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So the argument basically comes down to that crypto is too volatile and not usable as unit of account? 1. Crypto is still in its initial stage, where capital i

by urza 9y ago

So the argument basically comes down to that crypto is too volatile and not usable as unit of account? 1. Crypto is still in its initial stage, where capital is flowing into it. Once it is there, it will be less volatile. You can already see this in Bitcoin[1], where relative volatility is dropping every year. 2. There are projects coming that will enable decentralized trustless peg of fiat currencies into blockchians[2][3]. So you will have usd/eur in blockchians. Similar like Thether, but without central issuer. This will be very convenient for pricing (unit of account), but with all the benefits of blockchains. And as author admits fiat is terrible as "store of value" - so with this combination - fiat pegs in blockchain for accounting and native crypto as store of value (keep bitcoin for your grandchildern instead of dolar that looses 95% value over century), it might be the best combination of both worlds. 1: http://woobull.com/bitcoin-volatility-will-match-major-fiat-currencies-by-2019/ http://woobull.com/bitcoin-volatility-will-match-major-fiat-... 2: http://cryptopeg.org/ http://cryptopeg.org/ 3: http://www.getbasecoin.com/basecoin_whitepaper_0_99.pdf http://www.getbasecoin.com/basecoin_whitepaper_0_99.pdf

