46 ms·

Bitcoin is fiat money, too

308 points by davidw 9y ago

api 9y ago
I think we're approaching a trough of disillusionment with cryptocurrency. There's been a flurry of critical articles, crackdowns, and widespread disillusionment with crummy ICOs.
- imustbeevil 9y ago
  I don't know if it's a trough or if it's a conclusion. It's been 8 years now and the use cases for Bitcoin / CC haven't changed. You can buy illegal things and an incredibly small number of real things you can also buy with real money. There is nothing you can do with Bitcoin / CC that you can't do with real money. Nothing you can do that you couldn't do 5 years ago. Nothing new on the horizon. The only reason Bitcoin exists is because if you google "bitcoin price" it says a big number. There is nothing in the ecosystem except that number, and anyone whose entire ego isn't directly tied to that number has no interest in it.
  - lostmsu 9y ago
    Sure it doesn't. Except you can use it to transfer value without first consulting your potentially totalitarian government without much effort for the first time in the entire history.
    - zzalpha 9y ago
      ROFL, "the first time in the entire history". Gold would like to have a word with you... And seashells. And giant stone coins. And on and on and on. In fact, as far as history goes, government backed fiat currency is a very recent invention.
      - tootie 9y ago
        Government-backed fiat currency is also by far the most successful and most useful. People object on abstract principle but it's been nothing short of miraculous for human development.
      - lostmsu 9y ago
        You forgot about effort and risk.
      - betterunix2 9y ago
        Fiat currency was the first currency, developed in Mesopotamia as an accounting system run by the temple-governments of their city-states. Accounts were recorded in clay ledgers, and withdrawals could be made in the form of clay tokens that could be traded within cities and between cities (i.e. accepted for deposit by the temple of another city-state). A large trading network developed based on that money. The entire system was backed by the authority of the governments to levy taxes (mandatory offerings to the temples), collect debts, and resolve disputes (the same things that back our modern fiat currencies).
    - blibble 9y ago
      that's funny, I don't remember consulting my government this morning when I paid for a cup of coffee with cash
      - maneesh 9y ago
        Did you pay with cash or credit card?
      - SolarNet 9y ago
        You must live in: Alaska, Delaware, Montana, New Hampshire or Oregon. (Or be oblivious) States where the sale of a cup of coffee doesn't involve a tax.
        jshaqaw 9y ago
        When you grow up and have kids (ie you aren’t 11 anymore) you may appreciate things like schools, safe roads, etc... that come with those sales tax dollars instead of viewing it as totalitarian expropriation.
        mehrdada 9y ago
        Interestingly not all places with high tax rates actually have good schools, safe roads, etc. Rather, there are countries to invade, bankers to bail out, old-school industries to sustain.
        s73ver_ 9y ago
        Sales tax isn't going to any of those.
        mehrdada 9y ago
        The point is much more abstract. The point is it’s not an obviously non-controversial point of view that being 12 magically solves, as the post pertains it to be. While we are at it, yes, disenfranchisement of young voters who are mostly single definitely makes tax dollars more favorable to married folks and people with children. It’s not like most societies need to subsidize overpopulation, yet they do. Some food for thought.
    - XR0CSWV3h3kZWg 9y ago
      Performing economic actions that your govt doesn't approve of is illegal. Bitcoin is great for people that want to use it for illegal purposes. If that's the only use case for CC they will always have a place in human history, but I'm not sure they're really worth ~100B USD at this point, if there's no other major use case.
    - nradov 9y ago
      Nothing new there. The hawala system has been doing the same thing since the 8th century.
  - VMG 9y ago
    Illegal things are real. Real money is in your control, money on an account not necessarily.
    - kijin 9y ago
      A bunch of numbers stored in your SSD are no more real than some other numbers stored in a bank's mainframe. If I wanted a store of value that's really real and keep it under my control, I would much rather store up on gold, canned food, and bullets. Even among these three, only one (food) has any intrinsic value and everything else is social convention.
  - jraines 9y ago
    So you have no interest in it yet confidently state there's "nothing new on the horizon". Look, I don't know if you're wrong in the large -- maybe it does all come crashing down or die with a whimper -- but you're definitely wrong about that. Innovation is coming quickly, and I don't mean some dumb ICO(s)
    - XR0CSWV3h3kZWg 9y ago
      What do you mean? I think in terms of new technical details there are lots of cool stuff. Atomic cross chain transfers are starting in earnest, LN is looking more and more real, zcash style tx might land in ETH. In technical terms that's all awesome, but new use cases do those allow? They typically just allow the same use cases, but slightly better and cheaper. Those aren't the things that are holding back new use cases.
      - jraines 9y ago
        Yeah, I'm mainly referring to those you mentioned. But smart contracts in general allow tons of new use cases, which are furthered by those types of ground-level advancements. It will take years to sort out, there will be scams and useless schemes that repeat the mistakes of history as the article claims, but then there will be others. If predicting that unimaginable benefits will flow from this space, analagous to the early days of the web when people's understandable first ideas were to put newsletters & mail-order catalogs online, makes me sound like a naive blockchain cultist, so be it; but then again, what forum am I on right now?
        imustbeevil 9y ago
        > If predicting that unimaginable benefits will flow from this space...makes me sound like a naive blockchain cultist, so be it. Yes, that is what belief without reason looks like.
        jraines 9y ago
        "The growth of the Internet will slow drastically, as the flaw in "Metcalfe's law"--which states that the number of potential connections in a network is proportional to the square of the number of participants--becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's."
  - XR0CSWV3h3kZWg 9y ago
    I agree. I feel like the biggest thing that ethereum has made so far is an even easier way to make an ICO scam. I personally think that there will be innovation soon. In the next couple years there'll be a CC that establishes a storage market, once there is a robust storage market we could start to see serious attempts at selling compute time for something useful. It's possible normal tx could be disrupted by CCs at some point, but that day is very far away. Even in legal cash only markets we haven't seen businesses adopt CCs.
  - bhaak 9y ago
    Just a little remark. I noticed you seem to focus on Bitcoin whereas the ones replying to you talk about cryptocurrencies in general. Bitcoin's scope is deliberately limited and focused on being a currency. Other cryptocurrencies have a wider scope and more potential utility.
- deleted 9y ago
  [deleted]
- oleganza 9y ago
  Bitcoin never escaped the "trough of disillusionment" since its birth. 2008: Satoshi posts a paper to mailing list, nearly everyone declares the idea non-workable. 2009-2010: Satoshi releases software, no one cares. People throw away wallets with mined coins. 2011: A 8-month decline after the first speculative bubble. 2012: "Nothing" really happens price-/news-wise, only minor bubble from $5 to $15 to $10. 2013-2014: A year-long price decline in '14 after mtgox fallout, after the second and third big Bitcoin bubbles in '13. 2015-2016: Price went up from $250 to $1000 among the news talking how "Bitcoin is not cool, DLTs/R3/private blockchains are more interesting". 2017: Price continued from $1000 to $4000. Bitcoin is now finally entering a "trough of disillusionment".
  - kobeya 9y ago
    The price doesn’t define the success of bitcoin.
    - snitko 9y ago
      Well what does? More people using it and interested in it? Doesn't define success. More merchants accepting it? Doesn't define success. More governments paying attention to it? Doesn't define success. What on earth would define success? It's like nothing is ever enough for you people.
      - lisper 9y ago
        Kinda reminds me of all the people confidently predicting the demise of Google before the "ridiculously overvalued" IPO. There was even an entire web site devoted to it called fuckedgoogle.com. Needless to say, it went out of business waiting for Google to go out of business.
      - diegorbaquero 9y ago
        I would go with volume and active wallets (not addresses) using it.
        9y ago
notadoc 9y ago
ICOs are the hyper speculative .com penny stocks of this particular economic cycle/bubble. A few may rise from the ashes of an eventual burst, and the general idea may be have some validity to it, but most cryptocurrencies are a sham and are going nowhere.
- dnautics 9y ago
  That's true for startups too (admittedly the ratio is probably less stark)
  - aversafe 9y ago
    The ratio is probably identical from the time we've spent with startups. Comes down to your measure of success.
davesque 9y ago
Doesn't a decentralized ledger have intrinsic value though? The fact that Bitcoin's value is not based on trust in a third party (a government), but essentially on the laws of nature (mathematics) seems to give it actual value.
dnautics 9y ago
Interestingly the economist misses the traditional definition of Fiat: a currency whose value is determined by the Fiat of a state. Whether or not Bitcoin exhibits similar trends as currency that isn't backed by the state is immaterial to the ethical appeal (to some) of a medium of exchange where participation is voluntary and consensual.
- Finnucane 9y ago
  Is Bitcoin actually a medium of exchange? It seems to be functioning more as an investment to be hoarded rather than spent.
  - virmundi 9y ago
    I wonder if part of this is due to dust. My understanding is that at these prices you don't really want to split a coin for a $.25. As a result it's poor for micro payments and daily macro payments alike.
    - nostrademons 9y ago
      Dogecoin was created explicitly to have a low value suitable for micropayments & tipping. It hasn't really worked out much better for Dogecoin...interest in it seems to have waned a long time ago. My bet is that it hasn't caught on as a medium of exchange simply because that's not really a major pain point. Cryptocurrency's competition as payment isn't $USD; it's Visa, Mastercard, Discover, Stripe, Square, and other payment processors. People bitch about these companies, but they usually bitch about them from a concentration-of-power-and-fees standpoint (which Bitcoin doesn't actually solve, once you consider the costs of the commercial Bitcoin exchanges), not a convenience one. When it comes to convenience, whipping out a wallet-sized piece of plastic or your cell phone is a lot better than waiting 12 minutes for a transaction to settle on the blockchain.
