Who the hell has time to figure out all this stuff?
I personally think the day the digital US dollar is developed and can be stored in your IPhone. If I can take my locally stored digital dollar and then send it via imessage or whatsapp, then the game is truly over for Bitcoin.
Nobody will have to learn this stuff, if the BTC economy develops there will be professional custodials for all levels. Eg. banks.
But the importance is that there is always the option to self-custody if you want to. With fiat you don't have that option even in theory. I think the option for self-custody is what makes BTC powerful alternative, not necessarily how widespread self-custody is going to be.
You mean that if you store cash it will magically disappear once you hit a certain quantity or age?
One other area to learn about: security – while it’s true that you can move millions on yourself own, the risks of theft or accidental loss are why most people do not avail themselves of these theoretical options since they consider the cost of banking fees to be an acceptable trade off for the security and convenience of letting a professional handle those problems.
The stack of hundred dollar bills under my mattress disagrees with you.
Electronic money is never lost, not like those pounds, pennies, dollars, quarters. Losing money, takes out of circulation. While not much is taken out, it might be enough to create a base load of inflation - money becomes more scarce and therefore more expensive.
Low inflation leads to asset price bubbles - stock market and housing in particular. It also suppresses wage inflation. So housing becomes more expensive and wages do not keep up, making housing less affordable. A double punch.
Low inflation leads to more financial speculation as people with access to capital look to diversify away from a limited pool of assets (Bonds and cash become less desirable in low inflation regimes). Buying housing and leasing it out is a good use of capital. However, this leads real-estate investors to drive increases in rent as they chase yield and airbnb-empires also drive rental prices - as this is one way of driving yield.
High rents combined with low wage growth means that people's lives become priced for perfection and one small deviation can knock them out of equilibrium - losing their home / rental property when they lose their job.
All because governments and technology are conspiring to keep inflation low. Using cash is the person-on-the-street's only weapon to fight it.
Oh, electronic money is "lost" all the time. Alarmingly so. :-)
Higher rates = higher cost of borrowing = higher prices = higher inflation.
For perhaps the same reasons as you, I decline/turn-off auto-pay of any services I subscribe to. I actually cut checks every couple of weeks to pay bills.
I need a regular reminder of how I am being nickeled and dimed. My big fear is a constant drain on my account from a service that I had forgotten about or just the accumulative damage a lot of services add up to.
To be sure, our corporate overlords love the auto-pay, cashless society they have created for our convenience.
The same people (lots and lots and lots of criminals, but you know, regular people too) who use bitcoin would probably not want a us dollar coin very much.
But the vast majority of people don't use bitcoin at all, for anything... I think a us dollar coin with FDIC protection or whatever protection it takes to make grandma feel safe that her $100k account is protected, would be wildly successful if they tried it.
I personally think the day the digital US dollar is developed …
[0] https://www.businessinsider.com/heres-how-much-us-currency-t...
https://medium.com/navigating-life/we-just-went-from-fractio...
Edit: Downvoted, and I'm guessing it's the source? This is legitimate fact though. Here's the fed's own announcement.
> In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.
https://www.federalreserve.gov/newsevents/pressreleases/mone...
The Fed's goal is to maintain inflation at 2% for reasons more complicated than I'll discuss here. If you're interested here is a source you might like: > https://www.goodreads.com/book/show/30231791-the-end-of-alch...
See Bitcoin Standard podcast and or book for more on hard money and economics under it.
https://saifedean.com/thebitcoinstandard/
And or the Mises Institute for the low down on Austrian economic viewpoints that answer many of the questions that Kaynsians can't.
https://mises.org/what-austrian-economics
And on top of that the fed itself says we've already had 4.2% CPI inflation this year.
https://www.bls.gov/cpi/latest-numbers.htm
But, that's trusting the stakeholders in the inflation game to be honest.
If you remove the constant adjustments to the CPI you get a _much_ higher rate of inflation than governments will admit.
It would be amazing if you could make the effort to explain the complicated reasons why the Fed's inflationary policy is a good thing. I have yet to hear a sound argument why sound money is worse for the people, than an inflationary currency. I can see how it would benefit the government to hide the true cost of taxation via inflation, but why does it ever benefit the individual to have their wealth diluted by the process of inflation, even if it is "only" by about 2% per year?
