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Comment by weavejester | Hacker News Reader

"A real currency with a fiscal policy and the backing of a state that could raise loans would be able to ride out this insult. It'd be extraordinarily painful, but it wouldn't devastate the currency in perpetuity."

What if Bitcoin does recover? Would that change your opinion?

"But Bitcoin doesn't have a fiscal policy: it wears a gimp suit and a ball gag, padlocked into permanent deflation and with the rate of issue of new "notes" governed by the law of algorithmic complexity."

Out of curiosity, what's your opinion on crypto-currencies that aren't deflationary, or that rely on proof-of-stake rather than proof-of-work?

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Out of curiosity, what's your opinion on crypto-currencies that aren't deflationary, or that rely on proof-of-stake rather than proof-of-work?

Now, that sounds like a good idea. But at that point, we're talking about a cryptocurrency equivalent of real grown-up money, which would sort of kill its appeal to a lot of the folks who rant on about the evils of fractional reserve banking and hoard gold because they think it has some sort of mystical inherent value -- the sort of folks who invest in what William Gibson termed "Dunning-Krueger-rands".

Proof of stake is wildly anti-egalitarian: very literally, the rich get richer.

Explain? Surely stake out == stake in, or something is very wrong with your proof of stake?

Proof of stake means: your chance of mining coins is derived from how big a Scrooge McDuck style money pool you already have. Merely for owning that money, Mr McDuck gets more money.

To a certain extent, the same is true of POW as rich people can afford more hashing power.

In other words, it works like interest. In a properly functioning monetary system, interest and inflation are fairly similar, so even though the number of coins in McDuck's pile is getting bigger, what can be bought with that pile stays relatively constant.

How is that like interest? Interest is rent on money. Cash in the mattress doesn't get interest. In a properly functioning monetary system, interest is above inflation.

Just as interest in the conventional economic system is wildly anti-egalitarian: very literally, the rich get richer.

Agreed but a difference is that to profit by interest, you generally have to invest, take risks, and put the money to work.

As opposed to proof-of-work, where the people investing in mining rigs get richer.

>Out of curiosity, what's your opinion on crypto-currencies that aren't deflationary?

Now, that sounds like a good idea. But at that point, we're talking about a cryptocurrency equivalent of real grown-up money

I'm extremely amused, because Dogecoin is inflationary. So Dogecoin is "real grown-up money" by your definition.

Not everyone interested in Bitcoin are libertarian gold-hoarders :)

Some of us are interested in it because Bitcoin represents an experiment into a distributed network for ownership, in the same way that the Internet is a distributed network for data.

Ultimately, the economics of Bitcoin don't hugely matter in the long term, because crypto-currencies can be programmatically traded between different blockchains using distributed contracts. The hard part is getting an interface up between "normal" currency and crypto-currencies.

There are already some crypto-currencies out there that experiment with different economies and setups. Dogecoin (yes, that Doge) has a fixed inflation rate, for instance, while Peercoin uses a proof-of-stake/proof-of-work mixup that gets around Bitcoin's large use of computing power.

Dogecoin has a fixed rate of growth of the money supply - inflation is the ratio of growth of the money supply to growth of the economy. So a shrinking money supply can be deflationary, but so can a growing one whose usage is growing faster. DOGE, right now, is probably deflationary.

Thanks for the correction.

And not everyone who claims to be a libertarian gold-hoarder is actually a libertarian, even if they're into bitcoin. That's just a term that disgraced embarrassed republicans who want to snort coke and party with hookers call themselves. If they still listen to Glenn Beck's advice about gold hoarding and vote republican because they hate Obamacare and resent the 47% freeloading on them (or for any reason), then they're still republican. ;)

So it's really the people investing in it rather than the bitcoin itself you have problem with? I am confused now.

Charlie, if you know everything better, why don't you just go out and do it?

Nobody is preventing you from coming up with awesome-inflationary-proof-of-stake-charlie-coin. NOBODY. The source to the variety of coins (there's more than a hundred) and the variety of non proof-of-work based ones, is all online, on github mostly.

You're just sitting on your blog bemoaning and insulting the community, and you do jack fucking squat.

If you're not part of the solution, you're part of the problem. Git push or shut up.

You don't want to do that? Well that's grand then, you're just sitting there on the sidelines with no investment either way and spouting your bullshit theories but no willingness to put your money where your big potty mouth is. that's rich Charlie, really grand.

> What if Bitcoin does recover?

This is what's interesting to me about all of this. I don't think anyone knows whether or not it's going to work in the long term. The only predictions (both positive and negative) that I've seen have come from dogmatism and not from data. The ultimate test is whether or not it actually works. Very rarely are radical ideas like this put to the test, which is why it's so exciting to watch it unfold. I have no idea what is going to happen.