      - nnfy 9y ago
        I think dogecoin failed to go anywhere at least partly because it was a literal memecoin. Certainly made it hard for me to take it seriously as a semi-layman at the time.
jraines 9y ago
Nowhere in the article does it really support the title. I guess they're referring mainly to the Ethereum fork? Even if you accept the proposition, it's still an improvement in that if you don't like the governance (feels too "fiat" for you, or whatever), you can instantly convert to any number of other cryptocurrencies, including many that define themselves essentially in opposition to the reasoning behind the Ethereum fork. The author kind of addresses this: You could argue that markets are already deciding which new currencies provide sound money. And in doing so you would join the banking school of 19th-century England, or the people who loosened financial regulation in the late 1990s in America. I don't know about 19th century English banking, but I don't see how anything in the late 90s or what followed constitutes "the market deciding what provides sound money". The Asian currency crisis maybe? But that was caused by bad "fiat" policies, especially pegs, and lack of transparency (SK banks holding assets rendered bad by the crisis in other countries, for example, and speculators exploiting this yet-to-be-widespread knowledge).
- stanleydrew 9y ago
  > you can instantly convert to any number of other cryptocurrencies Assuming someone has built an "instant" method of exchange, and that it is always available, then I guess this is true.
  - jraines 9y ago
    If you mean you don't count existing exchanges, which is fair, there are decentralized exchanges coming very soon (0xproject.com among others) as well as atomic swaps: https://twitter.com/SatoshiLite/status/910534107058233344 https://twitter.com/SatoshiLite/status/910534107058233344
    - stanleydrew 9y ago
      Interesting, thanks for the links. I did indeed mean that I don't count existing exchanges, but will need to investigate the decentralized concept.
    - stormbrew 9y ago
deleted 9y ago
[deleted]
- korzun 9y ago
  I think you forgot to add that the author is just plain mad he did not jump the Bitcoin train early. What a sucker.
ojr 9y ago
Fiat money with better programming apis and permissions
- vkou 9y ago
  Worse apis and permissions, because there is no way to recover from bugs in your code. Unless you hard-fork.
  - ojr 9y ago
    you need permission which could take weeks, to take donations through kickstarter or send micropayments to 1000 people through paypal, losing bitcoin or ethereum is a possibility but security strategies are improving, there will be growing pains in a new financial software platform but you already know that?
    - vkou 9y ago
      You need permission to turn your BTC into USD, in order to pay for your rent and food. This could take weeks, too. The reason the regular financial system has all these high-friction components is because of AML/KYC/fraud. If you think the interface between BTC and the real world won't eventually have to be compliant will all those onerous regulations, background checks, and business processes, you are vastly underestimating the persistence of our regulators.
      - ojr 9y ago
        It will always be possible to exchange you can't stop everyone from trading bitcoin even if it became illegal, people trade illegal things everyday but that's irrelevant bitcoin is legal in many countries so I am not worried
- SubiculumCode 9y ago
  Bitcoin has no flexibility as a currency. It cannot be manipulated to stimulate or slow an economy. The growth rate of bitcoin is so slow that it ensures that the population growth will probably always outstrip bitcoin growth, severely lowering the number of bitcoins available per capita, leading to permanent rentiers of the money supply. Also, as lost bitcoin are not replaced, the supply dwindles further. At some point the pace of losing bitcoins will out strip the rate of bitcoin creation. This is not a how a society's currency should work.
gtrubetskoy 9y ago
Incidentally I just wrote up some thoughts today on what Bitcoin is: https://grisha.org/blog/2017/09/22/bitcoin-value/ https://grisha.org/blog/2017/09/22/bitcoin-value/ In some way it is fiat, Satoshi's fiat, but that's not the same as USD. The most puzzling thing is how things like Bitcoin get priced, since it's just a number, but I haven't finished my research on it yet.
- psyc 9y ago
  In my opinion, you got it exactly right, simply by sticking to "it is a ledger." The value (not price) of BTC is wholly in the authenticity of who has what, and that this is backed by distributed consensus rather than states. BTC demonstrates that the truth about "who has what" is more important than what the "what" actually is. I think the "what" is simply currency, or the debt-based value you wrote about. People buy into it by converting other valued currency, or by doing work, same as ever. As to the USD price, I am less sure. My weak working hypothesis is that it is driven by adoption + projected future adoption. That is, how much people value it means how much they value being in on this particular ledger.
  - betterunix2 9y ago
    Personally I would argue that the price of Bitcoin is driven by the same supply-demand relationship as anything else. Supply is obvious. I personally think the demand for Bitcoin is driven by its use to make payments in fiat currencies; most of the people who "accept Bitcoin" do so through a service that immediately converts it to a fiat currency, and more people are paying with Bitcoin than are participating in mining (i.e. they just buy the Bitcoin). Even on the black market this is how people are using Bitcoin: drug dealers still need to pay their rent, and their landlords almost certainly do not accept Bitcoin; drug users need to have the money to buy their drugs and whoever is paying them is almost certainly not doing so with Bitcoin. (Why are those things almost certain? Consider the scale at which Bitcoin operates; then take a look at ACH, Swift, Visa, Mastercard, etc. We are talking about orders of magnitude in difference. For all its gains over the past few years Bitcoin remains a tiny niche.) In other words, don't view Bitcoin as money; view it as a system for transferring money and converting between different countries' money.
velodrome 9y ago
How does Bitcoin work offline? Let's say the world goes to hell (assume internet has been taken offline) and we need to trade using a form of trusted currency. Just curious...
- xenihn 9y ago
  How much physical cash would you have access to if banking/financial networks were no longer accessible?
  - arkitaip 9y ago
    Shit, my bank is down a couple of hours each week for routine maintenance during which I can't even check my balance.
- psyc 9y ago
  It doesn't work at all without the peer network. However, you might be able to construct an "IOU" of sorts by creating a signed transaction offline, to be fed to the network later. (I'm not 100% sure whether anti-replay features make this impractical.)
  - julian_1 9y ago
    Offline signing is common, so theoretically you could print the transactions and private-key to the account/utxo on paper and use them as physical promissory/bearer notes. Unfortunately though, it's the network that verifies the absence of double spends, so there's no guarantee of uniqueness. With the no internet, and limited interbank settlement, I would still bet on the value of crypto over the fiat inflation that would be used to facilitate credit-worthiness.
    - psyc 9y ago
      Ah, I hadn't thought of that. You still couldn't double-spend on the network, but you could double-spend the offline IOUs :)
    - 9y ago
subroutine 9y ago
This isnt directly related to the article, but I have two questions about ICO coins I was hoping someone here could answer. I read that recently a group raised millions of dollars in less than a minute to fund the creation of a new web browser. 1. How are coins valued when the underlying company is building a product it will never be able to, or never intends to monetize (eg if Wikipedia had an ICO). 2. If another company acquires this browser company, what happens to the coins?
- AlphaWeaver 9y ago
  The coins themselves are valued based on what people are willing to pay for them. In contrast, when a story claims "a company raised millions of dollars" it is typically talking about the currency Ether that was PAID to the company in exchange for the tokens. That is also worth what people are willing to pay for it, but because Ether has been around longer it has more of an established value. If the company is acquired, a number of things could happen. It's important to note that for the most part, the company doesn't control the coins. They simply publish a contract that provides for the tokens to function, but normally the administrative capacities of such a contract are limited once the sale is over. When administrative capacities do exist, they are typically controlled by one or more people controlling a particular private key. The owner of that private key will have control of the contract, so in order for a company transfer to transfer control, that private key would have to also transfer. (they'd probably want to redeploy the contract under a different key anyways since there would be no guarantee the old owner didn't still have a copy of the old key.)
  - subroutine 9y ago
    Ok thanks for the responses. Say people paid a company called Microhard $30 million in Ether during their ICO for Microhard coins. Can Ether be readily be exchanged for $30 million USD? Assuming it can, and Microsoft acquires Microhard, and has no interest in crypto doesnt this leave a coin on the market with a name of a business that doesn’t even exist?
    - AgentME 9y ago
sumedh 9y ago
> The currency survived a crisis of credibility after a bug was discovered in 2016 This is my primary worry with cryptocurrency, what if there is a bug in the code which do unexpected things and destroy the value completely.
- brndnmtthws 9y ago
  Same can be said of every technology. Besides, what's interesting is that it has survived major bugs, again and again. Doesn't that say something? Seems quite resilient to me.
  - sumedh 9y ago
    > Same can be said of every technology. Can that technology double number of dollars in the world right now?
    - brndnmtthws 9y ago
      No, but the Federal Reserve can.
      - sumedh 9y ago
        The probability of Federal Reserve doubling US dollars in one day is lower than the probability of bitcoins doubling because of a software bug.
- snappyTertle 9y ago
  This actually happened to Ethereum. They ended up forking the blockchain to Ethereum and Ethereum Classic.
  - lojack 9y ago
    its worth noting that the fork wasn't actually because of a bug in Ethereum, but because of a bug in a smart contract (the DAO). Ethereum itself worked perfectly. Bugs do exist in Ethereum and Bitcoin all the time, but they can almost always be fixed without changing the underlying protocol, so the clients just need updated. The fork happened because the community decided the smart contract in question was important enough to the survival of Ethereum that it'd be worth essentially backing out the contract (in a roundabout way)
SubiculumCode 9y ago
