction of being highly
saleable in the paiticulai locality, a wiue iange of saleableness both in
time anu place.
These waies woulu be qualifieu by theii costliness, easy tianspoitability,
anu fitness foi pieseivation.to ensuie to the possessoi a powei, not
only "heie" anu "now" but as neaily as possible unlimiteu in space anu
time geneially, ovei all othei maiket goous.
Cail Nengei, 1892



It must be ieiteiateu heie that value scales uo not exist in a voiu apait
fiom the conciete choices of action.
Nuiiay Rothbaiu, 1962

iv

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1
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$%&"'&Y Z&'*\* ,($-"(#
The iegiession theoiem coveis seveial uistinct steps in the theoietical
explanation of the maiket evolution of money.
1
It auuiesses the piocess by
which a meuium of exchange emeiges out of baitei, the piocess by which a
uominant money emeiges out of a constellation of competing meuia of exchange,
anu the way usei peiceptions of past piices influence theii evaluations of the
puichasing powei of money looking towaiu the moie oi less uistant the futuie.
These seveial uistinct issues aie not always sufficiently uiffeientiateu in
uiscouise.
This uevelopmental-sequence account contiasts with the assignment anu state
theoiies of money, which holu that money is an otheiwise valueless claim ticket
anu that it is cieateu anu iegulateu by iuleis foi use among theii subject
populations. This lattei view might be somewhat ungeneiously uubbeu the
iulei's hanu-wave oi monetaiy-cieationism theoiy of money. Anothei view has
it that money is a mysteiious "social illusion" agieeu only by aibitiaiy
convention, iegaiuless of whethei state actois have playeu an integial oi an
inciuental iole in the illusion builuing. Bowevei, such accounts seem to offei
little explanation as to how anu why one such illusion enus up beating out all
othei canuiuate illusions in specific times anu places.
It is in contiast to such unsatisfactoiy accounts that the action-baseu anu
evolutionaiy "Austiian school" explanations have long stoou. These holu that 1)
money is also an economic goou in itself, not meiely a substitute claim ticket on
the social stock of actual goous, anu that 2) money's uevelopment can be tiaceu
to specific, step-by-step economic piocesses. Each of these steps, accoiuing to
the Austiians, anu Luuwig von Nises in paiticulai, can be cleaily explaineu in
teims of human choices anu actions in univeisal-theoietical teims, anu then also
illustiateu with empiiical-histoiical examples.
2

The iegiession theoiem explains a set of logical implications ueiiveu fiom coie
economic-theoiy concepts such as "goou" anu "meuium of exchange." Bowevei,
the step-by-step maiket-evolution account associateu with the iegiession

1
0ne quick stuuy of the iegiession theoiem can be accesseu in Nuiiay N. Rothbaiu 2uu4 |1962,
197uj. ,&$- ./#$#01- &$' (2&23- 4526 7#43% &$' ,&%832) The Scholai's Euition. Aubuin, Alabama:
Nises Institute. mises.oigiothbaiumes.asp. 268-276.
2
This is an application of the stiict uivision between the piopei iealms of univeisal theoiy anu
specific case inteipietation. See in paiticulai Luuwig von Nises. 2uu7 |19S7j. 963#%1 &$' :5;2#%1<
=$ >$23%?%32&25#$ #+ (#/5&@ &$' ./#$#05/ .A#@B25#$. Aubuin, Alabama: Nises Institute.
2
theoiem has usually been leaineu anu unueistoou by stuuents of economics in
the context of histoiical examples, all of which weie tangible goous.
The initial valuations of less tangible papei, anu entiiely intangible uigital, fiat
money units aie also tiaceable to moie tangible goous in theii long histoiical
peuigiees. Combinations of ieuemption uefaults (legalizeu "suspensions of
payments"), giauual public acquiescence foi lack of bettei alteinatives, anu
legally foiceu fixeu-iate tiansitions enableu incieasingly abstiact units to take
ovei the social functions of theii moie tangible commouity ancestois. Political
actois coulu then much moie fieely manipulate the quantity of money,
paiticulaily aftei the last vestige of a physically-linkeu baiiiei to fiat inflation fell
in 1971.
S

It is impoitant to uistinguish a fiee-floating, oiganic piice uevelopment such as
Bitcoin's fiom legally foiceu fixeu-iate conveisions fiom one ietiiing official
money to its new official ieplacement.
4
A iecent example of this was the legally
oichestiateu ieplacement of seveial national Euiopean political cuiiencies with
the euio. The euio (both papei slips anu computei uigits) inheiiteu its initial
valuation as money fiom the monetaiy valuations of its pieuecessoi cuiiencies
thiough foiceu fixeu-iate conveision. These pieuecessoi monies hau, in tuin,
likewise taken up theii initial values fiom legally fixeu exchange iates against
piecious metal bullion anu piecious metal coin monies, exchange iates which
weie piogiessively uegiaueu anu eventually swept away entiiely.
Such legally foiceu value conveisions fiom one money to an official successoi
contiast shaiply with oiiginal monetaiy evolutions on the maiket. Biscussions of
the lattei have typically useu the woiu "commouity" to neatly categoiize all of
the available histoiical examples. This woiu seems to specify some tangible,
uivisible mateiial.
When Cail Nengei set out the pioblems he was to auuiess in "0n the oiigins of
money" in 1892,
S
he both fiameu the oiigins issue in teims of two competing
explanatoiy paiauigms anu useu this "commouity" teiminology thioughout.

S
Foi a concise histoiy of majoi monetaiy uevelopments, iefei to }oig uuiuo Blsmann. 2uu8a.
963 .265/; #+ ,#$31 7%#'B/25#$) Aubuin, Alabama: Nises Institute.
mises.oiguocumentS747The-Ethics-of-Noney-Piouuction. I also highly iecommenu this woik
in its entiiety.
4
Foi a uiscussion of these points, see my 22 }uly 2u1S. "Bitcoin, piice uenomination anu fixeu-
iate fiat conveisions." 8#$%&';C%&+)/#0) Blsmann also points out in 2uu8a that: "Bistoiically, the
establishment of monopoly bullion has been an impoitant step in the consoliuation anu
centialization of national monetaiy systems unuei goveinment contiol. The outlawing of silvei
paveu the way to an inflation of fiactional-ieseive ceitificates backeu by golu." (117)
S
Cail Nengei. 2uu9 |1892j. "0n the 0iigins of Noney." Aubuin, Alabama: Luuwig von Nises
Institute. Tianslation by C. A. Foley.
S
Is money an oiganic membei in the woilu of commouities, oi is it an economic
anomaly. Aie we to iefei its commeicial cuiiency anu its value in tiaue to the
same causes conuitioning those of othei goous, oi aie they the uistinct piouuct
of convention anu authoiity. (1S)
0ne ieason foi using the woiu commouity was that goous liteially tiaueu on
commouities maikets, such as coin anu cotton, weie iefeienceu in uiscussions of
piicing, liquiuity, anu uistinctions between the iespective positions of buyeis
anu selleis. The use of moie liquiu maiket-tiaueu commouity examples weie
contiasteu with unique oi special-use items such as paintings oi technical
instiuments, foi which it is much easiei anu quickei foi a buyei to locate a ieauy
sellei than it is foi a sellei to locate a ieauy buyei.
Neveitheless, foi mouein ieaueis in the infoimation age, with its abunuance of
incoipoieal "uigital goous," the woiu "goou" shoulu seive in place of commouity
with less mateiialistic uistiaction. Seveial of the gieat Austiian wiiteis, foiemost
Nises, iepeateuly insisteu that we shoulu not be misleu by the exteiioi
appeaiances of things. Neveitheless, mateiialistic connotations seem to have
conspiieu to leau obseiveis into confusion when it comes to inteipieting the
Bitcoin uigital cuiiency anu payment system.
This is unueistanuable in view of the intangible anu technically elusive natuie of
the units tiaueu within the netwoikthe likes of ciyptogiaphically "signeu
inputs" anu "unspent outputs." Fiom a technical point of view, as opposeu to a
usei point of view, a specific item that can be pinneu uown as "a bitcoin" uoes
not even exist. Neveitheless, it is sufficient fiom an enu-usei point of view to use
the metaphoi of the putative existence of such an item to unueistanu how to
make auvantageous use of the actual Bitcoin netwoik.
Bitcoin's many aicane technical elements cioss the uomains of seveial highly
specializeu fielus of stuuy. While impoitant on theii own teims, such uetails can
be a uistiaction to the specifically economic siue of the analysis, which is
conceineu with the actual stiuctuie of enu-usei actions. Nuch as the use of silvei
coins in tiaue was not seiiously challengeu baseu on the fact that silvei is
"ieally" just a peculiai configuiation of subatomic paiticles among many othei
possible configuiations, so one shoulu not be uistiacteu by the fact that Bitcoin is
"ieally" just a peculiai aiiangement of specifieu ciyptogiaphic ielationships
maintaineu anu veiifieu within a global, peei-to-peei, open-souice computing
netwoik. Chemists anu metalluigists aie in the businesses of unueistanuing the
uetails of the one; ciyptogiapheis, computei scientists, anu piogiammeis aie in
the businesses of unueistanuing the intiicacies of the othei.
Bowevei Bitcoin actually woiks "unuei the hoou," anu iegaiuless of speculations
anu opinions on its long-teim piospects, it 5; $#4 alieauy being tiaueu yeai aftei
yeai as a goou anu it 5; $#4 being useu as an incieasingly wiuely accepteu
meuium of exchange on a global scale. It thus now uoes fall unuei the ielevant
action-baseu economic-theoiy categoiies anu each of theii logical implications.
No contiauiction between Bitcoin anu the economic-theoiy insights associateu
4
with the iegiession theoiem is possible. Neveitheless, unueistanuing 6#4 it is
that no such contiauictions exist seems to have pioven a challenge.
I have wiitten anu spoken on Bitcoin anu the oiigin of money seveial times, as
have Petei Suiua anu Baniel Kiawisz.
6
As faiily funuamental confusions seem to
neveitheless peisist, I offei a numbei of auuitional appioaches to, anu
peispectives on, this topic below. Not only must Bitcoin be moie caiefully
unueistoou, but also the iegiession theoiem itself, incluuing its abstiact anu
action-baseu foimulation anu its seveial uistinct components. Noieovei, auuing
some auuitional ways of looking at the natuie of money fuithei claiifies the
issues.
GC $%& HY"#&] "' #"$%(#)J +<AA<-]
An infoimal suivey of some economists' opinions on whethei Bitcoin is "money"
oi not iecently appeaieu on the ./#$#05/ 7#@5/1 D#B%$&@ website.
7
The faiily
ieasonable consensus was that Bitcoin is functioning as a meuium of exchange
now anu coulu someuay become counteu as "money" if anu when it is much
moie wiuely accepteu anu becomes the "commonly useu" oi "most commonly
useu" meuium of exchange.
0pinions on the application of woius such as money aie much less impoitant
than unueistanuing what is happening in the ieal woilu. In an astute comment
unuei the above iepoit, Petei Suiua, a Bitcoin ieseaichei infoimeu in Austiian
school appioaches, labeleu an ongoing obsession with juuging Bitcoin baseu on
the money question as the "money oi nothing fallacy (if Bitcoin is not money, it's
nothing)."
Noieovei, I iecently aigueu that iathei than the vague "commonly useu," a moie
piecise ciiteiion foi qualification as "money" woulu be which unit most people in
a community aie using foi piicing anu accounting (economic calculation). That
saiu, the iuentification of one item as money by no means eliminates the
possibility of &/2B&@@1 ?&15$C uesignateu piices with whatevei othei meuia a
sellei is willing to accept at an agieeu exchange iate foi the askeu piice
expiesseu in the local common unit of piicing.
8
Foi those who wish it, foi

6
Baniel Kiawisz. 2 }uly 2u1S. "The 0iiginal value of Bitcoins." 26305;3;/5%/@3)#%C; Petei Suiua:
2u12. ./#$#05/; #+ E52/#5$< >; E52/#5$ &$ &@23%$&25A3 2# +5&2 /B%%3$/53; &$' C#@'F Thesis foi the
vienna 0niveisity of Economics anu Business; anu most iecently, 22 Septembei 2u1S. "Piofessoi
Waltei Block is clueless about Bitcoin." 3/#$#05/;#+G52/#5$)/#0)
7
Robeit Wenzel. 7 0ctobei 2u1S. "Is Bitcoin Noney: What Economists Bave To Say."
3/#$#05/?#@5/1H#B%$&@)/#0)
8
I go into this in some uetail in my 14 Septembei 2u1S. "Bitcoin as meuium of exchange now anu
unit of account latei: The inveise of Koning's meuieval coins." 8#$%&';C%&+)/#0)
S
example, theie aie alieauy payment seivices that enable the instant conveision
of ieceiveu Bitcoin payments into fiat money. Bevelopeis aie also woiking to
enable similai seivices foi buyeis. This woulu give the option foi some useis
hesitant in the face of Bitcoin's cuiient eaily-stage piice volatility to only holu
Bitcoin foi fiactions of a seconu. Such seivices enable anyone to take auvantage
of the payment-system aspects of the netwoik while avoiuing volatility iisk if
they wish to.
Yet the view that theie is an allegeu opposition between the ieality of Bitcoin
anu the supposeu implications of the iegiession theoiem is nothing if not
peisistent. Anothei commentei on the EP} suivey wonueieu whethei, with the
ongoing successes of Bitcoin becoming incieasingly uifficult to ueny, the
iegiession theoiem might not have to be ieviseu out of Austiian economics. This
sentiment, which ieappeais in online uiscussion thieaus fiom time to time,
might seem ieasonable at fiist, but only when baseu on the wiuespieau
misconception that the theoiem actually uoes iequiie that any (sounu) money be
mateiial oi tangible, at least in its oiigin oi "backing."
I have pieviously aigueu why theie is no theoietical ieason that a meuium of
exchange has to stait out being mateiial.
9
It only has to be a scaice goou. The
uigital age, anu Bitcoin itself, have maue it cleai that goous uo not have to be
tangible. Bespite woiu choices such as commouity in classic wiitings on this
subject, theie is no funuamental 3/#$#05/ ieason that a physical mateiial has to
be what secuies the essential monetaiy chaiacteiisticsfoiemost scaicity. The
supposeu neeu foi tangibility is an association leftovei fiom the iange of
examples that was available piioi to the inteinet age.
LC *-<'-($] ,] $%& #\Y,&'*
In oui uay, we aie quite familiai with uigital goous. Pait of the seeming magic of
Bitcoin is that it is one of the fiist uigital goous that is also scaice anu iivalious in
its natuie. This contiasts with almost all othei uigital goous, which aie
funuamentally copiable anu non-iivalious.
1u
This means that they can be copieu
with no effect on the "oiiginals" that the copies aie maue fiom anu the iesulting

