Hayek: Cryptocurrency backed by gold | Hacker News Reader

Hayek: Cryptocurrency backed by gold

businessinsider.com

43 pointsprostoalex58 comments

E-Gold™ is back.[0] Now with added cryptocurrency.

Having a blockchain registry to track ownership of precious metals is not a bad idea. But as the ultimate capitalists over at ZeroHedge [1] point out it's a centralized system and vulnerable to both fraud and attacks from governments ( vaults full of gold are hard to hide and harder to move ).

0. http://www.wired.com/2009/06/e-gold/

1. http://www.zerohedge.com/news/2013-11-29/e-gold-founder-laun...

It should also be noted that in a real crisis, getting gold out of a gold hoard will prove problematical, especially if the vault is geographically distant from you. Likewise storing a couple tons of gold under your bed isn't terribly practical. Good luck trying to transport that if you need to leave in a hurry.

How is this different than the fiat money we currently use?

In a real crisis, what is your money in your pocket or banked backed by? The ability that the government can tell you that the value is what is on it's face? How is that any better than gold?

Indeed, although a couple of tons of gold is worth roughly $68,000,000.

Hah. This is a subplot in Cryptonomicon. Neal Stephenson's books from the 90s have proven remarkably prescient.

Cryptonomicon was my first thought when I saw the headline. I can't help but wonder if it was the inspiration for this.

I'm gonna go with

http://en.wikipedia.org/wiki/E-gold + bitcoin

Who's keeping the actual gold and who's to say it's all actually there?

also, why would I want gold/diamonds/seashells/feathers/arbitrary-relatively-useless-material backing a currency?

Your list reminded me of http://en.wikipedia.org/wiki/Rai_stones

"While the monetary system of Yap appears to use these giant stones as tokens, in fact it relies on an oral history of ownership. Being too large to move, buying an item with these stones is as easy as saying it no longer belongs to you. As long as the transaction is recorded in the oral history, it will now be owned by the person you passed it on to—no physical movement of the stone is required."

That quote reminded me of Bitcoin's block chain.

You trust the holder of the Bullion or I guess https://www.anthemvault.com/ in this case, so the difference between a piece of paper that gives you ownership of the gold would really be that you can purchase/exchange it via. a Blockchain transaction.

I'm not sure you get any advantage from the Blockchain in this case though, you still have to trust a single-party, and their local government may still require all kinds of identifying information for regulations sake from this single-party.

Further the article doesn't specify which Blockchain they are using (neither does their website)? All of the extant Blockchains aside from Bitcoin are prone to various security problems.

The Hayek is using the Counterparty token system.

>also, why would I want gold/diamonds/seashells/feathers/arbitrary-relatively-useless-material backing a currency?

To limit volatility. Bitcoin has been 5X more expensive and 1/10X the value in the past 3 years.

It is a stupid idea, but less stupid than bitcoin.

Right, you can't actually build a trustless system for gold ownership where someone else is holding the gold.

You can do things that create confidence like audits but you don't gain anything using cryptocurrency. In fact I don't see any mention of cryptocurrency or even payments/transfers/currency on the site.

It could be they're trying to solve the cryptocurrency criticism that cryptocurrencies have no intrinsic value.

The criticism is along the lines that if confidence were to drop in some currency like USD, you still have a huge military organization backing it up and claiming it as legal tender for taxes, which cryptocurrencies do not have.

On the spectrum of cryptocurrency critcisms, it's not really that valid because it involves valuation hypotheticals that quickly derive into slippery slope fallacies (e.g. WW3, etc.). With all the other cryptocurrency based scams out there, this is probably a new scam targeting a very specific demographic that has a gold-fetish.

I don't understand what this is supposed to do. There doesn't seem to be an advantage over gold ETFs and you can't do payments, which was what made e-gold useful.

