3 ms·

There are quite a few challenges. The obvious ones are the technical ones regarding the transaction costs and capacity of the network (that may or may not be so

There are quite a few challenges. The obvious ones are the technical ones regarding the transaction costs and capacity of the network (that may or may not be solved with Lightning.) But those are small ones. The real issue is that bitcoin people seem to have not given that much thought what modern money actually is and what is the role financial industry actual plays in the modern economy. So, some not so organized thoughts on that: First, what is money? What most people nowadays consider as money is debt, or credit which equals trust. Basically money is the tool to keep the society to figure out who owes whom and how much. Thinking that it would be somehow good that we have a limited amount of debt we can have in the society is, well, mindbogglingly stupid idea in my head. Also removing the trust from the money makes no sense to me, and I really do not know how that could be accomplished (even in bitcoin, you need to trust some third party to assign some value to your bitcoins tomorrow). And bitcoiners have not given that much thought on the credit side of the money. How is lending supposed to work with bicoin/smart contracts/whatever? One of the more important functions of financial sector is to convert your overnight deposit to my 20 year mortgage. There is literally nothing in bitcoin that would disrupt that functionality. But let's assume bitcoin comes as a generally accepted currency. Now there are going to be institutions that are going to offer custodian services to hold your bitcoins because it is quite risky for a normal person to hold the actual bitcoins. These are insured against hacking and whatnot. Now, there is a need for lending and borrowing, so one day someone will figure out that if this institution is allowed to lend these bitcoins in custody forward (note, very prudently), the institution is able to offer much lower custody fees. Actually they are able to pay for you to give your bitcoins to their custody. As this institution is very prudent and everyone trusts this institution very much, someone is going to figure out that actually you do not need to get your bitcoins out of the institution to pay for your coffee, but the coffee shop is happy to take as a payment a promise that instead of paying me, the institution is going to pay the bitcoins to coffee shop owner. And almost magically, we have full fractional reserve banking and unlimited monetary supply. Without any regulatory oversight, of course. Finally, there is no mechanism (either before or after this rebirth of fractional reserve banking) that would anyhow stabilize the value of one bitcoin. I do sometimes read very handvawy opinions that when bitcoin gains traction it somehow naturally stabilizes in value. But that is only wishful thinking, nothing more. If there is no mechanism to stabilize the value, then the value is defined by the ones that are willing to pay the most at any given time and that is for sure not stable. Which brings me to my last point. How delusional you need to be to think that bitcoin is anyhow good "store of value"? I mean, to me, if I want to put my wealth for whatever reason to something that is called "store of value" the one single most important criteria to judge the stores of value would be how well the thing actually stores value. And a highly volatile gambling token is a really bad store of value. (Applies partially to gold as well, but gold at least has some intrinsic value). And that is not going to change until there is a mechanism to keep the token value stable. Currently those mechanisms are called Central Banks.

myegorov 8y ago
All valid points. I think there's a more fundamental hurdle though: money as the instrument of coercion, with the state monopoly over defining its legitimacy, distribution channels, taxation. I can't fathom how the incumbents could let go of the monopoly.
Taek 8y ago
Money is essentially an IOU from society, and you can collect your owed debt from anyone who accepts that money for goods and services. Bitcoin fits into that world very successfully, there are plenty of people who will accept Bitcoin for payment, whether directly into goods and services, or into another asset (like dollars) that can be widely used for goods and services. Bitcoin is not good for lending, that's true. But it is good at plenty of other things, and Bitcoin will find a strong place in our economy despite its inability to facilitate lending and credit. In a similar token, cars cannot drive everywhere that horses can walk. And yet they have replaced the horse for most of the original mainstream uses of horses. There are plenty of solutions to the custodial problem, and most of them reduce to situations that are much better than the bank. For example, you can have multi-sig ownership of your wallet shared by your bank. But, your bank's key is only valid after 4 weeks. If you lose your key, that money is locked up for a few weeks, but after that the bank can help you out. In the meantime, the bank doesn't control your money at all. That's just one example of one approach to custodianship that can't exist outside of cryptocurrency. There are many, many are very creative, and almost certainly most of them are better than what you can get with fiat money. There's also the fact that bitcoin has no central monetary policy. Even if it does reduce to just people putting their money in banks and earning interest, they still end up in a situation where there's no central power controlling the monetary supply, the interest rate, or any other sort of policy related to the currency, and that is an upgrade (or at the very least, it's novel) over what traditional banking can do. > Finally, there is no mechanism (either before or after this rebirth of fractional reserve banking) that would anyhow stabilize the value of one bitcoin. I do sometimes read very handvawy opinions that when bitcoin gains traction it somehow naturally stabilizes in value. But that is only wishful thinking, nothing more. I don't think you've offered any constructive support for your argument. Bitcoin flails around because people suspect it can become the next reserve currency of the world, and because little bumps here and there have huge impacts on whether or not that may actually happen. At some point we'll know where exactly Bitcoin fits into the economy, and much of the speculation will melt away. That will substantially improve Bitcoin's velocity-to-price ratio, which should smooth out most of the volatility. > How delusional you need to be to think that bitcoin is anyhow good "store of value"? I mean, to me, if I want to put my wealth for whatever reason to something that is called "store of value" the one single most important criteria to judge the stores of value would be how well the thing actually stores value. And a highly volatile gambling token is a really bad store of value. No, bitcoin is a store of value that isn't dependent on any central body. No change in president, no declaration of war, no collapse of a country can disrupt bitcoin's function. While it's short term volatility is very high relative to traditional stores of value, it's resistance to chaotic global events makes it a very good hedge against global disaster. The amount of infrastructure required to run a successful bitcoin is incredibly minimal compared to something like the US banking system. A lot of people don't appreciate how carefully Bitcoin has been designed to resist major disasters, and how effectively it'd be able to pull that off.

