5 ms·

This conflates "Central Banks" with ordinary "banks" that hold assets in vaults. The two are comparable in the same way that Java is comparable to JavaScript.

by bhupy 6y ago

This conflates "Central Banks" with ordinary "banks" that hold assets in vaults. The two are comparable in the same way that Java is comparable to JavaScript. The steel-man argument is that the monetary policy of central banks can cause hyper-inflation of a fiat currency, and holding onto an asset that is immune to that, and potentially even being able to transact with that asset is a reliable way to break free from the monetary policy of the central bank. The fact that one may place this transferable asset into a centralized institution that we may call a (lower case b) "bank" isn't at odds with the aforementioned principle. Put another way, the dollar doesn't depreciate because of my credit union, it depreciates because of the Fed.

xadhominemx 6y ago
Most money is created by normal banks, not the central bank. If you Google “money creation” you will find this helpful link: https://en.m.wikipedia.org/wiki/Money_creation#Role_of_banks_in_money_creation https://en.m.wikipedia.org/wiki/Money_creation#Role_of_banks...
- bhupy 6y ago
  Yes, but that's only possible because of the underlying monetary policy, which is controlled by the Fed. In contrast, there is no way you can do this with (most) cryptocurrencies. The monetary policy of Bitcoin is dictated by the physical bounds of the proof-of-work algorithm. There is absolutely nothing that Coinbase can do to "create" more Bitcoin outside of just mining it like everyone else.
  - xadhominemx 6y ago
    No money creation at banks is not controlled by central bank monetary policy. And it’s very easy to create new crypto assets. Bitcoin has gone from 100% to 60% of crypto market cap in the past 5 years - that’s 10% “inflation”
    - bhupy 6y ago
      If it is, then that means Coinbase can create new "Bitcoin" on demand; which we both know that it cannot do. In your own source, the banks ability to increase money supply through the multiplier effect is capped by the capital adequacy ratios, which are defined by the Fed. It is also an inevitability of any currency that isn't backed by an asset. To be clear, I don't have problems with the concept of fiat currencies, but we have to be honest about what it actually is and how it works, and how Bitcoin is different.
      - pjc50 6y ago
        It absolutely can, because all exchange users put their money in a big pot (the exchange's "cold wallet" and "hot wallet") rather than having individual wallets - this allows for instant trading. Exchange accounts aren't quite like banks but they are like brokerage accounts. Numerous exchanges have blown up when the wallet got stolen from underneath them - but in the gap between the theft and the discovery, the users thought they had bitcoin when in fact they had a bitcoin balance.
        bhupy 6y ago
        Okay, but you're talking about a completely different thing. Your Bitcoin balance, as it's shown in Coinbase's UI, is very different from your Bitcoin balance as it's understood by everyone else on the public blockchain; and that too only temporarily. There is nothing that Coinbase can do to permanently alter that supply of Bitcoin. That is what we're talking about. In contrast, the permanent US Dollar supply can and is permanently altered due to the monetary policy which governs it.
        leereeves 6y ago
        Even if Bitcoin replaces fiat money, governments will find ways to enforce monetary policy, because the power to put people in prison trumps any algorithm. A government absolutely can declare that the correct blockchain is actually this other blockchain, or the only legal algorithm is now a version of their own invention (like the split between Bitcoin and Bitcoin Cash, but enforced by law). If the gov wants inflation, they can replace the algorithm with one that allows inflation, or achieve a similar effect by publishing an official root block every year with a portion of all holdings transferred to the government. But they probably wouldn't do that, when it's so much easier to simply seize cryptocurrency ("give us your private keys or spend thirty years in prison") or heavily tax it. None of this has been done because crypto is still a novelty, but if it ever becomes a serious threat to government policy, governments will find ways to deal with it. And centralizing Bitcoin in exchanges like Coinbase makes this far easier; the government only needs to enforce its policy on Coinbase, and Coinbase in turn will enforce it on customers.