It seems related to the petrodollar system. This is where the world uses USD for energy (OPEC only sells oil for dollars). This forces countries who need oil to acquire dollars. However, there's a problem with that: a limited supply of dollars. How do we fix that problem? Use a fiat currency (not backed by something tangible) that allows us to print more money as necessary. How much more should we print? The target is 2% inflation, so that much is what the experts in this topic think.
This petrodollar system does a lot more than just force us to have inflation. The subject from here becomes more and more complicated, because monetary systems are highly complicated. There's a lot going on in the US fiscal policy, and the impacts vary from very good to very bad, depending on your perspective. It's in fact so complicated that I can imagine for every perspective there are good parts and bad parts of our monetary system.
This is an excellent write-up from Lyn Alden (very good financial writer) on the petrodollar system and it's impacts: https://www.lynalden.com/fraying-petrodollar-system/
There's a lot of talk in this thread and on the internet in general, especially around cryptocurrencies, that is massively oversimplified and doesn't pay any mind to the fact that, like any other field, there are many very intelligent people working to solve very difficult problems. If a monetary policy can be summed up in one sentence, it's probably not a good policy.
I want currency to be useful as currency; I want my investments to hold value. The two things serve different functions, and I don't want investments compromised to be useful as currency or vice versa.
Sure, but would you really rather your dollars "lose value" as in they can purchase less and less goods and services over time? How does that benefit you personally?
Yes. Mostly, because of systemic effects on the broader economy I need to have functioning to earn a living, but also because of more direct personal benefits.
> How does that benefit you personally?
Because other than a small share in cash and the bank for liquidity, my assets aren’t dollar denominated, but my debts — which, while smaller than my total assets, are much larger than my dollar-denominated assets — are almost entirely dollar-denominated.
And for young people, they're basically priced out of assets by this system. _This_ literally is the reason owning a home is next to impossible for millennials and gen-zs.
Further, this encourages a debt based society that may encourage growth in the short run (debt giveth first), but then when the debts are due it holds the economy back. Typically this looks like the 2008 crash and is coined the `business cycle` by modern economists.
This is just wrong. The only debt that holds the economy back is debt that didn't actually generate growth. If you borrow to start a business, you are stimulating the economy with growth, through debt. If you rack up credit debt at the bar every weekend, you're going to cause yourself problems.
The topic is just more nuanced than you're implying. Debt is very good for the economy overall, as long as you're not overdoing it or taking on frivolous debts that don't let you grow.
Student loans seem relevant here. I take out 50k of student loans. The degree I earn empowers me to make 50k/year. After 2 years that debt has been turned into profit, and that's only for me personally, ignoring the value my education will bring to my employer, the community, and the economy at large.
Another example of good debt can be a car. I purchase a 20k car, with credit, which allows me to make 70k instead of 50k, in the next town over. After a year, that debt has paid itself off and is now earning for me, despite the fact that the value of the car instantly dropped 20+% as soon as I purchased it.
The idea that debt holds the economy back is terribly misinformed and over simplified. It's literally how we grow, and how the US has become the economic powerhouse it is. The most wealthy nation in the history of the world (what we do with the money is a different topic).
Most people have nonfinancial assets (e.g., durable items of personal property.)
> _This_ literally is the reason owning a home is next to impossible for millennials and gen-zs.
No, its not, because its been true (and inflation higher) for preceding generations, so it can’t possible explain why Millenials and beyond have it worse than Gen X who had it worse than Boomers. Tax and spending policy shifts (Reagan's being the biggest single one nationally, but there have been several subsequent national ones, and CA Prop 13 and its — mostly much weaker — copycats play a role, too) are a much bigger factor
> Typically this looks like the 2008 crash
The 2008 crash wasn't a regularly occurring event. (And as bad as it was, wasn't nearly as bad in and of itself as it is widely perceived; it gets magnified because — again for reasons that trace directly back to fiscal policy choices — the expansion after the brief and shallow 2001 recession was, up to that point, pretty much the most hollow expansion in modern US history, with, IIRC, every income quintile but the top doing worse, and even the top being mostly flat except for the top couple percent.)
