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Central Banks Can’t Ignore the Cryptocurrency Boom

70 points by omarchowdhury 9y ago

unknown_apostle 9y ago
Here's a question I've always had. If a government ever starts to fear a cryptocurrency, could it just destroy the cryptocurrency by blocking it at the network level? E.g. block a TCP port or something like that? Could that be circumvented and if so, would the cryptocurrency still be scalable then? EDIT: thx to everybody who replied! That being said, I would have really liked to discuss the actual technicality of blocking a cryptocurrency :-) E.g. what technical measures could a hostile government take against bitcoin and how would any circumvention techniques, if they exist, impact scalability and usage of bitcoin. A lot of answers here just give reasons why a govt would never do something like this; or that there are other ways of discouraging bitcoin users; or that it wouldn't affect users outside of that country (wouldn't it though?). I think the dependence of cryptocurrencies on IT infrastructure is an important issue, as it puts boundaries on the extent to which a cryptocurrency's can truly be considered decentralized. I think we should assume that, given enough time, any cryptocurrency that makes it to the big leagues of being used as transaction money will be put to this test. And if it fails this test, its use cases will be more limited than what some currently think.
- explodingcamera 9y ago
  There is always a way to circumvent these blocks if the gov doesn't just block everything. Also, a reasonable large crypto couldn't get destroyed from just one country blocking it.
- redm 9y ago
  It's more likely they regulate at the exchanges and the vendors, i.e. the places you swap fiat currency and the places you buy stuff.
  - deleted 9y ago
    [deleted]
  - meric 9y ago
    Of course, what's been happening in Bitcoin, the more they regulate it at that level, the more government legitimise it in the eyes investors and consumers, and the more it's usage increase. Regulation causing increase in usage - exactly what the word regulation is suppose to mean - to enable.
- vxxzy 9y ago
  Governments are more likely to outlaw the possession or use of something rather than "get their hands dirty". There is already a framework in place -> "Say it"/Legislate -> Let "authorities enforce it".
  - snitko 9y ago
    It's virtually impossible that all governments get together and outlaw it. And it's not even like with drugs where it can be argued that they are harmful. So there will still be plenty of countries in the world who wouldn't outlaw or heavily regulate it and they will thrive, while others will miss out.
    - deleted 9y ago
      [deleted]
    - adrianN 9y ago
      It's enough to claim "only drug dealers, terrorists, and pedophiles use it" and randomly search computers of people who use it to make it sufficiently unattractive that it never reaches a critical mass of users.
      - snitko 9y ago
        It's not enough, because it's money. When it comes to money, most don't care what it smells like. That's why it's so unstoppable.
- afsina 9y ago
  Perhaps easier way is to criminalize using it. So usage will be limited, control and money printing will continue.
  - polotics 9y ago
    Do you think that actors in governments are not aware of the consequences of current monetary policies? They are looking for a life raft like everyone else.
- Tepix 9y ago
  If the use of a crypto currency is outlawed it will be less useful (in the affected country) and lose value. It will also be harder to convert the currency into fiat and vice versa.
- indescions_2017 9y ago
  China, as of yesterday, is considering a blanket ban on all ICOs. Ethereum prices, of course, appreciated as a result. I think crypto-anarchists will always find technology to "route around" any bad sectors in the network. Even if it comes down to sharing e-wallets via secure bluetooth mesh networks in ad-hoc fashion. The more impactful story may be the way Big Banks are adopting blockchain tech. As with the R3 consortium and open-source Corda project: https://www.corda.net/ https://www.corda.net/ Another data point to watch is LedgerX, the first LedgerX CFTC-regulated Swap Execution Facility (SEF) and Derivatives Clearing Organization (DCO) for crypto currencies. https://ledgerx.com/introducing-ledgerx/ https://ledgerx.com/introducing-ledgerx/
  - unknown_apostle 9y ago
    But suppose the technical managers of that currency and one or more governments are constantly playing whack-a-mole, wouldn't that degrade the scalability and usability of that currency? At least for the non-savvy people in those countries?
  - adrianN 9y ago
    Money is only attractive if many people accept it as a payment method. Governments can easily make cryptocurrencies sufficiently unattractive that they don't reach a critical mass. There are no technology solutions to social obstacles.
    - zzalpha 9y ago
      IMO it's a mistake to view cryptocurrencies as "money". If you view them as what they are, a commodity, you realize all you need is a buyer and a seller of that commodity. Whether or not you can trade that commodity for goods and services is entirely irrelevant.
- alva 9y ago
  The beauty of decentralisation. If Bitcoin (or other) continues on it's path and becomes widely used globally, the government has a huge disincentive to ban it. Lets say China, EU etc integrate $Crypto into their financial system, it would be economic self-harm for another player to ban its use.
- dogruck 9y ago
