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> And these costs aren’t incidental, something that can be innovated away. As Brunnermeier and Abadi point out, the high costs — making it expensive to create a
by darawk 8y ago
> And these costs aren’t incidental, something that can be innovated away. As Brunnermeier and Abadi point out, the high costs — making it expensive to create a new Bitcoin, or transfer an existing one — are essential to the project of creating confidence in a decentralized system.
No they aren't. See: Proof of stake, Lightning network.
> Bitcoin is real without knowing who issued it, so you need the digital equivalent of biting a gold coin to be sure it’s the real deal, and the costs of producing something that satisfies that test have to be high enough to discourage fraud.
This is a pretty wildly inaccurate analogy of why the Bitcoin network uses mining.
> Bear in mind that conventional money generally does its job quite well. Transaction costs are low.
To pay in cash, yes. To pay digitally? You're paying high credit card fees. So, no, not really.
> The purchasing power of a dollar a year from now is highly predictable – orders of magnitude more predictable than that of a Bitcoin.
Disingenuous argument. If the US dollar were invented 10 years ago, it'd be highly volatile today too. The fact that Bitcoin is volatile today is only relevant if you are going to argue that that volatility is inherent to cryptocurrencies. An argument which may be valid, but that Paul fails to make.
> Using a bank account means trusting a bank, but by and large banks justify that trust, far more so than the firms that hold cryptocurrency tokens.
Because using a cryptocurrency does not require trusting anyone.
> But gold does have real-world uses, both for jewelry and for things like filling teeth, that provide a weak but real tether to the real economy.
You mean the way darknet markets provide a weak but real tether to the real economy? You literally just enumerated Bitcoin's tether's to the real economy. Also, the idea that the gold market is in any way meaningfully tethered to its industrial usage is a complete joke.
There are really great arguments against Bitcoin and crypto-currencies. All of which Paul Krugman completely fails to make in this piece. The best of which he's positioned to make, too! Bitcoin is a deflationary asset - that's a real problem for anything trying to be a currency. That's a great case against it, and one close to Krugman's heart.
This article is seriously disappointing.
- paulgb 8y ago> No they aren't. See: Proof of stake, Lightning network. LN doesn't really solve the energy problem because the incentive for miners to compete is still dominated by the mining reward rather than transaction costs. As long as there is competitive mining, the resources used for mining will approach the block reward. Proof of stake is interesting but I don't think it's been used at scale yet has it?
- darawk 8y ago> LN doesn't really solve the energy problem because the incentive for miners to compete is still dominated by the mining reward rather than transaction costs. You're right, it doesn't solve the energy problem. LN solves the fee problem. The energy problem is addressed by something like proof of stake. > Proof of stake is interesting but I don't think it's been used at scale yet has it? It's been used in a number of non-major cryptocurrencies. Its been analyzed quite a bit though, and there are high-value (in the sense of market cap - i.e. large bounty for someone to exploit it, if it were possible) working implementations out there.
- paulgb 8y agoDo you see a solution to the energy use problem that doesn't involve a massive devaluation of Bitcoin?
- darawk 8y agoRight now, proof of stake seems like the best solution to the energy problem. AFAIK, bitcoin is not looking to implement PoS, so my bet is on Ethereum to address this issue.
- jmull 8y agoYou haven't solved the fee problem if you haven't solved the energy problem.
- darawk 8y agoI'm not sure what your reasoning here is, but you're wrong. LN basically allows you to dramatically expand the number of transactions per block. The blocks still take energy to mine, but the per-transaction fee gets sharply reduced.
- keymone 8y agoThere is no “energy problem”. Energy spent mining bitcoin is the price paid for security of the ledger in in-cheatable currency of the universe. Proof of stake systems are all castles in the air in that regard.
- magnetic 8y ago> To pay in cash, yes. To pay digitally? You're paying high credit card fees. So, no, not really. I wonder what high credit card fees you are talking about. As a consumer, I pay none of them. In fact, I get money back every time I purchase something with my credit card (in addition to getting a bunch of other benefits, like purchase protection, extended insurance/warranty, ability to charge back, etc). As far as I know, none of this is available in the cryptocurrency world, and more importantly, all of the cryptocurrencies that I know of do charge a transaction fee, which cannot compete with $0 flat (not to mention cash back). Crypto currencies have interesting features, but low transaction fees vs CC isn't one of them.
- Devils_Avocado 8y agoThe CC fee gets baked into the price, so you don't notice it - if a store takes card payments then all its products are ~2% higher than they would be otherwise.
- darawk 8y ago> I wonder what high credit card fees you are talking about. As a consumer, I pay none of them. That's not how economics works. You are still paying.
- bdcravens 8y agoYet no one is making that a surcharge. So if I pay with crypto, I'm paying twice, as the credit card cost are presumably baked in for all.
- darawk 8y agoThat's because up until recently credit card companies required merchants to charge the same prices. They had the power to do this because they are basically a cartel. But yes, you're right. You would be paying twice, just like you're still paying once even if you pay with cash. This is a real problem, but it's not an inherent flaw in cryptocurrencies, IMO. Just a practical consequence of our existing financial system. That doesn't make it any less real, but it's "not Bitcoin's fault" so to speak.
- IanCal 8y ago> To pay in cash, yes. To pay digitally? You're paying high credit card fees. So, no, not really What high fees do you mean? Credit card fees in the EU are capped at 0.3% iirc.