5 ms·

I think this question is best answered by economists, and I'm certainly not one. But blockchain does seem to interfere with some of the best regulatory defenses

by pron 7y ago

I think this question is best answered by economists, and I'm certainly not one. But blockchain does seem to interfere with some of the best regulatory defenses against economic disasters.

rossdavidh 7y ago
Blockchain gives the impression that the primary threat it is designed to defend against, is a government deciding (like Germany between world wars) to inflate their currency for whatever reason. So, not surprisingly, in order to defend a currency against being decreased in value by a central authority, it is vulnerable to all of the threats that a central monetary authority might help you with. Which of these threats you think is the more salient is, of course, a matter on which people may disagree. I personally find the risk of a central monetary authority devaluing my money, to be not one of my top concerns, but I could understand why others might think differently (especially if they were in a different country, that used a different currency).
- kragen 7y ago
  Right, here in Argentina our currency has lost more than half its value this year, and the US dollar has lost 96% of its value since the end of the gold standard in 1973. I carry a Zimbabwe 100 trillion dollar bill in my wallet to remind people what real hyperinflation is. I don't think that's the main threat Bitcoin is designed to defend against, though; I think there's a whole spectrum of confiscation threats, ranging from thieves tunneling into bank vaults (I know a woman here who lost her savings that way), to immigration authorities confiscating jewelry, to pirates, to trumped-up "money laundering" charges. And of course if we're mentioning Germany and World Wars, we must not forget the confiscation of Holocaust victims' entire possessions, including jewelry and fillings after the gas chambers. Bitcoin can't make genocide impossible but maybe at least it can make it unprofitable.
  - rossdavidh 7y ago
    I see your point, but I think there are plenty of examples of people losing their Bitcoins through analogous nefarious activities (e.g. MtGox). For an expert in cybersecurity perhaps Bitcoin is safer, but for the average non-technical person (in the U.S.) it is probably _more_ likely to get your money taken by a thief than if you had it in fiat currency in a bank, though of course either one is possible. Again, this could vary depending upon your nation's government and crime situation.
    - kragen 7y ago
      I think it's true that "for the average non-technical person (in the U.S.) it is probably more likely to get your money taken by a thief than if you had it in fiat currency in a bank." But I think you're locating the problem in the wrong part of the conjunction: the reason fiat currency in a US bank is more secure is because US banks are fairly secure, not because the fiat currency is secure. It seems like some sort of confusion to blame the Mt. Gox heist on Bitcoin. Mt. Gox's depositors gave their Bitcoins to Mt. Gox; Mt. Gox didn't give them back and claims that an unknown party absconded with them. If you lent your car to a random French PHP programmer in Japan and he came back without the car, you wouldn't blame that on cars in general being an "unsafe" investment. If the Mt. Gox depositors had kept their Bitcoins in a paper wallet in a Bank of America safe deposit box rather than in Mt. Gox, they'd still have their money. (In fact they'd have enormously more money, but that's sort of random; it demonstrates the fickleness of markets rather than any kind of fundamental security of Bitcoin.) Conversely, the investors and banks who invested or lent dollars and yen to Mt. Gox lost as much or more as the Bitcoin depositors. Probably a BofA Bitcoin account would be better, but that's a matter of convincing BofA to offer Bitcoin or similarly secure currencies, instead of or in addition to dollar-denominated accounts. And that's where Libra comes from.
      - not_kurt_godel 7y ago
