For quite some time, I have been involved in online arguments with a guy who calls himself Smiling Dave. He blogs on his blog, and posts on community forums, and a large part of those posts are about Bitcoin. While I disagree with his conclusions, that’s not the reason why I’m interested in the debate. I’m interested because he is unable to provide a coherent reflection of his arguments. He continues to contradict himself, and does not want to address these contradictions. I decided to summarise the problems with his arguments and present them in a compact form.

The point of this article isn’t to express my agreement or disagreement with Dave’s conclusions or to express my opinion about Bitcoin. I might do that at a separate occasion. Here I only concentrate on explaining the contradictions Dave presents, in order to expose that he has a long way before his conclusions can be given any merit. What follows is an analysis of his contradictions.

Market share

His first contradiction revolves around the market share of Bitcoin (even though he rejects the label). His argument is that a medium of exchange must be, by definition, widely demanded for its medium of exchange functionality. He however also quotes Mises’ Human Action:

Money is the thing which serves as the generally accepted and commonly used medium of exchange.

which implies that media of exchange that are not generally accepted and/or commonly used, exist. The best example of Dave’s conflation is this passage:

Because money has to be something accepted
1. by a whole community
2. in exchange for anything and everything.
That’s what medium of exchange means.

Here he explicitly equates money and medium of exchange. Afterwards, he analyses these requirements with respect to Bitcoin:

So the day you can be given a paycheck in bitcoins, and then you can use bitcoins to buy everything your heart desires, that’s when bitcoin will be a medium of exchange. Until then it just isn’t.

Until the housewife goes out to the mall to shop and can buy everything offered there with bitcoin, bitcoin is not a medium of exchange.

On the other hand, Dave admits that a non-common medium of exchange exists and Bitcoin might fit into this category. He writes:

So bitcoin has been used as a medium of exchange a handful of times. Still not enough to give it the title Medium of Exchange, even if it was used technically a few times in a few isolated transactions.

Dave quotes an article by Timothy D. Terrell:

One of the consequences of the regression theorem is that money must arise from a commodity already in general use. If there is no nonmonetary use for the good, it will not develop the widespread demand that must precede its use as a medium of exchange.

and then writes:

Widespread demand before it can even be a medium of exchange? All it takes is three people willing to use it one time, a la Bob Murphy. Whatever can this adjunct professor with the Mises Institute possibly mean?
Obviously, he understands “medium of exchange” to mean “non trivial medium of exchange”. Which is the way I use it, as well.

Dave here mixes two things. He mixes the definition of a medium of exchange with the application of the regression theorem. But the regression theorem is not a part of the definition of a medium of exchange. Presenting it in the way of Smiling Dave is a circular argument: he assumes the validity of the regression theorem, and from that derives the definition of a medium of exchange. Furthermore, even if we agree with the “hard” interpretation of Terrell, he does not argue that a medium of exchange must be widely demanded. He argues that a good must be widely demanded before it can be used as a medium of exchange. It does not imply that the demand qua medium of exchange is “wide”.

Dave simultaneously claims that a medium of exchange is a distinct category from money, yet he cannot explain what distinguishes them. The closest he comes to explaining himself in this respect is:

As you will recall, Mises in HA writes in Chapter 17 that the difference between money and medium of exchange is one of degree [of universality of use], with the possibility of borderline cases.

But Mises does not use the terms “degree” or “universality”, at least not in Chapter 17 of Human Action. Rather, he uses the terms “generally accepted” and “commonly used” to distinguish between a medium of exchange and money. Precisely the terms that Dave uses to define a medium of exchange. Smiling Dave’s case might be more understandable if he provided an example of non-money a medium of exchange. But he does not. The closest he comes to an example is his article about complementary currencies:

Let’s remember, the Ithaca Hour and all those other phony moneys were media of exchange for a little while, until they collapsed to zero.

The Bitcoin ecosystem dwarfs all the complementary currencies, apart maybe from the WIR Bank. You can probably buy a wider variety of products with Bitcoin than with the majority of the complementary currencies.Yet, for Dave, complementary currencies rank higher on the “medium of exchange scale” than Bitcoin. Again an inexplicable conclusion.