9
27 Febiuaiy 2u1S. "Bitcoins, the iegiession theoiem, anu that cuiious but unthieatening
empiiical woilu." 8#$%&';C%&+)/#0; 19 Naich 2u1S. "The sounu of one bitcoin: Tangibility,
scaicity, anu a 'haiu-money' checklist." 8#$%&';C%&+)/#0.
1u
Foi moie theoietical backgiounu on these concepts, iefei to, Stephan Kinsella. 2uu1. "Against
Intellectual Piopeity." D#B%$&@ #+ I5G3%2&%5&$ (2B'53; 1S (2): 1-SS. mises.oiguocumentSS82;
anu }effiey A. Tuckei anu Stephan Kinsella. 2S August 2u1u. "uoous, Scaice anu Nonscaice." ,5;3;
J&5@1.
6
multiple copies can all be useu simultaneously without uiiect mutual
inteifeience among useis.
11

The piototypical non-iivalious (non-scaice in the piopeity-theoiy sense) uigital
goou is a uigital file. Some have tiieu to %3$'3% uigital files scaice by appenuing
legal oi technical iestiictions (copyiight anu BRN) on top of theii basic
unueilying natuie of copiability. Such attempts to cieate scaicity aftei the fact
aie meaningfully uistinct fiom a scaicity that is built in as an insepaiable
chaiacteiistic of the natuie of the goou itself. Bitcoin's scaicity is a component of
46&2 52 03&$; +#% 52 2# G3 E52/#5$ as opposeu to something that is not Bitcoin.
Even most othei types of uigital cuiiencies piioi to Bitcoin weie capable of being
copieu (incieaseu in quantity) on the uecisions oi policies of a cential issuei.
Examples of existing centially manageu uigital cuiiencies incluue K#%@' #+
K&%/%&+2 golu anu fiat-cuiiency-uenominateu cential bank accounting entiies.
WoW inflations can occui baseu on vaiious changes in the balance of game
paiameteis. As foi cential bank units, the supply of both notes anu the now-
uominant aibitiaiy uigital account entiies is at the evei-shifting uiscietion of
committees of caiefully scieeneu political appointees. Such shaky founuations
aie obviously incapable of suppoiting a ieliable uigital money foi wiuei
applications in society.
Bitcoin has oveicome in a completely new way the eteinal thieat that a cential
issuing authoiity will aibitiaiily uilute the value of a uigital unit. It is not within
the scope of the cuiient stuuy to uesciibe the many inteilocking technical
uetails, nuances, anu uiffeientiations by which this has been accomplisheu. The
key point heie is that Bitcoin sets its quantity giowth tiajectoiy 45265$ 263
'3+5$525#$ #+ 46&2 263 B$52 5; &$' 6#4 52 5; /%3&23'. A uigital cuiiency with moie
than a theoietical potential of 21 million bitcoin units (2.1 quauiillion Satoshis)
woulu not G3 Bitcoin, by piotocol uefinition. Anyone is fiee to make up some
othei Bitcoin-like uigital cuiiency, anu many have uone so. None of those othei
units aie in any sense bitcoins. They aie litecoins anu fieicoins anu so foith.
KC "# $&-%#(-<A -"#-&'#* <#W -"Y^<'<$(Z& '&<A(*Y
Still, some aie natuially conceineu that a total netwoik failuie coulu leave
Bitcoin suuuenly valueless. It is impoitant at the outset to iuentify this as a claim
that must be consiueieu on a laigely technical, iathei than economic, basis. It is
best auuiesseu thiough iefeience to knowleuge anu uebate within the most

11
I uevelopeu this uefinition of non-iivalious goous anu examineu vaiious uistinct senses of the
woiu scaicity in my 19 Naich aiticle. Suiua points out that IP auuiesses anu BNS names shoulu
also be consiueieu eailiei examples of scaice uigital goous. Even though they aie only uigital
stiings, in context, simultaneous use attempts aie incompatible, making them iivalious.
7
ielevant fielus. Among these fielus is ciyptogiaphy, especially hashing
algoiithms anu the use anu veiification of ciyptogiaphic signatuies; peei-to-peei
netwoik uesign anu secuiity, the piinciples of constiucting unfoigeable
uecentializeu ciyptogiaphic leugeis, anu the intiicacies of oveicoming the
uistiibuteu consensus, oi Byzantine ueneials' pioblem (having Byzantine fault
toleiance), with some help fiom the concept of a uistiibuteu timestamp seivei.
In consiueiing imagineu scenaiios of catastiophic system failuies oi even moie
mouest technical uifficulties, ielevant knowleuge of such fielus can also be
usefully supplementeu in places with specifically economic methous, such as foi
economic analysis of mining piofitability anu minei incentives. It shoulu not be
necessaiy to become an expeit on the innei technical uetails of each fielu to
make useful iefeience to them. It shoulu be sufficient to unueistanu the
ielevance of those fielus well enough to compiehenu 6#4 the vaiious technical
uetails play into the functioning of the system anu the uevelopment of infoimeu
assessments of its ieliability.
Foi the economist looking at the economic use of Bitcoin, it shoulu even be a
sufficient staiting place to obseive that all those peisons actually using Bitcoin
uo in fact juuge it, howevei iationally oi otheiwise, to be sufficient to seive the
puiposes to which they aie putting it. This incluues the vaiious time scales that
they have in minu foi those puiposes, each accoiuing to his own uisciete seiies
of juugments at the maigin.
}ust as we uo not expect eveiyone to become an aeionautical engineei befoie
buying a plane ticket, it is not necessaiy to obtain any ciypto-wizaiu math status
to use oi even piouuctively analyze Bitcoin. It is only necessaiy, each by his own
stanuaius, to ueciue that the system is goou enough foi his own paiticulai set of
envisioneu uses.
Without uelving into any such highly technical content,
12
seveial geneial
consiueiations may help put such system-catastiophe conceins into bettei
peispective. At the absolute woist case, even if Bitcoin weie to fail uue to some
unanticipateu weakness, the concept anu usefulness of ciyptocuiiency in geneial
has alieauy been pioven in piactice. A Bitcoin upgiaue oi even ieplacement
seveial times moie secuie coulu be iolleu out, uevelopeis having alieauy leaineu

12
A piime example of such content is how to assess the ielative theoietical secuiity
chaiacteiistics of the vaiious elliptic cuive uigital signatuie algoiithm (ECBSA) cuives. Such
highly technical issues cannot be auuiesseu with vague aimchaii musings, but must be
auuiesseu on the basis of suitable knowleuge of the appiopiiate fielus of specializeu knowleuge
anu iisk assessment. It may be impoitant, foi example, that Bitcoin uses the less common
sepc2S681 cuive foi its keypaiis, as opposeu to the much moie commonly useu sepc2S6%1 cuive.
In geneial, see Nick Sullivan. 24 0ctobei 2u1S. "A (ielatively easy to unueistanu) piimei on
elliptic cuive ciyptogiaphy." =%;23/6$5/&) In paiticulai, see vitalik Buteiin. 28 0ctobei 2u1S.
"Satoshi's genius: 0nexpecteu ways in which Bitcoin uougeu some ciyptogiaphic bullets." E52/#5$
,&C&L5$3)
8
well fiom whatevei cuiiently unimagineu eiiois might have impiobably leu to a
laige, unanticipateu technical fault.
In the much moie likely case, though, it is necessaiy to iecognize that, as a
uecentializeu, all-voluntaiy, open-souice piotocol, Bitcoin is uistinctly capable of
being auapteu anu upuateu on an ongoing basis. Its piogiamming contiibutois,
useis, anu even top ciitics all woik ielentlessly (at high levels of ielevant
technical sophistication) to imagine, uiscuss, weigh, anticipate, anu auuiess
constellations of system thieats, majoi anu minoi, ieal anu theoiizeu.
Pait of open-souice secuiity cultuie that those outsiue it seluom appieciate is
that highly skilleu piogiammeis, whethei white-hat oi black, make it theii
peisonal missions to tiy to bieak "secuie" systems. Fiom the ultimate point of
view of the actual stiength of functional netwoik anu uata secuiity, this steauy
thieat anu testing inteiplay is consiueieu an essential featuie iathei than a bug
in secuiity uevelopment. The veiy fact that a secuie systempaiticulaily one
such as Bitcoin with a uiiect monetaiy iewaiu in the foim of extiacteu coins
actually uoes iemain secuie ovei time, yeai aftei yeai, alieauy suggests, at
minimum ciicumstantially, that it is continuously passing a batteiy of ongoing
secuiity tests conuucteu by motivateu anu skilleu auveisaiies anu motivateu anu
skilleu suppoiteis alike.
Noieovei, following even a highly hypothetical catastiophic bieakuown, a
ieviseu Bitcoin netwoik coulu potentially be ielauncheu fiom the existing block
chain, staiting fiom the last-veiifieu constellation of owneiship. As }ay Schmiut
often aigues, the ieal heait of Bitcoin is the block chain iecoiu of cuiient
owneiship status itself. The block chain seives as something like a massive
global title iegistiy. Nichael uolustein has movingly put the easy-to-
unueiestimate social impoitance of such owneiship iecoius in a laigei context
by quoting fiom Nilan Kunueia's novel, 963 E##8 #+ I&BC623% &$' M#%C3225$C
(1978): "The stiuggle of man against powei is the stiuggle of memoiy against
foigetting."
The technical mechanisms anu netwoik opeiations that suiiounu the block
chain aie each specific anu upgiaueable technologies oi methous +#% /6&$C5$C
263 %3/#%'; 5$ &$ &//3?2&G@3 &$' A3%5+53' 4&1. Each of these suiiounuing elements
can be mouifieu, impioveu, oi ieplaceu inuefinitely into the futuie (natuially
some elements aie easiei to altei; othei, moie cential ones moie challenging).
Bitcoin is in this sense not so much a fixeu taiget, but a highly auaptive moving
one.
It must also be iecalleu that theie is no peifection in this ieal woilu. Theie exist
only ielatively bettei anu woise actual options. Foi example, political monies, fai
fiom being meiely hypothetically insecuie, actually uo steauily anu piecipitously
uecline in enu-usei puichasing powei. They uo so now anu have uone so in eveiy
9
known case thioughout histoiy.
1S
uolu anu silvei, foi theii paits, have also enueu
up failing as monetaiy systems in piactice. Some configuiation of the ancient anu
enuuiing state-bank inflation anu uebt alliance has always eventually iesoiteu to
confiscating such valuable substances fiom any significant stoiage vaults anu
fiom the public geneially, in pait oi in whole, finally iesoiting to ieplacing
piecious metals in monetaiy ciiculation entiiely with fieely multipliable fiat
papeis anu account entiies.
Piecious metals themselves, while they have ceitain ielative supeiioiities to
political monies (anu othei ielative weaknesses), aie in piinciple still 0#%3
susceptible to the weakness of aggiegate supply vaiiation than Bitcoin,
especially in the long teim. In the extieme, foi example, they woulu be
susceptible to the mining of mineial-iich asteioius anu the ietuin of extiacteu
anu iefineu metals.
14
In contiast, since Bitcoin's supply tiajectoiy is pie-
ueteimineu as pait of the uefinition of what it 5;, it is impeivious to such physical
changes in the constellation of available mineial iesouices anu piocessing
technologies.
A mixtuie of ieal-woilu pios anu cons must be consiueieu in compaiing long-
teim piospects foi the use anu stability of vaiious options. Real peisons facing
maiginal uecisions ought to iueally balance both the pios anu cons of theii
actually available options, as opposeu to assuming an imaginaiy oi eteinal
peifection foi some of them.
Foi haiu-money enthusiasts in paiticulai, the tiauitional stoiy of the once anu
futuie supeiioiity of piecious-metal backeu monies ovei fiat monies must be
ievisiteu in light of the fiesh emeigence of entiiely new monetaiy foims that
weie nevei befoie anticipateu in the olu binaiy vision. The past must be leaineu
fiom. Yet it has also been wisely obseiveu that, "theie is no futuie in the past."
MC *%"[ ]"\' ["'_E #<''"[ A")(-<A *$&^*
0ne element of ongoing confusion behinu the "Bitcoin veisus iegiession
theoiem" uialectic is that the lattei coveis not one, but at least seveial uistinct
theoietical issues, each of which is iathei specific.

