>the global currency of the future, that they need to buy some, and that he’s the man to safeguard it.
Looks like in the future people hoard currency instead of spending and investing it then. That ought to be interesting.
It also demonstrates the costs associated with non-reversible transactions, these vaults aren't storing gold ingots or priceless artifacts, just private keys. Banks around the world don't need to worry too much about this (well, within reason) because if somebody manages to break into their digital vault not everything is lost and they can mitigate the damages retroactively.
With bitcoin "if you don't hold the keys, you don't own the coins" but if you do hold the keys you better be absolutely paranoid with them because there's no plan B if they get compromised or destroyed. For this reason I think that even if cryptocurrencies manage to become mainstream many people (including myself) would rather let a bank manage and insure their wallet than manage it themselves. Too stressful otherwise.
That's because - and everyone but the uninformed or idealists know this - it's an investment product. It's simply not suitable as a currency, because one, inflation / instability, and two, it can only do what, a dozen transactions a second, if that? That's not nearly enough to become a viable currency.
I agree it's not an effective currency. But I disagree that it's an investment. I think the correct technical term is speculation.
Investment is where you find something producing value in the real world and then buy and hold a piece of that. You're expecting a long stream of returns from the value being produced. Speculation is where you are making a bet on price movements in a way where economic productivity is irrelevant.
When people buy and sell commodities and currencies, they're speculating. They don't care about utility. There's no economic value being created, so one's investment doesn't grow during the time you hold, say, gold. Instead, it's a zero-sum activity: considering all participants together, wins and losses are equal. (Well, technically, losses are larger than wins, because there are always overhead costs.)
Bitcoin is easy to mistake for an investment, because it's meant to be deflationary. (It was even easier to mistake for one during the period where it only went up.) But I don't think holding Bitcoin means you own a slice of an economically productive asset. I think it's just a bet that the commodity price will go up, in the same way you bet if you buy gold or euros.
Investments need to have intrinsic value. Under the new spin that bitcoin isn’t intended to be a currency, it makes little sense as an investment because there’s no value in any particular set of random numbers. If nobody is using it except for speculation, where’s the incentive to pay to keep that network running?
I don't think it is a very good store of value - we mostly need store of value in the special cases of wars, extreme crises, and similar stuff - for normal times we can invest our money into businesses that really produce something. But bitcoin does not seem to be very usable in these circumstances. It is not well tested. It is also in danger of being replaced by some other cryptocurrency. And I don't thing there is space for more than two or three of them - just like money gravitated into gold and silver.
Speak for yourself. I use bitcoin all the time for payments.
Peer to peer using coinbase(email) for free and instant to friends.
Shift card for free and instant at merchants.
Bitcoin is beyond blockchain, companies have built products to trade BTC instantly, free, using the infrastructure already existing. The transaction time 'problem' doesnt really exist if you are into crypto, you know how to use it.
And I dont trust USD like I trust BTC. Historically Fiat currencies are awful.
People hoard capital now (currency being one form). Look at the result of the tax cuts leading to stock buy backs
This is more motivation to transition from currency based societies and focus on outcomes that benefit labor first
It’s plain there is no free market when currency monopolists can control not just what we work on looks like, but whether anything is worked on at all
There is great demand for the end of war, housing, social services, and universal healthcare. Cottage industry can rise around that instead of digital assistants that schedule hair cuts.
But we’re forced to prioritize the tasks the currency monopolists dictate, putting our own communities second
Adam Smith only mentions a markets in the context of a free labor market for workers of equal condition to move about freely
Mandate universal healthcare. It’s just as important to a secure and free nation as guns and is a potent first step to saying “we’re not interested in addressing the needs of stock markets and distant currency monopolists.”
> "Looks like in the future people hoard currency instead of spending and investing it then. That ought to be interesting."
That sounds like the current to me. Too much is locked up (in too few hands) instead of doing what currency should do. That is, reduce the friction of trade (i.e., goods, skills, etc.) Currency is a lubricant. It's no surprise things are drying up.
I completely agree with you that the concentration of wealth in the hands of a tiny portion of the population is a huge problem today, but don't deflationary cryptocurrencies make it objectively worse?
At least if the current "1%" hoard dollars or euros in their mattress they slowly lose their wealth thanks to inflation. After a generation or two they'll have lost a significant share of their treasure. Therefore they have an incentive to actually invest the money to fight the effects of inflation. In doing so they contribute to the economy.
With a deflationary currency like bitcoin it goes like this:
1/ Buy bitcoins
2/ Bury your keys in a bunker in Antartica
3/ There is no step 3, just watch as you become wealthier while doing absolutely nothing. You want a loan to start your business or buy a house? Well tough luck, you should have mined BTC in 2013.
The deflationary nature of Bitcoin is why it managed to be successful in the first place, it gives a strong incentive to be an early adopter. However in the long term I don't see how it's sustainable, it makes it borderline useless as a currency. On the other hand I don't see how an inflationary cryptocurrency could gain traction if it's not backed by a huge entity such as a government or multinational company because who would bother buying SimiasCoin if you know it's going to lose value at a steady pace in the future? And why would a government or multinational corporation bother creating a cryptocurrency they can't easily control instead of printing bills like they do today?
