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Very interesting. I'm intrigued by Fedcoin and how it incorporates the possibility of monetary policy into the cryptocurrency framework. The rigidity and hard c

Very interesting. I'm intrigued by Fedcoin and how it incorporates the possibility of monetary policy into the cryptocurrency framework. The rigidity and hard ceiling on liquidity of Bitcoin is a major weakness of the currency (I know that Bitcoin enthusiasts see it as a strength) but if technology like Fedcoin can overcome that weakness I'm more bullish about cryptocurrency becoming part of the monetary scheme.

EGreg 9y ago
Deflationary currencies are hoarded, not spent in circulation. Even Aristophanes described it thousands of years ago. That's what advocates of "sound money" need to understand. Sound money is good, but for savings. On top of this you build other, less sound money, which circulates. This is also known as "Gresham's Law".
- meri_dian 9y ago
  And that is exactly what is playing out with Bitcoin becoming a speculative investment vehicle rather than a currency.
  - mrb 9y ago
    Research before talking. Bitcoins are being spent more than ever: the transaction rate keeps increasing and is roughly doubling every 18 months https://blockchain.info/charts/n-transactions?timespan=all&daysAverageString=7 https://blockchain.info/charts/n-transactions?timespan=all&d... Preemptive reply to those who think speculators cause the tx rate to increase (often an invalid comment thrown out in HN): no they don't. Speculators typically leave the coins in an exchange wallet (they are not sufficiently technically savvy or motivated to run their own wallet). Buying/selling on an exchange does NOT create a transaction on the blockchain.
    - deleted 9y ago
      [deleted]
    - prostoalex 9y ago
      > Speculators typically leave the coins in an exchange wallet (they are not sufficiently technically savvy or motivated to run their own wallet) Source? After the Mt. Gox disaster the recommendation I've encountered most is to have the bulk of the digital assets in your own cold wallet, and only trust the exchange with the assets you can afford to lose. Since the deposits are near instantaneous, there's really no good reason to entrust the exchange with large chunks.
    - danmaz74 9y ago
      Speculators also move coins between exchanges in search of better speculation opportunities, and to convert from and to "fiat" in those exchanges that allow it (but are worse for specularing)
      - mrb 9y ago
        90% of speculators don't do this. The process to sign up and verify is usually so arduous (because of excessive fraud) that once they are verified they trade and stay at only one exchange.
- narrator 9y ago
  Nobel prize winner F.A Hayek wrote a great defense of deflationary currency and a rebuttal to Keynes back when he was debating Keynes in the 30s[1]. He also predicted Bitcoin with his book "The Denationalization of Money" written in the 1970s[2]. [1] https://mises.org/library/hayek-paradox-saving https://mises.org/library/hayek-paradox-saving [2] https://mises.org/library/denationalisation-money-argument-refined https://mises.org/library/denationalisation-money-argument-r...
  - neilwilson 9y ago
    He didn't win a Nobel Prize. Neither did he come up with anything that actually passes muster. Getting a chocolate medal from your mates in the same club doesn't qualify as credentials.
    - grzm 9y ago
      > Hayek shared the 1974 Nobel Memorial Prize in Economic Sciences with Gunnar Myrdal for his "pioneering work in the theory of money and economic fluctuations and ... penetrating analysis of the interdependence of economic, social and institutional phenomena." https://en.wikipedia.org/wiki/Friedrich_Hayek https://en.wikipedia.org/wiki/Friedrich_Hayek
      - kybernetikos 9y ago
