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Comment by mediaman | Hacker News Reader

Bitcoin seems like it's custom designed to create bubbles, rather than be a useful currency. It is limited to 21 million units, which means that it cannot support a growing Bitcoin-based economy without rapidly appreciating in value versus other currencies, and depreciating the price of assets.

One of the core purposes of currency is to provide a relatively stable store of value as a medium of exchange. Rapid inflation or deflation is very undesirable. Currency is not supposed to be a get-rich-quick scheme. It's the oil of commerce. But, bizarrely, it's fundamentally architected into Bitcoin that it will fail at that, preferring instead to promote a rush to scarcity that grabs headlines but provides little utility as currency.

Having said that, a cryptocurrency that does its job -- that is, has the features of an actual currency, such as being a stable store of value, by expanding the money supply in proportion to the amount of economic activity it supports -- seems like a very valuable concept. Do any of them do that? I looked at Ethereum, and its design doesn't seem better in this respect.

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I count six times you used the word "currency". Yes, some people thought it would be that, but it isn't. It's Bitcoin. "Digital gold" isn't a perfect description, but it's close. Thus, you're flogging a straw horse.

It is not limited to 21M "units", and it never was. It's arbitrarily divisible into whatever units you like. Again, since it is not a national currency, it doesn't matter. It isn't "deflation" when the price of gold goes up.

I guess some people can't let go of the idea that Bitcoin is "supposed" to be like a dollar-denominated debit card.

> I count six times you used the word "currency". Yes, some people thought it would be that, but it isn't. It's Bitcoin.

Presumably "some people" includes its creators, given that "coin" is in the name. If that isn't meant to evoke currency, that's quite an oversight.

> It is not limited to 21M "units", and it never was. It's arbitrarily divisible into whatever units you like.

This response doesn't seem to address the parent's related point: that bitcoin as implemented seems to have inflation and deflation built in.

> Again, since it is not a national currency, it doesn't matter. It isn't "deflation" when the price of gold goes up.

It's certainly the giant problem it would be if it were a national currency, but that doesn't mean it doesn't matter. Speculation in anything can have consequences that are undesirable, and for that reason, it's often regulated.

I've been wrong about the use cases of half a dozen things I've created. Satoshi was a programmer, not a pope. I doubt that people using the word "deflation" in this context understand what deflation is. Deflation in currency follows from the economy going bad, not the other way around. This is why we don't call gold and real estate appreciation "deflation".

Standard monetary deflation happens exactly when the growth of the economy outpaces the growth of the money supply. Things become cheaper, money will be worth more.

When money was made from gold you got deflation every time the economy expanded. Deflation only recently became a sign of economic contraction.

Satoshi was a visionary, not just a programmer. It takes a whole lot more to come up with a brilliant idea such as Bitcoin.

The idea of a distributed electronic currency predated bitcoin. What Satoshi did was solve a couple of remaining problems with the predecessors. Thinking of him as a "visionary" is a mistake.

Vision without execution is simply hallucination. I will always see Satoshi as a visionary. Too bad we dont know him as a person.

That is arguably one of Satoshi's biggest victories.

By removing himself from the picture Bitcoin stands alone, controlled by the masses - which is exactly how it ought be. If instead Al Gore created Bitcoin, it will be intrinsically tied with his name as some sort of central person which is contrary to the entire idea. The reason I think this is particularly important is because decentralization is generally going to be seen as intuitively impossible to laymen.

And the possibility of a person is always greater than the reality. Fischer is still the greatest chess champion to ever live in the minds of many, even though he only played in one world championship - and against a champion who was on his way out in any case. Him disappearing after a meteoric rise paradoxically cemented his legacy. Satoshi is a much more meaningful creator than John Doe could ever be.

Well put!

If it's not a currency it's simply a pump and dump scheme looking for a greater fool. The problem is when it's peak value is reached there is only risk without upside. So, eventually this creates a death spiral as nobody wants to buy in and everyone wants to get out.

Sure, I will buy a novilty bitcoin when it's once again worth a penny. But, novelty does not create enduring value.

Well there is a cap on how much will exist so with even a small amount of additional demand for it each year it should continue to go up in value. Thats not to say the value can't go up so much that it would take approximately forever to get back there once it crashed.

I am not sure why you think the demand should increase year over year. Also, at some point people are not going to run full nodes and it just dies.

