8 ms·

It's interesting to think about how the role of central banks might change in the age of crypto currencies. Governments can print Euros and Dollars. But not Bi

by TekMol 8y ago

It's interesting to think about how the role of central banks might change in the age of crypto currencies. Governments can print Euros and Dollars. But not Bitcoin and Ethereum. Popular theory is that governments have a good grip on currency usage because they can decide which currencies they accept for tax payments. And because they can force merchants to accept certain currencies. It will be interesting to see if this grip holds up.

dogma1138 8y ago
Since there is no fractional reserve and the blockchain ensures that you have the equivalent of fully correspondent banking with each node in the network there is no need for a central bank on the other hand the blockchain itself can be viewed as is the central bank with the large mining pools acting as its board of directors. That said since no blockchain currently offers a credit system it’s not really possible to test this out fully since there is no true equivalency. A better question would be not if we need central banks but rather should the economic system be based on credit and interest or not.
- brian_cloutier 8y ago
  There's no fundamental reason why Bitcoin shouldn't also have fractional reserve. I mean, cash also has a fixed supply! (from the Bank's POV) It's not like Chase Bank (or whatever non-central bank) can just print more dollars. If you just sit on your Bitcoin it collects 0% Bitcoin-denominated interest. Maybe you'd prefer to make a loan to a bank and have them pay you interest. For the term of the loan that money isn't sitting in an address you control, it's been given to the bank and they're consequently free to lend it out to other people. Viola, Bitcoin have been created, just not on-chain. EDIT: I was referring to physical dollars. As in, dollar bills and actual coins. I'm aware that Chase creates money, but it cannot literally print money.
  - dogma1138 8y ago
    I didn’t say it should or shouldn’t I said that currently they do not offer any sort of a built-in credit system. And if you do fractional reserve off the blockchain then your crypto isn’t currency but rather closer to say what gold was during the gold standard era. And yes Chase can “print” dollars that’s what the fractional reserve system means for every dollar they store in the central bank they can loan X dollars. When you ask for a mortgage Chase essentially creates most of those dollars out of thin air.
    - Firadeoclus 8y ago
      > currently they do not offer any sort of a built-in credit system. Indeed, but what does credit mean in a trustless system?
  - closeparen 8y ago
    >It's not like Chase Bank (or whatever non-central bank) can just print more dollars. Yes, it can, that's what fractional reserve means. Banks create (most of) the money they lend. This is regulated by the central banks but carried out via ordinary retail banking. When you swipe your credit card, buy a car, etc. money is being created out of thin air. The universe remains balanced because it corresponds to your obligation to repay; as you do, the money ceases to exist.
    - brian_cloutier 8y ago
      I don't think you understand what I was trying to say. I'm well aware that they create money, but they're literally not printing dollars. They do not cause M0 to increase. Nobody but the Treasury can cause physical dollars to be created, but that doesn't prevent fractional reserve from occurring. So, anybody who claims Bitcoin doesn't support fraction reserve based solely on the fact that banks can't create new Bitcoin is incorrect.
      - philipwhiuk 8y ago
        Okay. I'm Chase Bank. How do I issue 600 BTC given I have 20 BTC in my account. There is zero allowance in the protocol for this to happen.
        brian_cloutier 8y ago
        Say the reserve requirement is 10%. Wikipedia states [1]: > The minimum reserve is generally determined by the central bank to be no less than a specified percentage of the amount of deposit liabilities the commercial bank owes to its customers. If someone gives Chase $100, Chase is allowed to loan out up to $90 of it, and must keep the remaining $10 in reserve. 1: https://en.wikipedia.org/wiki/Reserve_requirement https://en.wikipedia.org/wiki/Reserve_requirement The protocol allows someone with 100BTC to send someone else 90BTC.
        spookthesunset 8y ago
