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>instead of the ecosystem of cryptocurrencies we actually have, which is more like Hayek's proposal for competing privately-issued currencies.

That's interesting, it's the first time I hear about this concept. I just barely skimmed a few articles about the concept but I'm not sure how this would solve the problems in TFA. In particular deflation: if I need to invest in a currency why would I even elect to use an inflationary one? What would be the incentive?

Also a currency is only as good as the things it can buy, if you end up having to convert your WhateverCoin to BTC or ETH before spending, does it change anything? You could use special-purpose crypto currencies to replace frequent-flier miles, starbucks credit and other privately owned "currencies", but what would be the point of that?

>As a payment system I think cryptocurrency is vastly better; the more I use my hardware wallet, the more I'm horrified by legacy systems that work by giving vendors the ability to withdraw as much as they want. It's a fundamentally insecure system, made sort of workable by layers of hacky mitigations.

Is it a problem in practice? If a vendor overcharges me I complain to my bank, the charge is reverted and then the bank takes care of dealing with the misbehaving party. If anything it's the opposite that's usually the problem in practice, people using chargeback fraudulently.

Meanwhile in the crypto world if your wallet is compromised or if you get scammed you're on your own.

Bitcoin is great for buying drugs but for legit purchases Visa is a whole lot more convenient. It's quicker, easier and offers much stronger guarantees. From the vendor's point of view it's less great but as TFA points out "Sellers bear costs from reversibility, but those are offset by increased buyer confidence." No citation though, unfortunately.

That's one of the weaknesses of crypto IMO, it's all about "trustless" transactions, except that when you actually use your currency to buy something outside of the blockchain at some point you have to trust somebody (or somebodies) to actually provide the goods or services you're purchasing. All the systems that try to work around that so far seem to simply reinvent the banking system with extra steps (trusted 3rd parties etc...).

Hayek points out that you wouldn't choose an inflationary currency. He relies on that to limit overall inflation. But you also don't have the deflationary problems of the gold standard, since it's possible to make more money at will if you need it.

Regarding payments: suppose we were starting from scratch, with two proposed systems: (1) user signs transactions that authorize transfers with specific recipients and amounts, or (2) user gives multiple parties enough information to withdraw unlimited amounts, hoping unauthorized parties don't get hold of it, and we make up for the inevitable thefts with statistical antifraud protection, manual intervention, and banks just eating the losses.

I can't imagine anyone choosing the second option.

You're proposing a false dichotomy regarding payments... As if the cryptocurrency way has no flaws and the other is chalk full of them.

If life has taught us anything it is that; Given things of value, people will find a way to defraud, game or otherwise manipulate said items of value.

I am positive that people will abuse or are abusing the cryptosystems to the same extent people abuse fiat given more time.

I'm not saying that at all, and fiat payment security is improving. But the very fact that it's able to improve implies that some systems are more secure than others.

>suppose we were starting from scratch

"What-ifs" are always an interesting game but practically we're veeeery far from starting from scratch with the economy. But okay, I'll play.

>user signs transactions that authorize transfers with specific recipients and amounts

Great, but you've only secured one tiny part of the "earn money/spend money" loop. What if the service/goods you buy turns out to be a scam or something defective? What if my company stops paying me? What if the government starts unfairly taxing me and threatens to throw me in jail if I don't comply?

Our current economy is a lot more than just adding a value on one counter while decrementing an other. It's a complex web of laws, regulations and arbitrations that mean that I can buy something on Amazon without having to cross my fingers that I'll get what I paid for.

That's where this whole libertarian wet dream collapses for me. The whole argument behind bitcoin seems to be "what if your government turns into a fascist state, do you really want them to control your money?"

And clearly the answer is no, but if we end up in this situation my savings account might not be the first of my worries. Nor would having my money in bitcoins prevent me from being thrown in jail if I refuse to yield my secret keys to the neo-gestapo.

On the other hand if the government is benevolent and works for the good of the people then I really want it to be able to control the currency, be able to cease the money generated by illegal activities and tax legitimate income fairly in order to build roads, hospitals, schools, the police and firestations (amongst other things).