myegorov 8y ago

All valid points. I think there's a more fundamental hurdle though: money as the instrument of coercion, with the state monopoly over defining its legitimacy, distribution channels, taxation. I can't fathom how the incumbents could let go of the monopoly.

Taek 8y ago

Money is essentially an IOU from society, and you can collect your owed debt from anyone who accepts that money for goods and services. Bitcoin fits into that world very successfully, there are plenty of people who will accept Bitcoin for payment, whether directly into goods and services, or into another asset (like dollars) that can be widely used for goods and services. Bitcoin is not good for lending, that's true. But it is good at plenty of other things, and Bitcoin will find a strong place in our economy despite its inability to facilitate lending and credit. In a similar token, cars cannot drive everywhere that horses can walk. And yet they have replaced the horse for most of the original mainstream uses of horses. There are plenty of solutions to the custodial problem, and most of them reduce to situations that are much better than the bank. For example, you can have multi-sig ownership of your wallet shared by your bank. But, your bank's key is only valid after 4 weeks. If you lose your key, that money is locked up for a few weeks, but after that the bank can help you out. In the meantime, the bank doesn't control your money at all. That's just one example of one approach to custodianship that can't exist outside of cryptocurrency. There are many, many are very creative, and almost certainly most of them are better than what you can get with fiat money. There's also the fact that bitcoin has no central monetary policy. Even if it does reduce to just people putting their money in banks and earning interest, they still end up in a situation where there's no central power controlling the monetary supply, the interest rate, or any other sort of policy related to the currency, and that is an upgrade (or at the very least, it's novel) over what traditional banking can do. > Finally, there is no mechanism (either before or after this rebirth of fractional reserve banking) that would anyhow stabilize the value of one bitcoin. I do sometimes read very handvawy opinions that when bitcoin gains traction it somehow naturally stabilizes in value. But that is only wishful thinking, nothing more. I don't think you've offered any constructive support for your argument. Bitcoin flails around because people suspect it can become the next reserve currency of the world, and because little bumps here and there have huge impacts on whether or not that may actually happen. At some point we'll know where exactly Bitcoin fits into the economy, and much of the speculation will melt away. That will substantially improve Bitcoin's velocity-to-price ratio, which should smooth out most of the volatility. > How delusional you need to be to think that bitcoin is anyhow good "store of value"? I mean, to me, if I want to put my wealth for whatever reason to something that is called "store of value" the one single most important criteria to judge the stores of value would be how well the thing actually stores value. And a highly volatile gambling token is a really bad store of value. No, bitcoin is a store of value that isn't dependent on any central body. No change in president, no declaration of war, no collapse of a country can disrupt bitcoin's function. While it's short term volatility is very high relative to traditional stores of value, it's resistance to chaotic global events makes it a very good hedge against global disaster. The amount of infrastructure required to run a successful bitcoin is incredibly minimal compared to something like the US banking system. A lot of people don't appreciate how carefully Bitcoin has been designed to resist major disasters, and how effectively it'd be able to pull that off.