7 ms·

If BTC did become a de facto currency, what's to stop a government printing "I promise to pay the bearer 10BTC" notes, and just carry on "printing money" (I kno

by eterm 13y ago

If BTC did become a de facto currency, what's to stop a government printing "I promise to pay the bearer 10BTC" notes, and just carry on "printing money" (I know it's not literally done these days but it's the effect) as they always have done? The gold standard was broken, can they not have a "bitcoin standard" and then break that in the same way?

mseebach 13y ago
Nothing could keep them from doing that, except the unwillingness of users to use the government paper money instead of the real thing. Gold has to be "converted" to paper to be practical. Bitcoin is already a whole lot more practical than almost any aspect of the modern money infrastructure, so there's no "killer app" for Bitcoin-backed currency.
- Retric 13y ago
  Governments money is 'backed up' by the need to pay taxes in it which in the US is a multi trillion a year demand and creates a lot of stability. aka Get paid in bitcoins? The IRS does not care you need to pay taxes in USD which means you need to sell bitcoins and buy USD. As to being a fixed currency there would be a lot more bitcoins in circulation than actually exist as soon as banks started lending money and no you don't want to try and keep 100+k USD worth of bitcoins secure by your self it's just a fucking bad idea. Which means banks which means loans which inflates the currency. Of course because governments can't print money to bail out banks when they fail you just lose your money anyway and they will fail. PS: Non private wallet = bank. The reason we don't see loans is because people don't want to borrow money in bitcoins.
  - btbuildem 13y ago
    Banks lend money they don't have, they cannot do that with Bitcoin because math. Usually their reserves cover a fraction of the loans they give, and they get a massive multiplier benefit. Fortunately, the blockchain won't accept pieces of paper with IOU written on them.
    - Retric 13y ago
      Money in a 3rd party wallet is an IOU as far as the block chain is concerned. Here is how it works you deposit some bitcoins to Bit Bank and the block chain is updated so they now own the and can lend gem out the same day. The borrower would then be able to deposit his coins into Bit Bank II which could then lend them out. Net result is effectively bitcoins from thin air even though there not part of the block chain people act as though they exist which impacts the supply / demand curve.
    - AndrewDucker 13y ago
      The additional ones wouldn't be in a blockchain. The bank would have a database somewhere saying "We owe btbuildem 10 BTC". When you make a withdrawal they would take some out of their massive stock and hand them to you. So long as they have enough to cover withdrawals at any given moment they don't need enough to cover if everyone made a withdrawal at once, any more than they do with dollars/pounds/etc.
- yapcguy 13y ago
  Gold has survived for thousands of years as a store of wealth. It has intrinsic properties, it is one of nature's unique elements. It cannot be synthetically created. Bitcoin's scarcity is based on a completely fictional and arbitrary hard limit of 21 million which can be changed in a trivial fork such as Litecoin. Furthermore, given that there is no intrinsic physical difference between a Litecoin, Freicoin, Bitcoin etc. there is an argument that a P2P currency is the ultimate fiat. The printing presses have just been handed to the public rather than being held by a select few. Bitcoin is a great electronic currency, and a real challenge to money transmitters like Western Union, but it is not a store of wealth (in my opinion).
  - modeless 13y ago
    Saying that bitcoin isn't scarce because someone could fork the blockchain is like saying that gold isn't scarce because everyone in the world could suddenly agree to start using silver instead.
    - fat0wl 13y ago
      Um... what? Limited resource physical commodities vs. a few bytes on your filesystem? This is a ridiculous comparison. But what people mean when they say you could fork libcoin or something like that is not that Bitcoin isn't scarce. It's more along the lines of "We are in no way beholden to this psychotic black market pyramid scheme currency. We can just start anew with a better dispersement/capping scheme."
      - greyfade 13y ago
        "psychotic black market pyramid scheme currency"?
      - brainburn 13y ago
        They are just a few bytes yes. But it's rather hard to generate the correct bytes. Referring to the bytes that constitute a valid block in the blockchain.
    - 13y ago
- EGreg 13y ago
  This is what a lot of people seem to get wrong. Banks extend credit money which is backed by reserve currencies. Money may start out as value-based (gold, bitcoins) but eventually a whole credit based economy springs up around it, and we're just where we started. The "killer app" isn't being able to pay someone quicker. It's going to be the ability to borrow money! (Although paying someone quicker is already the main reason two people use blockchain.info or something similar to transfer money instantly instead of waiting for a few confirmations. In small amounts you'll see "banking" like this, and then those banks will start lending money on the reserves they have.) In other words, the same cycle always happens: 1) A value (scarcity) based currency is widely acepted 2) People store it when they aren't using it. They want to earn returns on it. 3) It is lent out by the "banks" to others, keeping a fraction on reserve 4) Governments regulate these reserve requirements and set up central banks which pay interest on the reserves Now with Bitcoin right now the biggest thing stopping it from being used as a currency and 1-4 to happen is th massive price inflation. Who wants to spend a bitcoin when they can hoard it? Lots of people but apparently more people want to hoard it. Which is understandable because metcalfe's law is going to make ALMOST ALL the cryptocurrencies grow in value. The good news is that this will make even more merchants accept bitcoin and once its price settles down (it might reach a saturation point only when many many merchants accept it, would be at least $100k a coin by then) then it can be used as a real currency that people really spend. But then 1-4 will occur!
