It Looks Like Nobel Economics Laureates Don't Like Bitcoin
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I never thought I would so heartily disagree with a Nobel Economics Laureate, but this appears to be a misguided opinion. Bitcoin drives an entire black market which enables consumers worldwide to securely and faithfully make purchases that they would be unable to otherwise make. Direct tax generation isn't the only measure of socially useful functions.
I'm not saying Bitcoin doesn't provide a value of exchange, after all, it could be said that the storage of gold for holding value is also not a 'socially useful' function.
However the skeptics are correct that this particular use can be satisfied by very many other cryptocoins, so it's not unique to Bitcoin.
For the important transactions you mention, presumably an escrow service is needed. This reintroduces the requirement for trust in a third party.
Still some trust involved, but the third party can't pocket your money directly.
The example system you mention, which involves having faith in (for example) a courier's delivery notification service, seems to me underline the ubiquitous implicit relationships of trust we implicitly rely on currently, generally being of the form "individual trusts institution/infrastructure".
It hardly needs saying that cypherpunks don't like that unreciprocated trust, or even deny its importance to their own security.
If you're looking at it from a harm-reduction perspective, people are obviously getting drugs despite prohibition, so you might as well have a less violent drug trade.
Most modern economists just instinctively hate good money because they believe saving is evil.
"It doesn’t serve any socially useful function."
They use the exact same phrasing when discussing gold.
(My only beef with bitcoin and blockchain is that it can become bad money in a matter of milliseconds, without any heads up. E.g. when a major bug is found. Bitcoin may ultimately just be too complex to be good savings money. Its "badness" can be hidden in a massive, single occurence tail risk.)
In the case of a widely adopted blockchain like bitcoin, "bad" could mean something like "technically inferior". Or in terms of tail risk: "hacked" or "major bug discovered" or "encryption broken".
These tail risks caused by blockchain's complexity would be a sudden event. Unlike e.g. USD or EUR becoming bad money, which is something that unfolds slowly and publicly over many years.
> Gresham's Law will apply only to different kinds of money between which a fixed rate of exchange is enforced by law
(Emphasis in the original)
Gresham's law could happen if the governments...banned bitcoin!
Gresham's law applies when a legally fixed exchange rate means that the price can't reflect the difference between the two currencies.
In any case, I recommend that chapter of Hayek, it's a quick read and you might find it clarifying.
Edit, this used to say, but that is wrong: The difference is that the which is best changes over time, so you change which one you are hording based on conditions.
I really don't get these snarky comments on how this is a bubble and BTC will die and what not. Just don't buy it and leave it to others that like to have x10-x100 gains in a year.
For me it's quite straight forward that BTC value will appreciate over time. There is finite amount of BTC in this world and Y people. Unless some systemic factor (eg. criminalization of use) or technological factor (eg. crypto is broken) rears it's head it's fair to say that an asset designed to be deflatory in price will increase its price over time. It's not going to be a straight line, and I really hate these massive growth spikes (not sustainable, plus they play with your emotions), but we're well ahead of the times when BTC and/or crypto could be called just a fad.
Not with wall street actively pursuing legal means to invest in BTC.
The exception would be simultaneous catastrophic breaks in ECDSA signatures and (assuming you’re not reusing adddresses) RIPEMD-160 and SHA256, which seems unlikely.
From a price perspective, yeah, the market could overreact.
But again, until a show stopper is found, I would say that bitcoin will never be popular as a means of payment. People would increasingly use it as a vehicle of savings.
Once it has reached some point of "maximum adoption", it would start behaving exactly like post-1973 gold. It would still go through periods of speculative enthusiasm in which allocation to bitcoin increases, followed by periods of aimless grinding in which it drops again.
It wouldn't follow CPI tick-for-tick, but over very long term periods, it would be nicely mean reverting vs cycles of general price levels and financial market prices. And as such, in terms of bad forms of money like government currencies, it would ultimately just keep rising forever. Or at least never go to zero.
So people who say "bitcoin is a bubble because it's not used much for payments" would be wrong. It's going places exactly because it's not being used much as transaction money.
And so, as Nobel prize winners would move up from the step of calling it a dangerous bubble to the step of decrying it as a deflationary threat, I predict no end to their criticisms.
So much so that, very likely that's exactly what its creators hoped to achieve. You mine it after all.
And it may behave "like" gold in some respects but in many other crucial ones it does not.
