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There are many problems cryptocurrencies solve. You can make a list just by noting where actual turnover in the real-world crypto economies goes in practice: *

There are many problems cryptocurrencies solve. You can make a list just by noting where actual turnover in the real-world crypto economies goes in practice: * How do I receive payment for illegal goods I am selling without going through traditional regulated entities that want to attach my real-world identity to the payment in their records? * How do I provide gambling services to customers in jurisdictions that prohibit this? * How do I profit from people willing to put their money into transparent pyramid schemes or straight-up scams, without risk of recourse from traditional police / legal systems? * How do I launder money? * How do I skim from the shadow economy i.e. in entities engaged in all of the above activities, without committing an obvious crime myself? Legal oversight can be an unwanted transaction overhead that introduces risk, and laws restrict freedom. Ask instead what problems decentralised currency is supposed to solve that are legal and moral to solve and cannot be solved more cheaply through traditional systems involving a regulated third party subject to the rule of law.

mkirklions 8y ago
You didnt mention that governments print money. Lots of money. Thats my number 1.
- umanwizard 8y ago
  Why's that a bad thing?
  - sparkie 8y ago
    Because a dollar is not always worth a dollar. A bitcoin is always worth a bitcoin. The dollar doesn't have a "reference rate," as it is subject to arbitrary inflation. The dollar has had several reference rates in the past, based on weight in silver, and later, gold. The purchasing power of a dollar has declined rapidly since these reference rates were abandoned. A bitcoin has a reference rate which is eventually 1 in 21M. There is an initial inflationary period until it reaches that, but we're already 1 in ~18M, so most of the inflation has already occurred. We will be very close to the 21M in another 13 years, and after that we will only be adding small fractions. If you had a dollar in 1918, it would be worth only a small fraction of a dollar today. 1/16 or 1/40, depending on what estimations you use. If past performance is anything to go off, then a dollar in 2118 will be worth 1/16th of a dollar today. If you hold onto 16 dollars today, they will have the purchasing power of 1 dollar in 2118. On the other hand, if you hold 16 bitcoin today, you have 16 of 18M of the bitcoin supply. In 2118, you will have 16 of the ~21M total supply. In the same 100 years, bitcoin will inflate by most 16%. The dollar will inflate by 160% in the same period, if the past century is anything to go off (it isn't, this century will be much much worse). Or put it in to shorter timeframe. If inflation is approximately linear over the 100 years, then every 6 1/4 years, your bitcoin will lose 1% of its purchasing power. In the same timescale, your dollar will lose 10%. Which of these are you going to save money with? The above is based on the assumption that demand for bitcoin will not increase in relation to demand for the dollar. Given Gresham's Law, this is highly unlikely.
    - falcolas 8y ago
      That only pins the value of a bitcoin in relation to other bitcoins - it does nothing to pin the value of a bitcoin to real-world goods. And the only practical value of a bitcoin, in the long run, is its value in relation to real-world goods. It's also worth remembering that once the inflation of bitcoin stops at the 21m mark, it can only ever deflate from there as wallets (and their associated coins) are lost. As bad as inflation is, a deflating currency is not any better. Of course, the proposed solution to bitcoin deflation was (at least at one point) just to inflate the bitcoin currency by effectively moving the decimal point to the right (one bitcoin becomes 10, etc).
      - sparkie 8y ago
        > That only pins the value of a bitcoin in relation to other bitcoins - it does nothing to pin the value of a bitcoin to real-world goods. This is true, but it's also true for dollars. No goods are inherently pinned to a dollar value. Goods are priced in dollars with the expectation that the seller will earn a profit if sold at a given rate. But if that dollar loses its purchasing power, mostly due to it being inflated by central banks, then the price of goods in dollars will have to increase for the seller to earn the same profit. It is not sufficient for the seller to just increase their goods at the rate of inflation either, because the cost of all their expenditures increases too. To earn the same profit after inflation, they need to increase their revenue more than the rate of inflation. This has a ripple effect over all industries. On the other hand, if the non-inflationary currency is not losing its purchasing power over the same periods, then merchants will prefer to obtain the non-inflationary currency over the inflationary one. If they obtain both, they will use the inflationary currency first to purchase new materials, and only dig in to the non-inflationary currency as and when they run out of the inflationary currency. If eventually, businesses decide to price their goods in bitcoin, rather than the dollar amount of bitcoin at the current market exchange rate, then they might be able to expect that they will not need to keep raising prices annually for inflation, but might instead be able to lower them, or keep them at the same rate and increase their profits for as long as a cheaper competitor does not appear. However, if these goods are priced both in bitcoin and USD, then while the bitcoin value remains the same, the dollar value must continue to increase for inflation. Since bitcoin also enables a certain level of transactional privacy too, it will also be used for grey and black market transactions, which make up 10-20% of economies. Most people interact either directly or indirectly with these markets for saving money or generating additional profit. Cash has traditionally been used in these cases, but as the effort of states to make money digital, under mass warrantless surveillance increases, the practicality of using cash decreases. Bitcoin is well suited to fill the gap being created. > As bad as inflation is, a deflating currency is not any better. I often hear strawmen arguments against deflation, but never any real sources or evidence of how terrible it supposedly is. I'm led to believe that people won't spend money in a deflationary economy, but peoples need to eat and drink suggests otherwise. An example of deflation in action is in Moore's Law. If I buy a computer now, it will be half as powerful in 1.5 years. Why would I not just wait 2 years and buy a computer then? People continue to buy new machines all the time, and they don't wait 2 years for the next iteration, because they know that in another 2 years, that one is out of date. People will spend for as long as they perceive the transaction is worthwhile now for the labour effort they put in to