  - btbuildem 13y ago
    Bitcoin cannot be fractionally loaned out - if a bank has BTC in reserve and loans it, the transaction goes through and the bank has that much less in reserve. Say they have 100BTC in reserve, and I want a 10BTC loan: they can't just issue a piece of paper saying "here's 10BTC" and only reserve 1BTC (10%) to cover it, they have to transfer the actual amount. So, they can't loan out 10x what they have and profit from the multiplier when collecting interest. They can't pyramid-scheme their way into a major financial bubble. I love this aspect of bitcoin, it neuters the parasites.
    - vidarh 13y ago
      > So, they can't loan out 10x what they have and profit from the multiplier when collecting interest. Sorry, you don't know how a bank works. The bank will borrow from someone else - depositors, other banks. The reserve requirements is how much of their own money they need to have to cover loans, and is a protection against risks, it does not imply that the rest of the money they hand out have been created out of the blue. Yes, they will collect based on leveraging their capital, borrowing money at lower interest, and profiting from the multiplier. But as to your scenario where the bank just hands out papers saying "here's 10BTC": In fact, you can already speculate on margin, on Bitcoin by buying Bitcoin CFD's (Contracts for Difference). CFD's means you're never actually owning the underlying security at all (and in fact there's no technical reason why the company you enter a contract with needs to ever own any at all either; whether there are legal reasons may depend on jurisdiction) - you're just, as it says, entering into a contract where you're putting up some cash now to be paid the difference in value over a time period. I have an account with a company that would me buy Bitcoin CFD's with a 15% margin if I'd like. Meaning for $15, I "get" $100 worth of "here's some bitcoin" "paper" - if those $100 worth of BTC increase to $110, I can sell and get $25 back. Conversely, if they drop to $50, I'd get a nasty margin call to pay the $35 difference. (yes, CFD's are high risk)
CompelTechnic 13y ago
There is nothing stopping a government from doing that. Anyone with the choice to receive 10 BTC or a 10 BTC fractional reserve-backed note may, however, have a strong preference for the 10 BTC due to a lack of trust of the reserve institution.
- 3825 13y ago
  Within regulation, you can refuse goods and services to anyone. However, as far as I know, if someone owes you money they can always pay you in an equivalent amount of [local currency]. Isn't that the whole point of a legal tender? If I lend someone 1 BTC, can I force the borrower to repay me in BTC? How would that even work if the borrower has already spent the BTC?
  - ISL 13y ago
    Not a lawyer. If you give the borrower a loan priced in BTC, you can attempt to compel them to repay the loan in a BTC-equivalent amount of their local currency. "Legal for all debts, public and private", and all that.
gnerd 13y ago
If BTC is to become a reserve currency then it seems to me it would replace/compliment SDR's and precious metals as an international reserve currency and not a national one. In that hypothetical situation BTC solves the Triffin Dilemma for all those who use the USD as a foriegn reserve but the USD would likely still be used in American territory and still backed by confidence (in its ability to be productive and thus pay its debts). Don't think of it as dollars, think of it as gold (especially when gold was broken down in smaller bits and traded in streets or held in the form of gold bars).
ISL 13y ago
As long as the government can back it up? Nothing. If the government is unable to deliver the promised BTC when bearers request it, the utility of the government-printed notes is severely diminished. The gold standard was broken when the US Dollar had sufficient fiat value that people were willing to accept it without the gold backing.
lettergram 13y ago
The government will never stop printing money, nor would you want that. Bitcoin's are great for online use, but are traceable (more so than current money). Hence, the government does not mind us using them. Bitcoin's being used in stores is a complete possibility, but dollars will always be accepted (at least for the next several decades or longer). The current economic system is only sustainable will a currency the government can control. Although I dislike the idea that the government can "print money" unless the economy takes a pretty large pivot (which will take decades) at a gradual rate there will be major issues. If the change into cryptocurrencies is to fast we will see a MAJOR depression. I would also speculate that the government will come out with it's own form of cryptocurrancy soon enough.
acchow 13y ago
You must be referring to fractional reserve banking and M1 or M2 supply of a currency. There will still be a need for real M0 supply of Bitcoin. There is currently about $3 trillion worth of M0 supply worldwide (any country). That's simply how much is necessary to run the global economy. BTC is of course much more efficient, but we'd still need quite a bit to run any major economic activity.

by eterm 13y ago

mseebach 13y ago

Nothing could keep them from doing that, except the unwillingness of users to use the government paper money instead of the real thing. Gold has to be "converted" to paper to be practical. Bitcoin is already a whole lot more practical than almost any aspect of the modern money infrastructure, so there's no "killer app" for Bitcoin-backed currency.

