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Well, I am the author of the linked piece. First, I have never owned any bitcoins, nor do I own any now. It is a fascinating and massive experiment, and I am q

by Nemo_ 14y ago

Well, I am the author of the linked piece. First, I have never owned any bitcoins, nor do I own any now. It is a fascinating and massive experiment, and I am quite happy to remain an observer rather than a participant. Second, I suspect I know more about economics than you think (more a response to pico303 than to you). Obviously the deflationary argument is one of the strongest. The others are mostly noise, but wow is there a lot of noise. I do wonder, though... What would happen if someone were to create something like Bitcoin but with, say, crowd-sourced monetary policy instead of a finite supply?

fish2000 14y ago
One minor point: “Money ain't got no owners – only spenders” … see http://www.youtube.com/watch?v=BWbq-WgE6yo http://www.youtube.com/watch?v=BWbq-WgE6yo But yeah, great reaction piece, +1 for excellent fulminations.
slg 14y ago
I don't think a crowd-source monetary policy is a good answer. There is a reason why the US Federal Reserved is somewhat separated from the normal political process. They often have to make unpopular decisions that are in the best interest of the economy. The issue of deflation is a perfect example. As far as I am aware there isn't any real debt owed in Bitcoin. So everyone who uses it has some positive value of Bitcoin. That means each and every one of them would individually benefit from widespread deflation, but that would have a negative long term impact on the currency as a whole. I am not sure if I trust the public to make the right long term monetary policy decision over something in their own personal interests.
- kiba 14y ago
  As far as I am aware there isn't any real debt owed in Bitcoin. People absolutely do loan each other bitcoin with high interest rate. Unless you meant something different for "real debt".
  - slg 14y ago
    That is what I meant and like I said I wasn't aware of any. A quick Google search for "Bitcoin debt" mostly yields people expounding on the virtues of a "debt-free" currency. The existence of debt would complicate my example as popular opinion on monetary policy would differ. Debtors would prefer inflation while creditors and general currency holders would prefer deflation. Either way, I still don't think something like monetary policy should be left up to crowd sourcing.
drcode 14y ago
Bitcoin DOES have a crowd-sourced monetary policy: Anyone in the "crowd" can try to create their own bitcoin clone and therefore increase the supply (though incompatible with regular bitcoins, of course)
- danielweber 14y ago
  Given that 99.44% of the bitcoin community thinks deflation is the most awesome thing ever, that will never happen.
  - fnordfnordfnord 14y ago
    Mining information for Bitcoin and 8 competitor projects: http://dustcoin.com/mining http://dustcoin.com/mining
  - Lerc 14y ago
    If bitcoin were to be a major world currency the current community would become less than 1%. That might upset some. It'd be like being a old-guard redditor when all the digg people arrived.
  - drcode 14y ago
    It's already happened. See litecoin.
smrtinsert 14y ago
As a potential client, I want a simple scheme to protect my wealth. I don't want to rely on keys, or crytography. I see no such thing akin to the FDIC. Why would I trust bitcoin? Also, why couldn't another digital currency simply obviate its existence? I'm not arguing for it or against it, I agree with you that it is fascinating. However, my casual observation is that the pro and con of being in the wild wild west is that you are in the wild wild west.
- baddox 14y ago
  My mind is boggled by the implication that the FDIC is in any way simpler than bitcoin.
  - Jtsummers 14y ago
    The implication is not that the FDIC is simpler than bitcoin. The implication is that there's little in the way of security with bitcoin. Which is as per the design. You lose your wallet/key, you lose your money. There's no way to insure against that loss (at least not 100%), otherwise half of all circulating BTC would be in an insurer's accounts.
    - baddox 14y ago
      > There's no way to insure against that loss Sure there is. Someone can sell insurance, and you can choose to pay for it. > (at least not 100%) Perhaps not, but I wouldn't call the FDIC's insurance "100%" either. I doubt it would take very many simultaneous bank runs for problems to arise, even with the FDIC. > otherwise half of all circulating BTC would be in an insurer's accounts I'm not sure why half of all BTC would need to be in insurers' accounts, and I'm not sure why that would be an inherent problem even if it were the case.
      - msellout 14y ago
        > Sure there is. Someone can sell insurance, and you can choose to pay for it. Some assumptions: 1. Bitcoin insurance is a viable business; 2. People will trust the insurer.
cs702 14y ago
Nemo_: sorry for the relatively poor level of discourse in this thread. Few people without a working knowledge of basic cryptography seem to understand that Bitcoin is, in a mathematical (i.e., true) sense, as indestructible as the hashing and signing algorithms it relies on to maintain integrity. Exchange markets like MtGox and online wallet-storage services like InstaWallet might be hacked and fail, but not Bitcoin (at least not without major mathematical advances that would render the entire Web insecure as a byproduct). PS. You will enjoy reading this post on the origins of money, in which among other things the author analyzes the common properties of many commodities used as money throughout history -- including not just gold and silver but less-well-known materials like wampun shells, ivory beads, and ostrich egg shells: http://szabo.best.vwh.net/shell.html http://szabo.best.vwh.net/shell.html
- danmaz74 14y ago
  Uhm... if the owner of some bitcoin loses (eg, disk crash and no backup) his secret keys, aren't his bitcoin lost for any practical meaning of the word?
  - cs702 14y ago
    Yes, of course -- very much like losing a physical wallet with cash inside it or a bag with gold coins. Lost forever. Just like paper currency. Just like gold. Unlike paper currency or gold, however, bitcoins can be encrypted and backed up.
Lerc 14y ago
>the deflationary argument is one of the strongest. I'm curious as to the foundations of the benefits of inflation. I understand the principle that it discourages hoarding currency because your hoard decreases in value, but I'm not convinced that the net result is good for an economy. Wouldn't any method of hoarding satisfy the hoarders. Right now that seems to be gold. The other aspect I find interesting is the Number of BitCoin. In one Sense there are A=21Million Bitcoin. In another sense there are B=11Million because that is the potential maximum in circulation right now. There is also C=??? Which is the amount of Bitcoin actively in circulation now (C = B - BitcoinHoarding). Which of these should be the basis of a currency valuation? Only A can be considered deflationary (until 2140 anyway) from the principle that the quantity of bitcoin is not increasing but the economy is(hopefully).
- base698 14y ago
  An argument you hear a lot, particuarly from Keynsian economists is: bitcoin is bad because it's deflationary like gold. In the past when we were using gold, like during the Civil War, we couldn't pay soldiers so we went to greenbacks (paper money like today). That allowed the soldiers to get paid so we could continue to fight the war. Gold obviously has a physical practical limit that can be traded and transfered. When a gram becomes worth so much it buys a house that makes other purchases of food and bills become impractical and people stop buying, and when building a billion dollar construction project moving it and protecting it has another set of problems and overhead. Bitcoin does not have the division problem--a single coin can be divided into pieces 10^8 pieces as the code currently works. That can also be changed in future versions to be divided even smaller. Ie, when one bitcoin can buy a house, you can just pay 0.0000001 for your stick of gum. So, we are then left with the argument, "Oh My God people won't buy because of the psychology that 0.01 coin today that currently buys a pack of gum being able to buy a car in the future." But, that's almost true now with savings and stocks and people still spend their money today and go into debt. Everyone knows if you save starting in your early 20s compounding interest it will be worth a ton more in 10 years, 20 years, etc. Loans clearly have issues in a deflationary system. If you loan someone $10 today and that's worth $100 tomorrow how do they ever have a chance to pay it back? Payback would have to be on some growth rate where you owe "less" the longer the life of the loan with some interest built in. Venture Capital also would have issues, but if the rate of return on investments is greater than growth of the currency price that wouldn't be an issue either and one would expect it to stabilize over time. Inflation is built into the current model to encourage investment and prevent concentration of capital. Clearly, given the wealth divide that isn't working (blame exploitation of 3rd world or robots). The argument from the anarcho-libertarians and socialist-libertarians is to try something new.