  - virgilp 6y ago
    You can't create more bitcoin but you can create more USDT and exchange it for bitcoin.
    - koonsolo 6y ago
      When banks use bitcoin instead of fiat, they could in fact create more 'bitcoin' in the same way. You wouldn't own the bitcoin, just as now you don't own the real fiat. There would just be a number on your bank account that says how many bitcoin you own, but it's multiplied the same way as they do now. It all comes down to the % of reserve they need to hold.
      - virgilp 6y ago
        This might very well be what Revolut already does :D (you can 'purchase bitcoin' or sell it at the prices they determine; but you can't transfer it out of Revolut).
    - bhupy 6y ago
      That doesn't impact the value of Bitcoin. When you exchange USDT for Bitcoin, the loser isn't holders of Bitcoin, the loser is (potentially) holders of USDT. Exchanging USDT for Bitcoin doesn't create new Bitcoin. Coinbase, as a marketplace, engages in the exchange of (potentially) bad tokens like USDT, as well as tokens like BTC that are provably finite. All of this is orthogonal to the fact that there is nothing hypocritical or internally inconsistent about holding and using Bitcoin or Ethereum and using Coinbase.
      - rtrdea 6y ago
        Coinbase doesn't trade USDT. They have their own USD pegged stablecoin called USDC and also trade Dai, which is pegged to the USD and is over collateralized
  - lottin 6y ago
    You don't understand how commercial banks create money.
RobertoG 6y ago
This could be surprising to a lot of people, but modern central banks, including the Fed, can't control the quantity of money and the interest rate at the same time. Controlling one means losing the control of the other and modern central banks control the interest rate, not the quantity of money. So, the causality is like this: when the economy gets hot, more credits are asked by business and households, because of that, the interest rate go up. In order to keep the interest rate in their choose target, central banks will add more money to the system. The Fed doesn't decide the quantity of money, the economy does it.
wpietri 6y ago
The distinction between "central bank" and "ordinary bank" is only meaningful because of tight regulation and a central banking system that constrains ordinary banks. The whole reason we have a strong central bank is because we tried the alternative before and it worked terribly: https://en.wikipedia.org/wiki/Wildcat_banking https://en.wikipedia.org/wiki/Wildcat_banking
- bhupy 6y ago
  That constraint is only really required because paper money can be minted in a way that BTC (or gold) cannot. That's why the distinction is relevant in the case of cryptocurrency. The overall point is that the ship has mostly sailed with regards to whether Bitcoin can be a deflationary store of value like gold. The question now is who will provide the vaults to hold the new "gold bars". These vault providers are not really comparable to central banks. > The whole reason we have a strong central bank is because we tried the alternative before and it worked terribly I think there's a strong argument to be made (derived from history) that having a purely gold-backed currency be the sole and legal tender is bad. That said, there's a third option: "porque no los dos?". Do we know for certain that there's anything inherently disastrous about a society that has BOTH fiat-backed legal tender as a hedge against "Wildcat banking" alongside "digital gold" backed currency as a hedge against fiat-backed legal tender? I think the answer is "probably not". I'd even go so far as to argue that we've already been doing that for the last 70-odd years; people still use gold as a hedge against the USD. Bitcoin is just digital gold that derives value because it's easier to trade Bitcoin for bread than gold bars (in theory).