BTC is not a useful raw material in any industrial process. It requires a P2P network and extensive global infrastructure, so it won't still be sitting there inert in 1,000 years, when the Power is out, in a crisis. BTC can't be alloyed with other cryptocurrencies to produce other value added products.
You can't put BTC leaf on your fancy pastries. There are no other downstream businesses that specialize in assaying the purity of your bitcoin.
The vast majority of participants in this market aren't parking their money in BTC to preserve it, and neither to use it as a medium of exchange. They're doing it with the expectation of a return. If those returns fail to materialize, the money will move elsewhere.
I guess if by being rational you're avoiding burning your hand, you're also missing out on the hen who will lay golden eggs in the future. In a few years, $10,000 might look peanuts to pay for Bitcoin. It seems logically absurd to think so, but time and again, the skeptics have been proven foolish and the believers have made the gains.
New things come along, and they don't have to make sense in the old worldview in order to be good. So the analysis of 60 year olds, even the really smart ones, is less valuable than it sometimes appears.
HOWEVER -- the opposite is also true, "flavors of the month" come and go, and proving worldwide utility takes more than convincing a lot of people to buy for a period of time.
It's going to take years to see the outcome and who is right. Humans are absolutely fucking terrible at predicting the future. Don't buy the hype.
Do your own research, run your own experiments, and hedge your own risk.
If it fails to continue growing relative to the perception of the people buying it, it's value on the market will plummet, and that will likely cause a run on the exchanges.
If you were forced to find buyers for your btc on your own in a panic, without the help of market makers, then collapsing nominal market rates would not be the main problem of "btc millionaires", getting that collapsed rate, or even just a significant fraction thereof, would.
I guess bitcoin exchanges are not really regulated in any way.
Or maybe more drug resellers have found a way to sell drugs online using bitcoin, meaning drug users are buying bitcoin en masse, inflating the price.
One possible way to launder money, would be to find a way to convert dirty dollar bills to bitcoin at a higher dollar price.
I have been spending plenty of mBTC in the stores (shopping, flights, hotels) that accept it such as Overstock, Abitsky, Destinia, etc. and my experience there has been way more comfortable than shopping with credit cards or even Paypal.
I keep all my BTC/LTC/ETH in Coinbase wallets, and whenever I want to send money from those wallets I need to go through multiple 2FA prompts. My debit/credit cards have never required anything more than a static number to be used online.
If my Coinbase wallet account is hacked because I use a bad password, can I get anything back? If Coinbase as a company goes under, what happens to my bitcoins? If I accidentally send cryptocurrency to the wrong recipient, how do I reverse that transaction?
As somebody living in the USA who doesn't transfer funds internationally, I'm quite well covered by existing banking regulations: I'm struggling to see how Bitcoin is 'safer' for me in any way.
I don't even know how you would do something like that with bitcoin.
Charge interest to cover the risk.
I agree that the regulatory environment is different.
By the way, Bitcoin mixers are sorta like this in a way. If you have enough Bitcoin, some mixers look for investments and promise to return interest from it. This is another potential use case for "decentralized banks".
It is often said that the us doesnt have inflation because when more dollars are printed, global demand still captures them. That is, when people in other countries save in dollars, they fund the US and defund their own country. Not making a moral or economic case against allowing people to do that, but its the effect it has.
So now, what if the world stopped using dollars and started storing in bitcoin? Then the rise of bitcoin truly would be proportional to the demise of the dollar. In this way, I'm scared the bitcoin fanatics might actually have a point.
Either the hyper-valuation of Bitcoin relative to fiat currencies continues above the rate of rise for the cost of verification, or it doesn't.
If the accelerated price of Bitcoin fails to outstrip the rise in cost, due to public perception, regulation or any other reason then the network will cease verification and exchange within the network will stop.
If the accelerated price does continue to outstrip the rise in cost, then people won't sell their Bitcoins because they will be worth more tomorrow than they are today. So exchange outside the network will stop.
So in both scenarios you have a cease of exchange, the only difference is that one ceases within the network and one outside the network.
Isn't this a failure in both cases?
Huh?
The mining “difficulty” automatically adjusts every 2 weeks to always target 10 minute blocks.
If the price drops dramatically it can temporarily slow block creation, especially if a different cryptocurrency (with the same mining algorithm) is more profitable to mine, but it will eventually adjust.