  They could also destroy it by putting people in locked metal cages, if they're found to have used a cryptocurrency.
- sseveran 9y ago
  This largely depends on which government. For the US or EU the choke point is dollars or euros. They just make it illegal for any bank to do business with any organization that accepts said cryptocurrency. It won't "destroy" the cryptocurrency, just make it unviable as a currency. If you want to see something similar in action really dig into the nitty gritty details of how sanctions are used via the international banking system.
richardwhiuk 9y ago
The article doesn't support the title. There's nothing suggesting what might happen if central banks ignore crypto-currency, not anything suggesting they are. The market for crypto-currency is very very small - much smaller than similar forex markets.
- rwj 9y ago
  What's missing from these discussions is a trend for trade volume. If more and more transactions are being done using cryptocurrencies, then that suggests that a shift is coming, and could provide a timeline for how soon it will arrive.
  - TACIXAT 9y ago
    My speculation is that most network activity is artificial. The primary source is likely speculation, purchase a cryptocoin and hold it, sell it eventually. I bet another large source is mining pools. Miners place transactions in a block, solve the hash, get a reward, then distribute the proceeds to members of the mining pool creating more transactions to mine. There are also darkmarket purchases and pass-through transactions (Bitcoin debit card). I do not see Bitcoin being used as a base currency any time soon (i.e. having your salary listed in BTC).
drubio 9y ago
They don't ignore cryptocurrencies, they just don't recognize them as 'currencies'[1][2], since they're not backed by a central authority (government or bank). And by their very definition, don't expect either party to fully recognize each other. Central banks operate on the premise of centralizing, cryptocurrencies operate on the premise of decentralizing. [1] A rather old post, on ex-Fed (Central Banker) Alan Greenspan take : https://www.coindesk.com/bitcoin-intrinsic-value-alan-greenspan/ https://www.coindesk.com/bitcoin-intrinsic-value-alan-greens... [2] A recent post, on current central banker of Mexico take: https://www.coindesk.com/bank-of-mexico-governor-bitcoin-more-commodity-than-currency/ https://www.coindesk.com/bank-of-mexico-governor-bitcoin-mor...
- flashdance 9y ago
  > since they're not backed by a central authority (government or bank). That's a weird way of wording that. The US Dollar (along with many other currencies) doesn't meet the definition of a "backed currency", because it doesn't have a direct correspondence with the value of a commodity. If the value of a currency isn't guaranteed, it isn't backed. Instead, the value of the US dollar is determined by imports/exports, interest rates, monetary velocity, confidence, etc. There are many other differences that the US dollar has with bitcoin that are more concrete: 1) It's legal tender in the US 2) It's exclusively accepted for the purposes of taxes (follows from 1) 3) It has a dynamic (as opposed to bitcoin's fixed) monetary policy (which is either good or bad depending who you talk to) 4) It's the world's reserve currency 5) It's far more popular than bitcoin 6) It's not deflationary (which is either good or bad depending who you talk to)
  - polotics 9y ago
    Nice list. Two questions: How would you distinguiah "not deflationary" and "inflationary"? How is a non-shrinking money supply deflationary?
    - im_down_w_otp 9y ago
      Because there's a fixed amount of it, but not a fixed amount of people, and not a fixed amount of demand for economic activity/transactions, which makes it deflationary. It's not that it's explicitly shrinking itself. It's that it's shrinking relative to other factors because it has a fixed supply.
rimjeilly 9y ago
I think if govt gets involved in any way, its surely the demise
- plaidfuji 9y ago
  Equally unfounded, absolutist opinion: if government gets involved, it will be the legitimizing endorsement that takes crypto mainstream.
nucatus 9y ago
As long there is no consistent and measurable value to back the cryptocurrency, the word "currency" in that construction is senseless. Who is buying goods or services using bitcoins? Anyone? That is just because nobody wants to sell something using a mega-volatile "currency", unless they want to speculate. The problem in the economy is that basic trading IS NOT speculative. Both, the seller and the buyer of goods and services have a strong understanding of what the value of their goods and services will be in one year in a currency, when that is denominated to a universally accepted value. At this point, cryptocurrencies are just tradable speculative assets. They are not first-class-citizen currencies due to the major flaw exposed above. No government in this world will ever give up the power to control its currency through this body called "the central bank". The only one condition to make this a true currency that is out of the hands of the central banks is that EVERYBODY in this world will give up their currency and adopt ONE AND VERY SAME cryptocurrency. Since this is not a plan a government is willing to accept, they won't accept the cryptocurrencies either, since governments are the biggest money handlers. If that is not possible, and very likely not to be, having a central bank to control a cryptocurrency cancels the very important and crucial attribute of the cryptocurrencies – the decentralization and the distributiveness – defeating its purpose.
