The problem Bitcoin solves
spectator.co.uk
spectator.co.uk
I think of Bitcoin as being a Gold 2.0. Reasons:
1. It's like gold, but it removes some of its technical shortcomings.
2. It's also not a fiat currency, because it's not possible to just print new money.
Those two properties are, I believe, its defining properties.
Not being able to print new money might be a good thing, or it might be a bad thing. It could very well be that the control that central banks have over the money supply might not be a good thing. Or it may indeed be a good thing. Who knows.
Krugman might think the control that governments exercise over the money supply is benign - but Krugman and his fellow economists are not scientists. There are equally compelling arguments that fiat currencies encourage people to put their money into fractional reserve banks, creating lots of risky debt. The banks themselves end up being too big to fail, needing periodic bailouts, creating moral hazards that result in future risk, and making ordinary people pick up the tab.
A bitcoin economy, in contrast, will presumably not have such cheap access to credit. It will probably be a "deflationary" currency, encouraging people to save up their money, rather than lend it out, avoiding needless debt. Whether or not this is a good thing is unclear.
Full disclosure: I have 200 GBP in Bitcoin. Treat these things like lottery tickets.
Fiat money is money that is in itself intrinsically valueless but that is accepted as money because the government says that it must be. It has nothing to do with whether or not it can be printed (or otherwise easily created).
If a government were to make a cryptocurrency like Bitcoin their legal tender and require that it be accepted as money, then that cryptocurrency would become fiat money.
Money has for the most part been a dichotomy: commodity money and fiat money. Bitcoin doesn't fit fully into either category, but it actually is closer to a non-government fiat currency than to commodity currency.
Commodity money was things that were valuable themselves, independent of their use as money. Gems and precious metals, for example, are useful for making jewelry and for other aesthetic purposes, and their rarity makes them useful as status symbols for upper classes.
In societies that do not use them for money, people still want them and use whatever is used for money to buy them.
Cryptocurrency doesn't really fit as commodity money because the demand for it is almost all for its use as money. If people did not accept cryptocurrency as money, I doubt many people would be interested in buying it.
As money, cryptocurrency is much more like fiat money: something worthless that has been declared to be money. The only difference from most other fiat money is that with cryptocurrency it is not a government declaring it to be money. It is a large group of people.
We probably need a new category, non-government fiat currency, to cover cryptocurrency as money.
Cryptocurrencies aren't worthless though. Computationally expensive, cryptographically useful numbers are a valuable commodity. They are valuable in virtue of the computational work that they make possible, the same way that electricity or silicon are valuable in virtue of the computational work that they make possible, i.e. successfully, verifiably lengthening the blockchain.
> Fiat money is money that is in itself intrinsically valueless but that is accepted as money because the government says that it must be...require that it be accepted as money (emphasis added)
There's the part where you say it.
> The only difference from most other fiat money is that with cryptocurrency it is not a government declaring it to be money. It is a large group of people.
And there's the part where you take it back. As you started to say, declaration is a necessary but not sufficient condition for fiat; it also requires forcibly maintaining the declaration. If a large group of people have that power then they're effectively a government, making "non-government fiat currency" an oxymoron.
Bitcoin, or the technology of Proof-of-work and immutable history that is based on it, is not like gold:
One can take the entire history, change specific parameters, and create a new coin (bitcoin cash for instance) that has the same history. Hence people that had bitcoins have the same amount in this new currency.
This is like taking all gold in existence, magically duplicate its exact quantity into say another chemical element which never existed before, and distribute the amounts to all the people that owned gold before; in the same proportions.
Would this make the scarcity property of gold less interesting for using it as a medium of exchange? You bet so! One could magically do this ad-infinitum, possibly creating infinite other chemical elements - what would then set gold apart from the rest?
Your argument would apply equally to any currency. What stops me printing jstanley dollars and claiming there is 1:1 parity with actual dollars? Nothing! And yet that doesn't devalue actual dollars.
If most people had legitimate reason to believe that your jstanley dollars would retain 1:1 parity with US dollars, and they would be able to be used interchangeably with US dollars for most financial interactions for the foreseeable future, then you might devalue the US dollar by printing enough jstanley dollars.
That is unlikely though - there is no reason to believe any of those things about your dollars.
Whereas if you believe in the model of bitcoin, why don’t you believe in the model of bitcoin2? The best answer I am aware of is “network effects”, but that isn’t a very good one.
We could get rid of almost all the bank default risk by making banks match the maturity of their deposits with the maturity of the loans they make. But with less risk, the bank would not be as profitable most years.
[1]http://encyclopedia-of-money.blogspot.com/2010/03/goldsmith-...
Hey, I appreciate this. As someone that doesn't like bitcoin, it became clear that the people shilling bitcoin we're not honest about their investments.
To me digital trustless and permissionless transfers are the most important features of cryptocurrencies.
That may be a bug, not a feature. See William Jennings Brian, "Cross of Gold" speech. Having a fixed currency and economic growth forces deflation, which is really tough on debtors.
Gold, like diamonds, is a promoted rarity. The gold industry's "World Gold Council" puts effort into into getting gold safely locked up in safe uses like jewelry and off the trading market.
- Its usage in black markets, like drugs and weapons.
- Its usage as a speculative commodity.
- Its usage as a hedge against hyperinflation.
Those are current uses - and any one of them could grow much bigger. Conceivably, a government may end up creating a new black market traded in bitcoin, which might then propel it to mainstream adoption.
