6 ms·

So I have read a bit about Bitcoin, including actively trying to read primers and so on, but I think my utter lack of education around economics^ is really hind

by SCdF 14y ago

So I have read a bit about Bitcoin, including actively trying to read primers and so on, but I think my utter lack of education around economics^ is really hindering my understanding. Plainly: Why do I care about bitcoin? What does it have that other currencies (US, EU, my own NZD) doesn't have? Why should I put my money into it, and how do we know it will not collapse and make your fake wealth even more fake? ^To help calibrate your measurements, the part of The Economist that actually talked about the economy utterly confounds me. Edit: As another calibration, I had to google 'fiat currency' when someone brought it up below ;-)

javert 14y ago
As a merchant, it could hypothetically be easier or cheaper to deal with Bitcoin than other currencies online. (For example, note how aggravating/risky PayPal is.) As a person who wants to hedge against inflation or hyperinflation, it has a fixed total supply and can't be directly manipulated by the government (nor does its value depend on the government's credibility). As a speculator, there is the _possibility_ of making huge profits if you go ahead and get in early. As a person who is afraid of government power, it _could_ take away a lot of the government's power if widely adopted. (If everything is "cash," they can't really tax you accurately; and with Bitcoin, they can't just print more money.) It would be really nice if the US government had to choose between, say, multiple decade+ occupations in the Middle East vs. spending on other things. As a regular spender, there is the _possibility_ of easy digital transactions with less overhead expense (e.g. swipe your smartphone to pay for something, _without_, say, VISA taking off the top... though probably it would be some bitcoin processor taking (less) off the top). A different way of looking at it is: it's basically analogous to gold, except easy to transmit, but not impervious to apocalypse or regulatory action that would take down the Internet. Basically everything I said above is an implication of this way to look at it. People who are slightly bullish on gold ought to be extremely bullish about Bitcoin, IMO, if they have the technical understanding to believe that it works (I do, and it does).
- MichaelApproved 14y ago
  "As a merchant, it could hypothetically be easier or cheaper to deal with Bitcoin than other currencies online. (For example, note how aggravating/risky PayPal is.)" As a customer, I don't care about how aggravating/risky PayPal is to you. I also don't care that you have trouble with any other merchant account. I'm going to use the payment option that gives me the most protection and is most convenient to me. Credit card companies and PayPal allow me to dispute charges for unsatisfactory service. Even though I've rarely used that in my life, it's a huge reassurance! As I understand it, Bitcoin is like a cash transaction with very little recourse for the customer. Once the transaction is complete, you can't reverse it (I'm still learning about it so please correct me if I'm wrong). There could come a day when a middle man comes between the merchant and customer to give customer protection but then you're pretty much in the same boat as we are now. Note: I'm also a merchant, so I know the pains of PayPal and merchant accounts. Just reminding you to look at it from the customer perspective.
  - coopdog 14y ago
    How about this one, whenever I have to buy anything in USD (which is a lot, I only have AUD), I have the privilege of paying 4% more than the listed price due to currency exchange spread. Bitcoin would give me a 4% discount on everything, even still considering merchant gateways take another 1-2% from the merchant, for a 6% total. The merchant gateway might not get to keep that 4%, it might even be eaten up by hedging against currency fluctuations, but either way unifying everyone onto one currency would remove those risks and costs. Merchants would only need to convert back once a year at tax time to pay their government.
  - javert 14y ago
    Supposedly, savings for merchants can get passed on to customers. For example, I have heard that prices on bitcoinstore.com (which is a big consumer electronics site) are significantly cheaper than elsewhere. I haven't tried to compute that myself, so I don't know if it's actually true. Also, when paying with Bitcoin, I don't have to reveal my name to the merchant. That can matter a lot for certain things. For example, I wouldn't want to make any kind of "adult" purchases using my real name.
- hamidpalo 14y ago
  As a merchant, it could hypothetically be easier or cheaper to deal with Bitcoin than other currencies online. (For example, note how aggravating/risky PayPal is.) It's not. Given the volatility of bitcoin you're taking on a lot of currency risk since the value of the bitcoins you just got for your widget can change a lot in a few days. The extra cost of conversion and/or hedging is not worth it. Especially when you consider all the other problems that bitcoin has.
  - javert 14y ago
    There are bitcoin payment processors that allow customers to pay in BTC, and deposit the money in the merchant's account as USD immediately, thereby solving this problem (with a price). I don't know what the state of the art is here, but presumably, that price is going to approach zero, since this is a competitive space, which is not the case with traditional payment processing.
oscilloscope 14y ago
