We've been handling these set-ups very well for millennia. You find a trusted intermediary. These days, for better or worse, globalization has created more and more of them.
Secondarily, crypto is no panacea here. You can’t solve the initial distribution problem. How do you decide which individual gets how many coins to start?
If you ignore that issue, and if you can only trade within the country the total amount of crypto and the total amount of local currency remains the same meaning the total net welfare has not improved. If you can trade outside the country a myriad better options exist.
Crypto doesn’t help here either, it just purports to through magic of the blockchain. What’s necessary isn’t magic beans that live in computers but for the locals to rise up and overthrow their local governments and institute proper monetary and fiscal policy.
Concrete example: why don’t people use bitcoin in Venezuela (separate from the fact a single transaction costs a few weeks wages)? It’s been 11 years and were still waiting like skeletons for op to deliver. How did the Petro change the situation there?
I never disputed that a select few couldn't benefit from it, it's not a good general solution, though.
Blockchains offer a technological solution to a social problem- and threaten many "trusted brokers" with replacement with near-zero marginal cost software.
Using the world average of $0.14/kWh means that a Bitcoin payment costs (or rather extracts in welfare) $79. This fee is socialized across all users in the form of block rewards, and as they diminish, end-users will have to bear the whole cost or the hash rate will drop off precipitously eliminating the security guarantees. This is on top of the $3.392 fee for processing the transaction on-chain.
At a break-even of $82.39 per BTC payment, a credit card transaction would have to be at least $27,500 in Europe (based on their 0.3% interchange cap) and $4,551 in the US (based on the average interchange rate of 1.81%). ACH payments cost banks $0.11 US.
Trusted brokers aren't going anywhere, and IMO, there's no such thing as a technological solution to a social problem.
Trusted brokers won't disappear but there's a big difference between being the only game in town and filling a niche in an ecosystem.
Technology makes social solutions irrelevant all the time. How many interactions intermediated by people no longer exist because they are now intermediated by software and platforms?
If something better comes along, great, but I've seen no evidence in the last 11 years that would indicate anything's at risk of coming down the pike. I've got no interest in championing a technology that hasn't budged a single iota (heh) in 11 years. If it does, I'll eat my... well. You get the joke.
[edit] note that market cap doesn't mean anything for a currency. There's no market cap of US dollars, because dollars have a fixed value relative to dollars. If I exchange my dollar for a dollar, the market cap of dollars is equal to the number of dollars in circulation. End of story. You value other things relative to currency to obtain their market cap.
The market cap of BTC is 21MM BTC. Less, given the huge quantities that go missing all the time.
In the limit no more BTC can be obtained by mining, so transactions will be more expensive, because the computational cost will have to paid for by the transactor.
And the computation required will be much larger than now, requiring more energy, and, given the end of Moore’s law, will likely be vastly more expensive.
It is doomed to fail.
It currently uses about 0.25% of the world's electricity, which, for a market cap of ~100B, is an astounding waste.
Global currency trading, at $6+T per day, at that scale, would use 15% of global world electricity usage, which is more than any country besides US and China.
I usually agree with most of your analysis on economics, except on bitcoin. Hopefully you will come around on this topic as well.
That makes no sense. Electricity is almost always turned into some other energy form upon use, and once there, it's forever lost energy. This is basic physics. Even transmission loses energy. Electricity is not "renewable". That statement makes no sense.
Electricity can be generated by renewable resources, but used electricity usage ultimately becomes heat. That entropy increase cannot be undone without a larger expenditure of energy to recapture. Basic physics. It's lost.
Next, the majority of electricity is generated by burning fossil fuels. "Renewable" also has externalities: solar cells produce very toxic waste on construction and decommission, nuclear produces spent fuel that is highly radioactive for thousands of years, hydro requires massive cement outlays which has serious environmental costs, and even wind farms create a decent amount of waste on construction and decommission.
>there is more demand for bitcoin than supply.
This means nothing. There is more demand for nearly everything on the planet than supply. That does not mean doing inefficient things is suddenly wise.
>I usually agree with most of your analysis on economics, except on bitcoin.
Thanks. The problem is I won't come around, since BTC is one of the dumbest solutions economically created in modern times. Man spent millennia making errors on how to deal with money, currency, and macro economies, and BTC has skipped those painful millennia and recreated about the worst features in every aspect. It's what you'd expect from a programmer detached from economics and history.