"Bankers talk about “governance”, ways to ensure private banks and central bankers make sound decisions—so they create just enough money make commerce easier, but not so much that the system collapses through inflation or panics." Many people don't know that central bankers literally, not figuratively, mean CREATE money out of nothing.
- betterunix2 9y ago
  Someone has always been able to "create money out of nothing." At some point there was no money; some time later there was. Someone or some group of people had to create the first money. People have actually "initialized" money many times throughout history e.g. when starting a country. As long as you can separate "money" from its representation, there is nothing particularly problematic about some people being able to create money, at least some of the time. In fact it is necessary to provide money with liquidity as the economy grows and money is needed for more and more things (liquidity problems have triggered or worsened economic crises several times in history, especially when countries were trying to base their money on weights of metals).
  - aorloff 9y ago
    Actually, only since August 15, 1971 here in the USA. Not "always."
    - jcranmer 9y ago
      Actually, since 1777. For as long as the government is able to print paper currency instead of using metal coinage, it is able to make up as much money as it wants. Since not everyone is going to demand conversion to bullion, it generally doesn't matter--this is the principle behind fractional-reserve banking as well. If the government is caught out on printing too much money, then either the paper currency is accepted at less than face value (as happened to the original Continental Currency), or the government decides to suspend conversion (as most recently happened in 1971, but also in 1933).
    - alexasmyths 9y ago
Greedy_Jew 9y ago
Owner of economist: crypto jew same owner of central banks. Writer of article: jew Thread op: jew https://en.wikipedia.org/wiki/Economist_Group https://en.wikipedia.org/wiki/Economist_Group
SubiculumCode 9y ago
Bitcoin is a commodity for efficient bartering that has a governance structure to ensure that the commodity doesn't flood the market and crash prices. It will become a currency when it can be directly used to satisfy a tax debt, to avoid the punitive threat of the law.
- drcode 9y ago
  Transaction fees on Bitcoin are essentially a tax, and they can be paid for with Bitcoin.
  - SubiculumCode 9y ago
    A cost, yes, but not a tax. A tax is a debt owed to a state, under threat of imprisonment for failing to pay. If you owned only property, but no dollars, you would need to convert some of your property into dollars to pay the tax, or go to jail. If you owned only property, but no bitcoins, you would need to convert some of your property into bitcoins, to use bitcoins.
- tbabb 9y ago
  You are right that bitcoin is a commodity, but I disagree about your condition for currency. It doesn't suddenly become money when some government "recognizes it" in an arbitrary way. People make comparisons to gold, but gold is also a commodity (whether the government accepts it for taxes or not), and we now know that using gold as if it were currency is a very very bad idea[1]. A currency is a unit of measurement, while commodity is something with (perceived) value that can be traded. Those are not the same: The commodity itself has utility; and that utility can be measured in the units of a currency. The currency itself is not valuable; it merely measures the value of something else. For example, a dollar in your wallet might measure the time you spent (a valuable thing) producing its fraction of your paycheck. It's the difference between a kilometer, and something that's a kilometer long; say a length of chain. Many things have length, but they are not standards of measurement. Bitcoin has "length" (it is valuable, for now), but it is not a very good standard of measurement for wealth. Its demand fluctuates, but its supply is fixed by the algorithm. Therefore its value is demand-driven, and there is no upper or lower bound to what its actual value could be. Compare to a "real" currency, whose supply is increased or contracted by a central bank to ensure that the value changes slowly and predictably. Given sound decision making, a centrally-managed currency can be a consistent measure of wealth no matter how many or how few people want to use it. So as we all know, Bitcoin's value fluctuates significantly, and therefore does not measure a consistent amount of wealth. So this makes it a terrible currency. Its volatility also can't be fixed by wider adoption or "recognition" by the government, because a fixed supply is built into its very design. So it will never be a reliable standard of measurement for wealth. [1] https://en.wikipedia.org/wiki/Nixon_shock https://en.wikipedia.org/wiki/Nixon_shock
fiatjaf 9y ago
How? Bitcoin is a commodity, how can you deny that?
chenster 9y ago
What is fiat?
- grzm 9y ago
  A fiat is an arbitrary order. > Fiat money is a currency without intrinsic value established as money by government regulation or law.[0] [0]: https://en.wikipedia.org/wiki/Fiat_money https://en.wikipedia.org/wiki/Fiat_money
TazeTSchnitzel 9y ago
Bitcoin and other cryptocurrencies seem to be embraced by libertarians who are very idealistic and have quite a shallow understanding of economics, software, and the world at large. But I repeat myself.
- arkitaip 9y ago
  I've found the exact opposite to be true of a majority of cryptocurrency advocates, which makes is all that more disturbing. It's just impossible to say what the real value and future of cryptocurrencies really is.
- patryn20 9y ago
  I think the distinct holders can be classified as such: 1) Libertarian idealists who don't recognize they've already lost control. 2) Money launderers and their developing world mining networks. 3) Speculators (including VC backed firms) 4) Hype followers 5) The few, poor, misguided fools who think it's money.
  - mrb 9y ago
    «The few, poor, misguided fools who think it's money.» I find the opposite: people who don't "get" Bitcoin tend to not know what makes money actually money, and don't know how the current monetary system works (eg. still believe dollars are backed by gold).
    - patryn20 9y ago
      Unless Bitcoin has a fundamental evolution, it cannot be a replacement for fiat currency. I'm super excited about the crypto currency space but I firmly believe we're in the "Diamond Rio" phase of a new technology and not yet to the "iPhone" and "Android" phases.
      - mrb 9y ago
        Bitcoin does not need to, will probably not, and was never intended to completely replace fiat currency. As a cryptocurrency aficionado I think it can achieve great success and high adoption while coexisting with fiat currency. I don't need to pay my cup of coffee in bitcoins, but Bitcoin is very useful for plenty of other use cases.
cs702 9y ago
Yes, of course. So what? Just because Bitcoin is fiat money doesn't mean it will fail (or succeed), and it doesn't mean that it's "good" or "bad" either. By many measures, fiat money has been a success so far. For example, the aggregate market cap of fiat money today exceeds Bitcoin's by quite a few orders of magnitude.[1] Calling Bitcoin "fiat" ≠ arguing against it. [1] http://money.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization/ http://money.visualcapitalist.com/all-of-the-worlds-money-an...
- burnte 9y ago
  I agree that calling it fiat is not arguing against it, but it's important because there are a large number of people who are deep in the bitcoin world, and get infected with a little bit of the Libertarian/gold-standard mentality that thinks fiat is a bad word. In the end, everything that isn't a direct barter exchange of usable goods is a fiat currency, because that's the POINT of an exchange medium; something that everyone agrees is worth something in order to facilitate trade, it makes life easier. Pointing out that bitcoin is just as much a fiat currency as the dollar or the euro or gold helps dispel the misconceptions about currency and helps people learn more about bitcoin and currency as a whole.
- ballenf 9y ago
  You're restating the article's conclusion, in my reading. Soundbite summary was: it's all been done before and always failed if it lacked proper controls in place.
noddy1 9y ago
Had a chat with a high ranking public tax official last week who said that the age of secret offshore bank accounts is over - mass leaks resulting from bounties mean that any rogue employee with a USB of account information can get a 7 figure payout from major goverments. So where to now for high net worth people/families? I would absolutely be piling my wealth into anonymous cryptocurrencies - zcash, monero, and well tumbled bitcoin. People will always want to hide assets, and this is the most reliable way in an age of mass hacks and leaks. I'm really keen to hear any pushback on this, because I can't think of any.
- KGIII 9y ago
  They can renounce their citizenship to the United States and then use any one of a number of different countries to do their banking. Citizens of other countries aren't subjected to the same laws and banks aren't pressured to report on them due to US influence. An example would be Lebanon. Everyone except US citizens gets pretty good banking privacy protections. Due to US pressure, Lebanon carved out an exception to those protections, just for US citizens. There aren't exceptions for any other countries, as far as I know. As they are high net worth families, getting citizenship in a new country won't be difficult.
  - noddy1 9y ago
    Can you spend most of your time in USA if you are not a citizen? Who wants to live in lebanon?
    - KGIII 9y ago
      Visas are usually easy to get and there are counties other than the US and aren't Lebanon. Also, Lebanon isn't really all that terrible and you don't need to live there. You can be a citizen of Zimbabwe, if you want. The point is to not have the US government forcing disclosure, per the OP's question.
      - foepys 9y ago
        Roger Ver, who ironically for this thread is a crypto currency investor, renounced his US citizenship to avoid paying taxes and was repeatedly denied entry into the US afterwards. He will most likely never be able to visit his family in the US again.
grizzles 9y ago
Fiat has a feudal age connotation to it. The USD is not fiat as you are able to do FX trading easily and more importantly, it's backed by the goods and services available in the United States or denominated in USD (eg. oil). So it's value is very much perception based. Being the world's premier currency it's pretty damn safe, but if there was a widespread loss of confidence in the U.S. for whatever reason, the wealth of the U.S. relative to other countries could crater as a result. This is why a couple years ago when the Republicans were messing with not extending the debt ceiling was playing with fire. In my opinion it was the dumbest thing I've ever seen in modern politics, and think of the competition for that statement. I imagine that the root cause of that foolishness is that some of the Republican politicians think of a country's debt like it's a household debt, when they are nothing alike.
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veidelis 9y ago
Bitcoin is fiat money too, but it doesn't make other fiat currencies look better.
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sonink 9y ago