The current peak in bitcoin also looks exactly like an exponential blow off peak as people invest entirely on the expectation of future price rises. The way people are talking about it and the behavior of the price on the chart looks exactly like NASDAQ pre-2000. I'd almost suggest shorting it, but "markets can remain irrational longer than you can remain solvent". Since there's nothing tangable at all about BTC (it's not like its a corporate stock with an actual cashflow and capital behind it) I don't see where the floor is. And since BTC mining is starting to use s noticeable fraction of the world's power consumption at some point the music is going to stop and all the miners will head for the exits because the marginal profit isn't there.

I'm not sure I agree with Stiglitz that it should be outlawed since I'm uncomfortable with protecting people from their own stupidity, but I understand the analysis he's doing to conclude that.

Bitcoin. I mean, it's in the name.

I think you'll excuse us as thinking that the original intent was to make, I dunno, coins, like a currency.

Yes, it may have evolved past that now, but the intent and the use of bitcoins up until maybe 13 months ago was that bitcoin was a currency. Now it's millennial gold or something. What will it be in another 13 months? Who knows.

The internet was designed to route around damaged caused by nuclear war.

Cryptocommodity? Cryptoasset?

Actually it is limited to units. You can still divide a Bitcoin into satoshis, and these satoshis are limited in their printing. He used 21 million units of Bitcoin, but since you want to get technical, it's actually 21,000,000,000,000,000 satoshi. I don't know what possible source gave you the idea that divisibility == unlimited, but sadly, it's wrong.

Also, please take your "digital gold" meme and use it on r/Bitcoin. Not only does Bitcoin's price contain the speculative valuation of a million people who call it a currency (regardless of your particular vision) but that vision also has a million flaws. It's rather funny, when someone points out its flaws as "digital gold" then the Bitcoin troglodites come out and call it a currency. When you point out its flaws as a currency, they correct you that it is, in fact, digital gold. When in fact, it's just a technology medium for transmitting value without the economic mechanisms to be a currency, nor the historical/economic/political/social mechanisms to be a 'digital gold'.

Well said.

I've moved to altcoins for sending money, the transaction fees of bitcoin finally pushed me to another one.

I wish I'd buy a little extra to speculate myself, but I'm pretty impatient so I'd better not.

> I don't know what possible source gave you the idea that divisibility == unlimited, but sadly, it's wrong.

It would require a hard fork, but it is technically possible to increase the divisibility of the base satoshi unit. And it should be an uncontroversial change if needed, since it will not require any redistribution of money.

With that said, it doesn't seem likely that the value of a bitcoin will increase in the near future to the point where we will actually need more than 21 quadrillion units of precision.

What are there flaws in the Bitcoin as digital gold analogy? I don't follow r/Bitcoin and would appreciate a summary.

From my limited level of understanding, it seems that the only differences are that you know that Bitcoin has no inherent value at all (gold has some since it can be used to make jewelery and gold-plated audio connectors, among other things) and you know exactly how much Bitcoin can ever be mined.

It's marketing.

Instead of explaining what Bitcoin actually is you compare it to something very simple that everybody knows and derive "digital gold" ...

Gold is also marketing. No one is going yaya over other, similarly rare elements [1]. Tantalum is significantly less common then gold, for example, and doesn't tarnish! And yet gold is 320x more expensive than tantalum [2] [3]!

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

[2] https://www.metalary.com/tantalum-price/ [3] https://www.bullionbypost.co.uk/gold-price/today/kilograms/u...

I don't know why critics like you always have this perspective that it must be an "all or nothing" situation, that Bitcoin must either be designed so that the entire economy can function based on Bitcoin only, or that Bitcoin must not exist at all.

«cannot support a growing Bitcoin-based economy»

Bitcoin doesn't need to support a growing economy. Our economy is fiat-based therefore Bitcoin can do just fine, serving its purpose as a parallel currency to the economy. Its purpose is to provide censorship-resistance, to allow people to escape inflation, to solve merchant fraud with irreversible payments, etc.

But why arbitrarily limit its potential in this way?

If we could run the economy on blockchain, why not?

Like you say, blockchain as a concept has many desirable traits that make it superior to a fiat currency. But if Bitcoin in particular were designed in a way that allowed it to avoid rapid fluctuation, I could see it slowly rising in use, until after many years it's powering a lot of commerce instead of the US dollar. As it is, it's going to reach a ceiling of usefulness that a differently architected blockchain wouldn't have.

There are more than 1000 cryptocurrencies. One of them must have the properties you're looking for.

Not a single one of them has the ability to scale. At least nothing close to production ready.

