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The ideas here are important criticisms, but there is one thing to keep in mind with hoarding, and the author can't have it both ways. The author makes an impo
by p1980 15y ago
The ideas here are important criticisms, but there is one thing to keep in mind with hoarding, and the author can't have it both ways.
The author makes an important point that Bitcoin has value precisely because people are willing to accept it--the characteristic of any good currency.
The appreciation of the currency encourages hoarding, which will negate the circulation of money. But there is a feedback loop to this of course. If hoarding does occur, then circulation will go down, which will cause people to lose interest, which will cause the value to stagnate. In that case, hoarding is no longer appealing, and people who have been will become impatient with the low return of investment and start selling them to liquidate.
This in turn creates more circulation. So there is certainly an equilibrium that the system attempts to reach.
If hoarders do the logical conclusion as to what happens if everyone hoards--it means the currency is worthless. So NOBODY would hoard anymore. In reality, there is some equilibrium point that is reached...it is in the best interests of the system participants that they circulate their currency, because it makes their own holdings valuable.
The author can't have it both ways--you can't both say hoarding will cause the currency to be worthless, and assume that hoarders will just hold onto it forever expecting massive appreciation vs the USD. Nobody hoards it if the value stops going up (or becomes worthless, which is what is being claimed)
- jff 15y agoAre you familiar with the Tragedy of the Commons? "Oh, well of course it's important to keep bitcoins circulating... but it won't hurt anything if I hoard my coins, I'm just one person! Besides, I know there are other people hoarding theirs, so I might as well do the same!"
- p1980 15y agoyou miss a point--there will be certain players whose opportunity cost will be higher than waiting for others to liquidate theirs. Those people will liquidate theirs for USD to do productive investment that will earn returns far beyond just playing chicken with the rest of the people to see who will circulate theirs first. So it's not a tragedy of the commons situation--it will make perfect economic sense for certain people, if the hoarding gets too extreme, to change their currency for USD or other assets.
- rfugger 15y agoI guess the real question then is whether the bitcoin equilibrium value is stable enough to be a price unit for real economic transactions, or whether it will fluctuate wildly as people jump on and off the bandwagon.
- p1980 15y agoyep this a good open question. The bitcoin guys will say, in parts of the world economies where bitcoins are taken for both input costs and for selling prices, then exchange rates are irrelevant because bitcoins are used in all transactions, so there are is no forex volatility. Of course we are far away from that sort of adoption. The more persuasive argument is that people are worried that sovereign currencies will themselves become too volatile for real economic transactions if debt problems grow too much, debasement by central banks cause inflation, etc. In this sense, bitcoin is a great hedge against world uncertainty, and will do very well if problems with the euro mount, USD debt skyrockets, etc. For the same reasons people care about gold when people lose faith in fait currencies, there is a good chance people will care about bitcoin if things go crazy.