Fundamentally, Bitcoin is software eating the Fed-Bank-Retail ecosystem. The Fed governance is replaced by code. The banking utility is replaced by miners. I think the march of bitcoin is actually a better example of how AI is taking over the world. People in AI are fascinated by AGI - but the bitcoin ecosystem is actually a real world example of how AI will take over the world. Specifically, the march of AI won't happen at 'edge' nodes, it won't be incremental, it won't happen by replacing humans with machines. The march of AI will start at the core, at a rethink of the fundamental infrastructure that powers an industry making it more amenable to machines and 'hostile' to most humans. People underestimate the amount of resources required to articulate monetary policy by a central bank. Bitcoin can already do that much better than maybe 70% of the worlds central banks. India, China and US can think about banning/regulating bitcoin. But there are countries in Africa who can already do better by simply leapfrogging to bitcoin and ditching their national currencies. Bitcoin is here to stay. And it cant be stopped.
- kashkhan 9y ago
  it's great that no government is doing the fiat. That by itself is reason enough.
  - kodfodrasz 9y ago
    Let me rephrase this for you: It's great that some Chinese private entrepreneurs (connected with the intelligence services or not) are doing the fiat. That by itself is reason enough.
  - 8973417983461 9y ago
    Let me rephrase this for you: It's great that some Chinese private entrepreneurs (connected with the intelligence services or not) are doing the fiat. That by itself is reason enough.
- ryan_j_naughton 9y ago
  >"People underestimate the amount of resources required to articulate monetary policy by a central bank. Bitcoin can already do that much better than maybe 70% of the worlds central banks." Bitcoin only has totally clear monetary policy because it's increase of the money supply is entirely predetermined: It is created at an ever decreasing rate approaching a limit. The result of this certainty in monetary policy is a currency that is naturally deflationary (literally by definition). This makes Bitcoin perfect as digital gold but shit as a functional unit of currency. You don't want to spend an asset that will naturally appreciate in value, discouraging using it. You could have a cryptocurrency that generally trends at the same inflation rate as regular currencies: 2-3% annual and use that to pay the miners (or just give everyone a wealth endowment through giving any current owners a 1% increase in their current wallets and use the other 1-3% for the miners) and you would have a currency that could stay price stable with out Fiat currencies instead of always increasing in price like BTC has (at least over a sufficient moving average to reduce the volatility from speculation).
ptc 9y ago
Can you actually spend Bitcoin in physical stores outside of the Bay Area? Bitcoin just seems like an investment vehicle/security rather than a currency. How many people actually use Bitcoin for buying toilet paper?
- _eht 9y ago
  I can speak for Seattle/WA state-- it is very common to find BTC ATM's in recreational weed shops. The main driver of this seems to be that the stores have a near impossible chance of being banked and deal in cash only. The crypto ATM's allow you to purchase with a CC and in turn pay the store for product, all while avoiding cash. To the store this is a much safer alternative. For the crypto anarchists watching the big banks/fed opening up about their feelings and fears about crypto, it seems like they are pushing a near billion dollar industry to find ways to accept payment outside of the beloved USD.
- option_greek 9y ago
  Same number of people watching netflix in 90's over the internet :)
- balazsdavid987 9y ago
  Do you remember the multi-million dollar pizza? Today, nobody wants to be the thousand dollar toilet paper guy. I believe most people buy it as an investment, with no intention to every make an actual purchase with it. What gives it value then? What will happen with the price when there are no new people who wants to buy bitcoin?
- rtpg 9y ago
  Bitflyer (Japan) has partnerships with bic camera (electronics store like best buy) to offer Bitcoin payments. Though I believe you cannot use it for over $1000 purchases
- ersii 9y ago
  There is plenty of Bitcoin debit cards, which will sell Bitcoin proportionally to the amount of USD/EUR/whatever you purchased for. One of them being TenX.com. This allows you to spend at any store which accepts cards in general. That said, there are stores which accepts plain Bitcoin. As one anecdata, the electronics chain webhallen.com in Sweden accepts pure Bitcoin-transactions.
runeks 9y ago
> They made transactions easier, and in the process created new deposits and bills that increased the supply of money. This is the fundamental misunderstanding that the whole article is based on, in my opinion. Let me clarify. Gold and silver were money in this time period. Deposits receipts and bills of exchange are neither gold nor silver. They are derivatives, because they derive their value from allegedly being redeemable in gold/silver. Now, someone issuing either of these derivatives may very well be tempted to issue fraudulent notes (where “fraudulent” is defined as “no means or intent to repay in gold/silver), which is where the wonderful idea of “default” comes in. When a company is unable to honor its liabilities, it’s in default, and its assets are distributed amongst its creditors. So a private company (e.g. certificate of deposit-issuer, bill of exchange-issuer), and therefore its assets, is forcefully liquidated when it can’t live up to its promises. This is the solution to the problem. As long as we allow the process of default, and forced liquidation, the. if a company makes promises it can’t hold, it dies and disappears from the market. So, treating issuers of money-derivatives as regular private companies gives its creditors the ability to force it into liquidation, in case it’s unable to honor its promises. Except when government grants special privilege to private companies called “banks”, and make them exempt from living up to their promises. It’s an understandable reaction from government: short term gain (no turmoil from default), but a long term pain (private companies with government-granted freedom to issue fraudulent derivatives). Capitalism doesn’t work without recognizing the essential function of the death of a private company. This is the killer feature of capitalism: let unproductive/downright fraudulent companies die, and hand over their assets to its stakeholders. As long as we recognize deposit receipts, bills of exchange, etc. as simply a promise, and are willing to keep issuers honest, by being able to force default on the company if it can’t live up to its promises, derivatives and money are clearly separated. And no one can “increase the supply of money” by producing derivatives that are allegedly redeemable in this monetary unit, any more than someone can “increase the supply of oil” by issuing and selling oil futures contracts.
- erikb 9y ago
  Total misunderstanding imo. A company doesn't default, when it can't uphold its promises. In fact most companies can't uphold their promises most of the time. If that would be true 99% of the companies you know would be dead. A company defaults when a creditor decides to force the company into default, or a company defaults as punishment to a creditor who really needed the fulfillment of what they are owed but somehow screwed with the company owner. And companies aren't there to keep it honest. They are there to keep it dishonest. In fact it's not myCorp making a promise to yourCorp. It's me making a promise to you. But piping it through our corps means you can't harm me for not fulfilling the promise. You can only harm my corp. It's taking the punishment part out of deal making. I can promise you anything you want to hear. You can promise me anything I want to hear. And then let's see when our own goals force us to actually deliver on something.
ThomPete 9y ago
And since fiat money at the end of the day is a question of trust thats exactly right. It just doesn't mean what the economist want it to mean. It just means, hey there is now another trusted currency.
smmessner 9y ago
Definition of fiat 1 :a command or act of will that creates something without or as if without further effort According to the Bible, the world was created by fiat. 2 :an authoritative determination :dictate a fiat of conscience 3 :an authoritative or arbitrary order :decree government by fiat
jpttsn 9y ago
Mostly great article. There’s probably a lot of economic history that applies to cryptocurrency. The fiat part of the title is just FUD. With the same argument, gold bullion would be fiat because a majority of humans could decide they don’t like its shine. Silly Economist.
retrogradeorbit 9y ago
Bitcoin is not fiat. Fiat means "by decree" or "by authority". Fiat money is money that is decreed into existence by some authority, that is, the government. This is done through legal tender laws. Bitcoin is not created by the enactment of some law by some authority. Fiat does not mean "by consensus", or "by mathematics". Saying code is decree, and therefor fiat, is sloppy thinking. Bitcoin may have much in common with fiat, but that does not mean that it is fiat. It is, by definition, not fiat. What gives Bitcoin value is not government decree, but its utility [1]. And that is somewhat paradoxical, because the more people hoard it the less utility it has. And the more its used to buy and sell goods, the more utility it has, and the more value it has. [1] https://fee.org/articles/what-gave-bitcoin-its-value/ https://fee.org/articles/what-gave-bitcoin-its-value/
- codewithcheese 9y ago
  I agree in regards to not fiat. How about the apparent utility it has as a store of wealth? If I was ultra rich I would store maybe 1% of my wealth in Bitcoin as a way to diversify my portfolio. Similar to gold, except for more wildly unpredicatable future financial scenarios.
- omginternets 9y ago
  Oh, the pedantry. Clearly the point is that it behaves _just like_ fiat in the specific ways mentioned. It's -- you know -- an element of literary style.
Sidious 9y ago
Let me say this, because I think it needs to be said. All people should worry about is making sure that the blockchain does not get perverted by the ilk of those who own and support a perpetuating publication like the economist. For anyone who has been around for a while knows that central banks are privately held entities and their mechanism furthers an agenda by means of war and corruption. If the blockchain can end the peoples' suffering, let's. /s
simo7 9y ago
Bitcoin is fiat money with (almost) constant supply. This is the real problem, not it being fiat money. This is what makes it a terrible currency for trade and a great one for speculation!
tim333 9y ago
>it has always been tempting for private finance to create too much money. There is no evidence that money born on a distributed ledger will be clean of this sin. That's not true for Bitcoin, disregarding the various other coins. The supply is effectively capped and it is economically much more similar to gold where in the long term the price roughly equals the mining cost to fiat money where that doesn't apply. For use as a normal currency bitcoin is probably creating too little money. For normal currency you want the value to be roughly constant not to double quite often.