acquire that amount in currency. In a deflationary economy, people simply make better decisions, because they're not simply comparing the amount to what they earned recently, but in any significant transaction they need to weigh the importance of the transaction against their future self. I think the real complaints about deflation are from socialist types who worry that the rich will get richer. Too bad for them, they can't prevent this any longer. The state no longer has the capacity to steal people's bitcoin if they take the right measures to secure their keys. The rich might get richer, but anyone can get better off if they shift to a low time-preference mindset, instead of being stuck in the debt spirals that are encouraged by high time-preference economies. > Of course, the proposed solution to bitcoin deflation was (at least at one point) just to inflate the bitcoin currency by effectively moving the decimal point to the right (one bitcoin becomes 10, etc). The "bitcoin" denomination is really just cosmetic anyway. All of the values in the bitcoin protocol are measured in satoshis, as a 64-bit integer. It is not trivial to change this denomination as it would affect the entire UTXO set of transactions. On the other hand, moving the decimal place for the cosmetic appearance of satoshis could be trivial, but it doesn't change much.
- Frondo 8y ago
  I'm still waiting for the hyperinflation Ron Paul and his adherents have been promising for....decades now. If the best they can do is point to Zimbabwe or one or two other developing nations, then I think the concerns about governments printing money are either overblown or entirely off the mark.
  - supergilbert 8y ago
    Look up Weimar Republic
    - Jwarder 8y ago
      Someone totally needs to write some fan-fiction where bitcoin running on mechanical computers prevents the rise of fascism.
    - _Tev 8y ago
      Nice example of the grasping at straws. Can you actually answer parent's question with an example that is not almost 100years old?
      - JetSpiegel 8y ago
        Germany only finished the Versailles Treaty reparations in 2010. http://www.spiegel.de/international/germany/legacy-of-versailles-germany-closes-book-on-world-war-i-with-final-reparations-payment-a-720156.html http://www.spiegel.de/international/germany/legacy-of-versai...
      - maxlybbert 8y ago
        Are you taking the position that hyperinflation hasn’t happened in the last century, or simply that it only happens in banana republics?
        _Tev 8y ago
        In last half century, I would say yes. When you get close to 100y ago you get the always-mentioned Weimar, but I don't know about other cases. I would actually like to know more examples other than Weimar/Zimbabwe/Venezuela.
- na85 8y ago
  Inflationary economies can survive in the long term, whereas the survivability of deflationary economies is not so clear.
  - mkirklions 8y ago
    >Inflationary economies can survive in the long term Is this true? I only know western history, but between Rome and every successor state, inflation is a short term fix and usually leads to the end of a government and currency(over centuries)
- this_user 8y ago
  You do realise that Bitcoin is experiencing much more inflation in its supply than the USD or the EUR, don't you?
  - sparkie 8y ago
    The bitcoin supply is increasing, at high, but shrinking rates, however its purchasing power is still increasing despite that inflation. This suggests that demand for bitcoin is exceeding the supply rate. If the demand continues, and the supply rate of bitcoin will be almost exhausted in a couple of decades, then the value of bitcoin will likely rise in response. This is of course, ignoring that volume of bitcoin in circulation is actually shrinking with time[1], because people are hodling rather than trading it. Evidence that Gresham's Law is playing out as usual. [1]: Age of bitcoin UTXOs is increasing over time. https://cdn-images-1.medium.com/max/1000/1*JopnHwBLMAOn-i2v4sHiHg.png https://cdn-images-1.medium.com/max/1000/1*JopnHwBLMAOn-i2v4...
  - mkirklions 8y ago
    BTC supply is capped at 21,000,000 The US government has 20,000,000,000,000 in debt. Today USD might be better, at some point debt will need to be paid back.
    - tehduder9 8y ago
      that's not how debt works on a national level.... it's not like personal debt at all
      - fjp 8y ago
        I know this is true when the debt is issued by the currency issuer & denominated in that same currency, such as in the case of the United States. Is that also true in the case of say, Italy's debt denominated in Euros or Illinois state debt denominated in USD? I have been meaning to read Steve Keen's work on this
        johnny22 8y ago
- amanaplanacanal 8y ago
  That's a solved problem. Precious metals are what you are looking for.
  - mkirklions 8y ago
    Chem engineer here. I dont think precious metals will survive our lifetime. Nuclear chemistry might be around the corner with either tech advancements or energy advancements. Only 1 needs to come true and it would kill the price of gold.
belorn 8y ago
Lets list them by assuming that I want to buy a legal product or service: * When it is cultural and social taboo. * When the act can be pulled out of context. * When it can become a false positive for correlation in police investigation. * When it can be abused in order to influence and apply pressure, by example advertisers, politics or different sides in a court. * When it can harm a third party, like a dependent. * when it can give unfair market power to those who know more about you than competitor with better product or service. All of those have some grey zones and illegal areas but for most it is up to the consumer to be aware. So long the legal system demand that the individual take responsibility for personal information, and the legal investigation system has false positives, and the court and political voting system depend on asymmetrical information, and influences like advertisement is legal, and we have cultural and social taboos for legal behavior, well then we have a legal and moral problem that a decentralized currency could help to solve.
rando444 8y ago
While there is some truth in your argument, you are very clearly only focusing on one-side. The problems that crypto-currencies attempt to solve are more to do with monetary policy. E.g. - you can't have things like quantitative easing / manufactured inflation if your money supply is dictated by a tightly controlled algorithm. Whether or not that is a desirable overall policy is a wholly separate argument.
- lsc 8y ago
  >The problems that crypto-currencies attempt to solve are more to do with monetary policy. E.g. - you can't have things like quantitative easing / manufactured inflation if your money supply is dictated by a tightly controlled algorithm. If that's what you want... the extralegal aspect of cryptocurrencies is a big problem. I still have a few hundred bucks tied up in e-gold, which was perfectly setup to do what you want, and backed by real gold, but as a side feature was also convenient for black market transactions.