by Nemo_ 14y ago

fish2000 14y ago

One minor point: “Money ain't got no owners – only spenders” … see http://www.youtube.com/watch?v=BWbq-WgE6yo http://www.youtube.com/watch?v=BWbq-WgE6yo But yeah, great reaction piece, +1 for excellent fulminations.

slg 14y ago

I don't think a crowd-source monetary policy is a good answer. There is a reason why the US Federal Reserved is somewhat separated from the normal political process. They often have to make unpopular decisions that are in the best interest of the economy. The issue of deflation is a perfect example. As far as I am aware there isn't any real debt owed in Bitcoin. So everyone who uses it has some positive value of Bitcoin. That means each and every one of them would individually benefit from widespread deflation, but that would have a negative long term impact on the currency as a whole. I am not sure if I trust the public to make the right long term monetary policy decision over something in their own personal interests.

kiba 14y ago
As far as I am aware there isn't any real debt owed in Bitcoin. People absolutely do loan each other bitcoin with high interest rate. Unless you meant something different for "real debt".
- slg 14y ago
  That is what I meant and like I said I wasn't aware of any. A quick Google search for "Bitcoin debt" mostly yields people expounding on the virtues of a "debt-free" currency. The existence of debt would complicate my example as popular opinion on monetary policy would differ. Debtors would prefer inflation while creditors and general currency holders would prefer deflation. Either way, I still don't think something like monetary policy should be left up to crowd sourcing.

drcode 14y ago

Bitcoin DOES have a crowd-sourced monetary policy: Anyone in the "crowd" can try to create their own bitcoin clone and therefore increase the supply (though incompatible with regular bitcoins, of course)

danielweber 14y ago
Given that 99.44% of the bitcoin community thinks deflation is the most awesome thing ever, that will never happen.
- fnordfnordfnord 14y ago
  Mining information for Bitcoin and 8 competitor projects: http://dustcoin.com/mining http://dustcoin.com/mining
- Lerc 14y ago
  If bitcoin were to be a major world currency the current community would become less than 1%. That might upset some. It'd be like being a old-guard redditor when all the digg people arrived.
- drcode 14y ago
  It's already happened. See litecoin.