308 points by davidw 9y ago

api 9y ago

I think we're approaching a trough of disillusionment with cryptocurrency. There's been a flurry of critical articles, crackdowns, and widespread disillusionment with crummy ICOs.

imustbeevil 9y ago
I don't know if it's a trough or if it's a conclusion. It's been 8 years now and the use cases for Bitcoin / CC haven't changed. You can buy illegal things and an incredibly small number of real things you can also buy with real money. There is nothing you can do with Bitcoin / CC that you can't do with real money. Nothing you can do that you couldn't do 5 years ago. Nothing new on the horizon. The only reason Bitcoin exists is because if you google "bitcoin price" it says a big number. There is nothing in the ecosystem except that number, and anyone whose entire ego isn't directly tied to that number has no interest in it.
- lostmsu 9y ago
  Sure it doesn't. Except you can use it to transfer value without first consulting your potentially totalitarian government without much effort for the first time in the entire history.
  - zzalpha 9y ago
    ROFL, "the first time in the entire history". Gold would like to have a word with you... And seashells. And giant stone coins. And on and on and on. In fact, as far as history goes, government backed fiat currency is a very recent invention.
    - tootie 9y ago
      Government-backed fiat currency is also by far the most successful and most useful. People object on abstract principle but it's been nothing short of miraculous for human development.
    - lostmsu 9y ago
      You forgot about effort and risk.
    - betterunix2 9y ago
      Fiat currency was the first currency, developed in Mesopotamia as an accounting system run by the temple-governments of their city-states. Accounts were recorded in clay ledgers, and withdrawals could be made in the form of clay tokens that could be traded within cities and between cities (i.e. accepted for deposit by the temple of another city-state). A large trading network developed based on that money. The entire system was backed by the authority of the governments to levy taxes (mandatory offerings to the temples), collect debts, and resolve disputes (the same things that back our modern fiat currencies).
  - blibble 9y ago
    that's funny, I don't remember consulting my government this morning when I paid for a cup of coffee with cash
    - maneesh 9y ago
      Did you pay with cash or credit card?
    - SolarNet 9y ago
      You must live in: Alaska, Delaware, Montana, New Hampshire or Oregon. (Or be oblivious) States where the sale of a cup of coffee doesn't involve a tax.
      - jshaqaw 9y ago
        When you grow up and have kids (ie you aren’t 11 anymore) you may appreciate things like schools, safe roads, etc... that come with those sales tax dollars instead of viewing it as totalitarian expropriation.
        mehrdada 9y ago
        Interestingly not all places with high tax rates actually have good schools, safe roads, etc. Rather, there are countries to invade, bankers to bail out, old-school industries to sustain.
        s73ver_ 9y ago
        Sales tax isn't going to any of those.
        mehrdada 9y ago
        The point is much more abstract. The point is it’s not an obviously non-controversial point of view that being 12 magically solves, as the post pertains it to be. While we are at it, yes, disenfranchisement of young voters who are mostly single definitely makes tax dollars more favorable to married folks and people with children. It’s not like most societies need to subsidize overpopulation, yet they do. Some food for thought.
  - XR0CSWV3h3kZWg 9y ago
    Performing economic actions that your govt doesn't approve of is illegal. Bitcoin is great for people that want to use it for illegal purposes. If that's the only use case for CC they will always have a place in human history, but I'm not sure they're really worth ~100B USD at this point, if there's no other major use case.
  - nradov 9y ago
    Nothing new there. The hawala system has been doing the same thing since the 8th century.
- VMG 9y ago
  Illegal things are real. Real money is in your control, money on an account not necessarily.
  - kijin 9y ago
    A bunch of numbers stored in your SSD are no more real than some other numbers stored in a bank's mainframe. If I wanted a store of value that's really real and keep it under my control, I would much rather store up on gold, canned food, and bullets. Even among these three, only one (food) has any intrinsic value and everything else is social convention.
- jraines 9y ago
  So you have no interest in it yet confidently state there's "nothing new on the horizon". Look, I don't know if you're wrong in the large -- maybe it does all come crashing down or die with a whimper -- but you're definitely wrong about that. Innovation is coming quickly, and I don't mean some dumb ICO(s)
  - XR0CSWV3h3kZWg 9y ago
    What do you mean? I think in terms of new technical details there are lots of cool stuff. Atomic cross chain transfers are starting in earnest, LN is looking more and more real, zcash style tx might land in ETH. In technical terms that's all awesome, but new use cases do those allow? They typically just allow the same use cases, but slightly better and cheaper. Those aren't the things that are holding back new use cases.
    - jraines 9y ago
      Yeah, I'm mainly referring to those you mentioned. But smart contracts in general allow tons of new use cases, which are furthered by those types of ground-level advancements. It will take years to sort out, there will be scams and useless schemes that repeat the mistakes of history as the article claims, but then there will be others. If predicting that unimaginable benefits will flow from this space, analagous to the early days of the web when people's understandable first ideas were to put newsletters & mail-order catalogs online, makes me sound like a naive blockchain cultist, so be it; but then again, what forum am I on right now?
      - imustbeevil 9y ago
        > If predicting that unimaginable benefits will flow from this space...makes me sound like a naive blockchain cultist, so be it. Yes, that is what belief without reason looks like.
        jraines 9y ago
        "The growth of the Internet will slow drastically, as the flaw in "Metcalfe's law"--which states that the number of potential connections in a network is proportional to the square of the number of participants--becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's."
- XR0CSWV3h3kZWg 9y ago
  I agree. I feel like the biggest thing that ethereum has made so far is an even easier way to make an ICO scam. I personally think that there will be innovation soon. In the next couple years there'll be a CC that establishes a storage market, once there is a robust storage market we could start to see serious attempts at selling compute time for something useful. It's possible normal tx could be disrupted by CCs at some point, but that day is very far away. Even in legal cash only markets we haven't seen businesses adopt CCs.
- bhaak 9y ago
  Just a little remark. I noticed you seem to focus on Bitcoin whereas the ones replying to you talk about cryptocurrencies in general. Bitcoin's scope is deliberately limited and focused on being a currency. Other cryptocurrencies have a wider scope and more potential utility.
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oleganza 9y ago
Bitcoin never escaped the "trough of disillusionment" since its birth. 2008: Satoshi posts a paper to mailing list, nearly everyone declares the idea non-workable. 2009-2010: Satoshi releases software, no one cares. People throw away wallets with mined coins. 2011: A 8-month decline after the first speculative bubble. 2012: "Nothing" really happens price-/news-wise, only minor bubble from $5 to $15 to $10. 2013-2014: A year-long price decline in '14 after mtgox fallout, after the second and third big Bitcoin bubbles in '13. 2015-2016: Price went up from $250 to $1000 among the news talking how "Bitcoin is not cool, DLTs/R3/private blockchains are more interesting". 2017: Price continued from $1000 to $4000. Bitcoin is now finally entering a "trough of disillusionment".
- kobeya 9y ago
  The price doesn’t define the success of bitcoin.
  - snitko 9y ago
    Well what does? More people using it and interested in it? Doesn't define success. More merchants accepting it? Doesn't define success. More governments paying attention to it? Doesn't define success. What on earth would define success? It's like nothing is ever enough for you people.
    - lisper 9y ago
      Kinda reminds me of all the people confidently predicting the demise of Google before the "ridiculously overvalued" IPO. There was even an entire web site devoted to it called fuckedgoogle.com. Needless to say, it went out of business waiting for Google to go out of business.
    - diegorbaquero 9y ago
      I would go with volume and active wallets (not addresses) using it.
      - 9y ago

notadoc 9y ago

ICOs are the hyper speculative .com penny stocks of this particular economic cycle/bubble. A few may rise from the ashes of an eventual burst, and the general idea may be have some validity to it, but most cryptocurrencies are a sham and are going nowhere.

dnautics 9y ago
That's true for startups too (admittedly the ratio is probably less stark)
- aversafe 9y ago
  The ratio is probably identical from the time we've spent with startups. Comes down to your measure of success.

davesque 9y ago

Doesn't a decentralized ledger have intrinsic value though? The fact that Bitcoin's value is not based on trust in a third party (a government), but essentially on the laws of nature (mathematics) seems to give it actual value.

dnautics 9y ago

Interestingly the economist misses the traditional definition of Fiat: a currency whose value is determined by the Fiat of a state. Whether or not Bitcoin exhibits similar trends as currency that isn't backed by the state is immaterial to the ethical appeal (to some) of a medium of exchange where participation is voluntary and consensual.

