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Comment by cm2187 | Hacker News Reader

Where I find her position slightly disingenuous is that the role of central banks and of the IMF is precisely to bend the rules when they think it is required, by either printing money or making funds available to states to support them or their currency. So neither central banks nor the IMF will have any interest in a currency which cannot be somewhat manipulated.

Where cryptocurrencies might fit in nevertheless is that they are only as strong as the convention to use a common algorithm. And the choice of this algorithm can be influenced or controlled by law or regulations. Hence the said authorities can achieve the same thing they currently do with crypto currencies than with fiat currencies. Might have defeated the original purpose but is a more likely scenario if cryptocurrencies become mainstream.

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What I don't understand is this: if the supply of bitcoin is controlled by a monotonically rate decreasing algorithm which "approximates the rate at which commodities like gold are mined"[0], how is it going to avoid the mismatch between the cyclical and random nature of economic output and the currency to properly represent it, ie, what central banks are fundamentally designed to do?

[0] https://en.bitcoin.it/wiki/Controlled_supply

In my opinion the secret is that the algorithm can be changed anytime. In fact there was a debate recently to amend bitcoin, which in the end resulted in bitcoin cash. So as long as the central bank controls the algorithm (i.e. can force by law or regulations miners to switch to a different algorithm), they have full control on the supply of money.

That defeats the original purpose of bitcoin, but that could be their intention. The settlement of the currency could be decentralised but the supply of the currency could be controlled.

In my opinion that leaves many other challenges, some fundamental like the concept of public ledger, incompatible with the secrecy of banking (i.e. the payments you make is not public information).

I think a deeper question to ask is whether the monetary controls of which you speak are designed to serve the masses or to maintain current power and wealth distribution?

The world functioned without those things for much longer than we've had them. In the past, the only controls were whether new precious metal or other resource deposits were found.

I think the cryptocurrency approach affirmatively rejects the notion that a central bank's controls are a net positive.

  I think a deeper question to ask is whether the monetary 
  controls of which you speak are designed to serve the masses 
  or to maintain current power and wealth distribution?

Consider how all the major cryptocoin supplies have been minted and distributed. Anyone with established wealth has had disproportionately easier access to take over these cryptocoin networks due to the supplies being produced in quantity early on and at low computational/energy/capital costs.

Assuming the existing network is not made obsolete, and if there is any on-going demand then later users will need to sacrifice disproportionately excessive trade into the network as the early adopters simply horde the majority of the supply.

The difference is that it's a one-time upfront situation, whereas the current monetary systems in place have permanent ongoing rewards: the US federal reserve system where a select few chosen long ago have a permanent guaranteed income return that is written into law.

I'd rather have transparency and one-time benefit to a select few than a permanent, secretive benefit.

The US federal reserve system works pretty well and I don't really have a huge problem with it. My point is simply that the downsides to cryptocurrencies you rightly highlight have to be viewed in context of the current alternatives.

  In economics, the Gini coefficient is the standard measure 
  of how inequitable a society is. This is tricky to 
  determine for Bitcoin, as it's not quiet a "society" in 
  the Gini sense, one person may have multiple addresses and 
  many addresses have been used only once or a few times. 
  (The commonly-cited figure of 0.88 is based on one small 
  exchange in 2011.) However, a Citigroup analysis from 
  early 2014 notes: "47 individuals hold about 30 percent, 
  another 900 a further 20 percent, the next 10,000 about 
  25% and another million about 20%"; and distribution 
  "looks much like the distribution of wealth in North Korea 
  and makes China's and even the US' wealth distribution 
  look like that of a workers' paradise

  Dorit Ron and Adi Shamir found in a 2012 study that only 
  22% of then-existing Bitcoins were in circulation at all, 
  there were a total of 75 active users or businesses with 
  any kind of volume, one (unidentified) user owned a 
  quarter of all Bitcoins in existence, and one large owner 
  was trying to hide their pile by moving it around in 
  thousands of smaller transactions. (Shamir is one of the 
  most renowned cryptographers in the world and the "S" in 
  "RSA encryption")"

[1] "Attack of the 50 Foot Blockchain" via https://news.ycombinator.com/user?id=davidgerard

A large share of an asset which appreciates over time is a permanent ongoing reward. The effect of a conventional fractional reserve currency is the opposite; inflation erodes the value of currency holdings unless they're directly or indirectly invested in producing stuff (Sure, who has access to what investment opportunities isn't even and nor is the initial distribution of wealth, but cryptocurrency doesn't attempt to solve that problem)

> The world functioned without those things for much longer than we've had them. In the past, the only controls were whether new precious metal or other resource deposits were found.