> How does that benefit you personally?
A little bit of inflation means more economic growth in the long run. That benefits me because services and goods will get cheaper and/or better.
Not much, in fact I try to remain leveraged via debts to hedge against inflation.
But my salary is measured in dollars. I fought hard to get the salary I have today, but I must continue to ratchet up as my employment deal looks worse every year.
I believe the Cantillion effect is largely why the average peasant's wages have not kept up with asset prices.
https://www.adamsmith.org/blog/the-cantillion-effect
Inflation means wealthy (with assets) get wealthier.
> A little bit of inflation means more economic growth in the long run.
When you play tricks with the CPI it does look that way. It's easy to say there's growth when revenues grow beyond a poor measure of inflation.
Inflation discourages savings and thus makes money look easy. As such, it actually encourages bad investment. Further, the business cycle that Kaynsians say are just a natural part of a large economy are really caused by over leveraged banking credit bursts.
If half of the dollars in circulation are just debts owed between banks, then that bubble bursts, it's no surprise that asset prices would fall--there's literally fewer dollars in circulation.
It's no big deal for those involved in fed policy making as they are usually the first to see it coming (and or instigate it with higher interest rates) and generally move their positions back to dollars just prior to a credit bubble burst.
But for those of us that leverage ourselves to hedge against inflation (buying a house), we get caught with a heavy loan on an asset that's no longer worth as much as the loan on it.
One should be open to viewpoints external to those provided by the people in charge of and profiting from the system.
The rest of your comment has some interesting hypotheses (Cantillon effect, inflation encouraging bad investment) but in practice, you have to make measurements to see whether those effects actually happen. I haven't seen any empirical evidence for the Cantillon effect, and empirically we have evidence that a small amount of inflation does not decrease output (and can increase output in some cases).
http://www.sciencedirect.com/science/article/pii/0304-3932(9...
> It's no big deal for those involved in fed policy making as they are usually the first to see it coming
Even if this is true, the amount of money owned by the people controlling the Fed is miniscule.
I often like to take things to a logical extreme. Since the Fed can simply print all this money into existence, is there a limit to their ability to print? I mean couldn't they simply print their way out of any economic crisis or would this result in another Weimar republic situation? -- genuine question.
https://www.bls.gov/cpi/latest-numbers.htm
The common mantra "When a measure becomes a target, it ceases to be a measure." applies here too, but many HN peeps seem to think it doesn't for some reason.
If you remove the constant adjustments to the CPI you get a _much_ higher rate of inflation than governments will admit.
One year ago the dollar was deflating, so this is cherrypicking data. If inflation was above 4% for multiple years then that would be a problem, but a month or two is not anything to be worried about.
I'm also not sure why you think adjustments to the CPI should not be allowed. Individual goods get cheaper or more expensive relative to other goods, and consumers change their behavior. It would be asinine to have the government subsidize certain goods (via economic policy) such that all consumers purchase the same basket today as they were in 1990!
edit: fraction reserve _requirements_ are set around 10% or so.
How do you define a digital currency?
A digital currency would be like crypto currency, or in-game currencies or something designed to be digital. The dollar is the federal reserve currency, and not intended to be digital. It doesn't make sense to call it digital currency, when in fact it's physical currency first, and we've developed digital tools to help us use it and move it around.
In reality, they will accept your deposit/loan (as long as it makes business sense) with no regard for how many notes they have lying around. If that puts them over the edge of the fractional requirements, they'll just go to the Fed/Treasury, who will swing their wand and write in additional (digital) reserves for the bank.
It is mainly all digital at this point.
Pretty sure that's true for larger institutions and lending between themselves, but not for your everyday accounts. They must go to fed member banks themselves to ask for the loans.
They don't just "print money" for banks arbitrarily.
Demand for money comes from the market and is not very flexible, and certainly not under anyone's control. Lenders will meet the demand for money at ever increasing prices (i.e. higher overnight rates) unless money gets printed arbitrarily.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
FedNow will reduce that latency from days to minutes. US is slow in that game, but RTP is widely deployed in UK, France, etc.