You have the PoS folks, IOTA's got an interesting strategy and some other paradigms but for now its still conjecture. Decentralized distributed technologies will likely always be slower than centralized monoliths.

Its on the 2018 roadmap for pretty much every (non-ICO-pump-and-dump) coin.

Just because 1000 of something exists doesn't mean they have every property among them.

Really? 1000+? That's crazy.

There is a great irony in the fact that cryptocurrencies are designed to be finite in size to ensure their value, yet the number of potential cryptocurrencies in the world is pretty much infinite.

It’s never going to be useful if it doesn’t get adopted/get traction. The raise has attracted a LOT of people. We’re at a point where even my grand mother is starting to hear/read about it in the news. We’re at a point where my parents are thinking of investing in bitcoin.

At some point. When this hype and unstability will have allowed for tools and bridges to be built, it will be not be welcome anymore.

I think you are saying that the publicity of Bitcoin will have created awareness of blockchain concepts, and from the ashes of Bitcoin will rise a blockchain that could be a good currency, and that new blockchain couldn't get awareness without BC's headline-grabbing hype that clears the way.

That makes sense. Maybe BC is just the sacrificial starter we needed to ultimately result in adoption of a blockchain that works better. And some people will make a lot of money from BC, some people will lose a lot, and in the end we'll get something better.

I'm not saying that this will happen for a different blockchain since the tools are mainly buing built for bitcoin.

If we could run the economy on blockchain, why not?

One potential obstruction to this is probably the speed of transaction confirmation. I believe it takes about an hour for a transaction to be confirmed. If we equate that to a current fiat currency based transaction confirmation which takes just a fraction of a second, we are way off. I may be wrong in this comparison. What I do understand is that, you can't have the blockchain and also the speed of a fiat currency based transaction confirmation. What I don't understand is - Is this confirmation so crucial. I see blockchain as more amenable to existing workflows that takes eons to complete, such as an approval in an organization.

Digital currency isn't competing with credit card networks, it's competing with ACH.

ACH transfers take days; wire transfers take minutes to hours and cost tens of dollars. There's ever possibility of running a digital currency that can clear transactions on the order of minutes with minimal cost. Bitcoin isn't well suited to that, partially because it hasn't been managed well.

A credit card would still pre-authorize against a balance at an institution, but it would settle between the customer and merchant bank on the same schedule (when the merchant cleared their transactions for the week) or faster (eg, on the order of minutes). That makes credit cards considerably closer to cash (fast) than what they are now, like checks (slow).

And for people who wanted it to settle immediately or treat it like cash, they could make a direct transfer, and have it clear on the order of minutes. (Not great for coffee, but something like buying a car.)

Digital currencies can be those things, they're just not.

And for people who wanted it to settle immediately or treat it like cash, they could make a direct transfer, , and have it clear on the order of minutes.

Can you please elaborate on this a bit more. What is direct transfer and how is it different from bitcoin /ethereum payments. From what I understand, they are the same.

That was connecting on to the previous paragraph, and contrasting with pre-authorization through a payment network -- I meant a direct transfer of currency from customer to merchant, instead of using a financial institution as an intermediary to vouch for you having money.

I agree with SomeStupidPoint that at the current speeds it blows away both ACH and wire transfers if you need the transfer to happen pretty quickly but don't want to pay usurious fees.

Every major blockchain is trying to shard or find other solutions to increase scalability of confirmations. Most coins have it on the 2018 roadmap to deliver lots of these improvements which will bring the transaction times way down. If some coins stay slow, then others will be used instead for situations where you need to compete with the speed of a wire transfer.

Aren't the bitcoin transaction fees actually higher than what you would get with banks? I don't know how it works in the US, but I can do free almost-instant transfers inside Germany with no problems at all, including for online transactions (like Amazon).

For transfers under 500$ (roughly) the fees from a proper bank transfer will be more expensive.

SEPA has basically no fee and is usually next day, with SEPA SCT Inst it'll soon be 15 seconds (and no more than 20 seconds) with the same fees, after which bitcoin can't compete on that anymore.

You can transact using Ethereum in a couple of seconds. Multiple block confirmations are important to be sure you are in the longest chain. With big amount transactions you should wait for multiple blocks, being 6 enough to be extremely sure.

Limiting makes sense to me. Just like you cannot mine infinite gold on this planet, you are not allowed to mine infinite amounts of bitcoin or else it would lose value. Will gold be as values as what it is now if it available in abundance.

> If we could run the economy on blockchain, why not?

