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Comment by AndrewKemendo | Hacker News Reader

Back in 2009 when I was getting into bitcoin, it was widely described as a "stateless currency" and not just an alternative to Visa or credit cards. Having a background in economics, bitcoin looked to me like a truly revolutionary technology and if it was adopted en masse would change politics forever.

The problem however is that a nation's currency is arguably the primary source of it's sovereignty. Whomever controls the currency primarily used in a nation, controls the nation. So it's safe to say that no nation is going to let bitcoin or any other currency take hold for widespread commercial use in lieu of it's sovereign currency - that's a hallmark of a failed state.

In fact that's why when regulators declared bitcoin as a commodity it was such a big deal. The US doesn't really care because we haven't had commodity money since the 1970s, but the idea that if enough people decided that they wanted commodity money, they would arguably have a medium with which to do it with that wasn't tied to any state.

So as with every product, unless a massive number of people decide to stop using their home currency and start using bitcoin, then bitcoin will "fail."

Whether it pivots to some kind of credit system or not is largely immaterial because of the potential it had.

It's like if we created Artificial General Intelligence and it decided to just write movie reviews forever.

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> The problem however is that a nation's currency is arguably the primary source of it's sovereignty.

The reverse is also true--any significant currency creates sovereignty by elevating the power of those with the greatest influence over that currency.

In the case of Bitcoin, the "core" developers, in addition to the highest-volume miners, have been elevated to the sovereign position. Rather than a distributed stateless currency (which I would argue is impossible), what Bitcoin has become is a currency whose sovereigns are accidentally selected, poorly organized, and not responsible to its currency users in any direct way.

There is a famous concept called the "tyranny of structurelessness," which says that there are always political structures when groups of humans interact, the question is just whether they are defined or hidden. A "structureless" organization, rather than egalitarian, is governed by a small secret clique that assembles for unknown or possibly trivial reasons. There are no clearly defined procedures for removing or adding sovereigns, or for adjudicating disagreements.

Does this sound like Bitcoin? Based on the articles I've read this week, it does to me.

Edit:

https://en.wikipedia.org/wiki/The_Tyranny_of_Structurelessne...

That's great, I hadn't heard a term for that before, but that's exactly how I've been describing Bitcoin for a while. There's so much ideology in the space that governance is a toxic idea. Many like to ignore the reality of people coming together and having disagreements.

However, I wouldn't quite say that it describes Bitcoin, or rather, it only describes it up to this point. The real, ultimate strength, I think, would be a Bitcoin that has a market for governance. To wit, you'd have competing implementations, each of which would adopt some protocol changes, but perhaps not others, and each node and miner would be voting on the network (by participating, mining, etc.). Any majority would eventually create a longer fork and win out. This is what Gavin has been talking about for some time.

The real question is whether the network can withstand the constant possibility of forking, and some frequency of actual forks. I think it can, and would represent a dramatic shift of how Bitcoin operates. I see it as a bright new future and the ultimate in anti-fragile structure, while obviously others see it as a fundamental betrayal.

The actual essay is well-worth a read: http://www.jofreeman.com/joreen/tyranny.htm

> In the case of Bitcoin, the "core" developers, in addition to the highest-volume miners, have been elevated to the sovereign position.

I'm far from being a Bitcoin expert but from understanding: In the end Bitcoin is just a piece of Open Source software. Every user (including the miners) decides which version of the software (and ultimately which version of the blockchain) they like to use. Everyone can write his or her own version of a bitcoind and publish it.

The miners ultimately decide which blocks to accept so they have some special power but only as long as people use the same blockchain. The core devs have the power to persuade and influence the community but they can't force no one to use their client.

Bitcoin is more like a democracy where currently some citizens want to leave the current system and build their own democracy with different rules.

That sounds great in theory, but in practice it sounds like the established players have a very strong financial incentive to avoid the rise of any forks, going so far as to DDoS any attempts at doing so.

