Comment by chunky1994 | Hacker News Reader

Comment by chunky1994 | Hacker News Reader

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No, the biggest promise of crypto is that you don't need to trust a third party (wether, govt., bank or your neighbour) to verify a transaction between two parties as valid and that somebody didn't just give you counterfeit digital coins (i.e it solves the double spending problem). That's pretty much it.

Everything else in a crypto economy is built on top of that as an analogous structure to regular physical currency/digital currency verified by a third party (i.e fiat) economy.

Not needing a third party to verify the authenticity of digital transactions does not automatically make you immune to regulation.

In very specific situations (i.e failed states undergoing civil war), if you lose the trust in your entire govt. you can now reliably still trade digital currency without it necessarily being backed by a third party, however everyone you are transacting with must buy into three things: 1) This new digital currency is now the dominant currency. 2) Everyone trades goods and services based off of this new currency 3) People outside your country respect that everyone inside the country values this at some specific value and honours trade in that currency.

It is extremely unlikely you can convince anybody outside a country of (3) without some intervening international body, so the "crypto economy" replacing currency to fight an authoritarian regime is practically never going to happen.

With regards to the article. Ultimately, if you trust your government to in general protect you, this is a good thing. If you don't trust your govt. to do so, this framework is a bad thing.

> 1) This new digital currency is now the dominant currency. 2) Everyone trades goods and services based off of this new currency 3) People outside your country respect that everyone inside the country values this at some specific value and honours trade in that currency.

All you have to do is convince your recipient that there is at least one other person who would trade the crypto for something else valuable. Then you can send it to your recipient and they can convert it into whatever they want. You don't have to convince them that everyone finds it valuable.

I was making those statements in the context of those conditions being necessary for a failed state's currency to be replaced by a cryptoeconomic currency.

But to answer your specific point, even if you could convince someone else that they could trade it for something else valuable, you have to keep going up the chain or it is purely bilateral and no longer a currency but a barter good. > they can convert it into whatever they want. They can't convert to to whatever they want, unless the other people also engaged in this economy value the currency and are willing to trade goods and services for it, hence (2)

Another benefit with cryptocurrencies is that nobody's allowed to control the supply, so you escape the inflation heavy fiat money we use today.

The supply is controlled solely by a group of random, un-elected, un-accountable to anyone, GitHub contributors. If the Bitcoin Dev Team wanted, they could up the number of coins. Arbitrarily. Without recourse. What are you going to do, fork it?

Further, the massive, overwhelming breakage due to the user-hostile nature of cryptocurrencies has led to staggering deflation. 20% is gone already [1].

Finally, the worst part is that the Bitcoin wealth distribution is worse than any banana republic; 0.00088% of addresses control 17.5% of all coins. 4.11% of addresses control 96.53% of coins. [2] Unless you're a whale, you're fighting for scraps today, and the next generation of market participants will be basically serfs. Deflation and breakage exaggerate this problem.

If you thought letting them eat cake was bad...

[1] https://www.investopedia.com/news/20-all-btc-lost-unrecovera...

[2] https://howmuch.net/articles/bitcoin-wealth-distribution

The Bitcoin Dev Team could certainly write code that gave them 100 million coins, but it will be difficult to convince the miners, exchanges, payment processors, wallet developers and the rest of the community to run it.

And this is exactly what happened early in Monero's history, where the lead developer got ejected from the community: https://monero.stackexchange.com/questions/1011/monero-incep...

And this is also what's happening now in Bitcoin Cash, where the developers of ABC (up until now the client almost everyone used) wants to assign themselves 8% of the rewards from a mined block. And the the rest of the community are rejecting it heavily.

So yes, the community would fork it.

> What are you going to do, fork it?

Yes. Miners with huge operations whose profitability depends on people's trust in bitcoin are going to refuse to deploy the new software.

If the "Dev Team" upped the number of coins it would be a fork, none of the existing nodes would accept it.

It's not impossible to change Bitcoin's supply, but there's zero chance the Bitcoin developers would get away with it. They can make whatever changes to the protocol they wish, but they can't force anyone to adopt those changes.

And yes, a lot of Bitcoin has been carelessly lost, but these are mostly old cases before Bitcoin had any exchange value. You've probably read about people throwing away hard drives with 1000s of mined bitcoins that ended up being worth millions a few years later. Hindsight is 20-20.

It should also be pointed out that a sizable chunk of Bitcoin is essentially frozen in Satoshi's wallets. Whether to count them into the supply is debatable. Same for Hal Finney.

How would less regulation lead to less inflation?

Bitcoin is massively deflationary.