Because we can't. Given that there are trade imbalances between countries (and assuming we want the economy to actually continue to run, as opposed to transfer all the wealth in the world to first one country, then one person, and then stop alltogether)

That means trade imbalances must be forgiven. Our current system does that through credit creation and crashes (bankruptcies). Bitcoin simply ignores the problem. Therefore bitcoin economic model is designed to transfer all the wealth to the rich and stop.

As opposed to the current model where newly printed money is given straight to the rich (banks)? I don't see how Bitcoin is in any way worse than that.

You can build an irreversible payment system that uses less energy and requires a much smaller transaction fee on a plain old transactional database. For everything you listed, there are better options.

No, you cannot build a system like that without foregoing decentralization.

Who said we need decentralization? Adding that requirement drastically increases costs without providing any practical gain. Card networks provide near instant payment processing with very low fees. Need irreversible payments? Simply use the same architecture without implementing chargebacks.

how exactly do you build a centralized system that is irreversible?

Just don't implement chargebacks. Done. What made you think reversible payments are easier than irreversible?

What if a new CEO comes in and decrees that they add chargebacks?

Take your money before anybody asks for their money back. As a merchant, you will have signed a contract with the payment processor agreeing to certain terms, and they cannot change those terms unilaterally. That scenario is as useless as imagining the main mining groups deciding to roll back to an earlier block.

Mining groups can't roll back an earlier block.

They can if they control a majority of mining resources. They simply start mining new blocks from an earlier block. This happens all the time when there is a race. The loser has to discard their block and start mining off the winner.

The only thing that is stopping this is the miners' incentives, which is the exact same thing that stops contract violations.

Mining isn't exactly that centralized and even if it were they'd only really be able to roll back the most recent block. That's nothing like general chargebacks, as it would be one-off thing and only be in effect for 10 minutes, and is heavily disincentivized as it would destroy the reputation of the miner.

The difference with legal contract enforced systems is they aren't. No one is going to build a system that restricts it's owner legally, and furthermore legal rules are leaky abstractions that have workarounds and spotty enforcement.

You nailed it! I wish others can understand this. Most importantly, media needs to understand this concept as they seem to be spreading a lot of fear as well as fomo around Bitcoin.

> solve merchant fraud with irreversible payments

Irreversible payments will help merchants, not solve merchant fraud. If anything they will cut down on consumer fraud but they actually enable merchant fraud.

It solves the kind of fraud where a customer receives irretrievable goods or services in exchange for a bounced check or credit from a stolen credit card.

Yeah that would be consumer fraud against merchants. No?

But what about the fraud where a merchant screw over the customer? That will easily affect more people.

Yes. Bitcoin certainly shifts the risk from the receiver of money to the payer of money.

Which is in my opinion dangerous, the payer of the money is your average consumer who are regularly falling for spam mail from nigerian royalty.

"The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts." -Satoshi Nakamoto

That brings up another issue, but what about the original issue that GP brought up? If bitcoin continues to fluctuate wildly in value then it isn’t a great currency.

“Identity thieves drain our accounts”

Isn’t that a US-centric issue? Was it shown that satoshi is from the US?

Isn't it a central bank-centric issue?

It has nothing to do with a central bank and identity theft can be solved easily. The first thing that needs to happen is your credit profile is in a default frozen state. The second is that identity theft is treated properly as bank fraud. Poof, identity theft is nearly eradicated overnight.

In other countries, the government provides a reasonable authenticator for personal identity; the banking system is not so easily fooled.

It's not an essential property of central banking that banks will give you the money in an account, or courts will enforce a debt against someone, simply because you know some basic demographic information about the victim.

I think this is a useful point, but the lived experience of a lot of us is that you can sleep relatively soundly at night knowing that your salary is negotiated and paid in U.S. Dollars or Euros or other currencies that are backed by stable governments.

About ten years ago I had a friend who had been convinced by blogs that we were on the path to hyperinflation. He started buying gold and silver like crazy. Back then you could read a lot of smart-sounding people who would tell you all about how the inflation apocalypse was imminent (Fed balance sheets, stimulus, etc.) I almost bought into it too, but I didn't really have any money to sink into gold and silver. Really glad in hindsight.

I think Satoshi, who ever he was or is, was a brilliant engineer and cryptographer but his skepticism of fractional reserve banking and his general distrust of the financial system makes me believe that he only really dabbled in macroeconomics and banking.

We should all be really, really glad that previous innovators did believe in fractional reserve banking, credit markets, and fiat currency. If you like modern life, I mean.

