9 ms·

"Why Bitcoin will Never Be a Currency". And yet it only takes an arbitary 5 minutes to realise that it is being used as a currency. People are buying goods and

by cup 13y ago

"Why Bitcoin will Never Be a Currency". And yet it only takes an arbitary 5 minutes to realise that it is being used as a currency. People are buying goods and services in exchange for bitcoins. Sure some people horde in the hope that the value will double but the same is done with US Dollars. I mean isnt that what FOREX trading is?

enjo 13y ago
Ok. So it's a very poor currency.
- alexeisadeski3 13y ago
  According to the poorly thought out theory that deflationary currencies are by necessity bad currencies?
  - chad_oliver 13y ago
    The idea that a small amount of inflation is better than deflation is pretty much the least controversial idea in economics. Seriously, no professional economists argue about that. (There are plenty of special cases where deflation is good, sure, but I'm talking about the general case). I'm sure you're a very smart person, and you probably know a lot more than me in many areas. However, anyone trying to say that deflation is great for a general-purpose currency just sounds like someone trying to claim that evolution didn't (doesn't) happen.
    - alexeisadeski3 13y ago
      I agree that inflation is better than deflation. I also agree that this is not controversial - that virtually all economists agree that inflation is better than deflation. However. This does not mean that all deflationary currencies are bad. For example: It is entirely plausible that a currency which is almost 100% predictably deflationary would be preferable to our current currencies, the values of which vary depending upon many factors (central banking strategies, economic outlook, etc). Whilst inflation may help spur consumer spending, and almost certainly does help the economy by permitting 'invisible' wage cuts to poorly performing workers/sectors (perhaps the biggest advantage of inflationary currencies, not even mentioned in the article), the upside of a nearly 100% predictable currency may be even greater. Of course, it is also possible (likely, even) that our current central bank managed system is superior: The downside of unpredictability may be (likely is, in my opinion) outweighed by the flexibility granted to central banks. But we'll never know unless we run the experiment.
      - gahahaha 13y ago
        You seem to believe that the value of bitcoin could possibly be more predictable than the value of traditional currencies. Since bitcoin will be / is almost exclusively an investment vehicle it will (almost by definition) have an unpredictable value. [1] Traditional currencies will be somewhat predictable because they have a central bank actively managing the supply. [1] http://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street http://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
        alexeisadeski3 13y ago
        Given equal liquidity, a purer market should deliver less volatility than an actively managed one.
        gahahaha 13y ago
        That reads like a credo.
        alexeisadeski3 13y ago
        Both systems contain massive speculator involvement. Only one system contains single overarching actor with ability to manipulate values at will. Pretty obvious which will be more stable.
        gahahaha 13y ago
        History shows pretty clearly that actively managed currencies with a central bank are far more stable than for example gold or bitcoin. I don't see how you can argue otherwise.
        alexeisadeski3 13y ago
        @gahahaha All historic gold currencies I know of were actively managed: Debasement, re-pegging, temporary abandonment to pay off debts via inflation - all were common practice under gold standard. None are (should be) possible with Bitcoin.
  - fexl 13y ago
    Until the advent of the Federal Reserve, the dollar itself was a deflationary currency: http://nothirdsolution.com/wp/wp-content/uploads/2008/07/cpi.bmp http://nothirdsolution.com/wp/wp-content/uploads/2008/07/cpi...
matwood 13y ago
If you RTFM, it states that 64% of Bitcoins have never been used. For a currency that is a problem. A deflationary currency drives people to not spend. When people do not spend and aggregate demand goes down you end up in a recession. Read the article linked at the bottom of the Atlantic article on why deflation is bad: http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm http://www.federalreserve.gov/boarddocs/speeches/2002/200211... If Bitcoin stabilizes in the future it could maybe be used as a currency. But right now when every purchase decision is prefaced with a 'how much is BTC worth right now' decision it adds too much friction to a transaction.
- msandford 13y ago
  A compute cycle has fallen in price faster than anything else in the world except perhaps shares of the East India Company or Dutch tulips. People still buy computers. And TVs and cell phones and flash drives and etc, etc, etc. Surely if the falling price of a good with respect to the currency it's purchased in would prompt people not to buy then nobody would purchase computers. And yet it's a thriving industry. Please help me reconcile this fact with the author's statement that would indicate that precisely the opposite should be happening.
  - maxerickson 13y ago
    What sort of everyday value can I get from the bitcoins in my wallet? The material goods you mention are good for all sorts of things. (My point being that they are not great comparisons, I'm staying out of the argument about deflation)
    - msandford 13y ago
      You've missed the point. From the article: "When prices fall, people put off buying things. And when people put off buying things, companies put off investing. And then the economy slumps—and keeps slumping. " I will make a more specific claim: the author is arguing that when the price of things in a given currency fall, people delay purchasing. This can be re-stated that as the ratio of money to goods declines, so too will the purchase of goods. The ratio of money to a specific good declining can happen in one of two ways. Either 1) the currency as a whole appreciates in value relative to everything in the economy (usually called "deflation") or 2) the good becomes cheaper to extract, manufacture, grow or otherwise produce which then allows business to price it less expensively In either case 1 or 2 the ratio of money to a good has decreased. We normally would say it has "gotten cheaper" Computers are a good which has gotten cheaper in real terms and nominal terms and especially in absolute terms. A desktop computer used to cost $2000 or more for anything decent (adjusted for inflation perhaps $5000 or more), today a quite respectable laptop can be purchased for $800 which has hundreds if not thousands of times the capability of the $2000 machine from 20 years ago. The world as it exists today does have a computer industry, in fact it's huge. Compared to 1993 it's at least 10x larger, and surely quite a bit more: http://en.wikipedia.org/wiki/File:Personal_computers_(million)_ITU.png http://en.wikipedia.org/wiki/File:Personal_computers_(millio... So according to the author's "when things get cheaper people stop buying" argument the computer industry should have been shrinking over the last 20 years, not growing. But we can clearly see from the world that exists today that the computer industry has grown over the last 20 years. How should I reconcile the author's argument with the reality I see around me? I feel I have no choice but to conclude that the notion that "falling prices causes people to reduce their purchases" might not be a universal truth, or perhaps it contains only a little truth inside it.
clin_ 13y ago
Congratulations, you found a semantic exception but missed the entire point. The point is that it's not just some people hordeing money. The fact that ratio of spending has not grown proportionately with BTC value suggests that recent demand for BTC is almost entirely speculative. Sorry if this is kind of a nasty reply, but I'm really tired of people with no comprehension of how money functions being in denial about their pet technology.
- waterlesscloud 13y ago
  Ironically, anyone who doesn't understand how economies can function with multiple currencies which have different characteristics has little to no comprehension of how money works. Or much of economic history, for that matter.
  - clin_ 13y ago
    You're awfully presumptuous. The global economy functions with many, many different currencies, nearly all of which are managed by a central bank. It's widely accepted that currencies are best that which are regionally segmented, because the qualities and monetary needs of different economies tend to vary locally. See wikipedia on Optimal Currency Area. Thus, we consider individual currencies on a case by case basis. By almost every conventional and widely-accepted measure, bitcoin is a terrible currency with little chance of remaining stable. a.) it's region agnostic b.) hugely speculative c.) inelastic, practically constant supply d.) difficult to centrally manage. Please, tell me more about economic history.