1S
Saying that a paiticulai fiat cuiiency is "stiong" is a euphemism. All fiat cuiiencies steauily
lose value. A "stiong" fiat cuiiency iefeis to one that is losing its value ielatively less quickly
when compaieu with otheis.
14
Nost of the accessible golu on Eaith is alieauy unueistoou to have come fiom meteoiite falls
on the suiface. 0iiginal Eaith golu most likely sunk ueep into the molten coie baseu on its
ielative uensity veiy eaily in the planet's geological uevelopment.
1u
0ne of these is to explain the puichasing powei of money in teims of the level of
piices without iesoiting to a ciiculai aigument in which piices touay explain
puichasing powei touay anu vice veisa. The solution to this was to intiouuce a
time element. The puichasing powei of money "touay" (going into the futuie) is
baseu in pait on usei assessments of its puichasing powei fiom "yesteiuay"
(usei peiceptions of the most iecent past constellation of piices).
Yet this answei alieauy iaises the next issue: What happens when the
"iegiessing" takes us all the way back to a time befoie what was to become a
meuium of exchange hau gaineu any meuium-of-exchange value component.
This is the aspect that ielates most uiiectly to the theoietical confusion ovei
Bitcoin. It explains the fiist emeigence of any kinu of meuium of exchange out of
a pievious state in which it was not one yet.
Nises emphasizeu in :B0&$ =/25#$
1S
that the iegiession theoiem is not a
geneialization fiom histoiical cases, but the iuentification of a univeisal
theoietical necessity:
It uoes not say: This happeneu at that time anu at that place. It says: This always
happens when the conuitions appeai.;. F..5 ?4; D0 0>7@.I05 foi the
function of a meuium of exchange which at the veiy beginning of its use foi this
puipose uiu not have exchange value on account of othei employments.It 0B;2
happen this way. Nobouy can evei succeeu in constiucting a hypothetical case in
which things weie to occui in a uiffeient way. (4u7; bolu emphasis mine)
Niseu uiu not say "shoulu be" oi "has been"; he saiu, "no goou ?4; be employeu,"
a claim of logical impossibility. This "oiigins" aspect of the iegiession theoiem
(as opposeu to the puichasing powei anu uominant-money aspects) states that
no goou can be valueu foi use &; a meuium of exchange ?%5#% 2# taking on such a
use foi the fiist time. This is a statement of necessity, of uefinition.
Noieovei, to take on a value component as a meuium of exchange, a goou must
fiist be valueu baseu on some #263% value component in the eyes of some of the
ielevant actois. This othei value component must obviously have been
uistinguishable fiom any subsequent meuium-of-exchange value. This is because
such subsequent components /&$$#2 &@%3&'1 3N5;2 ?%5#% 2# 2635% +5%;2 303%C3$/3.
Again, this follows by uefinition of the challenge of avoiuing logical ciiculaiity.
16

When young people take a math class, the teachei iequiies that the stuuents
"show theii woik," uemonstiate each of the stages in the piocess of aiiiving at a
conclusion. This can be teuious anu iequiies many small steps. The iegiession
theoiem in its context pioviueu a couple of these "show youi woik" logical steps.

1S
Luuwig von Nises. 1998 |1949j. :B0&$ =/25#$< = 9%3&25;3 #$ ./#$#05/;) The Scholai's Euition.
Aubuin, Alabama: Nises Institute. mises.oiguocumentS2Su
16
Section 7 below uevelops a action-situation example to claiify what is iequiieu to avoiu such
logical ciiculaiity anu why.
11
Recall that elements of the iegiession theoiem weie honeu in the context of
uebates between competing accounts of the oiigins of money. 0ne siue claimeu
that money was an invention of the state anu hau been uecieeu by iuleis foi the
benefit of society. Its value was ueteimineu anu iegulateu by vaiious state
actions. Anothei siue claimeu that money functioneu as a goou in itself, emeigeu
out of maiket piocesses, anu was only then taken up anu manipulateu in vaiious
ways by iuleis ovei time.
The mostly ueiman state theoiy of money siue
17
founu some technical holes in
the aiguments of the maiket evolution siue, who being associateu with the
0niveisity of vienna uown south, weie labeleu as (those countiy-bumpkin)
"Austiians." The ciitics hau essentially uemanueu that the maiket-evolution siue
"show theii woik" when it came to each step of theii theoiy of the maiket
emeigence of money (while assuming that they woulu not actually succeeu in
uoing it).
The oiigins aspect of the iegiession theoiem coveis a naiiow peiiou of
tiansition fiom when a goou that was not useu as a meuium of exchange comes
to be useu as one foi the fiist time anu then giauually gains social tiaction in this
iole. This oiigins aspect is only iequiieu to explain the fiist emeigence of a
03'5B0 #+ 3N/6&$C3 (a means of payment). It is not also iequiieu to explain the
next phase of emeigence of a money (a uominant unit of piicing anu accounting)
fiom a fielu of competing meuia of exchange.
The lattei is a competitive anu netwoik-effect uiiven piocess in which one of the
options on the maiket iises towaiu the top in a given context. 0ne of the key
chaiacteiistics of such goous is what Nengei calleu the uegiee of saleability, one
inuicatoi of which is the naiiowness of the gap between the piice at which one
can immeuiately buy it anu the piice at which one can immeuiately sell it
(Nengei 2uu9, 24-2S, fn 2).
In explaining the emeigence of money +%#0 a fielu of competing meuia of
exchange, the sequence goes foiwaiu in time, the opposite of "iegiessing"
backwaiu. Analytically iegiessing backwaiu, as an evolutionaiy metaphoi
illustiates, will tenu to miss all othei bianchings on the tiee. It will only finu one
uiiect chain of ancestois tiacing back fiom the staiting point of the iegiession.
uoing foiwaiu in time, howevei, can ieveal othei bianchings (all competing
meuia of exchange), incluuing both ueau enus anu new beginnings. A iepeating
pattein in the long-teim evolution of life is the uying out of olu species that weie
once uominant anu the emeigence of novel uominant species, often with
iauically uiffeient sizes, speeus, habitats, anu stiategies compaieu with the
pieuecessoi kings of the jungle.

17
963 (2&23 963#%1 #+ ,#$31 by u. F. Knapp appeaieu in ueiman in 189S anu the mouein-uay
chaitalists caiiy foiwaiu elements of this tiauition.
12
This is why iunning iegiession logic only backwaiu in time anu not iunning it
foiwaiu in auuition, coulu leau to oveisimplifications. The only options seen by
going backwaius fiom the cuiient money will logically be the uiiect ancestois of
whatevei has enueu up becoming the cuiient money to that point in time. It will
miss anything not in that paiticulai lineage. Running the piocess foiwaiu again
fiom each stait-up meuium of exchange may ieveal competitois in uiffeient
lines, many of which may have been tiieu, some of which succeeueu to some
uegiee, some of which may be gaining giounu, anu only one of which is the
uominant unit of piicing anu accounting in a ielevant maiket aieaup to the
piesent time.
NC $%& ^'&*&#-& "+ ^'&Q&`(*$(#) ^'(-& -"#*$&AA<$("#*
It is a simple mattei touay foi people to value the ielative puichasing powei of
Bitcoin by iefeiencing its exchange value against local money using a public ieal-
time maiket exchange iate available on any inteinet-connecteu uevice. Bitcoin
functions now as a meuium of exchange. I have uefineu this as something that
can be tenueieu to pay piices. Piices aie uenominateu in "money," which I have
uefineu as the uominant unit of piicing, accounting, anu economic calculation in
a given context. Theie is no funuamental ieason why Bitcoin coulu not also some
uay take ovei such wiuei ioles if it becomes ielatively moie stable, moie global,
oi otheiwise moie suitable foi this than its neaiest active competitoi. It alieauy
fills the function of piice-uenomination within ceitain naiiow contexts insiue the
Bitcoin economy.
In contiast to this situation, some piesentations of the iegiession theoiem have
tieateu the evolution of a meuium of exchange in a context in which no pievious
unit of piicing exists. This means that no constellation of ielative piices was in
use in society at the outset.
18
The case of the oiiginal evolution of Bitcoin
intiouuces the neeu foi some qualifications ielative to such accounts in that it
emeigeu as a new meuium of exchange in a context in which an auvanceu aiiay
of ielative money piices foi goous anu seivices alieauy existeu.
Bitcoin's evolutionaiy challenges weie theiefoie easeu consiueiably ielative to a
situation in which no knowleuge of ielative piices on the maiket existeu. In this
counteifactual case, an entiiely new aiiay of maiket piices '5%3/2@1 %3@&25A3 2#

18
Rothbaiu uses a hypothetical to contiast a situation in which ielative money piices exist anu
one in which they suuuenly cease to be available: "Since the maiginal utility of the money
commouity uepenus on pieviously existing money piices, a wiping out of existing maikets anu
knowleuge of money piices woulu ienuei impossible the uiiect ie-establishment of a money
economy. The economy woulu be wieckeu anu thiown back into a highly piimitive state of
baitei, aftei which a money economy coulu only slowly be ie-establisheu as it hau been befoie."
(2uu4, 271-272)
1S
E52/#5$ woulu have hau to uevelop thiough tiial anu eiioi piocesses of uiiect
tiaues of Bitcoin foi bacon, Bitcoin foi eggs, anu Bitcoin foi hoises, while also
tiying to iefeience unmeuiateu iates of exchange between eggs anu bacon,
between bacon anu hoises, anu so onall until a ieasonable constellation of
ielative maiket piices began to take shape again uenominateu in the new unit.
In the factual case, howevei, Bitcoin only hau to jump a much simplei huiule
(though still quite challenging in its own way). It only hau to uevelop a maiket
exchange value against the existing money in each location of tiaue. It coulu then
"bootstiap" its ielative meuium-of-exchange value onto the existing full
constellation of maiket piices, as these weie alieauy expiesseu in monies in each
geogiaphic iegion.
19

To this uay, most things bought anu solu with Bitcoin aie piiceu in local monies.
A cuiient exchange-iate-baseu equivalent sum of Bitcoin is then useu to actually
pay those piices.
2u
Insisting on an inuepenuent evolution of a new constellation
of ielative piices uiiectly in teims of Bitcoin, howevei, woulu have been absuiu
anu unnecessaiy. Theie was no piactical neeu to ieinvent that paiticulai set of
wheels in the ielevant places anu in the timefiame 2uu9-2u1u.
Whethei something like Bitcoin /#B@' possibly emeige uiiectly out of a state of
puie baitei is so hypothetical as to ieach into the iealm of not even science
fiction, but fantasy. This is because a state of puie baitei coulu only suppoit an
economy so piimitive anu close to uiiect piouuction thiough hunting, gatheiing,
anu maybe some limiteu faiming, that the iequisite electiical output, inteinet
infiastiuctuie, computei chip uevelopment technologies, scieens, anu so foith
coulu not also exist oi peisist in the positeu context, making the hypothetical
moot.
While the piinciples of the iegiession theoiem aie applicable to any instances of
the univeisal, the iequisite technical context heie also incluues a stage of
complex social anu technical evolution built on a wiue-ianging uivision of laboi
anu on othei pievious stages. Such high technologies coulu obviously not
continue to exist if theii founuations weie lost.
21
A puie state of baitei coulu

19
Noticeable piice gaps iemain among the majoi Bitcoin exchanges, with Ntuox being the laigest
outliei uue to its paiticulai challenges in tiansfeiiing 0S uollais to customeis locateu in the 0S.
Novement of Bitcoin itself is simple anu efficient on a global basis, but effective intei-exchange
aibitiage is still iathei limiteu uue to the non-Bitcoin siues of these exchanges. This is the highei
uifficulty, cost, anu timefiames iequiieu to tiansfei fiat cuiiencies within the conventional
inteinational banking system. To help auuiess this, both BitPay anu Coinuesk have uevelopeu
Bitcoin iefeience piices constiucteu in somewhat uiffeient ways. These combine ieal-time uata
fiom seveial of the top exchanges. BitPay assembles a consoliuateu oiuei book fiom seveial
exchanges, while Coinuesk constiucts on inuex. Both cuiiently excluue the piice outliei Ntuox.
2u
Refei in this context also to my 14 Septembei 2u1S aiticle.
21
Natt Riuley, in one section of 963 O&25#$&@ P?2505;2< :#4 7%#;?3%521 .A#@A3; (2u1u), uetails the
seveial centuiies long technological anu know-how uecline on the islanu of Tazmania aftei the
small population was cut off fiom a foimeily wiuei netwoik of tiaue.
14
only suppoit peihaps a few peicentage points of the cuiient human population
at best. This means that the loss of the convenience of an inteinet money woulu
be among the least of the uifficulties to be encounteieu in such a scenaiio.
SC $<_(#) ($ ,<-_ $" *$&<_T &))*T <#W +A"\'
A faiily piimitive hypothetical can neveitheless help biing the "oiigins"
component of the iegiession theoiem uown fiom the abstiactospheie, wheie
confusions can moie easily peisist, into a iealm much closei to conciete
expeiience. It is not enough to meiely show that Bitcoin is explainable in teims
of economic theoiy. It shoulu also be maue cleai that the iegiession theoiem is
not thieateneu by this empiiical uevelopment.
Staiting out in a hypothetical puie baitei scenaiio, I want to tiaue steak foi some
floui. Bowevei, the millei is an ovo-vegetaiian. The uouble coinciuence of wants
neeueu foi a tiaue to take place is absent.
I neeu to finu ;#03265$C else to tiaue with the millei if I am to buy floui fiom
him. Whatevei I obtain to facilitate this tiaue will alieauy technically function as
a "meuium of exchange" within the naiiow context of my uesiieu tiansaction,
iegaiuless of what anybouy else is uoing in my hypothetical community. A
meuium of exchange, in this most baie-bones sense, is a goou that facilitates an
exchange that is not happening uiiectly between two paities because of the
absence of a matching mutual coinciuence of wants.
0ptake of a meuium of exchange fiom zeio staits with a single cieative act of
two-step tiaue among thiee paities. 0nly once it has begun to be put into
piactice can it possibly begin to be copieu anu spieau. The piactice of inuiiect
exchange itself is an invention anu a uiscoveiy. Subsequent piocesses can soit
out 465/6 kinus of goous will tenu to be moie oi less useful in this social function
in a given context. Finuing out how to pull off inuiiect exchanges moie fiequently
anu effectively, anu with what, is a layei of expeiimentation uistinguishable fiom
the geneial iuea of engaging in inuiiect exchange.
22

In this case, I iealize that as an #A#-vegetaiian, the millei eats eggs. I walk ovei to
Fiieuiich the chicken faimei anu tiaue a steak foi some eggs. Then, I walk back
to the millei anu tiaue eggs foi floui. The iequiiement heie is that the millei will
accept eggs. If he uoes not, my inuiiect exchange attempt fails. If it succeeus, the
eggs have alieauy functioneu as a meuium of exchange within that tiansaction.