Anthem Vault is a full-reserve storage system, backed by yearly full audits as well as an open door for clients to come visit their metal anytime. The name Blanchard runs deep into the history of sound money. The CEO's father, James U Blanchard III, was the leading activist in gold legalization in the 1970's. His son Anthem carries on his passion for sound money today in his company, Anthem Vault.

More questions? Contact us 1-855-4-AVAULT

Because you can't counterfeit gold.

The US Dollar, on the other hand, has been counterfeited by the federal government to the point where it has lost %99.99999999 of its value. Making it a depreciating asset. Historically, gold and silver have maintained their value.

Read what an economist has to say about it: http://mises.org/money.asp

But you can counterfeit paper gold, which is what this is.

Or perhaps more accurately, you can default on a promise to redeem a paper debt for a given amount of gold.

The US Dollar is at least upfront about it. It cannot be redeemed for gold or anything else anymore.

Also, your 10 nines seem inaccurate. Apparently $1 from 1665 would have the buying power of almost $26 today. That's certainly depreciating, but nowhere near the extent you're portraying.

The alternative is to have the government say-so (fiat) to back your currency. The U.S. dollar has value because the government can levy taxes and they say it has value. When there are physical assets backing the currency, it is less amenable to governments manipulating the value of money.

But isn't it the case that gold has an arbitrary value as well ("they say it has value")? It has no intrinsic value. It just sits there.

Gold is durable, and it is shiny and pretty - trinkets and baubles made out of it look good. Humans throughout history have regarded it as desirable and have prized it. This sort of cross-cultural widespread agreement is what gives it its value.

Sure, but it's still an agreement. There's a cross-cultural agreement that the US dollar is worth something too. I don't really see the difference, but I'm not an economist.

That said, I wouldn't make baubles out of dollars.

There's a big difference between the two.

Gold's price (in a free market, which unfortunately we don't have anymore) is an agreement of market forces-- supply and demand.

The Dollar's price comes from government use of force to make people use it. (this includes internationally.)

If you'd like to get an opinion from a good economist check out: http://mises.org/money.asp

Could not the same question be asked about the gold held by the US government?

Since the gold standard, governments are largely held together by reputation alone. If a government's reputation collapses (as has happened) then their monetary instruments (cash, bonds, etc) become effectively worthless.

In the US case in particular, the US dollar is more stable because it is so popular. So even if the US government's reputation goes down, as long as third parties continue to attribute value to it (e.g. you can buy oil with gold) then the value remains relatively static.

The same can be said in other stable currencies: Swiss Franc, Australian/NZ dollar, Canadian Dollar, British pound, and a couple of others.

US Dollar is not backed by gold nor emitted by the Federal Government, though.

That question can and has been asked.

http://www.bloomberg.com/news/features/2015-02-05/germany-s-...

And answered.... the answer is that there was no gold, that we had sold germany's gold, and repayment schedule was designed to allow us to print the dollars and buy the gold to send it "back" to germany.

Gold, diamonds, and feathers are not 'relatively useless'. Not sure about seashells.

Relatively useless in that when most individuals go about their daily life, there is no demand for any of those materials.

Take 100 random people from your mall on a saturday-- so just regular people-- how many of them do you think are using gold and silver on a daily basis?

IF you answered anything less than 100 you're wrong.

First off, how many of them have jewelry? A great deal of them do. Not just necklaces and earrings, but wedding rings. Almost all of them have both gold and silver. How about college students? Their high school ring has both gold and silver too.

How many have cellphones? Both metals are intrinsic in electronics manufacture.

How many use cars? There you get too more monetary metals of even less familiarity-- platinum and palladium are essential for catalytic converters (they use whichever is cheapest at the time.)

Finally the fact of the matter is, the use of gold and silver as currency is a perfectly legitimate, economic use. It is demand in itself. You don't need some other industrial use to justify its use as money.

Because in all of history, no superior money has been found.

People use paper currency because of Gresham's law, so long as they can, they will spend it. But people who collect wealth who have a longer view will have some of it in precious metals.

No one I know would be interesting in accepting someone else's jewelry/gold/diamonds/platinum/silver in exchange for their food at the super market or a day's worth of work.