Indirect exchange

The definition of a medium of exchange used by Mises does not conform to the definition of a medium of exchange used by Smiling Dave. Dave does not see a trade of two non-consumable goods against each other as indirect exchange. He writes:

Oh, and one last thing, and a very important one. All the buying and selling of bitcoins for dollars or pesos or other currencies over at and other places are not, repeat not, transactions where bitcoins are media of exchange. Only instances where a person sells his apples in exchange for a bitcoin, and then buys oranges with the bitcoins, count as bitcoin being a medium of exchange. [Look this up if you don’t believe me].
[emphasis added]

What sort of exchange is it then? Mises only provides two options of classifying trades: direct exchange and indirect exchange. As none of the components of the buying and selling referred to by Dave are consumable, it can’t be direct exchange either. What it is for Dave is a mystery. Dave does not explain what sort of transaction a trade between two non-consumable goods is. This is not Bitcoin specific, the forex markets are highly liquid and have a large transaction volume. Wikipedia article on Forex claims that:

The average daily turnover in the global foreign exchange and related markets is continuously growing. According to the 2010 Triennial Central Bank Survey, coordinated by the Bank for International Settlements, average daily turnover was US$3.98 trillion in April 2010 (vs $1.7 trillion in 1998).

The forex volume is about 20 times the world GDP. Yet Dave does not provide a method of classifying this huge transaction volume. For him, they can safely be ignored and can be dismissed.

When I argued that a non-negligible proportion of online gambling industry uses Bitcoin, Dave counterargued that:

Even if all gambling is done in bitcoin that does not even make bitcoin a medium of exchange for gamblers, because when they leave the gaming table and go to the mall, they have to use dollars, and cannot use bitcoins.

Yet none of the secondary media of exchange mentioned my Mises or Rothbard conform to this criterion. Mises presents the following list:

  1. Claims against banks, bankers, and savings banks which–although not money-substitutes –are daily maturing or can withdrawn on short notice.
  2. Bonds whose volume and popularity are so great that it is, as a rule, possible to sell moderate quantities of them without depressing the market.
  3. Finally, sometimes even certain especially marketable stocks or even commodities.

Rothbard calls media of exchange that are highly liquid, but not liquid enough to be money, “quasi monies”. He writes:

In Oriental countries jewels have traditionally been held as quasi moneys. In advanced countries quasi moneys are usually short-term debts or securities that have a broad market and are readily salable at the highest price the market will yield. Quasi moneys include high-grade debentures, some stocks, and some wholesale commodities. Debentures used as quasi moneys have a higher price than otherwise and therefore a lower interest yield than will accrue on other investments.

Apart from certain commodities, none of the examples listed by Mises or Rothbard are accepted as a payment instrument, and in many cases it is not even technologically possible to use them that way. Yet Dave is adamant:

What counts is only one thing. Can I buy everything I want with bitcoin, or not?

When I pressed Dave to address the secondary media of exchange (as they are rarely, if ever, used to pay for anything), his conclusion was that secondary media of exchange are not really media of exchange. This emphasises his inability to distinguish between media of exchange and money (which I mentioned in the previous section), as according to Mises and Rothbard, these highly liquid goods (secondary media of exchange/quasi monies) are just one step removed from money and they do not envision something in between. You might think that if Dave was right, Mises and Rothbard would present some example that conforms to his interpretation. I do not know of any such example.


Dave simultaneously argues that the regression theorem’s conclusion is that Bitcoin is unsustainable, and that Bitcoin cannot be a medium of exchange. But these are two entirely different propositions. On one hand, he quotes several Austrians claiming that a medium of exchange must evolve as described in the theorem, in other words that it is logically impossible for it to evolve in a different manner. But Bitcoin exists. Even if Dave denies it is a medium of exchange, it exists. So, Dave made a twist on the theorem by starting to claim that it doesn’t mean that Bitcoin couldn’t have evolved, but that it is not sustainable.He writes that Bitcoin:

It’s not a medium of exchange now.

The day it collapses into being valueless, like the Ithaca Hour, it will confirm the regression theorem.
[emphasis added]

Nowhere does the regression theorem say that things that do not conform to the regression theorem must collapse. This interpretation was invented by some “junior” Austrians, such as David Kramer or Melissa Pattison.