paulgb 9y ago
I don't think that's an accurate summary. The author's own summary (last three slides) doesn't mention volatility. Volatility isn't the problem so much as a symptom of the problem, which is a lack of central control. Crypto enthusiasts like the lack of centralization on supposed ethical grounds, but the author draws a separation between ethical considerations and considerations of effectiveness. The author makes the point that fiat is effective.
thisisit 9y ago
> You can already see this in Bitcoin[1], where relative volatility is dropping every year. Curious - Is that really due to bitcoin stabilizing or is it because of the deflationary nature of bitcoin? I mean if bitcoin does have some promise, then holding is better than trying to trade in and out of it. I also went through the quoted link on volatility: http://woobull.com/bitcoin-volatility-will-match-major-fiat-currencies-by-2019/ http://woobull.com/bitcoin-volatility-will-match-major-fiat-... One of the things holding cryptocurrencies back is that there is lot of misinformation. Specially in form of articles written without understanding financial fundamentals. It excites the crowd but the takeaways are mostly nonsense. This article is also along the same lines. There is no concept called "peak volatility" as highlighted in the conclusion. There is only volatility. Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. (from: http://www.investopedia.com/terms/v/volatility.asp http://www.investopedia.com/terms/v/volatility.asp) There is average volatility which is a measure of volatility across a >particular period<. In most cases, if I have a data point for say July 2016, the data point will actually be "average volatility" of all July price movements. And that makes the 2nd graph even more confusing. What is the average volatility is being talked about here? Is it the rolling average of the average of data points or something else? This is so confusing.
CryptoPunk 9y ago
I'm a big advocate of cryptocurrency but am unconvinced that stable value coins can work. The Sai was recently released: https://blog.makerdao.com/2017/06/05/introducing-sai/ https://blog.makerdao.com/2017/06/05/introducing-sai/ and BitUSD has been out for years: https://bitshares.org/technology/price-stable-cryptocurrencies/ https://bitshares.org/technology/price-stable-cryptocurrenci... but neither have a significant amount of value riding on them and I personally wouldn't trust them with significant value. The problem with any stable value coin is that its stability depends on the underlying cryptocurrency collateral. As long as the value of cryptocurrencies is significantly more volatile than that of fiat, I wouldn't trust a stable value coin's ability to remain solvent and maintain its peg. I would rather bear the greater volatility of holding the underlying cryptocurrency, and get to enjoy the upside potential, than hold a stable value coin that has no potential to appreciate and a greater than zero probability of going to zero. When cryptocurrencies get stable enough to make good collateral for stable value coins, they will be stable enough to use directly as a low-risk store of value. The one wildcard in my estimation is decentralized options and futures markets. By creating a market for volatility hedging, it might make it possible for parties to 'buy' the requisite stability for a price.
- mbrock 9y ago
  I would rather bear the greater volatility of holding the underlying cryptocurrency, and get to enjoy the upside potential, than hold a stable value coin that has no potential to appreciate and a greater than zero probability of going to zero. That's about what kind of risks and rewards you want for your investments or savings. If you consider the unit of account for a debt, it seems unlikely that you'll have the same preference. If a trustworthy stablecoin arrives, you will probably want to collateralize some of your other assets to lend stablecoin just to participate in trades and contracts. Most people don't want stuff to be priced in a volatile unit. Of course I have to believe this because I do some work on Maker! By the way, Maker's idea of a stablecoin (the dai, the planned successor to sai) isn't pegged. The dai value floats on exchanges while the issuance system reacts to the market prices and tweaks its own parameters to incentivize medium term stability. In the longer term, the stablecoin might be somewhat deflationary or inflationary even compared to its own stability anchor (the SDR currency basket).
cryptodogemoon 9y ago
Volitilty will be inherent with bitcoin, and any blockchain database where the supply has been distributed for low computational/energy/capital input to the small pool of users who aquire majority stake in the total supply, thus devaluing any long term inherent store of value. additionally, bitcoin and the exchanges can rapidly plummit to zero if and when there's a run to get out as the value requires demand from another just buyer. no buyers, and the price freefalls.
- zeroxfe 9y ago
  > Volatilty will be inherent with bitcoin... majority stake... You're making a strong claim here -- and I think this applies to any scarce resource. Why is bitcoin different from, say, gold? > additionally, bitcoin and the exchanges can rapidly plummit to zero if and when Here too -- how is that different from any other traded instrument?
  - cryptodogemoon 9y ago
    The production curve Satoshi designed was to produce the largest supply of Bitcoins for the least amount of effort/resource input to the smallest group of users running the software. Half of the supply was produced this way in the first few months. Blockchain and Bitcoin is different than physical resources because it's so easily produced. Crypto tokens are different from other traded instruments because of the exchanges they're traded on are unregulated exchanges which can easily manipulate prices, fake orders, front run, or entirely falsify their deposits until there's run on the withdraws.
    - tromp 9y ago
      > designed was to produce the largest supply of Bitcoins No; he simply designed for a fixed total amount of bitcoins, namely 21 million. > Half of the supply was produced this way in the first few months. No; half the supply is produced in 4 years. Then the next 4 years halves that again. And so on every 4 years.
      - 9y ago
matt4077 9y ago
> keep bitcoin for your grandchildern instead of dolar that looses 95% value over century Whereas bitcoin has a proven track record of almost a decade of... existence? Anyway, why would anybody preserve value in cash over those time scales? The alternative isn't bitcoin or US$ or gold, it's stocks or bonds or real estate or fuck them let's spend it on blow.
- notyourday 9y ago
  Its like pink sheets. Don't tell people who are invested in pumping them that they are not investing into NASDAQ listed securities.
- mcguire 9y ago
  "The alternative isn't bitcoin or US$ or gold, it's stocks or bonds or real estate or fuck them let's spend it on blow." This is the true question.
Nursie 9y ago
In the last two or three weeks BTC has been down to around 3k USD and is now approaching 6k. It's still massively volatile.
jbrun 9y ago
No, that is not at all the argument. The argument is that you cannot have an economy run on a deflationary currency, which bitcoin is. An effective economy requires a bit of inflation and the ability to issue new money when necessary for socio-political reasons. Crypto currencies are a cult, though the underlying tech is interesting.
- quincunx 9y ago
  While I understand the desire to have 2% inflation across the economy, wouldn't the individual parties prefer to hold their cash in a deflationary currency? Put differently and going fast forward; how can you have a mildly inflating currency (eg. EUR) when there's a deflationary currency (eg. BTC) as a viable alternative around? Would you propose we prohibit crypto currencies? (What would you propose?)
  - jbrun 9y ago
    Crypto currencies can exist for those who want them, I don't see any reason to block them beyond ponzi scheme and marketing issues - similar to stock issues. So probably they need some regulation to not defraud unwitting people. Bitcoin is not an alternative to Euros. That is the whole point. If you switched all euros to bitcoins and asked people to trade those, the economy would collapse as no one would want to trade their bitcoins because mathematically, they increase in value due to the limited issuance of them. Without modest inflation, the economy cannot grow as no one would spend money for investment purposes.
  - marcosdumay 9y ago
    Well, inflationary currencies have the natural tendency of displacing deflationary ones out of the market. Not the other way around. It takes a lot of inflation to reverse that relationship.
  - mcguire 9y ago
    "While I understand the desire to have 2% inflation across the economy, wouldn't the individual parties prefer to hold their cash in a deflationary currency?" Typically, they'd prefer not to hold currency; they'd prefer to make an investment that gives a supra-inflationary return. This is, in general, good for the economy and the society. "Put differently and going fast forward; how can you have a mildly inflating currency (eg. EUR) when there's a deflationary currency (eg. BTC) as a viable alternative around?" I dunno, why isn't everyone parking their money in gold?
notyourday 9y ago
Crypto can remain in this initial state longer than you can remain solvent and longer than your wife will decide to tolerate your adventures in being right at some point. Source: I was long certain CDS that eventually did pay off.
mcguire 9y ago
"And as author admits fiat is terrible as "store of value" - so with this combination - fiat pegs in blockchain for accounting and native crypto as store of value (keep bitcoin for your grandchildern instead of dolar that looses 95% value over century), it might be the best combination of both worlds." Why do you want a long-term "store of value"? Buy your grandchildren a pleasant mixture of diversified stocks and bonds---they and the economy will be better off. Or, buy your grandchildren gold; it's had a much longer track record as a store of value and is prettier to look at while it is value-storing.
dragonwriter 9y ago
Being a terrible store of value is a good thing in a currency, because the encourages investment in actual productive assets as a store of value.

