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> I often joke that crypto has been run by gold bugs You're not wrong. Crypto is the natural evolution of the gold bug. Gold bugs funamentally don't understan

by jmyeet 4y ago

> I often joke that crypto has been run by gold bugs You're not wrong. Crypto is the natural evolution of the gold bug. Gold bugs funamentally don't understand the finance system. The gold standard was never about fully backing your currency with a global commodity (fun fact: the US dollar was never 100% backed by gold reserves). A gold standard is actually just a peg, a promise by the government to exchange dollars for gold (and vice versa) at a fixed rate. And you don't technically need any gold for that. Yet gold bugs harp on about gold reserves and that's the least important part of the gold standard. Either way you have a trust issue. FDR famously performed a sovereign debt devaluation, for example. Likewise, my experience with crypto people is they too (generally, not always) don't understand why the TradFi system is the way it is. Worse, they seem to use wilful ignorance of that as a badge of honor (while muttering something about "disruption"). So gold bugs who (rationally or irrationally) hate TradFi find a natural home with similarly minded Crypto Andys.

excite1997 4y ago
I think you're debating a strawman, though. Sure, there are delusional / ignorant goldbugs who make stupid arguments, but you can find that in pretty much any domain. There are also reasonable people, including heterodox economists, who understand the history of currencies and monetary systems, and still advocate for a return to pegged currencies or for precious metals as a part of a diversified portfolio. You don't have to agree with them, but ad hominems are probably unnecessary. I mean, it's not even that fringe is you consider that Central Banks sure hoard a lot of gold specifically because they see it as useful in certain (bad) economic scenarios.
notch656a 4y ago
Most gold bugs I've interacted with are more interested in replicating commodity money (i.e. gold coins for trade) than gold standard (i.e. dollars backed by gold). Gold standard is dumb for reasons you say. Commodity money is by design supposed to be 100% backed, as the gold is actually inside the money and the face value is the weight gold inside it.
- lazide 4y ago
  FYI, Historically, it has been really common to debase currency by diluting or reducing the precious metal content of coins. [https://en.m.wikipedia.org/wiki/Methods_of_coin_debasement https://en.m.wikipedia.org/wiki/Methods_of_coin_debasement]
  - notch656a 4y ago
    Valid, although once the gold is in my hands it's kind of hard to debase it. Of course the weakness is that it may be impractical to check it is debased every time you receive it (although it is practical for large transactions). Each money has its own weakness. One of the big weaknesses with fiat and gold-backed money is that it can be debased even while it is in your personal possession.
- rsj_hn 4y ago
  There is a reason why there has never existed a society in which the majority of transactions were done by people exchanging gold or silver coins kept in little leather pouches. It's just too impractical. - problems with availability - in most traditional societies, there just weren't enough coins to meet transaction demand, and so people transacted based on credit or other informal ledgers. - problems with theft - problems with weight - problems with people shaving some of the metal off - problems with counterfeits -- not actually easy to test the percentage of gold in your coin - problems with credit markets. Credit markets need to move money around quickly and efficiently, and be able to raise large sums. That's not compatible with socks filled with gold buried under your rose bush. The money needs to be available in the credit markets so it can be efficiently deployed, moved around, etc. So from the beginning, gold was used for specialized purposes -- e.g. to settle international trade or large payments, rather than as a primary means of