The blockchain is open source software, and anyone can create a currency based on it. That's why you have dogecoin, litecoin, etc. However, in order for a currency to be valuable, people have to use it, and bitcoin is the only cryptocurrency that has really taken off.

Yes. I love the tyranny of structurelessness and reference it frequently.

Also, just to compound things - this gets even worse and more magnified with investments from VC's etc... which already have outsized power. Now they become the de-facto power holders in a sovereign currency.

Talk about disruptive technology.

Well, do you honestly believe that VCs have even a fraction of the power that Wall Street does?

I think it's a false distinction. Institutional capital, distinct from Angel money, is part of the same ecosystem.

VC's are part of the larger global equity market, taking funds from LP's such as pension funds in the same way that Goldman and the rest do. The fact that they are smaller in total dollars doesn't mean they have structurally different goals.

At the end of the day a VC has to show returns to the LP in the same way that Wall street does with their private equity departments.

In the case of public companies, the company itself has the power over pricing as long as they are doing well (see: Amazon) when they aren't it's private equity that makes the difference and you are back to where you started.

A fair point, thank you.

Well, right.

One may frame this whole "failed versus not failed" as a power struggle between two camps:

a. Those who own a large stake in the original BitCoin - such as the developers, miners, venture capitalists, the Winklevoss Twins, etc.

and

b. Those who don't own a large stake in BitCoin currently, but wish to own a large stake in the dominant cryptocurrency. Wall Street...

When you attack BitCoin on any grounds, technological or otherwise, you are attacking those stakeholders.

Another way to look at it is, what was the goal of the Bitcoin experiment?

a. To create a new network for digital financial transactions? This seems to be what Fred Wilson is writing about, and I agree with him that the jury is still out.

b. To create a distributed currency free from government bureaucracy? Bitcoin seems well-separated from the U.S. federal government, but lately it also seems like Bitcoin has organically sprouted its own messy government bureaucracy.

> Bitcoin seems well-separated from the U.S. federal government, but lately it also seems like Bitcoin has organically sprouted its own messy government bureaucracy.

Bitcoin, nor its tokenholders, cheerleaders, etc. do not have the violence-backed power to tax. So while it may have the nasty trappings of a bureaucracy, I don't think it sinks to the level of a government bureaucracy.

That's damning with faint praise, if the best thing you can say about the Bitcoin community is that at least it hasn't monopolized its capacity for violence.

Nah. People need to learn that you simply can't build a decentralized, egalitarian system on capitalist foundations.

Has anyone built a decentralized, egalitarian system on any foundation? Call be cynical but at some point you run into human nature, and we're not fundamentally decentralising or egalitarian.

Non sense. It is not necessary for the agents in a decentralised system to be selfless in order for the system to self organise.

Edit. Drunk and offensive. But my point still stands.

This is super nitpicky but it's "Bitcoin" when referring to the currency (e.g. "the Bitcoin blockchain") and "bitcoin" when referring to an amount ("0.2 bitcoin"); it's never "BitCoin".

I see, thank you.

Exactly this. Humans have complex social structures. Notice, too, how the sorts of animals humans domesticate are animals with a strong social hierarchy. This is key: to control the lot, you must subjugate the leader. Famously, Zebras were never domesticated because they lack this hierarchy.

Interesting, didn't know.

But how about cats?

Cats have not been domesticated. They merely tolerate our insistence on feeding and sheltering them.

Sounds like there should have been a structure built into the currency where model changes could be voted on by miners.

As someone with an economics background, I'm surprised you think the biggest problem is the statelessness of Bitcoin. The biggest economic problem to me has always been an unintelligent control of the money supply. You can criticize some of the actions that many central banks do to manipulate the economy, but I have a hard time buying the answer to bad management is no management.

>I'm surprised you think the biggest problem is the statelessness of Bitcoin.

In fact it's the opposite I think that's its biggest strength.