What group is hoarding currency? With interest rates and the global economy roaring low we've had an explosion of investing in the past few years. I don't know of one group of people that would benefit from holding cash in the present environment
Yeah, but right now, that money is locked in bank accounts, investment vehicles, etc, where the money can actually be used for stuff by others. With crypto, that money is locked away in "cold storage" where it's not available to do anything.
A poor village in africa has starvation. They do not produce enough food to feed themeslves properly. So they are given an aid of 10,000 U$S. So they turn to their own farmers and say "Behold the currency, we were dry of it before and we were dry of food because of it. Now take the money and transform it into abundance and plenty!"
The farmers put the bills in the ground, right next to the seeds, but it does not make the farm more plentiful. The villagers learnt the hard lesson: that plenty does not follow money.
Bitcoin seems to have already undergone a deflationary collapse. Its original goal of Internet money has been abandoned in favor of the concocted idea that it is a "store of value." Unfortunately it's a poor store of value since it requires a constant stream of electricity to maintain. Gold, land, and other traditional idle stores of value just sit there and are free to maintain with the exception of the cost of physical security. On top of this Bitcoin is fragile as it requires an operating Internet or at least operating computers. In the event of a severe stress or collapse scenario it will cease to exist, while gold and other assets will continue to be viable units of tradable value.
I still don't understand why significant deflation is a desirable characteristic for a currency. Mild deflation is tolerable unless the economy is experiencing hyper-growth like the early 20th century, but Bitcoin is more deflationary than gold. Strong economic arguments that I don't have time to type in can be made that an ideal currency (as a medium of exchange) is slightly inflationary (in the monetary base sense) to the degree that the economy as a whole is growing.
Edit: collapse you say? But its value has held up! But this is exactly what happens (for a while) in a deflationary collapse. The value of money skyrockets but its velocity tanks.
Of course given all of Bitcoin's undesirable characteristics as a store of value I suspect that its value in USD/EUR/etc. will eventually tank as well. This might take a while unless something causes a panic since the market for BTC is slow and thinly traded.
IMHO all deflationary cryptocurrencies will undergo this kind of collapse.
Of course not all cryptocurrencies need be deflationary. Software defined money can be programmed to do anything you want it to do within the bounds of what is possible under e.g. the CAP theorem and other relevant concepts from distributed systems.
Cryptocurrency as a system is also inflationary in a whole-systems sense as new money can be created by forking a code base or creating a token on those coins (e.g. Ethereum) that support it. This argument holds as long as all these currencies are reasonably fungible without too much hassle. As it stands things like shapeshift.io make converting them fairly easy at least for the popular ones.
This is a problem/misfeature with cryptocurrencies: You are never truly sure that you own any of it, until you spend/send it elsewhere.
No matter what layers of indirection(multi-party-sigs,bio-metric based encryption, etc) you put on it, at the end the private key has to come out in order to use it.
With Gold, you see gold in your vault, you know it is yours.
You see dollar in your pocket you can be sure you can spend that dollar tomorrow.
You see a strip of paper with your private key in your pocket, there is no guarantee that you can spend those cryptocoins tomorrow.
You see a private key(encrypted or not) on that Gold Bar, you do not know that it is truly yours unless you managed all steps of the encryption yourself.
If you did manage all the steps of encryption yourself, then storing that information in a vault was pretty much pointless.
I suppose one way these vaults can offer some sort of safety is that you come to them with your wallet, you make an onchain transaction into wallet whose private keys require both you and the vault to decrypt.
This way both parties can be reasonably sure that the wallet stays unaffected until you come with a request to open it.
Still a problem remains, you have to trust the vault to stick around and not lose their encryption keys.
If you do not need vault's keys to open your wallet you've gained nothing by storing your keys at the vault.
If you need the vault's keys you have to put your faith in vault not mishandling those keys, which means a single point of failure.
If you're incentivized (as these incentivized crypto-assets are) to hold onto something until enough other people perceive it's value as being higher (whether tricked into it through various methods or other), needing them to legitimize and realize the value, then people will hold onto it - and they'll use part of their resources to bring other people into the game.
If society adopts these incentivized crypto-assets that $10B the could become valued at trillions of dollars, which then is buying power shifted away from society as a whole - and where those holders have done no work to actual make those gains. This attracts enough bad actors and incentives bad behaviour.
>if you do hold the keys you better be absolutely paranoid with them because there's no plan B if they get compromised or destroyed
One could do multi-signature wallets with Bitcoin. So, for example, there could be three keys: one with you, one with your significant other, and one with a third party custodian, and it'd take, say, 2 out of 3 signatures to spend out of the wallet. It doesn't change the bearer nature of Bitcoin, which, some would argue, is a feature.
this, among the myriad other points missed by the discussion, is what's special about BTC (arguably, other digital "currencies", as well)
there's so much more to BTC. it's not simply any one of the [currency, investment, speculation] because it's also a [transaction network, messaging platform, clock, vault].