It's fascinating to watch it happen. I hope it does recover. But I hope the most vocal proponents become a little more mature. I think part of the reason bitcoin seems radical to people, especially the tech-outsider non-first-adopter crowd, is that bitcoin is championed by radical free market types who don't just want deregulation, they want complete abolition of government.

> The only predictions (both positive and negative) that I've seen have come from dogmatism and not from data.

Well, that's because we've never had a cryptocurrency of this scale before. Of course, we've had other alternate currencies (Ithaca Hours, anyone), and based on that data, Bitcoin's future doesn't look too bright? But you could make the argument that those aren't the same.

One reason that you aren't seeing much "hard" data in favor of Bitcoin is that the Austrian school of economics (which provides the foundation for deflationary economics) actively rejects empirical research and deductive reasoning[0][1].

In contrast, virtually all economic models that are taken seriously[2] do try to incorporate fundamental principles (inductive reasoning), but revise those in the face of empirical evidence when necessary (a process that's not dissimilar to what is done in, eg., quantum mechanics - a field in which theory oftentimes advances beyond the means to test theories empirically).

[0] https://en.wikipedia.org/wiki/Austrian_School

[1] https://mises.org/etexts/austrian.asp

[2] Yes, I am excluding Austrian economics, because very few non-Austrian economists actually take them seriously

I do not see where in your sources Austrian Economics "actively rejects empirical research and deductive reasoning." The foundation of Austrian Economics is in studying human behavior in the market (Praxeology[0]). Austrian economists use praxeology give meaning to economic models.

[0] https://en.wikipedia.org/wiki/Praxeology

Well, for starters the "Methodology' section opens with

> Critics generally argue that Austrian economics lacks scientific rigor and rejects scientific methods and the use of empirical data in modelling economic behavior. Some economists describe Austrian methodology as being a priori or non-empirical

a statement which includes citations from five different sources. You may disagree with that conclusion, but I think it's clear where I found it in those two links.

And if you dig a bit more into both of links that I provided, you'll find a more detailed exposition, even in sections that don't use the word "data" explicitly.

But their "studying of human behavior" isn't based on empirical models. Its based on idealized assumptions. For example, they continue to use rational actor abstractions despite empirical research showing that human behavior is irrational in predictable ways. We are going to realize, sooner or later, that cognitive psychology pretty much obliterates the assumptions underlying Austrian economics.

> human behavior is irrational in predictable ways.

My favorite example of this is the ultimatum game [1]. The game has two players. The first player proposes a split of a "pot" of money. The second player can accept that split and take their share, or reject the split leaving both players with NOTHING.

The "rational" action for the first player to take is to suggest a split where he keeps the largest amount of the pot possible. The "rational" action for the second player is to then accept that split, because something is better than nothing.

As you can imagine, real-world runs of this game have proven that nobody acts "rationally" (splits of less than 20%, when proposed, are often rejected). Homo economicus [2] doesn't have emotions or empathy. It doesn't value extrinsic things like "justice" or "fairness". Homo sapiens does.

In other words, while people might act rationally, the economic definition of "rational" and the common definition of "rational" are often two entirely different things.

1. http://en.wikipedia.org/wiki/Ultimatum_game 2. http://en.wikipedia.org/wiki/Homo_economicus

The rational act for the first player is only to suggest a poor split if they are assuming a rational second player. Given that they know they're playing against a human, that's not a good assumption. Doesn't really take away from the point, though.

> Well, that's because we've never had a cryptocurrency of this scale before.

I agree. I was mostly trying to assert that we shouldn't confidently make predictions in the absence of data.

I didn't know about the Austrian School's attitude toward empirical research--no wonder I don't agree with what they say.

Yeah it's funny how the technical perspective of this post swung rapidly to economic ideology at the end. Having confirmed that it was complete amateur hour over at MtGox, how can a critical thinking person make the huge leap that only bureaucratically controlled government currencies are viable. All it maybe shows (and this remains to be seen) is that Bitcoin is the wild west where people will steal from you and generally not face legal repercussions, but that is the social layer on top of Bitcoin and has nothing to do with its fundamental viability. When this story repeats with more professional operations and more savvy users then we'll start to get a more realistic view of whether Bitcoin can ever cross the chasm or if it's fundamentally lacking the ability to generate the trust necessary to stabilize its economy.

The wild-west factor has everything to do with its viability. If bitcoin is ever going to outgrow its dutch tulip mania phase and actually be a medium of exchange for legal goods, people need to feel (and be!) at least as secure as with USD in a big dumb bank.

True - right now they are only as secure as paper money with a vendor on the road. And as we all know, no one transacts with paper money.