- unknown_apostle 9y ago
  True. Central banks and politicians spent so much time and energy getting rid of gold. Why would statists accept widespread adoption of a cryptocurrency as a popular means of payment?
- snitko 9y ago
  > Who is buying goods or services using bitcoins? Anyone? Excuse me, I am. Expedia, Cheap Air, NewEgg, Microsoft, Dell and lots of other merchants accept it and I used them.
  - nucatus 9y ago
    Yes, they sell you in bitcoins at a spot value to dollar, or so. Technically, you are using the dollars to pay using the BTC as an intermediate "currency". On top of that, you are paying some extra money to cover the exchange rate risk, which is quite high for BTC. It is exactly like paying goods and services with, let's say, Apple stocks, only that the price will always fluctuate depending on the DOLLAR quotation of the Apple stock at the time of the payment.
shubhamjain 9y ago
I wasn't there when the first dot-com bubble happened but having read about it, all the recent developments seem to be vaguely similar to that time. Burgeoning exchange prices with no solid fundamentals, inexperienced people launching their cryptocurrencies, everyone expecting to get rich quick and people trying to get on the bandwagon to avoid missing out. The last bit is crucial because that's what drives most bubbles: everyone wants a share of the next big thing. It seems the tech bubble that is being predicted for the last decade would manifest itself in a slightly different form. I doubt that the end-result would be anything different than a crash.
- ACS_Solver 9y ago
  In the dot-com bubble, there is a huge difference between the underlying technology and all the failing dot-coms. The bubble grew, and burst, because of the many companies that had little other than Internet buzzwords and got crazy valuations. Those went bust but the Internet as a whole only continued to grow and become increasingly important. With crypto currently, there is a similar pattern. I follow the Ethereum ecosystem closely, and there's an incredible amount of projects that just say they will do something with crypto and blockchain, and they get millions or tens of millions - and in the most ridiculous case, you have Golem with its 0.5 billion valuation. The projects that aren't outright scams still rarely have anything functional and worthwhile, just like the many dot-coms of the 90s. But the underlying technologies, the blockchain as a concept and the blockchain-as-VM the way it's being done with Ethereum and NEO, I think those are incredibly significant and not going away. And there are probably a few crypto projects around now that are going to end up being significant (just like the dot-com bubble also gave us Amazon and Google, it wasn't all failures). One such project I like is Sia. It's not too hyped up but it solves an interesting problem, and it actually works.
  - nucatus 9y ago
    There is a term here that is misused. The world «currency» has nothing to do with this, otherwise very nice and genuine technical artifact. The people who coined the term definitely have no clue about economy and how currencies work. If those were called «crypto-highly-speculative-assets», that would have been a totally different story. But "Currency"?! That is way to off.
almostApatriot1 9y ago
How many more blockchain "hype" articles do we have to go through before we get one about an actual product that people use to do something with other than speculate on value?
- ohashi 9y ago
  wouldn't hold your breath, it keeps being hype articles because otherwise the price falls
shepardrtc 9y ago
Not sure how much longer they'll be "ignoring" it, as Bernanke just spoke at Ripple's crypto conference: https://cointelegraph.com/news/former-chairman-of-federal-reserve-to-speak-at-blockchain-conference https://cointelegraph.com/news/former-chairman-of-federal-re... If he's jumping on board, then I imagine central banks are already looking at it.
- cookiecaper 9y ago
  They likely understand that they'll have to legitimize this in some form, and it's really a dream situation for them. It'd be easy to construct a network, either from-scratch or a fork of an extant blockchain, where they set up rules that allow them to manipulate with minimal effort while maintaining the appearance of independent mining and consensus algorithms. If they wanted to, they could pretty much already do this with bitcoin itself, which is still small potatoes to a state-level actor looking to disrupt it. And of course, the permanent, irrevocable public ledger of every transaction ever is the ultimate tool for concocting false associations. You mean you accidentally contributed 3% of the bitcoin that was used to fund a drug operation 2 transactions down the chain? Sure, tell it to the judge. It doesn't matter that we didn't unearth this until after you published an article critical of the Central Money Authority! That is purely coincidental. People learned long ago that the best way to undermine a burgeoning movement is not to moralize or criticize its obviously-resonant principles or core properties. It's to build something that you can continue to control that appears to have those same attractive qualities. Meet the demand with a trojan. Big companies and governments do this constantly.
snitko 9y ago
