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> The sort of activity which led to the financial crisis would not be mitigated by the establishment of a decentralized currency. I can't speak for every ideol

> The sort of activity which led to the financial crisis would not be mitigated by the establishment of a decentralized currency. I can't speak for every ideological bitcoin supporter, but you and I may differ on what constituted the "crisis". I agree that it would not deal with the activity which led to the financial crisis. But to many, the crisis was not that the banks all failed, but that they were not allowed to fail, and were bailed out instead. The genesis block doesn't say anything about addressing irresponsible behavior on the part of the banks. It says "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks" People can do stupid and irresponsible things, and they can do stupid things with other people's money, but they have to bear the consequences.

stanleydrew 9y ago
I'm not sure what your point is. If all banks switched from dollars to Bitcoin, they could still be bailed out.
- andrewla 9y ago
  Sure, if the government in question has the funds on hand or can borrow them. But they can't just literally increase the number of Bitcoin by a factor of 5 [1] in order to give trillions of dollars to people who have demonstrated their incompetence at handling that money. [1] https://fred.stlouisfed.org/series/BASE https://fred.stlouisfed.org/series/BASE
  - paulmd 9y ago
    > But they can't just literally increase the number of Bitcoin by a factor of 5 [1] in order to give trillions of dollars to people who have demonstrated their incompetence at handling that money. Sure you can. It's code, why wouldn't you be able to change it? There is no reason that cryptocurrency has to be inherently deflationary, rewards can easily be issued at a constant rate or any other rate. You are mixing up Bitcoin, the libertarian implementation, with the abstract cryptocurrency in general. This is an implementation detail. In fact, there is actually already a rather storied history of centralized interventions to bail out failing institutions. See: the DAO hack and the subsequent rollback... Could Vitalik just as easily have said "JP Morgan now has +5 million Eth?" Absolutely. Nobody else necessarily needs to accept that version of the blockchain (see: Ethereum Classic) but there is a network effect here: if everyone else agrees to accept that version of history then sucks to be you, everyone wants to deal with Eth not PaulCoins. And people tend not to be willing to accept calamity when offered an alternative. Ethereum Classic is the version of history which best upholds those high-minded libertarian ideals, but it's also the version of history where a single attacker has 15% of all the ether.
    - andrewla 9y ago
      > Sure you can. It's code, why wouldn't you be able to change it? Fair enough. I'd expand that to say "code + consensus", which is what the rest of your post expands on. If the Bitcoin (for example) community really buys into the idea that we need to bail out some set of organizations, it's possible to execute a fork to do that. And the number of validating bitcoin clients out there is pretty large, so it would require a lot of buy-in. It would have to be a hard fork (it would be possible as a soft fork, segwith-style, but the new coins issued would not be able to mix with pre-bailout coins unless clients updated). To be honest, though, you're probably right. In my mind, depressingly so. The biggest takeaway from "too big to fail", even amongst progressives, seems to be that we have to shrink or break up the organizations that are too big to fail, rather than letting them fail -- only diehard libertarians and outcast Austrian economists believe that. The next time we hit this, we'll give the money to AIG to give to Goldman and buy Chris Dodd another house and move on with our lives while we get busy creating the next bubble (I think retail this time; that seems to be where the easy credit has relocated).
      - paulmd 9y ago
        I think if cryptocurrency were ever "officially" adopted it would be a centralized model anyway. Something like Ripple or that proposed Canadian cryptocurrency. https://www.forbes.com/sites/laurashin/2016/06/16/canada-has-been-experimenting-with-a-digital-fiat-currency-called-cad-coin/ https://www.forbes.com/sites/laurashin/2016/06/16/canada-has... With a centralized model, there's no need for miners or mining, because you trust the system that you run. And transactions could be extremely fast. Basically, it would look a lot like a bank with an API and public/private key signatures, running on a regular old database. Governments would probably love this, in fact, since it would prevent the cash economy from stealing their tax revenue. You may or may not consider this "cryptocurrency", but then again most "blockchain" companies these days are just using it as a fancy database. Why do IOT devices monitoring production of $PRODUCT need to sync a blockchain? Why not just have them hit a REST API that is controlled by the client? Again, you can presumably always trust yourself/your company, so the trustless part doesn't add much value, and for a lot of this stuff there is no real need for consensus-resolution type functionality that the Bitcoin part provides. If all you need is Merkle trees... those have been around for what, 40 years now? Bitcoin didn't invent them, Ralph Merkle did.
  - openasocket 9y ago
    I don't think you understand how that works. The government didn't literally print more money, they bought securities from the banks in exchange for credit in the central bank's account. No actual money was printed. The increase in the BASE is because the Fed was reducing its reserves. This is entirely possible to do in Bitcoin, you can still have a "lender of last resort".
    - andrewla 9y ago
