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Before modelling cryptoeconomics maybe someone should apply some sound basic economics to the existing blockchain. Having a cryptocurrency where the founder own

Before modelling cryptoeconomics maybe someone should apply some sound basic economics to the existing blockchain. Having a cryptocurrency where the founder owns 5% of all the currency that will ever exist and deflation is builtin and fixed seems like it fails some fairly basic things we know about standard economics before we need to start modelling the impacts of cryptoeconomics. Just had an interesting discussion about this on reddit: https://www.reddit.com/r/programming/comments/6okg5v/a_hacker_stole_31m_of_etherhow_it_happened_and/dkj8ms4/ https://www.reddit.com/r/programming/comments/6okg5v/a_hacke...

sillysaurus3 9y ago
I mean, it seems to be working. I don't really like the implications either, but it's a bit of a stretch to say it's not economics.
- pedrocr 9y ago
  I'm not saying it's not economics, just that bitcoin (and the other cryptocurrencies in existence) seem to have quite a few fatal flaws going forward from just our understanding of normal economics, let alone a new branch someone wants to start.
  - sillysaurus3 9y ago
    From your Reddit comment: I have no issue with the people that invented a specific technology getting rewarded for that. But that's not what's happening here. You're giving a few early adopters most of what you want to then use to price all the assets in the world. I'm not sure anybody is saying that bitcoin will be used to price all assets in the world. USD currently isn't, for example. It's just the dominant currency. A reasonable estimate for all the dollars in the world is 10 trillion. Say that bitcoin being a full sucess is it being valued at a total of 5 billion. Now consider that Satoshi has about 5% of all bitcoins that will ever exist. That puts him as 3x richer than the current richest man in the world. I don't see anything in bitcoin that justifies that kind of payout and that's for the inventor of the thing. We don't have a justice system. We have a legal system. And this seems to be allowed under our legal system, so I'm not sure the moral argument is valid. Why do you feel it's immoral for Satoshi to own 5%? We don't even know if he's alive or still has access to the coins, but let's say for the sake of argument that he does.
    - pedrocr 9y ago
      >I'm not sure anybody is saying that bitcoin will be used to price all assets in the world. USD currently isn't, for example. It's just the dominant currency. Most things are actually priced in dollars to some extent, perhaps with some conversions. Maybe euros in some other cases. >Why do you feel it's immoral for Satoshi to own 5%? We don't even know if he's alive or still has access to the coins, but let's say for the sake of argument that he does. I'm not making a morality argument. Just pointing out that it will be a hard pill to swallow that for the (in my view small) advantages of cryptocurrencies we as a society complete the most massive wealth transfer to a single individual ever attempted. For me it's an argument as to why it's implausible crypto currencies will take hold as they exist today. They require a huge wealth transfer to a few early adopters for very little gain. If the advantages were greater it seems more likely to me that a new chain would be bootstrapped but I'm not even convinced it's worthwhile enough that it will actually take hold on a massive scale.
      - sunshinerag 9y ago
        Satoshi created Bitcoin. There is no wealth(bitcoin based) to transfer if not for him. It is not upto you or others to decide whether the 5% belongs to him or not.
    - alexandros 9y ago
      To go one step further, who says inventing a better currency shouldn't be worth 3x as much as creating e.g. walmart or microsoft? Sounds exactly like the sort of civilisational step forward that should be rewarded handily. Remember, we're talking about a world in which bitcoin has absorbed 50% of the world's assets, presumably because it's better in some real way than other currencies.
      - pedrocr 9y ago
        >Remember, we're talking about a world in which bitcoin has absorbed 50% of the world's assets Bitcoin proponents keep misunderstanding this. Most of the world's assets are not currencies, they are stocks, bonds, land, etc that we do use currencies to price but we are not holding currencies when we own them. The fact that central banks can inflate currencies doesn't change the value of assets just their pricing under those currencies. So creating a new way to price assets with something that has a guaranteed fixed supply is not a big innovation. If you want that just use gold. It has a much longer history, much less volatility, much less chance of being replaced by the next fad, and isn't mainly owned by a few recent early adopters. >presumably because it's better in some real way than other currencies. That's the point someone still needs to make. Modern financial systems are pretty efficient and featureful. Bitcoin is for people that believe in a narrow scenario where normal institutions have failed and yet the internet and the mining infrastructure is still working. To me that seems incredibly unlikely especially given how mining economics and evolution have made it highly centralized in a few players in China.
  - guscost 9y ago