smrtinsert 14y ago

As a potential client, I want a simple scheme to protect my wealth. I don't want to rely on keys, or crytography. I see no such thing akin to the FDIC. Why would I trust bitcoin? Also, why couldn't another digital currency simply obviate its existence? I'm not arguing for it or against it, I agree with you that it is fascinating. However, my casual observation is that the pro and con of being in the wild wild west is that you are in the wild wild west.

baddox 14y ago
My mind is boggled by the implication that the FDIC is in any way simpler than bitcoin.
- Jtsummers 14y ago
  The implication is not that the FDIC is simpler than bitcoin. The implication is that there's little in the way of security with bitcoin. Which is as per the design. You lose your wallet/key, you lose your money. There's no way to insure against that loss (at least not 100%), otherwise half of all circulating BTC would be in an insurer's accounts.
  - baddox 14y ago
    > There's no way to insure against that loss Sure there is. Someone can sell insurance, and you can choose to pay for it. > (at least not 100%) Perhaps not, but I wouldn't call the FDIC's insurance "100%" either. I doubt it would take very many simultaneous bank runs for problems to arise, even with the FDIC. > otherwise half of all circulating BTC would be in an insurer's accounts I'm not sure why half of all BTC would need to be in insurers' accounts, and I'm not sure why that would be an inherent problem even if it were the case.
    - msellout 14y ago
      > Sure there is. Someone can sell insurance, and you can choose to pay for it. Some assumptions: 1. Bitcoin insurance is a viable business; 2. People will trust the insurer.

cs702 14y ago

Nemo_: sorry for the relatively poor level of discourse in this thread. Few people without a working knowledge of basic cryptography seem to understand that Bitcoin is, in a mathematical (i.e., true) sense, as indestructible as the hashing and signing algorithms it relies on to maintain integrity. Exchange markets like MtGox and online wallet-storage services like InstaWallet might be hacked and fail, but not Bitcoin (at least not without major mathematical advances that would render the entire Web insecure as a byproduct). PS. You will enjoy reading this post on the origins of money, in which among other things the author analyzes the common properties of many commodities used as money throughout history -- including not just gold and silver but less-well-known materials like wampun shells, ivory beads, and ostrich egg shells: http://szabo.best.vwh.net/shell.html http://szabo.best.vwh.net/shell.html

danmaz74 14y ago
Uhm... if the owner of some bitcoin loses (eg, disk crash and no backup) his secret keys, aren't his bitcoin lost for any practical meaning of the word?
- cs702 14y ago
  Yes, of course -- very much like losing a physical wallet with cash inside it or a bag with gold coins. Lost forever. Just like paper currency. Just like gold. Unlike paper currency or gold, however, bitcoins can be encrypted and backed up.

Lerc 14y ago

>the deflationary argument is one of the strongest. I'm curious as to the foundations of the benefits of inflation. I understand the principle that it discourages hoarding currency because your hoard decreases in value, but I'm not convinced that the net result is good for an economy. Wouldn't any method of hoarding satisfy the hoarders. Right now that seems to be gold. The other aspect I find interesting is the Number of BitCoin. In one Sense there are A=21Million Bitcoin. In another sense there are B=11Million because that is the potential maximum in circulation right now. There is also C=??? Which is the amount of Bitcoin actively in circulation now (C = B - BitcoinHoarding). Which of these should be the basis of a currency valuation? Only A can be considered deflationary (until 2140 anyway) from the principle that the quantity of bitcoin is not increasing but the economy is(hopefully).

base698 14y ago
An argument you hear a lot, particuarly from Keynsian economists is: bitcoin is bad because it's deflationary like gold. In the past when we were using gold, like during the Civil War, we couldn't pay soldiers so we went to greenbacks (paper money like today). That allowed the soldiers to get paid so we could continue to fight the war. Gold obviously has a physical practical limit that can be traded and transfered. When a gram becomes worth so much it buys a house that makes other purchases of food and bills become impractical and people stop buying, and when building a billion dollar construction project moving it and protecting it has another set of problems and overhead. Bitcoin does not have the division problem--a single coin can be divided into pieces 10^8 pieces as the code currently works. That can also be changed in future versions to be divided even smaller. Ie, when one bitcoin can buy a house, you can just pay 0.0000001 for your stick of gum. So, we are then left with the argument, "Oh My God people won't buy because of the psychology that 0.01 coin today that currently buys a pack of gum being able to buy a car in the future." But, that's almost true now with savings and stocks and people still spend their money today and go into debt. Everyone knows if you save starting in your early 20s compounding interest it will be worth a ton more in 10 years, 20 years, etc. Loans clearly have issues in a deflationary system. If you loan someone $10 today and that's worth $100 tomorrow how do they ever have a chance to pay it back? Payback would have to be on some growth rate where you owe "less" the longer the life of the loan with some interest built in. Venture Capital also would have issues, but if the rate of return on investments is greater than growth of the currency price that wouldn't be an issue either and one would expect it to stabilize over time. Inflation is built into the current model to encourage investment and prevent concentration of capital. Clearly, given the wealth divide that isn't working (blame exploitation of 3rd world or robots). The argument from the anarcho-libertarians and socialist-libertarians is to try something new.