Footnotes: Drugs are bad; don't do drugs. Guns kill people. Don't sell your house for Bitcoins. Etc.
- Its usage as a hedge against hyperinflation.*
FYI - those are both features that gold currently possesses.
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&...
For me this makes the real value zero, but I am already proven wrong for more then 10 years.
Can’t? Perhaps it is difficult, but not impossible. I can think of some examples of forking social consensus: x11-wayland, Debian-Ubuntu, star office - open office - whatever office it is now.
I think you have to stretch the definition of “fradulent transaction” to the breaking point to be able to make that claim with a straight face. At best, we have a definitive record of every fradulent transaction ever committed with Bitcoin, which is progress of a sort.
To hit the whole article more generally, the author claims that men with guns can't guarantee fiat currency remains valid. True. But if men with guns say your crypto is now illegal, the utility of crypto for the common individual is now (value - expected cost of committing a felony on a public ledger). You might still find a use for it, but the majority of layperson use cases to mitigate hyperinflation just went down the toilet.
So your argument is not that it's misleading/infactual, infactual, but that the colon person would misinterpret this.
Does this not happen with technical subjects all the time? Such as in law, some of the lingo used doesn't follow the community accepted definition.
I suppose you mean phishing attacks or some form of hack on an exchange or end user.
I'd bet that the police were unable to recover anything that the gang members robbed. Crypto introduces a weird situation in which you either: A - keep all of your private keys at home which is effectively just like keeping all of your cash at home, but in easily distributable packages or B - trust some third party entity to hold and protected your assets from what looks like fraudulent transactions. I would imagine a world in which everyone has crypto as their currency would have a lot more physical crime, home break ins, and robberies.
I come from a family of policemen and consider that cryptocurrency adoption will lead us to a scenario where your assets can't be taken away from you because they can't be linked to your physical identity in the first place. The idea that others will protect your personal property on your behalf actually puts you and your assets at danger in more sinuous and violent ways, either by theft or injunction or even by clerical mistake.
If crypto is the main currency then it will be tied to your physical identity, because you will "use" it- and whatever medium you're using to convey that payment, be it a QR code on a physical card or a phone app, has significantly increased risk if lost or stolen or forcibly abused.
Much of the benefits of crypto for non major financial transactions can be solved with cash and a shady hoody. But laypeople still use banks, because what they really want is risk reduction, and for 99% of the population, banks provide that.
Just the other day some guy on HN was adamant that bitcoin was "only" useful to buy drugs without having to meet shady people. I thought he was short sighted but you can't even see the benefit in _that_ specific disintermediation...
In all honesty, when I read things like what you just wrote, it doesn't make me want to spend my time showing you a different point of view because I don't believe you are able to learn from the experiences of others.
The Bitcoin network worked as expected, but by most normal definitions of fraud, I've defrauded you.
It's lucky that, at the time, pretty much anyone knowledgeable enough about blockchain would have been in the Bitcoin community!
Of course, 0 bad entries is probably a necessary condition for a ledger that is supposed to be cryptographically secure.
However, and here’s the kicker, it’s no more fake than the original. So as long as somebody will accept it as part of another chain, then it has value.
So you are left with the task of proving that Bitcoin is fraud in and of itself, rather than on the basis of circular argument.
Tricking other people out of their BTC, meanwhile, isn't really fraud, it's just theft.
Bitcoin eliminates the possibility of inflation by replacing it with a guarantee of deflation. Deflation comes with its own sets of economic and political problems, some of which can be just as thorny as the ones that come with inflation.
There is a school of thought that holds that inflation is so bad that its opposite must inherently be good. How much Bitcoin appeals to you will depend a lot on how close this aligns with your own thinking.
And the price revolution about 400 years ago? While this is not a hyperinflation, this introduced inflation to a world which didn't know it, and the cause was the influx of gold and silver from the New World to Spain and indirectly to the rest of Europe.
https://en.wikipedia.org/wiki/Price_revolution
My point is that even gold and silver could undergo inflation pressures and that it already happened.
It occurred to me that someone should make a sister site to the (satirical) https://99bitcoins.com/bitcoinobituaries/ except it would list real-world occurrences of fiat currencies "dying" of these various causes.
Bitcoin is no money unless banks (central or commercial) can create it at will.
Money creation is an essential prerequisite for capitalism. With no money creation through credit there is no capitalism any more.
Bitcoin does not solve any problem, but it creates new ones.
Your currency is not supported by "men with guns". Your currency is supported because you have to pay you taxes in that currency. The state want to have currency, not Bitcoins. You Bitcoins are only of value as far as the can be converted to fiat currency at the time your taxes are due. You are completely depended on someone else to give you something of value (currency) against something without value (Bitcoin).
https://en.m.wikipedia.org/wiki/World_energy_consumption
Bitcoin mining energy consumption: 73.12TWh
https://digiconomist.net/bitcoin-energy-consumption
Percentage: 0.0433897661%
I wish people would actually do some research before making hyperbolic statements like this.
edit (percent fix and formatting)
If you find it useless then sure vilify it, but not everyone feels that the creation of an entire industry that has allowed certain people financial freedom is a drain. I feel there are much bigger fish to aim an ecological spear at.
(updated the previous comment to show production not consumption btw)
Seeing as most everyone's information used to access credit is available on dark sites, I'm willing to go long on cryptocurrencies.
When demand abates, the electricity requirements will follow.