Finnucane 9y ago
Is Bitcoin actually a medium of exchange? It seems to be functioning more as an investment to be hoarded rather than spent.
- virmundi 9y ago
  I wonder if part of this is due to dust. My understanding is that at these prices you don't really want to split a coin for a $.25. As a result it's poor for micro payments and daily macro payments alike.
  - nostrademons 9y ago
    Dogecoin was created explicitly to have a low value suitable for micropayments & tipping. It hasn't really worked out much better for Dogecoin...interest in it seems to have waned a long time ago. My bet is that it hasn't caught on as a medium of exchange simply because that's not really a major pain point. Cryptocurrency's competition as payment isn't $USD; it's Visa, Mastercard, Discover, Stripe, Square, and other payment processors. People bitch about these companies, but they usually bitch about them from a concentration-of-power-and-fees standpoint (which Bitcoin doesn't actually solve, once you consider the costs of the commercial Bitcoin exchanges), not a convenience one. When it comes to convenience, whipping out a wallet-sized piece of plastic or your cell phone is a lot better than waiting 12 minutes for a transaction to settle on the blockchain.
    - nnfy 9y ago
      I think dogecoin failed to go anywhere at least partly because it was a literal memecoin. Certainly made it hard for me to take it seriously as a semi-layman at the time.

jraines 9y ago

Nowhere in the article does it really support the title. I guess they're referring mainly to the Ethereum fork? Even if you accept the proposition, it's still an improvement in that if you don't like the governance (feels too "fiat" for you, or whatever), you can instantly convert to any number of other cryptocurrencies, including many that define themselves essentially in opposition to the reasoning behind the Ethereum fork. The author kind of addresses this: You could argue that markets are already deciding which new currencies provide sound money. And in doing so you would join the banking school of 19th-century England, or the people who loosened financial regulation in the late 1990s in America. I don't know about 19th century English banking, but I don't see how anything in the late 90s or what followed constitutes "the market deciding what provides sound money". The Asian currency crisis maybe? But that was caused by bad "fiat" policies, especially pegs, and lack of transparency (SK banks holding assets rendered bad by the crisis in other countries, for example, and speculators exploiting this yet-to-be-widespread knowledge).

stanleydrew 9y ago
> you can instantly convert to any number of other cryptocurrencies Assuming someone has built an "instant" method of exchange, and that it is always available, then I guess this is true.
- jraines 9y ago
  If you mean you don't count existing exchanges, which is fair, there are decentralized exchanges coming very soon (0xproject.com among others) as well as atomic swaps: https://twitter.com/SatoshiLite/status/910534107058233344 https://twitter.com/SatoshiLite/status/910534107058233344
  - stanleydrew 9y ago
    Interesting, thanks for the links. I did indeed mean that I don't count existing exchanges, but will need to investigate the decentralized concept.
  - stormbrew 9y ago

deleted 9y ago

[deleted]

korzun 9y ago
I think you forgot to add that the author is just plain mad he did not jump the Bitcoin train early. What a sucker.

ojr 9y ago

Fiat money with better programming apis and permissions

vkou 9y ago
Worse apis and permissions, because there is no way to recover from bugs in your code. Unless you hard-fork.
- ojr 9y ago
  you need permission which could take weeks, to take donations through kickstarter or send micropayments to 1000 people through paypal, losing bitcoin or ethereum is a possibility but security strategies are improving, there will be growing pains in a new financial software platform but you already know that?
  - vkou 9y ago
    You need permission to turn your BTC into USD, in order to pay for your rent and food. This could take weeks, too. The reason the regular financial system has all these high-friction components is because of AML/KYC/fraud. If you think the interface between BTC and the real world won't eventually have to be compliant will all those onerous regulations, background checks, and business processes, you are vastly underestimating the persistence of our regulators.
    - ojr 9y ago
      It will always be possible to exchange you can't stop everyone from trading bitcoin even if it became illegal, people trade illegal things everyday but that's irrelevant bitcoin is legal in many countries so I am not worried
SubiculumCode 9y ago
Bitcoin has no flexibility as a currency. It cannot be manipulated to stimulate or slow an economy. The growth rate of bitcoin is so slow that it ensures that the population growth will probably always outstrip bitcoin growth, severely lowering the number of bitcoins available per capita, leading to permanent rentiers of the money supply. Also, as lost bitcoin are not replaced, the supply dwindles further. At some point the pace of losing bitcoins will out strip the rate of bitcoin creation. This is not a how a society's currency should work.

gtrubetskoy 9y ago

Incidentally I just wrote up some thoughts today on what Bitcoin is: https://grisha.org/blog/2017/09/22/bitcoin-value/ https://grisha.org/blog/2017/09/22/bitcoin-value/ In some way it is fiat, Satoshi's fiat, but that's not the same as USD. The most puzzling thing is how things like Bitcoin get priced, since it's just a number, but I haven't finished my research on it yet.

psyc 9y ago
In my opinion, you got it exactly right, simply by sticking to "it is a ledger." The value (not price) of BTC is wholly in the authenticity of who has what, and that this is backed by distributed consensus rather than states. BTC demonstrates that the truth about "who has what" is more important than what the "what" actually is. I think the "what" is simply currency, or the debt-based value you wrote about. People buy into it by converting other valued currency, or by doing work, same as ever. As to the USD price, I am less sure. My weak working hypothesis is that it is driven by adoption + projected future adoption. That is, how much people value it means how much they value being in on this particular ledger.
- betterunix2 9y ago
  Personally I would argue that the price of Bitcoin is driven by the same supply-demand relationship as anything else. Supply is obvious. I personally think the demand for Bitcoin is driven by its use to make payments in fiat currencies; most of the people who "accept Bitcoin" do so through a service that immediately converts it to a fiat currency, and more people are paying with Bitcoin than are participating in mining (i.e. they just buy the Bitcoin). Even on the black market this is how people are using Bitcoin: drug dealers still need to pay their rent, and their landlords almost certainly do not accept Bitcoin; drug users need to have the money to buy their drugs and whoever is paying them is almost certainly not doing so with Bitcoin. (Why are those things almost certain? Consider the scale at which Bitcoin operates; then take a look at ACH, Swift, Visa, Mastercard, etc. We are talking about orders of magnitude in difference. For all its gains over the past few years Bitcoin remains a tiny niche.) In other words, don't view Bitcoin as money; view it as a system for transferring money and converting between different countries' money.

velodrome 9y ago

How does Bitcoin work offline? Let's say the world goes to hell (assume internet has been taken offline) and we need to trade using a form of trusted currency. Just curious...

xenihn 9y ago
How much physical cash would you have access to if banking/financial networks were no longer accessible?
- arkitaip 9y ago
  Shit, my bank is down a couple of hours each week for routine maintenance during which I can't even check my balance.
psyc 9y ago
It doesn't work at all without the peer network. However, you might be able to construct an "IOU" of sorts by creating a signed transaction offline, to be fed to the network later. (I'm not 100% sure whether anti-replay features make this impractical.)
- julian_1 9y ago
  Offline signing is common, so theoretically you could print the transactions and private-key to the account/utxo on paper and use them as physical promissory/bearer notes. Unfortunately though, it's the network that verifies the absence of double spends, so there's no guarantee of uniqueness. With the no internet, and limited interbank settlement, I would still bet on the value of crypto over the fiat inflation that would be used to facilitate credit-worthiness.
  - psyc 9y ago
    Ah, I hadn't thought of that. You still couldn't double-spend on the network, but you could double-spend the offline IOUs :)
  - 9y ago

subroutine 9y ago

This isnt directly related to the article, but I have two questions about ICO coins I was hoping someone here could answer. I read that recently a group raised millions of dollars in less than a minute to fund the creation of a new web browser. 1. How are coins valued when the underlying company is building a product it will never be able to, or never intends to monetize (eg if Wikipedia had an ICO). 2. If another company acquires this browser company, what happens to the coins?

AlphaWeaver 9y ago
The coins themselves are valued based on what people are willing to pay for them. In contrast, when a story claims "a company raised millions of dollars" it is typically talking about the currency Ether that was PAID to the company in exchange for the tokens. That is also worth what people are willing to pay for it, but because Ether has been around longer it has more of an established value. If the company is acquired, a number of things could happen. It's important to note that for the most part, the company doesn't control the coins. They simply publish a contract that provides for the tokens to function, but normally the administrative capacities of such a contract are limited once the sale is over. When administrative capacities do exist, they are typically controlled by one or more people controlling a particular private key. The owner of that private key will have control of the contract, so in order for a company transfer to transfer control, that private key would have to also transfer. (they'd probably want to redeploy the contract under a different key anyways since there would be no guarantee the old owner didn't still have a copy of the old key.)
- subroutine 9y ago
  Ok thanks for the responses. Say people paid a company called Microhard $30 million in Ether during their ICO for Microhard coins. Can Ether be readily be exchanged for $30 million USD? Assuming it can, and Microsoft acquires Microhard, and has no interest in crypto doesnt this leave a coin on the market with a name of a business that doesn’t even exist?
  - AgentME 9y ago

sumedh 9y ago

> The currency survived a crisis of credibility after a bug was discovered in 2016 This is my primary worry with cryptocurrency, what if there is a bug in the code which do unexpected things and destroy the value completely.

brndnmtthws 9y ago
Same can be said of every technology. Besides, what's interesting is that it has survived major bugs, again and again. Doesn't that say something? Seems quite resilient to me.
- sumedh 9y ago
  > Same can be said of every technology. Can that technology double number of dollars in the world right now?
  - brndnmtthws 9y ago
    No, but the Federal Reserve can.
    - sumedh 9y ago
      The probability of Federal Reserve doubling US dollars in one day is lower than the probability of bitcoins doubling because of a software bug.
snappyTertle 9y ago
This actually happened to Ethereum. They ended up forking the blockchain to Ethereum and Ethereum Classic.
- lojack 9y ago
  its worth noting that the fork wasn't actually because of a bug in Ethereum, but because of a bug in a smart contract (the DAO). Ethereum itself worked perfectly. Bugs do exist in Ethereum and Bitcoin all the time, but they can almost always be fixed without changing the underlying protocol, so the clients just need updated. The fork happened because the community decided the smart contract in question was important enough to the survival of Ethereum that it'd be worth essentially backing out the contract (in a roundabout way)