    > bitcoin (and the other cryptocurrencies in existence) seem to have quite a few fatal flaws going forward from just our understanding of normal economics How long would Bitcoin have to survive these flaws before you start to question your understanding of economics?
    - pedrocr 9y ago
      It's not enough to survive it has to become a relevant currency and/or store of value worldwide. At 40B$ in market cap bitcoin is still a curiosity in financial terms. Worldwide dollar supply and US GDP are in the 15-20 T$ range. If Bitcoin reaches half that in value and in transactions without fixing any flaws I'll be impressed.
      - guscost 9y ago
        This isn't consistent with your original claim ("fatal flaw" implies that the perception of any existing value will be destroyed), but OK. I'll check back in ~25 years.
        pedrocr 9y ago
        I specifically said "fatal flaws going forward". Nobody cares if your magic cards trading platform is not very economically sound.
        guscost 9y ago
        That's a wispy rhetorical straw you're grasping now, but I won't deny it is a real straw. Fair enough. The phrase "limiting flaw" would be less confusing.
        pedrocr 9y ago
        There's nothing rethorical about saying that something that currently works at a small scale can reveal fatal flaws when it tries to reach a large scale.
dmichulke 9y ago
Deflation is not a bad thing in all economic theories. An iPhone and many current food items would have cost millions a century ago, yet here we are, richer than ever.
- pedrocr 9y ago
  Deflation of individual products from innovation is not the same thing as general deflation in the economy. Economists general consider a small continuous inflation as the best outcome but I'm not an expert.
  - elmar 9y ago
    The Hidden Tax " Although inflation causes generally rising prices, it should not be understood as detrimental to all parties involved. It is highly lucrative for the government and the banking industry. When new money is printed (today, created electronically), it greatly benefits the first recipient because assimilating the new money into the economic organism takes time. Those first recipients (government and banks) can purchase goods and services at the old prices. As the money slowly works its way through the economy prices are bid up. Eventually when it reaches the salaried workers, prices have mostly adjusted. This process is a hidden tax on salaried workers, or anyone who receives the money late in the cycle. It is especially detrimental to those on fixed incomes, such as pensioners. Not only does the government understate the effects of inflation in its official numbers, any price decrease that would have occurred as a result of productivity gains are denied to the consumer as well. Inflation is nothing but wealth transfer. The government prints money and buys stuff with it. Prices rise and the salaried worker can buy less stuff. All the stuff the salaried worker could have otherwise bought has accrued to the government. Simple. Politically, it is far more palatable than raising taxes because the process is badly understood and well obfuscated. " http://austrianeco.blogspot.pt/2008/02/inflation-part-22.html http://austrianeco.blogspot.pt/2008/02/inflation-part-22.htm...
    - pedrocr 9y ago
      Again, not an expert but austrian economics is far from mainstream. >The government prints money and buys stuff with it. And this seems just wrong. In most economies the central bank and the government are sepparate and the government can't just create money to spend. But maybe that's what effectively happens in the end anyway? Either way the economical argument is usually that you want a small steady inflation and that deflation is much worse. That doesn't refute it.
unabridged 9y ago
How is having a company where the founders/banks own 70% of all the stock and deflation builtin any better?
- elmar 9y ago
  if you have stock options and are rising money trough emission of new stock (not selling currently owned stock) you have inflation not deflation.
- pedrocr 9y ago
  Company stocks are not designed to be used as the basis for trade for whole economies. Fractional ownership of an operating business if very different from fractional ownership of a whole currency.
  - clarkmoody 9y ago
    > Company stocks are not designed to be used as the basis for trade for whole economies Neither is Bitcoin.
    - pedrocr 9y ago
      So what is it useful for?
      - sillysaurus3 9y ago
        For being a store of value.
        pedrocr 9y ago
        It seems to me that bitcoin proponents will change between saying that it's useful for transactions and useful for storing value depending on what's convenient for the argument. If the point of Bitcoin is to be the cyberpunk version of gold where the founder gets 5% of the total global value it seems a niche technology at best. And if it's that, let's stop calling it a cryptocurrency and just call it cryptogold.
lumberjack 9y ago
I think that is going to be the 2nd generation of cryptocurrencies. Currently we are at the 0th generation which is just a proof of concept. The 1st generation will be cryptocurrencies which have figured out the consensus problem entirely. The 2nd generation will be cryptocurrencies with more advanced built in economics that actually give incentive to users to use them as a currency and put an end to rampant speculation and hoarding.