For international transactions, one can use SWIFT (days) or TransferWise (minutes) or Western Union (under one hour).
I want freedom to use my digital money the way I want without someone holding my account hostage, if I do something wrong. Additionally, I have no problem losing my money, if I send the money to the wrong person or lose my phone.
Not so with your so-called digital dollars.
An actual digital dollar would have no transaction fee whatsoever.
So, something BTC is unable to provide?
The CC network charge vendors a percentage of the transaction. So you aren't paying directly, but we're all paying.
The credit card terminal agreements signed by retailers prevent the retailer from offering differential pricing when buying via credit card or cash. Essentially, the credit card fee is embedded into the price.
This might be "good" for people who have credit cards, but it is inflationary (by roughly 2%) to people whose credit is poor and only transact by cash.
But let's be honest -- who cares about the poor?
Numbers in a retail bank's ledger are not digital dollars. They represent an obligation of the bank, and not direct ownership of dollars.
Digital dollars exist, but only banks can hold them, as they're the only ones with accounts at the central bank. The rest of us use retail bank accounts, which are the equivalent of custodial wallets in the crypto world.
The term "dollar" encompasses central bank money (including but not limited to banknotes) as well as private money.
> Numbers in a retail bank's ledger are not digital dollars
Yes, they very much are. Modern money creation is public-private and only semi-centralized.
With dollars, individuals have to choose between bank accounts, which are subject to counterparty risk, and cash, which cannot be transacted digitally.
If your holding of 'digital dollars' in a bank account is subject to counterparty risk, then there's something different about the dollars you hold and 'real' dollars issued by the central bank.
With cryptocurrency, anyone can transact the real thing. There's no counterparty risk. (Of course, there are issues with blockchain scaling, use of custodial wallets etc., which negate this to some extent.)
This only holds true if there was only one cryptocurrency in the world and everyone used self-custody. As soon as you have multiple cryptocurrencies and multiple networks and multiple wallet providers, you have counterparty risk.
Coinbase may not disappear, but others may. Similar for Bitcoin etc. etc.
I said 'anyone can', not 'everyone does'.
> "disappear, but others may. Similar for Bitcoin"
The risk of the bitcoin blockchain disappearing, and your BTC holdings thereby becoming worthless, is not an instance of counterparty risk.
In the early days of the internet, many things were a complete pain in the ass to do. But then services and apps were built and things became easier, same is happening in this space.
Before, even purchasing Bitcoin was extremely difficult to do, and involved a lot of research + steps - now it's trivial. Before, securing your wallet was extremely difficult, now it's easier but not ideal to those that are less tech saavy.
This is a valid question for our current tax system, already.
Hasn't this already happened. It's called Zelle or Venmo or CashApp or ApplePay or a million others. Heck, if you prefer Elon Musk pushed technology there's even this thing called PayPal.
And it comes with a whole series of laws that protect you in the case of hacking, fraud, etc.
I don't follow the advantage of using a government-issued (and custodially held) bitcoin wallet. Well, I understand that El Salvador wants to encourage people to use their BTC there. But other than that I don't see the value.
I agree it won't be pain-free, but hardly the first time such conversion would happen
1. There is never one single key with full control. This is a huge vulnerability with SSS.
2. More flexibility, by allowing differing k-of-n subsets in combination with timelocks and other Bitcoin script features.
https://en.bitcoin.it/wiki/Script
Multisignature requires a quorum k-of-n signatures to unlock funds, for example 3 of 5 keys (or 2-of-3, 2-of-2, etc):
https://en.bitcoin.it/wiki/Multi-signature
So you can have a wallet that requires 2 signatures to move funds, where you control 2 signing devices (mobile app + hardware wallet) and the third-party holds the 3rd key. Normally you manage all transfers without involvement of the third party, but if one of your keys becomes inaccessible they can help you sweep your funds to a new set of keys.
Additional resiliency and security is gained by increasing the quorum to 3-of-5. You control a mobile app plus 3 hardware signing devices, which are ideally distributed geographically. This increases reliability in case something happens at your primary site (like your house) and increases security by requiring an attacker to physically visit multiple locations. The 5th key is held by the recovery service.