> We should all be really, really glad that previous innovators did believe in fractional reserve banking, credit markets, and fiat currency. If you like modern life, I mean.

Was there no innovation during the free banking period of 1860-1920? I seem to recall at least one ground-breaking invention that happened during then.

The US economy expanded from subsistence farming in 1800 to superpower in 1914 conclusively shows that fiat money is not a requirement for that.

What fiat money is good for is so the government can spend whatever it wants to without needing to tax it or balance its books. Fiat money makes financing of wars possible, for example.

The notion that fiat money makes for stable financial markets is obviously false, although it is persistent.

The US economy expanded from subsistence farming to superpower mostly because of high quality coal and oil reserves, an excellent river transport network, and excellent topsoil. Ideas about monetary policy don't figure. Might as well wonder about the monetary policies of the Mongols.

The rivers weren't remotely good enough, which is why the Erie Canal was dug. For the first 70 years, commerce east to west had to go around the horn of S. America, and the economy still boomed.

The explosion of the railroad system solved those problems, but that was around 1870.

Massive oil, gas and coal reserves are hardly unique to America. Oil, for example, has made Saudi Arabia very wealthy, but not an economic powerhouse.

The canals and rails are the expected endogenous result of a unified european or east asian people blessed with such land, after being formed by a thousand years of scarcity and warfare. It's not a monetary policy or tax thing.

These people just don't get that civilization is energy flows and culture, not laissez-faire economic policies.

Why didn't it happen in S. America, Central America, Africa, etc.? The only consistent pattern distinguishing prosperity from poverty is free markets.

Anyhow, my point was fiat money was not a necessary condition for such prosperity.

Yea, I understand the historical stability and trust. But why not hedge against the off-chance fiat currency goes belly up? We have the ability to do so now with crypto. In my opinion, any prudent investor would use it to their advantage. It’s not all or nothing, it’s a hedge.

There were always options to hedge against that eventuality. E.g. property, stocks, Krugerrands. Sure, your could add Bitcoin to that list but all in all I'd rather have a nice home that I've paid down than I'd own a pile of volatile cryptocurrency. YMMV.

> It is limited to 21 million units

A "unit" consists of 100,000,000 "satoshis", just as 21 million "dollars" consists of 2,100,000,000 pennies. It's just an arbitrary unit of denomination. I guess the difference is there would only ever be 2.1 quadrillion "satoshis", instead of basically an infinite number of "pennies".

This criticism is not meant to say that each BTC will become practically too expensive to buy; we all understand that there are granular subdivisions. It's meant to say that a fixed money supply means that as usage of a currency expands, demand for the currency will increase, and supply cannot match. If the value of BTC continues to rise, you'll never want to buy anything with it -- why not wait 10 minutes for the price to drop? In the same sense, you'd never want to sell anything for bitcoin. You'd need to update the price several times a day! It's not very useful as a currency. This is a fundamental flaw with BTC, because there's absolutely nothing anyone can do to fix it, it's hardcoded.

If we're all being honest with ourselves, people are buying BTC now because they expect the price to go up -- not because they expect to use it as a currency in the future. I don't think we know it's a bubble. No one can really know that. I think we do know that it's being used only for speculation at the moment, which makes it a commodity, not a currency.

Bitcoin is still useful for settlement. It's not so useful for pricing things.

No its not. Of BTC is constantly in flux you would never want to write or buy bonds in it. You wouldn't know what you are getting paid back in. Strongly related, if you settle in btc the currency risk (that the fx rate would change) is too great.

That's the fundamental thing people are missing I think. Menu costs are a thing.

> If the value of BTC continues to rise, you'll never want to buy anything with it -- why not wait 10 minutes for the price to drop?

That seems to be latest meme for attacking bitcoin. You know what makes new want to spend my bitcoin? I have a bitcoin debit card, and i like beer. Not a beer in 10 minutes either. So i buy it. The only difference is that the money in my wallet isn't being debased while I'm not buying beer with it. So beer just keeps getting cheaper.

> not a beer in 10 minutes

the transaction would likely take much longer than 10 minutes - unless you paid a transaction fee worth many times the cost of the beer :)

Or i just use my bitcoin debit card?

oh so it is off-chain then? haven't really seen a product like that. Must be the same as leaving your coins in an exchange and converting to fiat when you spend?

> so it is off-chain then?

Yup.

> Must be the same as leaving your coins in an exchange and converting to fiat when you spend?