- pedrocr 9y ago
  >The 1st generation will be cryptocurrencies which have figured out the consensus problem entirely. What do you mean by this?
  - lumberjack 9y ago
    People have been trying for 6 years to go past proof of work. It's not really ideal. There are also problems with mining capacity concentration. There's still work to be done in that area. Looking forward to see how proof of stake plays out.
- loceng 9y ago
  Bitcoin and Ethereum's Ether, nor are any of their holders, incentivized to evolve to a generation where they lose the value they've gained or bought into with real USD. Not sure how that plays out to the results you suggest.
  - 52-6F-62 9y ago
    This is a great question, but I kind of agree (though my thoughts need much more refinement yet) with the original comment poster here. I've been following the subject for a while, and many people in those communities tend to expect new tech to supplant the existing ones in time. Maybe not now, but in a decade or few. Besides, even the holders are a little more nimble that it appears. Some are keen, some just pump because they envision it a quick buck. Adding to that, it's quite possible for these named techs to evolve through community suggestions, code, and consensus (even if it does get messy surrounding each fork).
wmf 9y ago
If Bitcoin had been based on "proper" Keynesian economics then the price would probably still be under a cent and no one besides a few cypherpunks would care about it. To bootstrap a successful cryptocurrency you need a critical mass of speculators attracted by crackpot Austrian monetary policy. Unless this problem can be solved it will continue to cast a large shadow over the entire concept of cryptocurrency.
- loceng 9y ago
  The technology can be developed and then simply it will have to be society en mass to decide when and if we switch over to using it. Perhaps even the global community requiring the adoption at the same time, however nations will likely only want to transition when they are in a better position value wise compared to other nations. I think it could happen.
  - wmf 9y ago
    Society never decides en masse to switch anything.
    - loceng 9y ago
      Not yet - the internet is fairly recent technology though. Even our voting mechanisms and processes are rudimentary and can greatly improve with things like citizens being able to micro-vote on anything and everything - with policies in place to not flood people with too many decisions, while giving them enough confirmed time (e.g. proof of awareness) to make a decision to allocate a vote to an issue.
      - acdha 9y ago
        Voting is a really hard problem: beyond the massive and likely intractable security problems[1] you start getting into problems with knowledge. Say you push out a vote on a big trade deal or a proposed change to the healthcare system – what percentage of voters have the time and knowledge to even evaluate the options? What percentage of them have time to do so before the deadline? 1. Consider how you'd handle an employer coercing their employees to vote in a particular way. Absentee ballots are already a problem here but they're not used frequently enough to be decisive in most elections.
ThomPete 9y ago
Think about it differently. The network is a new kind of nation state. It's a way to create sparcity in an environment (digital) where none really doesen't exist. It doesn't defy standard economics all it's done is move the trust issue to the entire network rather than the issuer (ex. nation states)
neffy 9y ago
It's not strictly deflation in terms of a shrinking money supply which is the nasty case. In principle a bitcoin currency would provide a constant supply of "money" - which since it is something that has never really existed, does raise interesting questions about how the financial system would behave if it did. However, that presupposes that nobody starts performing fractional reserve lending using bitcoin as a currency. If that is allowed, then we're back to the existing banking system and it's varying supplies of money in proportion to banking debt. Nothing has really changed except that we have slightly more efficient inter-bank exchange mechanisms...unless we get a proliferation of alt-currency lending models, in which case we're back in the US wildcat banking era (circa 1840's) - a period that was not exactly renowned for its financial stability. Alternatively, in the hypothetical world (because it's really quite hard to stop) where there is no bank lending any more... then we have the problem of how is a modern economy going to work without banking debt? As you say, lots of interesting questions on the economics side.
- solotronics 9y ago
  it is literally impossible to do fractional reserve lending with Bitcoin. each coin has chain of custody back to the inception by mining reward (blockchain) so you can't send BTC you do not own. an altcoin could be built for fractional reserve lending where the coins are created by some form of consensus by a group of authorities. you could trade BTC and this theoretical altcoin but really we already have digital fiat currency for this purpose.
  - EGreg 9y ago
    That's not how fractional reserve lending works. Banks issue their own credit lines backed by Bitcoin. And you can't stop them from doing that.
    - solotronics 9y ago