So if we let a bank manage bitcoin, perhaps the bank could issue paper receipts that are backed by said bitcoin, and those pieces of paper could circulate instead of using the blockchain.
What I don't understand is if fiat currencies are so bad, why do people express the value of bitcoin in a fiat currency (like USD)? They are just like the goldbugs, hoping and praying that the world will collapse back into the dark ages
> perhaps the bank could issue paper receipts that are backed by said bitcoin, and those pieces of paper could circulate instead of using the blockchain.
Feel free to use them, I won't. There's no point when Bitcoin is so simple to move.
> What I don't understand is if fiat currencies are so bad, why do people express the value of bitcoin in a fiat currency (like USD)?
Because it's one of the most practical things to measure against, because almost everything is also measured against it?
I don't get this argument, if I say a car is worth $20k that means the car is actually worthless because I'm measuring it's value in USD?
Or someone in the US saying that meters are actually a stupid and useless unit because before everyone gets used to using it you have to constantly convert it to imperial.
>why do people express the value of bitcoin in a fiat currency (like USD)?
Mostly because businesses do accounting and pay taxes in usd, so bitcoin is just used as a pass through gimmick to make sales. There is no path to the price stabilization of bitcoin, it's purely deflationary, no one is going to set prices in something that has no monetary policy.
There is a very important difference between fiat currencies backed by nothing and fiduciary media that is backed by a commodity like gold. You can't walk into the Federal Reserve with a thousand dollars and demand them to be converted into physical gold - that right was abolished in the 1930s.
The people hording bitcoin makes the value of the ones spending it more valuable. Without people hording it, you wouldn't have any of the profits regular people have been getting.
let a bank manage and insure their wallet than manage it themselves. Too stressful otherwise.
This just goes to show where the hype and misunderstanding around this has led.
It is not too far off to say bitcoin's only reason for being, is to "hold them yourself," i.e. conduct all your financial dealings with zero third parties.
A bank holding your bitcoins is just nonsensical if you understand the relative merits of each system.
The merits of the banking system are a centralized efficiency in conducting "transactions at a distance," and economies of scale in preventing fraud, theft, and other losses,
Trying to inject bitcoin into the banking system is like trying to re-insert a vestigial organ into a species long after the organ has been pruned from the evolutionary tree.
Nobody seems to have much interest in bitcoin's purported raison d'etre, but are more interested in a perceived potential for appreciation. That much of past appreciation has been shown to be the result of various systemic manipulations, rather than genuine organic demand, seems not to register with most people, or is unknown.
That perceived potential for appreciation would seem to eventually rest on people having an interest in using bitcoin for the uses around which it was designed. Should that day come, a shift from the game of "musical chairs-hot potato-hype machine," to a system of digital cash, the system would require a major re-working to support the number of users one would think would be proportional to the current valuation.
But like you said most people aren't comfortable or willing to shoulder this sort of risk in their financial lives.
Another curiosity, or countervailing force to bitcoin's design goals is the ever growing 'blockchain' record that needs to be stored locally to partake in the bitcoin system in the spirit it was conceived.
The blockchain is growing at a fairly constant rate, has anyone ever plotted blockchain growth relative to projected future storage costs and bandwidth capabilities necessary to onboard new users?
So what is the point of bitcoin other than the original goal of "be your own bank"?
But not just your own bank, your own datacenter as well!
You can at the very least make copies of the keys, and have your protection protocol be "wipe when anything suspicious is detected". You can't do that with gold.
And you think this bank (re: the article) falls outside of those? You won't be able to get your btc out quickly in this one either. Same with online exchanges for that matter.
What is this threat model where if a government tries to freeze your assets having BTC stops everything bad? If a government is trying to freeze your assets you have a lot of other problems that are bigger than simply not having access to your bank account.
Oh remember those securitized mortgages we sold you? Yeah, they're worthless now. By the way we bought insurance on them becoming worthless, because we were pretty sure this would happen when we sold them to you.
Those were speculative investments, not bank accounts. Nobody lost money in an FDIC insured account.
The comparison is also dubious for another reason: everyone who did even the tiniest bit of diligence knew the mortgage and derivative markets were in a huge bubble. Phrases like “liar loan” were common, they had to invent new ways to rate derivatives which didn’t meet the traditional standards, etc. but so many people were banking on the greater fool theory lasting long enough for them to cash out before it popped. All the crash proved was that the traditional banking standards were there for a reason and the people who never abandoned them were fine.
This is relevant in the Bitcoin discussion because we see the same dynamic where people who pay attention to the fundamentals are saying it’s a bubble and the get rich quick crowd is saying that the rules are completely different now because magic.
There's a difference between keeping cash in a bank which is FDIC insured and putting money in investments; particularly in the US where robbery was/is called investment strategy.
At what point are the miners/network considered the centralized institution?
Are corporations considered “decentralized institutions” in the world of bitcoin enthusiasts? After all corporations are made up of decentralized shareholders that can vote for and change the directors.
If that doesn’t fit...what about a credit union? Like bitcoin there are no “owners/shareholders” of credit unions they are simply comprised of members.