I don't want to live in a society where I can't trust my democratically elected government. So maybe we should work on fixing that rather than coming up with incomplete workarounds. "Hey, my sister got detained for thought crime yesterday, but at least I can send her Bitcoins to prison unhindered! Take that Ür-Hitler!"

> What if the service/goods you buy turns out to be a scam or something defective?

Reputation systems reportedly have worked well on darknet markets, but it's also simple to do third-party arbitration; when the two parties agree, the arbitrator doesn't even have to be aware of the transaction (or get paid).

> What if my company stops paying me?

You sue or quit, just like now. Fiat has no particular protection here. I'm arguing for a payment system, not a new judicial system.

> What if the government starts unfairly taxing me and threatens to throw me in jail if I don't comply?

I don't advocate cryptocurrency as a way to avoid taxes. However, if they did make our existing taxes hard to collect, various other taxes could be used instead. E.g. I'm a fan of carbon taxes at major point sources; just count tons of coal coming out of the mine.

The remaining paragraphs argue with points I didn't make. However, I'll mention that capital controls and confiscation are not that uncommon in emerging markets, and while your money might not be your biggest problem in that scenario, it can sometimes help solve your other problems.

> you wouldn't choose an inflationary currency.

Inflation only hurts people that hold non-trivial amounts of that asset. Most people benefit from inflation as it makes their debts easier to pay.

However, it's foolish to assume most people make make such choices rationally. People would choose currencies based on popularity and/or whatever they heard on TV.

> I can't imagine anyone choosing the second option.

"Signing transactions and having to authorize every transfer sounds like a lot of work. Bank $FOO will handle all that for me, for 'free' if I open a new account before $DATE."

edit:

Sure, the ability to use proper user-controlled, signed/authenticated transactions would be wonderful, regardless of the currency.

"Hayek points out that you wouldn't choose an inflationary currency. He relies on that to limit overall inflation. But you also don't have the deflationary problems of the gold standard, since it's possible to make more money at will if you need it."

Ideally, you'd want your currency to expand (or contract, heaven forbid) at the same rate as the economy. But that's a little hard to do. A deflationary currency is way bad. (By definition, you're economically irrational if you spend it.) On the other hand, uncontrolled inflation is way bad, too. "Controlled" (in some, hopefully meaningful, sense of the word) inflationary currency is probably the best of the options.

I think that feature could be summed up as:

With criptocurrencies, if your software and opsec are good, you're a lot less vulnerable to identity theft and overcharges.

Yes, and with a hardware wallet, opsec is trivial. In my ideal world everyone has one in their leather wallet or on a keychain, and also uses it for secure 2FA on websites.

This is laughable.

An investment of $700 (http://www.gunbroker.com/item/696279983) makes content of one's hardware wallet non-recoverable. Right of redress does not help as the transaction is not reversible.

Hardware wallets use a seed to generate key pairs using a cryptographic random number generator. The seed is usually a sequence of words which you backup on a piece of paper.

If the hardware wallet is destroyed you can simply generate the keys again with either a new hardware wallet or a software one.

Read up on hardware wallet passphrases. You can have as many wallets on your hardware wallet as you like, and there's no way to tell how many there are. The hidden funds certainly won't be vulnerable to a fast mugging.

And of course, if you have a large amount of money you probably shouldn't put it on the hardware you carry around anyway. Apply a little common sense and put it in a safe deposit box.

Oh no, your attacker will point a Desert Eagle at your head and you will unlock all your wallets. After the money is transferred you won't be able to recover it.

The reason why currency in current form is so interesting is that it is not easy to move massive amounts currency into a form that can be easily consumed. Even uncut diamonds is a small market so in event crime happens the proceeds of crime will likely be recovered given determined tracking party (i.e. nation state) and returned to the victim of the crime. This, essentially, is the single most important part of the non-crypto currency UX.

I can provide you with an example another extremely popular ( much more popular than BitCon ) currency that does not have such UX - it is cocaine. I think we all can agree its main UX property is violence.