        > But I think you're locating the problem in the wrong part of the conjunction: the reason fiat currency in a US bank is more secure is because US banks are fairly secure, not because the fiat currency is secure. Fiat currency is secure in US banks because there is vast institutional protection for banks such as FDIC insurance and extremely strict laws against bank theft, the Federal Reserve, and so on. There are no such institutional protections for Bitcoin and there never really can be, by design. > If you lent your car to a random French PHP programmer in Japan and he came back without the car, you wouldn't blame that on cars in general being an "unsafe" investment. Sure I would - if lending a car to strangers was an effective necessity to use one in the same way using an exchange is an effective necessity to use Bitcoin, and there were "alternative cars" (aka fiat currency) that required no such lending to strangers.
  - dmoy 7y ago
    > the US dollar has lost 96% of its value since the end of the gold standard in 1973 It is more like 80-85%, not 96%. $1 in 1972 is $6-$6.5 in 2019. A 96% loss of value would mean $1 in 1972 is more like $25 in 2019, which is not the case. Also to phrase it in context you should probably say "the US dollar has had an average annual inflation rate of 4% per year over the last 5 decades". Also for additional context you should point out that bonds slightly exceeded, and that $1 of stock in 1972 in the US market became ~$104 in 2019. Context matters a lot here.
    - kragen 7y ago
      It depends on which particular data series you use for deflation. There are definitely things for which US$1 in 1972 is more like US$25 in 2019, such as gold and energy. To take one example among many, oil cost US$3 per barrel at the beginning of 1973, and despite the fracking boom in the US, it costs US$63 today, 21× as much. And, as you yourself point out, you need over US$100 today to buy shares of stock that cost US$1 in 1972. (And there are other things which are cheap in 2019 that were unavailable at any price in 1972, and vice versa; and there are borderline cases like videotape recorders and microcontrollers, on one hand; and 1963 Buicks, ivory, old-growth redwood lumber, and quaaludes, on the other.) I agree that "an average annual inflation rate of 7.1%" (or, using your US$6 number, 3.9%) sounds much milder than "lost 96% of its value since 1973" (or 83%). Where I differ is on whether the milder presentation or the more dramatic presentation is more informative. I think that, except to financial traders, "3.9%" or even "7.1%" is a misleadingly insignificant number. Consider that throughout the 1600s, 1700s, and 1800s, there were families that lived on the interest income from government bonds, both in the US and in England. Even throughout the 20th century, people would buy "savings bonds" as presents for children or as a means to save up for college or retirement; the bonds would reach maturity decades in the future, providing a healthy reward for the prudent and patriotic purchase. Since the end of Bretton Woods, that 3.9% or 7.1% has made nonsense of such ideas. Despite what you might think, this hasn't eliminated plutocracy or increased social mobility — rather the opposite has happened in the post-Bretton-Woods years, in fact. I think it's hard to obtain the historical perspective necessary to appreciate the importance of this radical experiment. But it is, I assure you, a worthwhile effort. I recommend it. Perhaps inflationary monetary policy is a necessary instrument for avoiding financial panics; it's a plausible idea. But the evidence against it — particularly the 1970s stagflation in the US — suggests that, though plausible, it isn't such a clearly open-and-shut conclusion that we should deny everyone access to alternative, non-inflationary currencies. Moreover, in most scenarios, attempting to institute such a policy would only deny such access to everyone but the well-connected and influential.
  - the_gastropod 7y ago
    > the US dollar has lost 96% of its value since the end of the gold standard in 1973 And Bitcoin lost over 90% of its value in just under 2 years. Where are you going with this, council?
    - kragen 7y ago