payment. There is no way to get around this. The moment you introduce gold, merchants will start borrowing gold by selling Bills of Exchange -- effectively promises to pay gold. These bills of exchange will be more valuable if they are bearer instruments, and so the merchant will make them bearer instruments (to allow raising more money). Then you get a market in which people are buying and selling bills of exchange at a discount. Now you have a discount rate and a money market, and all you are missing is a financial crisis in which a large bank steps to staff their discount window when the smaller traders are forced to close their own. All of a sudden, you are back to credit-based money, as the Bills of Exchange are themselves used to settle more trade than the gold coins. It's just a lot easier to carry a piece of paper that says "X promises to pay 1000 gold coins next year" then it is to actually lug 1000 gold coins around. The ease of convenience, the needs of merchants to tap capital markets, will ultimately subvert whatever metallic standard you come up with. Then, financial crises will drag in the government to start regulating and centralizing the capital markets.
kipchak 4y ago
>the US dollar was never 100% backed by gold reserves The dollar was created by the coinage act in 1792, with dollars being made of the equivalent amount of silver or gold. To me this seems like practically same thing as being 100% backed by gold reserves. If we're talking about paper dollars or originally "Demand Notes" from 1861 onward that would be the case as they were put in place because the government was broke trying to fund the Civil War,[1] and had to issue currency on credit[2] (about $1.5b additional in todays dollars, for comparison there's about $51b total in 2021). >A gold standard is actually just a peg, a promise by the government to exchange dollars for gold (and vice versa) at a fixed rate. And you don't technically need any gold for that. Wouldn't you need enough reserves to allow anyone who attempted to exchange their dollars for gold to do so? Fractional banking and bank runs seem like a rough analog. [1]https://www.mycreditunion.gov/financial-resources/history-united-states-currency https://www.mycreditunion.gov/financial-resources/history-un... [2]https://www.cs.mcgill.ca/~rwest/wikispeedia/wpcd/wp/d/Demand_Note.htm https://www.cs.mcgill.ca/~rwest/wikispeedia/wpcd/wp/d/Demand...
- lazide 4y ago
  Regarding gold/silver backing - yes, if they let you actually do that redemption or exchange. Something that has historically been suspended or banned multiple times. Including by FDR in 1933, and Nixon when the US exited the gold standard entirely. [https://www.history.com/this-day-in-history/fdr-takes-united-states-off-gold-standard https://www.history.com/this-day-in-history/fdr-takes-united...] Like Tether, if you can’t actually redeem it for what it’s nominally backed by, is it really backed by it?
  - deleted 4y ago
    [deleted]
  - kipchak 4y ago
    If I remember right Nixon's exit from the gold standard was at least pitched to the public as a temporary measure, and his team was slightly surprised at how little effect it had in terms of causing panic. I think to some extent we've been riding that initial wave of trust and backing. The alternative I suppose is we've figured out how to manage things correctly and no longer need a peg, but the lead up to the end of Bretton woods sounds ominously familiar to the 2000s. CBDCs seem like the only thing that could potentially fill a similar role. "However, from 1950 to 1969, as Germany and Japan recovered, the US share of the world's economic output dropped significantly, from 35% to 27%. Furthermore, a negative balance of payments, growing public debt incurred by the Vietnam War, and monetary inflation by the Federal Reserve caused the dollar to become increasingly overvalued in the 1960s...The American public believed the government was rescuing them from price gougers and from a foreign-caused exchange crisis."[1] [1]https://en.wikipedia.org/wiki/Nixon_shock https://en.wikipedia.org/wiki/Nixon_shock