        Easy. As an exchange almost all your volume is “off chain” transactions between two traders. And since you aren’t audited or beholden to any financial regulation there is nothing stopping you from having one side of the trade be your own bot. All that bot does is sell newly created fake bitcoin and keeps the dirty USD fiat for the exchange owner. Again since the system isn’t audited, the exchange can have massively more “bitcoin” in its database than it actually has on the blockchain. The system (Er, scam) can work just fine until a bunch of folks start withdrawing bitcoin. Since virtually all of the exchanges are unaudited, sketchy “businesses” I wouldn’t be surprised if they all run this way. It might come to pass the almost all of the exchange volume consists of trading fake bitcoin that is backed by almost no real bitcoin.
- TekMol 8y ago
  Well, every crypto currency has it's own characteristics. And therefore different USPs. I don't expect currencies that involve blockchains to be the dominant payment channels of the future. For payments, I expect simpler constructs. Lightning Network already handles most transactions without blockchain interaction. And Iota is a completely blockchainless currency that got traction already. I think there will be many more approaches before one becomes the 'everyday' crypto currency.
- pjc50 8y ago
  Bitcoin exchanges certainly can "print more bitcoin" in the same sense as fractional reserve banking - the exchange doesn't have to have a stash of coins that exactly corresponds to the sum of bitcoin-denominated customer accounts. Mtgox blew up by being a fractional reserve "bank" destroyed by a "bank run". Heck, bitcoin exchanges can even print ""dollars"" in the form of USDT. > should the economic system be based on credit and interest or not This is almost unavoidable - remember that every not yet paid invoice is a form of credit.
  - deleted 8y ago
    [deleted]
  - dogma1138 8y ago
    Ofc they can’t which is why I said that the crypto needs to support it for it to work properly otherwise the only thing you are left with is some odd options based scheme or a MtGox type ponzy racket.
- sonnyblarney 8y ago
  Not really. With most cryptos, there is really a strict pre-established monetary policy baked into the algorithm with really no flexibility at all. "A better question would be not if we need central banks but rather should the economic system be based on credit and interest or not." I think a better way to say it: "Do we need monetary policy or not" - and I think the answer is 'yes' - so whether it's crypto or not ... there will have to be some kind of group/committee making those rules, and that's de-facto the central bank.
  - dogma1138 8y ago
    There is a cosensus protocol that can be used to propose and approve a change the crypto, this is no more difficult than changing a monetary policy it’s just different. The code changes isn’t the hard part the policy itself is.
    - sonnyblarney 8y ago
      "hard part the policy itself is" which is ultimately the point of a 'central bank' really.
      - whataretensors 8y ago
        Except they keep scamming...
- EGreg 8y ago
  We have been dealing with exactly these issues at the Intercoin project (https://intercoin.org https://intercoin.org) Credit is a voluntary thing. Both sides can agree to create credit lines (trustlines) out of thin air without any third party ledger or permission. (Well maybe except Usury laws.) Now the problem with credit is that you don’t know how solvent the debtor is and many debts they have. Credit agencies have sprung up to try to address this somewhat. But the whole POINT of value based money is to introduce a third party representation of real assets, and that real world scarcity requires solving the double spend problem. So the whole thing with every technology is remembering that A paid B, and not forgetting it (eg make collusion really infeasible). Many blockchains are just append only databases stored on every node. They elect a leader based on PoW or PoS and it’s horribly inefficient. There are far better ways. But anyway back to credit. Money is a social phenomenon that benefits from a network effect. A casino’s chips are worthless as a medium of exhange outside the context of the casino and the same goes for JPY, EUR etc. Inside a community currency where everyone began to accept it, you can have the ability to print more money same as a Harvard Facebook has the ability to add features you don’t like but you keep using it. The only difference is that these decisions can be done democratically. So like living in a city whose policies you don’t all agree with. They can use this money for Basic Income and other things like public infrastructure. They can peg to an outside currency AND print/dilute it gradually to redistribute wealth in a voluntary way that even anarchco capitalists will accept. That’s one of the features of Intercoin.
  - philipwhiuk 8y ago
