Wall Street struggles to sell Washington on Bitcoin for the masses
politico.com
politico.com
If you're talking pure financial volume, most of it doesn't concern individuals at all. I'm focused on the privacy rights angle where small cash transactions are absolutely crucial.
You can also cash a check, of course.
Only a little part of Keynesianism involves the state, if you take a conventional definition of the theory. The only part that even involves the state isn’t all that controversial: people buying and selling is fine and self supporting, until the buyers don’t want to buy enough to support the sellers, which is the only time the government has to step in a buy stuff.
So Keynesians don’t put the state first. And the people who do put the state first don’t like all that buying and selling on the open market. Really disjoint philosophies.
Specifically, Keynes argued for driving down the rate of interest to zero permanently -- he believed this could be done in a single generation:
"On such assumptions I should guess that a properly run community equipped with modern technical resources, of which the population is not increasing rapidly, ought to be able to bring down the marginal efficiency of capital in equilibrium approximately to zero within a single generation; so that we should attain the conditions of a quasi-stationary community where change and progress would result only from changes in technique, taste, population and institutions, with the products of capital selling at a price proportioned to the labour, etc., embodied in them on just the same principles as govern the prices of consumption-goods into which capital-charges enter in an insignificant degree.
If I am right in supposing it to be comparatively easy to make capital-goods so abundant that the marginal efficiency of capital is zero, this may be the most sensible way of gradually getting rid of many of the objectionable features of capitalism." - General Theory Chapter 17
If you really follow this thread to its logical conclusion, you see an incredible arrogance and desire for state control that is a lot more than just "stimulating the economy during a recession"
Not sure you’re reading the rest as intended either.
This is not a prescription for the government to drive down interest rates to zero so that no investor makes a profit, ever. It just means that when sufficient liquidity, the marginal return on capital should be zero, like any commodity. What’s wrong with that?
Now, Bitcoin is a digital yuan with an infinite history of every purchase made with it (the blockchain). No thanks.
At this point, I'm starting to think the only viable alternative, from a medium-of-exchange perspective, is in commodity money -- metals and other materials that possess intrinsic value.
What role do you believe intrinsic value plays?
Intrinsic value is useful if you're trying to "peg" a currency to some other measure of wealth. But that only works for relatively small markets.
Currencies are a representation of wealth in a society. The wealth in a society is necessarily greater than that of any single asset. As such, the value of a currency based on an asset must be surplus to any supposed intrinsic value that asset has.
This means intrinsic value serves no direct useful purpose for a currency - at best, it's a secondary consequence of some more important property, such as scarcity.
Currencies are a major lever of control that governments use to run their countries. In small countries, foreign currencies like the US dollar are already used widely for their stability and ease in foreign trade. Imagine if this becomes digital with zero friction, and you can see how a country could lose all demand for its currency.
Larger countries face a similar dilemma with Bitcoin. If Bitcoin is frictionless and reliable, demand for the dollar could drop in favor of Bitcoin, and again, the US government loses a major source of power. Or worse, imagine the digital yuan becomes the new global standard for trade and storing value among China’s new friends.
The Economist’s original coverage also discusses the privacy and tax implications (China already experimented with programmable money that “expired” at a certain time, to make sure it was used for stimulating the economy).
They also talk about how CBDCs could end banks, because there would be no reason for a layer between the central bank and individuals, and the impact this would have on lending. Overall a fascinating topic, and I recommend reading their coverage as a high-level broad introduction to a lot of interesting topics.
In other words, to me, it seems like a public transparent blockchain is inevitable, whether you're using encryption or not.
A government is simply a corporation with a monopoly on the business of violence. Democracy is unique in that it's a corporation owned by the employees. Let's make it work for us instead of trying to beat or force its hand through tech. That won't work.
You do not actually own any Bitcoin at Robinhood.
There's the "middleman" in your scenario without a middleman...just a different kind of middleman.
“A strong push by Wall Street to open up access to Bitcoin investment is meeting resistance from a bipartisan group of lawmakers and regulators in Washington, setting up a lobbying fight over the future of digital currency.”
…as this article is not so much about creating some sort of central bank crypto, but getting the SEC to allow investment in Bitcoin ETFs.
What are the "merits" of crypto [funds]?