      > And Bitcoin lost over 90% of its value in just under 2 years. When do you mean? Right now Bitcoin is US$9400, which is almost exactly half of its all-time high value of US$19891 (in 2017). There are several times it has lost more than half of its value, but I don't remember a time when it has lost 90% of its value. The reason the dollar inflates and never deflates is that it's designed to inflate. On purpose. The underlying Keynesian monetary theory is a radical experiment in stimulating economic activity by maintaining the proper level of unemployment — when unemployment is "too low", central banks raise interest rates (in effect, printing less money), while dropping them when unemployment is "too high". Of course, deliberate inflation of coins by governments has a much longer history than Keynesian monetary theory or fiat currencies — not only did Song China experience it when it introduced paper "representative money", but it's also a well-attested phenomenon in Roman commodity money and later coinages (there known as "debasement", in a technical sense different from its metaphorical use in literary English to describe degradation.) But Keynesian monetary theory, which might be correct, provides a theoretical justification for believing that inflation is good under some circumstances and bad under others, and since 1973 we are all, for better or worse, participating in a radical large-scale experiment to test this hypothesis. Bitcoin is, in significant part, a dissident response from a group of eccentric intellectuals looking for a way to opt out of that radical experiment. Consequently it is designed to make inflation (of Bitcoin) infeasibly difficult — the existing Bitcoin supply increases asymptotically toward a fixed quantity, known in advance. So, although Bitcoin's value will fluctuate, sometimes wildly, it doesn't have the secular inflation trend designed into the dollar's governance mechanism.
      - the_gastropod 7y ago
        > When do you mean? Right now Bitcoin is US$9400, which is almost exactly half of its all-time high value of US$19891 (in 2017). There are several times it has lost more than half of its value, but I don't remember a time when it has lost 90% of its value. Looks like I overstated it slightly. It lost 85% of its value between its all time high December 17th 2017 ($19,891) and December 16th 2018 ($3,159). The rest of your response, in my opinion, is immaterial. I can't imagine a soul who'd prefer their money to "fluctuate wildly"—to the tune of -85% in a year—vs slowly losing 1-3% per year. Especially when there are very accessible financial instruments (e.g., TIPS) to avoid even that.
  - short_sells_poo 7y ago
    > I don't think that's the main threat Bitcoin is designed to defend against, though; I think there's a whole spectrum of confiscation threats, ranging from thieves tunneling into bank vaults (I know a woman here who lost her savings that way), to immigration authorities confiscating jewelry, to pirates, to trumped-up "money laundering" charges. And of course if we're mentioning Germany and World Wars, we must not forget the confiscation of Holocaust victims' entire possessions, including jewelry and fillings after the gas chambers. Bitcoin can't make genocide impossible but maybe at least it can make it unprofitable. You cannot mean this seriously. Every example you write is worse for bitcoins. If your coins are stolen, that's it, you can pretty much kiss them goodbye. If the government wants to confiscate someone's bitcoins, they will beat the private key out of the holder with a $5 wrench. If WW3 breaks out and the world order collapses, a wholly digital asset that relies on a large network of high upkeep, high-tech infrastructure is surely not a particularly safe bet. You can bet that datacenters will be among the first casualties in such an event, whether outright government confiscation or a denial of service attack by the enemy. If a bank gets robbed, for most cases it won't impact account holders at all. Even if the bank goes bankrupt, there are various government schemes that will cover account holders up to some limit (e.g. $250k currently for the US). There is none of this for bitcoins. There could be of course, but then the argument is: what do cryptocurrencies actually offer beyond what is already possible with normal currencies? To the best of my knowledge, the only practical benefit of cryptos is that they completely sidestep KYC/AML regulations and therefore one can easily move money between regions that draw regulatory scrutiny. Countries with at least semi-modern banking infrastructure already have instant transfers so let's not bring that argument up. In any case, that's not a feature uniquely enabled by cryptocurrencies. The fact that bitcoins are deflationary I consider a bug, not a feature. Perhaps history will prove me wrong, but in my opinion money is not supposed to be an investment asset. People should not hold cash expecting it will appreciate. It should be reinvested as much as possible.