by urza 9y ago

paulgb 9y ago

I don't think that's an accurate summary. The author's own summary (last three slides) doesn't mention volatility. Volatility isn't the problem so much as a symptom of the problem, which is a lack of central control. Crypto enthusiasts like the lack of centralization on supposed ethical grounds, but the author draws a separation between ethical considerations and considerations of effectiveness. The author makes the point that fiat is effective.

thisisit 9y ago

> You can already see this in Bitcoin[1], where relative volatility is dropping every year. Curious - Is that really due to bitcoin stabilizing or is it because of the deflationary nature of bitcoin? I mean if bitcoin does have some promise, then holding is better than trying to trade in and out of it. I also went through the quoted link on volatility: http://woobull.com/bitcoin-volatility-will-match-major-fiat-currencies-by-2019/ http://woobull.com/bitcoin-volatility-will-match-major-fiat-... One of the things holding cryptocurrencies back is that there is lot of misinformation. Specially in form of articles written without understanding financial fundamentals. It excites the crowd but the takeaways are mostly nonsense. This article is also along the same lines. There is no concept called "peak volatility" as highlighted in the conclusion. There is only volatility. Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. (from: http://www.investopedia.com/terms/v/volatility.asp http://www.investopedia.com/terms/v/volatility.asp) There is average volatility which is a measure of volatility across a >particular period<. In most cases, if I have a data point for say July 2016, the data point will actually be "average volatility" of all July price movements. And that makes the 2nd graph even more confusing. What is the average volatility is being talked about here? Is it the rolling average of the average of data points or something else? This is so confusing.

CryptoPunk 9y ago

I'm a big advocate of cryptocurrency but am unconvinced that stable value coins can work. The Sai was recently released: https://blog.makerdao.com/2017/06/05/introducing-sai/ https://blog.makerdao.com/2017/06/05/introducing-sai/ and BitUSD has been out for years: https://bitshares.org/technology/price-stable-cryptocurrencies/ https://bitshares.org/technology/price-stable-cryptocurrenci... but neither have a significant amount of value riding on them and I personally wouldn't trust them with significant value. The problem with any stable value coin is that its stability depends on the underlying cryptocurrency collateral. As long as the value of cryptocurrencies is significantly more volatile than that of fiat, I wouldn't trust a stable value coin's ability to remain solvent and maintain its peg. I would rather bear the greater volatility of holding the underlying cryptocurrency, and get to enjoy the upside potential, than hold a stable value coin that has no potential to appreciate and a greater than zero probability of going to zero. When cryptocurrencies get stable enough to make good collateral for stable value coins, they will be stable enough to use directly as a low-risk store of value. The one wildcard in my estimation is decentralized options and futures markets. By creating a market for volatility hedging, it might make it possible for parties to 'buy' the requisite stability for a price.

mbrock 9y ago
I would rather bear the greater volatility of holding the underlying cryptocurrency, and get to enjoy the upside potential, than hold a stable value coin that has no potential to appreciate and a greater than zero probability of going to zero. That's about what kind of risks and rewards you want for your investments or savings. If you consider the unit of account for a debt, it seems unlikely that you'll have the same preference. If a trustworthy stablecoin arrives, you will probably want to collateralize some of your other assets to lend stablecoin just to participate in trades and contracts. Most people don't want stuff to be priced in a volatile unit. Of course I have to believe this because I do some work on Maker! By the way, Maker's idea of a stablecoin (the dai, the planned successor to sai) isn't pegged. The dai value floats on exchanges while the issuance system reacts to the market prices and tweaks its own parameters to incentivize medium term stability. In the longer term, the stablecoin might be somewhat deflationary or inflationary even compared to its own stability anchor (the SDR currency basket).

cryptodogemoon 9y ago

Volitilty will be inherent with bitcoin, and any blockchain database where the supply has been distributed for low computational/energy/capital input to the small pool of users who aquire majority stake in the total supply, thus devaluing any long term inherent store of value. additionally, bitcoin and the exchanges can rapidly plummit to zero if and when there's a run to get out as the value requires demand from another just buyer. no buyers, and the price freefalls.

