Central bank cryptocurrencies | Hacker News Reader

Central bank cryptocurrencies

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108 pointsprostoalex47 comments

Lol. So back crypto $ with trillions of $ of debt going back to the Louisiana purchase; kept alive by a pyramid scheme dependant on a certain and limitless supply of debt free immigrants, after they continue to prove they don't require anything concrete to generate demand & subsequently value?

Aka: how interested are people in a cryptocurrency worth market value minus 20 trillion $?

Your sentiment about fiat is appreciated and understood, but it's inaccurate to claim that USD's total value is equivalent to the current national deficit.

He's referring to the debt, not deficit. They aren't the same thing.

Stand corrected, thanks, meant the "national debt".

US GDP is $18.5 trillion so yeah it has some debt but also some decent revenue. Yeah, I'd be interested.

You know, if Tom owes Sally, and Sally owes Jes, and Jes owes Tom, it's really not clean and cut to say "all debt" or "all revenue" because it depends on which node is the focal point.

The banks are in debt to trillions of dollars to people who are 'in credit'. That's what 'in credit' means. It is the accounting term for a liability.

Does that keep you awake at night too?

For every asset there is a liability - even with cryptocurrencies.

What you are missing with government 'debt' is that it creates safe private assets that keep the pension system going.

> For every asset there is a liability - even with cryptocurrencies.

I would think that bitcoin is no-ones liability? I mean, there are a bunch of bitcoins that you may or may not be able to sell someone with a price, but there is no-one who has any kind of legal or even moral obligation to give you anything in exchange of a bitcoin.

Liability will start once you start loaning them out to others and package the loans to other investors who them show them as assets to borrow something from someone else :).

Sure. But it is not the bitcoin that is the liability, it is the loan contract.

If I understand your argument, you're saying that I'm a 'creditor' to my bank when I deposit money there that they are obliged to return on demand. Fair enough, but the reason I deal with banks is that it's cheaper than protecting my assets personally. Cryptocurrency is cheaper than dealing with the banks.

So if I find a dollar on the beach and pick it up, what liability has been created by my having a new asset? Are you saying that the potential to find the dollar was some sort of collective asset that I've turned into a liability? That seems like an unnecessarily complicated way of looking at things.

The only thing that can keep the pension system going is a growing population paying into it. Pensions are the ultimate pyramid scheme, the idea that bonds are a safe private asset... safe compared to what, and how safe on an absolute basis?

> So if I find a dollar on the beach and pick it up, what liability has been created by my having a new asset?

That dollar bill is a title of government debit.

Alternate framing: let's back crypto with payment obligations tied to the economic output of the world's richest economy rather than backing it by optimism.

Ultimately I'd have much more confidence in a cryptocurrency backed by enforceable [probably private IRL] debt obligations than one which wasn't.

"(preventing double-spending without the use of a trusted authority requires transaction validators (miners) to employ large amounts of computing power to complete "proof-of-work" computations); there is only probabilistic finality of settlement; and all transactions are public. These features are not suitable for many financial market applications."

The words "only probabilistic finality" makes it sound uncertain, whereas in reality the uncertainty of a bitcoin transaction is insignificant compared to the uncertainty of a trusted entity, which they advocate.

In other words, they still don't understand it.

They understand it just fine and you simply wrong. Proof of work validation IS probabilistic and central agency validation is not probabilistic. But it does require trust in that central agency. You may not trust that central agency, but that doesn't change the facts.

But I could argue that central agency validation _is_ probabilistic, because there is a probability that the central agency can collapse, be overtaken, go rouge, etc.

And that that actually might be more probable than the blockchain 51% attack or split or whatever.

I don't know what the actual math here is, I think that the essential difference is that in case of proof-of-work such a probability is computable relatively easily, while we don't know how to measure the trustworthy-ness of a third party reliably (it depends on laws, military strength, level of corruption, etc, lots of variables)

Using your definition, all cryptography is also probabilistic. It's technically correct, ie. there's a risk that someone guesses your AES key, but it's practically irrelevant because the probabilities involved are so small (and key sizes can be adjusted to make guessing as improbable to succeed as we want).

This is not the aspect that is considered to be probablistic. The problem is that forks can happen by design -- blocks can be orphaned and the tree can be reorganized. So a transaction is only final so long as it is on the main chain; if the main chain switches to a forked chain that does not contain your transaction, then it is not settled; the resulting coins cannot be spent.

There are attack scenarios, but even without those it is possible for forks to occur; single-block forks are common (so-called "orphaned blocks") due to some combination of network latencies and chance. Longer forks may be possible if there are more dramatic breaks in network connectivity. The original whitepaper originally advocated waiting for six blocks before a transaction is considered "settled". That's probably high, but the guarantees are strictly probablistic; any software dealing with bitcoins has to be aware of the possibility of reorganizations.