EU has mandatory insurance for €100k in savings accounts. Of course, there're all kinds of scams running all the time disguised as "investment saving accounts"...
According to its proponents, Bitcoin is digital gold. (Interestingly it’s not an “electronic currency” anymore even though that was the original title of the 2008 whitepaper. I suppose Lightning Network or something is supposed to fix that with new transaction layers backed by the Bitcoin gold.)
One aspect of gold’s historical value is that it’s traditionally recognized even in societies in collapse. I’ve never understood how Bitcoin is supposed to hold its value in such an event — something on the scale of nuclear war, or Germany in 1945.
After an EMP wipes out data centers and cell phone towers, you can probably still bribe people with Krugerrands. Who’s going to accept Bitcoin transfers when the infrastructure is either gone or under military control?
Or is the idea that Bitcoin will be valuable again when the wealthy finally crawl out of their New Zealand bunkers and reestablish the financial system?
> After an EMP wipes out data centers and cell phone towers
If such a thing happens on a large scale there will be hundred of millions of deaths. All major cities will simply collapse.
See recent articles how London can only survive for 4 days without electricity, after that there will be no food.
The modern society is incredibly fragile. Everything is just in time, there are no stocks or buffers. Bitcoins will be the least of your worries in such an event. Your Krugerrands will also not be of much value. Nobody will be stupid to give you food or gas for a piece of metal.
I really think this opinion is short-sighted. And it comes from a less extreme version of the same place that 9/11 deniers operate from; normal humans don't want to naturally think about loss of control and what that loss of control would look like. So its easier to just say "if this happens we're all fucked, don't even try"
There is practically no evidence in history where gold had fungible value then became worthless. Nothing else matters; everything else is conjecture, opinion, and extrapolation.
Yes, we live in a very fragile society. Yes, if complete collapse happened, there would be a period of extreme chaos when millions, hundreds of millions, die.
But the chaos would stabilize, barring any extenuating factors like a T-Virus. And in that world, maybe US Dollars would still hold some value. History says Gold probably will. Bitcoin though? Bitcoin requires a global network of miners. It would require having access to the original blockchain that gives your wallet value. In the best likelihood, the currency would splinter into every small network that can still run miners. And when energy is so expensive that you need all of it to power your lights, vehicles, and medical equipment, why would anyone spend it on an expensive mining rig, even if all the complex computer equipment necessary to make it run were widely available?
And then a guy walks into town with a bag full of gold. Suddenly Bitcoin isn't looking all that valuable as a currency. I'll sell my extra food to the guy with the gold, because the guy with antibiotics down the street would also sell to the guy with the gold, and the guy in the town over with car parts would also sell to the guy with the gold. That's what makes currency work; people, not software.
That's why more and more people getting involved in scams and get-rich-schemes on a platform with superlinear and unbounded energy upkeep is something that worries me deeply. Energy and climate is something that very well may break our society.
Your points are valid. IMO the key tradeoff b/w gold (analog) and bitcoin (digital) is extra resiliency vs usability.
If there were a systemic collapse breaking governments, knocking off power and telecom networks etc, gold would be immediately most valuable. But more quickly than fiat, bitcoin would be useful.
Power and telecom systems are more resilient to systemic collapse (& have more bouncebackability) than a functioning government and its currency. Some semblance of critical systems would come online whether put up by government, armies, warlords, cooperatives etc (See Somalia as an example). When those systems are online, bitcoin can be sent and received.
In short:
in terms of usability: Fiat > Bitcoin > Gold
in terms of resilience: Gold > Bitcoin > Fiat
If you're concerned about an EMP wiping out electronics systems worldwide then surely it'd be smarter to horde weapons, food and antibiotics, than Bitcoin OR gold.
Youre basing your argument on the assumption that ALL datacenters have been wiped out. Its unlikely the entire world will engage in global warfare on a scale large enough to disable the internet, which the bitcoin network relies upon. Also, historically government currencies destabalize during war, so bitcoin would probably retain or increase in value, not diminish.
And that is why Bitcoin is designed against these kinds of events. It's very unlikely that everything would be wiped out or everything would be under military control. There's always strong economic incentives to keep it running and secure.
> Or is the idea that Bitcoin will be valuable again when the wealthy finally crawl out of their New Zealand bunkers and reestablish the financial system?
The idea is that the transactions are irreversible and you cannot rely on any number of police officers or judges to fix a theft.
The bunkers are for security's sake, not preserving-wealth-in-an-apocalype's sake.
The police officers and judges can put you in jail, which is generally worse than having your assets confiscated. I’m not sure how Bitcoin helps.
What I’m trying to understand is how Bitcoin advocates’ promise of it being a store of value independent from governments can be valid when the system depends on extremely sophisticated infrastructure that was built and enabled by governments.
The word 'hoarding' demonizes 'saving,' which in most Keynesian economies is considered leakage. It's really a question of values. Inflationary currencies encourage consumption; deflationary ones encourage savings. High consumption does increase demand, and apparently a faster growth in the economy. One could argue that this almost forced consumption for the sake of faster economic growth is what causes malinvestment and the associated boom-and-bust cycles.
