Ask HN: When will cryptocurrencies be currency? | Hacker News Reader

Ask HN: When will cryptocurrencies be currency?

25 pointsRikNieu51 comments

I'm really excited about the potential cryptocurrencies offer as an international medium of exchange, as smart decentralised currency, but everyone seems to only view it as something to "invest" in.

I have family members who barely even know how to operate their smartphones "investing" in Bitcoin, but even a casual conversation with them reveals that they have no idea what it really is. They don't even know that it can be used to actually buy things, and they don't know about it's other applications, like smart contracts.

And it's such a shitty 'investment' instrument too! This is all madness.

How can we change this? How can we get people to stop hoarding it and start actually USING it?

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That's never going to happen. Currencies are enforced and controlled by central, powerful authorities (the state). Institutions like central banks (or the FED) try to control inflation and/or deflation. In a time of prospering, the obvious goal for a central banker should be to have a mildly deflationary currency. That is because central bankers want consumers to spend their money today and not wait for tomorrow (hoarding).

Now bitcoin has built-in a hard limit. Which makes the currency, inherently inflationary. I have no evidence, but I believe that this was a strategic choice by Satoshi. Why would you buy a currency made out of cpu cycles, with no backing if not for it's future value? Without being a state (e.g. selling trust) or having huge amounts of gold to back up a new currency, the only reason someone would wanna buy it, is indeed, the future value that could hold. Hence, Bitcoin or any cryptocurrency can work as an asset but not as a currency given the current design.

Y. Varoufakis, spoke of a centralised digital currency in his solution for the Greek crisis. That could be a digital currency, that anyone can use. But was a fully controlled digital currency issued in the form of IOUs by the state.

NOTE: Talking about adoption of a decentralised currency a-la bitcoin, by a state or group of states to replace entities like the FED or the ECB shows a poor understanding of the most basic principles of the financial systems.

Don't you mean mildly inflationary? I believe the US fed aims for 1-2% inflation. Or did I misunderstand?

Similarly, bitcoin is deflationary because of the fixed supply.

Yes tha is correct. I meant deflationary for bitcoin and inflationary for the USD

Money has three functions : unit of account, store if value, medium of exchange. Cryptocurrency isn't great at the first two, but if we presume the scaling problems will be solved then it is pretty good at the latter because it doesn't require you to trust the banking system. So there is an unbundling of the functions of money described by Eugene Fama originally and then tidied up and better articulated by Tyler Cowen and Randall Kroszner in their book on the New Monetary Economics in about 1992.

Its completely irrelevant what the price of Bitcoin is for its usefulness as a medium of exchange.

This medium of exchange aspect is very important because it makes banks no longer special since its possible in time to make payments without a banking system. Thus the role of the state in regulating banks can disappear eventually - no deposit insurance, no bailouts and no too big to fail.

Credit can be provided by funds because the information asymmetry of banks no longer applies when you can port your banking records via API.

I think its a much better store of value (because of the lack of influence from banks) than a medium of exchange. It's very slow, has high fees (currently) and to buy the vast majority of goods you will eventually need to change it back into your own country's currency which will require your bank anyway. Unless I'm missing something...

"This medium of exchange aspect is very important because it makes banks no longer special since its possible in time to make payments without a banking system."

Most people don't want to have the whole of their wealth reliant on a hash they could lose though. They want to be able to talk to "customer service" if they need to.

> Without being a state (e.g. selling trust) or having huge amounts of gold to back up a new currency, the only reason someone would wanna buy it, is indeed, the future value that could hold

Are you saying that gold can be a currency but Bitcoin cannot?

> Bitcoin or any cryptocurrency can work as an asset but not as a currency given the current design.

Why can't it be both? If I expect my Bitcoin to appreciate 5% per year I might be willing to spend it to buy my weekly groceries.

> Are you saying that gold can be a currency but Bitcoin cannot?

No.

> Why can't it be both? If I expect my Bitcoin to appreciate 5% per year I might be willing to spend it to buy my weekly groceries.

You might be or might not be. I assure you, the majority will not be willing to buy groceries using a deflationary currency. They'll switch to an inflationary currency instead.

>> Are you saying that gold can be a currency but Bitcoin cannot?

> No.

Hmm... so gold cannot be a currency?

We'd have a succinct conversation if you'd take the time to express what's on your mind instead of playing around with questions. I feel you're trying to make a point but I can't tell what it is :-)

I'll bite the bullet though:

> Hmm... so gold cannot be a currency?

Everything can be a currency. Ascorbic acid could be a currency in the future if the humankind moves to planets where Citreae are hard to find.