It's been said many times before, but Bitcoin allows people who have certain worldview (libertarian) to self-finance their projects and bypass investors, VCs, politicians etc. This is very powerful. It's not just some asset you invest in in the hope for some future gains. For many people it's a way to stop being couch political activists and start actually implementing what they believe in. That's why so many people are angry about Bitcoin - they truly dislike what it represents and allows. Here's a tweet that said it perfectly: "Cypherpunks are libertarians who stopped whining." https://twitter.com/oleganza/status/902942938820263937 https://twitter.com/oleganza/status/902942938820263937
- zzalpha 9y ago
  For many people it's a way to stop being couch political activists and start actually implementing what they believe in. That's why so many people are angry about Bitcoin - they truly dislike what it represents and allows. Oh please. This is just like someone's mom telling their kid "they're bullying you because they're jealous". The arguments against cryptocurrencies are legion. Some of those are arguments are very good. Some not so much. But this argument of yours is nothing more than a baseless ad hominem attack leveled at people you disagree with.
  - snitko 9y ago
    I wish. I actually faced many of those people in real life. People are really angry about Bitcoin.
- TACIXAT 9y ago
  How on earth would Bitcoin allow me to self-finance a project?
VT_Drew 9y ago
>Money as we know it depends on the authority of the state for credibility, with central banks typically managing its price and/or quantity. More accurately stated: Money as we know it depends on the authority of the state for credibility, with central banks typically manipulating its price and/or quantity. Which is why Cryptocurrency is attractive in the first place.
- zzalpha 9y ago
  Which is why Cryptocurrency is attractive in the first place. I expect if you did a survey, a very small, very libertarian group of cryptocurrency "investors" may be concerned about governments managing their respective currencies. The vast majority just wanna make money on the hottest new thing. A subset of those people might even believe in the fundamentals. The rest are just glorified gamblers.
  - ryanmarsh 9y ago
    This reminds me of the dot com boom. There was a very small very libertarian group of people excited about things like disintermediation, the vast majority of investors just wanted to make money on the hottest new thing, a subset of those might have believed in the fundamentals but the rest were just gamblers. The more things change the more they stay the same. LOL
ryanmarsh 9y ago
One thing banks have clearly demonstrated is they can be late to the party on just about every innovation and it isn't going to hurt them much. I'll leave it as an exercise to the reader as to why.
deleted 9y ago
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plaidfuji 9y ago
Outside of Silicon Valley, people view cryptocurrencies as a 21st-century safe haven investment. Insulated from overvalued equities? Check. Insulated from sovereign debt crises and central banks? Check. Whether or not that's a fair or accurate assessment is immaterial. The fundamental demand is for an asset that isn't subject to the whims of an unstable, fallible government. The bonus with Bitcoin: it also happens to be a viable currency, so once people shift enough assets into its market, there's incentive to just keep it and use it. This is what everyone wanted, right? The end of central banks, the end of fiat currencies, the end of pointless middlemen, clearing houses and transaction fees. This is the Bitcoin upside in action.
- srrge 9y ago
  This and it's devaluation proof with a fixed maximum circulation of 21 million coins.
  - deleted 9y ago
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  - plaidfuji 9y ago
    You're confusing "devaluation" with "deflation". It's a "deflationary" proof, meaning the quantity of Bitcoins is formulaically scarce. Meaning their value can't be torpedoed by massive paper infusions from central banks. Value is not intrinsic, it's what someone is willing to pay.
- root_axis 9y ago
  > The fundamental demand is for an asset that isn't subject to the whims of an unstable, fallible government. You're just trading one set of masters for another, in this case, it's the influential contributors and organizations that act as a defacto steering committee for bitcoin and the mining cartels that monopolize the hashing power. You might say "bitcoin is controlled by the masses", but this is only true in the sense that any ostensibly democratic government derives its power from the governed. At the end of the day, a small group of people will make decisions for everyone, especially if the stakes rise to a level where bitcoin is anything other than a technical novelty (which it still remains, despite what the relatively high prices would have some believe). > it also happens to be a viable currency No it's not. It could be one day, but in my personal opinion it will always remain as a "back channel" currency utilized only by enthusiasts and those with an explicit need to avoid the traditional banking system. There will never come a time when bitcoin is generally acceptable because there is close to zero incentive for the general public to use bitcoin. > This is what everyone wanted, right? The end of central banks, the end of fiat currencies, the end of pointless middlemen, clearing houses and transaction fees This is not happening and never will. Central banks and fiat currencies will always exist and bitcoin has its own competing system of pointless middlemen and transaction fees which will only increase if bitcoin becomes more popular and when mining rewards eventually fizzle out.