  - wpietri 6y ago
    I am always entertained by the line of argument that goes, "Do we know for certain this new twist will be as hugely destructive? If not, what the heck, let's find out!" Personally, I think the burden of proof goes the other way. Especially when after 12 years of Bitcoin innovation in practice it's so far mainly useful for scams, ransomware, market manipulation, money laundering, and other kinds of light financial crime. (Plus speculation of course, but there were plenty of options for that before.) If hobbyists want to speedrun reinventing financial regulation that's ok by me, but I'd rather they do it without the collateral damage. That's especially obvious in contrast with actual digital money efforts like MPesa, which have real user bases, scale perfectly well, and aren't ongoing ecological disasters.
joubert 6y ago
> it depreciates because of the Fed The dollar depreciates / appreciates due to various economic factors, not just because of actions by the Federal Reserve. https://www.investopedia.com/articles/forex/051115/top-economic-factors-depreciate-us.asp https://www.investopedia.com/articles/forex/051115/top-econo...
- bhupy 6y ago
  I don't think anyone disagrees that there are multiple causes of depreciation. The key takeaway from your link is that USD value is a combination of (1) Fed policy as well as (2) economic growth and corporate profits (or lack thereof). The argument is that (2) is an inevitability of the market, whereas (1) is political. Crypto adherents aim to solve for (1) and accept the inevitability of (2). And deciding to use Coinbase to store (and exchange) your crypto is not at odds with that philosophy. To be clear, I live my entire life on fiat, and most of my savings are in traditional financial instruments. What I take issue with is the misrepresentation of the case for crypto; when it comes to assets like Bitcoin, Coinbase is not equivalent to a central bank nor will it ever be.
  - joubert 6y ago
    > (1) Fed policy as well as (2) economic growth and corporate profits (or lack thereof). The argument is that (2) is an inevitability of the market, whereas (1) is political. The market is influenced by politics more than you might expect, and, conversely, the Fed’s actions are less political that you think.
    - bhupy 6y ago
      Oh yeah, it's certainly a spectrum. That being said, political influence on markets (e.g. via fiscal policy) is indirect and can take years to manifest. https://fivethirtyeight.com/features/no-bill-clinton-does-not-know-how-to-fix-the-economy/ https://fivethirtyeight.com/features/no-bill-clinton-does-no... https://fivethirtyeight.com/features/dont-let-trump-or-any-president-take-credit-for-strong-jobs-numbers/ https://fivethirtyeight.com/features/dont-let-trump-or-any-p... https://www.theatlantic.com/business/archive/2014/07/why-the-economy-grows-faster-under-democrats-than-republicans/375180/ https://www.theatlantic.com/business/archive/2014/07/why-the... Monetary policy, on the other hand, is immediate. Interest rates and treasury yields cause immediate movement in the economy because capital can be made liquid. It also has the potential to get really bad really fast, as we've seen with hyperinflation in Venezuela and Zimbabwe. And specifically speaking to the merits of assets that are free from Fed/Treasury policy; if you had held a little bit of gold throughout the 2000s as a safety net, it'd have been much easier to weather the storm of the financial crisis than if you hadn't. People flock to safe haven assets to seek refuge from their country's policies when required: https://news.bitcoin.com/venezuela-bitcoin-use-hyperinflation-crypto-adoption/ https://news.bitcoin.com/venezuela-bitcoin-use-hyperinflatio... https://www.coindesk.com/nigeria-bitcoin-adoption https://www.coindesk.com/nigeria-bitcoin-adoption Gold (and other comparable deflationary assets) are considered a hedge against fiat. Whether Bitcoin can also be seen as a comparable asset is the central question, but looking at the last 12 years, the ship has mostly sailed there.