If I'm not mistaken, the topic was about the effectiveness of bitcoin as a currency.

My point is that gold has similar properties to Bitcoin. That is, there is limited supply, very limited government control and many people treat it as a store of value.

You said earlier that "Currencies are enforced and controlled by central, powerful authorities". There is no central authority for gold yet it has been a currency for thousands of years. You seem to accept the special status of gold by implying that a cryptocurrency could be effective as a currency if it was backed by gold. So my question is what makes gold so special? Why can't the current design of cryptocurrencies be just like gold, only more convenient?

> My point is that gold has similar properties to Bitcoin.

I see, the correct version would be: Fiat currencies [...].

> My point is that gold has similar properties to Bitcoin.

I agree with your point.

> Why can't the current design of cryptocurrencies be just like gold, only more convenient?

Cryptocurrencies are a lot like gold. But as you said, gold is around for centuries. Can you bet 10 million USD that bitcoin will be around next year?

Deflationary is what you meant.

You should make some research on Varoyfakis, his lies and failures before quoting him. His disastrous game charged my country 100billions more and banks are still closed.

I don't think OP was supporting the actions one way or another, but objectively stating information that is relevant to OP's question. It's relevant because it's a case of cryptocurrency working it's way into the 'real world'. It was never implemented, so the only important thing here is that someone who a lot of people listen to actually proposed using cryptocurrency, politics don't factor into it.

I get your point I am just saying that he is a known political clown and that would never be implemented so it's just as good as you and me devising a plan like that.

For now, I believe cryptocurrencies are mostly used for speculation, most people that buy them expect to sell them back with profit, just like stocks. The value of bitcoin is too volatile right now to be effectively used at a currency. I would not want to hoard bitcoin (or other cryptocurrencies) right now.

At the end of day, a currency is based on trust. If I have a 20$ Cad bill, I know all businesses in Canada will accept it, the Bank of Canada is backing this currency, people can be paid in Canadian dollars, and etc. I also know that I can easily exchange my canadian dollars to Euros, US dollars and etc. Most cryptocurrencies don't have that same level of trust right now. If there is no trust, people won't actively use this currency.

In addition, Currencies are also used by a country/central bank to regulate its economy through monetary policy.

But I can see cryptocurrencies to be an addition to "normal" currencies, but I don't think they will ever replace them.

Which do you trust more? The decisions of a government, or the laws of mathematics?

It isn't about trust in mathematics; its trust that in the future someone will still be willing to buy your bitcoin (with whatever, be that dollars or loaves of bread).

Is there a law of mathematics that you can't break the cryptography used by Bitcoin?

Money has 3 main uses: a medium of exchange, a unit of account, and a store of value.

Bitcoin works reasonably well as a medium of exchange, as long as transactions are confirmed relatively quickly.

Bitcoin prices are pretty much always tied to the price in US dollars or some other fiat currency. Online prices can be changed dynamically, so Bitcoin doesn't really need to be its own unit of account.

But it never really works as a store of value, due to its volatility. I have about $20 in Bitcoin today, but I have no idea what that will be worth in a week, so it's risky to keep any large amount of money in Bitcoin. The safest way to buy things in Bitcoin would be to buy it, and then immediately send it to whomever you're buying from.

So I think that Bitcoin will be much more usable when its price stabilizes, and there's much less friction with each purchase.

Yes - that's right : people mostly shouldn't need to hold such high Bitcoin balances to buy things. What's in the way is the state interfering so you can't change dollars for Bitcoin with your bank and there aren't services that do that which are convenient enough. In time this will change so you can just make Bitcoin payments from your checking account.

"In time this will change so you can just make Bitcoin payments from your checking account."

If Bitcoin could displace banks, what incentive do they have to displace themselves?

Banks make money by borrowing from one person and lending to another at a higher interest rate. They can do this in Bitcoin just as well as in US dollars.

One thing that hasn't been suggested yet is the lack of point of sale support for cryptocurrencies.

Companies like Coinbase and Stripe have already made it relatively straightforward to accept Bitcoin online. Think if companies like Square or other point of sale terminal vendors made it easy to accept Bitcoin to pay for my coffee!

There are a few issues - there are no "chargebacks" with Bitcoin. You get a lot less protections in your capability to return things - its all up to the merchant. Also, the transaction times are too slow right now, esp for small purchases. Finally, there is so much volatility with the value of cryptos - would a merchant want to see the amount you paid him lose 20% value the next day just due to the market?

They already are. All currencies are based on trust nothing else. There is no inherent value in any currency besides the trust in it's issuer.