70 points by omarchowdhury 9y ago

Here's a question I've always had. If a government ever starts to fear a cryptocurrency, could it just destroy the cryptocurrency by blocking it at the network level? E.g. block a TCP port or something like that? Could that be circumvented and if so, would the cryptocurrency still be scalable then? EDIT: thx to everybody who replied! That being said, I would have really liked to discuss the actual technicality of blocking a cryptocurrency :-) E.g. what technical measures could a hostile government take against bitcoin and how would any circumvention techniques, if they exist, impact scalability and usage of bitcoin. A lot of answers here just give reasons why a govt would never do something like this; or that there are other ways of discouraging bitcoin users; or that it wouldn't affect users outside of that country (wouldn't it though?). I think the dependence of cryptocurrencies on IT infrastructure is an important issue, as it puts boundaries on the extent to which a cryptocurrency's can truly be considered decentralized. I think we should assume that, given enough time, any cryptocurrency that makes it to the big leagues of being used as transaction money will be put to this test. And if it fails this test, its use cases will be more limited than what some currently think.

explodingcamera 9y ago
There is always a way to circumvent these blocks if the gov doesn't just block everything. Also, a reasonable large crypto couldn't get destroyed from just one country blocking it.
redm 9y ago
It's more likely they regulate at the exchanges and the vendors, i.e. the places you swap fiat currency and the places you buy stuff.
- deleted 9y ago
  [deleted]
- meric 9y ago
  Of course, what's been happening in Bitcoin, the more they regulate it at that level, the more government legitimise it in the eyes investors and consumers, and the more it's usage increase. Regulation causing increase in usage - exactly what the word regulation is suppose to mean - to enable.
vxxzy 9y ago
Governments are more likely to outlaw the possession or use of something rather than "get their hands dirty". There is already a framework in place -> "Say it"/Legislate -> Let "authorities enforce it".
- snitko 9y ago
  It's virtually impossible that all governments get together and outlaw it. And it's not even like with drugs where it can be argued that they are harmful. So there will still be plenty of countries in the world who wouldn't outlaw or heavily regulate it and they will thrive, while others will miss out.
  - deleted 9y ago
    [deleted]
  - adrianN 9y ago
    It's enough to claim "only drug dealers, terrorists, and pedophiles use it" and randomly search computers of people who use it to make it sufficiently unattractive that it never reaches a critical mass of users.
    - snitko 9y ago
      It's not enough, because it's money. When it comes to money, most don't care what it smells like. That's why it's so unstoppable.
afsina 9y ago
Perhaps easier way is to criminalize using it. So usage will be limited, control and money printing will continue.
- polotics 9y ago
  Do you think that actors in governments are not aware of the consequences of current monetary policies? They are looking for a life raft like everyone else.
Tepix 9y ago
If the use of a crypto currency is outlawed it will be less useful (in the affected country) and lose value. It will also be harder to convert the currency into fiat and vice versa.
indescions_2017 9y ago
China, as of yesterday, is considering a blanket ban on all ICOs. Ethereum prices, of course, appreciated as a result. I think crypto-anarchists will always find technology to "route around" any bad sectors in the network. Even if it comes down to sharing e-wallets via secure bluetooth mesh networks in ad-hoc fashion. The more impactful story may be the way Big Banks are adopting blockchain tech. As with the R3 consortium and open-source Corda project: https://www.corda.net/ https://www.corda.net/ Another data point to watch is LedgerX, the first LedgerX CFTC-regulated Swap Execution Facility (SEF) and Derivatives Clearing Organization (DCO) for crypto currencies. https://ledgerx.com/introducing-ledgerx/ https://ledgerx.com/introducing-ledgerx/
- unknown_apostle 9y ago
  But suppose the technical managers of that currency and one or more governments are constantly playing whack-a-mole, wouldn't that degrade the scalability and usability of that currency? At least for the non-savvy people in those countries?
- adrianN 9y ago
  Money is only attractive if many people accept it as a payment method. Governments can easily make cryptocurrencies sufficiently unattractive that they don't reach a critical mass. There are no technology solutions to social obstacles.
  - zzalpha 9y ago
    IMO it's a mistake to view cryptocurrencies as "money". If you view them as what they are, a commodity, you realize all you need is a buyer and a seller of that commodity. Whether or not you can trade that commodity for goods and services is entirely irrelevant.
alva 9y ago
The beauty of decentralisation. If Bitcoin (or other) continues on it's path and becomes widely used globally, the government has a huge disincentive to ban it. Lets say China, EU etc integrate $Crypto into their financial system, it would be economic self-harm for another player to ban its use.
dogruck 9y ago
They could also destroy it by putting people in locked metal cages, if they're found to have used a cryptocurrency.
sseveran 9y ago
This largely depends on which government. For the US or EU the choke point is dollars or euros. They just make it illegal for any bank to do business with any organization that accepts said cryptocurrency. It won't "destroy" the cryptocurrency, just make it unviable as a currency. If you want to see something similar in action really dig into the nitty gritty details of how sanctions are used via the international banking system.