If no one else sees it that way however, then it will not live up to it's potential because there is no reason for them to move over to it. Adopting bitcoin is a political decision because money is as equally political as it is economic.

It's super complex because the vast majority of people have no clue the power and complexity that sits behind the money they hold in their hands. They just see it as the next bag of groceries, or electricity payment.

I can understand your argument that it might be a strength of the idea behind Bitcoin (I personally disagree), but I believe it becomes a clear weakness because it is such an impediment to wide scale adoption. A system can have a great theory behind it, but it is nothing more than a good thought experiment if a real world implementation is impossible

I can assure you the Bitcoin Core developers see it the same way as you. But it seems that view is not universal among the userbase.

It's all about trade-offs. Bitcoin may have trouble competing against a "stable" currency like USD or EUR, but would have a huge benefit over a heavily manipulated one like in Venezuela, where inflation sits at ~60%.

If Bitcoin could become stable, then it would offer the freedom of converting wages into a more stable form. A Venezuelan would expect the purchasing power of today's wages to be 4% lower in just one month!

Exactly, this is why the stateless-ness is such a drawback to adoption. Because Venezuelan gov't knows that its people would prefer to transact in a more stable currency and try to convert from the bolívar to btc. And the gov't will try to do everything in its power to prevent the exchanges from happening.

The money supply is fixed to 21 million. Fortunately, the coins are basically infinitely divisible, so as the coins become more valuable (assuming over the long run that coins are used for larger and larger amounts of commerce rather than speculation), small transactions simply happen at smaller units. In other words the system is steadily deflationary instead of the highly volatile inflationary system we currently have with fiat currencies.

More importantly however, is the rent-seeking by BTC enthusiasts. BTC hoarders don't "deserve" any more wealth than later adopters, and yet wish to create wealth from nothingness and basically a giant Ponzi scheme.

At least with stocks and companies, the stock actually means something: typically a vote for the board, or access to a dividend.

It seems strange to consider a currency as a viable alternative for other currencies, when a sizeable chunk of the total available sum of it is owned by a single person or group simply because they came up with the system, and another large part is in the hands of speculators. There is nothing fair about a currency that is so volatile in value by design and is essentially speculative in nature.

It is sad to see that this side of Bitcoin is not stressed more often.

You literally described the US dollar, maybe every currency.

Actually the US Dollar is inflationary, which means those who hoard US Dollars lose out in the long term. You lose approximately 2% to 3% depending on how well the Fed actually hits its benchmarks.

BTC on the other hand is inflationary, due to the (artificial) cap of 21 Million BTC.

In any case, inflationary vs deflationary is a moot point. Too much of either side is bad. The important part is price consistency, which everyone can agree is relatively fair. 2% to 3% inflation (loss of value) is much more consistent than anything that BTC has accomplished... with wild swings of 100% to 1000% on some years.

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I'm intrigued by DOGEcoin, explicitly because it adopts an inflationary model with infinite supply. I think that sort of model is more fair in the long term, and certainly more fun.

Yeah, people don't hoard us dollars, they hoard T bills and other obfuscated forms of us dollar debt.

Considering that T-Bills have a return of 0.2% right now, that still loses to inflation.

IE: If you actually want to make money, you have to go equities or start up a company.

When it comes to volatility, bitcoin is at one end of the spectrum and every other currency at the other.

This is an ignorant view.

Bitcoin is tiny, its measured in billions. How much did the Canadian currency just lose in the last view weeks? That amounts to hundreds of billions of vaporized wealth.

That is an ignorant view. Percentage matters much more than absolute when it comes to currency.

> How much did the Canadian currency just lose in the last [few] weeks?

Huh, that is a really interesting question.

It's not as trivial to calculate as it is for Bitcoin, where you can multiply the moneys held by the change in exchange rate -- essentially no prices as denominated in BTC, while most prices most Canadians deal with are denominated in CAD. For most Canadians, the ratio of their income and rent or groceries will stay the same, so in some senses they haven't lost anything. But the price they pay for imports, like computers and oranges, will go up, so they have definitely lost something. I wonder what the balance comes out to.