by pron 7y ago

I think this question is best answered by economists, and I'm certainly not one. But blockchain does seem to interfere with some of the best regulatory defenses against economic disasters.

rossdavidh 7y ago

Blockchain gives the impression that the primary threat it is designed to defend against, is a government deciding (like Germany between world wars) to inflate their currency for whatever reason. So, not surprisingly, in order to defend a currency against being decreased in value by a central authority, it is vulnerable to all of the threats that a central monetary authority might help you with. Which of these threats you think is the more salient is, of course, a matter on which people may disagree. I personally find the risk of a central monetary authority devaluing my money, to be not one of my top concerns, but I could understand why others might think differently (especially if they were in a different country, that used a different currency).

kragen 7y ago
Right, here in Argentina our currency has lost more than half its value this year, and the US dollar has lost 96% of its value since the end of the gold standard in 1973. I carry a Zimbabwe 100 trillion dollar bill in my wallet to remind people what real hyperinflation is. I don't think that's the main threat Bitcoin is designed to defend against, though; I think there's a whole spectrum of confiscation threats, ranging from thieves tunneling into bank vaults (I know a woman here who lost her savings that way), to immigration authorities confiscating jewelry, to pirates, to trumped-up "money laundering" charges. And of course if we're mentioning Germany and World Wars, we must not forget the confiscation of Holocaust victims' entire possessions, including jewelry and fillings after the gas chambers. Bitcoin can't make genocide impossible but maybe at least it can make it unprofitable.
- rossdavidh 7y ago
  I see your point, but I think there are plenty of examples of people losing their Bitcoins through analogous nefarious activities (e.g. MtGox). For an expert in cybersecurity perhaps Bitcoin is safer, but for the average non-technical person (in the U.S.) it is probably _more_ likely to get your money taken by a thief than if you had it in fiat currency in a bank, though of course either one is possible. Again, this could vary depending upon your nation's government and crime situation.
  - kragen 7y ago
    I think it's true that "for the average non-technical person (in the U.S.) it is probably more likely to get your money taken by a thief than if you had it in fiat currency in a bank." But I think you're locating the problem in the wrong part of the conjunction: the reason fiat currency in a US bank is more secure is because US banks are fairly secure, not because the fiat currency is secure. It seems like some sort of confusion to blame the Mt. Gox heist on Bitcoin. Mt. Gox's depositors gave their Bitcoins to Mt. Gox; Mt. Gox didn't give them back and claims that an unknown party absconded with them. If you lent your car to a random French PHP programmer in Japan and he came back without the car, you wouldn't blame that on cars in general being an "unsafe" investment. If the Mt. Gox depositors had kept their Bitcoins in a paper wallet in a Bank of America safe deposit box rather than in Mt. Gox, they'd still have their money. (In fact they'd have enormously more money, but that's sort of random; it demonstrates the fickleness of markets rather than any kind of fundamental security of Bitcoin.) Conversely, the investors and banks who invested or lent dollars and yen to Mt. Gox lost as much or more as the Bitcoin depositors. Probably a BofA Bitcoin account would be better, but that's a matter of convincing BofA to offer Bitcoin or similarly secure currencies, instead of or in addition to dollar-denominated accounts. And that's where Libra comes from.
    - not_kurt_godel 7y ago
      > But I think you're locating the problem in the wrong part of the conjunction: the reason fiat currency in a US bank is more secure is because US banks are fairly secure, not because the fiat currency is secure. Fiat currency is secure in US banks because there is vast institutional protection for banks such as FDIC insurance and extremely strict laws against bank theft, the Federal Reserve, and so on. There are no such institutional protections for Bitcoin and there never really can be, by design. > If you lent your car to a random French PHP programmer in Japan and he came back without the car, you wouldn't blame that on cars in general being an "unsafe" investment. Sure I would - if lending a car to strangers was an effective necessity to use one in the same way using an exchange is an effective necessity to use Bitcoin, and there were "alternative cars" (aka fiat currency) that required no such lending to strangers.
- dmoy 7y ago
  > the US dollar has lost 96% of its value since the end of the gold standard in 1973 It is more like 80-85%, not 96%. $1 in 1972 is $6-$6.5 in 2019. A 96% loss of value would mean $1 in 1972 is more like $25 in 2019, which is not the case. Also to phrase it in context you should probably say "the US dollar has had an average annual inflation rate of 4% per year over the last 5 decades". Also for additional context you should point out that bonds slightly exceeded, and that $1 of stock in 1972 in the US market became ~$104 in 2019. Context matters a lot here.
  - kragen 7y ago
    It depends on which particular data series you use for deflation. There are definitely things for which US$1 in 1972 is more like US$25 in 2019, such as gold and energy. To take one example among many, oil cost US$3 per barrel at the beginning of 1973, and despite the fracking boom in the US, it costs US$63 today, 21× as much. And, as you yourself point out, you need over US$100 today to buy shares of stock that cost US$1 in 1972. (And there are other things which are cheap in 2019 that were unavailable at any price in 1972, and vice versa; and there are borderline cases like videotape recorders and microcontrollers, on one hand; and 1963 Buicks, ivory, old-growth redwood lumber, and quaaludes, on the other.) I agree that "an average annual inflation rate of 7.1%" (or, using your US$6 number, 3.9%) sounds much milder than "lost 96% of its value since 1973" (or 83%). Where I differ is on whether the milder presentation or the more dramatic presentation is more informative. I think that, except to financial traders, "3.9%" or even "7.1%" is a misleadingly insignificant number. Consider that throughout the 1600s, 