zeroxfe 9y ago
> Volatilty will be inherent with bitcoin... majority stake... You're making a strong claim here -- and I think this applies to any scarce resource. Why is bitcoin different from, say, gold? > additionally, bitcoin and the exchanges can rapidly plummit to zero if and when Here too -- how is that different from any other traded instrument?
- cryptodogemoon 9y ago
  The production curve Satoshi designed was to produce the largest supply of Bitcoins for the least amount of effort/resource input to the smallest group of users running the software. Half of the supply was produced this way in the first few months. Blockchain and Bitcoin is different than physical resources because it's so easily produced. Crypto tokens are different from other traded instruments because of the exchanges they're traded on are unregulated exchanges which can easily manipulate prices, fake orders, front run, or entirely falsify their deposits until there's run on the withdraws.
  - tromp 9y ago
    > designed was to produce the largest supply of Bitcoins No; he simply designed for a fixed total amount of bitcoins, namely 21 million. > Half of the supply was produced this way in the first few months. No; half the supply is produced in 4 years. Then the next 4 years halves that again. And so on every 4 years.
    - 9y ago

matt4077 9y ago

> keep bitcoin for your grandchildern instead of dolar that looses 95% value over century Whereas bitcoin has a proven track record of almost a decade of... existence? Anyway, why would anybody preserve value in cash over those time scales? The alternative isn't bitcoin or US$ or gold, it's stocks or bonds or real estate or fuck them let's spend it on blow.

notyourday 9y ago
Its like pink sheets. Don't tell people who are invested in pumping them that they are not investing into NASDAQ listed securities.
mcguire 9y ago
"The alternative isn't bitcoin or US$ or gold, it's stocks or bonds or real estate or fuck them let's spend it on blow." This is the true question.

Nursie 9y ago

In the last two or three weeks BTC has been down to around 3k USD and is now approaching 6k. It's still massively volatile.

jbrun 9y ago

No, that is not at all the argument. The argument is that you cannot have an economy run on a deflationary currency, which bitcoin is. An effective economy requires a bit of inflation and the ability to issue new money when necessary for socio-political reasons. Crypto currencies are a cult, though the underlying tech is interesting.

quincunx 9y ago
While I understand the desire to have 2% inflation across the economy, wouldn't the individual parties prefer to hold their cash in a deflationary currency? Put differently and going fast forward; how can you have a mildly inflating currency (eg. EUR) when there's a deflationary currency (eg. BTC) as a viable alternative around? Would you propose we prohibit crypto currencies? (What would you propose?)
- jbrun 9y ago
  Crypto currencies can exist for those who want them, I don't see any reason to block them beyond ponzi scheme and marketing issues - similar to stock issues. So probably they need some regulation to not defraud unwitting people. Bitcoin is not an alternative to Euros. That is the whole point. If you switched all euros to bitcoins and asked people to trade those, the economy would collapse as no one would want to trade their bitcoins because mathematically, they increase in value due to the limited issuance of them. Without modest inflation, the economy cannot grow as no one would spend money for investment purposes.
- marcosdumay 9y ago
  Well, inflationary currencies have the natural tendency of displacing deflationary ones out of the market. Not the other way around. It takes a lot of inflation to reverse that relationship.
- mcguire 9y ago
  "While I understand the desire to have 2% inflation across the economy, wouldn't the individual parties prefer to hold their cash in a deflationary currency?" Typically, they'd prefer not to hold currency; they'd prefer to make an investment that gives a supra-inflationary return. This is, in general, good for the economy and the society. "Put differently and going fast forward; how can you have a mildly inflating currency (eg. EUR) when there's a deflationary currency (eg. BTC) as a viable alternative around?" I dunno, why isn't everyone parking their money in gold?

notyourday 9y ago

Crypto can remain in this initial state longer than you can remain solvent and longer than your wife will decide to tolerate your adventures in being right at some point. Source: I was long certain CDS that eventually did pay off.

mcguire 9y ago

"And as author admits fiat is terrible as "store of value" - so with this combination - fiat pegs in blockchain for accounting and native crypto as store of value (keep bitcoin for your grandchildern instead of dolar that looses 95% value over century), it might be the best combination of both worlds." Why do you want a long-term "store of value"? Buy your grandchildren a pleasant mixture of diversified stocks and bonds---they and the economy will be better off. Or, buy your grandchildren gold; it's had a much longer track record as a store of value and is prettier to look at while it is value-storing.

dragonwriter 9y ago

Being a terrible store of value is a good thing in a currency, because the encourages investment in actual productive assets as a store of value.