One could be hesitant about spending away their Bitcoin to buy a shiny new bigger TV, while they'd happily part with USD for the same expense. Former, I'd say, has a more natural alignment with our incentives to spend thoughtfully.
Also, I am not sure if everyone shares the value of eating the planet at a faster rate for employment and GDP numbers.
> I'm not sure why encouraging people to bury their wealth in the ground instead of doing something useful with it is something we want to be doing.
Savings is not "burying their wealth in the ground", it's building a safety net for the future. At least for everyday people. Most people would be better off doing that than blowing it on big screen tv's, boats, and cigarettes. If more people did that, society would be better off too.
I don't really get why when it comes to crypto energy consumption, the discussion board becomes reactionary. I mean portugal is now running on 100% renewables. Shouldn't this point be more about renewables? You know, what about the electric car? That'll consume lots of energy too.
If you want to understand just how difficult managing cryptographic material is for the technically illiterate, look no further than Xapo.
It's not "Bitcoin" that Xapo stores, but private keys. In underground bunkers. This no doubt gives some people a warm fuzzy.
But Bitcoin's history is littered with the wreckage of companies that took it on themselves to store private keys on behalf of others.
I don't know when Xapo will fail, but if history is any guide it's just a matter of time. The weakest link in their system is the people involved.
Consider this tortured statement:
If Xapo’s deep cold storage vaults were hacked, Xapo would cover the loss from its own reserve but the hack could be bigger than the reserve which would cause a net loss to our customers.
In other words, a Xapo depositor would eat the loss in the event of a successful attack on the cold storage system.
The funny thing about all of this is that private key management isn't difficult when you know how. Given the vast sums of money being stored, you might think that certain big fish would want to take the time to do it right.
It makes sense that Goldman Sachs and Newyork Stock Exchange are working on Bitcoin trading allowing wealthy clients to own Bitcoin.
At this point it's definitely mainstream and if enough of the billionaires own it, they can definitely manipulate the price. Not sure how would Governments control this
In such a scenario, bitcoin will have no value. Localized disasters occur more frequently than one would expect, and in such disasters, a pure barter economy exists.
During the Bosnian War, things that became highly valuable were: bullets, liquor, antibiotics, lighters, and of course food [0]. Bitcoin, or any other currency, was the last thing on anyone’s mind.
That seems like nonsense. If things are that much of a mess, internet & electricity will presumably be spotty and computers will cease manufacture (& slowly decay until failure). Better to have tangible currency. Will that be USD, or precious metals, or ammunition? I don't know, but I'd bet on something you can touch.
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Looks like in the future people hoard currency instead of spending and investing it then. That ought to be interesting.
It also demonstrates the costs associated with non-reversible transactions, these vaults aren't storing gold ingots or priceless artifacts, just private keys. Banks around the world don't need to worry too much about this (well, within reason) because if somebody manages to break into their digital vault not everything is lost and they can mitigate the damages retroactively.
With bitcoin "if you don't hold the keys, you don't own the coins" but if you do hold the keys you better be absolutely paranoid with them because there's no plan B if they get compromised or destroyed. For this reason I think that even if cryptocurrencies manage to become mainstream many people (including myself) would rather let a bank manage and insure their wallet than manage it themselves. Too stressful otherwise.
Investment is where you find something producing value in the real world and then buy and hold a piece of that. You're expecting a long stream of returns from the value being produced. Speculation is where you are making a bet on price movements in a way where economic productivity is irrelevant.
When people buy and sell commodities and currencies, they're speculating. They don't care about utility. There's no economic value being created, so one's investment doesn't grow during the time you hold, say, gold. Instead, it's a zero-sum activity: considering all participants together, wins and losses are equal. (Well, technically, losses are larger than wins, because there are always overhead costs.)
Bitcoin is easy to mistake for an investment, because it's meant to be deflationary. (It was even easier to mistake for one during the period where it only went up.) But I don't think holding Bitcoin means you own a slice of an economically productive asset. I think it's just a bet that the commodity price will go up, in the same way you bet if you buy gold or euros.
[1] Warren Buffett has talked about this distinction a lot, over the years. E..g: http://www.businessinsider.com/warren-buffett-investors-vers...
I don't think it is a very good store of value - we mostly need store of value in the special cases of wars, extreme crises, and similar stuff - for normal times we can invest our money into businesses that really produce something. But bitcoin does not seem to be very usable in these circumstances. It is not well tested. It is also in danger of being replaced by some other cryptocurrency. And I don't thing there is space for more than two or three of them - just like money gravitated into gold and silver.
Dead Comment
Peer to peer using coinbase(email) for free and instant to friends.
Shift card for free and instant at merchants.
Bitcoin is beyond blockchain, companies have built products to trade BTC instantly, free, using the infrastructure already existing. The transaction time 'problem' doesnt really exist if you are into crypto, you know how to use it.
And I dont trust USD like I trust BTC. Historically Fiat currencies are awful.