Yep. I just transfer bitcoin there when I need it. These days though, I just put the cash I want for the next couple of weeks from a paycheck onto it. I actually have to move bitcoin off the exchange, because it has increased so greatly over the past few months. My beer money is increasing in value faster than I spend it.

Exchanges like Coinbase or Gemini are a less liquid example of this.

Not if it’s transacted over a secondary market or exchange. People don’t understand this.

For example, if you transact BTC directly over the network, yea it’ll be expensive. Like 5-8%. But if I transact through an exchange, it’s more like .25-.5%. And it’s instantaneous. They’re a clearinghouse that batches transactions periodically.

Seems there’s a lot of misunderstanding about money in general, including crypto. I for one am glad awareness is raising. As I truly believe money/finance/capital is an extreme, if not the greatest, form of control.

If you store your coins in an exchange you don't have control over them. People don't understand this.

Edit: And 5-8% transaction rates are absolutely insane for a payment system.

Fair. I agree, assuming control in the strictest sense. The lower transaction costs in an exchange compensates for less control.

It's not a percentage, you pay the same fee whether you're sending 20 cents or 20 million, you're paying for the space your transaction takes up on the block.

It's actually not even that, the miners just choose the transactions that pay the highest fees each time they create a block, to maximize their revenue, so you can choose whatever fee you're willing to pay and it might or might not be included depending on what other people are willing to pay.

What? Yes, but there is no reason you can't present the percentage after the transaction is complete.

Also you don't usually buy beer for 20 million, hence the rates will be in the mentioned ballpark.

But why mention the percentage? Just say the absolute value itself. $x per transaction.

So to solve bitcoin's problems they reinvent the current centralised banking system?

«If the value of BTC continues to rise, you'll never want to buy anything with it»

That's a fallacy that keeps being repeated by those who never thought this logic through. I spend bitcoins. I have been spending them for 7 years. Because the thing is no one knows for sure that Bitcoin will keep rising, or even maintain its value. Therefore spending bitcoins today is actually logically the less risky option.

In fact I can show that your argument doesn't hold in another way: if you think the value will keep rising, you should be putting all your life savings into Bitcoin at this very moment... And I know you are not doing it, because you don't know if Bitcoin will keep rising.

You can modify the code to increase the decimal point. It is hard coded to 8 decimal points right now but there is nothing preventing a consensus agreement from increasing it to 1,000,000 or more decimal places.

> expanding the money supply in proportion to the amount of economic activity ...

If that's what you want, then Bitcoin is not for you. You should be satisfied with dollars, yen and euros.

Others have different priorities where an open-source, global, fungible, non-government, fixed-supply commodity is a better fit.

Live and let live, to each his own. We're happy to coexist.

> priorities where ... deflationary commodity... is a better fit

Um, like what? Why would you want a deflationary currency?

Because its value goes up.

Well sure, tulip price rise too if you can convince people to buy them. It's a pretty undesirable property for a currency though, unless you never plan to sell anything to anyone who uses a different currency.

I guess what I'm getting at is that it is deflationary as a currency which is bad. As an investment vehicle or value store it seems to be unmoored from any fundamental value.

Which screws over any business that has a time lag between buying parts and selling the final product. If the value of money goes up as the product is manufactured, you have to reduce the price. If money deflates ~faster than your profit margin, profitable business is impossible.

[1] after expenses and other minutia

You can hedge to fix that problem, if you are so inclined.

Hedging might fix small amounts of temporary deflation, but it isn't going to fix the fundamental problem of not being able to recoup the initial investment in materials.

The only way to fix this would be to require payment before manufacturing the goods so there isn't a time lag.

A currency is a "medium of exchange," i.e. you can use it to buy and sell stuff. If your "currency" might buy 20% more stuff tomorrow (like Bitcoin, sometimes), you won't use it to buy that stuff today. Instead, you will hoard it and use something with a more stable value to buy stuff.

Maybe not "buying stuff" unless you truly need it would be a boon to the environment. Endless growth is for cancer, not the economy.

Agreed, but I kinda like buying food and shelter, and it's much easier to do so with dollars or euros than with barter goods or magic digital beans.

Yes, that is the standard econ. argument. I'm not completely certain that I buy it, though. Yes, people may wait to buy things. But ultimately people still want to consume stuff. If they time shift that consumption, who cares? What good is wealth un-utilized?

Let's say you own a pile of X. If the value of X only fluctuates a few percent per year, like a major currency, you will freely trade your X for stuff, because you can always get more or less the same amount of stuff in the future. But if the value of X is changing 10% or more per year (or per day), you will either exchange as little X as possible if it's going up, or dump it all if it's going down.