22
This also implies that once the geneial iuea of inuiiect exchange fiist becomes familiai in a
society, new possibilities foi the "with what." question can be iecognizeu moie quickly than if
the geneial iuea of inuiiect exchange is entiiely unfamiliai, as in a tiuly baitei-only context.
1S
The millei has to value the eggs &; 3CC; foi this to count as a +5%;2 303%C3$/3 of
inuiiect exchange value foi eggs. I obtain eggs foi theii use as a meuium of
exchange foi my tiansaction. In uoing so, > value them foi this puipose. If the
millei uoes not accept eggs, howevei, my valuation of the eggs as a meuium of
exchange is a faileu one, an entiepieneuiial loss on my pait. I am just stuck with
some extia eggs. This enueavoi uepenus on my piactical success in
unueistanuing what my piospective tiauing paitneis will oi will not accept in
tiaue.
The only way this value component of eggs &; a meuium of exchange can
possibly come into being at fiist is if someone else will accept them as eggs
G3/&B;3 they want eggs, $#2 because they alieauy want to tiaue the eggs again
with someone else. A ciiculai piocess of self-ieinfoicing social uemanu can only
come to function aftei the piactice of inuiiect exchange using eggs has begun to
get moving in a given social context. 0nly then can expectations of this auueu
component of wiuening saleability begin to builu among the ielevant actois.
Aftei the new meuium-of-exchange value component uoes emeige anu peisists
in a given context, the non-meuium-of-exchange value components coulu
theoietically then faue away entiiely.
2S

Bowevei, eggs in paiticulai will not tenu to get veiy fai in this iole. They spoil
aftei awhile. We coulu use some expiiation uates, but this cieates a fatal
heteiogeneity among the units uue to age uiscounting. Anu eggs aie faiily heavy
anu haiu to tianspoit fai without bieaking. Nuch moie uuiable items have
iepeateuly become moie successful in this iole.
UC BGVTVVV ]&<'* "+ HY&'&J -"AA&-$(,A&*
The fiist likely histoiical meuia of exchange that show up ovei anu ovei again in
the aichaeological iecoiu in many uiffeient geogiaphic aieas aie stiings of beaus
caiveu fiom vaiious seashells. The eailiest known finu of such beaus fai fiom the
ocean is in mouein Algeiia anu uates fiom about 12u,uuu yeais ago. When items
aie founu this fai fiom souice, it is consiueieu a goou sign that they hau
piobably been obtaineu in tiaue.
24


2S
Nuiiay Rothbaiu noteu this point, foi example, in his uiscussion of the iegiession theoiem
(2uu4, 27S).
24
Natt Riuley 2u1u, Chaptei 2, uevelops such eviuence in the context of making the much laigei
case that tiauing one thing foi a uiffeient thing at the same timeas opposeu to the kinu of time-
uelayeu iecipiocity of favois also founu in othei speciesmay be the key unique uefining
chaiacteiistic that appeaieu foi the fiist time with :#0# ;&?53$; ;&?53$; (not with closest known
cousins such as :#0# 635'3@G3%C3$;5; anu :#0# $3&$'3%26&@3$;5;), anu which maue
compounuing specialization anu knowleuge-accumulation possible.
16
Nick Szabo in his uiscussions of the oiigins of money calleu these kinus of pioto-
monies "collectibles."
2S
They aie not useful in what coulu be consiueieu any
piactical sense. They aie things a lot of people like to have G3/&B;3 they like to
collect them anu weai them. They aie uistinctive, iaie anu haiu to come by, last a
veiy long time, anu aie highly poitable. Szabo also pointeu out the secuiity
chaiacteiistics of such items. Since they can be woin, a thief is ieuuceu to
giabbing them uiiectly off a peison iathei than just picking them up quietly
unseen. Such small collectibles can also be easily buiieu oi otheiwise hiuuen
uuiing times of tiouble anu iecoveieu at some inuefinite latei time.
They weie not quite monies in a mouein sense, but weie useu to peifoim some
of the same functions: stoiing value ovei long peiious, tiansfeiiing it among
geneiations such as on the occasion of weuuings, using it in laigei tiaues oi to
help seal pacts, anu as a fallback, enabling buying fiom neighboiing gioups in the
face of a local uip in foou availability. Yet all such uses woulu have to have been
uiscoveieu giauually &+23% the beaus hau alieauy come into existence as
oinaments. They hau to have some non-tiauing value befoie they coulu begin to
be tiaueu.
It so happens that such stiings of shell beaus have chaiacteiistics that we now
unueistanu in ietiospect to be essential chaiacteiistics of meuia of exchange anu
value stoiage. They aie uuiable, uivisible, poitable, anu to some uegiee
inteichangeable (though uiffeient colois anu types coulu natuially be valueu
uiffeiently). Beaus can be unstiung, counteu, anu iestiung in uiffeient numeiical
configuiations.
Anu so, it is easy to imagine how inuiiect exchange using them coulu begin to
giauually uevelop anu spieau. Aichaeological eviuence highly suggestive of long-
uistance tiaue using stiings of beaus goes back many tens of thousanus of yeais
anu is founu in many uiffeient aieas.
Latei on, we finu that people also like to collect bits of shiny metals that weie not
ieally goou foi much that was "piactical" eithei. People fashion them into
weaiable uecoiations anu eventually some othei items such as fancy vessels.
vieweu on a long time scale, the use of piecious metals in coinage is a iathei
iecent histoiical uevelopment. Lyuian coinage aiounu 7uu B.C. is typically citeu
as a fiist piecious metal coinage. It was maue fiom electium, a natuial
golusilvei alloy (with natuially vaiying peicentages of each). This was piioi to
the uevelopment of effective iefining methous. The sometimes-touteu inuustiial
anu electionic uses of golu anu silvei aie all quite mouein anu theiefoie entiiely
iiielevant to 263 +5%;2 303%C3$/3 of these metals in a monetaiy tiauing iole in
vaiious places many centuiies eailiei.
Bitcoin, uuiing at least its fiist yeai oi two, likewise coulu easily have been
uesciibeu as a stiange anu useless cuiiosity with no piactical value. 0nly a few

2S
Nick Szabo. 2uu2. "Shelling 0ut: The 0iigins of Noney." Accesseu at &@2%B5;2;)#%CQ+RS.
17
piogiammeis anu ciyptogiapheis hau any belief that Bitcoin might enu up
becoming useful foi anything othei than playing on computeis. Bitcoin was an
iuea anu then a computei science anu ciyptogiaphy expeiiment. It was not cleai
in auvance oi even aftei it staiteu if it woulu woik technically oi take off
economically. It aiiiveu aftei a long tiail of faileu expeiiments. Why shoulu it not
become just anothei such faileu expeiiment.
0nly latei, uiu a wiuei population begin to heai about the possibilities of using
bitcoins, those otheiwise pointless scaice uigital objects to tiaue foi "ieal" goous
anu seivices.
But of couise, we have seen veisions of all this befoie. We have seen it with shell
beaus tens of thousanus of yeais ago, anu we have seen it with people collecting
anu toying with soft shiny metals seveial thousanus of yeais ago. Now, we see it
with uigital leugei entiies foiming uigital objects that uo not actually exist at all
in ceitain senses.
26

In fiaming the funuamental question of the oiigins of money in 1892, Cail
Nengei obseiveu that:
What is the natuie of those little uisks oi uocuments, =69?6 9; /60>10@801
100> /. 10380 ;. :102:@ 7:37.10, anu which neveitheless, in contiauiction to
the iest of expeiience, pass fiom one hanu to anothei in exchange foi the most
useful commouities, nay, foi which eveiy one is so eageily bent on suiienueiing
his waies. (2uu9, 12-1S)
0ne way foi moueins to appioach the challenge of unueistanuing how uigital
leugei entiies that they uo not even compiehenu coulu possibly be "ieally"
valuable is to ieflect on how ouu pievious new kinus of meuia of exchange must
have seemeu to people in the uistant past fiom 2635% peispectives. Stiings of
beaus aie above all impiactical anu optional objects. Compaieu to meat, tubeis,
anu beiiies; compaieu to speais, clothing, anu tools; stiings of beaus anu "ieal"
value must have seemeu uistant. Anu yet, with time, quite a few people seemeu
to enjoy making anu collecting them if they coulu. They weie uecoiative. They
weie iaie anu haiu to come by. It took a long time to caive them. They lasteu a
long time (as in, we can still uig them up 12u,uuu yeais latei). They socially
uemonstiateu a ceitain powei of excess capability piecisely because of theii
impiacticality.
Likewise, shiny pieces of silvei, golu, oi electium in most places seveial
thousanu yeais ago weie not the epitome of usefulness. Wool was waim, meat

26
They only "exist" as specifieu ielationships among seveial uistinct categoiies of ciyptogiaphic
uata. 0n the subject of pioto-monetaiy "collectibles," it is inteiesting to note that while Ntuox
switcheu to being a Bitcoin exchange in 2u1u, it hau been founueu in 2uu9 as an exchange foi
viitual tiauing caius useu in the ,&C5/< 963 *&263%5$C P$@5$3 gamethus its acionymic name.
This is mouein-uay "collectibles" oiienteu company-BNA if theie evei was any.

18
coulu feeu, a plow coulu impiove the haivest. Weapons coulu come in hanuy.
What was it with these shiny substances that can be shapeu into tiinkets anu
woin.
Imagine how outlanuish this may well have seemeu to people foi whom it was
entiiely new. 0pon heaiing that some people at the annual tiaue meet-up might
accept these metals (not even jeweliy, just iough hunks of metal), what was a
heiuei to think.
"I will have to see this foi myself! You aie telling me that people aie fool enough
to accept little shiny bits of metal foi ieal goous."
0f couise, 5$ %32%#;?3/2, it is easy foi us to unueistanu wheie this can go. Such
metals aie stiong on a numbei of monetaiy chaiacteiistics that economists now
unueistanu conceptually can help facilitate tiaue. Anu, like beaus, weaiability
anu hiueability of jeweliy can confei a ceitain secuiity anu savings auvantage.
Nany Inuian women to this uay tenu to weai theii long-teim family savings.
But foi those lacking such knowleuge, what a stiange new woilu this must have
been, leaining to tiaue useful things foi useless tiinkets, time aftei time,
geneiation aftei geneiation, until the piactice took holu moie wiuely, until
people "bought in" to the bizaiie iuea that these mateiials coulu themselves also
be "useful" anu valuable not only as weaiable pietty objects, but also &; units
within a social system that facilitates tiaue.
Inueeu, owing to the soiiy state of economic euucation, most people to this uay
still uo not conceptually unueistanu the magnituue of mutual gains that come
fiom wiuei possibilities foi tiauing, facilitateu by money. They uo not
unueistanu that without these uistinctly human piactices of tiauing goou foi
goou anu using money, only the tiniest fiaction of the cuiient population coulu
long suivive.
PC $&-%#(-<A <#W &-"#"Y(- A<]&'* <A[<]* ^'&*&#$
The case of Bitcoin also shows how the line between invention anu uiscoveiy is
much moie tenuous than is usually imagineu. In each case of initial monetaiy
evolution, theie is both a technical anu an economic aspect. Befoie something
can begin functioning in tiaue, it must fiist exist in some minimally tiauable
foim. Beaus must be caiveu, pieces of iaie metals uug up anu cleaneu anu latei
shapeu oi even iefineu.
It is no uiffeient with Bitcoin. Well befoie the units coulu begin to function in
exchange, they hau to be biought into existence in a way that human actois coulu
possibly iecognize them, begin to toy with them, anu eventually stait taking the
19
leap of uealing in them against "ieal" goous anu seivices. The netwoik fiist hau
to be both envisioneu anu launcheu. It hau to be testeu anu iefineu, challengeu
anu pioven ovei time.
In each case of a new monetaiy evolution, theie is a phase uuiing which some
usable foim of the units that will eventually be tiaueu fiist come into existence.
This is in the technical layei. 0nly then can a monetaiy layei possibly emeige
with tiauing of these technically uevelopeu units. Both technical anu economic
layeis subsequently continue to evolve anu inteiact, taking foims such as bettei
beau-caiving tools, metal iefining techniques, oi the next Bitcoin softwaie
ielease. Yet it is still impoitant to unueistanu how both technical anu economic
layeis aie always piesent, anu not just with Bitcoin.
The technical layeis involveu in the piouuction anu exchange of physical
commouity units aie obviously quite uiffeient fiom the coiiesponuing technical
layeis foi uecentializeu ciyptogiaphic cuiiency units. Likewise, the technical
layeis involveu in smoke-signaling aie quite uiffeient fiom the technical layeis
involveu in inteinet chat inteifaces. Neveitheless, both types of technological
methous have manageu to fulfill, to vaiying uegiees, the human puiposes of
channeling messages ovei uistance (the "economic" layei).
What may have taken tens of thousanus of yeais, place by place, foi beaus, anu
centuiies foi piecious metals, may now be taking a couple of yeais anu months
foi Bitcoin. In past cases, the piactice of using paiticulai items in tiaue
uevelopeu on sepaiate timelines in each geogiaphic context. Touay, howevei, the
contexts of tiaue, imitation, anu uiscoveiy aie uefineu on a global scale by usei
uemogiaphics anu choices on the inteinet, iathei than local geogiaphy oi the
paiticulais of lanu anu sea tiauing ioutes. Instantaneous global communication
anu news flow, social meuia, auveitising, anu mouein people's thoiough
familiaiity with the geneial concept of laige-scale inuiiect exchange aie all now
catalysts.
BVC $%& (Y^"'$<#-& "+ *]*$&Y <#W \#($ ^&'*^&-$(Z&*
Any monetaiy system is not only a collection of out-of-context units, but a
;1;230. This incluues a netwoik of people with a similai social unueistanuing
about 263 2%&'5$C B;3; of the ielevant units. Isolateu objects uo not constitute a
system of tiaue.
27