    > There are far better ways. Citation needed since PoS / PoW is the way Bitcoin uses to solve the many generals problem.
    - DoctorOetker 8y ago
      Algorand's solution is in fact pure genious, however there is no implementation yet (that I know of, if someone knows of an implementation, please let me know!).
      - 8y ago
shanghaiaway 8y ago
Governments are never going to adopt a currency controlled by foreign entities.
- TomMarius 8y ago
  Really? In many parts of the world (outside of the US, e.g. Georgia), dollar is used/accepted even for taxes.
  - shanghaiaway 8y ago
    No country has adopted a foreign currency to make their central bank impotent.
    - kirushik 8y ago
      Seems like at least Ecuador did: > The present currency of Ecuador is the United States dollar. https://en.wikipedia.org/wiki/Currency_of_Ecuador https://en.wikipedia.org/wiki/Currency_of_Ecuador
    - pjc50 8y ago
      Several small countries have "dollarised". Ireland for decades ran an "independent" currency that had the same value as the pound and decimalised on the same day.
    - Reason077 8y ago
      "No country has adopted a foreign currency to make their central bank impotent." There are a number of countries who's currencies are pegged to the US dollar at fixed exchange rates. Notably Hong Kong, as well as gulf states such as the UAE, Saudi Arabia, Qatar, etc. This means their central banks have very limited scope to control domestic money supply and interest rates via monetary policy.
  - bausshf 8y ago
    The US Dollar is an accepted global currency for international trades. So it kinda does make sense they accept it, since they can ultimately use it.
partycoder 8y ago
Bitcoin so far doesn't scale. Not only in terms of transaction fees and processing times... but also at the most basic of levels. What will happen when the blockchain doesn't fit in a median harddrive? The decentralization narrative will go away. Only a few people will have enough storage for the blockchain and you will go back to having to trust someone.
- gst 8y ago
  > The decentralization narrative will go away. Only a few people will have enough storage for the blockchain and you will go back to having to trust someone. With a pruning client you only need to store a small subset of the blockchain and there are no major changes in regards to trust. Your client still verifies every single transaction, but it removes data from the chain that it won't need anymore in the future (e.g., an old transaction that already has been spent). With a SPV client your client only stores the chain headers and then only requests the required data from a server. SPV clients need a small amount of resources and can run on mobile phones. At the same time most of the important functionality (transaction signing, transaction verification, ...) happens still locally and the level of trust that you need to put into the servers is quite small.
  - hobofan 8y ago
    Even beyond simple pruning, there are techniques that currently don't seem to be in use yet and should make chain-size a non-issue for the near future. If written about it in another comment here before[0]. [0]: https://news.ycombinator.com/item?id=16929524 https://news.ycombinator.com/item?id=16929524
- samdoidge 8y ago
  That depends if the Bitcoin blockchain size is growing at a faster rate than the storage available on a median hard drive. The blockchain is currently at 160~GB, and I believe it will grow around <60GB a year. [1] In 10 years it may be ~760GB, but the median hard drive shouldn't be too far from this. [1] https://charts.bitcoin.com/chart/blockchain-size https://charts.bitcoin.com/chart/blockchain-size
- 8y ago
emodendroket 8y ago
So far there does not seem to be any serious threat to any national currency because of cryptocurrency.
- JohnJamesRambo 8y ago
  What??? https://www.cnbc.com/2017/08/30/venezuela-is-one-of-the-worlds-most-dangerous-places-to-mine-bitcoin.html https://www.cnbc.com/2017/08/30/venezuela-is-one-of-the-worl... https://www.bloomberg.com/news/articles/2017-11-15/bitcoin-surges-in-zimbabwe-after-military-moves-to-seize-power https://www.bloomberg.com/news/articles/2017-11-15/bitcoin-s...
  - emodendroket 8y ago
    At best you can say that people become interested in the same sort of circumstances they're they're interested in conducting transactions in foreign reserve currencies rather than their own.
Symmetry 8y ago
If you have multiple competing cryptocurrencies that seems pretty equivalent to a system of free banking[1] which, well, worked pretty well in Scotland before the Bank of England took over. [1]https://en.wikipedia.org/wiki/Free_banking https://en.wikipedia.org/wiki/Free_banking

