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>I open a channel and allocate a certain amount of bitcoin there for me to spend. After a while, I have bought loads of pizza, and my channel has no more "credi

>I open a channel and allocate a certain amount of bitcoin there for me to spend. After a while, I have bought loads of pizza, and my channel has no more "credit". How do I top up my channel if there is no single blockchain transaction to be used? I believe this works via the routing system. So even though you don't have any more BTC in your initial allocation, you can get some from someone else still in the lightning network. So if you have a channel open with me, and I have one with coinbase, you can pay coinbase $20 USD and have them route you $20 in BTC (through me or someone else), which you can then give to me, and as long as we are all happy, nobody needs to close the channel and add anything to the blockchain. >Interesting. How much does such bank charge for these services and what are the "banks" allowed to do with the coins thay have under custody? Can they e.g. lend them or use them in any other way? Who does insure these "banks"? Coinbase is the biggest one. Currently there aren't many enforced regulations in this space (and I personally welcome some that aren't just "stop using cryptocurrencies"). Currently coinbase does not "loan" out any money you deposit with them (at least they claim they don't, I haven't verified it myself, and I haven't read of anyone even attempting to do so. I'm not trying to imply something here, just trying to point out that i'm taking them for their word here), but there is no reason they couldn't. And I'm assuming that custodial services like Coinbase will eventually follow the same path as banks as bitcoin grows. As for the insurance, Coinbase insures all USD in your account under the US FDIC, and all cryptocurrency is privately insured through them. My wish is a government backed (or at least enforced) FDIC-like insurance for cryptocurrencies one day that ensures people storing their cryptocurrency with a custodial service don't need to put their faith in a single company. >You can have a look at a historical price charts of gold [1] That is really eye-opening. I've never looked at such a historical record of it. > I am thinking that modern money is credit and postoned consumption... Now this is where my understanding begins to break down. I'm not an economist, and I don't truly understand all of the factors at play here. The rest of my response here is mostly my own poor understanding of things, and should be treated as if I have no idea what I'm talking about, because I really don't... > We would need to be able to set the interest rate below zero in certain circumstances to facilitate consumption to keep the economy running. I personally disagree. People will always need to buy things, and people will always want. I don't buy a house on credit because the interest rate is low, I buy a house on credit because I need a house. Consumption won't stop because there is no inflation, it might slow down, but I really truly don't believe that is a bad thing in the long run. In a deflationary system, interest rates would be significantly higher than they are now, mostly because if I'm going to give you a loan, you need to pay me more value back than my money would make just sitting around. But the key part is that if you also use that same deflationary asset, then your money will also be worth more over time at the same rate as theirs. If you truly live on the asset, then it doesn't really matter what it's value is for external transactions as long as you stay within the system. If I get paid 1 bitcoin per year, I get paid 1 bitcoin per year, regardless of whether it's worth $1000 USD or $100,000 USD. And if you give me a .1 bitcoin loan for 6% interest, I'm going to pay back .1 bitcoin + 6% interest in bitcoin. Obviously this breaks down at the edges, but I think there will be a way around this, and if there isn't, bitcoin can conceivably adapt. The only reason bitcoin is deflationary is because the code says it has a maximum cap. If it ends up that a deflationary asset just won't work in the future, and a consensus is achieved between the majority of bitcoin users, that cap can be extended, or entirely removed. As you said, most "cryptocoiners" (i like that term!) currently treat the deflationary nature of Bitcoin as a large benefit, but if it was found to be hurting most or all involved, that tune would change quickly. I personally see it as a "necessary evil" (bitcoin needed some speculation to get off the ground, and a promise of deflation one day, combined with the "halving" of rewards for mining encouraged investment in the beginning), but not one which is core to the currency, and certainly not a value of it that is unchangeable in the far-ish future. And that is probably my favorite feature of cryptocurrencies. Bitcoin is a democratic, trustless, adaptable currency. It can change, it can improve, it can adapt over time, and it requires a consensus from both the miners, users, and developers to make any changes. All of which distrust one another.