27
Those familiai with the integial all-quauiant mouel auvanceu by the Ameiican philosophei
Ken Wilbei may iecognize its paitial application in this anu the pievious section. 0n one axis, the
epistemological uualist uivision between inteiioi (meaning) anu exteiioi (mattei) is iepiesenteu
in the uivision between the economic (action-baseu in the Nisesian sense) anu the technical. The
othei axis, the uuality of unit anu system peispectives, is then iepiesenteu in the cuiient section.
2u
With Bitcoin, the "system" aspect is much moie piominent than the "unit" aspect
when compaieu with pievious maiket evolutions of tangible meuia of exchange.
The system aspect is now liteially a massive computing netwoikalieauy the
most poweiful on the planet in iaw piocessing powei by a veiy laige maigin
an all-voluntaiy softwaie uevelopment netwoik, anu untolu uistiibuteu copies of
the block chain unfoigeable uecentializeu tiansfei iecoiu.
Bitcoin units can exist only #$ the block chain anu can only be tiansfeiieu fiom
auuiess(es) to auuiess(es) within the context of the live Bitcoin netwoik.
28

0wning a bitcoin at a given time can also thus be vieweu as analogous to owning
membeiship shaies in the block-chain-baseu tiauing club. All cuiient contiolleis
of bitcoin units aie able to use both the tiauing system anu its units foi theii own
puiposes accoiuing to theii uegiee of self-selecteu "buy-in" to the system.
Yet buying into a meuium of exchange by beginning to use it as one has always
implieu something moie than just buying some out-of-context objects. It means,
at least implicitly if not explicitly, uemonstiating a small maigin of suppoit foi
the iuea that this kinu of unit is something that can function as a meuium of
exchange in society. It is uue to the piocess of moie anu moie people, one by one,
making this wiuei "system" statement by actually accepting, saving, anu
spenuing a unit, that it begins to uevelop beyonu a meie collectible item. It is
only within the context of an active tiauing system that this auuitional valuation
cycle can builu. This is tiue foi all possible meuia of exchange as they giow into
this iole, iegaiuless of inciuental technical chaiacteiistics such as tangibility
veisus intangibility.
In pievious histoiical cases, the unit aspect was moie obvious anu the system
buy-in aspect peiceivable only moie abstiactly anu inuiiectly. With Bitcoin,
howevei, the system buy-in aspect is moie obvious anu explicit, wheieas the unit
aspect is only peiceivable moie abstiactly anu inuiiectly. It is liteially no longei
possible to miss the system aspect because Bitcoin units aie compiehensible
only within the context of the uecentializeu leugei system that enables ieliable
fiist appiopiiation (mining), stoiage, anu tiansfei. The unueilying ieality
unueipinning its unit aspect is technical anu uifficult to giasp.
In contiast, piecious metal coins, though also fully embeuueu in a social tiauing
system, stoou out fiom that system by theii concieteness anu tangibility. With a
metal coin, one coulu still naively imagine that it somehow helu value all by itself.
Bowevei, this was nevei tiue. Exchange value is evei uepenuent on the
willingness of a buyei to buy. A meuium of exchange value component is likewise

Foi a ielatively appioachable oveiview of the integial all-quauiant mouel anu ielateu concepts in
a wiuei context, see Wilbei 1998.
28
Although piivate keys can also be physically tiansfeiieu offline using physical tokens anu
caius, the secuiity anu ieliability of such pioceuuies iemains highly expeiimental.
21
always uepenuent on the implicit expectation of futuie acceptance by at least
one othei paity. A tiauing unit can only woik within a social tiauing system.
We saw above that an attempt at inuiiect exchange of steak foi floui woulu fail if
the intenueu paity to the seconu tiaue (the millei) uoes not accept the intenueu
inteimeuiating goou (eggs). The meuium-of-exchange value component of a goou
that becomes moie geneially useu in this iole can multiply in that otheis begin
moie anu moie to accept it in tiaue G3/&B;3 they also expect that still otheis will
accept it in subsequent tiaues. This value-builuing cycle can be ciiculai anu self-
ieinfoicing. Bowevei, no cycle can begin itself in ciiculai causation. It is the
iegiession theoiem that explains in abstiact teims what must be piesent to
5$525&23 any such self-ieinfoicing netwoik-goou cyclesome othei valuation
piioi to the beginning of this use.
BBC < [&AAQW"-\Y&#$&W (AA\*$'<$("#
Bitcoin units hau no iecognizeu exchange value whatsoevei foi neaily a yeai
aftei the Bitcoin netwoik began functioning in }anuaiy 2uu9. They also
specifically uiu not yet have any meuium-of-exchange uses. They uiu not
facilitate any tiaues. Insteau, piogiammeis anu ciyptogiaphy enthusiasts weie
iunning the softwaie, connecting to the fleugling netwoik, tiying out the coue
anu woiking to impiove it, mining bitcoins, anu senuing bitcoins back anu foith
to each othei foi fun anu expeiiment.
Petei Suiua has been assembling some fiist-hanu iepoit eviuence on this eaily
peiiou. In a iecent post,
29
he quoteu eaily paiticipant anu uevelopei Nike Beain
speaking fiom his peispective as a new paiticipant in the eaily uays:
I founu |Bitcoinj veiy eaily on, when no one was using it, so no one, no
exchanges, hau no exchange iate at all, so they weie just completely floating in
an abstiact space. You know, what was one coin. Well, nothing ieally.
Auam Back, the uevelopei of key elements that enueu up being useu as paits of
the Bitcoin system, was highly skeptical thioughout this eaily peiiou of
uevelopment. The following is fiom a comment he left unuei the above post:
I was still hoping foi the uiscoveiy of moie efficient solutions.I was also
thinking bitcoin was a 1 in a million chance that it coulu bootstiap to a non-toy
value. So I uiu not uownloau, noi mine at that time...So uespite inventing the
mining function that bitcoin uses, anu spenuing a lot of ieseaich effoit ovei
peihaps S yeais on anu off with otheis like Wei Bai, Bal Finney, Nick Szabo anu
a cast of uozens incluuing anonymous contiibutois (one of whom may have
been Satoshi) in tiying to figuie out how to uesign a uecentializeu ecash system

29
22 Septembei 2u1S. "Piofessoi Waltei Block is clueless about Bitcoin." 3/#$#05/;#+G52/#5$)/#0)
22
using hashcash as a mining function, I uiun't wake up until yeais latei when it
was cleaily obvious that bitcoin hau long bootstiappeu.
In the eaily uays, even expeits in the ielevant fielus, let alone anyone else, coulu
easily have vieweu mining bitcoins as a faiily pointless activity. It woulu have
been easy foi outsiueis in paiticulai to uismiss it as not much uiffeient in
piinciple fiom a gloiifieu veision of the online social game Faimville. The
uiffeience was that it was as if a few of the playeis weie also convinceu that they
hau uiscoveieu the futuie of ieal faiming. This just makes it sounu 3A3$ 0#%3
luuicious than just aumitteuly playing a game.
In faim games, untolu numbeis of people aie known to "pointlessly" plant seeus
using theii computeis. They eageily check back latei to haivest the iesulting
ciops. These unieal objects can become quite meaningful to playeis aftei
spenuing tens oi hunuieus of houis builuing a thiiving (non-existent) business.
Yet even such play uigital items must also be counteu as goous accoiuing to the
stiict Nisesian appioach to economics, which stuuies action as such. As a fielu,
economics in the Nisesian tiauition is not supposeu to objectivistically juuge
whethei ceitain actions aie "iational" anu otheis not, ceitain actions "economic"
oi "moial" anu otheis not, anu so on. Those aie tasks ieseiveu foi othei fielus,
such as philosophy oi psychology, with uiffeient methouologies anu ciiteiia.
uoous that exist only within games aie also goous fiom the point of view of those
engageu in playing those games anu expenuing time anu effoit to obtain those
goous.
Su

All of the non-existent seeus anu piouuce in faim games, some ciitics might
aigue, aie "ieally" just so many ones anu zeioes on a computei, as aie, they
allege, bitcoins. Yet woulu the pioponents of this view acknowleuge that the
uiffeience between one uigital film anu anothei, oi one song file anu anothei, is
likewise ieuucible to inteichangeable ones anu zeioes.
Tiy telling someone engiosseu in an action movie oi a favoiite spoits match that
it woulu "ieally" be just the same if they switcheu to a :3@@# "5221 viueo oi a
match of some foieign spoit they uetesteu. Now take a tween's pop music anu
gianupa's classical conceit playlists, switch them, anu see what happens. The
ieality of meaningful uistinctions among "meie ones anu zeios" when it come to
uigital goous will have been convincingly establisheu (if the expeiimentei
manages to suivive to iepoit the iesults).
Some of the eaily Bitcoin mineiexpeiimenteis, at least those who believeu the
system hau a futuie, accumulateu bitcoins, just in case theii value woulu
somehow iise in the futuie. Foi paiticipants, aftei staiting, it may at times have
been easiei to keep the coins than to get iiu of them. While some kept them safe,

Su
See my 1S Septembei 2u1S, "The laboi, leisuie, anu happiness game: Psychology, piaxeology,
anu ethics." 8#$%&';C%&+)/#0.
2S
though, othei eaily mineis eiaseu wallet files that conveyeu access to laige
numbeis of bitcoins. 0theis uiu not consiuei it woith even staiting. They weie
convinceu that nothing woulu evei come of these paiticulai units in the futuie.
Each of these weie uistinct juugments, valuations uemonstiateu in action.
Nany systems weie out theie hoping to succeeu as some kinu of new uigital
cashanu failing at it. Expeits coulu not univeisally pieuict that this new one
woulu take off. Its success began with a new combination of iueas, but its success
hau to be uefineu thiough expeiimentation anu uiscoveiy in piactice. >+ one's
puipose hau been to tiaue oi buy goous oi seivices with Bitcoins in theii fiist
yeai oi two- then they 43%3 utteily useless. Yet they neveitheless hau alieauy
giauually come to play vaiious ioles in the action stiuctuies of some eaily
expeiimenteis.
This is the moment the oiigins component of the iegiession theoiem seeks to
"iegiess" back to. This was a time when bitcoins hau ;#03 value to ;#03 people,
but going out anu buying something with bitcoinsfacilitating tiaues with
themwas not among the available uses. At that time, it might have been easiei
to tiaue steak uiiectly foi floui with one's ovo-vegetaiian neighboi than to
obtain anything whatsoevei in tiaue foi Bitcoin.
This conuition, in which theie was some value to some actois, but zeio inuiiect-
exchange value, was about to stait changing. Although the iegiession theoiem is
a logical ueuuction fiom uefinitions, foi those who like histoiical illustiations of
theii theoietical piinciples, Bitcoin pioviues a uocumenteu textbook example.
BGC $%& +('*$ &Y&')&#-& "+ ,($-"(# ^'(-&* +"' Y"#&]
0n 0ctobei S, 2uu9, $5$3 0#$26; &+23% the Bitcoin netwoik went live, the fiist
iecoiueu Bitcoin offei piice was posteu. It amounteu to 1S bitcoins foi a penny,
specifically, 1,Su9.uS Bitcoins foi a uollai, which the postei calculateu baseu on
his vaiiable mining costs.
S1

A few months latei, on 22 Nay 2u1u was what is believeu to have been the fiist
use of Bitcoin to puichase a "ieal" maiket goou at a cost of 1u,uuu Bitcoins foi
$2S woith of pizza.
S2
In ieality, anothei paity facilitateu a pizza puichase by
accepting Bitcoin anu paying foi the pizza with a cieuit caiu.