This is more motivation to transition from currency based societies and focus on outcomes that benefit labor first
It’s plain there is no free market when currency monopolists can control not just what we work on looks like, but whether anything is worked on at all
There is great demand for the end of war, housing, social services, and universal healthcare. Cottage industry can rise around that instead of digital assistants that schedule hair cuts.
But we’re forced to prioritize the tasks the currency monopolists dictate, putting our own communities second
Adam Smith only mentions a markets in the context of a free labor market for workers of equal condition to move about freely
Mandate universal healthcare. It’s just as important to a secure and free nation as guns and is a potent first step to saying “we’re not interested in addressing the needs of stock markets and distant currency monopolists.”
The solution to hoarding capital is inflation or direct taxation of asssts.
That sounds like the current to me. Too much is locked up (in too few hands) instead of doing what currency should do. That is, reduce the friction of trade (i.e., goods, skills, etc.) Currency is a lubricant. It's no surprise things are drying up.
At least if the current "1%" hoard dollars or euros in their mattress they slowly lose their wealth thanks to inflation. After a generation or two they'll have lost a significant share of their treasure. Therefore they have an incentive to actually invest the money to fight the effects of inflation. In doing so they contribute to the economy.
With a deflationary currency like bitcoin it goes like this:
1/ Buy bitcoins
2/ Bury your keys in a bunker in Antartica
3/ There is no step 3, just watch as you become wealthier while doing absolutely nothing. You want a loan to start your business or buy a house? Well tough luck, you should have mined BTC in 2013.
The deflationary nature of Bitcoin is why it managed to be successful in the first place, it gives a strong incentive to be an early adopter. However in the long term I don't see how it's sustainable, it makes it borderline useless as a currency. On the other hand I don't see how an inflationary cryptocurrency could gain traction if it's not backed by a huge entity such as a government or multinational company because who would bother buying SimiasCoin if you know it's going to lose value at a steady pace in the future? And why would a government or multinational corporation bother creating a cryptocurrency they can't easily control instead of printing bills like they do today?
I wonder if you can trace parallels between this observed circumstance, and our current low interest rates & low levels of inflation.
The farmers put the bills in the ground, right next to the seeds, but it does not make the farm more plentiful. The villagers learnt the hard lesson: that plenty does not follow money.
People hoard(ed) currency in the past and present as well
I still don't understand why significant deflation is a desirable characteristic for a currency. Mild deflation is tolerable unless the economy is experiencing hyper-growth like the early 20th century, but Bitcoin is more deflationary than gold. Strong economic arguments that I don't have time to type in can be made that an ideal currency (as a medium of exchange) is slightly inflationary (in the monetary base sense) to the degree that the economy as a whole is growing.
Edit: collapse you say? But its value has held up! But this is exactly what happens (for a while) in a deflationary collapse. The value of money skyrockets but its velocity tanks.
http://charts.woobull.com/bitcoin-velocity/
Of course given all of Bitcoin's undesirable characteristics as a store of value I suspect that its value in USD/EUR/etc. will eventually tank as well. This might take a while unless something causes a panic since the market for BTC is slow and thinly traded.
IMHO all deflationary cryptocurrencies will undergo this kind of collapse.
Of course not all cryptocurrencies need be deflationary. Software defined money can be programmed to do anything you want it to do within the bounds of what is possible under e.g. the CAP theorem and other relevant concepts from distributed systems.
Cryptocurrency as a system is also inflationary in a whole-systems sense as new money can be created by forking a code base or creating a token on those coins (e.g. Ethereum) that support it. This argument holds as long as all these currencies are reasonably fungible without too much hassle. As it stands things like shapeshift.io make converting them fairly easy at least for the popular ones.
Deleted Comment
"Earth is a poor store of life because it requires a constant stream of light to maintain." Hm no, that doesn't work...
No matter what layers of indirection(multi-party-sigs,bio-metric based encryption, etc) you put on it, at the end the private key has to come out in order to use it.
With Gold, you see gold in your vault, you know it is yours.
You see dollar in your pocket you can be sure you can spend that dollar tomorrow.
You see a strip of paper with your private key in your pocket, there is no guarantee that you can spend those cryptocoins tomorrow.
You see a private key(encrypted or not) on that Gold Bar, you do not know that it is truly yours unless you managed all steps of the encryption yourself.
If you did manage all the steps of encryption yourself, then storing that information in a vault was pretty much pointless.
I suppose one way these vaults can offer some sort of safety is that you come to them with your wallet, you make an onchain transaction into wallet whose private keys require both you and the vault to decrypt.
This way both parties can be reasonably sure that the wallet stays unaffected until you come with a request to open it.
Still a problem remains, you have to trust the vault to stick around and not lose their encryption keys.
If you do not need vault's keys to open your wallet you've gained nothing by storing your keys at the vault.
If you need the vault's keys you have to put your faith in vault not mishandling those keys, which means a single point of failure.
It's easier to verify than opening a vault to check on your gold.
If society adopts these incentivized crypto-assets that $10B the could become valued at trillions of dollars, which then is buying power shifted away from society as a whole - and where those holders have done no work to actual make those gains. This attracts enough bad actors and incentives bad behaviour.