      I would argue that it's not really backed by Bitcoin since it isn't on the block chain. Who is backing the lending by sending real Bitcoins? The bank would never do that they would get scammed constantly.
solotronics 9y ago
no one has actually convinced me this is bad. when you save instead of spend shouldn't your stored potential increase instead of decrease? this makes sense to me and would encourage frugality and a break from the consumerism race to the bottom. If you give someone your food it would make sense to get more food the farther you have to wait instead of less food the longer you wait. Of course the current corporate system does not want this they want you to spend all you have and be a debt slave. Think.
- roenxi 9y ago
  Very much agreeing with you in principle that punishing savers is a terrible idea. That being said, if bitcoin: * Isn't backed by government (participation is voluntary) * Is inherently delationary & encourages hoarding * Loses coins from the system due to accident (eg, people losing passwords) Then it follows that at some point we expect, say, plumbers to do actual work for someone who's contribution was that they were there buying bitcoin in 2015. It might be troublesome to get the plumbers buy-in to bitcoin specifically vs a new competitor where all participants are pulling their weight in the real world. Basically, deflation + a long memory makes a monetary system unattractive for people to buy into. EDIT: I'll point out that _so far_ bitcoin has been an inflationary currency from the point of view of number-of-coins created. That will change.
- wmf 9y ago
  If your entire economy has been based on consumer spending for decades and you decide to incentivize people to save instead of spend, you basically just destroyed your own economy. Maybe it's theoretically possible to restructure the economy first and then switch to hard money, but you haven't proposed how to do that. If you save money by investing it, it does increase. Only if you save money by hoarding it does it just sit there.
- pedrocr 9y ago
  >when you save instead of spend shouldn't your stored potential increase instead of decrease? It should and it does if you actually invest your savings in productive assets (stocks, bonds, land, etc). These days it's extremely convenient to do this in almost all modern societies. >Of course the current corporate system does not want this they want you to spend all you have and be a debt slave. Think. Misguided hyperbole. If you want to break that cycle you need to stop spending money and instead save by buying assets. An inflationary currency encourages that by making it costly to just sit on your money once you've decided not to spend it. A deflationary currency encourages hoarding currency, not investing it and thus making the whole economy poorer. If you're spending all your money as soon as you get it this is actually irrelevant and you don't hold it long enough for inflation to matter. Bitcoin is worse for your objective than current stable currencies like the euro and the dollar. Those have a predictable and low level of inflation that allow you to manage your day to day finances with a high level of predictability so you can then take any amount left and invest it in actual productive assets to over time build a return. Teaching people to use the standard financial tools already available would seem a much better contribution to society than trying to build a whole new financial system that doesn't seem to have any actual huge advantages.
jcfrei 9y ago
I share your concerns, however we already have assets with deflationary values like gold. I'm wondering why hasn't every saver already put all his money into gold? Is it just because you can't use it to pay small amounts (like rent and food)? Or is it because other investments like bonds and stocks have better returns? If the latter is true then I wouldn't worry too much about bitcoin. If a cryptocurrency is too deflationary then most people will only lend it at very high rates. This leads to hoarding rather than investing. Consequently such a cryptocurrency will not find much usage for transactions which in turn will decrease its value. I think this will naturally lead to the adoption of currencies with stable values, where the supply is adjusted for demand - ie. the system which is supposed to be in place today. However central banks have recently gone out of their way to flood the markets with cheap money without inflation increasing notably while at the same time punishing lots of savers with ever lower interest rates. Cryptocurrencies like bitcoin might serve as an important protection against such extreme monetary policies and simply limit a central banks ability to implement monetary policies. This is why I view cryptocurrencies not as an asset which in the future will dominate all other currencies but as a defense for savers against overzealous central banks (or governments for that matter).
- pedrocr 9y ago
  >This is why I view cryptocurrencies not as an asset which in the future will dominate all other currencies but as a defense for savers against overzealous central banks (or governments for that matter). I agree with all you said pretty much but I don't think even that is a problem. No one should be holding currencies as savings. The real defense from central bank trickery is holding actual assets.
  - SolarNet 9y ago
    Which is why gold is actually decent, because it has real valuable uses. Not as much as say petroleum or steel, but still.