That's only true if you have the expectation that that volatility will settle in the future, though.

Deflation increases the value of currency... and debts that are denominated in that currency. Highly regressive systems that would accelerate the increasing wealth gap probably sounds appealing if you're on the privileged side of the gap.

I'd agree with this if it didn't dump carbon into the atmosphere at a staggering rate. Investors should buy carbon offsets with their newfound wealth so they're not externalizing that cost. [toned down]

I hope you don't drive a car. If you do, you're dumping carbon into my atmosphere! You should buy an electric car and only run it on solar electricity so you're not pushing that carbon on the rest of us.

I don't understand why you've gotten downvoted. Your analogy is fair in my opinion. I made the same analogy to video games and porn, both which use inordinate amounts of electricity.

If we respond this way[1] to every argument, no issue will ever get resolved. I don't disagree with you regarding electric vehicles, but it doesn't address the issue that bitcoin is an environmental catastrophe in the making[2].

[1] https://en.wikipedia.org/wiki/Whataboutism [2] http://www.newsbtc.com/2017/11/29/bitcoin-mining-causes-incr...

Bitcoin mining is inefficient compared to what? You have to see that mining bitcoin is getting more efficient by day, while hiring a bank clerk can only reach a certain level of efficiency.

In that sense bitcoin might be a better choice vs. hiring bank clerks.

The fact that you and your family exist is already pushing tons of carbon into my atmosphere. What do you propose?

People make these arguments like fiat currencies never crash.

People also think Bitcoin is complicated, while their understanding of fiat currency is shockingly inaccurate.

Exactly

Fiat currencies usually crash due to different reasons though

Yeah like losing wars and falling prey to despotic leadership. Which bitcoin is much less susceptible to.

And when they do, they fail at their job as a currency, because in that instance they are a poor store of value.

But no major world currency in the last thirty years has fluctuated like Bitcoin has in the last thirty days. Not the yen, the euro, the yuan, the dollar. For lesser currencies that have, it's wreaked havoc on their respective economies, proving that these kinds of fluctuations are undesirable.

Crypto currency is a great idea. Getting rid of central control is fantastic, because a rogue central bank is a real risk to a stable currency. But why cripple it with a design that can't succeed as a stable store of value because of its relatively fixed supply? I get that we don't want someone pulling the levers, but couldn't it algorithmically expand in relation to economic activity, such as transaction volume?

I just hear a lot of people who seem to be speaking their book instead of addressing real weaknesses that, to me, seem unnecessary to the intrinsic value of a cryptocurrency.

You are incorrect in the belief, that currencies of developed world do not fluctuate.

Pound sterling: http://www.macrotrends.net/2549/pound-dollar-exchange-rate-h...

Swiss franc: http://www.macrotrends.net/2558/us-dollar-swiss-franc-exchan...

Euro: http://www.macrotrends.net/2548/euro-dollar-exchange-rate-hi...

Yuan is much worse, though it doesn't matter that much due to capital control: http://www.macrotrends.net/2575/us-dollar-yuan-exchange-rate...

I don't recall the GP saying currencies don't fluctuate. But there's a few orders of magnitude difference in the rate at which they fluctuate.

If we compare only fluctuation down, then except for the first bitcoin bubble, they are actually the same magnitude difference: around 2x

https://static4.businessinsider.com/image/5a09d3f635876e0101...

Though fiat currencies fluctuate less frequent so far.

Incidentally, US dollar is the most well managed currency and that is why Americans do not understand the value of bitcoin.

There are several attempts at stable cryptocurrencies like MakerDAO and BitUSD, but because the price never changes they get no press coverage.

Thanks. I'll check those out.

>Having said that, a cryptocurrency that does its job... seems like a very valuable concept. Do any of them do that?

Why? What particular problems does it address that other currencies do not, and what would ultimately ensure its value or price stability?

Commodity currencies have value because they have non-currency uses. Gold is useful in electronics, manufacturing, biotech, and jewelry, and so on.

Fiat currencies are backed by tax authority, and control over territory... or in other words violence. We know fiat currencies are valuable because people have to use them to pay taxes, to use natural resources, etc.

Remind me why we should use a currency that someone merely imagines into existence. At least if I hand you an IOU scrawled on a piece of paper, I'm promising you something, and anyone who would find that valuable would be placing a bet on my trustworthiness, as dubious as it may seem to some. But bitcoin doesn't even offer that.