Bitcoin is crypto-currency rather than fiat currency. It requires no central issuer, which means no entity can create swings in the total supply. It's based on computational limits which gradually increase the supply of Bitcoin at a predictable rate. With government-issued currencies, there is a pressure with USD to inflate the currency steadily over time, so your dollars lose value as you save them. Right now, most people don't advocate investing significant amounts in Bitcoin. One use case is just to buy Bitcoin when you need it to complete a transaction. You don't know that Bitcoin won't collapse. If you keep your Bitcoin on a service, you don't know that service won't get hacked. These are risks you should take into account. But you also don't know how much demand for Bitcoin will grow. If if becomes widely used, people who saved them early should make quite a bit of money.
- SCdF 14y ago
  > there is a pressure with USD to inflate the currency steadily over time, so your dollars lose value as you save them. Why does that pressure exist? Simply because they print more money because it makes their lives easier?
  - jmillikin 14y ago
    In a modern economy, inflation acts as a tax on idle cash. This encourages people and organizations to keep their wealth in forms that help the rest of the economy. A thousand dollars under your mattress isn't doing anything for anyone, but in a bank account, equity, or bond it can be used by others to finance their business. The higher the inflation rate, the more pressure there is to invest instead of hoard. Governments adjust the inflation rate via mechanisms such as making large loans to major banks ("printing money") or selling bonds. The goal is for the economy to experience constant slow growth at the minimum practical inflation rate.
charlesju 14y ago
As a game developer, the best value of bitcoin is that it is a hack-resistant and durable way to exchange currency. Gold is nice, but we can make gold someday or someone can discover a bunch of gold somewhere and it all goes down. The government backed value is good, but governments are controlled by people and they can be corrupt. Other forms of tangible value is ok, but it suffers from all sorts of various problems that make them generally less good than gold ie. less elementally stable, too fragile, too common, etc. The way bitcoins works from my understanding is that: 1. Anyone can make a bitcoin if they find a pattern that matches a description of a bitcoin. 2. Bitcoins are traded publicly with ledgers distributed. If you trade your bitcoin 1075 to me, there will be a record of that transaction on several servers around the world. This concept is perhaps similar to bittorrent. The benefits to these two basic principles are mostly that which javert has stated. ---- As a side note, there are a TON of services to get you started with bitcoin, today, for free. I feel that as a technologist, you should try it out. 1. Go to https://instawallet.org/ https://instawallet.org/ to get an address for others to send you bitcoins 2. Go to sites listed https://bitcointalk.org/index.php?topic=90718.0 https://bitcointalk.org/index.php?topic=90718.0 and get some free bitcoins ---- Now, on a very personal note, I find bitcoins very interesting, but I don't believe it can reach its intended goals. Governments need to be able to track spending to tax and regulate. Bitcoins makes things like money laundering very easy. If bitcoin reaches any real scale it will be shut down, fast.
- celticninja 14y ago
  how are you proposing they shut it down? the best they could do is shut down the exchanges, but goven they are located in the UK, Japan, France, US, Russia etc then you cant get them all shut down and even if you could you can still do person to person trades and I am willing to bet that a decentralised exchange appears not long after the current exchanges are shut down.
  - charlesju 14y ago
    1. CNN reports bitcoins are how Al Queda gets money they earn from drugs washed out into these exchanges around the world 2. CIA goes berserk and can do two things: go after the exchanges and if that doesn't work, they can implement the great firewall of America.
redthrowaway 14y ago
>the part of The Economist that actually talked about the economy utterly confounds me Recognize that the Economist is a fairly left-leaning, certainly Keynesian publication when it comes to economics. There's nothing wrong with that, and they regularly publish informative pieces, but it isn't the non-partisan publication that it sometimes claims to be.
- deleted 14y ago
  [deleted]
- brianchu 14y ago
  How do you define "left-leaning"? In my view, The Economist is actually quite centrist, and to some extent right-leaning. For example, both the Democratic Party (US) and the Labour Party (UK) are left of The Economist on economic issues. I also don't believe that most people reading the magazine could ever get the impression that The Economist claims (or appears) to be non-partisan. Every article reads like - and, in fact, more or less is - an editorial.
  - calpaterson 14y ago
    It depends who you call centrist and who you call right and left. Quite a lot of people who read the economic section of the economist think that it represents consensus economic opinion, as opposed to the political sections, which are pretty well known to be faintly libertarian. Even if you exclude socialists the economic section is putting forward a strongly Keynesian point of view and while Keynesianism is popular it is not a consensus. In that the Economist generally supports fiat currencies and central banking, the economic section is "left wing".
    - gknoy 14y ago
      > the economic section is putting forward a strongly Keynesian point of view... not a consensus. I think part of the reason for the confusion is that many people (including me) do not know enough about economics to know what it means to be Keynesian (vs Austrian or other schools, I believe?), in much the same way that most non-programmers have no idea what we mean when we are talking about object-oriented vs functional. It doesn't help that most economic schools seem to be like religions: All the other guys are wrong, and ours is the only one that's right. Sure, you can look that up on Wikipedia, but if you don't know enough about the domain it's easy to not realize that there are alternatives (or what they are).