sillysaurus3 9y ago

I mean, it seems to be working. I don't really like the implications either, but it's a bit of a stretch to say it's not economics.

pedrocr 9y ago
I'm not saying it's not economics, just that bitcoin (and the other cryptocurrencies in existence) seem to have quite a few fatal flaws going forward from just our understanding of normal economics, let alone a new branch someone wants to start.
- sillysaurus3 9y ago
  From your Reddit comment: I have no issue with the people that invented a specific technology getting rewarded for that. But that's not what's happening here. You're giving a few early adopters most of what you want to then use to price all the assets in the world. I'm not sure anybody is saying that bitcoin will be used to price all assets in the world. USD currently isn't, for example. It's just the dominant currency. A reasonable estimate for all the dollars in the world is 10 trillion. Say that bitcoin being a full sucess is it being valued at a total of 5 billion. Now consider that Satoshi has about 5% of all bitcoins that will ever exist. That puts him as 3x richer than the current richest man in the world. I don't see anything in bitcoin that justifies that kind of payout and that's for the inventor of the thing. We don't have a justice system. We have a legal system. And this seems to be allowed under our legal system, so I'm not sure the moral argument is valid. Why do you feel it's immoral for Satoshi to own 5%? We don't even know if he's alive or still has access to the coins, but let's say for the sake of argument that he does.
  - pedrocr 9y ago
    >I'm not sure anybody is saying that bitcoin will be used to price all assets in the world. USD currently isn't, for example. It's just the dominant currency. Most things are actually priced in dollars to some extent, perhaps with some conversions. Maybe euros in some other cases. >Why do you feel it's immoral for Satoshi to own 5%? We don't even know if he's alive or still has access to the coins, but let's say for the sake of argument that he does. I'm not making a morality argument. Just pointing out that it will be a hard pill to swallow that for the (in my view small) advantages of cryptocurrencies we as a society complete the most massive wealth transfer to a single individual ever attempted. For me it's an argument as to why it's implausible crypto currencies will take hold as they exist today. They require a huge wealth transfer to a few early adopters for very little gain. If the advantages were greater it seems more likely to me that a new chain would be bootstrapped but I'm not even convinced it's worthwhile enough that it will actually take hold on a massive scale.
    - sunshinerag 9y ago
      Satoshi created Bitcoin. There is no wealth(bitcoin based) to transfer if not for him. It is not upto you or others to decide whether the 5% belongs to him or not.
  - alexandros 9y ago
    To go one step further, who says inventing a better currency shouldn't be worth 3x as much as creating e.g. walmart or microsoft? Sounds exactly like the sort of civilisational step forward that should be rewarded handily. Remember, we're talking about a world in which bitcoin has absorbed 50% of the world's assets, presumably because it's better in some real way than other currencies.
    - pedrocr 9y ago
      >Remember, we're talking about a world in which bitcoin has absorbed 50% of the world's assets Bitcoin proponents keep misunderstanding this. Most of the world's assets are not currencies, they are stocks, bonds, land, etc that we do use currencies to price but we are not holding currencies when we own them. The fact that central banks can inflate currencies doesn't change the value of assets just their pricing under those currencies. So creating a new way to price assets with something that has a guaranteed fixed supply is not a big innovation. If you want that just use gold. It has a much longer history, much less volatility, much less chance of being replaced by the next fad, and isn't mainly owned by a few recent early adopters. >presumably because it's better in some real way than other currencies. That's the point someone still needs to make. Modern financial systems are pretty efficient and featureful. Bitcoin is for people that believe in a narrow scenario where normal institutions have failed and yet the internet and the mining infrastructure is still working. To me that seems incredibly unlikely especially given how mining economics and evolution have made it highly centralized in a few players in China.
- guscost 9y ago
  > bitcoin (and the other cryptocurrencies in existence) seem to have quite a few fatal flaws going forward from just our understanding of normal economics How long would Bitcoin have to survive these flaws before you start to question your understanding of economics?
  - pedrocr 9y ago
    It's not enough to survive it has to become a relevant currency and/or store of value worldwide. At 40B$ in market cap bitcoin is still a curiosity in financial terms. Worldwide dollar supply and US GDP are in the 15-20 T$ range. If Bitcoin reaches half that in value and in transactions without fixing any flaws I'll be impressed.
    - guscost 9y ago
      This isn't consistent with your original claim ("fatal flaw" implies that the perception of any existing value will be destroyed), but OK. I'll check back in ~25 years.
      - pedrocr 9y ago
        I specifically said "fatal flaws going forward". Nobody cares if your magic cards trading platform is not very economically sound.
        guscost 9y ago
        That's a wispy rhetorical straw you're grasping now, but I won't deny it is a real straw. Fair enough. The phrase "limiting flaw" would be less confusing.
        pedrocr 9y ago
        There's nothing rethorical about saying that something that currently works at a small scale can reveal fatal flaws when it tries to reach a large scale.