I think it would be difficult to make an automated currency that does that. However, the overall cryptocurrency ecosystem is similar to the competing privately-issued currencies advocated by Hayek, who thought they would make a stable monetary system without any need for central control.

Not too difficult. You make a currency that is pegged to either a basket of commodities, a basket of currencies, both, our even just gold.

When the price of the basket goes above the original price (inflation) you reduce the mining reward (or in worse cases remove some of the coin from circulation in various ways). When the price of the basket falls (deflation) you increase the mining reward increasing supply.

You would need a trusted oracle, but that is no different than any other smart contract.

Ethereum does have a long-term plan which aims (IIRC) at a low inflation rate of around a percent or less. Plus the PoS is in development which would greatly reduce energy waste.

> It is limited to 21 million units, which means that it cannot support a growing Bitcoin-based economy without rapidly appreciating in value versus other currencies, and depreciating the price of assets.

Gold is like that too, you can't dig a lot more gold even if the global economy suddenly explodes. Yet gold is a reasonable way to store my assets. Why do you think of BTC anything different?

Bitcoins won't run out until 2140, that is far enough into the future that most people won't ever think about it.

What seems to be the case though is that the decimal is placed at the wrong part of the number. Perhaps what we know of as a micro bitcoin should actually be what is called a bitcoin. The problem is that people see whole things which makes bitcoins seem unaffordable.

~80% of the 21 million already exist, and ~95% will exist by 2025, barring some cataclysmic event. So it's a bit misleading to just say that it "won't run out until 2140".

There has been a wave of minor cryptos in 2012-2013 experimenting alternative economic models such as long tail emission, stable inflation, unlimited issue tied to difficilty, demurrage, etc. Most perished during the last major market crash and the only old school alts that survived are Dogecoin (2% fixed inflation p.a.) and Litecoin (almost 1:1 copy of bitcoin).

I believe you're looking for Monero.

The fact that a fixed number exists does not limit its utility, as arbitrarily more bitcoins can be created using fractional reserve banking techniques.

You missed the entire point of Bitcoin - allowing individuals to transact securely across distances without the need for a third party. The blockchain (the entire network) secures the transactions.

They won’t want to though, so long as the value continues to skyrocket.

I'm critical of BTC but I think this is true. It is a technological breakthrough in this regard. I'm not entirely sure that the transaction costs are so low that most people would prefer to do it via BTC and not through a third party, however, especially if remittance services start competing by using similar technology in their backends.

There are specific instances where people do not have remittance services available to them -- getting money across some borders, completing illegal transactions, etc. For BTC to be a mainstream money transfer method, however, it will need to be obviously better than just doing it the old way -- paying a 3rd party to clear the transaction.

It's an elegant technological breakthrough in search of a killer app, I think, and that killer app can't just be illegal or extralegal transactions. If that's all it ends up being, governments are going to crack down even more than they already have.

> especially if remittance services start competing by using similar technology in their backends

It's not a technology problem. Transfers could be instantaneous and nearly free without a blockchain. The reason they are not is because of several reasons. Fraud prevention is one. Another is that the cash being held during the transfer is used for investments.

Bitcoin makes this faster because there is no middle man or regulations slowing it down, not for technical reasons.

I agree, blockchain is revolutionary because of what you said. But if we only use it for transactions, not as a store, then we have to switch it in/out of traditional fiat currencies at each end, which seems inefficient, rather than both storing it in blockchain and transacting in it.

I hope we eventually have a blockchain that could serve both purposes.

the blockchain depends on a third party running it

That's like saying a house party requires friends to run it.

It's designed to appreciate in value / create depreciating asset prices. The fundamental issue is that people dislike depreciating asset prices. If people can adapt to depreciating asset prices bitcoin will work well as a store of value.

I see intrinsic issues as an in person medium of exchange due to transaction times.

Each bitcoin can be subdivided by 100,000,000 units (satoshis).

Let me ask you this... Where does the value in the USD come from? Why does the world accept the USD as a globally accepted standard? What migjt cause that sentiment to change? Where is the value in usd???

A combination of belief and the threat of violence.

> Bitcoin seems like it's custom designed to create bubbles, rather than be a useful currency.

It's the other way around. It is designed to expose bubbles.

every consider that -coin and -currency were misnomers?

these are skeumorphs to a relatable asset class because cryptographic hash units are not relatable.

the whitepaper says peer to peer electronic cash system that allows payments to occur without an intermediary, it does that, it also attracts other people to use it because of its properties, that was the point and now you are adding way to much into the misnomers to rationalize your lack of participation.

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