Many domestic products become more expensive as the currency adjusts downwards as producers take advantage of higher foreign prices.

In the long run, this can depress foreign prices and even increase manufacturing demand here due to lower labour costs. But these changes don't happen overnight.

The Canadian Dollar lost about 5% over the last weeks. That's about as much as BTC wins or loses on a single lucky or bad ay.

The theoretical maximum money supply is 21 million. The actual amount of money in circulation can still vary wildly as keys to wallets containing bitcoins are lost (resulting in a permanent reduction of the maximum money supply) and as speculators cash out (resulting in a temporary increase in the effective money supply).

If BTC become more valuable, then how is that deflationary?

The thing being inflated in inflation is prices. If a currency becomes more valuable, things cost less in that currency. An appreciating currency leads to deflation, all else being equal.

(This assumes you are treating BTC as a currency, which appears to be the OP's intent.)

Oh right, of course. Inflation means that the value of currency becomes less valuable. Just a brain fart on my part. Thanks!

Exactly. The Fed or CBRC may not be perfect with their policies, but at least they're beneficially aligned with the future and stability of their currency (rather than a group of rational self-interested actors).

"they're beneficially aligned with the future"

how's that divide between the rich and poor going? The fed has been upwardly redistributing wealth especially dramatically for the last 40 years since when the Nixon closed the gold window. I suppose if you think creating a kleptocratic state is beneficial for the future, then your statement rings true.

Huh, the rich/poor divide in bitcoinland is way worse than in the real world, so I am not sure which point you are trying to make.

It's amazing the amount shit people will write about government, either they are a shill or brain dead.

>You can criticize some of the actions that many central banks do to manipulate the economy, but I have a hard time buying the answer to bad management is no management.

Why is active, central, management necessary?

>The biggest economic problem to me has always been an unintelligent control of the money supply.

The Bitcoin paper [0] lays down the rules of control and many have been able to follow it; In what way is that unintelligent?

[0] https://bitcoin.org/bitcoin.pdf

Because it ignores the velocity of money and total amount of transactions.

If the USA suddenly adopted bitcoin as the official currency, you would see insane deflation. If people stopped using bitcoin as much, you'd see strong inflation.

Central banks manipulate money supply to keep prices steady.

That's why I can sign a loan for a house in dollars. But you would be insane to sign a loan for a house in bitcoin. The federal reserve will keep inflation from 0-2%. We can count on it. Bitcoin who knows.

Why would I need to sign a loan for a house in Bitcoin? With Bitcoin I can just buy the house outright.

Debt currencies are used for signing loans.

Anyway, there is probably a way to add an inflation metric over the blockchain based on it's length (or #transactions, or avg. transaction value, etc.), where some value equivalence can be drawn between older coins and newer coins, if it's really desired.

I honestly have no clue how someone can claim to be schooled in economics and yet be so wrong.

Have you been hiding away for the last 7 years? There are so many objections to central banks its difficult to know where to start, but just one question, you truly believe any group is capable of making gross monetary decisions that affect billions of people didn't we go with capitalism because markets beat kings?

> Back in 2009 when I was getting into bitcoin, it was widely described as a "stateless currency" and not just an alternative to Visa or credit cards. Having a background in economics, bitcoin looked to me like a truly revolutionary technology and if it was adopted en masse would change politics forever.

No state or political entity will EVER support en masse a currency that it does not control and/or is NOT backed by another state with larger economy!

In Sept 16 1992 the BoE withdraw the Pound from the ERM as a precaution after the most fierce attack the BGP ever received. The cost was ~ 3-5 Billion pounds. The GBP came out wounded, but it came out in one piece because the government had a say. Millions of people in the UK lost money indirectly, but the government was able to minimize the losses. Now imagine if the UK that day had the bitcoin, what would you have them do, block ISP traffic? How would you explain what happened to the population?!