mkirklions 8y ago

You didnt mention that governments print money. Lots of money. Thats my number 1.

umanwizard 8y ago
Why's that a bad thing?
- sparkie 8y ago
  Because a dollar is not always worth a dollar. A bitcoin is always worth a bitcoin. The dollar doesn't have a "reference rate," as it is subject to arbitrary inflation. The dollar has had several reference rates in the past, based on weight in silver, and later, gold. The purchasing power of a dollar has declined rapidly since these reference rates were abandoned. A bitcoin has a reference rate which is eventually 1 in 21M. There is an initial inflationary period until it reaches that, but we're already 1 in ~18M, so most of the inflation has already occurred. We will be very close to the 21M in another 13 years, and after that we will only be adding small fractions. If you had a dollar in 1918, it would be worth only a small fraction of a dollar today. 1/16 or 1/40, depending on what estimations you use. If past performance is anything to go off, then a dollar in 2118 will be worth 1/16th of a dollar today. If you hold onto 16 dollars today, they will have the purchasing power of 1 dollar in 2118. On the other hand, if you hold 16 bitcoin today, you have 16 of 18M of the bitcoin supply. In 2118, you will have 16 of the ~21M total supply. In the same 100 years, bitcoin will inflate by most 16%. The dollar will inflate by 160% in the same period, if the past century is anything to go off (it isn't, this century will be much much worse). Or put it in to shorter timeframe. If inflation is approximately linear over the 100 years, then every 6 1/4 years, your bitcoin will lose 1% of its purchasing power. In the same timescale, your dollar will lose 10%. Which of these are you going to save money with? The above is based on the assumption that demand for bitcoin will not increase in relation to demand for the dollar. Given Gresham's Law, this is highly unlikely.
  - falcolas 8y ago
    That only pins the value of a bitcoin in relation to other bitcoins - it does nothing to pin the value of a bitcoin to real-world goods. And the only practical value of a bitcoin, in the long run, is its value in relation to real-world goods. It's also worth remembering that once the inflation of bitcoin stops at the 21m mark, it can only ever deflate from there as wallets (and their associated coins) are lost. As bad as inflation is, a deflating currency is not any better. Of course, the proposed solution to bitcoin deflation was (at least at one point) just to inflate the bitcoin currency by effectively moving the decimal point to the right (one bitcoin becomes 10, etc).
    - sparkie 8y ago
      > That only pins the value of a bitcoin in relation to other bitcoins - it does nothing to pin the value of a bitcoin to real-world goods. This is true, but it's also true for dollars. No goods are inherently pinned to a dollar value. Goods are priced in dollars with the expectation that the seller will earn a profit if sold at a given rate. But if that dollar loses its purchasing power, mostly due to it being inflated by central banks, then the price of goods in dollars will have to increase for the seller to earn the same profit. It is not sufficient for the seller to just increase their goods at the rate of inflation either, because the cost of all their expenditures increases too. To earn the same profit after inflation, they need to increase their revenue more than the rate of inflation. This has a ripple effect over all industries. On the other hand, if the non-inflationary currency is not losing its purchasing power over the same periods, then merchants will prefer to obtain the non-inflationary currency over the inflationary one. If they obtain both, they will use the inflationary currency first to purchase new materials, and only dig in to the non-inflationary currency as and when they run out of the inflationary currency. If eventually, businesses decide to price their goods in bitcoin, rather than the dollar amount of bitcoin at the current market exchange rate, then they might be able to expect that they will not need to keep raising prices annually for inflation, but might instead be able to lower them, or keep them at the same rate and increase their profits for as long as a cheaper competitor does not appear. However, if these goods are priced both in bitcoin and USD, then while the bitcoin value remains the same, the dollar value must continue to increase for inflation. Since bitcoin also enables a certain level of transactional privacy too, it will also be used for grey and black market transactions, which make up 10-20% of economies. Most people interact either directly or indirectly with these markets for saving money or generating additional profit. Cash has traditionally been used in these cases, but as the effort of states to make money digital, under mass warrantless surveillance increases, the practicality of using cash decreases. Bitcoin is well suited to fill the gap being created. > As bad as inflation is, a deflating currency is not any better. I often hear strawmen arguments against deflation, but never any real sources or evidence of how terrible it supposedly is. I'm led to believe that people won't spend money in a deflationary economy, but peoples need to eat and drink suggests otherwise. An example of deflation in action is in Moore's Law. If I buy a computer now, it will