A bit of a mixed metaphor given that we're talking about an exchange collapse, here. You don't deposit your paycheck in cash with a dude in a streetcart.

Anyways, the thing with transformative new products is you have to be notably better in order to get people to switch. "Just as good" isn't good enough. "Less good but you get a lot of ideological satisfaction if that's your thing" is certainly not good enough.

So far, BTC is a speculation vehicle, not currency.

I don't care much about distinctions between "currency" and "not currency". But I don't think this incident changes the fundamentals of BTC. I don't understand those fundamentals well enough to speculate, but I don't think the collapse of a single exchange alters them much in the long term.

If anything, my views are learning towards BTC being a widely used medium of exchange (not necessarily a medium of account) but a poor speculation vehicle. Demand for BTC is (sublinearly) proportional to transaction costs and the size of the BTC economy - I can easily envision scenarios where transaction costs go sufficiently low that BTC demand remains low.

I do some math here if you are interested: http://www.chrisstucchio.com/blog/2014/demand_for_bitcoins.h...

That's a really neat post, thanks for sharing.

I'd agree that this doesn't change the fundamentals of BTC, actually. If enough speculators didn't know that this could happen, maybe this changes perception enough to doom BTC, but it would have been doomed anyways in that case.

I'm not convinced that it's possible for BTC to become a widely used medium of exchange without also being a medium of account -- it's just too much friction for your average retail user to convert to BTC in order to buy something while holding most of their wealth in dollars or whatever. Why not just buy in dollars? If the only utility is to mask shady purchases, it might have a future in that niche, I guess, but that implies a small BTC economy in the long run.

I guess I can see a place for a crypto currency with a stable exchange rate to other currencies, as long as the crypto part holds up and the volatility mellows out, there's real utility there for people who want untraceable purchases. But BTC as "god's currency for true believers, going to take over the world because we have an unrelated ideological beef" doesn't really impress me.

The way I envision BTC being used is via apps that connect individual users to individual exchanges.

What I envision: I take an auto and the driver tells me the fare is 100rs - 60rs meter + 40rs because fuck you it's Bangalore. He gives me a BTC wallet. My phone goes to an exchange, converts $1.65 or so into BTC and transmits to the drivers wallet. His phone then converts the BTC into rs.

I'm generally viewing BTC as a medium of exchange for cases that would otherwise require a bank transfer or currency conversion. There are a lot of these.

You might notice that many Americans now live safely in what was formerly the wild west.

Yes, because the Wild West stopped being wild. Governments organized, police departments and fire brigades and schools were set up. Roads were paved, water and sewer lines installed. All the appurtenances of civilization, in other words. And you can't install the appurtenances of civilization without installing civilization with them.

Yes, obviously. Both you and jbooth seem to be missing my point, you perhaps a bit more painfully, so I'll spell it out in plain English:

Just because Bitcoin is unregulated and uncontrolled today does not mean it always will be.

And to my original point:

MtGox incompetence is not much of a data point either way, other than that MtGox couldn't have come into existence in a more mature landscape.

> Having confirmed that it was complete amateur hour over at MtGox, how can a critical thinking person make the huge leap that only bureaucratically controlled government currencies are viable.

Can’t speak for the author (who’s actively commenting here) but I believe the idea (common in Transaction Cost economy) is that whether Mt.Gox were amateur was hard to determine without knowing how to operate for yourself the kind of service that they provided; not necessarily at their scale, but well enough to go without them. This means that most folks who were interested in their service were presumably not able to sort them from the other: lots of assumption there, but imagine shill-ridden forums, cross-accusation of cluelessness, the FBI presumably involved, them being in Japan…

This is not a new problem, far from it: I would recommend Avner Greif’s ‘Magrihbi traders’ and the reappraising discussions by its author. A casual reader could leap the century of nepotism-based boating, and the local fairs in Europe to conclude that the invention of currency, concomitant with the Nation-State, were both a way to empower trade. A less casual reader (like me) would love to send Greif, (the now late) Coase & Oliver E. Williamson to Japan and on-line to investigate what went wrong.

Once you have a State, why an inflating bureaucracy is also a classic result of transaction cost theory and an issue in organisational incentive — but I don't think that part is mysterious to you.

> "A real currency with a fiscal policy and the backing of a state that could raise loans would be able to ride out this insult. It'd be extraordinarily painful, but it wouldn't devastate the currency in perpetuity."

And of course, by "fiscal policy", we have come to agree that this means that banks can do what they want without any imposed limit and will always unconditionally be bailed out by the public (which mainly consists of people who are not only not benefiting from the banks' practices, but in fact are actively exploited by them for some ledger-juggling short term winnings; see the so called "housing bubble").

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