by SCdF 14y ago

javert 14y ago

As a merchant, it could hypothetically be easier or cheaper to deal with Bitcoin than other currencies online. (For example, note how aggravating/risky PayPal is.) As a person who wants to hedge against inflation or hyperinflation, it has a fixed total supply and can't be directly manipulated by the government (nor does its value depend on the government's credibility). As a speculator, there is the _possibility_ of making huge profits if you go ahead and get in early. As a person who is afraid of government power, it _could_ take away a lot of the government's power if widely adopted. (If everything is "cash," they can't really tax you accurately; and with Bitcoin, they can't just print more money.) It would be really nice if the US government had to choose between, say, multiple decade+ occupations in the Middle East vs. spending on other things. As a regular spender, there is the _possibility_ of easy digital transactions with less overhead expense (e.g. swipe your smartphone to pay for something, _without_, say, VISA taking off the top... though probably it would be some bitcoin processor taking (less) off the top). A different way of looking at it is: it's basically analogous to gold, except easy to transmit, but not impervious to apocalypse or regulatory action that would take down the Internet. Basically everything I said above is an implication of this way to look at it. People who are slightly bullish on gold ought to be extremely bullish about Bitcoin, IMO, if they have the technical understanding to believe that it works (I do, and it does).

MichaelApproved 14y ago
"As a merchant, it could hypothetically be easier or cheaper to deal with Bitcoin than other currencies online. (For example, note how aggravating/risky PayPal is.)" As a customer, I don't care about how aggravating/risky PayPal is to you. I also don't care that you have trouble with any other merchant account. I'm going to use the payment option that gives me the most protection and is most convenient to me. Credit card companies and PayPal allow me to dispute charges for unsatisfactory service. Even though I've rarely used that in my life, it's a huge reassurance! As I understand it, Bitcoin is like a cash transaction with very little recourse for the customer. Once the transaction is complete, you can't reverse it (I'm still learning about it so please correct me if I'm wrong). There could come a day when a middle man comes between the merchant and customer to give customer protection but then you're pretty much in the same boat as we are now. Note: I'm also a merchant, so I know the pains of PayPal and merchant accounts. Just reminding you to look at it from the customer perspective.
- coopdog 14y ago
  How about this one, whenever I have to buy anything in USD (which is a lot, I only have AUD), I have the privilege of paying 4% more than the listed price due to currency exchange spread. Bitcoin would give me a 4% discount on everything, even still considering merchant gateways take another 1-2% from the merchant, for a 6% total. The merchant gateway might not get to keep that 4%, it might even be eaten up by hedging against currency fluctuations, but either way unifying everyone onto one currency would remove those risks and costs. Merchants would only need to convert back once a year at tax time to pay their government.
- javert 14y ago
  Supposedly, savings for merchants can get passed on to customers. For example, I have heard that prices on bitcoinstore.com (which is a big consumer electronics site) are significantly cheaper than elsewhere. I haven't tried to compute that myself, so I don't know if it's actually true. Also, when paying with Bitcoin, I don't have to reveal my name to the merchant. That can matter a lot for certain things. For example, I wouldn't want to make any kind of "adult" purchases using my real name.
hamidpalo 14y ago
As a merchant, it could hypothetically be easier or cheaper to deal with Bitcoin than other currencies online. (For example, note how aggravating/risky PayPal is.) It's not. Given the volatility of bitcoin you're taking on a lot of currency risk since the value of the bitcoins you just got for your widget can change a lot in a few days. The extra cost of conversion and/or hedging is not worth it. Especially when you consider all the other problems that bitcoin has.
- javert 14y ago
  There are bitcoin payment processors that allow customers to pay in BTC, and deposit the money in the merchant's account as USD immediately, thereby solving this problem (with a price). I don't know what the state of the art is here, but presumably, that price is going to approach zero, since this is a competitive space, which is not the case with traditional payment processing.

oscilloscope 14y ago

Bitcoin is crypto-currency rather than fiat currency. It requires no central issuer, which means no entity can create swings in the total supply. It's based on computational limits which gradually increase the supply of Bitcoin at a predictable rate. With government-issued currencies, there is a pressure with USD to inflate the currency steadily over time, so your dollars lose value as you save them. Right now, most people don't advocate investing significant amounts in Bitcoin. One use case is just to buy Bitcoin when you need it to complete a transaction. You don't know that Bitcoin won't collapse. If you keep your Bitcoin on a service, you don't know that service won't get hacked. These are risks you should take into account. But you also don't know how much demand for Bitcoin will grow. If if becomes widely used, people who saved them early should make quite a bit of money.