Think of how often online bank accounts get hacked in the US, except the difference now is that your money is gone, permanently.
The idea that "normal people" will be able to use cash at all is laughable.
The idea that "normal people" will be able to use gold coins at all is laughable.
And yet, many use (or used to) and don't need a mommy state to tell them what to do.
If you have a political problem, you need to solve it politically. You can't hack it with a technical solution or politicians and their rich friends will just find a way to use it against you (like it's happening with btc, enjoy limitless tracking and the rich elite profiting from btc as much (if not more) than you) or ban it (like it happened to e-gold).
Regarding your second argument: Change in the financial system does not happen by itself. You need severe pressure. DeFi has a huge potential to put pressure on the traditional financial markets to make them more accessible to the poor and limit their excesses (monetary inflation).
The government could of course “ban” Bitcoin and DeFi. But since they are decentralized it can’t make them really disappear — only more cumbersome to get into (and out of), for example, by closing down centralized exchanges. But the government can’t really prevent you to meet a “dealer” cashing in/out on your cryptos.
If that “dealer” doesn’t report your transactions under KYC or either of you don’t pay taxes, you’ll get a hard reminder that governments can and routinely do prevent things like this. It’s especially risky to break those laws with cryptocurrencies because you’re leaving a full irrepudiable history of every transaction so when they bust your dealer they get _every_ transaction, not just the one that was caught, and that’s for everyone they’ve dealt with — and since those transactions are all by definition illegal, they have both grounds to investigate and an easy lever to pressure each person to turn in bigger players in exchange for leniency.
And what do you do when politics are fully captured by corporate and oligarchical interests?
The majority of bitcoiners see no way out of our current political system. The dollar underpins the US hegemony.
Bitcoin wouldn't be necessary if the government would allow alternative currencies, but until bitcoin, it had squashed numerous attempts at alternatives.
So to say that we need to solve it politically misses the point. Bitcoin is a solution to solve what is seen as a political mess. Further, politics is just non-violent war. This _is_ a political method.
> their rich friends will just find a way to use it against you
I don't entirely disagree. I see bitcoin as a start. The lightning network already brings some anonymity to transactions, but it could be made to do better.
Monero (XMR) is a privacy based crypto that already does so and can currently do 1500tps on chain (BTC does ~7). Crypto is war against oligarchs motivated by failed traditional politics. Monero and other techs like decentralized exchanges are a step up in weaponry of this war.
I think what you do is you flee the country and move somewhere smaller where you have greater freedom and a greater chance at influencing politics.
My granddad was putting bombs in nazi buildings, but I don't think it really helped. We needed the USA to come over and kill the bad guys.
I don't know who will come to save us this time.
The benefit of private key is you only need to use it once. Then store it away in a safe or _bank_.
More UX will develop over time as adoption grows. We already have hardware wallets that even babies could use.
Finally you somehow imply that FIAT theft doesn't happen. Even in recent modern history people have lost all their savings in a snap be it their house burning down, colleague stealing everything or even your bank going under.
FDIC insurance prevents your money from being lost in this case, no?
Also, it's a bit ridiculous to think that private keys won't be stolen because you can just store it away in a safe or bank or whatever. People are susceptible to all sorts of scams and this private key won't be a panacea for human stupidity or ignorance.
The difference is this: If people have a hardware wallet they use digitally they think it's like a bank account on their phone. They do not realize that with that wallet if the wallet is gone so is the money. Wheras if the phone is gone, nothing happens to their money.
It's akin to hiding money in your mattress, but less bulky. You could even memorize it because seed phrases are between 12 and 24 words.
So people with money in their mattress and no access to a bank should do an elaborate scheme that ends with "akin to hiding money in your mattress"?
With a treasure map and a cross where the treasure is so your children will find it in need? Then make a movie out of it and become rich?
The original point was
> They do not realize that with that wallet if the wallet is gone so is the money. Wheras if the phone is gone, nothing happens to their money.