Dave also does not understand either complementary currencies, nor how the regression theorem applies to them. Complementary currencies are technically money substitutes, not money in the narrower sense. Their market price is pegged onto money (e.g. USD, EUR, CHF), and liquidity is achieved by a method similar to credit expansion performed by the banks (e.g. loans without interest). Having a price and liquidity, it is logically possible for them to act as media of exchange. Dave admits that complementary currencies are media of exchange (see above), and rather argues that they are unsustainable.

He argues that many of these complementary currencies (e.g. Ithaca Hour, BerkShares, …) “collapsed” and are “worthless”. But this is an erroneous portrayal of their history. Complementary currencies lose market share alright, but they usually don’t lose their value. This is also confirmed by the articles about complementary currencies Dave himself references, as none of them indicate that the complementary currencies lost their value. Their value is still pegged to the underlying money. I’m not saying that it is logically impossible for them to lose value, I’m merely pointing out that Dave ascribes this possibility to situations where it didn’t happen, and that even if they were somehow analogous to Bitcoin, he still has no evidence that the value of Bitcoin will collapse. At best he argues that the demand for them will collapse. And why should it collapse? He does not explain.

Dave writes:

So bitcoin has been used as a medium of exchange a handful of times. Still not enough to give it the title Medium of Exchange, even if it was used technically a few times in a few isolated transactions.

Similarly, on his article about secondary media of exchange, he argues on one hand that

In other words, if we agree that bitcoin is a secondary medium of exchange, it is not money, and never will be, either.

So here he argues that it the regression theorem’s conclusion is that it is logically impossible for Bitcoin to become money. However, just a couple of days prior to that, he argued that:

So there exist secondary media of exchange. So what?
The regression theorem applies to them, as well.
They pass the requirements of the theorem.


Sure bitcoin is a secondary medium of exchange in almost all the transactions it’s used in.

Do not satisfy my reasons but satisfy regression theorem = secondary medium of exchange.

I.e. he simultaneously claims that Bitcoin is a secondary medium of exchange, that it does not conform to the regression theorem, and that secondary media of exchange do conform to the regression theorem. Out of these three statements, only two can be simultaneously valid. Furthermore, if it already is a secondary medium of exchange, then why must it collapse? It does not follow irrespective of whether secondary media of exchange do, or do not, conform to the regression theorem.


Smiling Dave presents a hopelessly confused “theory”. He simultaneously presents three pairs of contradictory claims:
  1. Medium of exchange is distinct from money, but on the other hand there is no discernible differentiating factor between them
  2. Medium of exchange must be used as a payment mechanism, yet he presents no example of such a medium of exchange (technically he contradicts Mises and Rothbard rather than himself)
  3. He alternates between arguing that according to the regression theorem, Bitcoin cannot be a medium of exchange, and that Bitcoin’s value is unsustainable
It is clear that the problems of Dave’s argument are deep and fundamental. His goal, apparently, is to somehow “disprove” Bitcoin. But the goal is irrelevant. Even if his intention was exactly the opposite, or on the other hand, if I agreed with his conclusions, that still does not resolve any of the contradictions in his arguments. Dave needs to face the contradictions and resolve them. My recommendation would be to start with the basic gaps:

  1. Explaining why a trade between two non-consumption goods is not indirect exchange, and provide a method for classifying such trades (as according to Mises, the only two options are direct and indirect exchange)
  2. Providing a clear distinction between a non-money medium of exchange and money, and providing examples of such non-money media of exchange (preferably ones that he considers sustainable)
  3. Explaining how Bitcoin is to be classified (as according to Mises, the only three options are consumer good, producer good and medium of exchange)
  4. And last but not least, as a bonus, he can try to describe the process by which Bitcoin will collapse
My expectations of high level of coherence from a random guy on the internet may be pedantic and unrealistic. But that’s just how I am. For me, it is irrelevant who makes an argument, rather it is the logical consistency of the argument that I strive for. I also do not view my personal opinion about the conclusion as relevant. Indeed, if Dave’s conclusion was correct and Bitcoin really was to collapse, we should know about it, and we need to understand the reasons for it so that we may adapt our future action accordingly. But at the present level, Smiling Dave’s arguments make it impossible to draw any conclusion. Maybe someday, they will.

Leave a Reply

Your email address will not be published. Required fields are marked *