SCdF 14y ago
> there is a pressure with USD to inflate the currency steadily over time, so your dollars lose value as you save them. Why does that pressure exist? Simply because they print more money because it makes their lives easier?
- jmillikin 14y ago
  In a modern economy, inflation acts as a tax on idle cash. This encourages people and organizations to keep their wealth in forms that help the rest of the economy. A thousand dollars under your mattress isn't doing anything for anyone, but in a bank account, equity, or bond it can be used by others to finance their business. The higher the inflation rate, the more pressure there is to invest instead of hoard. Governments adjust the inflation rate via mechanisms such as making large loans to major banks ("printing money") or selling bonds. The goal is for the economy to experience constant slow growth at the minimum practical inflation rate.

charlesju 14y ago

As a game developer, the best value of bitcoin is that it is a hack-resistant and durable way to exchange currency. Gold is nice, but we can make gold someday or someone can discover a bunch of gold somewhere and it all goes down. The government backed value is good, but governments are controlled by people and they can be corrupt. Other forms of tangible value is ok, but it suffers from all sorts of various problems that make them generally less good than gold ie. less elementally stable, too fragile, too common, etc. The way bitcoins works from my understanding is that: 1. Anyone can make a bitcoin if they find a pattern that matches a description of a bitcoin. 2. Bitcoins are traded publicly with ledgers distributed. If you trade your bitcoin 1075 to me, there will be a record of that transaction on several servers around the world. This concept is perhaps similar to bittorrent. The benefits to these two basic principles are mostly that which javert has stated. ---- As a side note, there are a TON of services to get you started with bitcoin, today, for free. I feel that as a technologist, you should try it out. 1. Go to https://instawallet.org/ https://instawallet.org/ to get an address for others to send you bitcoins 2. Go to sites listed https://bitcointalk.org/index.php?topic=90718.0 https://bitcointalk.org/index.php?topic=90718.0 and get some free bitcoins ---- Now, on a very personal note, I find bitcoins very interesting, but I don't believe it can reach its intended goals. Governments need to be able to track spending to tax and regulate. Bitcoins makes things like money laundering very easy. If bitcoin reaches any real scale it will be shut down, fast.

celticninja 14y ago
how are you proposing they shut it down? the best they could do is shut down the exchanges, but goven they are located in the UK, Japan, France, US, Russia etc then you cant get them all shut down and even if you could you can still do person to person trades and I am willing to bet that a decentralised exchange appears not long after the current exchanges are shut down.
- charlesju 14y ago
  1. CNN reports bitcoins are how Al Queda gets money they earn from drugs washed out into these exchanges around the world 2. CIA goes berserk and can do two things: go after the exchanges and if that doesn't work, they can implement the great firewall of America.

redthrowaway 14y ago

>the part of The Economist that actually talked about the economy utterly confounds me Recognize that the Economist is a fairly left-leaning, certainly Keynesian publication when it comes to economics. There's nothing wrong with that, and they regularly publish informative pieces, but it isn't the non-partisan publication that it sometimes claims to be.

deleted 14y ago
[deleted]
brianchu 14y ago
How do you define "left-leaning"? In my view, The Economist is actually quite centrist, and to some extent right-leaning. For example, both the Democratic Party (US) and the Labour Party (UK) are left of The Economist on economic issues. I also don't believe that most people reading the magazine could ever get the impression that The Economist claims (or appears) to be non-partisan. Every article reads like - and, in fact, more or less is - an editorial.
- calpaterson 14y ago
  It depends who you call centrist and who you call right and left. Quite a lot of people who read the economic section of the economist think that it represents consensus economic opinion, as opposed to the political sections, which are pretty well known to be faintly libertarian. Even if you exclude socialists the economic section is putting forward a strongly Keynesian point of view and while Keynesianism is popular it is not a consensus. In that the Economist generally supports fiat currencies and central banking, the economic section is "left wing".
  - gknoy 14y ago
    > the economic section is putting forward a strongly Keynesian point of view... not a consensus. I think part of the reason for the confusion is that many people (including me) do not know enough about economics to know what it means to be Keynesian (vs Austrian or other schools, I believe?), in much the same way that most non-programmers have no idea what we mean when we are talking about object-oriented vs functional. It doesn't help that most economic schools seem to be like religions: All the other guys are wrong, and ours is the only one that's right. Sure, you can look that up on Wikipedia, but if you don't know enough about the domain it's easy to not realize that there are alternatives (or what they are).