1700s, and 1800s, there were families that lived on the interest income from government bonds, both in the US and in England. Even throughout the 20th century, people would buy "savings bonds" as presents for children or as a means to save up for college or retirement; the bonds would reach maturity decades in the future, providing a healthy reward for the prudent and patriotic purchase. Since the end of Bretton Woods, that 3.9% or 7.1% has made nonsense of such ideas. Despite what you might think, this hasn't eliminated plutocracy or increased social mobility — rather the opposite has happened in the post-Bretton-Woods years, in fact. I think it's hard to obtain the historical perspective necessary to appreciate the importance of this radical experiment. But it is, I assure you, a worthwhile effort. I recommend it. Perhaps inflationary monetary policy is a necessary instrument for avoiding financial panics; it's a plausible idea. But the evidence against it — particularly the 1970s stagflation in the US — suggests that, though plausible, it isn't such a clearly open-and-shut conclusion that we should deny everyone access to alternative, non-inflationary currencies. Moreover, in most scenarios, attempting to institute such a policy would only deny such access to everyone but the well-connected and influential.
- the_gastropod 7y ago
  > the US dollar has lost 96% of its value since the end of the gold standard in 1973 And Bitcoin lost over 90% of its value in just under 2 years. Where are you going with this, council?
  - kragen 7y ago
    > And Bitcoin lost over 90% of its value in just under 2 years. When do you mean? Right now Bitcoin is US$9400, which is almost exactly half of its all-time high value of US$19891 (in 2017). There are several times it has lost more than half of its value, but I don't remember a time when it has lost 90% of its value. The reason the dollar inflates and never deflates is that it's designed to inflate. On purpose. The underlying Keynesian monetary theory is a radical experiment in stimulating economic activity by maintaining the proper level of unemployment — when unemployment is "too low", central banks raise interest rates (in effect, printing less money), while dropping them when unemployment is "too high". Of course, deliberate inflation of coins by governments has a much longer history than Keynesian monetary theory or fiat currencies — not only did Song China experience it when it introduced paper "representative money", but it's also a well-attested phenomenon in Roman commodity money and later coinages (there known as "debasement", in a technical sense different from its metaphorical use in literary English to describe degradation.) But Keynesian monetary theory, which might be correct, provides a theoretical justification for believing that inflation is good under some circumstances and bad under others, and since 1973 we are all, for better or worse, participating in a radical large-scale experiment to test this hypothesis. Bitcoin is, in significant part, a dissident response from a group of eccentric intellectuals looking for a way to opt out of that radical experiment. Consequently it is designed to make inflation (of Bitcoin) infeasibly difficult — the existing Bitcoin supply increases asymptotically toward a fixed quantity, known in advance. So, although Bitcoin's value will fluctuate, sometimes wildly, it doesn't have the secular inflation trend designed into the dollar's governance mechanism.
    - the_gastropod 7y ago
      > When do you mean? Right now Bitcoin is US$9400, which is almost exactly half of its all-time high value of US$19891 (in 2017). There are several times it has lost more than half of its value, but I don't remember a time when it has lost 90% of its value. Looks like I overstated it slightly. It lost 85% of its value between its all time high December 17th 2017 ($19,891) and December 16th 2018 ($3,159). The rest of your response, in my opinion, is immaterial. I can't imagine a soul who'd prefer their money to "fluctuate wildly"—to the tune of -85% in a year—vs slowly losing 1-3% per year. Especially when there are very accessible financial instruments (e.g., TIPS) to avoid even that.
- short_sells_poo 7y ago
  > I don't think that's the main threat Bitcoin is designed to defend against, though; I think there's a whole spectrum of confiscation threats, ranging from thieves tunneling into bank vaults (I know a woman here who lost her savings that way), to immigration authorities confiscating jewelry, to pirates, to trumped-up "money laundering" charges. And of course if we're mentioning Germany and World Wars, we must not forget the confiscation of Holocaust victims' entire possessions, including jewelry and fillings after the gas chambers. Bitcoin can't make genocide impossible but maybe at least it can make it unprofitable. You cannot mean this seriously. Every example you write is worse for bitcoins. If your coins are stolen, that's it, you can pretty much kiss them goodbye. If the government wants to confiscate someone's bitcoins, they will beat the private key out of the holder with a $5 wrench. If WW3 breaks out and the world order collapses, a wholly digital asset that relies on a large network of high upkeep, high-tech infrastructure is surely not a particularly safe bet. You can bet that datacenters will be among the first casualties in such an event, whether outright government confiscation or a denial of service attack by the enemy. If a bank gets robbed, for most cases it won't impact account holders at all. Even if the bank goes bankrupt, there are various government schemes that will cover account holders up to some limit (e.g. $250k currently for the US). There is none of this for bitcoins. There could be of course, but then the argument is: what do cryptocurrencies actually offer beyond what is already possible with normal currencies? To the best of my knowledge, the only practical benefit of cryptos is that they completely sidestep KYC/AML regulations and therefore one can easily move money between regions that draw regulatory scrutiny. Countries with at least semi-modern banking infrastructure already have instant transfers so let's not bring that argument up. In any case, that's not a feature uniquely enabled by cryptocurrencies. The fact that bitcoins are deflationary I consider a bug, not a feature. Perhaps history will prove me wrong, but in my opinion money is not supposed to be an investment asset. People should not hold cash expecting it will appreciate. It should be reinvested as much as possible.