richardwhiuk 9y ago

The article doesn't support the title. There's nothing suggesting what might happen if central banks ignore crypto-currency, not anything suggesting they are. The market for crypto-currency is very very small - much smaller than similar forex markets.

rwj 9y ago
What's missing from these discussions is a trend for trade volume. If more and more transactions are being done using cryptocurrencies, then that suggests that a shift is coming, and could provide a timeline for how soon it will arrive.
- TACIXAT 9y ago
  My speculation is that most network activity is artificial. The primary source is likely speculation, purchase a cryptocoin and hold it, sell it eventually. I bet another large source is mining pools. Miners place transactions in a block, solve the hash, get a reward, then distribute the proceeds to members of the mining pool creating more transactions to mine. There are also darkmarket purchases and pass-through transactions (Bitcoin debit card). I do not see Bitcoin being used as a base currency any time soon (i.e. having your salary listed in BTC).

drubio 9y ago

They don't ignore cryptocurrencies, they just don't recognize them as 'currencies'[1][2], since they're not backed by a central authority (government or bank). And by their very definition, don't expect either party to fully recognize each other. Central banks operate on the premise of centralizing, cryptocurrencies operate on the premise of decentralizing. [1] A rather old post, on ex-Fed (Central Banker) Alan Greenspan take : https://www.coindesk.com/bitcoin-intrinsic-value-alan-greenspan/ https://www.coindesk.com/bitcoin-intrinsic-value-alan-greens... [2] A recent post, on current central banker of Mexico take: https://www.coindesk.com/bank-of-mexico-governor-bitcoin-more-commodity-than-currency/ https://www.coindesk.com/bank-of-mexico-governor-bitcoin-mor...

flashdance 9y ago
> since they're not backed by a central authority (government or bank). That's a weird way of wording that. The US Dollar (along with many other currencies) doesn't meet the definition of a "backed currency", because it doesn't have a direct correspondence with the value of a commodity. If the value of a currency isn't guaranteed, it isn't backed. Instead, the value of the US dollar is determined by imports/exports, interest rates, monetary velocity, confidence, etc. There are many other differences that the US dollar has with bitcoin that are more concrete: 1) It's legal tender in the US 2) It's exclusively accepted for the purposes of taxes (follows from 1) 3) It has a dynamic (as opposed to bitcoin's fixed) monetary policy (which is either good or bad depending who you talk to) 4) It's the world's reserve currency 5) It's far more popular than bitcoin 6) It's not deflationary (which is either good or bad depending who you talk to)
- polotics 9y ago
  Nice list. Two questions: How would you distinguiah "not deflationary" and "inflationary"? How is a non-shrinking money supply deflationary?
  - im_down_w_otp 9y ago
    Because there's a fixed amount of it, but not a fixed amount of people, and not a fixed amount of demand for economic activity/transactions, which makes it deflationary. It's not that it's explicitly shrinking itself. It's that it's shrinking relative to other factors because it has a fixed supply.

rimjeilly 9y ago

I think if govt gets involved in any way, its surely the demise

plaidfuji 9y ago
Equally unfounded, absolutist opinion: if government gets involved, it will be the legitimizing endorsement that takes crypto mainstream.

nucatus 9y ago

As long there is no consistent and measurable value to back the cryptocurrency, the word "currency" in that construction is senseless. Who is buying goods or services using bitcoins? Anyone? That is just because nobody wants to sell something using a mega-volatile "currency", unless they want to speculate. The problem in the economy is that basic trading IS NOT speculative. Both, the seller and the buyer of goods and services have a strong understanding of what the value of their goods and services will be in one year in a currency, when that is denominated to a universally accepted value. At this point, cryptocurrencies are just tradable speculative assets. They are not first-class-citizen currencies due to the major flaw exposed above. No government in this world will ever give up the power to control its currency through this body called "the central bank". The only one condition to make this a true currency that is out of the hands of the central banks is that EVERYBODY in this world will give up their currency and adopt ONE AND VERY SAME cryptocurrency. Since this is not a plan a government is willing to accept, they won't accept the cryptocurrencies either, since governments are the biggest money handlers. If that is not possible, and very likely not to be, having a central bank to control a cryptocurrency cancels the very important and crucial attribute of the cryptocurrencies – the decentralization and the distributiveness – defeating its purpose.

