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Other currencies are stable because they're actively managed by central banks, there's huge liquidity, and the currencies aren't inherently deflationary. Bitcoi

• laichzeit0 13y ago
  I'm curious as to why you (and other people) call Bitcoin a "currency"? Even on the frontpage of http://bitcoin.org/en/ http://bitcoin.org/en/ it's defined as an "innovative payment network and a new kind of money" and the word currency doesn't appear anywhere. Do you also consider a cellphone to be a "phone" in the traditional sense. Could phones browse the web, edit documents, take photos, check email, etc. 20 years ago?
  • jrochkind1 13y ago
    So what's the difference between 'money' and 'currency'? If you start thinking about what either of these words mean exactly, and then start researching it -- you'll discover that even economists aren't sure and there are several competing theories of what 'money' actually is. 'money' is the more complicated concept. If bitcoin is 'money', then whether it's 'currency' or not mostly just depends, I think, on whether you want the definition of currency to include digital certificates or only physical objects. Not a very interesting question, just a matter of definitions. Now, what 'money' is, that's an interesting question.
    • dualogy 13y ago
      > So what's the difference between 'money' and 'currency'? Uh-oh don't get us started on that one, that's a can of worms! Used to be, way back in the past, "money" was "coin or bullion in your bank's vaults" and banks' receipts for "money" starting circulating -- hence, we have the separate word currency. Nowadays, I suppose the distinction is largely lost, other than "currency" now implicating different jurisdictions -- EUR and USD are considered different "currencies" but both are considered "money" by and large. Money is spent or lent or hoarded, currency circulates. One necessitates the other. Whether "hard" or "soft", in all history and today both are certainly always "credit" -- a (rightly or wrongly) trusted claim to some future consumption of some future production. Whether the "money" is paper or metal or digital. If we swap a banana for an apple, a trade is completed and settled, no money was needed. But since most of apple sellers are not also banana buyers "right here and now", this purely mental value-association, regardless the medium it's recorded on, is needed and used and traded in-place with ease and the world mostly works! Money hence is always a debt for future trade settlement -- completion of exchange.. (Whether banks should create new money for all their lending is another question, whether all savings of people should be in ambiguous claims on future production is another question. Doesn't change this most fundamental nature of "money".)
• skriticos2 13y ago
  Other currencies are (mostly) stable because they have a stable demand. For example, demand for USD is not increasing to tenfold over a year randomly. Bitcoin is a very young currency / commodity and needs to find some form of equilibrium first. This will be reached once all people who potentially want to use Bitcoin do. Until then, each influx of new users will require a price correction as the supply is fixed.
  • nhaehnle 13y ago
    On top of that, other currencies have flexible supply as well. Banks create and destroy money based on demand, because bank loans are essentially newly created money (and paying back a bank loan means that the money is destroyed). So the situation is exactly reversed wrt Bitcoin.
    • skriticos2 13y ago
      Yes, basically. Two nitpicks: 1. Money is created by normal and central banks, which are somewhat different types of organizations. Central banks can directly "print" money while banks can buy IOU's for future money (loans). 2. Now the difference that is created with the loans is indeed payed back and increases the money supply. It's not destroyed. Here is a chart of money supply of USD [1]. As you can see, the amount of money in existence is increasing continuously. It's one of the core elements that influence inflation. [1]: http://en.wikipedia.org/wiki/Money_supply#United_States http://en.wikipedia.org/wiki/Money_supply#United_States
      • bdcs 13y ago
        Great explanation. I would add that a written-off defaulted loan does destroy money. Hence the need for the fed to create money when the private banks destroy it. MZM from St. Louis FRED: research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=MZMNS&log_scales=Left
        • nhaehnle 13y ago
          Actually, I would say it's the other way around. A bank loan is like "anti-money": it is created at the same time as the new money, and when the money and the loan a.k.a. "anti-money" meet again, both are destroyed. When a loan is written off, the loan is destroyed without money being destroyed at the same time. That is, writing off a loan leads to what is effectively (in hindsight) net money creation. That actually makes a lot of sense when you think about it: Writing off a loan means that the bank gives out money without the money being paid back. Of course there's going to be a net plus of money in circulation afterwards, because the "paying back" part is missing.
• VMG 13y ago
  > Other currencies are stable because they're actively managed by central banks Until they aren't
• salient 13y ago
  I don't really buy that argument. Yes, central banks can print more money, but it's not like they can print 30 percent of the existing money within a year to compensate for the 30 percent rise in demand for the dollar. But again, I think huge volumes and the law of numbers play a big role here, because I don't think it's possible to see a 30 percent rise in dollar demand within a year anymore, while that's very possible with Bitcoin (for now).
  • collyw 13y ago
    30 percent overnight, no. Fractional reserve banking means that they only have assets worth around 10% of the actual money they put into circulation.