by jmyeet 4y ago

excite1997 4y ago

I think you're debating a strawman, though. Sure, there are delusional / ignorant goldbugs who make stupid arguments, but you can find that in pretty much any domain. There are also reasonable people, including heterodox economists, who understand the history of currencies and monetary systems, and still advocate for a return to pegged currencies or for precious metals as a part of a diversified portfolio. You don't have to agree with them, but ad hominems are probably unnecessary. I mean, it's not even that fringe is you consider that Central Banks sure hoard a lot of gold specifically because they see it as useful in certain (bad) economic scenarios.

notch656a 4y ago

Most gold bugs I've interacted with are more interested in replicating commodity money (i.e. gold coins for trade) than gold standard (i.e. dollars backed by gold). Gold standard is dumb for reasons you say. Commodity money is by design supposed to be 100% backed, as the gold is actually inside the money and the face value is the weight gold inside it.

lazide 4y ago
FYI, Historically, it has been really common to debase currency by diluting or reducing the precious metal content of coins. [https://en.m.wikipedia.org/wiki/Methods_of_coin_debasement https://en.m.wikipedia.org/wiki/Methods_of_coin_debasement]
- notch656a 4y ago
  Valid, although once the gold is in my hands it's kind of hard to debase it. Of course the weakness is that it may be impractical to check it is debased every time you receive it (although it is practical for large transactions). Each money has its own weakness. One of the big weaknesses with fiat and gold-backed money is that it can be debased even while it is in your personal possession.
rsj_hn 4y ago
There is a reason why there has never existed a society in which the majority of transactions were done by people exchanging gold or silver coins kept in little leather pouches. It's just too impractical. - problems with availability - in most traditional societies, there just weren't enough coins to meet transaction demand, and so people transacted based on credit or other informal ledgers. - problems with theft - problems with weight - problems with people shaving some of the metal off - problems with counterfeits -- not actually easy to test the percentage of gold in your coin - problems with credit markets. Credit markets need to move money around quickly and efficiently, and be able to raise large sums. That's not compatible with socks filled with gold buried under your rose bush. The money needs to be available in the credit markets so it can be efficiently deployed, moved around, etc. So from the beginning, gold was used for specialized purposes -- e.g. to settle international trade or large payments, rather than as a primary means of payment. There is no way to get around this. The moment you introduce gold, merchants will start borrowing gold by selling Bills of Exchange -- effectively promises to pay gold. These bills of exchange will be more valuable if they are bearer instruments, and so the merchant will make them bearer instruments (to allow raising more money). Then you get a market in which people are buying and selling bills of exchange at a discount. Now you have a discount rate and a money market, and all you are missing is a financial crisis in which a large bank steps to staff their discount window when the smaller traders are forced to close their own. All of a sudden, you are back to credit-based money, as the Bills of Exchange are themselves used to settle more trade than the gold coins. It's just a lot easier to carry a piece of paper that says "X promises to pay 1000 gold coins next year" then it is to actually lug 1000 gold coins around. The ease of convenience, the needs of merchants to tap capital markets, will ultimately subvert whatever metallic standard you come up with. Then, financial crises will drag in the government to start regulating and centralizing the capital markets.

kipchak 4y ago

>the US dollar was never 100% backed by gold reserves The dollar was created by the coinage act in 1792, with dollars being made of the equivalent amount of silver or gold. To me this seems like practically same thing as being 100% backed by gold reserves. If we're talking about paper dollars or originally "Demand Notes" from 1861 onward that would be the case as they were put in place because the government was broke trying to fund the Civil War,[1] and had to issue currency on credit[2] (about $1.5b additional in todays dollars, for comparison there's about $51b total in 2021). >A gold standard is actually just a peg, a promise by the government to exchange dollars for gold (and vice versa) at a fixed rate. And you don't technically need any gold for that. Wouldn't you need enough reserves to allow anyone who attempted to exchange their dollars for gold to do so? Fractional banking and bank runs seem like a rough analog. [1]https://www.mycreditunion.gov/financial-resources/history-united-states-currency https://www.mycreditunion.gov/financial-resources/history-un... [2]https://www.cs.mcgill.ca/~rwest/wikispeedia/wpcd/wp/d/Demand_Note.htm https://www.cs.mcgill.ca/~rwest/wikispeedia/wpcd/wp/d/Demand...

lazide 4y ago
Regarding gold/silver backing - yes, if they let you actually do that redemption or exchange. Something that has historically been suspended or banned multiple times. Including by FDR in 1933, and Nixon when the US exited the gold standard entirely. [https://www.history.com/this-day-in-history/fdr-takes-united-states-off-gold-standard https://www.history.com/this-day-in-history/fdr-takes-united...] Like Tether, if you can’t actually redeem it for what it’s nominally backed by, is it really backed by it?
- deleted 4y ago
  [deleted]
- kipchak 4y ago
  If I remember right Nixon's exit from the gold standard was at least pitched to the public as a temporary measure, and his team was slightly surprised at how little effect it had in terms of causing panic. I think to some extent we've been riding that initial wave of trust and backing. The alternative I suppose is we've figured out how to manage things correctly and no longer need a peg, but the lead up to the end of Bretton woods sounds ominously familiar to the 2000s. CBDCs seem like the only thing that could potentially fill a similar role. "However, from 1950 to 1969, as Germany and Japan recovered, the US share of the world's economic output dropped significantly, from 35% to 27%. Furthermore, a negative balance of payments, growing public debt incurred by the Vietnam War, and monetary inflation by the Federal Reserve caused the dollar to become increasingly overvalued in the 1960s...The American public believed the government was rescuing them from price gougers and from a foreign-caused exchange crisis."[1] [1]https://en.wikipedia.org/wiki/Nixon_shock https://en.wikipedia.org/wiki/Nixon_shock