by bhupy 6y ago

xadhominemx 6y ago

Most money is created by normal banks, not the central bank. If you Google “money creation” you will find this helpful link: https://en.m.wikipedia.org/wiki/Money_creation#Role_of_banks_in_money_creation https://en.m.wikipedia.org/wiki/Money_creation#Role_of_banks...

bhupy 6y ago
Yes, but that's only possible because of the underlying monetary policy, which is controlled by the Fed. In contrast, there is no way you can do this with (most) cryptocurrencies. The monetary policy of Bitcoin is dictated by the physical bounds of the proof-of-work algorithm. There is absolutely nothing that Coinbase can do to "create" more Bitcoin outside of just mining it like everyone else.
- xadhominemx 6y ago
  No money creation at banks is not controlled by central bank monetary policy. And it’s very easy to create new crypto assets. Bitcoin has gone from 100% to 60% of crypto market cap in the past 5 years - that’s 10% “inflation”
  - bhupy 6y ago
    If it is, then that means Coinbase can create new "Bitcoin" on demand; which we both know that it cannot do. In your own source, the banks ability to increase money supply through the multiplier effect is capped by the capital adequacy ratios, which are defined by the Fed. It is also an inevitability of any currency that isn't backed by an asset. To be clear, I don't have problems with the concept of fiat currencies, but we have to be honest about what it actually is and how it works, and how Bitcoin is different.
    - pjc50 6y ago
      It absolutely can, because all exchange users put their money in a big pot (the exchange's "cold wallet" and "hot wallet") rather than having individual wallets - this allows for instant trading. Exchange accounts aren't quite like banks but they are like brokerage accounts. Numerous exchanges have blown up when the wallet got stolen from underneath them - but in the gap between the theft and the discovery, the users thought they had bitcoin when in fact they had a bitcoin balance.
      - bhupy 6y ago
        Okay, but you're talking about a completely different thing. Your Bitcoin balance, as it's shown in Coinbase's UI, is very different from your Bitcoin balance as it's understood by everyone else on the public blockchain; and that too only temporarily. There is nothing that Coinbase can do to permanently alter that supply of Bitcoin. That is what we're talking about. In contrast, the permanent US Dollar supply can and is permanently altered due to the monetary policy which governs it.
        leereeves 6y ago
        Even if Bitcoin replaces fiat money, governments will find ways to enforce monetary policy, because the power to put people in prison trumps any algorithm. A government absolutely can declare that the correct blockchain is actually this other blockchain, or the only legal algorithm is now a version of their own invention (like the split between Bitcoin and Bitcoin Cash, but enforced by law). If the gov wants inflation, they can replace the algorithm with one that allows inflation, or achieve a similar effect by publishing an official root block every year with a portion of all holdings transferred to the government. But they probably wouldn't do that, when it's so much easier to simply seize cryptocurrency ("give us your private keys or spend thirty years in prison") or heavily tax it. None of this has been done because crypto is still a novelty, but if it ever becomes a serious threat to government policy, governments will find ways to deal with it. And centralizing Bitcoin in exchanges like Coinbase makes this far easier; the government only needs to enforce its policy on Coinbase, and Coinbase in turn will enforce it on customers.
- virgilp 6y ago
  You can't create more bitcoin but you can create more USDT and exchange it for bitcoin.
  - koonsolo 6y ago
    When banks use bitcoin instead of fiat, they could in fact create more 'bitcoin' in the same way. You wouldn't own the bitcoin, just as now you don't own the real fiat. There would just be a number on your bank account that says how many bitcoin you own, but it's multiplied the same way as they do now. It all comes down to the % of reserve they need to hold.
    - virgilp 6y ago
      This might very well be what Revolut already does :D (you can 'purchase bitcoin' or sell it at the prices they determine; but you can't transfer it out of Revolut).
  - bhupy 6y ago
    That doesn't impact the value of Bitcoin. When you exchange USDT for Bitcoin, the loser isn't holders of Bitcoin, the loser is (potentially) holders of USDT. Exchanging USDT for Bitcoin doesn't create new Bitcoin. Coinbase, as a marketplace, engages in the exchange of (potentially) bad tokens like USDT, as well as tokens like BTC that are provably finite. All of this is orthogonal to the fact that there is nothing hypocritical or internally inconsistent about holding and using Bitcoin or Ethereum and using Coinbase.
    - rtrdea 6y ago
      Coinbase doesn't trade USDT. They have their own USD pegged stablecoin called USDC and also trade Dai, which is pegged to the USD and is over collateralized
- lottin 6y ago
  You don't understand how commercial banks create money.

RobertoG 6y ago

This could be surprising to a lot of people, but modern central banks, including the Fed, can't control the quantity of money and the interest rate at the same time. Controlling one means losing the control of the other and modern central banks control the interest rate, not the quantity of money. So, the causality is like this: when the economy gets hot, more credits are asked by business and households, because of that, the interest rate go up. In order to keep the interest rate in their choose target, central banks will add more money to the system. The Fed doesn't decide the quantity of money, the economy does it.

wpietri 6y ago

The distinction between "central bank" and "ordinary bank" is only meaningful because of tight regulation and a central banking system that constrains ordinary banks. The whole reason we have a strong central bank is because we tried the alternative before and it worked terribly: https://en.wikipedia.org/wiki/Wildcat_banking https://en.wikipedia.org/wiki/Wildcat_banking