      Not "credit" in the sense of a "line of credit", but "credit" in the sense of "increased the amount held in their account" -- the banks, if they so desired, could ask the Fed to deliver, as cash, the money held in reserves, so long as they upheld their reserve requirements at the same time, and the Fed would have, by law, been forced to instruct the Treasury to deliver the specie. Of course, the plan was that the troubled assets would be purchased by the Fed, an sold in a non-firesale fashion, and cancelled against the increase in the money used to cancel that out, to return the held reserves back to the trendline that predated 2008. Congress had instructed, through TARP, the Fed to purchase "troubled assets" and had authorized amounts, but the Fed ignored those instructions and restrictions entirely and purchased none of the troubled assets, instead bolstering the reserves through the standard open market operations, and later, through quantitative easing, which is just an acceleration of the standard open market operations, with the purpose of creating enough inflation to allow the economy to recover. But that inflation didn't happen (still hasn't happened) for reasons that literally no person on earth can explain. Then the Fed did some balance sheet gymnastics (mark-to-market is a glorious thing) to show that all the TARP funds had been repaid (with interest!).
      - openasocket 9y ago
        Sure, but all of this is still entirely possible to do with Bitcoin instead of dollars is my point.
      - astrange 9y ago
        > But that inflation didn't happen (still hasn't happened) for reasons that literally no person on earth can explain. Nobody likes "consumer price inflation can't happen if rich people steal all the money before consumers can spend it" as a theory?
- cinquemb 9y ago
  Well look at it from this perspective: If a tbtf bank algo went haywire when trading with the intent to maintain some position in cryptocurrencies because of some market spike/error/or w/e over an exchange and lost alot of money, yet others who were on the other side of the trade safely moved their gains to private wallets, the exchange wouldnt be able to negate those trades and claw back funds (like they did during the gfc) and those tbtf banks will be out of their desired positions; such that even if they were bailed out by some CB QE program, they'd still have to spend those bailed out funds to re-enter their previous positions. Meanwhile those who came out on the otherside of the trade with their desired positions will still have more resources to allocate at their disposal than had they been clawed back/reveresed.
  - stanleydrew 9y ago
    Yes, I get that blockchain transactions are not reversible (excluding threat of force/imprisonment). But I think you may not have fully investigated your assumptions about what makes a bank TBTF and what it means to be "bailed out."
    - cinquemb 9y ago
      My assumptions about being bailed out are that it comes down to CB's inflating the currency supply to aquire assets that burden some privileged actors balance sheets. And what it means to not be bailed out means to pay more on ones mortgage than market value of such asset.
- maemilius 9y ago
  Yes, but it could remove the need to bail out the banks, which is really the crux of the issue when you get down to it. As it stands today, _not_ bailing out the banks would have crippled or destroyed the world economy (at least, that's my understanding). The banks are, literally, too big to [be allowed to] fail. Cryptocurrencies could eventually remove enough power from banks to render their failure absorbable by the global economy. Granted, I find it very unlikely that any cryptocurrency could remove the need for banks in general - they fill too many roles in the financial system - but it could reduce the market's reliance on them in general. There's a lot of "could"s in all of this and I'm not an economist myself, so, grain of salt and all that. I will say that this is all based on things I've read from people that are, to the best of my knowledge, actual economists, but you should do your own research if such a thing interests you.
sethev 9y ago
To take the biggest example, AIG's owners did bear the consequences. Their equity was wiped out in the bailout. Do you believe individuals who did business with AIG are the ones who should have born the consequences for bad decisions made by the owners of AIG?
- UncleEntity 9y ago
  > Do you believe individuals who did business with AIG are the ones who should have born the consequences for bad decisions made by the owners of AIG? The real question is why shouldn't they? It all comes down to moral hazard and lack of due diligence really.
- andrewla 9y ago
  Well, first of all, yes, 100% certainly -- if you try to buy insurance for uninsurable things, then you are taking a risk, and risks can have downsides. And as for bearing the consequences, we simply do not have the capacity within the rule of law to make them bear the consequences. The people who made the decisions were extremely well compensated even outside of equity up until the moment when the house of cards came crashing down, and those people have now moved on to equally lucrative jobs -- hell, they can probably put on their resume that they managed to convince the government to give them billions of dollars to cover their asses, which is more than anyone else gets when their bad decisions come home to roost. Without the bailouts there would at least be grounds to sue the individuals who created the situation when things unwound, because there would have been consequences. I'm getting a little up in arms here because nothing triggers me more than the idea that macroeconomics is a science -- all the actions around the bailouts, and this narrative of "economic collapse" and "too big to fail" -- the same people who disastrously failed to predict the future before we're now trusting to predict the future. Einstein said in response to the fact that hundreds of scientists thought his theory was wrong by saying "if I were wrong, one would be enough". In economics, nobody would even consider their models to be incorrect, no matter how much they have been falsified.
  - sethev 9y ago
    The vast majority of people who did business with AIG had nothing to do with subprime. Your whole answer seems to assume that the consequences of AIG going bankrupt could have been neatly contained the subset of their business that caused the problem.
pjc50 9y ago
Unless you end mortgages entirely, there is always the risk of a property crisis spreading to lenders.