by TekMol 8y ago

dogma1138 8y ago

Since there is no fractional reserve and the blockchain ensures that you have the equivalent of fully correspondent banking with each node in the network there is no need for a central bank on the other hand the blockchain itself can be viewed as is the central bank with the large mining pools acting as its board of directors. That said since no blockchain currently offers a credit system it’s not really possible to test this out fully since there is no true equivalency. A better question would be not if we need central banks but rather should the economic system be based on credit and interest or not.

brian_cloutier 8y ago
There's no fundamental reason why Bitcoin shouldn't also have fractional reserve. I mean, cash also has a fixed supply! (from the Bank's POV) It's not like Chase Bank (or whatever non-central bank) can just print more dollars. If you just sit on your Bitcoin it collects 0% Bitcoin-denominated interest. Maybe you'd prefer to make a loan to a bank and have them pay you interest. For the term of the loan that money isn't sitting in an address you control, it's been given to the bank and they're consequently free to lend it out to other people. Viola, Bitcoin have been created, just not on-chain. EDIT: I was referring to physical dollars. As in, dollar bills and actual coins. I'm aware that Chase creates money, but it cannot literally print money.
- dogma1138 8y ago
  I didn’t say it should or shouldn’t I said that currently they do not offer any sort of a built-in credit system. And if you do fractional reserve off the blockchain then your crypto isn’t currency but rather closer to say what gold was during the gold standard era. And yes Chase can “print” dollars that’s what the fractional reserve system means for every dollar they store in the central bank they can loan X dollars. When you ask for a mortgage Chase essentially creates most of those dollars out of thin air.
  - Firadeoclus 8y ago
    > currently they do not offer any sort of a built-in credit system. Indeed, but what does credit mean in a trustless system?
- closeparen 8y ago
  >It's not like Chase Bank (or whatever non-central bank) can just print more dollars. Yes, it can, that's what fractional reserve means. Banks create (most of) the money they lend. This is regulated by the central banks but carried out via ordinary retail banking. When you swipe your credit card, buy a car, etc. money is being created out of thin air. The universe remains balanced because it corresponds to your obligation to repay; as you do, the money ceases to exist.
  - brian_cloutier 8y ago
    I don't think you understand what I was trying to say. I'm well aware that they create money, but they're literally not printing dollars. They do not cause M0 to increase. Nobody but the Treasury can cause physical dollars to be created, but that doesn't prevent fractional reserve from occurring. So, anybody who claims Bitcoin doesn't support fraction reserve based solely on the fact that banks can't create new Bitcoin is incorrect.
    - philipwhiuk 8y ago
      Okay. I'm Chase Bank. How do I issue 600 BTC given I have 20 BTC in my account. There is zero allowance in the protocol for this to happen.
      - brian_cloutier 8y ago
        Say the reserve requirement is 10%. Wikipedia states [1]: > The minimum reserve is generally determined by the central bank to be no less than a specified percentage of the amount of deposit liabilities the commercial bank owes to its customers. If someone gives Chase $100, Chase is allowed to loan out up to $90 of it, and must keep the remaining $10 in reserve. 1: https://en.wikipedia.org/wiki/Reserve_requirement https://en.wikipedia.org/wiki/Reserve_requirement The protocol allows someone with 100BTC to send someone else 90BTC.
      - spookthesunset 8y ago
        Easy. As an exchange almost all your volume is “off chain” transactions between two traders. And since you aren’t audited or beholden to any financial regulation there is nothing stopping you from having one side of the trade be your own bot. All that bot does is sell newly created fake bitcoin and keeps the dirty USD fiat for the exchange owner. Again since the system isn’t audited, the exchange can have massively more “bitcoin” in its database than it actually has on the blockchain. The system (Er, scam) can work just fine until a bunch of folks start withdrawing bitcoin. Since virtually all of the exchanges are unaudited, sketchy “businesses” I wouldn’t be surprised if they all run this way. It might come to pass the almost all of the exchange volume consists of trading fake bitcoin that is backed by almost no real bitcoin.