SubiculumCode 9y ago

"Bankers talk about “governance”, ways to ensure private banks and central bankers make sound decisions—so they create just enough money make commerce easier, but not so much that the system collapses through inflation or panics." Many people don't know that central bankers literally, not figuratively, mean CREATE money out of nothing.

betterunix2 9y ago
Someone has always been able to "create money out of nothing." At some point there was no money; some time later there was. Someone or some group of people had to create the first money. People have actually "initialized" money many times throughout history e.g. when starting a country. As long as you can separate "money" from its representation, there is nothing particularly problematic about some people being able to create money, at least some of the time. In fact it is necessary to provide money with liquidity as the economy grows and money is needed for more and more things (liquidity problems have triggered or worsened economic crises several times in history, especially when countries were trying to base their money on weights of metals).
- aorloff 9y ago
  Actually, only since August 15, 1971 here in the USA. Not "always."
  - jcranmer 9y ago
    Actually, since 1777. For as long as the government is able to print paper currency instead of using metal coinage, it is able to make up as much money as it wants. Since not everyone is going to demand conversion to bullion, it generally doesn't matter--this is the principle behind fractional-reserve banking as well. If the government is caught out on printing too much money, then either the paper currency is accepted at less than face value (as happened to the original Continental Currency), or the government decides to suspend conversion (as most recently happened in 1971, but also in 1933).
  - alexasmyths 9y ago

Greedy_Jew 9y ago

Owner of economist: crypto jew same owner of central banks. Writer of article: jew Thread op: jew https://en.wikipedia.org/wiki/Economist_Group https://en.wikipedia.org/wiki/Economist_Group

SubiculumCode 9y ago

Bitcoin is a commodity for efficient bartering that has a governance structure to ensure that the commodity doesn't flood the market and crash prices. It will become a currency when it can be directly used to satisfy a tax debt, to avoid the punitive threat of the law.

drcode 9y ago
Transaction fees on Bitcoin are essentially a tax, and they can be paid for with Bitcoin.
- SubiculumCode 9y ago
  A cost, yes, but not a tax. A tax is a debt owed to a state, under threat of imprisonment for failing to pay. If you owned only property, but no dollars, you would need to convert some of your property into dollars to pay the tax, or go to jail. If you owned only property, but no bitcoins, you would need to convert some of your property into bitcoins, to use bitcoins.
tbabb 9y ago
You are right that bitcoin is a commodity, but I disagree about your condition for currency. It doesn't suddenly become money when some government "recognizes it" in an arbitrary way. People make comparisons to gold, but gold is also a commodity (whether the government accepts it for taxes or not), and we now know that using gold as if it were currency is a very very bad idea[1]. A currency is a unit of measurement, while commodity is something with (perceived) value that can be traded. Those are not the same: The commodity itself has utility; and that utility can be measured in the units of a currency. The currency itself is not valuable; it merely measures the value of something else. For example, a dollar in your wallet might measure the time you spent (a valuable thing) producing its fraction of your paycheck. It's the difference between a kilometer, and something that's a kilometer long; say a length of chain. Many things have length, but they are not standards of measurement. Bitcoin has "length" (it is valuable, for now), but it is not a very good standard of measurement for wealth. Its demand fluctuates, but its supply is fixed by the algorithm. Therefore its value is demand-driven, and there is no upper or lower bound to what its actual value could be. Compare to a "real" currency, whose supply is increased or contracted by a central bank to ensure that the value changes slowly and predictably. Given sound decision making, a centrally-managed currency can be a consistent measure of wealth no matter how many or how few people want to use it. So as we all know, Bitcoin's value fluctuates significantly, and therefore does not measure a consistent amount of wealth. So this makes it a terrible currency. Its volatility also can't be fixed by wider adoption or "recognition" by the government, because a fixed supply is built into its very design. So it will never be a reliable standard of measurement for wealth. [1] https://en.wikipedia.org/wiki/Nixon_shock https://en.wikipedia.org/wiki/Nixon_shock

fiatjaf 9y ago

How? Bitcoin is a commodity, how can you deny that?

chenster 9y ago

What is fiat?

grzm 9y ago
A fiat is an arbitrary order. > Fiat money is a currency without intrinsic value established as money by government regulation or law.[0] [0]: https://en.wikipedia.org/wiki/Fiat_money https://en.wikipedia.org/wiki/Fiat_money

TazeTSchnitzel 9y ago

Bitcoin and other cryptocurrencies seem to be embraced by libertarians who are very idealistic and have quite a shallow understanding of economics, software, and the world at large. But I repeat myself.

arkitaip 9y ago
I've found the exact opposite to be true of a majority of cryptocurrency advocates, which makes is all that more disturbing. It's just impossible to say what the real value and future of cryptocurrencies really is.
patryn20 9y ago
I think the distinct holders can be classified as such: 1) Libertarian idealists who don't recognize they've already lost control. 2) Money launderers and their developing world mining networks. 3) Speculators (including VC backed firms) 4) Hype followers 5) The few, poor, misguided fools who think it's money.
- mrb 9y ago
  «The few, poor, misguided fools who think it's money.» I find the opposite: people who don't "get" Bitcoin tend to not know what makes money actually money, and don't know how the current monetary system works (eg. still believe dollars are backed by gold).
  - patryn20 9y ago
    Unless Bitcoin has a fundamental evolution, it cannot be a replacement for fiat currency. I'm super excited about the crypto currency space but I firmly believe we're in the "Diamond Rio" phase of a new technology and not yet to the "iPhone" and "Android" phases.
    - mrb 9y ago
      Bitcoin does not need to, will probably not, and was never intended to completely replace fiat currency. As a cryptocurrency aficionado I think it can achieve great success and high adoption while coexisting with fiat currency. I don't need to pay my cup of coffee in bitcoins, but Bitcoin is very useful for plenty of other use cases.

cs702 9y ago

Yes, of course. So what? Just because Bitcoin is fiat money doesn't mean it will fail (or succeed), and it doesn't mean that it's "good" or "bad" either. By many measures, fiat money has been a success so far. For example, the aggregate market cap of fiat money today exceeds Bitcoin's by quite a few orders of magnitude.[1] Calling Bitcoin "fiat" ≠ arguing against it. [1] http://money.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization/ http://money.visualcapitalist.com/all-of-the-worlds-money-an...

burnte 9y ago
I agree that calling it fiat is not arguing against it, but it's important because there are a large number of people who are deep in the bitcoin world, and get infected with a little bit of the Libertarian/gold-standard mentality that thinks fiat is a bad word. In the end, everything that isn't a direct barter exchange of usable goods is a fiat currency, because that's the POINT of an exchange medium; something that everyone agrees is worth something in order to facilitate trade, it makes life easier. Pointing out that bitcoin is just as much a fiat currency as the dollar or the euro or gold helps dispel the misconceptions about currency and helps people learn more about bitcoin and currency as a whole.
ballenf 9y ago
You're restating the article's conclusion, in my reading. Soundbite summary was: it's all been done before and always failed if it lacked proper controls in place.

noddy1 9y ago

Had a chat with a high ranking public tax official last week who said that the age of secret offshore bank accounts is over - mass leaks resulting from bounties mean that any rogue employee with a USB of account information can get a 7 figure payout from major goverments. So where to now for high net worth people/families? I would absolutely be piling my wealth into anonymous cryptocurrencies - zcash, monero, and well tumbled bitcoin. People will always want to hide assets, and this is the most reliable way in an age of mass hacks and leaks. I'm really keen to hear any pushback on this, because I can't think of any.

KGIII 9y ago
They can renounce their citizenship to the United States and then use any one of a number of different countries to do their banking. Citizens of other countries aren't subjected to the same laws and banks aren't pressured to report on them due to US influence. An example would be Lebanon. Everyone except US citizens gets pretty good banking privacy protections. Due to US pressure, Lebanon carved out an exception to those protections, just for US citizens. There aren't exceptions for any other countries, as far as I know. As they are high net worth families, getting citizenship in a new country won't be difficult.
- noddy1 9y ago
  Can you spend most of your time in USA if you are not a citizen? Who wants to live in lebanon?
  - KGIII 9y ago
    Visas are usually easy to get and there are counties other than the US and aren't Lebanon. Also, Lebanon isn't really all that terrible and you don't need to live there. You can be a citizen of Zimbabwe, if you want. The point is to not have the US government forcing disclosure, per the OP's question.
    - foepys 9y ago
      Roger Ver, who ironically for this thread is a crypto currency investor, renounced his US citizenship to avoid paying taxes and was repeatedly denied entry into the US afterwards. He will most likely never be able to visit his family in the US again.

grizzles 9y ago

Fiat has a feudal age connotation to it. The USD is not fiat as you are able to do FX trading easily and more importantly, it's backed by the goods and services available in the United States or denominated in USD (eg. oil). So it's value is very much perception based. Being the world's premier currency it's pretty damn safe, but if there was a widespread loss of confidence in the U.S. for whatever reason, the wealth of the U.S. relative to other countries could crater as a result. This is why a couple years ago when the Republicans were messing with not extending the debt ceiling was playing with fire. In my opinion it was the dumbest thing I've ever seen in modern politics, and think of the competition for that statement. I imagine that the root cause of that foolishness is that some of the Republican politicians think of a country's debt like it's a household debt, when they are nothing alike.

