6 ms·

Cryptocurrency Is Bunk

21 points by RikNieu 5y ago

thewakalix 5y ago
Already submitted: https://news.ycombinator.com/item?id=28901945 https://news.ycombinator.com/item?id=28901945
bloodyplonker22 5y ago
Wow this article is just flat out wrong about Milton Friedman. He was not an Austrian school economist. He was part of the Chicago school of economic thought. Also, he was not for moving everything back to the gold standard. They could not even get these simple facts correct.
- neilwilson 5y ago
  It's wrong about bank money creation as well. Banks don't just create money because they like your smile. They issue their own liabilities at a discount against collateral, the charge over which they take as their own asset. The collateral has to exist now, and generally not in the future. And it is this that causes the problem with banking - they are renown for wanting to lend you an umbrella when the sun is shining. Banks are for the most part liquidity providers against existing assets. And it is the existence of existing assets and the market for their liquidation that generates the systemic risk limit on bank lending expansion.
  - nuerow 5y ago
    > Banks don't just create money because they like your smile. They issue their own liabilities at a discount against collateral, the charge over which they take as their own asset. Keep in mind that there's a theory where bank loans are actually a way to create money that doesn't exist nor has any collateral. https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation
    - rsj_hn 5y ago
      > Keep in mind that there's a theory where bank loans are actually a way to create money that doesn't exist nor has any collateral. The "reserve multiplier" theory of money creation is incompatible with modern bank regulation, or even the meaning of the terms used (banks only lend reserves to each other, never to customers), nor does it describe how money creation works in real economies (despite the fact that it appears in wikipedia). For a good overview of how money creation works, see this BoE report: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
      - nuerow 5y ago
        > The "reserve multiplier" theory of money creation is incompatible with modern bank regulation -- it's actually a crime (...) No, not really. The only requirement for the "banks create money through loans" theory is that banks practice fractional reserve banking. https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking
        bloodyplonker22 5y ago
        sorry, but fractional reserve banking is no longer used in modern banking. It was done away with several years ago. Here's a little explainer for you: https://www.youtube.com/watch?v=cDNSNX48Kmo https://www.youtube.com/watch?v=cDNSNX48Kmo
    - endofreach 5y ago
      I wonder why it‘s „just“ called a theory. At least for the central european bank this is the reality. In germany the term is „Giralgeldschöpfung“ which apparently translates to „giro money creation“ - so it seems we are talking about the same thing. When i read about it a few years back and talked to people about it, was surprised how little people know about this. Especially the smart people from the financial industry that i know, or bankers… i just stumbled upon it accidentally. I am not educated in the financial workings, but the recent history shows that the people in charge might seems educated, but shouldn‘t be trusted. There is too much of a gap of interests and understanding between the financial industry and the actual economy.
- timbit42 5y ago
  The article doesn't say Friedman was an Austrian school economist. It says Austrian school economic thought is encapsulated by thinkers like Milton Friedman.
- ur-whale 5y ago
  > Wow this article is just flat out wrong It's Jacobin magazine, what did you expect exactly? Something unbiased, perhaps?
mvind 5y ago
Crypto currencies (or atleast DeFI) is trying to solve a pretty pragmatic problem: There is 1.7B unbanked people in the world and banking services are outdated and unavailable for large portion of humankind. I mean that is pretty good problem to work on IMO. I think articles like this that talk about monetary politics are missing the point a bit. I live in Denmark, and even then it takes approx ~10-24 hours to transfer funds between banks, imagine if we could reduce that time to mere seconds- or minutes?
- tablespoon 5y ago
  > Crypto currencies (or atleast DeFI) is trying to solve a pretty pragmatic problem: There is 1.7B unbanked people in the world and banking services are outdated and unavailable for large portion of humankind. Huh? Is that the story now? I thought cryptocurrencies were about 1) implementing some kind of cyberpunk-libertarian vision of a world free from the control of central bankers, 2) getting rich quick off of speculation, or 3) rushing to apply a faddish technology to be hip and cool. I would be very surprised if DeFI's relationship to the unbanked was anything besides "uh, so now that we've made this thing, what use cases could we use to sell it?" (e.g. exactly opposite to what you've described).
- whermans 5y ago
  You hit on a point that bothers me in all the discussions of cryptocurrency. Not having access to banks is a real issue; quicker bank transfers a less critical, but still real concern. Neither of these need cryptocurrency to be solved, and neither of them are solved by cryptocurrency; so why are they used as arguments? Concrete example: I have an app on my phone that allows me to instantly transfer funds from my bank account to other people using a QR code with no transaction cost. That was part of the promise of cryptocurrencies and is still trotted out as a potential benefit - but this system does not use cryptocurrency at all and has none of its downsides. If a problem is solved without cryptocurrency, and without cryptocurrency's crippling problems, cryptocurrency clearly wasn't the answer to begin with.
- nuerow 5y ago
  > Crypto currencies (or atleast DeFI) is trying to solve a pretty pragmatic problem: There is 1.7B unbanked people in the world and banking services are outdated and unavailable for large portion of humankind. This take is quite plainly absurd. If anyone has enough access to a working internet connection to make crypto transactions possible, they already meet all the requirements to perform transactions through any other service such as PayPal or even any bank at all.
prirun 5y ago
I don't know much about cryptocurrency, but have been investigating Storj recently for backup storage space because a HashBackup customer asked about it. Storj created an Ethereum-based token and one of its purposes was so they could cheaply issue micropayments to a distributed network of international storage node operators. The issuing micropayments part appears to work, but getting tokens converted to fiat, ie spendable money, appears to be difficult and expensive according to many posts on their forums. So the idea of cryptocurrencies enabling micropayments, while good in theory, seems to not be working so great in practice. Most of the responses to this problem are "It will get fixed with Etherium 2.0" or something like that. It's funny how most problems in life are "to be fixed later".