be half as powerful in 1.5 years. Why would I not just wait 2 years and buy a computer then? People continue to buy new machines all the time, and they don't wait 2 years for the next iteration, because they know that in another 2 years, that one is out of date. People will spend for as long as they perceive the transaction is worthwhile now for the labour effort they put in to acquire that amount in currency. In a deflationary economy, people simply make better decisions, because they're not simply comparing the amount to what they earned recently, but in any significant transaction they need to weigh the importance of the transaction against their future self. I think the real complaints about deflation are from socialist types who worry that the rich will get richer. Too bad for them, they can't prevent this any longer. The state no longer has the capacity to steal people's bitcoin if they take the right measures to secure their keys. The rich might get richer, but anyone can get better off if they shift to a low time-preference mindset, instead of being stuck in the debt spirals that are encouraged by high time-preference economies. > Of course, the proposed solution to bitcoin deflation was (at least at one point) just to inflate the bitcoin currency by effectively moving the decimal point to the right (one bitcoin becomes 10, etc). The "bitcoin" denomination is really just cosmetic anyway. All of the values in the bitcoin protocol are measured in satoshis, as a 64-bit integer. It is not trivial to change this denomination as it would affect the entire UTXO set of transactions. On the other hand, moving the decimal place for the cosmetic appearance of satoshis could be trivial, but it doesn't change much.
Frondo 8y ago
I'm still waiting for the hyperinflation Ron Paul and his adherents have been promising for....decades now. If the best they can do is point to Zimbabwe or one or two other developing nations, then I think the concerns about governments printing money are either overblown or entirely off the mark.
- supergilbert 8y ago
  Look up Weimar Republic
  - Jwarder 8y ago
    Someone totally needs to write some fan-fiction where bitcoin running on mechanical computers prevents the rise of fascism.
  - _Tev 8y ago
    Nice example of the grasping at straws. Can you actually answer parent's question with an example that is not almost 100years old?
    - JetSpiegel 8y ago
      Germany only finished the Versailles Treaty reparations in 2010. http://www.spiegel.de/international/germany/legacy-of-versailles-germany-closes-book-on-world-war-i-with-final-reparations-payment-a-720156.html http://www.spiegel.de/international/germany/legacy-of-versai...
    - maxlybbert 8y ago
      Are you taking the position that hyperinflation hasn’t happened in the last century, or simply that it only happens in banana republics?
      - _Tev 8y ago
        In last half century, I would say yes. When you get close to 100y ago you get the always-mentioned Weimar, but I don't know about other cases. I would actually like to know more examples other than Weimar/Zimbabwe/Venezuela.
na85 8y ago
Inflationary economies can survive in the long term, whereas the survivability of deflationary economies is not so clear.
- mkirklions 8y ago
  >Inflationary economies can survive in the long term Is this true? I only know western history, but between Rome and every successor state, inflation is a short term fix and usually leads to the end of a government and currency(over centuries)
this_user 8y ago
You do realise that Bitcoin is experiencing much more inflation in its supply than the USD or the EUR, don't you?
- sparkie 8y ago
  The bitcoin supply is increasing, at high, but shrinking rates, however its purchasing power is still increasing despite that inflation. This suggests that demand for bitcoin is exceeding the supply rate. If the demand continues, and the supply rate of bitcoin will be almost exhausted in a couple of decades, then the value of bitcoin will likely rise in response. This is of course, ignoring that volume of bitcoin in circulation is actually shrinking with time[1], because people are hodling rather than trading it. Evidence that Gresham's Law is playing out as usual. [1]: Age of bitcoin UTXOs is increasing over time. https://cdn-images-1.medium.com/max/1000/1*JopnHwBLMAOn-i2v4sHiHg.png https://cdn-images-1.medium.com/max/1000/1*JopnHwBLMAOn-i2v4...
- mkirklions 8y ago
  BTC supply is capped at 21,000,000 The US government has 20,000,000,000,000 in debt. Today USD might be better, at some point debt will need to be paid back.
  - tehduder9 8y ago
    that's not how debt works on a national level.... it's not like personal debt at all
    - fjp 8y ago
      I know this is true when the debt is issued by the currency issuer & denominated in that same currency, such as in the case of the United States. Is that also true in the case of say, Italy's debt denominated in Euros or Illinois state debt denominated in USD? I have been meaning to read Steve Keen's work on this
      - johnny22 8y ago
amanaplanacanal 8y ago
That's a solved problem. Precious metals are what you are looking for.
- mkirklions 8y ago
  Chem engineer here. I dont think precious metals will survive our lifetime. Nuclear chemistry might be around the corner with either tech advancements or energy advancements. Only 1 needs to come true and it would kill the price of gold.