The oldest forms of scripture we’ve found are mesopotamian clay tablets depicting the debts of people relative to eachother (John still needs to pay back Don for that ox he got last year). They were stored in temples and administered by the clergy... centrally.

Credit existed before currency and currency well before national markets or anything resembling modern economics.

It doesn’t, this is one of the major criticisms of the gold standard.

Bitcoin could never be gold even if it wanted to. Making gold proper hard currency is easy, just merge two neutron stars and you’ll have a finite amount to drill up. That’s nothing like having to compute some hash where you simply set up the rules of creation. Gold cannot be distributed or forked via github, it’s simply a fundamentally flawed comparison.

There’s people who think it’s just fine and dandy to have multiple currencies making the rounds in the economy. The problem is that it’s just a horrible user experience in the end. It reminds me of those anarchists who believe we should all govern in free assemblies and have those dull daily meetings. Aint nobody got time for that, few months and you’ll have people paying some guy to go get into arguments with some other guy and to make their decisions for them. Sounds familiar doesn’t it.

You’re not going to get farmers, clowns and housewives to check the daily fluctuations between the dozen or so cryptocs-du-jour and decide which one to invest in, hedge against or transfer to. Well, unless you spend the majority of your time thinking about that stuff and getting paid to do so. You could make a decent buck doing just that... hmmm, if only we had something resembling it.

Keep it simple, brains like simple. Don’t make me think. If you make my computer think, at least have tractable math without a gazillion variables.

I'm not sure from your tone if you're implying that Bitcoin is thus subject to the same criticism, which it seems to by your content. If you're not, it begs the question: who decides the complexity behind the hash calculation, or in your words, how to "make my computer think"? Some bureau?

So there will be one or two major currencies for people who don't want to think, and thousands of others who want to play the investment game, just like what happens every day in the stock market.

We currently have one currency for most people's everyday use (local government currency), and they don't bother to read up on what the stock market is up to, but there are plenty that will and choose to buy shares in whatever they think is worth buying.

And we'll probably even have the equivalent of retirement accounts and mutual funds for cryptocurrency, we're not even that far away from that reality today.

So yeah, there are people who aren't going to want to pay attention to all that, and they won't need to whenever we've reached that tipping point. They'll just have bitcoin (or whatever) and deal exclusively in bitcoin, and they won't care what its price is compared to everything else, just like no one bothers to peg the US dollar to any particular share.

It's because fiat currency is still so dominant that bitcoin appears to be volatile in comparison, because they're using USD as the anchor. If bitcoin becomes the dominant coin, it will appear to be just as stable, if not moreso, as you won't have quantitive easing or government manipulation to worry about.

the argument that if cryptos become large they fluctuate too much is flawed, as as asset becomes larger it will become correspondingly less volatile. Already there are periods where BTC has has similar volatility to gold and if it follows its current trajectory will be MORE stable than gold.

That would be a problem if we only had one cryptocurrency, but actually we have hundreds, and can add more anytime. Rather than a gold standard, we have something like the system of multiple privately-issued currencies advocated by Hayek. He thought it would self-adjust without any need for central administration.

Hayek wasn't familiar with modern research into chaos and non-linear dynamics. He assumed an equilibrium and stable growth path, though he didn't use such terms.

I'm not claiming he was right, just that his system is what cryptocurrency is building.

But I do think it makes at least as much intuitive sense to say "we can make as much money as we need, and competition between currencies will limit inflation" as to say "we won't have enough money so the economy won't grow."

The trick with intuition is that we need the right metaphor for it to work. The one in my mind is an inflating balloon.

But doesn't the principle of being able to add more cryptocurrencies grant the balloon infinite expansion?

That's more like having many balloons. Tho I don't know much about the coins other than Bitcoin. Are they all doomed to deflation?

assuming bitcoin were the main currency, then, as soon as political pressure grew strong enough to demand real monetary flexibility, (e.g. to track a business cycle and reduce unemployment, or to fight a deflationary spiral) someone (in government) would start innovating.

that innovation could mean replacing bitcoin with another currency through forceful governmental intervention of some kind. or it might mean modifying (i.e. distorting/destroying) bitcoin's current protocols or algos. bitcoin is in its early stages, but so are governmental efforts to regulate it.

> bitcoin is in its early stages, but so are governmental efforts to regulate it.

And so are government efforts to compete with it. I think that eventually, the Treasury Dept. will see so much convenience in crypto currency(s), they will issue their own coin, the only 'legal' tender in the land.

Even if it can't fiat the creation of more coin, the central bank of a high-income country can still extend a nearly infinite amount of credit denominated in that coin.

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