They can be used to buy things already that's enough.

I don't understand why this is being downvoted; it's the most correct answer.

People in other answers are adding superfluous fluff about taxes and governments and such things, but none of that is relevant to whether something is currency.

Never.

A currency is something taxes are denominated in. And those currencies are necessarily controlled by the authority issuing the tax or the power to tax loses it effectiveness. (see Greece for details)

Everything else is just a transferable asset - intangible or otherwise.

It's why gold isn't a currency. You can't settle taxes with it.

A currency is the modern equivalent of a tally stick. It's what an authority uses to command physical resources.

It'll never happen. Any sort of currency needs to be backed either by an asset or a government, otherwise it's essentially worthless.

Cryptocurrencies have value because they're basically one big ponzi scheme where people invest because they are confident someone after them will buy it, but the odds of them having staying power are slim because, at the end of the day, there is nothing with actual worth backing them.

I strongly disagree - If I know I can trade an item to someone else for something I want, I will accept it as payment. It doesn't matter what any government thinks about it, nor whether it can be used for something other than trading.

Worth can be assigned by people. There is nothing "backing" gold, we have simply decided that it is worth something.

Gold is used in jewelry and electronics. It'll always have some worth, though personally I do think it's overpriced.

Someone once said that the price of gold is a 6,000-year-old bubble. There is no doubt that the price of gold far exceeds it's utilitarian value. The same is true of cryptocurrencies.

> where people invest because they are confident someone after them will buy it

That's stock market.

Yes, but one difference is that if the price of a company goes low enough, someone will buy it and sell off it's assets. Depending on what sort of assets the company has, this is even something that banks will finance.

Except in the stock market, you get equity in a real business with real assets, and other perks that go along with ownership.

Not every scheme is a Ponzi scheme, you may want to read up on what that means.

People need to hoard it before being able to use it. It needs to grow about 1000x to be hoarded by all people, which may take 20-50 years.

For cryptocurrency to be widely used as currency, it needs to become massively scalable:

https://medium.com/@FEhrsam/scaling-ethereum-to-billions-of-...

I saw a popup store at a local flea market with "pay with Bitcoin" sign. Use and knowledge can be increased with improved access and merchant use

Bitcoin will enter mainstream progresively, and will be replacing Gov currencies as fast as the society realizes it. Once reached the point we decide there is no need for Govs to manage us we'll be free. Dont worryabout concepts like i nflation deflation, having a fix number of bitcoin is like havin a fixed number of tons of gold. Each bitcoin will vary its value in a offer/demand basis, naturally

People will use it when it makes sense for them to use it. People are ignorant because they don't need to use it.

Money is deeply flawed. The only reason it works is because it's heavily backed regulated, and manipulated by the government. A good example of this is inflation, which governments use to discourage hoarding and encourage spending.

Cryptocurrencies have many benefits over fiat currencies, as you mentioned, but they still share many of their flaws. I believe that blockchains and smart contract will have a huge impact, but I don't believe tokens will replace money.

What will replace money is a new kind of currency that's based on people's reputation. This is unavoidable, but will first require the death of privacy.

Since cryptocurrences are basically pyramid schemes, and sooner or later you run out of suckers, probably never. Don't interpret this as me saying that fiat currencies are much better, though! Really nothing that anyone has invented out of thin air can beat gold and silver, or paper directly exchangeable for the same.

Fiat currencies certainly beat gold/silver when it comes to avoiding depressions.

https://www.theatlantic.com/business/archive/2012/08/why-the...

World War II ended the Great Depression. The linked article mistakes correlation for causation. Also it suggests there are times when "economies need governments to run deficits" and "economies need governments to print money"... boy, aren't those unexamined assumptions super convenient for the government! Fiat currency, by the way, is an experiment that's only been run for a very short time in history, and how well is it working out so far? The US has had toxic levels of inflation since before I was born (and I turn 40 this year), destroying savings and turning us into a nation addicted to debt (both as individuals and at the government level). We've been in a deep depression for a decade. Of course we can't see the alternate universe where we still used gold and silver instead, so there's no way to prove the point. A prudent philosopher would wait at least a thousand years or so before confidently stating that fiat currency has proven a useful innovation.

Not for the people trying to save their money with it.

Gold does not have to be the official currency for people to use it to save their money. They are free to do so now or any time.

Not any time. Gold was confiscated by the federal government during the Great Depression. I imagine it'd be much more difficult to confiscate Bitcoin.

http://m.quickmeme.com/meme/3thb4w

That is orthogonal to what I said.

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