dmichulke 9y ago

Deflation is not a bad thing in all economic theories. An iPhone and many current food items would have cost millions a century ago, yet here we are, richer than ever.

pedrocr 9y ago
Deflation of individual products from innovation is not the same thing as general deflation in the economy. Economists general consider a small continuous inflation as the best outcome but I'm not an expert.
- elmar 9y ago
  The Hidden Tax " Although inflation causes generally rising prices, it should not be understood as detrimental to all parties involved. It is highly lucrative for the government and the banking industry. When new money is printed (today, created electronically), it greatly benefits the first recipient because assimilating the new money into the economic organism takes time. Those first recipients (government and banks) can purchase goods and services at the old prices. As the money slowly works its way through the economy prices are bid up. Eventually when it reaches the salaried workers, prices have mostly adjusted. This process is a hidden tax on salaried workers, or anyone who receives the money late in the cycle. It is especially detrimental to those on fixed incomes, such as pensioners. Not only does the government understate the effects of inflation in its official numbers, any price decrease that would have occurred as a result of productivity gains are denied to the consumer as well. Inflation is nothing but wealth transfer. The government prints money and buys stuff with it. Prices rise and the salaried worker can buy less stuff. All the stuff the salaried worker could have otherwise bought has accrued to the government. Simple. Politically, it is far more palatable than raising taxes because the process is badly understood and well obfuscated. " http://austrianeco.blogspot.pt/2008/02/inflation-part-22.html http://austrianeco.blogspot.pt/2008/02/inflation-part-22.htm...
  - pedrocr 9y ago
    Again, not an expert but austrian economics is far from mainstream. >The government prints money and buys stuff with it. And this seems just wrong. In most economies the central bank and the government are sepparate and the government can't just create money to spend. But maybe that's what effectively happens in the end anyway? Either way the economical argument is usually that you want a small steady inflation and that deflation is much worse. That doesn't refute it.

unabridged 9y ago

How is having a company where the founders/banks own 70% of all the stock and deflation builtin any better?

elmar 9y ago
if you have stock options and are rising money trough emission of new stock (not selling currently owned stock) you have inflation not deflation.
pedrocr 9y ago
Company stocks are not designed to be used as the basis for trade for whole economies. Fractional ownership of an operating business if very different from fractional ownership of a whole currency.
- clarkmoody 9y ago
  > Company stocks are not designed to be used as the basis for trade for whole economies Neither is Bitcoin.
  - pedrocr 9y ago
    So what is it useful for?
    - sillysaurus3 9y ago
      For being a store of value.
      - pedrocr 9y ago
        It seems to me that bitcoin proponents will change between saying that it's useful for transactions and useful for storing value depending on what's convenient for the argument. If the point of Bitcoin is to be the cyberpunk version of gold where the founder gets 5% of the total global value it seems a niche technology at best. And if it's that, let's stop calling it a cryptocurrency and just call it cryptogold.

lumberjack 9y ago

I think that is going to be the 2nd generation of cryptocurrencies. Currently we are at the 0th generation which is just a proof of concept. The 1st generation will be cryptocurrencies which have figured out the consensus problem entirely. The 2nd generation will be cryptocurrencies with more advanced built in economics that actually give incentive to users to use them as a currency and put an end to rampant speculation and hoarding.