bhupy 6y ago
That constraint is only really required because paper money can be minted in a way that BTC (or gold) cannot. That's why the distinction is relevant in the case of cryptocurrency. The overall point is that the ship has mostly sailed with regards to whether Bitcoin can be a deflationary store of value like gold. The question now is who will provide the vaults to hold the new "gold bars". These vault providers are not really comparable to central banks. > The whole reason we have a strong central bank is because we tried the alternative before and it worked terribly I think there's a strong argument to be made (derived from history) that having a purely gold-backed currency be the sole and legal tender is bad. That said, there's a third option: "porque no los dos?". Do we know for certain that there's anything inherently disastrous about a society that has BOTH fiat-backed legal tender as a hedge against "Wildcat banking" alongside "digital gold" backed currency as a hedge against fiat-backed legal tender? I think the answer is "probably not". I'd even go so far as to argue that we've already been doing that for the last 70-odd years; people still use gold as a hedge against the USD. Bitcoin is just digital gold that derives value because it's easier to trade Bitcoin for bread than gold bars (in theory).
- wpietri 6y ago
  I am always entertained by the line of argument that goes, "Do we know for certain this new twist will be as hugely destructive? If not, what the heck, let's find out!" Personally, I think the burden of proof goes the other way. Especially when after 12 years of Bitcoin innovation in practice it's so far mainly useful for scams, ransomware, market manipulation, money laundering, and other kinds of light financial crime. (Plus speculation of course, but there were plenty of options for that before.) If hobbyists want to speedrun reinventing financial regulation that's ok by me, but I'd rather they do it without the collateral damage. That's especially obvious in contrast with actual digital money efforts like MPesa, which have real user bases, scale perfectly well, and aren't ongoing ecological disasters.

joubert 6y ago

> it depreciates because of the Fed The dollar depreciates / appreciates due to various economic factors, not just because of actions by the Federal Reserve. https://www.investopedia.com/articles/forex/051115/top-economic-factors-depreciate-us.asp https://www.investopedia.com/articles/forex/051115/top-econo...

bhupy 6y ago
I don't think anyone disagrees that there are multiple causes of depreciation. The key takeaway from your link is that USD value is a combination of (1) Fed policy as well as (2) economic growth and corporate profits (or lack thereof). The argument is that (2) is an inevitability of the market, whereas (1) is political. Crypto adherents aim to solve for (1) and accept the inevitability of (2). And deciding to use Coinbase to store (and exchange) your crypto is not at odds with that philosophy. To be clear, I live my entire life on fiat, and most of my savings are in traditional financial instruments. What I take issue with is the misrepresentation of the case for crypto; when it comes to assets like Bitcoin, Coinbase is not equivalent to a central bank nor will it ever be.
- joubert 6y ago
  > (1) Fed policy as well as (2) economic growth and corporate profits (or lack thereof). The argument is that (2) is an inevitability of the market, whereas (1) is political. The market is influenced by politics more than you might expect, and, conversely, the Fed’s actions are less political that you think.
  - bhupy 6y ago
    Oh yeah, it's certainly a spectrum. That being said, political influence on markets (e.g. via fiscal policy) is indirect and can take years to manifest. https://fivethirtyeight.com/features/no-bill-clinton-does-not-know-how-to-fix-the-economy/ https://fivethirtyeight.com/features/no-bill-clinton-does-no... https://fivethirtyeight.com/features/dont-let-trump-or-any-president-take-credit-for-strong-jobs-numbers/ https://fivethirtyeight.com/features/dont-let-trump-or-any-p... https://www.theatlantic.com/business/archive/2014/07/why-the-economy-grows-faster-under-democrats-than-republicans/375180/ https://www.theatlantic.com/business/archive/2014/07/why-the... Monetary policy, on the other hand, is immediate. Interest rates and treasury yields cause immediate movement in the economy because capital can be made liquid. It also has the potential to get really bad really fast, as we've seen with hyperinflation in Venezuela and Zimbabwe. And specifically speaking to the merits of assets that are free from Fed/Treasury policy; if you had held a little bit of gold throughout the 2000s as a safety net, it'd have been much easier to weather the storm of the financial crisis than if you hadn't. People flock to safe haven assets to seek refuge from their country's policies when required: https://news.bitcoin.com/venezuela-bitcoin-use-hyperinflation-crypto-adoption/ https://news.bitcoin.com/venezuela-bitcoin-use-hyperinflatio... https://www.coindesk.com/nigeria-bitcoin-adoption https://www.coindesk.com/nigeria-bitcoin-adoption Gold (and other comparable deflationary assets) are considered a hedge against fiat. Whether Bitcoin can also be seen as a comparable asset is the central question, but looking at the last 12 years, the ship has mostly sailed there.