The goal of a currency backed by a standard is to give it a predictable and concrete exchange value. Things susceptible to speculative price fluctuations would be less then ideal.

There is a self fulfilling prophecy for people who "believe" in gold and diamonds that attribute a higher value to it than the practical value or worth in industrial applications.

If fiat currency gives you the heebie jeebies why not just buy the gold outright?

Because buying things with gold is a huge pain in the ass, especially online.

Storing and transporting physical gold is a big security problem that even banks haven't solved perfectly.

A cryptocurrency backed by gold actually does solve these problems, assuming it's is actually backed by gold, and can keep that gold, and can be audited somehow.

I'm just reading about this for the first time but this is how I'm seeing it as well. My first guess is that it isn't as much about being anonymous as Bitcoin and more about (1) being able to buy gold more easily and (2) having these transactions securely recorded in a blockchain. Though without a large network, is the second part very useful?

Once you have a currency that isn't controlled by any one single government, then they all have to behave themselves better with respect to financial management. That is the real point of one of these schemes - to make all the governments more accountable through the global economy. If you have a gold standard, then when a country is badly managed, much of the privately-held gold naturally flows out of that country, punishing the misbehaving economy. Likewise well-managed economies tend to have large inflows of gold. Governments hate this because they're in the business of having the final say in their respective geographic regions of control.

Gold is not very important in any economy. It's too cheap to represent even a tenth of an economy.

USA holds 8,133 tons of gold. That's 260.26 million ounces. At the current price that amounts to

260.26 * 1184.28 = $308.22 billion.

For comparison, US GDP is $16.77 trillion.

Well put and yes there will be full audits yearly as well as an open door policy for customers who schedule a visit to the vault. Questions? 1-855-4-AVAULT

Thanks!

There's been a whole lot of these cryptocurrencies supposedly backed by something that all failed... I would look at this with a whole lot of skepticism.

Check here for a partial list of some of these coins: http://www.coinwarz.com/cryptocurrency

I'm confused as to how an anonymous blockchain is useful for this, unless I can buy gold from Anthem Vaults with the cryptocurrency. To implement that without fractional reserve would mean that someone has to pay for the storage of all that gold, so I would want to know how those costs are built into the system (if at all).

GoldMoney solves that problem by charging a storage fee... not sure how you would do that with a cryptocurrency except by devaluing each unit of the currency.

Too many questions for me, quite possibly a scam or at least a bad idea with the potential to become one. Gold is not really great for transactions in 2015 anyhow, but if you really wanted that capability a company like GoldMoney seems much more on the up and up.

A true Hayek currency would be backed by a market basket, not just gold.

Yeah, it's pretty sad. His design for a currency is fascinating, and apparently unknown by these people.

A bearer-backed market basket currency (rather, the ability for anyone to create a digital bearer token currency as a service; billions of currencies, and realtime exchanges to determine prices and exchange currencies at transaction time) is my #1 idea for a project. Unfortunately not really a path to profitability, so I'll do something more mundane first.

I'm glad I ducked out of e-gold (we were building a digital bearer currency backed by e-gold, in partnership with them) before the e-gold prosecutions started. Kind of sobering talking to the lawyers 10 years later and seeing what pain I missed.

link for anyone interested: https://mises.org/library/denationalisation-money-argument-r...

Reminds me of Pecunix, Cgold, Egold, Ebullion and E-dinar problems even though this would be decentralized as no central accounting system taking IDs/making user accounts there's still a pile of gold the US gov can seize if they want claiming there must be IDs for transactions. Bitcoin there isn't a central repository of btc keys printed in a bank they can go after making arbitrary seizures more difficult plus no existing laws like there is for gold ownership transfer. I like this idea but predict either a fractional reserve scam where independent auditing isn't done or that tempting pile of gold gets stolen by a government.

But unlike those systems there is no payment or ownership transfer system.