unknown_apostle 9y ago
True. Central banks and politicians spent so much time and energy getting rid of gold. Why would statists accept widespread adoption of a cryptocurrency as a popular means of payment?
snitko 9y ago
> Who is buying goods or services using bitcoins? Anyone? Excuse me, I am. Expedia, Cheap Air, NewEgg, Microsoft, Dell and lots of other merchants accept it and I used them.
- nucatus 9y ago
  Yes, they sell you in bitcoins at a spot value to dollar, or so. Technically, you are using the dollars to pay using the BTC as an intermediate "currency". On top of that, you are paying some extra money to cover the exchange rate risk, which is quite high for BTC. It is exactly like paying goods and services with, let's say, Apple stocks, only that the price will always fluctuate depending on the DOLLAR quotation of the Apple stock at the time of the payment.

shubhamjain 9y ago

I wasn't there when the first dot-com bubble happened but having read about it, all the recent developments seem to be vaguely similar to that time. Burgeoning exchange prices with no solid fundamentals, inexperienced people launching their cryptocurrencies, everyone expecting to get rich quick and people trying to get on the bandwagon to avoid missing out. The last bit is crucial because that's what drives most bubbles: everyone wants a share of the next big thing. It seems the tech bubble that is being predicted for the last decade would manifest itself in a slightly different form. I doubt that the end-result would be anything different than a crash.

ACS_Solver 9y ago
In the dot-com bubble, there is a huge difference between the underlying technology and all the failing dot-coms. The bubble grew, and burst, because of the many companies that had little other than Internet buzzwords and got crazy valuations. Those went bust but the Internet as a whole only continued to grow and become increasingly important. With crypto currently, there is a similar pattern. I follow the Ethereum ecosystem closely, and there's an incredible amount of projects that just say they will do something with crypto and blockchain, and they get millions or tens of millions - and in the most ridiculous case, you have Golem with its 0.5 billion valuation. The projects that aren't outright scams still rarely have anything functional and worthwhile, just like the many dot-coms of the 90s. But the underlying technologies, the blockchain as a concept and the blockchain-as-VM the way it's being done with Ethereum and NEO, I think those are incredibly significant and not going away. And there are probably a few crypto projects around now that are going to end up being significant (just like the dot-com bubble also gave us Amazon and Google, it wasn't all failures). One such project I like is Sia. It's not too hyped up but it solves an interesting problem, and it actually works.
- nucatus 9y ago
  There is a term here that is misused. The world «currency» has nothing to do with this, otherwise very nice and genuine technical artifact. The people who coined the term definitely have no clue about economy and how currencies work. If those were called «crypto-highly-speculative-assets», that would have been a totally different story. But "Currency"?! That is way to off.

almostApatriot1 9y ago

How many more blockchain "hype" articles do we have to go through before we get one about an actual product that people use to do something with other than speculate on value?

ohashi 9y ago
wouldn't hold your breath, it keeps being hype articles because otherwise the price falls

shepardrtc 9y ago

Not sure how much longer they'll be "ignoring" it, as Bernanke just spoke at Ripple's crypto conference: https://cointelegraph.com/news/former-chairman-of-federal-reserve-to-speak-at-blockchain-conference https://cointelegraph.com/news/former-chairman-of-federal-re... If he's jumping on board, then I imagine central banks are already looking at it.

cookiecaper 9y ago
They likely understand that they'll have to legitimize this in some form, and it's really a dream situation for them. It'd be easy to construct a network, either from-scratch or a fork of an extant blockchain, where they set up rules that allow them to manipulate with minimal effort while maintaining the appearance of independent mining and consensus algorithms. If they wanted to, they could pretty much already do this with bitcoin itself, which is still small potatoes to a state-level actor looking to disrupt it. And of course, the permanent, irrevocable public ledger of every transaction ever is the ultimate tool for concocting false associations. You mean you accidentally contributed 3% of the bitcoin that was used to fund a drug operation 2 transactions down the chain? Sure, tell it to the judge. It doesn't matter that we didn't unearth this until after you published an article critical of the Central Money Authority! That is purely coincidental. People learned long ago that the best way to undermine a burgeoning movement is not to moralize or criticize its obviously-resonant principles or core properties. It's to build something that you can continue to control that appears to have those same attractive qualities. Meet the demand with a trojan. Big companies and governments do this constantly.