The fame of the
"Bitcoin pizza" tiansaction, while an impoitant symbolic milestone, is just baiely

S1
See Appenuix B foi a five-yeai, all-time piice chait.
S2
In Block S7uSS, tiansaction IB: blockchain.infotx
49u2aub6e476fa46u8SS7babf78b1bSu1fuS9e177ac78SS124bSf67b17c4uc2a
24
an exception to the geneialization that Bitcoin was not useu to puichase goous
oi seivices at the time. Rathei than simply facilitating buying a pizza as such, it
can be ieau moie as an occasion to sell 1u,uuu Bitcoins to someone who paiu $2S
by cieuit caiu, anu as it so happeneu, the $2S was uiiecteu towaiu the pizza
pioviuei iathei than to the Bitcoin sellei.
Bowevei it is chaiacteiizeu, the equivalent value was $2S foi 1u,uuu bitcoins, oi
foui bitcoins foi a penny, a thieefolu inciease ovei the fiist-evei quoteu piice a
half-yeai eailiei. This was #$3 fleugling quasi-inuiiect exchange tiansaction (anu
can just baiely be counteu as that) using Bitcoin, piobably uone paitly in jest, 16
months aftei the netwoik went live. Cleaily, Bitcoin uiu not just jump to life as a
functioning cuiiency.
Seveial months latei, on 17 }uly 2u1u, the fiist iecoiueu public exchange
tiansaction foi Bitcoin on the new Ntuox exchange caiiieu a piice of $u.uS,
which climbeu to a $u.u6-$u.u9 pei bitcoin iange ovei the coming uays.
What may be uifficult to giasp is that uue to the uigital natuie of bitcoin units,
theii neaily zeio tiansaction costs, anu extieme stiengths on seveial majoi
chaiacteiistics valuable foi meuium-of-exchange use, the beginning of &$1
exchange value, no mattei how tiny, coulu be enough to help get tiauing of these
units staiteu. Anu stait it eventually uiu.
0nce some tiansactions began, anu the fiist companies began to accept Bitcoin in
payment foi "ieal" goous anu seivices, fuithei expectations of a futuie meuium-
of-exchange value component coulu also begin to builu45265$ the ielevant
gioups of useis. As moie people witnesseu the stiange pioneeis actually using
the system to inteiact with ieal things, what once hau been #$@1 an expeiiment
began to make tentative inteifaces with the wiuei exchange economy. This only
becomes unmistakable in the histoiical iecoiu in 2u11.
SS

0nly a few people, anu then a few moie, hau to take maiginal steps in this
uiiection, anu otheis to eventually imitate them, yeai aftei yeai. Cail Nengei
uesciibeu, in 1892, the piocesses that thus began anu which continue to
acceleiate up to the piesent:
Theie is no bettei methou of enlightening any one about his economic inteiests
than that he peiceive the economic success of those who use the iight means to
secuie theii own. Bence it is also cleai that nothing may have been so
favouiable to the genesis of a meuium of exchange as the acceptance, on the pait
of the most uisceining anu capable economic subjects, foi theii own economic
gain, anu ovei a consiueiable peiiou of time, of eminently saleable goous in
piefeience to all otheis.
In this way piactice anu a habit have ceitainly contiibuteu not a little to cause
goous, which weie most saleable at any time, to be accepteu not only by many,
but finally by all, economic subjects in exchange foi theii less saleable goous;

SS
See Appenuix A foi a monetaiy-histoiical inteipietation of patteins of news events by yeai.
2S
anu not only so, but to be accepteu fiom the fiist with the intention of
exchanging them away again. uoous which hau thus become geneially
acceptable meuia of exchange weie calleu by the ueimans *3@', fiom C3@23$, i.e.,
to pay, to peifoim, while othei nations ueiiveu theii uesignation foi money
mainly fiom the substance useu, the shape of the coin, oi even fiom ceitain
kinus of coin. (Nengei 2uu9, S7)
Bitcoins offei at least seveial compelling competitive auvantages ovei othei
options:
1. They aie an inheiently apolitical global unit without iespect to boiueis.
Potential uiiect tiauing paitneis ovei the long-teim theiefoie incluue the
entiie human population fiom the baiista on the coinei to the giowei
uiiect-shipping fiesh coffee beans fiom halfway aiounu the woilu.
2. They aie infinitely uuiable in time anu (almost) costlessly tianspoitable
in space. They coulu last potentially foievei (foi any piactical puipose)
with zeio uegiauation. Like beaus anu metals befoie themexcept moie
soaccess to them can easily be caiiieu, oi even just iemembeieu, so
they can be hiuuen uuiing times of thieat.
S. They have scaicity chaiacteiistics supeiioi to all othei known monetaiy
alteinatives. The limitation of theii supply is built into theii uefinition.
This appioach is supeiioi to limitations anchoieu meiely in the piactical
anu vaiiable supply of some chemical substance such as silvei. They aie
even moie obviously supeiioi when compaieu with the pioven iecoiu of
inflationaiy machinations on the pait of caiefully scieeneu political
appointees in chaige of fiat money supplies.
4. They offei tiansaction costs that aie almost infinitely small fiom the point
of view of useis, anu this goes foi any amount ovei any uistance.
S. They cannot be counteifeiteu, uiluteu, oi multiplieu, unlike papei notes
anu metallic coins.
With such a wholly unpieceuenteu line-up of monetaiy chaiacteiistics (among
otheis), &$1 launching-point tiauing value coulu have been enough to get such
extiaoiuinaiily well-suiteu units to begin acquiiing a meuium of exchange value
component among some useis. Being fiist among mouein ciyptocuiiencies to
make such a leap, Bitcoin has iemaineu fai aheau of latei imitatoi coins baseu on
fiist-movei auvantage, netwoik effects, anu aggiegate netwoik hashing speeu,
becoming, anu iemaining by a massive maigin, the most "saleable" of all existing
ciyptocuiiencies.
The meuium of exchange value component of bitcoins is now cleai anu uominant
5$ %32%#;?3/2. Like a new kinu of metal uug up one uay many thousanus of yeais
ago, its value piofile in society emeigeu giauually fiom seemingly nothing. Its
exchange value then moveu all the way up to.neaily nothing. It then moveu up
to.slightly above neaily nothing. Anu finally it has been giauually builuing ovei
26
the past thiee-foui yeais with a few uiamatic jumps along the way, as wiuening
ciicles of social iecognition come into play.
S4

Yet no mattei what its cuiient value is ielative to othei cuiiencies, it can
continue to fill a iole as an almost zeio-cost methou of tiansmitting puichasing
powei ovei uistance foi any given tiansaction. 0seis opting foi seivices that
conveit into anu out of Bitcoin immeuiately foi each tiansaction can be entiiely
fiee of exchange-iate iisk, while othei useis choose to take on such iisks
knowingly in the expectation of shoit oi long-teim gains. A possible futuie iole
foi Bitcoin as what I have uefineu as a money (a unit of piicing, accounting, anu
economic calculation) woulu have to await much moie ielative value stability
compaieu to competing options foi those functions.
Bowevei, it shoulu also be emphasizeu that value giowth, as contiasteu with the
steauy value uecline of fiat money, is an auvantage sepaiate fiom stability pei se.
Some people might iathei have the option of holuing some balances in units that
gaineu value unsteauily, in contiast to balances of othei units that lost it steauily.
BLC W(*$(#)\(*%(#) $%& &<'A] Z<A\& -"Y^"#&#$*
The eaily Bitcoin pioneeis weie attempting to cieate a functioning system of
value tiansmission that containeu units to be useu as a meuium of exchange.
Bespite this hope, foi at least 2uu9, anu the eviuence suggests also 2u1u, they
hau not yet succeeueu. Bitcoin 4&; $#2 useu as a meuium of exchange. Whatevei
theii uieams oi futuie imaginings, inuiiect exchange tiansactions weie basically
not facilitateu using Bitcoin.
SS

Bitcoin units, howevei, uiu make theii way into the action stiuctuies of these
eaily useis in vaiious ways. They weie the objects of action both uiiectly anu
inuiiectly as "bunuleu" with othei enus, such as the goals of system iefinement,

S4
Bitcoin is often ciiticizeu foi its wiue piice movements. This is mostly an aitifact of it still being
young anu small in scale, making it susceptible to ups anu uowns of the meuia-awaieness cycle.
That saiu, the fiist uiamatic movement up anu uown in 2u11 can also be causally tiaceu to the
goveinment's ongoing imposition of piohibition policies. Without them, the suige in uemanu
fiom woulu-be paiticipants in the then-new Silk Roau online piohibition-iesistance maiket
woulu have been much moie mouest in compaiison to the movements of oiuinaiy maikets not
beset by the evei-stiange anu uangeious iesults of piohibition policies. This most likely accounts
foi the unique yeai-ovei-yeai "mountain" piice effect seen in 2u11 in YoY teims. See my 2S }uly
2u1S, "Tigei cub giowing up. Bitcoin weekly aveiage closing piices yeai ovei yeai,"
8#$%&';C%&+)/#0)
SS
A few isolateu cases cannot be iuleu out, but no pattein of such use is visible in the histoiical
iecoiu, a situation that unmistakably changes in 2u11 anu onwaiu.
27
mining uevelopment, anu pioject paiticipation. That makes them goous (means
towaiu enus, in Nisesian teims).
To summaiize, some mix of the following $#$Tmeuium-of-exchange value
components of bitcoin units existeu foi some useis in a peiiou uuiing 2uu9 anu
2u1u befoie Bitcoin opeiateu in any monetaiy meuium-of-exchange iole
whatsoevei. This was aftei Bitcoin began to exist anu gain some value to some
actois within theii iespective stiuctuies of enus anu means, but befoie it began
to have any value component foi use in facilitating inuiiect exchanges foi othei
goous anu seivices.
The ielevant peisons weie the pioneeis actually paiticipating in the Bitcoin
netwoik, contiibuting to the eaily iefinement of its softwaie anu othei
technologies. Latei, some auuitional paiticipants puichaseu bitcoins (as highly
iisky financial investment instiuments) with cash just in case the units might
become woith something in the futuie. Bitcoins may have functioneu in any of at
least seveial possible non-monetaiy ways:
1. A set of uigital objects that coulu become a meuium of exchange 5$ 263
+B2B%3 if the netwoik weie somehow successful anu if its units eventually
began to be taken up as a meuium of exchange. Any new class of valuable
goou is iecognizeu anu valueu fiist by only veiy few people, often befoie
it has any "piactical" use. Nany such goous nevei amount to much, but
otheis take off anu aie eventually valueu bioauly.
2. A set of uigital objects that coulu be sent back anu foith to othei
paiticipants as a foim of foimal oi infoimal testing of the netwoik, oi
even as a type of social inteiaction within the pioject. Nany of the pioject
inteiactions took place online at uistance ovei foiums, anu in some cases
the paiticipants weie pseuuonymous.
S. Blocks weie being mineu, one of the puiposes of which was to veiify
tiansactions. With no tiansactions to veiify, netwoik testing anu
expeiimentation piocesses woulu have iemaineu incomplete, pioviuing a
ieason to issue tiansactions at some points into the netwoik even if only
foi the puipose of expeiimentation anu testing.
S6

4. At some points anu foi some peisons, bitcoin units coulu have functioneu
as a toy-like set of uigital objects that coulu be collecteu inciuentally oi
even competitively in the couise of the above piocesses of
expeiimentation. This coulu be akin to how people natuially enjoy
competing by accumulating anu compaiing uiffeient amounts of uigital
money oi points within games, inuepenuently of any "ieal woilu"

S6
This was quite iaie, howevei. A casual scan thiough the 2uu9 block chain ieveals a gieat
numbei of blocks that contain nothing but a geneiation tiansaction.
28
valuations. It woulu then be an extia bonus if an eventual ieal woilu value
&@;# ieally coulu emeige, as in (1).
S. Possession of gieatei oi fewei numbeis of bitcoins coulu be taken as a
bauge of membeiship anu commitment, oi as among the signs anu
aitifacts of paiticipation. Possible non-exchange-meuia inteiests coulu
have easily incluueu: theoietical anu scientific inteiest, piogiamming
challenge, secuiity ieseaich, iueological inteiest in auvancing the fieeuom
of tiansaction, anu inteiest in the possibility of making a iising-value
cuiiency available foi the fiist time in a centuiy to those who wisheu to
have the option of using one. Nembeiship anu piomotion motivations aie
common in human enueavois, piesent whenevei we say that someone is
"getting behinu a cause."
6. A foim of eaily stock-like owneiship in the (potential) payment system
that woulu convey the ability to paiticipate in it moie favoiably in the
futuie anu help piomote it fiom an eaily stage onwaiu. This metaphoiical
investment shaie in the entiie system also cieates a tiny, uiiect incentive
to act in a way favoiable to the system's geneial health. The eaily
paiticipants all investeu theii time anu effoit on an inuiviuual anu
voluntaiily basis.
Some of these non-meuium-of-exchange values of bitcoin units, oi uescenuants
of them, peisist to this uay among some system paiticipants. These incluue: long-
teim ietention of Bitcoin balances as savings (often ueiiueu as "speculation");
effoits to spieau the woiu anu intiouuce otheis to Bitcoin on both inuiviuual anu
institutional basesincluuing giving out small amounts of Bitcoin to new
useiswhich bioauens the netwoik of useis anu applications; effoits to
piomote fieeuom of tiansaction anu fieeuom fiom "financial censoiship"; anu
euucational effoits to explain the geneial economic auvantages of the availability
of a iising-value tiauing unit foi those who wish to use one.
BKC -%<A_ $%(* "#& \^ +"' $%& -'<a] "#&* $""
The piocess by which Bitcoin's value foi use as a meuium of exchange emeigeu
has been uocumenteu anu aichiveu in online iecoius anu in living memoiies.
Bitcoin's beginnings seive as an illustiation of the oiigins aspect of the
iegiession theoiem that is similai in piinciplethough of couise not in specific
foim, geogiaphic configuiation, oi time scaleto maiket-evolution accounts
inteipieting piocesses by which pievious tangible meuia of exchange emeigeu.
29
That is, in each such case we have consiueieu, a few of mankinu's "ciazy ones"
S7

weie playing aiounu with anu collecting things that weie useless foi anything
that woulu have been consiueieu a geneially "piactical" puipose at the oiigin
phases in question, such as shell beaus, shiny metals, oi bitcoins. Eventually
though, an auuitional economic use foi these meie tiinketsactually using them
to facilitate tiaueswas giauually anu in fits anu staits put into piactice, with
some favoiable iesults. This piactice then spieau by some blenu of imitation anu
iecuiiing inuepenuent ieuiscoveiy.
Such expeiiments weie quite likely met in eveiy case with fuiioweu biows anu
uisbelief on the pait of moie sobei obseiveis still unwilling to tiaue "ieal" things
foi the likes of shells, shiny soft metals, oi in the cuiient case.they uo not have
the faintest iuea what. The uiffeience is, touay, the piocess of moie anu moie
people uiscoveiing how to make use of Bitcoin to facilitate tiaue is taking place
woiluwiue anu at the speeu of the inteinet anu woiu of mouth.
That Bitcoin's inventoi(s) anu eailiest uevelopeis 5$23$'3' the netwoik to be
useu foi this puipose may be confusing foi some people in light of geneial
chaiacteiizations of maiket phenomena as being "emeigent" anu "the iesult of
human action but not of human uesign." It might ieminu them, vaguely, of the
quite uiffeient state-theoiy-of-money stoiy of "fiat" imposition by a iulei. It
coulu even ieminu some of a complex con in which skilleu scammeis push out
woithless shaies in theii latest scheme.
Bowevei, Bitcoin hau no legal status whatsoevei as it was being boin. This
makes it as uistant as possible fiom a cential "fiat" imposition thiough some
official uesignation oi fixeu exchange iate. Even yeais aftei launching,
conventional legal systems aie only beginning to tiy to figuie out how to
categoiize it within existing buieauciatic classification schemes.
0seis aie not compelleu to auopt Bitcoin. People have not even much been
piessuieu to use it by clevei sales people making up stoiies. Although theie have
been a few specific pyiamiu scammeis anu outiight thieves in the Bitcoin woilu,
theii scams weie not Bitcoin, 2635% ;/&0; 43%3 2635% ;/&0;. Those scams
happeneu to be '3$#05$&23' in Bitcoin in those paiticulai cases, but similai cons
have involveu all mannei of othei valuable units thioughout time.
Bitcoin was offeieu up as an inventionuiscoveiy of a new way to uo something
veiy olutiansfei the contiol of puichasing powei fiom one paity to anothei.
This methou was offeieu foi fiee to the entiie human population. Bowevei,
people still hau to take it up anu put it to this use. Each peison iemains entiiely
fiee to eithei ignoie it oi use it in some way, anu only to the exact extent of each
peison's willing paiticipation.