Which is just false as a seed phrase is all that's needed if the hardware wallet is lost.
On an unrelated note, why do cryptocurrency advocates so frequently write "FIAT" in all caps? It isn't an acronym or initialism.
> How do you think bank accounts get hacked? It's much easier to yank a password/credit card number people use daily.
Exactly, and when a credit card number is stolen the consumer is almost never liable, as opposed to crypto where your life savings are gone forever.
> The benefit of private key is you only need to use it once. Then store it away in a safe or _bank_.
As another responder said, you need your private key to sign every transaction. Giving you the benefit of the doubt and assuming you're talking about wallet keywords, even then if you have an account you still need the ability to sign transactions, and according to crypto enthusiasts the no-middleman, non-reversability of crypto transactions is a feature, not a bug.
> More UX will develop over time as adoption grows. We already have hardware wallets that even babies could use.
This man used a Trezor wallet but was still tricked into entering his wallet keywords into a fake Trezor app and lost his life savings: https://www.washingtonpost.com/technology/2021/03/30/trezor-...
> Even in recent modern history people have lost all their savings in a snap be it their house burning down, colleague stealing everything or even your bank going under.
Which is exactly why everyone with a mortgage is required to have home owners insurance, and FDIC insurance exists.
The only way to introduce these kinds of benefits (e.g. to have someone adjudicate allegations of fraud; insurance; etc.) is to introduce middle men, which then defeats the entire purpose of crypto in the first place.
Or are you saying some other entity (a bank) will help them with it?
And if the latter, why would bitcoin be of help at all? A normal bank account would be simpler and less worrisome.
> And if the latter, why would bitcoin be of help at all? A normal bank account would be simpler and less worrisome.
USD will still stay as the official currency of El Salvador. However now merchants have to accept also BTC. The hypotheses is that for example foreign businessmen will bring BTC in form of investments to the country, and people will send BTC via remittances. There is possibility that there isn't actual demand, but there is also possibility that El Salvador might get some serious economical boost because of this.
Whether or not it has spinoff economic benefits in terms of tourism or parking capital flight from other countries, you might be right, but that's not what was being discussed, right?
And this isn't the best argument for bitcoin. The best argument for it is the limited supply.
Considering the BBC has a dog in the fight, I believe that's probably why it doesn't mention the anti-inflationary argument that is the true reason a country would want to transact in BTC.
The USD is available to the US to make more of at any time. Imagine trying to run your government on someone else's currency. You'd always be at a disadvantage.
In the past the US hegemony has regime changed several countries that tried to use their own currency. (See Lybia)
But hey whatever works.
I think this will work as well as Petro worked for Venezuela.
Could a more "conventional" system do the same job? Probably, but I won't begrudge people a working solution.
Further, why walk around with all of your BTC available to you? If you really have enough to worry about gangs stealing it, put it in cold storage or on an exchange, but don't carry access to it around in your pocket the same way you wouldn't carry cash around in your pocket.
Meanwhile, you expect people to have cold storage where? IIRC, they cannot just memorize a private key, but they need an actual file on a device.
https://en.bitcoin.it/wiki/Seed_phrase
> However, the bitcoin key generated is not the main key. It is effectively a completely separate wallet!
A lightning node doesn't need to be on 24/7. To prevent your counterparty from stealing your funds you only need to be online every 2 weeks (or never if you use a watchtower service). Syncing is also fast, so 1 hour of internet access/electricity should allow you to catch up 2 weeks of blockchain history.
>Also remember that the hardware cost of a full node is likely more than a month’s wages.
Are there no thin wallets for lightning?
[1] For maximum convenience it's mandatory, but it's conceivable to update the state of a channel entirely offline. This would allow you to make offline transactions with a node you have a direct channel to, but multi hop transactions (ie. transactions with nodes that you don't have a direct channel to) would still be a hassle.
Discussion with the "Bitcoin Beach" people https://stephanlivera.com/episode/279/
The most detailed explanation was given by the president and his brother on a twitter space in English this midnight.
If you aren’t holding the keys that control your funds the entire time, it’s a custodial service. If USD is involved in any form besides paper cash in your own hands, it’s a custodial service.