The attacker would need to spend significant time on that. It'd work in a home invasion, but street muggings are over fast. And again, safe deposit box for large amounts, spendable money in the portable. With a simple smart contract you don't even need to go to the bank to refresh small amounts every few days.

You're trusting your hardware provider similarly to how I trust my bank.

They need to opt out of attacking you, and prevent rogue employees and suppliers from being able to attack you.

If my bank was open source, modifiable, and runnable in a private instance on my own hardware, I might trust banks more. (Ignore that it might not be right to call it a bank at that point...)

What happens when you lose your wallet, or someone steals the peace of paper with your private key? Credit cards and atms get stolen all the time.

>> the more I use my hardware wallet, the more I'm horrified by legacy systems that work by giving vendors the ability to withdraw as much as they want

While this is still the case for online transactions, in-person payments with chip cards and contactless methods like contactless EMV, apple pay and android pay do not allow this.

A few questions:

> As a payment system I think cryptocurrency is vastly better; the more I use my hardware wallet, the more I'm horrified by legacy systems that work by giving vendors the ability to withdraw as much as they want. It's a fundamentally insecure system, made sort of workable by layers of hacky mitigations.

Do you think cryptocurrencies are vastly better because they don't allow transaction peers to withdraw arbitrarily from your wallet, or for some other reason?

If the former, do you consider cryptocurrencies to be better than simply implementing this functionality in fiat systems like ACH?

> Reversibility could also be implemented in a token smart contract, if the market really does value that enough to put a central admin in control.

Why do I want a smart contract for this, instead of just trusting that the vendor will be heavily penalized for trying to arbitrarily take funds from my account? In fact, why do I want anything to be trustless? In a trustless transaction system, there is less transparency: it might be harder to take more funds than allowed from my account, but in the event the vendor finds a way to do it, what is my recourse without a trusted third party for arbitration?

It feels like a lot of this debate circles back to one group of people saying, "Cryptocurrencies are great for when you don't trust the government" and the second group of people responding, "Yes, but why would I not trust my government or the people I transact with, and don't I have worse concerns than my currency if that's honestly the case?"

From my perspective, perfect feels like the enemy of good here: you sacrifice efficiency in the average case for catastrophe in the worst case. The problems solved by solutions that don't require trust seem to be sort of decently solved in the average case using brittle technical features (e.g. smart contracts that prevent a vendor from double dipping your personal wallet); on the contrary, we have solutions for those now in basically every stable country's fiat currency, and fiat currencies at least solve the worst case, but cryptocurrencies do not (e.g. your smart contract was hacked and your entire account is gone, but no one knows who the vendor was that did it).

Basically, I trust smart contracts less than I trust my government, and to be honest I don't endorse strong trust in my government either way. I kind of want my currency to be backed by people with guns and a complex legal system instead of a distributed ledger and whatever half-baked smart contract system is used by the vendors. Stripe has one of the best security teams in tech right now, and routinely hires security consultants from excellent firms like NCC Group. If Stripe put out a new cryptography library, I would default assume it's broken in some way, at the very least in implementation.

Whenever the "Stripe of cryptocurrency payments" emerges, I am basically going to assume that it's critically broken and will be catastrophically exploited after a huge number of users and vendors are vulnerable. Solving a fully technical smart contract system to abstract away all of these concerns (like arbitrary ACH transfers) isn't feasible in the current state of software security.

It's not just about the vendor. It's about anyone who gains access to the information which gives the vendor the ability to withdraw. This has not been a minor problem over the past decade or two.

The idea of making fiat payments work more like crypto is something I mentioned above. For now, we're a long way from it being ubiquitous.

We had privately created money in Europe for centuries. It was a disaster.

It wasn't too different from the recent ICO stuff. Except that it was mainstream.

In other words, I completely agree.

Yep, and we had it in the U.S. as well before the advent of the Constitution. Similarly a disaster.

I would strongly disagree with that characterization. The bank note system - the major form of private money - worked reasonably well for centuries in Europe, evolving into the check clearing systems that virtually every first-world nation has today.

That was much later on. I am talking about basically end of Roman Empire to 1600.