        I suspect that rather than quibbling on the historical facts of the prizes award, the person you're responding to doesn't consider the Swedish National Bank's Prize in Economic Sciences in Memory of Alfred Nobel to be a genuine Nobel Prize.
        grzm 9y ago
        Thank you for the clarification. It's one I wish 'neilwilson had made as well, as it's easy to understand why one would think otherwise, particularly as they're announced and awarded along with the other Nobel laureates. Upon further reading, the prize's history with respect to Hayek is even more interesting: > In his speech at the 1974 Nobel Prize banquet, Friedrich Hayek stated that had he been consulted on the establishment of a Nobel Prize in economics, he would "have decidedly advised against it" primarily because, "The Nobel Prize confers on an individual an authority which in economics no man ought to possess.... This does not matter in the natural sciences. Here the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence. But the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally." https://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Economic_Sciences#Controversies_and_criticisms https://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Econom... Thanks again. I appreciate the insight.
neilwilson 9y ago
Bitcoin might be rigid, but that is solved by having lots of cryptocurrencies. Which then sort of defeats the 'hard money' nonsense theories behind its construction. Similarly with Gold. Once Gold gets to a point people start hoarding elements with other atomic numbers.
- DennisP 9y ago
  Exactly, cryptocurrency isn't digital gold, it's the system of privately-issued competing currencies advocated by Hayek.
  - paulgb 9y ago
    Hayek's currencies were backed by the issuer. They're more analogous to frequent flyer miles than cryptocurrencies.
    - DennisP 9y ago
      They could be backed in some way, but Hayek only relies on competition between issuers. In his book he writes extensively about unbacked paper money.
runeks 9y ago
> The rigidity and hard ceiling on liquidity of Bitcoin is a major weakness of the currency [..] How do you arrive at a ceiling on liquidity from a ceiling on stock/supply (number of coins in existence)? Or are you referring to the limited number of transactions the Bitcoin blockchain can handle over a given time period? As far as I can see, neither of these two limit the liquidity of Bitcoin. Transaction speed at the exchanges is not limited by the Bitcoin blockchain, since bitcoins exist as credit on each exchange (which can be redeemed into actual, on-blockchain Bitcoins through withdrawal). And I don't see how limited supply limits liquidity, since gold is highly liquid as well as strictly limited in supply.
andrewla 9y ago
I think the idea of Fedcoin is very interesting, and this article does a good job of highlighting what it would mean in taxonomic terms. My biggest unknown, and the problem I've seen with the idea of a centrally managed cryptocurrency (especially one with convertibility) is the creation/redemption mechanism. The proposals I've seen talk about varying the block reward, or having some sort of transaction type that can only be submitted by the central bank. I hate to think, though, that the entirety of the security of a nation's money lies in the ability of the central bank to safeguard its private keys. Bitcoin's monetary policy is deterministic and consensus-based, so it's not really vulnerable to this. It's all well and good to talk about CBCCs in the abstract, but the technical challenges involved are non-trivial and shouldn't be glossed over.
- TACIXAT 9y ago
  >Bitcoin's monetary policy is deterministic and consensus-based So far consensus has been to deflate the hell out of the coin so miners and speculators can make a ton of money. That really seems like an awful currency to me.