stanleydrew 9y ago

I'm not sure what your point is. If all banks switched from dollars to Bitcoin, they could still be bailed out.

andrewla 9y ago
Sure, if the government in question has the funds on hand or can borrow them. But they can't just literally increase the number of Bitcoin by a factor of 5 [1] in order to give trillions of dollars to people who have demonstrated their incompetence at handling that money. [1] https://fred.stlouisfed.org/series/BASE https://fred.stlouisfed.org/series/BASE
- paulmd 9y ago
  > But they can't just literally increase the number of Bitcoin by a factor of 5 [1] in order to give trillions of dollars to people who have demonstrated their incompetence at handling that money. Sure you can. It's code, why wouldn't you be able to change it? There is no reason that cryptocurrency has to be inherently deflationary, rewards can easily be issued at a constant rate or any other rate. You are mixing up Bitcoin, the libertarian implementation, with the abstract cryptocurrency in general. This is an implementation detail. In fact, there is actually already a rather storied history of centralized interventions to bail out failing institutions. See: the DAO hack and the subsequent rollback... Could Vitalik just as easily have said "JP Morgan now has +5 million Eth?" Absolutely. Nobody else necessarily needs to accept that version of the blockchain (see: Ethereum Classic) but there is a network effect here: if everyone else agrees to accept that version of history then sucks to be you, everyone wants to deal with Eth not PaulCoins. And people tend not to be willing to accept calamity when offered an alternative. Ethereum Classic is the version of history which best upholds those high-minded libertarian ideals, but it's also the version of history where a single attacker has 15% of all the ether.
  - andrewla 9y ago
    > Sure you can. It's code, why wouldn't you be able to change it? Fair enough. I'd expand that to say "code + consensus", which is what the rest of your post expands on. If the Bitcoin (for example) community really buys into the idea that we need to bail out some set of organizations, it's possible to execute a fork to do that. And the number of validating bitcoin clients out there is pretty large, so it would require a lot of buy-in. It would have to be a hard fork (it would be possible as a soft fork, segwith-style, but the new coins issued would not be able to mix with pre-bailout coins unless clients updated). To be honest, though, you're probably right. In my mind, depressingly so. The biggest takeaway from "too big to fail", even amongst progressives, seems to be that we have to shrink or break up the organizations that are too big to fail, rather than letting them fail -- only diehard libertarians and outcast Austrian economists believe that. The next time we hit this, we'll give the money to AIG to give to Goldman and buy Chris Dodd another house and move on with our lives while we get busy creating the next bubble (I think retail this time; that seems to be where the easy credit has relocated).
    - paulmd 9y ago
      I think if cryptocurrency were ever "officially" adopted it would be a centralized model anyway. Something like Ripple or that proposed Canadian cryptocurrency. https://www.forbes.com/sites/laurashin/2016/06/16/canada-has-been-experimenting-with-a-digital-fiat-currency-called-cad-coin/ https://www.forbes.com/sites/laurashin/2016/06/16/canada-has... With a centralized model, there's no need for miners or mining, because you trust the system that you run. And transactions could be extremely fast. Basically, it would look a lot like a bank with an API and public/private key signatures, running on a regular old database. Governments would probably love this, in fact, since it would prevent the cash economy from stealing their tax revenue. You may or may not consider this "cryptocurrency", but then again most "blockchain" companies these days are just using it as a fancy database. Why do IOT devices monitoring production of $PRODUCT need to sync a blockchain? Why not just have them hit a REST API that is controlled by the client? Again, you can presumably always trust yourself/your company, so the trustless part doesn't add much value, and for a lot of this stuff there is no real need for consensus-resolution type functionality that the Bitcoin part provides. If all you need is Merkle trees... those have been around for what, 40 years now? Bitcoin didn't invent them, Ralph Merkle did.
- openasocket 9y ago
  I don't think you understand how that works. The government didn't literally print more money, they bought securities from the banks in exchange for credit in the central bank's account. No actual money was printed. The increase in the BASE is because the Fed was reducing its reserves. This is entirely possible to do in Bitcoin, you can still have a "lender of last resort".
  - andrewla 9y ago
    Not "credit" in the sense of a "line of credit", but "credit" in the sense of "increased the amount held in their account" -- the banks, if they so desired, could ask the Fed to deliver, as cash, the money held in reserves, so long as they upheld their reserve requirements at the same time, and the Fed would have, by law, been forced to instruct the Treasury to deliver the specie. Of course, the plan was that the troubled assets would be purchased by the Fed, an sold in a non-firesale fashion, and cancelled against the increase in the money used to cancel that out, to return the held reserves back to the trendline that predated 2008. Congress had instructed, through TARP, the Fed to purchase "troubled assets" and had authorized amounts, but the Fed ignored those instructions and restrictions entirely and purchased none of the troubled assets, instead bolstering the reserves through the standard open market operations, and later, through quantitative easing, which is just an acceleration of the standard open market operations, with the purpose of creating enough inflation to allow the economy to recover. But that inflation didn't happen (still hasn't happened) for reasons that literally no person on earth can explain. Then the Fed did some balance sheet gymnastics (mark-to-market is a glorious thing) to show that all the TARP funds had been repaid (with interest!).
    - openasocket 9y ago
      Sure, but all of this is still entirely possible to do with Bitcoin instead of dollars is my point.
    - astrange 9y ago
      > But that inflation didn't happen (still hasn't happened) for reasons that literally no person on earth can explain. Nobody likes "consumer price inflation can't happen if rich people steal all the money before consumers can spend it" as a theory?
cinquemb 9y ago
Well look at it from this perspective: If a tbtf bank algo went haywire when trading with the intent to maintain some position in cryptocurrencies because of some market spike/error/or w/e over an exchange and lost alot of money, yet others who were on the other side of the trade safely moved their gains to private wallets, the exchange wouldnt be able to negate those trades and claw back funds (like they did during the gfc) and those tbtf banks will be out of their desired positions; such that even if they were bailed out by some CB QE program, they'd still have to spend those bailed out funds to re-enter their previous positions. Meanwhile those who came out on the otherside of the trade with their desired positions will still have more resources to allocate at their disposal than had they been clawed back/reveresed.
- stanleydrew 9y ago
  Yes, I get that blockchain transactions are not reversible (excluding threat of force/imprisonment). But I think you may not have fully investigated your assumptions about what makes a bank TBTF and what it means to be "bailed out."
  - cinquemb 9y ago
    My assumptions about being bailed out are that it comes down to CB's inflating the currency supply to aquire assets that burden some privileged actors balance sheets. And what it means to not be bailed out means to pay more on ones mortgage than market value of such asset.
maemilius 9y ago
Yes, but it could remove the need to bail out the banks, which is really the crux of the issue when you get down to it. As it stands today, _not_ bailing out the banks would have crippled or destroyed the world economy (at least, that's my understanding). The banks are, literally, too big to [be allowed to] fail. Cryptocurrencies could eventually remove enough power from banks to render their failure absorbable by the global economy. Granted, I find it very unlikely that any cryptocurrency could remove the need for banks in general - they fill too many roles in the financial system - but it could reduce the market's reliance on them in general. There's a lot of "could"s in all of this and I'm not an economist myself, so, grain of salt and all that. I will say that this is all based on things I've read from people that are, to the best of my knowledge, actual economists, but you should do your own research if such a thing interests you.