belorn 8y ago

Lets list them by assuming that I want to buy a legal product or service: * When it is cultural and social taboo. * When the act can be pulled out of context. * When it can become a false positive for correlation in police investigation. * When it can be abused in order to influence and apply pressure, by example advertisers, politics or different sides in a court. * When it can harm a third party, like a dependent. * when it can give unfair market power to those who know more about you than competitor with better product or service. All of those have some grey zones and illegal areas but for most it is up to the consumer to be aware. So long the legal system demand that the individual take responsibility for personal information, and the legal investigation system has false positives, and the court and political voting system depend on asymmetrical information, and influences like advertisement is legal, and we have cultural and social taboos for legal behavior, well then we have a legal and moral problem that a decentralized currency could help to solve.

rando444 8y ago

While there is some truth in your argument, you are very clearly only focusing on one-side. The problems that crypto-currencies attempt to solve are more to do with monetary policy. E.g. - you can't have things like quantitative easing / manufactured inflation if your money supply is dictated by a tightly controlled algorithm. Whether or not that is a desirable overall policy is a wholly separate argument.

lsc 8y ago
>The problems that crypto-currencies attempt to solve are more to do with monetary policy. E.g. - you can't have things like quantitative easing / manufactured inflation if your money supply is dictated by a tightly controlled algorithm. If that's what you want... the extralegal aspect of cryptocurrencies is a big problem. I still have a few hundred bucks tied up in e-gold, which was perfectly setup to do what you want, and backed by real gold, but as a side feature was also convenient for black market transactions.