It's deflationary, it cannot account for shocks, it's about the most volatile and speculative place to put money over the past decade, it's not useful as a currency due to volatility, it's not useful as a store of value since it's unpredictable, it allows incredible theft and loss (check what % of BTC has been stolen or lost over time - it's astounding), it's still subject to all sorts of bad actor problems, and on and on.
It's hacker cool, but economically absolutely retarded. There is no question about that.
You may have drank the kool-aid, but economists have not, and for good reason - they know how money, economies, and exchange works, and are aware of all the errors that mankind has grown out of that BTC blissfully embraces.
You should trust a money system created by a hacker as much as you'd trust a cryptosystem created by a painter. They're both as well designed.
Edit: after I wrote this, I googled to check if there's a good page on the terrible economics of BTC. As usual, Wikipedia did not disappoint. Check the section labeled "Views of Economists" [1] to see how many Nobel prize winning economists have called it basically crap. Not one in that list had a good thing to say on BTC.
This is the point where BTC zealots apply Dunning-Krueger and view themselves as economically wiser than this many real experts.
Edit 2: There is a neat poll of a decent chunk of the world's top economists, and I never looked there to see what they have been asked about BTC. There are hundreds (thousands?) of cool questions put to this panel, and quite often when I want a feel of how a large group of the world's top economists think on a topic, I search here to see if that topic is covered. Most importantly, when they all lean one way or another, it's a pretty solid sign that is the best knowledge mankind has on that econ topic.
I searched for bitcoin, found four topics, and ouch! I guess my understanding of econ and BTC was not far off. Check out these [2,3,4,5]. It's worse than even I guessed.
After this much expert evidence, I don't even have to question my understanding of it much more. The crappiness of BTC except for scams and bubbles is not much of a question any more.
[1] https://en.wikipedia.org/wiki/Economics_of_bitcoin#Views_of_...
[2] http://www.igmchicago.org/surveys/bitcoins/
[3] http://www.igmchicago.org/surveys/bitcoin-ii/
What if bitcoin passes gold in market cap ?
What if central banks start holding bitcoin like they hold gold rn?
What if a future Nobel winning economist says something nice about bitcoin ?
Or is it impossible for any new information to change your mind on this ?
See: beanie babies, furbies, tulips, leaded gasoline, leaded paint, the rise of fascism in Europe in the 1900s and so on. A lot of people using something doesn’t make it at all valuable, efficient, effective or good — anything, really. It has to do that on its own merits.
You can’t escape the fundamental economics here. It’s bad. Rather it’s great at separating people from their money, and allowing the trafficking of illicit narcotics and money laundering.
[edit] let’s look at it the other way. Why isn’t the popularity of the dollar enough to convince you the dollar is better? Who would have to adopt the dollar to change your mind?
I’ll tell you what would convince me bitcoin is bad: discovery of a bug that allows double spending retrospectively and someone corrupts the entire ledger to date. China taking over and re-educating me it’s bad. God addending the Old Testament or the Koran that it’s bad.
It's not about changing minds - it's about evidence. There's ample evidence BTC is simply repeating the flaws of discarded money systems, and they were discarded because they are terrible. Unless BTC addresses these flaws there is little sense in painting a pig.
Mankind has learned that a money system that cannot adjust to shocks is a terrible idea. So first BTC needs this ability, which would make it not BTC. If it cannot at least meet minimum requirements, then it fails. You might as well argue we should trade tulip bulbs as currency if you're going to ignore modern evidence.
The real question is why do you clutch BTC given centuries of evidence and widespread professional opinion that it fails at the things a money system needs to be modern? Why do you insist on repeating flaws that have been conclusively demonstrated to fail?
I gave you ample phrases to google and learn from. If you still claim BTC is somehow immune from all its flaws that is your choice.
You want to do business with Steve, but you don't trust Steve. Cool. Do you and Steve mutually trust someone? Awesome, you've found an escrow. If you can't find someone who trusts both you and Steve, that's a great sign you shouldn't do business with Steve.
No amount of magic Blockchain pixie dust is going to change that there are bad actors out there.
Why use a trustless payment method when you trust your counterparty and waste a month's worth of electricity?