snitko 9y ago

It's been said many times before, but Bitcoin allows people who have certain worldview (libertarian) to self-finance their projects and bypass investors, VCs, politicians etc. This is very powerful. It's not just some asset you invest in in the hope for some future gains. For many people it's a way to stop being couch political activists and start actually implementing what they believe in. That's why so many people are angry about Bitcoin - they truly dislike what it represents and allows. Here's a tweet that said it perfectly: "Cypherpunks are libertarians who stopped whining." https://twitter.com/oleganza/status/902942938820263937 https://twitter.com/oleganza/status/902942938820263937

zzalpha 9y ago
For many people it's a way to stop being couch political activists and start actually implementing what they believe in. That's why so many people are angry about Bitcoin - they truly dislike what it represents and allows. Oh please. This is just like someone's mom telling their kid "they're bullying you because they're jealous". The arguments against cryptocurrencies are legion. Some of those are arguments are very good. Some not so much. But this argument of yours is nothing more than a baseless ad hominem attack leveled at people you disagree with.
- snitko 9y ago
  I wish. I actually faced many of those people in real life. People are really angry about Bitcoin.
TACIXAT 9y ago
How on earth would Bitcoin allow me to self-finance a project?

VT_Drew 9y ago

>Money as we know it depends on the authority of the state for credibility, with central banks typically managing its price and/or quantity. More accurately stated: Money as we know it depends on the authority of the state for credibility, with central banks typically manipulating its price and/or quantity. Which is why Cryptocurrency is attractive in the first place.

zzalpha 9y ago
Which is why Cryptocurrency is attractive in the first place. I expect if you did a survey, a very small, very libertarian group of cryptocurrency "investors" may be concerned about governments managing their respective currencies. The vast majority just wanna make money on the hottest new thing. A subset of those people might even believe in the fundamentals. The rest are just glorified gamblers.
- ryanmarsh 9y ago
  This reminds me of the dot com boom. There was a very small very libertarian group of people excited about things like disintermediation, the vast majority of investors just wanted to make money on the hottest new thing, a subset of those might have believed in the fundamentals but the rest were just gamblers. The more things change the more they stay the same. LOL

ryanmarsh 9y ago

One thing banks have clearly demonstrated is they can be late to the party on just about every innovation and it isn't going to hurt them much. I'll leave it as an exercise to the reader as to why.

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plaidfuji 9y ago

Outside of Silicon Valley, people view cryptocurrencies as a 21st-century safe haven investment. Insulated from overvalued equities? Check. Insulated from sovereign debt crises and central banks? Check. Whether or not that's a fair or accurate assessment is immaterial. The fundamental demand is for an asset that isn't subject to the whims of an unstable, fallible government. The bonus with Bitcoin: it also happens to be a viable currency, so once people shift enough assets into its market, there's incentive to just keep it and use it. This is what everyone wanted, right? The end of central banks, the end of fiat currencies, the end of pointless middlemen, clearing houses and transaction fees. This is the Bitcoin upside in action.

srrge 9y ago
This and it's devaluation proof with a fixed maximum circulation of 21 million coins.
- deleted 9y ago
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- plaidfuji 9y ago
  You're confusing "devaluation" with "deflation". It's a "deflationary" proof, meaning the quantity of Bitcoins is formulaically scarce. Meaning their value can't be torpedoed by massive paper infusions from central banks. Value is not intrinsic, it's what someone is willing to pay.
root_axis 9y ago
> The fundamental demand is for an asset that isn't subject to the whims of an unstable, fallible government. You're just trading one set of masters for another, in this case, it's the influential contributors and organizations that act as a defacto steering committee for bitcoin and the mining cartels that monopolize the hashing power. You might say "bitcoin is controlled by the masses", but this is only true in the sense that any ostensibly democratic government derives its power from the governed. At the end of the day, a small group of people will make decisions for everyone, especially if the stakes rise to a level where bitcoin is anything other than a technical novelty (which it still remains, despite what the relatively high prices would have some believe). > it also happens to be a viable currency No it's not. It could be one day, but in my personal opinion it will always remain as a "back channel" currency utilized only by enthusiasts and those with an explicit need to avoid the traditional banking system. There will never come a time when bitcoin is generally acceptable because there is close to zero incentive for the general public to use bitcoin. > This is what everyone wanted, right? The end of central banks, the end of fiat currencies, the end of pointless middlemen, clearing houses and transaction fees This is not happening and never will. Central banks and fiat currencies will always exist and bitcoin has its own competing system of pointless middlemen and transaction fees which will only increase if bitcoin becomes more popular and when mining rewards eventually fizzle out.