21 points by RikNieu 5y ago

Already submitted: https://news.ycombinator.com/item?id=28901945 https://news.ycombinator.com/item?id=28901945

Wow this article is just flat out wrong about Milton Friedman. He was not an Austrian school economist. He was part of the Chicago school of economic thought. Also, he was not for moving everything back to the gold standard. They could not even get these simple facts correct.

neilwilson 5y ago
It's wrong about bank money creation as well. Banks don't just create money because they like your smile. They issue their own liabilities at a discount against collateral, the charge over which they take as their own asset. The collateral has to exist now, and generally not in the future. And it is this that causes the problem with banking - they are renown for wanting to lend you an umbrella when the sun is shining. Banks are for the most part liquidity providers against existing assets. And it is the existence of existing assets and the market for their liquidation that generates the systemic risk limit on bank lending expansion.
- nuerow 5y ago
  > Banks don't just create money because they like your smile. They issue their own liabilities at a discount against collateral, the charge over which they take as their own asset. Keep in mind that there's a theory where bank loans are actually a way to create money that doesn't exist nor has any collateral. https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation
  - rsj_hn 5y ago
    > Keep in mind that there's a theory where bank loans are actually a way to create money that doesn't exist nor has any collateral. The "reserve multiplier" theory of money creation is incompatible with modern bank regulation, or even the meaning of the terms used (banks only lend reserves to each other, never to customers), nor does it describe how money creation works in real economies (despite the fact that it appears in wikipedia). For a good overview of how money creation works, see this BoE report: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
    - nuerow 5y ago
      > The "reserve multiplier" theory of money creation is incompatible with modern bank regulation -- it's actually a crime (...) No, not really. The only requirement for the "banks create money through loans" theory is that banks practice fractional reserve banking. https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking
      - bloodyplonker22 5y ago
        sorry, but fractional reserve banking is no longer used in modern banking. It was done away with several years ago. Here's a little explainer for you: https://www.youtube.com/watch?v=cDNSNX48Kmo https://www.youtube.com/watch?v=cDNSNX48Kmo
  - endofreach 5y ago
    I wonder why it‘s „just“ called a theory. At least for the central european bank this is the reality. In germany the term is „Giralgeldschöpfung“ which apparently translates to „giro money creation“ - so it seems we are talking about the same thing. When i read about it a few years back and talked to people about it, was surprised how little people know about this. Especially the smart people from the financial industry that i know, or bankers… i just stumbled upon it accidentally. I am not educated in the financial workings, but the recent history shows that the people in charge might seems educated, but shouldn‘t be trusted. There is too much of a gap of interests and understanding between the financial industry and the actual economy.
timbit42 5y ago
The article doesn't say Friedman was an Austrian school economist. It says Austrian school economic thought is encapsulated by thinkers like Milton Friedman.
ur-whale 5y ago
> Wow this article is just flat out wrong It's Jacobin magazine, what did you expect exactly? Something unbiased, perhaps?