Separating ever greater fools from their money to enrich early adopters without actually engaging in any real economic activity?
Money laundering?
Tax evasion?
Digital counterfeiting? (i.e. saying 1 USDT = 1 USD)
Ransomware?
Wasting energy?
Here is a fact: Congress' reputation is in the toilet. If it wants to get a modicum of respect back then maybe it should take a firm stand against "crypto." Nothing is economically new or innovative or useful in crypto for legitimate, real world applications. Never in history has a successful government abdicated control of its currency. Control over legal tender is one of the core functions of government.
If bitcoin is a currency then what it aims to do is not different from what Liberty Reserve or eGold aimed to do. At least eGold had some underlying real asset. Bitcoin is just made of air. Sorry "math."
If bitcoin is an asset then its value is akin to underwater swamp land in florida. I.e. it is a fraud.
No, people should not be able to just make a token on a whim and extract economic power in exchange for producing no real economic good.
If Congress wants to take a stand it should firmly ban US banks from interacting with entities that relate to the fraudulent scheme that is Bitcoin, et al.
Hester Pierce (wonder if there is a relation to Brock Pierce) is either really dull or really corrupt. Bitcoin has zero, actually negative economic value. It is ludicrous that an SEC chair would pretend it does simply because number big.
Anybody remember the AAA securitisation of garbage mortgages a decade ago? Just because a financial product is in current market demand or has a high price does not mean that it is legitimate or that it has positive economic value.
The job of congress and regulators is precisely to nip frauds like Bitcoin in the bud before they become bigger and wreck greater damage on the economy when they inevitably collapse or cause serious economic distortions (i.e. making billionaires out of early adopters who did not actually produce anything of value. The transfer of purchasing power from productive individuals to rent seeking individuals (i.e. those lobbying Congress to legitimise their Monopoly money) is a surefire way to harm an economy.
So Ms. Pierce what exactly are the "merits" of Bitcoin? Please tell...
This should not be a partisan issue. Just like printing fake dollars is not a partisan issue.
Maybe Congress can do something right for a change...doubt it though...sadly.
eGold needed an underlying asset because it was a single company, and it needed to prove it was good for the obligations it was taking on, essentially.
Bitcoin, by contrast, is more like a government fiat currency, except government fiat (theoretically backed by democratic mandate) is replaced by the voluntary choice of a large enough group of people to use it.
The value of fiat currency comes purely from the wealth that it represents, with a stability guarantee provided by things like tax revenues being denominated in that currency.
The value of cryptocurrency similarly comes from the wealth it represents, which is why ordinary users have to exchange fiat currencies to get crypto - it's a transfer of wealth from one system to another. And similarly, a certain amount of stability (but not nearly as much) is provided by the demand for the currency due notoriously to money laundering, the drug trade, evasion of capital controls, and probably even the odd above-board transactions.
I'm not arguing for or against crypto, I'm just pointing out that this whole "made of air" argument applies equally to any currency, really. Even for currencies that are backed by some asset with supposed "intrinsic value", any asset with a finite quantity can't have enough value to represent all the wealth in a society, by definition, because its own value is included in that amount. The actual value represented by a wide-scale currency must be surplus to any intrinsic value. "Intrinsic value" and "asset backed" are essentially red herrings in all but the smallest contexts ( like eGold, which never got big enough for this to matter.)
This is wrong or at least woefully incomplete. The value of a fiat (or any) currency comes from its utility as (1) a medium of exchange (2) a store of value and (3) a unit of account. If few people use a currency for buying or selling real (and legal) goods or services then it is a ineffective medium of exchange. If a currency is not legal tender (to your point) it may also be ineffective as a medium of exchange. Try paying your taxes with Bitcoin. Won't work. Bitcoin is not a stable store of value. (so 2 is not satisfied). You can not reliably store a certain fixed amount of purchasing power in your Bitcoin savings (Hodlings) for future use at an arbitrary future time. (3) Bitcoin is not a unit of account in any general sense. Goods and services are not priced in Bitcoin units.
Thus Bitcoin fails the three prong test of whether an instrument may be considered a currency. If Bitcoin is not a currency, which it manifestly is not why don't we stop calling it one?