S7
In iefeience to the iconic 1997 Apple commeicial, "Beie's to the ciazy ones."
youtu.betjgtLSBhTPg.
Su
The intentional invention elements piobably uo help explain why Bitcoin is
supeiioi to any known alteinative meuium of exchange on just about eveiy
meaningfully ielevant chaiacteiistic (tangibility being an inciuental histoiical
one, I have aigueu). Shoulu a bioau-baseu anu oveiwhelming competitive
supeiioiity foi a given puipose be a uisqualifiei foi that puipose. That woulu be
ouu inueeu. Yet someone alieauy familiai with the theoietical aspects of the
emeigence of money coulu take, anu seems to have taken, those veiy insights
into consiueiation in tiying to shape a bettei goou foi use in that iole.
Neveitheless, we have still seen that theie iemaineu a vast gap between the
implementation of the intentional elements behinu the new technically piouuceu
uigital goou anu the subsequent giauual phases when people began tentatively
putting this stiange new goou to use foi some of its envisioneu functions. In
othei woius, theie was a laige gap between the launch of the open-souice, peei-
to-peei netwoik (technical layei), anu the time when bitcoin units actually uiu
begin being useu in tiaue (economic, oi moie piecisely, "catallactic" layei).
Theie was a puiely technical anu expeiimental phase in piogiess well befoie
theie was any uptake of the unitsystem foi monetaiy use in society. Buiing this
eaily phase, it was uncleai even to insiue expeits whethei oi not the pioject
woulu eithei succeeu technically oi gain any monetaiy tiaction. The eventual
achievement of a $1 piice was cause foi a huge celebiation at the time among
eaily enthusiasts, along with a little piofit-taking by some pioneei mineis.
Bitcoin's emeigence as a meuium of exchange was oiiginal, as with beaus oi
metals in the past. It was not ueiivative, with monetaiy values taken ovei fiom
tangible foieiunneis, as with the histoiy of mouein papei tickets anu fiat uigital
account entiies.
At the same time, Bitcoin is a novel case. Its scaicity has been achieveu without
tangibility. It was not pickeu up at the beach anu caiveu, noi was it uug out of the
siue of a mountain anu cleaneu oi melteu. It was built out of the intiicacies of
new ciyptogiaphic anu computei science innovations that weie iemixeu anu put
togethei in a new anu valuable way. Bitcoin is uug out the siue of ciypto-
cybeispace mountain. The fiist hit of a pickaxe on this nevei-befoie-seen oie was
heaiu on }anuaiy S, 2uu9.
Satoshi Nakamoto set this netwoik in motion in the context of tiemenuous woik
anu oveilapping complex innovations on the pait of many otheis both befoie
anu since the initial uenesis Block timestamp. It was up to the test of time to see
if what was begun woulu continue. It was up to the fiee choices of the iest of
humanity who woulu take up these units anu stait to use them as a new meuium
of exchange.
It was uncleai whethei, oi the extent to which, anyone woulu "buy into" both the
units anu the iuea of using the novel payment piotocol in which they aie
embeuueu. This is piobably much moie similai than might at fiist be imagineu to
S1
the thought piocesses of a few skeptical huntei-gatheieis oi eaily
agiicultuialists taking a ueep bieath anu finally accepting foi the fiist time some
stiings of beaus oi pieces of shiny soft metals in tiaue foi "ieal" goous.
No ueciee oi commanu causes people to begin tiauing in Bitcoin. Noi has
auoption iesulteu fiom some clevei sales piessuie taking auvantage of the
uninfoimeu. In uiametiic contiast, the moie infoimeu that people aie about the
technical unueipinnings of Bitcoin, the moie they tenu to appieciate it.
Neanwhile, casual uismisseis geneially seem to uisplay little to no technical
compiehension of how the system woiks.
Bitcoin gives us a textbook illustiation of Nises's piaxeological statement of the
iegiession theoiem. It pioviues an empiiical case stuuy that has been
uocumenteu at a level of uetail nevei befoie seen. If so moveu, ieseaicheis in the
fielu of economic histoiy coulu still peisonally inteiview almost eveiyone who
was involveu in eveiy stage of this piocess (except the wisely elusive inventois),
a pioject that Petei Suiua has alieauy been auvancing.
0ui eailiest shell-beau tiaueis fiom tens of thousanus of yeais ago aie not
likewise still taking inteiviews. Bitcoin may well be oui best-uocumenteu
histoiical case of the fiist oiigins of an entiiely new meuium of exchange on the
maiket, fiee of the uictates of any iulei.

S2
<^^&#W(` <E Y"#&$<'] (#$&'^'&$<$("# ,] ]&<'
These appenuices pioviue auuitional uetail anu analysis on long-teim piice
histoiy anu the inteipietation of uiffeient histoiical phases of Bitcoin's
uevelopment. Appenuix A uevelops a yeai-by-yeai empiiical inteipietation of
patteins of Bitcoin news events in teims of stages of monetaiy evolution.
Appenuix B then uevelops a single all-time piice chait anu explains the selection
of the uata behinu it.
0n this basis, 2u11 appeais to pioviue the cleaiest set of empiiical maikeis foi
the fiist emeigence of a meuium-of-exchange value component. Bitcoin lackeu
such a component foi all of 2uu9 anu most, if not all, of 2u1u. This is the
component of valuation foi the puipose of facilitating inuiiect exchangesin
simple teims, tenueiing Bitcoin in tiaue foi goous anu seivices. In contiast to
2uu9-2u1u, this specific component unmistakably '5' uevelop ovei the couise of
2u11, anu has been builuing with each successive yeai.
The iefeience yeai-opening anu yeai-closing week piices aie fiom eithei the
weekly weighteu aveiage oi iough typical estimates useu in constiucting the
chait in Appenuix B (uetails explaineu theie). The key thiust of the event
infoimation below is ueiiveu fiom the :5;2#%1 anu E52/#5$ M5%;2; pages on
Bitcoin.itwiki, with auuitional infoimation fiom news aiticles anu piess
ieleases. This is not meant to be an exhaustive histoiy, but to pioviue a set of
well-known examples sufficient to illustiate the oveiall stages.
BITC0IN YEAR 1 (2uu9)
M5%;2 4338< U# ?%5/3 I&;2 4338 &A3< VS)SSSW X&;8Y Z6&$C3< UQ=
Y9@01/.;01
}anuaiy: uenesis block, fiist tiansaction
0ctobei: New Libeity Stanuaiu staits publishing cost of
piouuction baseu asking piices
ueneial: Softwaie anu netwoik uevelopment
-6434?/039X4/9.;
93/6$5/&@ 3N?3%503$2 4526 $# +B$/25#$5$C 0#$32&%1 B;3;
Yeai 1 was a phase of technical expeiimentation, with, in the
minus of coie enthusiasts, iemote anu long-teim success
possibilities foi Bitcoin in its intenueu meuium-of-exchange iole.
Not only is theie no eviuence of any use as a meuium of exchange,
a uisceinable tiauing value of the units was baiely eviuent anu
SS
limiteu to scatteieu cases. Neveitheless, the units uiu come into
existence anu weie giauually beginning to be toyeu with, collecteu,
anu put to use within stiuctuies of action.
BITC0IN YEAR 2 (2u1u)
M5%;2 4338 &A3< VS)SS[W I&;2 KK=< VS)\] Z6&$C3< ^]RSS_
Y9@01/.;01
Febiuaiy: Bitcoin Naiket opens foi tiauing Bitcoin
Nay: The Bitcoin pizza tiansaction
}uly: Ntuox exchange in }apan opens Bitcoin tiauing
Autumn: Anecuotal financial expeiimentation with Bitcoin
shoiting anu options
-6434?/039X4/9.;
uiowing 23/6$5/&@ 3N?3%503$2- 4526 0#%3 #%C&$5L3' 2%&'5$C #+
E52/#5$ &; & $#A3@ '5C52&@ 5$A3;203$2 C##'
Yeai 2 saw the fiist uevelopment of authentic maiket piices foi
buying anu selling Bitcoin (beyonu cost-of-piouuction quotes).
Theie was still little to no visible use of Bitcoin to facilitate the
buying anu selling of goous anu seivices, although tiauing of
Bitcoin &; a uigital investment goou uiu piogiess.
BITC0IN YEAR S (2u11)
M5%;2 KK=< VS)[` I&;2 KK=< VR)\W Z6&$C3< ^`\]R_
Y9@01/.;01
}anuaiy: Bonations suppoiting Bitcoin 0TC IRC tiauing system
(fiist one on 28 Becembei 2u1u).
S8
Thiee one-hunuieu-tiillion
Zimbabwe-uollai notes bought on Bitcoin 0TC foi 4 bitcoins
Febiuaiy: Silk Roau piohibition-iesistance maiketplace launcheu.
Fiist cai offeieu foi sale foi Bitcoin
Nay}une: "Bitcoin Fiists" page lists six allegeu fiist-of-type
tiansactions. Room77 pub in Beilin accepts Bitcoin

S8
bitcoin-otc.com; Bonation iecoiu: 1F1uPZxuxvvigpuusafnZScFBuNuBABFBe
S4
August: Bitstamp exchange opens in Euiope. Blockchain.info
launches
Septembei: Bitmit "eBay foi Bitcoin" maiket opens; NultiBit
uesktop wallet announceu
NovBec: Bitcoin-Kiez neighboihoou Bitcoin oiganization in Beilin
begins gaining moie shops. Electium Bitcoin client announceu
-6434?/039X4/9.;
M5%;2 /@3&% ?&223%$ #+ +&/5@52&25$C ?B%/6&;3; #+ C##'; &$' ;3%A5/3;
Yeai S was the fiist uuiing which the histoiical iecoiu shows
unmistakable, multiple lines of eviuence that Bitcoin was useu to
puichase goous anu seivices, both online anu in peison. The
possibilities weie still quite limiteu, but it was eviuent that Bitcoin
was being useu to pay piices foi goous anu seivices, as opposeu to
only itself being tiaueu foi money as a uigital investment goou.
BITC0IN YEAR 4 (2u12)
M5%;2 KK=< Va)bR I&;2 KK=< V`[)[] Z6&$C3< ^`\c_
Y9@01/.;01
ueneial: "Bitcoin Fiists" page continues to list stoiies of allegeu
fiist-of-type Bitcoin tiansactions. }anuaiy: Aimoiy secuie uesktop
wallet pioject announceu
Naich: Blockchain foi Anuioiu app ieleaseu. Fiist piopeity
management fiim accepts Bitcoin
Apiil: SatoshiBice Bitcoin betting site announceu. Blockchain foi
i0S app ieleaseu
}une: Coinbase hosteu wallet seivice launches, offeiing uiiect 0S
bank-account integiation
Septembei: BitPay Bitcoin payment piocessoi announces it has
1,uuu meichant customeis. Bitcoin Founuation establisheu
Novembei: Woiupiess begins accepting Bitcoin. Bitcoinstoie
opens, selling electionics foi Bitcoin
-6434?/039X4/9.;
,3'5B0T#+T3N/6&$C3 B;3 3N?&$'3'- GB5@'5$C #$ ?%3A5#B; 13&%
SS
Yeai 4 saw steauy consoliuation, mixeu with negative news fiom
scatteieu scanuals anu exchange oi usei secuiity bieaches.
Neveitheless, a stieam of news items inuicateu expansion of
options foi buying anu selling goous anu seivices with Bitcoin; its
meuium of exchange value component continueu to giow.
BITC0IN YEAR S (2u1S-YTB)
M5%;2 KK=< V`[)`` \b P/2 KK=< V`cb)bb Z6&$C3< ^`R`]_
Y9@01/.;01
Febiuaiy: Reuuit anu Nega begin accepting Bitcoin
NaichApiil: Buy-in iush associateu in meuia with Cypius bail-in
Nay: uyft gift caiu puichasing thiough BitPay announceu.
BitPiemiei luxuiy goous maiket launcheu
Septembei: BitPay announces it has 1u,uuu meichant customeis,
up 1ux YoY
0ctobei: Silk Roau maiket taken uown. Shoit shaip uownwaiu
exchange iate movement followeu by month-long ially, up 6u%
fiom pie-announcement level, accompanieu by meuia wave in
China. Fiist Bitcoin ATNs shipping anu being installeu foi
commeicial use
-6434?/039X4/9.;
,3'5B0T#+T3N/6&$C3 B;3 3N?&$'5$C- GB5@'5$C #$ ?%3A5#B; 24# 13&%;
Yeai S saw cycles of meuia attention, uiamatic piice movements,
anu countless business stait-ups anu expansions woiluwiue,
geneially aiming to make using Bitcoin easiei foi wiuei ciilces of
consumeis anu meichants. Nultiple Bitcoin investment funus anu
angel funus set up. Incieasingly fiequent confeiences helu
woiluwiue. A steauy stieam of news items continueu to inuicate
wiuening options foi buying anu selling goous anu seivices with
Bitcoin.