Retric 13y ago
Governments money is 'backed up' by the need to pay taxes in it which in the US is a multi trillion a year demand and creates a lot of stability. aka Get paid in bitcoins? The IRS does not care you need to pay taxes in USD which means you need to sell bitcoins and buy USD. As to being a fixed currency there would be a lot more bitcoins in circulation than actually exist as soon as banks started lending money and no you don't want to try and keep 100+k USD worth of bitcoins secure by your self it's just a fucking bad idea. Which means banks which means loans which inflates the currency. Of course because governments can't print money to bail out banks when they fail you just lose your money anyway and they will fail. PS: Non private wallet = bank. The reason we don't see loans is because people don't want to borrow money in bitcoins.
- btbuildem 13y ago
  Banks lend money they don't have, they cannot do that with Bitcoin because math. Usually their reserves cover a fraction of the loans they give, and they get a massive multiplier benefit. Fortunately, the blockchain won't accept pieces of paper with IOU written on them.
  - Retric 13y ago
    Money in a 3rd party wallet is an IOU as far as the block chain is concerned. Here is how it works you deposit some bitcoins to Bit Bank and the block chain is updated so they now own the and can lend gem out the same day. The borrower would then be able to deposit his coins into Bit Bank II which could then lend them out. Net result is effectively bitcoins from thin air even though there not part of the block chain people act as though they exist which impacts the supply / demand curve.
  - AndrewDucker 13y ago
    The additional ones wouldn't be in a blockchain. The bank would have a database somewhere saying "We owe btbuildem 10 BTC". When you make a withdrawal they would take some out of their massive stock and hand them to you. So long as they have enough to cover withdrawals at any given moment they don't need enough to cover if everyone made a withdrawal at once, any more than they do with dollars/pounds/etc.
yapcguy 13y ago
Gold has survived for thousands of years as a store of wealth. It has intrinsic properties, it is one of nature's unique elements. It cannot be synthetically created. Bitcoin's scarcity is based on a completely fictional and arbitrary hard limit of 21 million which can be changed in a trivial fork such as Litecoin. Furthermore, given that there is no intrinsic physical difference between a Litecoin, Freicoin, Bitcoin etc. there is an argument that a P2P currency is the ultimate fiat. The printing presses have just been handed to the public rather than being held by a select few. Bitcoin is a great electronic currency, and a real challenge to money transmitters like Western Union, but it is not a store of wealth (in my opinion).
- modeless 13y ago
  Saying that bitcoin isn't scarce because someone could fork the blockchain is like saying that gold isn't scarce because everyone in the world could suddenly agree to start using silver instead.
  - fat0wl 13y ago
    Um... what? Limited resource physical commodities vs. a few bytes on your filesystem? This is a ridiculous comparison. But what people mean when they say you could fork libcoin or something like that is not that Bitcoin isn't scarce. It's more along the lines of "We are in no way beholden to this psychotic black market pyramid scheme currency. We can just start anew with a better dispersement/capping scheme."
    - greyfade 13y ago
      "psychotic black market pyramid scheme currency"?
    - brainburn 13y ago
      They are just a few bytes yes. But it's rather hard to generate the correct bytes. Referring to the bytes that constitute a valid block in the blockchain.
  - 13y ago
EGreg 13y ago
This is what a lot of people seem to get wrong. Banks extend credit money which is backed by reserve currencies. Money may start out as value-based (gold, bitcoins) but eventually a whole credit based economy springs up around it, and we're just where we started. The "killer app" isn't being able to pay someone quicker. It's going to be the ability to borrow money! (Although paying someone quicker is already the main reason two people use blockchain.info or something similar to transfer money instantly instead of waiting for a few confirmations. In small amounts you'll see "banking" like this, and then those banks will start lending money on the reserves they have.) In other words, the same cycle always happens: 1) A value (scarcity) based currency is widely acepted 2) People store it when they aren't using it. They want to earn returns on it. 3) It is lent out by the "banks" to others, keeping a fraction on reserve 4) Governments regulate these reserve requirements and set up central banks which pay interest on the reserves Now with Bitcoin right now the biggest thing stopping it from being used as a currency and 1-4 to happen is th massive price inflation. Who wants to spend a bitcoin when they can hoard it? Lots of people but apparently more people want to hoard it. Which is understandable because metcalfe's law is going to make ALMOST ALL the cryptocurrencies grow in value. The good news is that this will make even more merchants accept bitcoin and once its price settles down (it might reach a saturation point only when many many merchants accept it, would be at least $100k a coin by then) then it can be used as a real currency that people really spend. But then 1-4 will occur!
- btbuildem 13y ago
  Bitcoin cannot be fractionally loaned out - if a bank has BTC in reserve and loans it, the transaction goes through and the bank has that much less in reserve. Say they have 100BTC in reserve, and I want a 10BTC loan: they can't just issue a piece of paper saying "here's 10BTC" and only reserve 1BTC (10%) to cover it, they have to transfer the actual amount. So, they can't loan out 10x what they have and profit from the multiplier when collecting interest. They can't pyramid-scheme their way into a major financial bubble. I love this aspect of bitcoin, it neuters the parasites.
  - vidarh 13y ago
    > So, they can't loan out 10x what they have and profit from the multiplier when collecting interest. Sorry, you don't know how a bank works. The bank will borrow from someone else - depositors, other banks. The reserve requirements is how much of their own money they need to have to cover loans, and is a protection against risks, it does not imply that the rest of the money they hand out have been created out of the blue. Yes, they will collect based on leveraging their capital, borrowing money at lower interest, and profiting from the multiplier. But as to your scenario where the bank just hands out papers saying "here's 10BTC": In fact, you can already speculate on margin, on Bitcoin by buying Bitcoin CFD's (Contracts for Difference). CFD's means you're never actually owning the underlying security at all (and in fact there's no technical reason why the company you enter a contract with needs to ever own any at all either; whether there are legal reasons may depend on jurisdiction) - you're just, as it says, entering into a contract where you're putting up some cash now to be paid the difference in value over a time period. I have an account with a company that would me buy Bitcoin CFD's with a 15% margin if I'd like. Meaning for $15, I "get" $100 worth of "here's some bitcoin" "paper" - if those $100 worth of BTC increase to $110, I can sell and get $25 back. Conversely, if they drop to $50, I'd get a nasty margin call to pay the $35 difference. (yes, CFD's are high risk)