Ok so it is an asset then? Right? Not really. An asset is something of tangible use and durable value something that can be subject to property rights. What is the use of Bitcoin? Can you live on the block chain? Can you sue other people if they steal your Bitcoin (e.g. is Bitcoin intellectual property?). No actually the only value in Bitcoin is that maybe you can find somebody who will pay a higher price (in dollars) than what you paid. Thus if Bitcoin claims to be an asset it is a fraudulent asset. Fundamental since Bitcoin has no physical underlying asset it is just a number. Nobody can own numbers. Nothing prevents anybody from duplicating a number. In fact this has happened multiple times when the blockchain forks. See Bitcoin Cash, etc.
You're incorrectly parroting a definition without understanding it.
The items you listed are the functions that a currency needs to provide. They are not the source of its value, they're preconditions for it being able to have value in the first place.
The only possible source for the value of a widely-used currency is the wealth that it represents. That's what money is: an abstract representation of wealth, that can be used in all the ways you described. Once you understand that fundamental fact, you'll find it much easier to understand other things about money, and you'll be better able to understand why the "intrinsic value" or "underlying real asset" of a currency is an essentially irrelevant property.
The rest of your comment goes off at a tangent about what Bitcoin is. For that discussion, try r/bitcoin on reddit.
I disagree and I think most economists would too. You provided a tautologic "definition."
I would say a currency has value as a currency iff it meets the three criteria that define a currency. These have to do with utility or fungibility not representation. A currency has value because it is useful as (1), (2), (3). A currency is defined by its use and functions. You can say monopoly money represents real wealth but if nobody agrees with you then it is not too useful.
I think you don't understand what a currency is.
> You provided a tautologic "definition."
No, I didn't. Money itself is not "real" wealth. It's an agreed-on abstraction which is used to represent wealth. It's a measure of wealth, in the "unit of account" sense. Wealth exists in the form of things like property, other tangible assets, the output of services, etc.
To understand this better, consider a barter economy. Someone might trade a cow for some swords or whatever. The cow and the swords are assets which have value because they're useful to someone. But not every asset is useful to everyone. I have no use for a cow or a sword, but some people do. This makes it difficult for pure barter systems to work well, because the assets I have may be of no use to the people who have assets that I want to trade for, and vice versa.
Money solves this problem. It is used to represent wealth. Typically via a market system, assets are valued in terms of an amount of money. This allows people to trade assets for money without having to match assets that both sides are interested in.
Once you understand this basic fact, a lot of economics follows quite obviously. For example, it become clear that the amount of money in a society needs to grow to match the underlying wealth (total assets) in that society, otherwise the value of money will either increase (deflation - prices drop making money more valuable) or decrease (inflation - prices increases making money less valuable). This is why central banks pay attention to, and manage, the money supply.
Bringing this back to crypto, we can use this fundamental understanding to understand why cryptos like Bitcoin are deflationary: since they have a limited supply, as the amount of wealth they represent increases, the value of the currency has to increase.
> I would say a currency has value as a currency iff it meets the three criteria that define a currency.
You can say that, but it's pointless because you're not using "value" in the economic sense. It's more accurate and less misleading just to say that some instrument can serve as a currency if it meets those criteria.
Your description doesn't help explain how much actual economic value a currency has. To find that out, you need to look at how much underlying wealth it represents.
> A currency has value because it is useful as (1), (2), (3).
You could say "it is possible for a currency to have value because..." But that doesn't help you identify how valuable it is.
> You can say monopoly money represents real wealth but if nobody agrees with you then it is not too useful.
That's the point. Money has to actually represent real wealth for it to have value. Its value is largely determined by how much real, non-money wealth it represents.
> I think you don't understand what a currency is.
You've been reading definitions without a full understanding of the bigger picture.
If you could solve that problem well without burning the electricity Bitcoin does, you'd revolutionize industries.
I'd argue it's for a good reason the same way we burn gasoline at a traffic light instead of just going when it's red.
Safety costs money, and Bitcoin burning electricity protects the network.
Burning gas at a traffic light isn't for a “good reason”, except insofar as the dominance of environmentally hostile technology through the de facto subsidy of externalized costs is a “good reason”.
But I don’t disagree that the analogy being drawn between that pollution and bitcoin is apt.
Okay, how about the pollution from SSL on the web? Every device has to have dedicated crypto hardware and we spend CPU cycles on it... because we want secure transactions.