TekMol 8y ago
Well, every crypto currency has it's own characteristics. And therefore different USPs. I don't expect currencies that involve blockchains to be the dominant payment channels of the future. For payments, I expect simpler constructs. Lightning Network already handles most transactions without blockchain interaction. And Iota is a completely blockchainless currency that got traction already. I think there will be many more approaches before one becomes the 'everyday' crypto currency.
pjc50 8y ago
Bitcoin exchanges certainly can "print more bitcoin" in the same sense as fractional reserve banking - the exchange doesn't have to have a stash of coins that exactly corresponds to the sum of bitcoin-denominated customer accounts. Mtgox blew up by being a fractional reserve "bank" destroyed by a "bank run". Heck, bitcoin exchanges can even print ""dollars"" in the form of USDT. > should the economic system be based on credit and interest or not This is almost unavoidable - remember that every not yet paid invoice is a form of credit.
- deleted 8y ago
  [deleted]
- dogma1138 8y ago
  Ofc they can’t which is why I said that the crypto needs to support it for it to work properly otherwise the only thing you are left with is some odd options based scheme or a MtGox type ponzy racket.
sonnyblarney 8y ago
Not really. With most cryptos, there is really a strict pre-established monetary policy baked into the algorithm with really no flexibility at all. "A better question would be not if we need central banks but rather should the economic system be based on credit and interest or not." I think a better way to say it: "Do we need monetary policy or not" - and I think the answer is 'yes' - so whether it's crypto or not ... there will have to be some kind of group/committee making those rules, and that's de-facto the central bank.
- dogma1138 8y ago
  There is a cosensus protocol that can be used to propose and approve a change the crypto, this is no more difficult than changing a monetary policy it’s just different. The code changes isn’t the hard part the policy itself is.
  - sonnyblarney 8y ago
    "hard part the policy itself is" which is ultimately the point of a 'central bank' really.
    - whataretensors 8y ago
      Except they keep scamming...
EGreg 8y ago
We have been dealing with exactly these issues at the Intercoin project (https://intercoin.org https://intercoin.org) Credit is a voluntary thing. Both sides can agree to create credit lines (trustlines) out of thin air without any third party ledger or permission. (Well maybe except Usury laws.) Now the problem with credit is that you don’t know how solvent the debtor is and many debts they have. Credit agencies have sprung up to try to address this somewhat. But the whole POINT of value based money is to introduce a third party representation of real assets, and that real world scarcity requires solving the double spend problem. So the whole thing with every technology is remembering that A paid B, and not forgetting it (eg make collusion really infeasible). Many blockchains are just append only databases stored on every node. They elect a leader based on PoW or PoS and it’s horribly inefficient. There are far better ways. But anyway back to credit. Money is a social phenomenon that benefits from a network effect. A casino’s chips are worthless as a medium of exhange outside the context of the casino and the same goes for JPY, EUR etc. Inside a community currency where everyone began to accept it, you can have the ability to print more money same as a Harvard Facebook has the ability to add features you don’t like but you keep using it. The only difference is that these decisions can be done democratically. So like living in a city whose policies you don’t all agree with. They can use this money for Basic Income and other things like public infrastructure. They can peg to an outside currency AND print/dilute it gradually to redistribute wealth in a voluntary way that even anarchco capitalists will accept. That’s one of the features of Intercoin.
- philipwhiuk 8y ago
  > There are far better ways. Citation needed since PoS / PoW is the way Bitcoin uses to solve the many generals problem.
  - DoctorOetker 8y ago
    Algorand's solution is in fact pure genious, however there is no implementation yet (that I know of, if someone knows of an implementation, please let me know!).
    - 8y ago

shanghaiaway 8y ago

Governments are never going to adopt a currency controlled by foreign entities.