To the extent that blockchains have a killer app, it's going to be fungible contracts-for-difference. They make this sort of asset-backed cryptocurrency irrelevant. Even while cryptocurrencies are unstable, you can build stable derivatives on top of them that track any price you choose. You can peg a cryptocurrency to gold without needing to hold gold, but more importantly, you can peg a cryptocurrency to anything.

Instead of the oil-driven currency instability many countries are seeing today, their currencies would be pegged to their local prices indexes. Everyone will have stable money, not just people in the developed world.

I haven't really thought about the idea of pegging crypto-currencies to something. I'm trying to think how this works and keep running into some walls. In the case of this article, my presumption is that basically this company is selling their gold to you and the cryptocurrency part serves like the contract. In general though, pegging a currency by any group other than a government seems to require that the "peggers" actually possess the asset.

Maybe another way to pose the question would be, if I were to want to create a cryptocurrency pegged to the CPI in the US, how might I achieve that. How would the first units be issued, to whom and for how much?

I've done some quick searching/reading about this topic but I figured I'd drop a line here before the discussion got too stale.

The first units of such a currency are "issued" when someone takes the other side of the bet. If I think bitcoins are going to be worth more soon, I can offer to pay the system $100 worth of bitcoins to generate 100 cryptodollars. If the price goes up, I make a profit because the size of my debt shrank. If the price goes down, I lose money. These systems require the speculators to lock money in the system as collateral to handle price swings. Meanwhile, anyone who wants stable cryptodollars can use them without price fluctuations.

There are several ways to peg a cryptocurrency to a price described here: https://blog.ethereum.org/2014/11/11/search-stable-cryptocur...

Here's a slightly different method built on top of Ethereum, a platform for defining transaction logic on a global database: https://www.reddit.com/r/ethereum/comments/30f98i/introducin...

We can create currencies based on any price, whether it's the price of an existing currency, gold, or an abstract price, like a price index. This ability will change the world.

My email address is in my profile if you have more questions. There's some fascinating stuff going on out there.

Alan Watts on Gold

https://www.youtube.com/watch?v=lC3qPUCv4bQ

Sounds like the same fuzzy thinking behind NoFiatCoin, 'The coin will "be valued at 1 gram of gold at the day's market price..."'.

Ripple Singapore's currencies are an actual digital version of Hayek's proposal for competing currencies, defined as and redeemable for a specific weight of metal.

I personally think http://filecoin.io/ has the right idea.

Cryptocurrencies backed by real, valuable, and useful commodities is what the world needs, in my opinion.

Sounds like butter on fat, as the reason (as i see it) for Wall Street to be all over crytocurrency (bitcoin in particular) is that the scheme behaves like gold from the outset.

This in that you have a limited amount total, and as time goes on it becomes harder to "extract" what has not already been put into circulation.

Frankly i find that the reason gold has this, frankly, silly position for some is a flue of history.

Say you start out trading by weight. That takes time.

To speed it up you start using defined weights.

Then you find that you can just as well just tally up the weights and pass those around as tokens.

Gold works for this as it does not perish if sitting at the bottom of a hole for centuries.

So in essence gold would just be a shiny, soft, metal if it didn't have a property that made it useful as a material for making weights/tokens out of.

I'd trust the algorithm more than whether there is really gold somewhere. The best block-chains havent been broken yet. Gold could be nonexistant or stolen.

Frist off Taxes give currency value.

Sell a pig for 12 chickens and guess what the tax man does not want a chicken they want their token. Thus creating demand.

Second, with 7 billion people in the world there are a lot of suckers out there. Even if buying something is dumb selling it can be very profitable.

Yes, value is subjective. I basically agree, just wondering why you wrote your comment.

Taxes make value in the same way as someone putting a gun to my head and saying they will shoot me unless I give them a rusty nail. In that moment, a rusty nail has more value to me than nearly anything. I'd trade a 1,000 ounces of gold for that rusty nail.

when are crypto stocks going to get popular?

Reply on news.ycombinator.com