pedrocr 9y ago
>The 1st generation will be cryptocurrencies which have figured out the consensus problem entirely. What do you mean by this?
- lumberjack 9y ago
  People have been trying for 6 years to go past proof of work. It's not really ideal. There are also problems with mining capacity concentration. There's still work to be done in that area. Looking forward to see how proof of stake plays out.
loceng 9y ago
Bitcoin and Ethereum's Ether, nor are any of their holders, incentivized to evolve to a generation where they lose the value they've gained or bought into with real USD. Not sure how that plays out to the results you suggest.
- 52-6F-62 9y ago
  This is a great question, but I kind of agree (though my thoughts need much more refinement yet) with the original comment poster here. I've been following the subject for a while, and many people in those communities tend to expect new tech to supplant the existing ones in time. Maybe not now, but in a decade or few. Besides, even the holders are a little more nimble that it appears. Some are keen, some just pump because they envision it a quick buck. Adding to that, it's quite possible for these named techs to evolve through community suggestions, code, and consensus (even if it does get messy surrounding each fork).

wmf 9y ago

If Bitcoin had been based on "proper" Keynesian economics then the price would probably still be under a cent and no one besides a few cypherpunks would care about it. To bootstrap a successful cryptocurrency you need a critical mass of speculators attracted by crackpot Austrian monetary policy. Unless this problem can be solved it will continue to cast a large shadow over the entire concept of cryptocurrency.

loceng 9y ago
The technology can be developed and then simply it will have to be society en mass to decide when and if we switch over to using it. Perhaps even the global community requiring the adoption at the same time, however nations will likely only want to transition when they are in a better position value wise compared to other nations. I think it could happen.
- wmf 9y ago
  Society never decides en masse to switch anything.
  - loceng 9y ago
    Not yet - the internet is fairly recent technology though. Even our voting mechanisms and processes are rudimentary and can greatly improve with things like citizens being able to micro-vote on anything and everything - with policies in place to not flood people with too many decisions, while giving them enough confirmed time (e.g. proof of awareness) to make a decision to allocate a vote to an issue.
    - acdha 9y ago
      Voting is a really hard problem: beyond the massive and likely intractable security problems[1] you start getting into problems with knowledge. Say you push out a vote on a big trade deal or a proposed change to the healthcare system – what percentage of voters have the time and knowledge to even evaluate the options? What percentage of them have time to do so before the deadline? 1. Consider how you'd handle an employer coercing their employees to vote in a particular way. Absentee ballots are already a problem here but they're not used frequently enough to be decisive in most elections.

ThomPete 9y ago

Think about it differently. The network is a new kind of nation state. It's a way to create sparcity in an environment (digital) where none really doesen't exist. It doesn't defy standard economics all it's done is move the trust issue to the entire network rather than the issuer (ex. nation states)

neffy 9y ago

It's not strictly deflation in terms of a shrinking money supply which is the nasty case. In principle a bitcoin currency would provide a constant supply of "money" - which since it is something that has never really existed, does raise interesting questions about how the financial system would behave if it did. However, that presupposes that nobody starts performing fractional reserve lending using bitcoin as a currency. If that is allowed, then we're back to the existing banking system and it's varying supplies of money in proportion to banking debt. Nothing has really changed except that we have slightly more efficient inter-bank exchange mechanisms...unless we get a proliferation of alt-currency lending models, in which case we're back in the US wildcat banking era (circa 1840's) - a period that was not exactly renowned for its financial stability. Alternatively, in the hypothetical world (because it's really quite hard to stop) where there is no bank lending any more... then we have the problem of how is a modern economy going to work without banking debt? As you say, lots of interesting questions on the economics side.

solotronics 9y ago
it is literally impossible to do fractional reserve lending with Bitcoin. each coin has chain of custody back to the inception by mining reward (blockchain) so you can't send BTC you do not own. an altcoin could be built for fractional reserve lending where the coins are created by some form of consensus by a group of authorities. you could trade BTC and this theoretical altcoin but really we already have digital fiat currency for this purpose.
- EGreg 9y ago
  That's not how fractional reserve lending works. Banks issue their own credit lines backed by Bitcoin. And you can't stop them from doing that.
  - solotronics 9y ago
    I would argue that it's not really backed by Bitcoin since it isn't on the block chain. Who is backing the lending by sending real Bitcoins? The bank would never do that they would get scammed constantly.