Using BTC as a state currency is not just anti-democratic, it is pure insanity.

Well this is the point. If private citizens adopted BTC over their nation's currency it would completely upend the political power structures - which arguably is the most democratic thing possible.

No nation state would ever encourage it, but in theory it would flatten the world to the greatest extent ever - moreso than any transportation technology (shipping, airfreight etc...) ever.

You might be confusing democracy with anarchy: in democracy everybody has a say in anarchy no one does, bitcoin is a lot like the later and none at all like the former.

It wouldn't.

If anything, it would vastly concentrate power further in the hands of a few--except this time, those few would be the miners and core developers.

Say "the people" wanted to vote to increase the pool to 25 million coins, instead of 21. That is a pretty basic form of political power to exercise, saying "we want to change this structure that affects our lives, let's vote on it".

How would "the people" hold that vote?

The answers I've gotten in the past, when I ask this question, have been one of:

  * Just patch the software, and if 51% of the miners accept it, that's it!

Or...

  * Currency shouldn't be under democratic control.

Neither of those statements is anything like democracy. And those attitudes seem to be pretty prevalent in the bitcoin world.

It's for that that I could never, ever endorse Bitcoin in any way. My interest is in pushing for a greater distribution of power--less concentration in the hands of a few--and doing so that actually engages with everyone, whoever they are, open source dev or not.

We don't disagree.

If power moved from governments to a handful of developers "it would completely upend the political power structures."

It is democratic is because people are voluntarily adopting BTC where alternatives exist - which is unprecedented in the history of money.

They vote by acting.

Voting, in this context of political engagement, isn't just any ol' act of expressing a preference. "Vote with your dollars" is not voting, though you often hear people say this sort of thing, and I think this is why people now confuse voting with making decisions in general. You choose the green shirt, you don't "vote for green," when you dress yourself in the morning.

Voting is the act of expressing a preference in a framework of governance that lets people engage with the governing structures and policies, and these days we also take it to mean that each person gets a vote so long as they're a citizen--they don't need to be rich or even literate. That isn't built into Bitcoin anywhere. It's antidemocratic because there is no way for every single user to express a preference in its design or operation.

That doesn't seem to bother the bitcoin advocates I've talked with, either. The sense I get, and I realize this is not so charitable, is that they look at it as a way to be the guys in power in this new system, and aren't so keen to bake in some sort of voting because it'd just take that away again.

>what would you have them do, block ISP traffic?

Forbid businesses from accepting BTC. It's that simple.

> nation's currency is arguably the primary source of it's sovereignty

Not really. Many countries do not mint their own currency, and other mint currency but peg its value to another.

https://en.wikipedia.org/wiki/Currency_substitution

What constitutes sovereignty is complex. It mostly comes down either legal recognition of sovereignty (de jure) or physical/guns on the ground control (de facto).

https://en.wikipedia.org/wiki/Sovereignty

There is a massive difference between a currency peg and citizens using another nation's currency for transactions. In the former case the state still controls the currency and it's distribution, the latter they are completely divorced.

and yes sovereignty is of course complex, but if you can't control how your economy runs then you can't control your nation. Forcefully seizing notes or issuing new currencies is hallmark of a power transfer.

A peg can be changed with a moment's notice. You can't do that with a currency you do not issue. This is the dofference between what happened in Switzerland and Greece last year.

It mostly comes down either legal recognition of sovereignty (de jure) or physical/guns on the ground control (de facto).

It usually comes down to the latter. De jure sovereignty without physical control gets overrun by de facto.

I wonder if either Japan or China would grant de jure sovereignty to a seasteading platform anchored to that sinking island both of them want so badly? Then the new nation could grant their supporter some economic rights in exchange for military support.

The problem however is that a nation's currency is arguably the primary source of it's sovereignty. Whomever controls the currency primarily used in a nation, controls the nation

How does Canadian Tire Money work then? :^)

I think many people overestimate the importance of currency because of the visibility it has. Because it represents the stored wealth that people have, people confuse it with wealth itself.