Very interesting. I'm intrigued by Fedcoin and how it incorporates the possibility of monetary policy into the cryptocurrency framework. The rigidity and hard ceiling on liquidity of Bitcoin is a major weakness of the currency (I know that Bitcoin enthusiasts see it as a strength) but if technology like Fedcoin can overcome that weakness I'm more bullish about cryptocurrency becoming part of the monetary scheme.

Deflationary currencies are hoarded, not spent in circulation. Even Aristophanes described it thousands of years ago. That's what advocates of "sound money" need to understand. Sound money is good, but for savings. On top of this you build other, less sound money, which circulates. This is also known as "Gresham's Law".

And that is exactly what is playing out with Bitcoin becoming a speculative investment vehicle rather than a currency.

Research before talking. Bitcoins are being spent more than ever: the transaction rate keeps increasing and is roughly doubling every 18 months https://blockchain.info/charts/n-transactions?timespan=all&d...

Preemptive reply to those who think speculators cause the tx rate to increase (often an invalid comment thrown out in HN): no they don't. Speculators typically leave the coins in an exchange wallet (they are not sufficiently technically savvy or motivated to run their own wallet). Buying/selling on an exchange does NOT create a transaction on the blockchain.

> Speculators typically leave the coins in an exchange wallet (they are not sufficiently technically savvy or motivated to run their own wallet)

Source? After the Mt. Gox disaster the recommendation I've encountered most is to have the bulk of the digital assets in your own cold wallet, and only trust the exchange with the assets you can afford to lose. Since the deposits are near instantaneous, there's really no good reason to entrust the exchange with large chunks.

Speculators also move coins between exchanges in search of better speculation opportunities, and to convert from and to "fiat" in those exchanges that allow it (but are worse for specularing)

90% of speculators don't do this. The process to sign up and verify is usually so arduous (because of excessive fraud) that once they are verified they trade and stay at only one exchange.

Nobel prize winner F.A Hayek wrote a great defense of deflationary currency and a rebuttal to Keynes back when he was debating Keynes in the 30s[1]. He also predicted Bitcoin with his book "The Denationalization of Money" written in the 1970s[2].

[1] https://mises.org/library/hayek-paradox-saving

[2] https://mises.org/library/denationalisation-money-argument-r...

He didn't win a Nobel Prize.

Neither did he come up with anything that actually passes muster.

Getting a chocolate medal from your mates in the same club doesn't qualify as credentials.

> Hayek shared the 1974 Nobel Memorial Prize in Economic Sciences with Gunnar Myrdal for his "pioneering work in the theory of money and economic fluctuations and ... penetrating analysis of the interdependence of economic, social and institutional phenomena."

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

I suspect that rather than quibbling on the historical facts of the prizes award, the person you're responding to doesn't consider the Swedish National Bank's Prize in Economic Sciences in Memory of Alfred Nobel to be a genuine Nobel Prize.

Thank you for the clarification. It's one I wish 'neilwilson had made as well, as it's easy to understand why one would think otherwise, particularly as they're announced and awarded along with the other Nobel laureates. Upon further reading, the prize's history with respect to Hayek is even more interesting:

> In his speech at the 1974 Nobel Prize banquet, Friedrich Hayek stated that had he been consulted on the establishment of a Nobel Prize in economics, he would "have decidedly advised against it" primarily because, "The Nobel Prize confers on an individual an authority which in economics no man ought to possess.... This does not matter in the natural sciences. Here the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence. But the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally."

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

Thanks again. I appreciate the insight.

That's a very interesting quote by Hayek.

Hayek didn't really adequately defend a deflationary currency at all. Hayek was attacking a related, but different underconsumptionist argument that consumption was more important than investment.

The argument against [sustained] deflation is that investment will be reduced along with consumption. In order for investment to take place, it is necessary [though not sufficient] for the investor to expect to earn a money profit as a result. In the case of sustained deflation resulting from an economy being tied to a fixed supply of money, the expected money return on an average investment over a time period is negative (especially after adjusting for risk) and the expected real return to burying money in the garden is positive. Thus the money stock is more likely to be buried in the garden and less likely to be invested in production, with the result that less stuff is produced and sold than otherwise could have been.

The best thing that can be said about Hayek's argument as a defence of this is that he points out that profitable companies confident of still having a market in future might still be inclined to invest money in cutting production costs (which is true, and necessary for the deflation to be sustained, otherwise you can expect prices of goods to start rising again in future as a result of greatly reduced production) but there's no reason to expect that level of investment to not be lower than an economy where nobody is incentivised to hoard.