beefield 9y ago
> I believe this works via the routing system. So even though you don't have any more BTC in your initial allocation, you can get some from someone else still in the lightning network. Okay, so I could buy BTC from coinbase without making a single blockchain transaction? I still don't quite follow how this would happen within the trustless network, though. Now, if you get your salary paid in lightning, then of course you just wait for your next paycheck, but otherwise you need to pay fiat to someone in the lightning network or make a transaction in blockchain? > Currently coinbase does not "loan" out any money you deposit with them, but there is no reason they couldn't. And I'm assuming that custodial services like Coinbase will eventually follow the same path as banks as bitcoin grows That is about to open an extremely interesting rabbit hole just there:) First step is for Coinbase and their customers to realize that the custodian services can be much cheaper if coinbase is allowed (very prudently) to lend the coins forward. So much cheaper, actually, that Coinbase will pay you if you use their custodian services with letting Coinbase to lend your coins forward. Second step is for Coinbase and their customers to realize that as Coinbase is very prudent, a coin at their "custody" is actually as valid token for payment as a coin in a custody of their customer. Bang. You are in fractional reserve banking, and there suddenly is no more only 21 million bitcoin denominated payment tokens, but Coinbase is able to create more of them. (And trust me, there are some really good reasons why fractional reserve banking is very tightly regulated business). The last step is, of course, to realize that it actually is burdensome to have Coinbase to link the credit creation to physical bitcoin, as they are practically a distraction in the process, so we can move to full fiat currency. > Now this is where my understanding begins to break down. I'm not an economist, Frankly, I doubt anyone understands money properly. It is one of the most complex and fascinating concepts I have stumbled upon (and I am no economist either). My working hypothesis is that any simple statement about money is somehow false. > People will always need to buy things, and people will always want. I don't buy a house on credit because the interest rate is low, But if interest rate is lower, people do buy more stuff. The companies invest more to machinery if the interest rate is low than when it is high. That is a very fundamental thing in how economy works. Further, we need to keep people buying stuff to keep those people (i.e. most of us) employed who are selling the stuff. Also people save more (which equals to buying less stuff today) if the interest rate is high. So we can adjust the aggregate demand in an economy by adjusting the interest rate. And if we have artificial limits on how to set the interest rate, we are going to have welfare losses. So we for sure would need to be able to set negative interest rates. > If I'm going to give you a loan, you need to pay me more value back than my money would make just sitting around. And that is exactly the problem with current money and bitcoin. You can let money just sit around, which sets the artificial lower limit to the interest rates. But the interest rate is the price for you postponing your consumption and yes, we are very used to the idea that if you agree to not buy 100 pizzas today but lend that money to someone, they are more than willing to promise you more than 100 pizzas in one year's time. But if there is nobody willing to make that promise of more than 100 pizzas, and you still want to eat pizzas in one year's time, what is so wrong with getting only 99 pizzas, if that is what the "consumption postponing market" at the moment offers? (note the distinction between fiat and bitcoin. With fiat, there are organizations, contracts and laws made for the purpose of guaranteeing that your fiat money is approximately worth 100 pizzas plus interest rate in one year's time. With bitcoin you can only hope that there is someone in one year's time willing to pay 100 pizzas for your bitcoin. (Again, same applies currently to gold) > currently treat the deflationary nature of Bitcoin as a large benefit, but if it was found to be hurting most or all involved, that tune would change quickly. Well, my understanding from the history of money is quite clear that deflationary monies are bad for society. (sorry, should have sources here). > it requires a consensus from both the miners, users, and developers to make any changes. All of which distrust one another. Apologies for being cynical, but to me that reads about "there is no practical way to make important changes in any timely manner". That's the power of democracy. You can run over minorities if needed.

beefield 9y ago

> I believe this works via the routing system. So even though you don't have any more BTC in your initial allocation, you can get some from someone else still in the lightning network. Okay, so I could buy BTC from coinbase without making a single blockchain transaction? I still don't quite follow how this would happen within the trustless network, though. Now, if you get your salary paid in lightning, then of course you just wait for your next paycheck, but otherwise you need to pay fiat to someone in the lightning network or make a transaction in blockchain? > Currently coinbase does not "loan" out any money you deposit with them, but there is no reason they couldn't. And I'm assuming that custodial services like Coinbase will eventually follow the same path as banks as bitcoin grows That is about to open an extremely interesting rabbit hole just there:) First step is for Coinbase and their customers to realize that the custodian services can be much cheaper if coinbase is allowed (very prudently) to lend the coins forward. So much cheaper, actually, that Coinbase will pay you if you use their custodian services with letting Coinbase to lend your coins forward. Second step is for Coinbase and their customers to realize that as Coinbase is very prudent, a coin at their "custody" is actually as valid token for payment as a coin in a custody of their customer. Bang. You are in fractional reserve banking, and there suddenly is no more only 21 million bitcoin denominated payment tokens, but Coinbase is able to create more of them. (And trust me, there are some really good reasons why fractional reserve banking is very tightly regulated business). The last step is, of course, to realize that it actually is burdensome to have Coinbase to link the credit creation to physical bitcoin, as they are practically a distraction in the process, so we can move to full fiat currency. > Now this is where my understanding begins to break down. I'm not an economist, Frankly, I doubt anyone understands money properly. It is one of the most complex and fascinating concepts I have stumbled upon (and I am no economist either). My working hypothesis is that any simple statement about money is somehow false. > People will always need to buy things, and people will always want. I don't buy a house on credit because the interest rate is low, But if interest rate is lower, people do buy more stuff. The companies invest more to machinery if the interest rate is low than when it is high. That is a very fundamental thing in how economy works. Further, we need to keep people buying stuff to keep those people (i.e. most of us) employed who are selling the stuff. Also people save more (which equals to buying less stuff today) if the interest rate is high. So we can adjust the aggregate demand in an economy by adjusting the interest rate. And if we have artificial limits on how to set the interest rate, we are going to have welfare losses. So we for sure would need to be able to set negative interest rates. > If I'm going to give you a loan, you need to pay me more value back than my money would make just sitting around. And that is exactly the problem with current money and bitcoin. You can let money just sit around, which sets the artificial lower limit to the interest rates. But the interest rate is the price for you postponing your consumption and yes, we are very used to the idea that if you agree to not buy 100 pizzas today but lend that money to someone, they are more than willing to promise you more than 100 pizzas in one year's time. But if there is nobody willing to make that promise of more than 100 pizzas, and you still want to eat pizzas in one year's time, what is so wrong with getting only 99 pizzas, if that is what the "consumption postponing market" at the moment offers? (note the distinction between fiat and bitcoin. With fiat, there are organizations, contracts and laws made for the purpose of guaranteeing that your fiat money is approximately worth 100 pizzas plus interest rate in one year's time. With bitcoin you can only hope that there is someone in one year's time willing to pay 100 pizzas for your bitcoin. (Again, same applies currently to gold) > currently treat the deflationary nature of Bitcoin as a large benefit, but if it was found to be hurting most or all involved, that tune would change quickly. Well, my understanding from the history of money is quite clear that deflationary monies are bad for society. (sorry, should have sources here). > it requires a consensus from both the miners, users, and developers to make any changes. All of which distrust one another. Apologies for being cynical, but to me that reads about "there is no practical way to make important changes in any timely manner". That's the power of democracy. You can run over minorities if needed.