sethev 9y ago

To take the biggest example, AIG's owners did bear the consequences. Their equity was wiped out in the bailout. Do you believe individuals who did business with AIG are the ones who should have born the consequences for bad decisions made by the owners of AIG?

UncleEntity 9y ago
> Do you believe individuals who did business with AIG are the ones who should have born the consequences for bad decisions made by the owners of AIG? The real question is why shouldn't they? It all comes down to moral hazard and lack of due diligence really.
andrewla 9y ago
Well, first of all, yes, 100% certainly -- if you try to buy insurance for uninsurable things, then you are taking a risk, and risks can have downsides. And as for bearing the consequences, we simply do not have the capacity within the rule of law to make them bear the consequences. The people who made the decisions were extremely well compensated even outside of equity up until the moment when the house of cards came crashing down, and those people have now moved on to equally lucrative jobs -- hell, they can probably put on their resume that they managed to convince the government to give them billions of dollars to cover their asses, which is more than anyone else gets when their bad decisions come home to roost. Without the bailouts there would at least be grounds to sue the individuals who created the situation when things unwound, because there would have been consequences. I'm getting a little up in arms here because nothing triggers me more than the idea that macroeconomics is a science -- all the actions around the bailouts, and this narrative of "economic collapse" and "too big to fail" -- the same people who disastrously failed to predict the future before we're now trusting to predict the future. Einstein said in response to the fact that hundreds of scientists thought his theory was wrong by saying "if I were wrong, one would be enough". In economics, nobody would even consider their models to be incorrect, no matter how much they have been falsified.
- sethev 9y ago
  The vast majority of people who did business with AIG had nothing to do with subprime. Your whole answer seems to assume that the consequences of AIG going bankrupt could have been neatly contained the subset of their business that caused the problem.

pjc50 9y ago

Unless you end mortgages entirely, there is always the risk of a property crisis spreading to lenders.