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veidelis 9y ago

Bitcoin is fiat money too, but it doesn't make other fiat currencies look better.

deleted 9y ago

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sonink 9y ago

Fundamentally, Bitcoin is software eating the Fed-Bank-Retail ecosystem. The Fed governance is replaced by code. The banking utility is replaced by miners. I think the march of bitcoin is actually a better example of how AI is taking over the world. People in AI are fascinated by AGI - but the bitcoin ecosystem is actually a real world example of how AI will take over the world. Specifically, the march of AI won't happen at 'edge' nodes, it won't be incremental, it won't happen by replacing humans with machines. The march of AI will start at the core, at a rethink of the fundamental infrastructure that powers an industry making it more amenable to machines and 'hostile' to most humans. People underestimate the amount of resources required to articulate monetary policy by a central bank. Bitcoin can already do that much better than maybe 70% of the worlds central banks. India, China and US can think about banning/regulating bitcoin. But there are countries in Africa who can already do better by simply leapfrogging to bitcoin and ditching their national currencies. Bitcoin is here to stay. And it cant be stopped.

kashkhan 9y ago
it's great that no government is doing the fiat. That by itself is reason enough.
- kodfodrasz 9y ago
  Let me rephrase this for you: It's great that some Chinese private entrepreneurs (connected with the intelligence services or not) are doing the fiat. That by itself is reason enough.
- 8973417983461 9y ago
  Let me rephrase this for you: It's great that some Chinese private entrepreneurs (connected with the intelligence services or not) are doing the fiat. That by itself is reason enough.
ryan_j_naughton 9y ago
>"People underestimate the amount of resources required to articulate monetary policy by a central bank. Bitcoin can already do that much better than maybe 70% of the worlds central banks." Bitcoin only has totally clear monetary policy because it's increase of the money supply is entirely predetermined: It is created at an ever decreasing rate approaching a limit. The result of this certainty in monetary policy is a currency that is naturally deflationary (literally by definition). This makes Bitcoin perfect as digital gold but shit as a functional unit of currency. You don't want to spend an asset that will naturally appreciate in value, discouraging using it. You could have a cryptocurrency that generally trends at the same inflation rate as regular currencies: 2-3% annual and use that to pay the miners (or just give everyone a wealth endowment through giving any current owners a 1% increase in their current wallets and use the other 1-3% for the miners) and you would have a currency that could stay price stable with out Fiat currencies instead of always increasing in price like BTC has (at least over a sufficient moving average to reduce the volatility from speculation).

ptc 9y ago

Can you actually spend Bitcoin in physical stores outside of the Bay Area? Bitcoin just seems like an investment vehicle/security rather than a currency. How many people actually use Bitcoin for buying toilet paper?

_eht 9y ago
I can speak for Seattle/WA state-- it is very common to find BTC ATM's in recreational weed shops. The main driver of this seems to be that the stores have a near impossible chance of being banked and deal in cash only. The crypto ATM's allow you to purchase with a CC and in turn pay the store for product, all while avoiding cash. To the store this is a much safer alternative. For the crypto anarchists watching the big banks/fed opening up about their feelings and fears about crypto, it seems like they are pushing a near billion dollar industry to find ways to accept payment outside of the beloved USD.
option_greek 9y ago
Same number of people watching netflix in 90's over the internet :)
balazsdavid987 9y ago
Do you remember the multi-million dollar pizza? Today, nobody wants to be the thousand dollar toilet paper guy. I believe most people buy it as an investment, with no intention to every make an actual purchase with it. What gives it value then? What will happen with the price when there are no new people who wants to buy bitcoin?
rtpg 9y ago
Bitflyer (Japan) has partnerships with bic camera (electronics store like best buy) to offer Bitcoin payments. Though I believe you cannot use it for over $1000 purchases
ersii 9y ago
There is plenty of Bitcoin debit cards, which will sell Bitcoin proportionally to the amount of USD/EUR/whatever you purchased for. One of them being TenX.com. This allows you to spend at any store which accepts cards in general. That said, there are stores which accepts plain Bitcoin. As one anecdata, the electronics chain webhallen.com in Sweden accepts pure Bitcoin-transactions.

runeks 9y ago

> They made transactions easier, and in the process created new deposits and bills that increased the supply of money. This is the fundamental misunderstanding that the whole article is based on, in my opinion. Let me clarify. Gold and silver were money in this time period. Deposits receipts and bills of exchange are neither gold nor silver. They are derivatives, because they derive their value from allegedly being redeemable in gold/silver. Now, someone issuing either of these derivatives may very well be tempted to issue fraudulent notes (where “fraudulent” is defined as “no means or intent to repay in gold/silver), which is where the wonderful idea of “default” comes in. When a company is unable to honor its liabilities, it’s in default, and its assets are distributed amongst its creditors. So a private company (e.g. certificate of deposit-issuer, bill of exchange-issuer), and therefore its assets, is forcefully liquidated when it can’t live up to its promises. This is the solution to the problem. As long as we allow the process of default, and forced liquidation, the. if a company makes promises it can’t hold, it dies and disappears from the market. So, treating issuers of money-derivatives as regular private companies gives its creditors the ability to force it into liquidation, in case it’s unable to honor its promises. Except when government grants special privilege to private companies called “banks”, and make them exempt from living up to their promises. It’s an understandable reaction from government: short term gain (no turmoil from default), but a long term pain (private companies with government-granted freedom to issue fraudulent derivatives). Capitalism doesn’t work without recognizing the essential function of the death of a private company. This is the killer feature of capitalism: let unproductive/downright fraudulent companies die, and hand over their assets to its stakeholders. As long as we recognize deposit receipts, bills of exchange, etc. as simply a promise, and are willing to keep issuers honest, by being able to force default on the company if it can’t live up to its promises, derivatives and money are clearly separated. And no one can “increase the supply of money” by producing derivatives that are allegedly redeemable in this monetary unit, any more than someone can “increase the supply of oil” by issuing and selling oil futures contracts.

erikb 9y ago
Total misunderstanding imo. A company doesn't default, when it can't uphold its promises. In fact most companies can't uphold their promises most of the time. If that would be true 99% of the companies you know would be dead. A company defaults when a creditor decides to force the company into default, or a company defaults as punishment to a creditor who really needed the fulfillment of what they are owed but somehow screwed with the company owner. And companies aren't there to keep it honest. They are there to keep it dishonest. In fact it's not myCorp making a promise to yourCorp. It's me making a promise to you. But piping it through our corps means you can't harm me for not fulfilling the promise. You can only harm my corp. It's taking the punishment part out of deal making. I can promise you anything you want to hear. You can promise me anything I want to hear. And then let's see when our own goals force us to actually deliver on something.

ThomPete 9y ago

And since fiat money at the end of the day is a question of trust thats exactly right. It just doesn't mean what the economist want it to mean. It just means, hey there is now another trusted currency.

smmessner 9y ago

Definition of fiat 1 :a command or act of will that creates something without or as if without further effort According to the Bible, the world was created by fiat. 2 :an authoritative determination :dictate a fiat of conscience 3 :an authoritative or arbitrary order :decree government by fiat

jpttsn 9y ago

Mostly great article. There’s probably a lot of economic history that applies to cryptocurrency. The fiat part of the title is just FUD. With the same argument, gold bullion would be fiat because a majority of humans could decide they don’t like its shine. Silly Economist.

retrogradeorbit 9y ago

Bitcoin is not fiat. Fiat means "by decree" or "by authority". Fiat money is money that is decreed into existence by some authority, that is, the government. This is done through legal tender laws. Bitcoin is not created by the enactment of some law by some authority. Fiat does not mean "by consensus", or "by mathematics". Saying code is decree, and therefor fiat, is sloppy thinking. Bitcoin may have much in common with fiat, but that does not mean that it is fiat. It is, by definition, not fiat. What gives Bitcoin value is not government decree, but its utility [1]. And that is somewhat paradoxical, because the more people hoard it the less utility it has. And the more its used to buy and sell goods, the more utility it has, and the more value it has. [1] https://fee.org/articles/what-gave-bitcoin-its-value/ https://fee.org/articles/what-gave-bitcoin-its-value/

codewithcheese 9y ago
I agree in regards to not fiat. How about the apparent utility it has as a store of wealth? If I was ultra rich I would store maybe 1% of my wealth in Bitcoin as a way to diversify my portfolio. Similar to gold, except for more wildly unpredicatable future financial scenarios.
omginternets 9y ago
Oh, the pedantry. Clearly the point is that it behaves _just like_ fiat in the specific ways mentioned. It's -- you know -- an element of literary style.

Sidious 9y ago

Let me say this, because I think it needs to be said. All people should worry about is making sure that the blockchain does not get perverted by the ilk of those who own and support a perpetuating publication like the economist. For anyone who has been around for a while knows that central banks are privately held entities and their mechanism furthers an agenda by means of war and corruption. If the blockchain can end the peoples' suffering, let's. /s

simo7 9y ago

Bitcoin is fiat money with (almost) constant supply. This is the real problem, not it being fiat money. This is what makes it a terrible currency for trade and a great one for speculation!

tim333 9y ago

>it has always been tempting for private finance to create too much money. There is no evidence that money born on a distributed ledger will be clean of this sin. That's not true for Bitcoin, disregarding the various other coins. The supply is effectively capped and it is economically much more similar to gold where in the long term the price roughly equals the mining cost to fiat money where that doesn't apply. For use as a normal currency bitcoin is probably creating too little money. For normal currency you want the value to be roughly constant not to double quite often.