One could do multi-signature wallets with Bitcoin. So, for example, there could be three keys: one with you, one with your significant other, and one with a third party custodian, and it'd take, say, 2 out of 3 signatures to spend out of the wallet. It doesn't change the bearer nature of Bitcoin, which, some would argue, is a feature.
this, among the myriad other points missed by the discussion, is what's special about BTC (arguably, other digital "currencies", as well)
there's so much more to BTC. it's not simply any one of the [currency, investment, speculation] because it's also a [transaction network, messaging platform, clock, vault].
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What I don't understand is if fiat currencies are so bad, why do people express the value of bitcoin in a fiat currency (like USD)? They are just like the goldbugs, hoping and praying that the world will collapse back into the dark ages
Feel free to use them, I won't. There's no point when Bitcoin is so simple to move.
> What I don't understand is if fiat currencies are so bad, why do people express the value of bitcoin in a fiat currency (like USD)?
Because it's one of the most practical things to measure against, because almost everything is also measured against it?
I don't get this argument, if I say a car is worth $20k that means the car is actually worthless because I'm measuring it's value in USD?
Or someone in the US saying that meters are actually a stupid and useless unit because before everyone gets used to using it you have to constantly convert it to imperial.
Mostly because businesses do accounting and pay taxes in usd, so bitcoin is just used as a pass through gimmick to make sales. There is no path to the price stabilization of bitcoin, it's purely deflationary, no one is going to set prices in something that has no monetary policy.
Your password can be stored in your memory. Or it can be something like the 100th sentence in your favorite book.
You must use securely-generated random key phrases, or you will lose your coins.
This just goes to show where the hype and misunderstanding around this has led.
It is not too far off to say bitcoin's only reason for being, is to "hold them yourself," i.e. conduct all your financial dealings with zero third parties.
A bank holding your bitcoins is just nonsensical if you understand the relative merits of each system.
The merits of the banking system are a centralized efficiency in conducting "transactions at a distance," and economies of scale in preventing fraud, theft, and other losses,
Trying to inject bitcoin into the banking system is like trying to re-insert a vestigial organ into a species long after the organ has been pruned from the evolutionary tree.
Nobody seems to have much interest in bitcoin's purported raison d'etre, but are more interested in a perceived potential for appreciation. That much of past appreciation has been shown to be the result of various systemic manipulations, rather than genuine organic demand, seems not to register with most people, or is unknown.
That perceived potential for appreciation would seem to eventually rest on people having an interest in using bitcoin for the uses around which it was designed. Should that day come, a shift from the game of "musical chairs-hot potato-hype machine," to a system of digital cash, the system would require a major re-working to support the number of users one would think would be proportional to the current valuation.
But like you said most people aren't comfortable or willing to shoulder this sort of risk in their financial lives.
Another curiosity, or countervailing force to bitcoin's design goals is the ever growing 'blockchain' record that needs to be stored locally to partake in the bitcoin system in the spirit it was conceived.
The blockchain is growing at a fairly constant rate, has anyone ever plotted blockchain growth relative to projected future storage costs and bandwidth capabilities necessary to onboard new users?
So what is the point of bitcoin other than the original goal of "be your own bank"?
But not just your own bank, your own datacenter as well!
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Oh wait, that's cryptocurrency startups...
Not allowing very large balances to be withdrawn at once.
Complying with asset freeze orders.
They also have much lower transaction fees.
Wait, are we talking about MtGoX? Or Coinbase? Or Bitfinex? Or any of the many smaller exchanges that did the same thing right before they collapsed?
Oh remember those securitized mortgages we sold you? Yeah, they're worthless now. By the way we bought insurance on them becoming worthless, because we were pretty sure this would happen when we sold them to you.
The comparison is also dubious for another reason: everyone who did even the tiniest bit of diligence knew the mortgage and derivative markets were in a huge bubble. Phrases like “liar loan” were common, they had to invent new ways to rate derivatives which didn’t meet the traditional standards, etc. but so many people were banking on the greater fool theory lasting long enough for them to cash out before it popped. All the crash proved was that the traditional banking standards were there for a reason and the people who never abandoned them were fine.
This is relevant in the Bitcoin discussion because we see the same dynamic where people who pay attention to the fundamentals are saying it’s a bubble and the get rich quick crowd is saying that the rules are completely different now because magic.
Also, Bitcoin is not a startup.
Are corporations considered “decentralized institutions” in the world of bitcoin enthusiasts? After all corporations are made up of decentralized shareholders that can vote for and change the directors.
If that doesn’t fit...what about a credit union? Like bitcoin there are no “owners/shareholders” of credit unions they are simply comprised of members.
Long argument about instrinsic value
Peaceful resolution where we agree not to kill each other if our portfolios fuck us over
Capital controls are real
One aspect of gold’s historical value is that it’s traditionally recognized even in societies in collapse. I’ve never understood how Bitcoin is supposed to hold its value in such an event — something on the scale of nuclear war, or Germany in 1945.