The actual game of business is played out in the provision of goods & services that people want. Currency is the score. You need a means of keeping score in order to play the game, and when one doesn't exist, it will be created. And it helps if more people agree on the means of keeping score; it makes it easier for them to play together. But it doesn't really matter whether that's dollars or euros or pounds or drachmas or cigarettes. People use the currency that the people they want to play with use; the dollar is popular because many people want to play with the U.S. They don't adopt a new currency unless there is no alternative way of keeping score.

The problem with Bitcoin is that most mainstream goods & services providers didn't really want to play with the people who used it. When they did, they went through intermediaries like Coinbase who immediately exchanged it for dollars. Bitcoin caught on because there was a vacuum in the currency space for people that wanted to trade illegal drugs or move money out of China. It fails because this vacuum doesn't extend to the majority of the population.

It's worth remembering this when evaluating other emerging technologies. Look for what people want, places where there's a current lack of available solutions, and ignore the ones that theoretically could change everything if only large groups of people did things that aren't really in their personal interest.

Currency is not just the score, it allows for trades and a certain consensus to be achieved (absolute valuation of goods and services, i.e. total order of preference) that can't be achieved through simple peer to peer trading based on personal preference.

Not to mention the inconvenience/logistical inefficiency of having to have a good that interests the seller of your desire, or finding a trading chain. I guess you could create a virtual trading chain that automatically resolves those conflicts (if I recall correctly that's more or less the idea of Ripple), but if the chain fails in the middle the transaction is compromised, and you now depend on a high level of network activity for a viable chain to allow you to trade.

That's the function of scorekeeping in a game. Notice that games with no victory conditions or victory condition that are only apparent toward the end of the game (like Tic-tac-toe, or Chess, or Go) tend to lack trading mechanics. Instead, optimal strategy in them tends to mimic warfare, where you outflank your opponent and force them into a losing position. Games where there's a running score (like Poker or other betting games, or Bohnanza [1], or Chinatown [2], or even Settlers of Catan) tend to evolve very trading-directed, market-oriented strategies whenever the game rules allow for trades.

[1] https://en.wikipedia.org/wiki/Bohnanza

[2] http://www.amazon.com/Z-Man-Games-71220-Chinatown-Board/dp/B...

> It's like if we created Artificial General Intelligence and it decided to just write movie reviews forever.

Bitcoin never had that potential. Regardless of it's theoretical capabilities, the general public would not have been able to use it effectively. It requires a computer, knowledge of digital security, the idea of 'backing up' your money and keeping that safe, and all-in-all, a new approach to handling money altogether (which also requires electronics on the user's part).

The average member of the public could handle all this, sure, but half of people are below average. Bitcoin is also more difficult to understand than cash; there's a lot more mental overhead. Alternatively you can let a financial institution handle your bitcoin for you, but then there's no real difference between btc and dollars - at this point, they're just numbers on a ledger.

>a nation's currency is arguably the primary source of it's sovereignty

Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain might disagree.

The US never really had commodity money. The Bretton Woods system had a merely theoretical commodity status. Nobody in the 1960's believed for a moment that the convertibility to gold was a real thing unless unwinding the entire monetary system was on the table.

Currencies don't need universal adoption to avoid 'failure'. If a group of people us it as a currency and it has exchange value to other currencies, then it's working as a currency.

It's 'Whoever', not 'Whomever'

And "source of its sovereignty", not "it's". It might be silly, but I really can't stand that mistake.

Why not let it write movie reviews forever? Perhaps they're really good reviews. I'd say Roger Ebert had a life well lived. Making such a decision is probably a sign that we really had achieved AGI.

Likewise, if people can use Bitcoin or some other digital currency to achieve some measure of independence from existing states, it will have achieved something important. Perhaps something important of the scale you mention will come about, but it will take more time.

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