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> 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 i

> 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.

Klathmon 9y ago
>Okay, so I could buy BTC from coinbase without making a single blockchain transaction? You need A transaction at some point on the blockchain to start with, but then as long as you can build a network between any channels you have open, and the person you are trying to transact with, you never need to open another. The metaphor that helped me a bit was that Lightning makes the blockchain act like a "trial" in the legal system. Just because you enter into a contract with someone, doesn't mean you need to go to court every time you speak to them. You only go to court when there is a problem. Lightning and the blockchain work like that. Once you have a transaction which gets you onto the network, you don't ever need to go back to the blockchain unless someone tries to cheat you (the way it works is if you broadcast something other than the latest transaction between us, I can broadcast a counter transaction that instead forces you to give me all the money in the contract for both sides, and sends it into the blockchain once and for all). >First step is for Coinbase and their customers to realize... I don't think it will ever get to the point of a traditional credit system, but will instead start with "sidechains" where coinbase can loan out money, but have it be transparent and somewhat enforceable via smart contracts of some sort. I just don't see the bitcoin crowd ever wanting to go back to fractional reserves without any mathematical checks and balances built into it. >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. I think it only works that way because society is okay with waiting until inflation comes back. If you know that in 5 years there's a good chance you'll be able to get a cheaper interest rate, you won't buy a house now if you can avoid it. But if you know that in 5 years there is very very little chance that interest rates will go down, then the incentive to wait is lost. Now bitcoin was designed in a way that this could have been avoided. Currently bitcoin is still inflationary, 12.5 BTC is being generated from mining every 10 minutes or so. But over time this will halve, and halve again, and halve many more times until it's fully deflationary. That slows the transition from an inflationary system to a deflationary system that won't ever become inflationary again (assuming everyone doesn't change the rules of bitcoin at some point). That gives time for the world to adapt and change, and lessens the impact. Although as you point out, it could be a rocky ride getting to that point. >Well, my understanding from the history of money is quite clear that deflationary monies are bad for society. (sorry, should have sources here). I don't have any sources either, but I don't think a deflationary currency has ever really been done on purpose at scale before. We have a bunch of examples of it happening by accident, and obviously it hurts, but it's never been committed to. So I think bitcoin and (some) other cryptocurrencies are a first here, and I personally believe it's worth a shot. The whole argument for deflation vs inflation strikes me as similar to the whole idea of "tax holidays" in some countries. It's a game of chicken where companies will hold money out of the country, and will only bring it in during special periods where the government decides to lower the tax rate for something like "one day only". If companies knew the government would never do it again, they would just pay the taxes and be done with it, but because they have happened before, it's likely they will happen again, so they would rather just wait and lobby for it. Bitcoin turns that around. Society won't stop consuming and start waiting for the next inflationary "kickstart" to the economy, because there won't be one. And they won't be able to get one, because as you said, it's extremely difficult to change the "rules" of bitcoin if everyone isn't onboard. >That's the power of democracy. You can run over minorities if needed. And in bitcoin, you still can in some ways, although it's less ideal. The play between "users", "miners" and "developers" can cause a stalemate, but if 2 of them gang up on the 3rd group they can often be overpowered (which is what happened with the Segwit activation earlier this year).

Klathmon 9y ago

>Okay, so I could buy BTC from coinbase without making a single blockchain transaction? You need A transaction at some point on the blockchain to start with, but then as long as you can build a network between any channels you have open, and the person you are trying to transact with, you never need to open another. The metaphor that helped me a bit was that Lightning makes the blockchain act like a "trial" in the legal system. Just because you enter into a contract with someone, doesn't mean you need to go to court every time you speak to them. You only go to court when there is a problem. Lightning and the blockchain work like that. Once you have a transaction which gets you onto the network, you don't ever need to go back to the blockchain unless someone tries to cheat you (the way it works is if you broadcast something other than the latest transaction between us, I can broadcast a counter transaction that instead forces you to give me all the money in the contract for both sides, and sends it into the blockchain once and for all). >First step is for Coinbase and their customers to realize... I don't think it will ever get to the point of a traditional credit system, but will instead start with "sidechains" where coinbase can loan out money, but have it be transparent and somewhat enforceable via smart contracts of some sort. I just don't see the bitcoin crowd ever wanting to go back to fractional reserves without any mathematical checks and balances built into it. >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. I think it only works that way because society is okay with waiting until inflation comes back. If you know that in 5 years there's a good chance you'll be able to get a cheaper interest rate, you won't buy a house now if you can avoid it. But if you know that in 5 years there is very very little chance that interest rates will go down, then the incentive to wait is lost. Now bitcoin was designed in a way that this could have been avoided. Currently bitcoin is still inflationary, 12.5 BTC is being generated from mining every 10 minutes or so. But over time this will halve, and halve again, and halve many more times until it's fully deflationary. That slows the transition from an inflationary system to a deflationary system that won't ever become inflationary again (assuming everyone doesn't change the rules of bitcoin at some point). That gives time for the world to adapt and change, and lessens the impact. Although as you point out, it could be a rocky ride getting to that point. >Well, my understanding from the history of money is quite clear that deflationary monies are bad for society. (sorry, should have sources here). I don't have any sources either, but I don't think a deflationary currency has ever really been done on purpose at scale before. We have a bunch of examples of it happening by accident, and obviously it hurts, but it's never been committed to. So I think bitcoin and (some) other cryptocurrencies are a first here, and I personally believe it's worth a shot. The whole argument for deflation vs inflation strikes me as similar to the whole idea of "tax holidays" in some countries. It's a game of chicken where companies will hold money out of the country, and will only bring it in during special periods where the government decides to lower the tax rate for something like "one day only". If companies knew the government would never do it again, they would just pay the taxes and be done with it, but because they have happened before, it's likely they will happen again, so they would rather just wait and lobby for it. Bitcoin turns that around. Society won't stop consuming and start waiting for the next inflationary "kickstart" to the economy, because there won't be one. And they won't be able to get one, because as you said, it's extremely difficult to change the "rules" of bitcoin if everyone isn't onboard. >That's the power of democracy. You can run over minorities if needed. And in bitcoin, you still can in some ways, although it's less ideal. The play between "users", "miners" and "developers" can cause a stalemate, but if 2 of them gang up on the 3rd group they can often be overpowered (which is what happened with the Segwit activation earlier this year).