TomMarius 8y ago
Really? In many parts of the world (outside of the US, e.g. Georgia), dollar is used/accepted even for taxes.
- shanghaiaway 8y ago
  No country has adopted a foreign currency to make their central bank impotent.
  - kirushik 8y ago
    Seems like at least Ecuador did: > The present currency of Ecuador is the United States dollar. https://en.wikipedia.org/wiki/Currency_of_Ecuador https://en.wikipedia.org/wiki/Currency_of_Ecuador
  - pjc50 8y ago
    Several small countries have "dollarised". Ireland for decades ran an "independent" currency that had the same value as the pound and decimalised on the same day.
  - Reason077 8y ago
    "No country has adopted a foreign currency to make their central bank impotent." There are a number of countries who's currencies are pegged to the US dollar at fixed exchange rates. Notably Hong Kong, as well as gulf states such as the UAE, Saudi Arabia, Qatar, etc. This means their central banks have very limited scope to control domestic money supply and interest rates via monetary policy.
- bausshf 8y ago
  The US Dollar is an accepted global currency for international trades. So it kinda does make sense they accept it, since they can ultimately use it.

partycoder 8y ago

Bitcoin so far doesn't scale. Not only in terms of transaction fees and processing times... but also at the most basic of levels. What will happen when the blockchain doesn't fit in a median harddrive? The decentralization narrative will go away. Only a few people will have enough storage for the blockchain and you will go back to having to trust someone.

gst 8y ago
> The decentralization narrative will go away. Only a few people will have enough storage for the blockchain and you will go back to having to trust someone. With a pruning client you only need to store a small subset of the blockchain and there are no major changes in regards to trust. Your client still verifies every single transaction, but it removes data from the chain that it won't need anymore in the future (e.g., an old transaction that already has been spent). With a SPV client your client only stores the chain headers and then only requests the required data from a server. SPV clients need a small amount of resources and can run on mobile phones. At the same time most of the important functionality (transaction signing, transaction verification, ...) happens still locally and the level of trust that you need to put into the servers is quite small.
- hobofan 8y ago
  Even beyond simple pruning, there are techniques that currently don't seem to be in use yet and should make chain-size a non-issue for the near future. If written about it in another comment here before[0]. [0]: https://news.ycombinator.com/item?id=16929524 https://news.ycombinator.com/item?id=16929524
samdoidge 8y ago
That depends if the Bitcoin blockchain size is growing at a faster rate than the storage available on a median hard drive. The blockchain is currently at 160~GB, and I believe it will grow around <60GB a year. [1] In 10 years it may be ~760GB, but the median hard drive shouldn't be too far from this. [1] https://charts.bitcoin.com/chart/blockchain-size https://charts.bitcoin.com/chart/blockchain-size
8y ago

emodendroket 8y ago

So far there does not seem to be any serious threat to any national currency because of cryptocurrency.

JohnJamesRambo 8y ago
What??? https://www.cnbc.com/2017/08/30/venezuela-is-one-of-the-worlds-most-dangerous-places-to-mine-bitcoin.html https://www.cnbc.com/2017/08/30/venezuela-is-one-of-the-worl... https://www.bloomberg.com/news/articles/2017-11-15/bitcoin-surges-in-zimbabwe-after-military-moves-to-seize-power https://www.bloomberg.com/news/articles/2017-11-15/bitcoin-s...
- emodendroket 8y ago
  At best you can say that people become interested in the same sort of circumstances they're they're interested in conducting transactions in foreign reserve currencies rather than their own.

Symmetry 8y ago

If you have multiple competing cryptocurrencies that seems pretty equivalent to a system of free banking[1] which, well, worked pretty well in Scotland before the Bank of England took over. [1]https://en.wikipedia.org/wiki/Free_banking https://en.wikipedia.org/wiki/Free_banking