After an EMP wipes out data centers and cell phone towers, you can probably still bribe people with Krugerrands. Who’s going to accept Bitcoin transfers when the infrastructure is either gone or under military control?
Or is the idea that Bitcoin will be valuable again when the wealthy finally crawl out of their New Zealand bunkers and reestablish the financial system?
If such a thing happens on a large scale there will be hundred of millions of deaths. All major cities will simply collapse.
See recent articles how London can only survive for 4 days without electricity, after that there will be no food.
The modern society is incredibly fragile. Everything is just in time, there are no stocks or buffers. Bitcoins will be the least of your worries in such an event. Your Krugerrands will also not be of much value. Nobody will be stupid to give you food or gas for a piece of metal.
There is practically no evidence in history where gold had fungible value then became worthless. Nothing else matters; everything else is conjecture, opinion, and extrapolation.
Yes, we live in a very fragile society. Yes, if complete collapse happened, there would be a period of extreme chaos when millions, hundreds of millions, die.
But the chaos would stabilize, barring any extenuating factors like a T-Virus. And in that world, maybe US Dollars would still hold some value. History says Gold probably will. Bitcoin though? Bitcoin requires a global network of miners. It would require having access to the original blockchain that gives your wallet value. In the best likelihood, the currency would splinter into every small network that can still run miners. And when energy is so expensive that you need all of it to power your lights, vehicles, and medical equipment, why would anyone spend it on an expensive mining rig, even if all the complex computer equipment necessary to make it run were widely available?
And then a guy walks into town with a bag full of gold. Suddenly Bitcoin isn't looking all that valuable as a currency. I'll sell my extra food to the guy with the gold, because the guy with antibiotics down the street would also sell to the guy with the gold, and the guy in the town over with car parts would also sell to the guy with the gold. That's what makes currency work; people, not software.
That's why more and more people getting involved in scams and get-rich-schemes on a platform with superlinear and unbounded energy upkeep is something that worries me deeply. Energy and climate is something that very well may break our society.
If there were a systemic collapse breaking governments, knocking off power and telecom networks etc, gold would be immediately most valuable. But more quickly than fiat, bitcoin would be useful.
Power and telecom systems are more resilient to systemic collapse (& have more bouncebackability) than a functioning government and its currency. Some semblance of critical systems would come online whether put up by government, armies, warlords, cooperatives etc (See Somalia as an example). When those systems are online, bitcoin can be sent and received.
In short: in terms of usability: Fiat > Bitcoin > Gold in terms of resilience: Gold > Bitcoin > Fiat
Am I missing anything here?
According to its detractor, Bitcoin is digital comedy gold, so everybody agrees.
The idea is that the transactions are irreversible and you cannot rely on any number of police officers or judges to fix a theft.
The bunkers are for security's sake, not preserving-wealth-in-an-apocalype's sake.
What I’m trying to understand is how Bitcoin advocates’ promise of it being a store of value independent from governments can be valid when the system depends on extremely sophisticated infrastructure that was built and enabled by governments.
One could be hesitant about spending away their Bitcoin to buy a shiny new bigger TV, while they'd happily part with USD for the same expense. Former, I'd say, has a more natural alignment with our incentives to spend thoughtfully.
Also, I am not sure if everyone shares the value of eating the planet at a faster rate for employment and GDP numbers.
You mean "investment"
> deflationary ones encourage savings
I'm not sure why encouraging people to bury their wealth in the ground instead of doing something useful with it is something we want to be doing.
Savings is not "burying their wealth in the ground", it's building a safety net for the future. At least for everyday people. Most people would be better off doing that than blowing it on big screen tv's, boats, and cigarettes. If more people did that, society would be better off too.
It's not "Bitcoin" that Xapo stores, but private keys. In underground bunkers. This no doubt gives some people a warm fuzzy.
But Bitcoin's history is littered with the wreckage of companies that took it on themselves to store private keys on behalf of others.
I don't know when Xapo will fail, but if history is any guide it's just a matter of time. The weakest link in their system is the people involved.
Consider this tortured statement:
If Xapo’s deep cold storage vaults were hacked, Xapo would cover the loss from its own reserve but the hack could be bigger than the reserve which would cause a net loss to our customers.
https://blog.xapo.com/what-would-happen-if-xapo-got-hacked/
In other words, a Xapo depositor would eat the loss in the event of a successful attack on the cold storage system.
The funny thing about all of this is that private key management isn't difficult when you know how. Given the vast sums of money being stored, you might think that certain big fish would want to take the time to do it right.
The same is true of Coinbase. Somehow they've been fine.
At this point it's definitely mainstream and if enough of the billionaires own it, they can definitely manipulate the price. Not sure how would Governments control this
Apparently, even the financially wealthy can be common sense poor.
During the Bosnian War, things that became highly valuable were: bullets, liquor, antibiotics, lighters, and of course food [0]. Bitcoin, or any other currency, was the last thing on anyone’s mind.
[0] - http://www.shtfplan.com/emergency-preparedness/a-survival-q-...
https://www.forbes.com/sites/francescoppola/2018/04/21/bitco...