EGreg 9y ago

Deflationary currencies are hoarded, not spent in circulation. Even Aristophanes described it thousands of years ago. That's what advocates of "sound money" need to understand. Sound money is good, but for savings. On top of this you build other, less sound money, which circulates. This is also known as "Gresham's Law".

meri_dian 9y ago
And that is exactly what is playing out with Bitcoin becoming a speculative investment vehicle rather than a currency.
- mrb 9y ago
  Research before talking. Bitcoins are being spent more than ever: the transaction rate keeps increasing and is roughly doubling every 18 months https://blockchain.info/charts/n-transactions?timespan=all&daysAverageString=7 https://blockchain.info/charts/n-transactions?timespan=all&d... Preemptive reply to those who think speculators cause the tx rate to increase (often an invalid comment thrown out in HN): no they don't. Speculators typically leave the coins in an exchange wallet (they are not sufficiently technically savvy or motivated to run their own wallet). Buying/selling on an exchange does NOT create a transaction on the blockchain.
  - deleted 9y ago
    [deleted]
  - prostoalex 9y ago
    > Speculators typically leave the coins in an exchange wallet (they are not sufficiently technically savvy or motivated to run their own wallet) Source? After the Mt. Gox disaster the recommendation I've encountered most is to have the bulk of the digital assets in your own cold wallet, and only trust the exchange with the assets you can afford to lose. Since the deposits are near instantaneous, there's really no good reason to entrust the exchange with large chunks.
  - danmaz74 9y ago
    Speculators also move coins between exchanges in search of better speculation opportunities, and to convert from and to "fiat" in those exchanges that allow it (but are worse for specularing)
    - mrb 9y ago
      90% of speculators don't do this. The process to sign up and verify is usually so arduous (because of excessive fraud) that once they are verified they trade and stay at only one exchange.
narrator 9y ago
Nobel prize winner F.A Hayek wrote a great defense of deflationary currency and a rebuttal to Keynes back when he was debating Keynes in the 30s[1]. He also predicted Bitcoin with his book "The Denationalization of Money" written in the 1970s[2]. [1] https://mises.org/library/hayek-paradox-saving https://mises.org/library/hayek-paradox-saving [2] https://mises.org/library/denationalisation-money-argument-refined https://mises.org/library/denationalisation-money-argument-r...
- neilwilson 9y ago
  He didn't win a Nobel Prize. Neither did he come up with anything that actually passes muster. Getting a chocolate medal from your mates in the same club doesn't qualify as credentials.
  - grzm 9y ago
    > Hayek shared the 1974 Nobel Memorial Prize in Economic Sciences with Gunnar Myrdal for his "pioneering work in the theory of money and economic fluctuations and ... penetrating analysis of the interdependence of economic, social and institutional phenomena." https://en.wikipedia.org/wiki/Friedrich_Hayek https://en.wikipedia.org/wiki/Friedrich_Hayek
    - kybernetikos 9y ago
      I suspect that rather than quibbling on the historical facts of the prizes award, the person you're responding to doesn't consider the Swedish National Bank's Prize in Economic Sciences in Memory of Alfred Nobel to be a genuine Nobel Prize.
      - grzm 9y ago
        Thank you for the clarification. It's one I wish 'neilwilson had made as well, as it's easy to understand why one would think otherwise, particularly as they're announced and awarded along with the other Nobel laureates. Upon further reading, the prize's history with respect to Hayek is even more interesting: > In his speech at the 1974 Nobel Prize banquet, Friedrich Hayek stated that had he been consulted on the establishment of a Nobel Prize in economics, he would "have decidedly advised against it" primarily because, "The Nobel Prize confers on an individual an authority which in economics no man ought to possess.... This does not matter in the natural sciences. Here the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence. But the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally." https://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Economic_Sciences#Controversies_and_criticisms https://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Econom... Thanks again. I appreciate the insight.

neilwilson 9y ago

Bitcoin might be rigid, but that is solved by having lots of cryptocurrencies. Which then sort of defeats the 'hard money' nonsense theories behind its construction. Similarly with Gold. Once Gold gets to a point people start hoarding elements with other atomic numbers.

DennisP 9y ago
Exactly, cryptocurrency isn't digital gold, it's the system of privately-issued competing currencies advocated by Hayek.
- paulgb 9y ago
  Hayek's currencies were backed by the issuer. They're more analogous to frequent flyer miles than cryptocurrencies.
  - DennisP 9y ago
    They could be backed in some way, but Hayek only relies on competition between issuers. In his book he writes extensively about unbacked paper money.

runeks 9y ago

> The rigidity and hard ceiling on liquidity of Bitcoin is a major weakness of the currency [..] How do you arrive at a ceiling on liquidity from a ceiling on stock/supply (number of coins in existence)? Or are you referring to the limited number of transactions the Bitcoin blockchain can handle over a given time period? As far as I can see, neither of these two limit the liquidity of Bitcoin. Transaction speed at the exchanges is not limited by the Bitcoin blockchain, since bitcoins exist as credit on each exchange (which can be redeemed into actual, on-blockchain Bitcoins through withdrawal). And I don't see how limited supply limits liquidity, since gold is highly liquid as well as strictly limited in supply.

andrewla 9y ago

I think the idea of Fedcoin is very interesting, and this article does a good job of highlighting what it would mean in taxonomic terms. My biggest unknown, and the problem I've seen with the idea of a centrally managed cryptocurrency (especially one with convertibility) is the creation/redemption mechanism. The proposals I've seen talk about varying the block reward, or having some sort of transaction type that can only be submitted by the central bank. I hate to think, though, that the entirety of the security of a nation's money lies in the ability of the central bank to safeguard its private keys. Bitcoin's monetary policy is deterministic and consensus-based, so it's not really vulnerable to this. It's all well and good to talk about CBCCs in the abstract, but the technical challenges involved are non-trivial and shouldn't be glossed over.

TACIXAT 9y ago
>Bitcoin's monetary policy is deterministic and consensus-based So far consensus has been to deflate the hell out of the coin so miners and speculators can make a ton of money. That really seems like an awful currency to me.