Bitcoin's inflation rate is currently about 3.4% per year, which is a bit on the high side though still better than many national currencies. In a century or so that will have decreased down to nearly zero, which is still only neutral and not at all deflationary.

It's massively deflationary due to its user-hostile nature, irreversibility and lack of appeals authority. This leaves it prone to many kinds of loss (and fraud). An analyst suggests 1500 coins are lost per day, and so less than 14MM will ever be in circulation [1]. Currently, only (144 * 6.25 = 900) coins are mined per day, and 1500 are lost. Ergo, it's deflationary and will become more so over time as the block reward drops.

I also disagree that 3.4% is a "better" inflation than many national currencies. It's lower, sure, but I am reluctant to draw a value judgement as inflation has a specific and important role in the economy. I don't know enough to tell you authoritatively that 3.4% is "too high" and "worse" than the classical 2% US target.

[1] https://news.bitcoin.com/analyst-1500-bitcoins-lost-every-da...

Did you actually read the article you cited? It's pretty obvious that the authors (among others) feel that the 1,500 BTC/day loss rate claimed by this one fringe analyst is a massive exaggeration based loosely on outdated statistics. Sure, lots of bitcoins were lost in the beginning, when they weren't worth much. Most of the reports are from people who had bitcoins early on and only recently realized that they should have kept better care of them. The wallet UIs and best practices have been steadily improving, and with prices where they are right now there is no good reason for anyone to "lose" their bitcoins any more than they would accidentally "lose" a $100 bill (which is similarly irreversible).

Any artificially-induced inflation of the money supply is economically destructive, promoting malinvestment and waste. Some inflation in the beginning is inevitable, of course—you have to start from somewhere—but it's a very good thing that Bitcoin will have an supply inflation rate on par with, or lower than, most national currencies before it becomes prevalent enough to significantly influence pricing in the investment markets.

Inflation does have an important role in the economy. When it happens naturally it tells investors that we are in desperate need of more capital investment, and it basically doesn't matter what kind of ROI can be expected as long as it's at least somewhat positive. The issue is that this same investment behavior readily leads to diverting resources from more productive investments to less productive ones when the economy should be deflationary (indicating a positive average expected ROI) but the money supply is manipulated to make it look like there is a shortage of capital.

The article I linked you to is from a very pro-Bitcoin source lol. The actual research note was linked from it here: [1]

> Any artificially-induced inflation of the money supply is economically destructive, promoting malinvestment and waste.

I'd love to see your sources there, because I don't agree. Inflation plays important roles like pushing for allocation of capital. Inflation only matters if you hold dollar bills under your mattress. Once you invest it in anything, including real estate or a savings account, the effect is decimated, or reduced below zero.

> Inflation does have an important role in the economy. When it happens naturally it tells investors that we are in desperate need of more capital investment.

What is "natural inflation" in Bitcoin? Does it naturally sprout more coins in steady state? Or are you suggesting velocity of money in a currency unable to respond to externalities should suffice?

[1] https://static1.squarespace.com/static/5d580747908cdc0001e67...

This is governed by which specific cryptocurrency's monetary policy you're talking about. For example ethereum's supply is decided by a committee with people from different groups [1], while bitcoin's is basically fixed incremental supply that's built into the protocol (as of writing this comment).

[1] https://docs.ethhub.io/ethereum-basics/monetary-policy/

Apart of course for Stablecoins (e.g. Tether) where they can print as much as they want, whenever they want. And as long as the exchanges go along with it, their value per coin stays the same.

The biggest of all of these (tether) has a daily transaction volume often higher than BTC itself, has never had an outside audit, has admitted to not being 1:1 backed and is currently under investigation by the NYAG.

They've also expanded supply by ~$12 billion this year.

Tether is not a cryptocurrency (although some insist to call it that).

not true of all cryptocurrencies, you're talking about unstable coins

Stable coins are not cryptocurrencies. They're tokens.

> It is extremely unlikely you can convince anybody outside a country of (3) without some intervening international body, so the "crypto economy" replacing currency to fight an authoritarian regime is practically never going to happen.

Could anti-authoritarian outsiders use (3) to effectively support anti-authoritarian insiders?

The "people" in (3) refers less to the working class than it does to people in power that control and contribute to large percentages (>0.5%) of a country's GDP/wealth (unless nearly all of the working class within a country recognizes it).

Not sure why this question is being downvoted, but possibly. However this is fraught with various complications and is a discussion around failed state govts.' regime enforcement, internal citizenries' access to external organizations and various other ways in which other economic actors interact with these, a very complex separate discussion on its own and it requires one too many assumptions for me to be comfortable providing any intelligent opinion on without starting from a common base of assumptions.

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