Bitcoin Is a Terrible Currency, and Not for the Reason You May Think
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Am I the only one where this was the reason I was thinking?
Interestingly, thinking honestly about bitcoin made me a Keynesian.
It's not (yet) "digital gold", but rather "digital tulips" [1].
Tulips come from seeds and are ornamental, once they are dead they can no longer be traded for value. There is no limit to the world-wide supply of tulips, and there is no such thing as distributed international observation and participation in tulips.
To further my antagonist response, the Smithsonian Mag recently did a report explaining that Tulip Mania was also not really a Tulip Mania and that reports were highly exaggerated; an author of a recent book on that time claims that there really is no lesson to learn from Tulip Mania, as tempting as the comparison may be.
https://www.smithsonianmag.com/history/there-never-was-real-...
When there is more money needed the banks print more money and so everyone’s money becomes worth less so we see inflation.
With a limited digital currency like BTC you would expect to see deflation and so over time transactions would require a smaller fraction of a coin as payment.
Also I don't think the deflationary is an issue because of how fast crypto can change hands. For example, I go to buy a t-shirt for $10 and I pay the merchant $10 equivalent in bitcoin cash. The transaction confirms in 10 minutes or less and the merchant can send the crypto to an exchange to immediately convert it to fiat or any other crypto of their choice. Also most likely in the future, merchants will use some sort of centralized payment processor so when the buyer pays and the transaction confirms the seller immediately gets fiat cash instead of crypto, assuming they want fiat of course.
So the whole idea that crypto doesn't work as a currency is mostly a moot point IMO. Most people are thinking about that issue from a macroeconomic perspective as in if one crypto was used as the official currency. The days of that is coming to an end IMO. The future is going to be multiple cryptocurrencies competing with traditional fiats. The payment processors of the future will be able to process hundreds of different medium of exchanges through their point of sale system. A merchant has nothing to lose by accepting 100 different medium of exchanges if the other medium of exchanges are simply be converted to whatever the merchant's ideal store of value is.
Then it simply comes down to individual merchants and consumers deciding what medium of exchange to use and that is good for everyone. More freedoms is better. I think we can all agree on that.
This is why I don't think of bitcoin as a currency: I've never seen it used to denominate prices. As far as I can tell, not even Silk Road had prices set in bitcoin.
Paying "$10 equivalent in bitcoin cash" (or bitcoin, or litecoin, or whatever) is using those cryptocurrencies as a payment gateway; the currency in those transactions is $.
Precisely. We're entering some real fiat currency inception here. Bitcoin is worth whatever people value it at, similar to most forms of currency (backed by the faith of the issuing government). Now we're going to faith upon faith.
https://unenumerated.blogspot.com/2011/05/bitcoin-what-took-...
AFAIK one of the main underpinning of the Austrian school is: https://en.wikipedia.org/wiki/Subjective_theory_of_value
Although to be fair a lot of non-scholarly "Austrians" cite the intrinsic value of gold as what makes it superior to Bitcoin. So he's right in the parlance of common rhetoric.
I also think he is right in that liberals tend to favor keynesianism because it makes it easier for the government to grow.
That said, it's become much less a currency and more a fiat commodity one stashes like beanie babies so my original reasoning isn't particularly applicable at this point.
Actually, a deflationary currency is an interesting concept for Basic Income- if everyone is given an amount of BTC at birth, so that it appreciates in value by the time they're old enough to spend it, they have a nice nest egg to build off of.
Of course, it only works if the currency circulates. I wonder if there's real world examples of deflationary currencies. Has it ever been tried?
The most common objection is that it leads to intertemporal decisions. Is that really bad?
If you knew that your money increases in value over time you might only spend it when it's really necessary instead of driving an ever expanding economy that consumes a finite world.
Maybe a finite world needs a finite economy?
If my money reflect the wear and tear on our common ecology I might be more restricted in its use.