S6
<^^&#W(` ,E +(Z&Q]&<' ^'(-& +"'Y<$("# -%<'$
The following chait ieflects the entiie histoiy of Bitcoin piice foimation in one
image. visualizing this uata togethei iequiies a logaiithmic scale so that the
smallei figuies uo not vanish into the baseline. In keeping with a long-teim
peispective, typical weekly, oi when available, weekly weighteu aveiage, figuies
aie useu. This helps filtei out noise fiom the extiemely shoit-teim peaks anu
tioughs of maniapanics that aie so beloveu foi use in pop meuia leau-ins. The
flat zeio blue line fiom }anuaiy to the stait of 0ctobei 2uu9 is to be unueistoou
as no piice of any kinu, even though the logaiithmic scale uoes not allow foi a
tiue zeio line (seen heie as $u.uuu1).

A seconu veision of this chait on the following page claiifies the association of
the uiffeient uata lines with calenuai yeais.
S9
The slope lines fiom the stait to
the enu of each calenuai yeai (oi best available uata point) show how the uata
lines combine to suggest an oveiall histoiical tienu.

S9
This takes the thiee-yeai chait uevelopeu in my 2S }uly 2u1S "Tigei cub giowing up. Bitcoin
weekly aveiage closing piices yeai ovei yeai" 8#$%&';C%&+)/#0 anu extenus it by 1) auuing
subsequent new uata anu 2) attempting to tiace back into the pie-Ntuox past.
S7

The chait combines uiffeient souices of uata foi uiffeient time peiious. Woiking
backwaius, the line Bstp-1S is the weekly weighteu aveiage chait foi the
Bitstamp exchange in 2u1S. I abanuoneu Ntuox exchange uata as they became
cleai outlieis uuiing 2u1S. uox-1u-uox12 aie the weekly weighteu aveiage uata
lines foi the entiie histoiy of Ntuox fiom its $u.uS opening tiaue thiough 2u12.
NSL-u9-NSL-1u iefei to the Bitcoin offei piices publisheu at New Libeity
Stanuaiu
4u
in late 2uu9 anu eaily 2u1u. The NLS site also incluues piices fiom
Bitcoin Naiket (ieflecteu in line BtNk). Biiect links to Bitcoin Naiket uata no
longei appeai to be accessible.
NLS offeieu to sell Bitcoin in minimum blocks of value equal to one giam of golu
at the time (in paiticulai, Pecunix units). NLS's ask iates weie uesciibeu as "the
aveiage of the aujusteu bitcoin piouuction pei uay uiviueu by the aveiage
piouuction costs pei uay."
41
I am not suie of the extent to which buyeis took up

4u
Quoteu fiom the page foi 2u1u: newlibeitystanuaiu.wikifounuiy.compageExchange+Rate
Foi the 2u1u NLS piices, I took the listeu uaily offei piices of Bitcoins foi golu giam units anu
estimateu an appioximate typical piice foi each calenuai week. I conveiteu this to uollai teims at
the uollai pei golu giam piice foi that week using histoiical uata fiom the Woilu uolu Council
(golu.oiginvestmentstatisticsgolu_piice_chait). I finally conveiteu the iesulting Bitcoins-pei-
uollai quotes to uollais-pei-Bitcoin quotes to fit the iest of the chait. The chait shows that the
aveiage piices listeu foi Bitcoin Naiket woik out on aveiage to have been below NLS's aveiage
cost-of-piouuction asking piices thioughout this peiiou.
41
Foi 2uu9, NLS explaineu that its "exchange iate was calculateu by uiviuing $1.uu by the
aveiage amount of electiicity iequiieu to iun a computei with high CP0 foi a yeai, 1SS1.S kWh,
multiplieu by the aveiage iesiuential cost of electiicity in the 0niteu States foi the pievious yeai,
S8
NLS on these offeieu piices oi the extent to which piices listeu foi Bitcoin
Naiket actually ieflecteu conciete tiaues oi in what volumes.
As cost of piouuction estimates, the histoiical NLS figuies uo not necessaiily
constitute maiket piices pei se, as it is uncleai what tiaues weie actually
conuucteu. Neveitheless, to the extent that Bitcoin was puichaseu at oi neai
these askeu piices, this pioviues one souice of systematic uata foi this eaily
phase. This publisheu cost of piouuction uata also helpeu set the context foi the
beginning of subsequent piice-foimation uevelopments.
A iecent anecuotal news item has it that Kiistoffei Koch bought S,uuu bitcoins
foi 1Su Noiwegian Kiona "in 2uu9."
42
I assume it was likely quite late if it was in
2uu9, anu in Becembei 2uu9, this was the equivalent of $26. The piice paiu
theiefoie equateu to $u.uuS2 pei bitcoin. Noie uetails of any such anecuotal
actual tiaues coulu supplement oui knowleuge of this eaily peiiou, anu actual
uates woulu be helpful foi such uata. Foi iefeience, the Nay 2u1u "Bitcoin pizza"
tiansaction ieflecteu a Bitcoin valuation of $u.uu2S, below the piice on Bitcoin
Naiket aiounu that time of about $u.uu4S anu also below the NLS piice of about
$u.uuSS. In sum, a quaitei-cent to a half -cent was the piice iange at the time.
The NoEXv line stanus foi "no exchange value." This iepiesents a peiiou of at
least nine months foi which no eviuence is visible of any pattein of bitcoin units
being bought anu solu, let alone useu as a meuium of exchange. Neveitheless,
uuiing 2uu9, the Bitcoin netwoik was being opeiateu as an expeiiment. Nineis
weie mining coins (anu those who suspecteu that the expeiiment might some
uay succeeu weie keeping them), uevelopeis weie iefining the softwaie, anu
some expeiimental tiansactions anu latei in the yeai some Bitcoin-foi-cash
tiansactions weie being sent, piiceu in fiactions of cents.
In 2uu9-2u1u, Bitcoins weie useu as objects within the meansenus stiuctuies
of human actois, without those actions entailing the use of Bitcoin to facilitate
inuiiect exchanges. This was the phase uuiing which bitcoin units weie being
uiscoveieu as novel objects of action, making them goous in the baiest sense
hopeful collectibles (2uu9) oi exceptionally high-iisk uigital-investment goous
that veiy few people saw any potential in (2u1u). They began to function
uisceinably as a meuium of exchange only in 2u11.


$u.11S6, uiviueu by 12 months uiviueu by the numbei of bitcoins geneiateu by my computei
ovei the past Su uays."
42
No news stoiy I coulu finu specifieu a puichase uate. Beie is one example stoiy:
news.com.aumoneymoney-matteisnoiwegian-stuuent-kiistoffei-koch-buys-27-in-bitcoin-in-
2uu9-now-he-owns-an-apaitmentstoiy-e6fifmu9-12267481S9679
S9
'&+&'&#-&*
uiaf, Koniau S. 27 Feb 2u1S. "Bitcoins, the iegiession theoiem, anu that cuiious
but unthieatening empiiical woilu." 8#$%&';C%&+)/#0. Auuio veision ieleaseu
Su }une 2u1S at youtube.comwatch.v=aklTqBktiR4
. 19 Nai 2u1S. "The sounu of one bitcoin: Tangibility, scaicity, anu a
'haiu-money' checklist." 8#$%&';C%&+)/#0.
. 22 }uly 2u1S. "Bitcoin, piice uenomination anu fixeu-iate
fiat conveisions." 8#$%&';C%&+)/#0
. 2S }uly 2u1S "Tigei cub giowing up. Bitcoin weekly aveiage closing
piices yeai ovei yeai" 8#$%&';C%&+)/#0
. 14 Septembei 2u1S. "Bitcoin as meuium of exchange now anu unit of
account latei: The inveise of Koning's meuieval coins." 8#$%&';C%&+)/#0)
. 1S Septembei 2u1S. "The laboi, leisuie, anu happiness game:
Psychology, piaxeology, anu ethics." 8#$%&';C%&+)/#0.
Blsmann, }oig uuiuo. 2uuS. "Fiom value Theoiy to Piaxeology," Intiouuction to
the thiiu euition of .?5;230#@#C5/&@ 7%#G@30; #+ ./#$#05/; by Luuwig von
Nises. Aubuin, Alabama: Nises Institute.
. 2uu7. ,5;3;< 963 I&;2 "$5C62 #+ I5G3%&@5;0) Aubuin, Alabama: Nises
Institute. mises.oiguocumentS29SNises-The-Last-Knight-of-Libeialism.
. 2uu8. J3+@&25#$ &$' I5G3%21) Aubuin, Alabama: Nises Institute.
mises.oiguocumentS726Beflation-anu-Libeity.
. 2uu8a. 963 .265/; #+ ,#$31 7%#'B/25#$) Aubuin, Alabama: Nises Institute.
mises.oiguocumentS747The-Ethics-of-Noney-Piouuction.
Kinsella, Stephan. 2uu1. "Against Intellectual Piopeity." D#B%$&@ #+ I5G3%2&%5&$
(2B'53; 1S (2): 1-SS. mises.oiguocumentSS82.
Knapp, ueoig Fiieuiich. 189S. (2&&2@5/63 963#%53 '3; *3@'3; ("The State Theoiy of
Noney"), Nnchen u. Leipzig, Bunckei & Bumblot. Siu euition 1921. English
tianslation 1924. Lonuon: NcNillan anu Company.
socseiv2.socsci.mcmastei.ca~econugcmSllSknappStateTheoiyNoney.p
uf
Kiawisz, Baniel. 2 }uly 2u1S. "The 0iiginal value of Bitcoins." 26305;3;/5%/@3)#%C.
Nengei, Cail. 2uu9 |1892j. "0n the 0iigins of Noney." Aubuin, Alabama: Luuwig
von Nises Institute. Tianslation by C. A. Foley.
4u
Nises, Luuwig von. 1912. 963#%53 '3; *3@'3; B$' '3% d0@&B+;05223@. Nunchen unu
Leipzig: Feilag von Bunckei & Bumblot. mises.oiguocumentS298
. 19SS |1912j. 963 963#%1 #+ ,#$31 &$' Cieuit. New Baven: Yale
0niveisity Piess. Repiinteu anu online: mises.oiguocument194The-
Theoiy-of-Noney-anu-Cieuit
. 1998 |1949j. :B0&$ =/25#$< = 9%3&25;3 #$ ./#$#05/;) The Scholai's
Euition. Aubuin, Alabama: Nises Institute. mises.oiguocumentS2Su.
. 2uu6 |1962j. 963 d@250&23 M#B$'&25#$ #+ ./#$#05/ (/53$/3< =$ .;;&1 #$
,326#') Inuianapolis, IN: Libeity Funu. mises.oigbooksufofes.
. 2uu7 |19S7j. 963#%1 &$' :5;2#%1< =$ >$23%?%32&25#$ #+ (#/5&@ &$'
./#$#05/ .A#@B25#$. Aubuin, Alabama: Nises Institute.
Nakamoto, Satoshi. 2uu8. "Bitcoin: A Peei-to-Peei Electionic Cash System."
White Papei bitcoin.oigbitcoin.puf
Riuley, Natt. 2u1u. 963 O&25#$&@ P?2505;2< :#4 7%#;?3%521 .A#@A3;) New Yoik:
Baipei. Esp. Chap. 2.
Rothbaiu, Nuiiay N. 2uu4 |1962, 197uj. ,&$- ./#$#01- &$' (2&23- 4526 7#43%
&$' ,&%832) The Scholai's Euition. Aubuin, Alabama: Nises Institute.
mises.oigiothbaiumes.asp
Suiua, Petei. 2u12. ./#$#05/; #+ E52/#5$< >; E52/#5$ &$ &@23%$&25A3 2# +5&2
/B%%3$/53; &$' C#@'F Thesis foi the vienna 0niveisity of Economics anu
Business. uev.economicsofbitcoin.commasteisthesismasteisthesis-suiua-
2u12-11-19b.puf
. 22 Septembei 2u1S. "Piofessoi Waltei Block is clueless about Bitcoin."
3/#$#05/;#+G52/#5$)/#0)
Szabo, Nick. 2uu2. "Shelling 0ut: The 0iigins of Noney." &@2%B5;2;)#%CQ+RS.
Tuckei, }effiey A. anu Stephan Kinsella. 2S August 2u1u. "uoous, Scaice anu
Nonscaice." ,5;3; J&5@1.
Wenzel, Robeit. 7 0ctobei 2u1S. "Is Bitcoin Noney: What Economists Bave To
Say." 3/#$#05/?#@5/1H#B%$&@)/#0)
Wilbei, Ken. 1998. 963 ,&%%5&C3 #+ (3$;3 &$' (#B@< >$23C%&25$C (/53$/3 &$'
O3@5C5#$. New Yoik: Bioauway Books.

41




<D.:/ /60 4:/6.3
Koniau S. uiaf is the foimulatoi of the action-baseu
juiispiuuence fiamewoik, which aigues foi new anu
moie explicit applications of the action-theoiy
piinciples of Nises anu Boppe within an integial
appioach to the founuations of legal philosophy. Be has
wiitten numeious woiks on Bitcoin anu monetaiy
theoiy.
Be has woikeu as a piofessional tianslatoi since 1998,
tianslating }apanese to English piimaiily in the fielu of
investment ieseaich. ueiman is his thiiu language. Be
has liveu in the 0S, Inuia, }apan, anu ueimany.