Typography

Juan Galt recently introduced me to one of bitcoin's biggest problems. Bitcoin is not money, at least not according to the law. Economists like to say that money is unique because it is a medium of exchange, store of value, and unit of account. Lawyers and judges have a different story to tell about money's uniqueness. Unlike goods, money can't be 'followed.' When a good is exchanged, its entire history goes with it. This history may be checkered. Say that a car has been stolen at some point in its past and then sold, and the police discover this fact. The current owner—though having purchased the car innocently—is required to return it to its rightful owner. The law 'follows' goods. With money things are different. Each time a monetary instrument is transferred, its history is wiped clean. As long as the recipient accepts the money in good faith, the original owner of stolen dollars cannot make a claim for those dollars. This peculiar legal treatment of mo...

Over the last few decades, dollars have become incredibly heterogeneous. People can pay for stuff with traditional paper bank notes, debit cards, or a plethora of different credit cards. Each of these dollar brands comes with its own set of services and related costs. On the no frills side is cash. Paying with paper still incurs the lowest transaction costs, although at the same time it offers its owner no associated perks. On the fancy side is an American Express card, which costs around 3.5% per transaction but is twinned with a raft of benefits including reward points, the right to dispute a transaction, and insurance coverage. Mastercard and Visa come somewhere between. As you can see, spending one sort of dollar is very different from spending another sort. The free banking era and the "multitude of dollars" problem There's a precedent for this sort of dollar heterogeneity. During the U.S.'s so-called "free banking era" that lasted from the 1830s until ...

A page from   Van Court's Bank Note Reporter and Counterfeit Detector (1843), showing multiple prices for various dollars. Notation: do =ditto, same as above | par =no discount | 20 = 20% discount | 1 = 1% discount | no sale = 100% discount | fail'd =failed bank, 100% discount | clos'd =bank closed, 100% discount For the past year or so, US dollars deposited at the MtGox bitcoin exchange haven't been considered to be particularly good dollars. The problem is that they are illiquid. Due to a number of reasons (see Konrad Graf ), MtGox has limited the ability of users to convert MtGox dollars into conventional dollars issued by the likes of Bank of America, Wells Fargo, and the US Federal Reserve. Withdrawals are slow, uncertain, and red tape abounds. Current holders of "bad" MtGox dollars would very much like to make their dollar-denominated wealth more liquid. Unfortunately the only reliable route available to them is to exchange their bad MtGox d...