In this short post I would like to draw the attention over the fact that all economists I have read analyzing the history of Bitcoin have consistently ignored the first Bitcoin exchanges. I admit, of course, that maybe I haven’t read enough.
An exchange is a swap of a good or service in order to get a different good, being the latter more valuable (subjectively) than the former. Exchanges can be intrapersonal or interpersonal.
Intrapersonal or autistic exchanges are performed by an individual without any reference to cooperation with other individuals. For example, Alice exchanges her time, fuel, butter and corn to obtain pop corn.
Interpersonal exchanges are performed through cooperation with other individuals. For example Alice gives $1 to Bob in exchange for pop corn.
It is just not true that during the first months of Bitcoin existence in 2009 no one was “handing over” valuable goods or services in exchange for bitcoin. Satoshi exchanged his time, effort, processing power and electricity to obtain bitcoin units, and the same applies to all early Bitcoin miners.
Bitcoin was already more valuable to them than the goods they gave in exchange. They wanted to own bitcoin units and as of Carlos Bondone’s axiom of the biunivocal relation “owner <— > economic good”, there is no economic good without owner nor owner without economic good. Therefore, bitcoin units were already an economic good and they already had exchange ratios (i.e. prices) before Laszlo’s pizza exchange and before any exchange for dollars or euros.
Why was Bitcoin worth owning it, and therefore an economic good for Satoshi and the early miners? Well, to explain this with total accuracy we would need to be inside their minds at that time, but I think that based on what Satoshi wrote in the whitepaper, it would be more than reasonable to conclude that he valued Bitcoin in the expectation it could be useful as a Medium of Exchange (in a scientific sense, that is, not necessarily a Commonly Accepted Medium of Exchange).
Or as Menger defined it, a commodity in its more pure materialization, as bitcoin units are always a commodity because they can’t be consumed (if we exclude burning Bitcoin from consumption).
If there is another individual that values Bitcoin, and wants to get some, and does not want to go through the hassle of mining, then interpersonal exchange is possible. At what price and in exchange for what? That’s the least of the problems, the parties exchanging will figure out through a plain normal bairganing process, like with any other new good (or not new, the process is essentially the same). The fact that Bitcoin’s only purpose is to be a MoE doesn’t make the bairganing process more difficult.
This very simple observation shows that Mises’s Regression Theorem is not necessary to explain the value of a thing whose only purpose is being a Medium of Exchange, as Carlos Bondone rightly pointed out back in 2006 before Bitcoin was invented:
I do not believe Menger would reject the possibility of an economic good appearing exclusively to satisfy liquidity, which he calls marketability, with no need for it to exist previously to satisfy other needs. (Bondone, Theory of economic relativity, p. 112)
One thing is to observe that media of exchange was discovered by humans through consumption goods using them as commodities (Menger), and a completely different thing is to claim that any new commodity must always emerge through a consumption good (Mises).
Once the concept of a Medium of Exchange is discovered, nothing prevents humans from inventing a thing whose only purpose is to be a Medium of Exchange. That is the case of Szabo’s collectibles and also the case for Bitcoin.