mvind 5y ago

Crypto currencies (or atleast DeFI) is trying to solve a pretty pragmatic problem: There is 1.7B unbanked people in the world and banking services are outdated and unavailable for large portion of humankind. I mean that is pretty good problem to work on IMO. I think articles like this that talk about monetary politics are missing the point a bit. I live in Denmark, and even then it takes approx ~10-24 hours to transfer funds between banks, imagine if we could reduce that time to mere seconds- or minutes?

tablespoon 5y ago
> Crypto currencies (or atleast DeFI) is trying to solve a pretty pragmatic problem: There is 1.7B unbanked people in the world and banking services are outdated and unavailable for large portion of humankind. Huh? Is that the story now? I thought cryptocurrencies were about 1) implementing some kind of cyberpunk-libertarian vision of a world free from the control of central bankers, 2) getting rich quick off of speculation, or 3) rushing to apply a faddish technology to be hip and cool. I would be very surprised if DeFI's relationship to the unbanked was anything besides "uh, so now that we've made this thing, what use cases could we use to sell it?" (e.g. exactly opposite to what you've described).
whermans 5y ago
You hit on a point that bothers me in all the discussions of cryptocurrency. Not having access to banks is a real issue; quicker bank transfers a less critical, but still real concern. Neither of these need cryptocurrency to be solved, and neither of them are solved by cryptocurrency; so why are they used as arguments? Concrete example: I have an app on my phone that allows me to instantly transfer funds from my bank account to other people using a QR code with no transaction cost. That was part of the promise of cryptocurrencies and is still trotted out as a potential benefit - but this system does not use cryptocurrency at all and has none of its downsides. If a problem is solved without cryptocurrency, and without cryptocurrency's crippling problems, cryptocurrency clearly wasn't the answer to begin with.
nuerow 5y ago
> Crypto currencies (or atleast DeFI) is trying to solve a pretty pragmatic problem: There is 1.7B unbanked people in the world and banking services are outdated and unavailable for large portion of humankind. This take is quite plainly absurd. If anyone has enough access to a working internet connection to make crypto transactions possible, they already meet all the requirements to perform transactions through any other service such as PayPal or even any bank at all.

prirun 5y ago

I don't know much about cryptocurrency, but have been investigating Storj recently for backup storage space because a HashBackup customer asked about it. Storj created an Ethereum-based token and one of its purposes was so they could cheaply issue micropayments to a distributed network of international storage node operators. The issuing micropayments part appears to work, but getting tokens converted to fiat, ie spendable money, appears to be difficult and expensive according to many posts on their forums. So the idea of cryptocurrencies enabling micropayments, while good in theory, seems to not be working so great in practice. Most of the responses to this problem are "It will get fixed with Etherium 2.0" or something like that. It's funny how most problems in life are "to be fixed later".