solotronics 9y ago

no one has actually convinced me this is bad. when you save instead of spend shouldn't your stored potential increase instead of decrease? this makes sense to me and would encourage frugality and a break from the consumerism race to the bottom. If you give someone your food it would make sense to get more food the farther you have to wait instead of less food the longer you wait. Of course the current corporate system does not want this they want you to spend all you have and be a debt slave. Think.

roenxi 9y ago
Very much agreeing with you in principle that punishing savers is a terrible idea. That being said, if bitcoin: * Isn't backed by government (participation is voluntary) * Is inherently delationary & encourages hoarding * Loses coins from the system due to accident (eg, people losing passwords) Then it follows that at some point we expect, say, plumbers to do actual work for someone who's contribution was that they were there buying bitcoin in 2015. It might be troublesome to get the plumbers buy-in to bitcoin specifically vs a new competitor where all participants are pulling their weight in the real world. Basically, deflation + a long memory makes a monetary system unattractive for people to buy into. EDIT: I'll point out that _so far_ bitcoin has been an inflationary currency from the point of view of number-of-coins created. That will change.
wmf 9y ago
If your entire economy has been based on consumer spending for decades and you decide to incentivize people to save instead of spend, you basically just destroyed your own economy. Maybe it's theoretically possible to restructure the economy first and then switch to hard money, but you haven't proposed how to do that. If you save money by investing it, it does increase. Only if you save money by hoarding it does it just sit there.
pedrocr 9y ago
>when you save instead of spend shouldn't your stored potential increase instead of decrease? It should and it does if you actually invest your savings in productive assets (stocks, bonds, land, etc). These days it's extremely convenient to do this in almost all modern societies. >Of course the current corporate system does not want this they want you to spend all you have and be a debt slave. Think. Misguided hyperbole. If you want to break that cycle you need to stop spending money and instead save by buying assets. An inflationary currency encourages that by making it costly to just sit on your money once you've decided not to spend it. A deflationary currency encourages hoarding currency, not investing it and thus making the whole economy poorer. If you're spending all your money as soon as you get it this is actually irrelevant and you don't hold it long enough for inflation to matter. Bitcoin is worse for your objective than current stable currencies like the euro and the dollar. Those have a predictable and low level of inflation that allow you to manage your day to day finances with a high level of predictability so you can then take any amount left and invest it in actual productive assets to over time build a return. Teaching people to use the standard financial tools already available would seem a much better contribution to society than trying to build a whole new financial system that doesn't seem to have any actual huge advantages.

jcfrei 9y ago

I share your concerns, however we already have assets with deflationary values like gold. I'm wondering why hasn't every saver already put all his money into gold? Is it just because you can't use it to pay small amounts (like rent and food)? Or is it because other investments like bonds and stocks have better returns? If the latter is true then I wouldn't worry too much about bitcoin. If a cryptocurrency is too deflationary then most people will only lend it at very high rates. This leads to hoarding rather than investing. Consequently such a cryptocurrency will not find much usage for transactions which in turn will decrease its value. I think this will naturally lead to the adoption of currencies with stable values, where the supply is adjusted for demand - ie. the system which is supposed to be in place today. However central banks have recently gone out of their way to flood the markets with cheap money without inflation increasing notably while at the same time punishing lots of savers with ever lower interest rates. Cryptocurrencies like bitcoin might serve as an important protection against such extreme monetary policies and simply limit a central banks ability to implement monetary policies. This is why I view cryptocurrencies not as an asset which in the future will dominate all other currencies but as a defense for savers against overzealous central banks (or governments for that matter).

pedrocr 9y ago
>This is why I view cryptocurrencies not as an asset which in the future will dominate all other currencies but as a defense for savers against overzealous central banks (or governments for that matter). I agree with all you said pretty much but I don't think even that is a problem. No one should be holding currencies as savings. The real defense from central bank trickery is holding actual assets.
- SolarNet 9y ago
  Which is why gold is actually decent, because it has real valuable uses. Not as much as say petroleum or steel, but still.