CompelTechnic 13y ago

There is nothing stopping a government from doing that. Anyone with the choice to receive 10 BTC or a 10 BTC fractional reserve-backed note may, however, have a strong preference for the 10 BTC due to a lack of trust of the reserve institution.

3825 13y ago
Within regulation, you can refuse goods and services to anyone. However, as far as I know, if someone owes you money they can always pay you in an equivalent amount of [local currency]. Isn't that the whole point of a legal tender? If I lend someone 1 BTC, can I force the borrower to repay me in BTC? How would that even work if the borrower has already spent the BTC?
- ISL 13y ago
  Not a lawyer. If you give the borrower a loan priced in BTC, you can attempt to compel them to repay the loan in a BTC-equivalent amount of their local currency. "Legal for all debts, public and private", and all that.

gnerd 13y ago

If BTC is to become a reserve currency then it seems to me it would replace/compliment SDR's and precious metals as an international reserve currency and not a national one. In that hypothetical situation BTC solves the Triffin Dilemma for all those who use the USD as a foriegn reserve but the USD would likely still be used in American territory and still backed by confidence (in its ability to be productive and thus pay its debts). Don't think of it as dollars, think of it as gold (especially when gold was broken down in smaller bits and traded in streets or held in the form of gold bars).

ISL 13y ago

As long as the government can back it up? Nothing. If the government is unable to deliver the promised BTC when bearers request it, the utility of the government-printed notes is severely diminished. The gold standard was broken when the US Dollar had sufficient fiat value that people were willing to accept it without the gold backing.

lettergram 13y ago

The government will never stop printing money, nor would you want that. Bitcoin's are great for online use, but are traceable (more so than current money). Hence, the government does not mind us using them. Bitcoin's being used in stores is a complete possibility, but dollars will always be accepted (at least for the next several decades or longer). The current economic system is only sustainable will a currency the government can control. Although I dislike the idea that the government can "print money" unless the economy takes a pretty large pivot (which will take decades) at a gradual rate there will be major issues. If the change into cryptocurrencies is to fast we will see a MAJOR depression. I would also speculate that the government will come out with it's own form of cryptocurrancy soon enough.

acchow 13y ago

You must be referring to fractional reserve banking and M1 or M2 supply of a currency. There will still be a need for real M0 supply of Bitcoin. There is currently about $3 trillion worth of M0 supply worldwide (any country). That's simply how much is necessary to run the global economy. BTC is of course much more efficient, but we'd still need quite a bit to run any major economic activity.