(the original paper is included in this compendium for those interested http://www.hayek.sk/wp-content/uploads/2012/12/hayekcollecti...)

If you keep the same deflationary money over the years, you are making a profit. So what's "good" is not a money which supply grows or shrinks, but a money with which people can make good predictions and plans accordingly.

Plus, burying your money is withdrawing it from the money supply, maybe it has effects like "giving it to everybody" ? (added the risk that you can dig the money and put it back into circulation)

How do you know an elastic money supply is not better?

What is your criterion : goal for measuring how good a currency is?

Bitcoin might be rigid, but that is solved by having lots of cryptocurrencies. Which then sort of defeats the 'hard money' nonsense theories behind its construction.

Similarly with Gold. Once Gold gets to a point people start hoarding elements with other atomic numbers.

Exactly, cryptocurrency isn't digital gold, it's the system of privately-issued competing currencies advocated by Hayek.

Hayek's currencies were backed by the issuer. They're more analogous to frequent flyer miles than cryptocurrencies.

They could be backed in some way, but Hayek only relies on competition between issuers. In his book he writes extensively about unbacked paper money.

> The rigidity and hard ceiling on liquidity of Bitcoin is a major weakness of the currency [..]

How do you arrive at a ceiling on liquidity from a ceiling on stock/supply (number of coins in existence)? Or are you referring to the limited number of transactions the Bitcoin blockchain can handle over a given time period?

As far as I can see, neither of these two limit the liquidity of Bitcoin. Transaction speed at the exchanges is not limited by the Bitcoin blockchain, since bitcoins exist as credit on each exchange (which can be redeemed into actual, on-blockchain Bitcoins through withdrawal). And I don't see how limited supply limits liquidity, since gold is highly liquid as well as strictly limited in supply.

I think the idea of Fedcoin is very interesting, and this article does a good job of highlighting what it would mean in taxonomic terms.

My biggest unknown, and the problem I've seen with the idea of a centrally managed cryptocurrency (especially one with convertibility) is the creation/redemption mechanism. The proposals I've seen talk about varying the block reward, or having some sort of transaction type that can only be submitted by the central bank.

I hate to think, though, that the entirety of the security of a nation's money lies in the ability of the central bank to safeguard its private keys. Bitcoin's monetary policy is deterministic and consensus-based, so it's not really vulnerable to this.

It's all well and good to talk about CBCCs in the abstract, but the technical challenges involved are non-trivial and shouldn't be glossed over.

>Bitcoin's monetary policy is deterministic and consensus-based

So far consensus has been to deflate the hell out of the coin so miners and speculators can make a ton of money. That really seems like an awful currency to me.

I have been curious about this idea for a long time. Consider the situation the USA is in right now. What percentage of all transactions which occur in the US economy right now pass through a payment processor? I would imagine the majority, and growing. And payment processors don't just charge for their services. They charge a percentage of the size of the transaction. Their cost to provide the service of moving numbers from one place to another over a wire does not increase for larger numbers, yet they still insist that the parties in the transaction pay more to move larger numbers.

This makes payment processors a de-facto taxing body and gives them at least as much control over the monetary supply in a society as any central bank. If the Federal Reserve decided to take actions that private banks or payment processors disagreed with, it is entirely within their legal power to adjust the rates they charge and counteract the central bank. This is very dangerous. It's terribly unfortunate that modern government is so packed with nibshits and the clinically paranoid that they would never again back a currency which offers the same features as cash (untraceable, unfreezable, etc), but even without those, just escaping from the tyranny of payment processors might be worth it.

If we could somehow move from private banks to a public distributed ledger that worked Government-style, we could probably reduce taxes and streamline a lot of things.

I welcome it. It will make the flow of fiat into good cryptocurrencies so much easier. Let the better system win. Monopolies are almost never good.

Perhaps you should add https://fiatcoin.net to the list.

does anyone know how will banks and accounts work in such a system ? because funds will be held by individuals and not banks.

will banks become the authoritative proof-of-stake entities ?

Would not proof-of-stake be an algorithmic calculation, available to anyone with the dataset (blockchain) and the computational power? Right now certain credit card companies charge a fee for calculation of a credit score (at that instant/ on the fly). Presumably in a cryptocoin economy everyone who has access to the dataset and knows the formula could tell you the proof-of-stake. Banks historically act as a time-throttler on transfer of funds, making sure the economy does not move without the inner cogs of the banks turning first. It is widespread now globally. With a cryptocoin economy, banks would not throttle time any longer and would instead help facilitate additions to the blockchain (via fee) as many exchanges currently do. What all factors does one need for proof-of-stake?

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