by cup 13y ago

enjo 13y ago

Ok. So it's a very poor currency.

alexeisadeski3 13y ago
According to the poorly thought out theory that deflationary currencies are by necessity bad currencies?
- chad_oliver 13y ago
  The idea that a small amount of inflation is better than deflation is pretty much the least controversial idea in economics. Seriously, no professional economists argue about that. (There are plenty of special cases where deflation is good, sure, but I'm talking about the general case). I'm sure you're a very smart person, and you probably know a lot more than me in many areas. However, anyone trying to say that deflation is great for a general-purpose currency just sounds like someone trying to claim that evolution didn't (doesn't) happen.
  - alexeisadeski3 13y ago
    I agree that inflation is better than deflation. I also agree that this is not controversial - that virtually all economists agree that inflation is better than deflation. However. This does not mean that all deflationary currencies are bad. For example: It is entirely plausible that a currency which is almost 100% predictably deflationary would be preferable to our current currencies, the values of which vary depending upon many factors (central banking strategies, economic outlook, etc). Whilst inflation may help spur consumer spending, and almost certainly does help the economy by permitting 'invisible' wage cuts to poorly performing workers/sectors (perhaps the biggest advantage of inflationary currencies, not even mentioned in the article), the upside of a nearly 100% predictable currency may be even greater. Of course, it is also possible (likely, even) that our current central bank managed system is superior: The downside of unpredictability may be (likely is, in my opinion) outweighed by the flexibility granted to central banks. But we'll never know unless we run the experiment.
    - gahahaha 13y ago
      You seem to believe that the value of bitcoin could possibly be more predictable than the value of traditional currencies. Since bitcoin will be / is almost exclusively an investment vehicle it will (almost by definition) have an unpredictable value. [1] Traditional currencies will be somewhat predictable because they have a central bank actively managing the supply. [1] http://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street http://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
      - alexeisadeski3 13y ago
        Given equal liquidity, a purer market should deliver less volatility than an actively managed one.
        gahahaha 13y ago
        That reads like a credo.
        alexeisadeski3 13y ago
        Both systems contain massive speculator involvement. Only one system contains single overarching actor with ability to manipulate values at will. Pretty obvious which will be more stable.
        gahahaha 13y ago
        History shows pretty clearly that actively managed currencies with a central bank are far more stable than for example gold or bitcoin. I don't see how you can argue otherwise.
        alexeisadeski3 13y ago
        @gahahaha All historic gold currencies I know of were actively managed: Debasement, re-pegging, temporary abandonment to pay off debts via inflation - all were common practice under gold standard. None are (should be) possible with Bitcoin.
- fexl 13y ago
  Until the advent of the Federal Reserve, the dollar itself was a deflationary currency: http://nothirdsolution.com/wp/wp-content/uploads/2008/07/cpi.bmp http://nothirdsolution.com/wp/wp-content/uploads/2008/07/cpi...

matwood 13y ago

If you RTFM, it states that 64% of Bitcoins have never been used. For a currency that is a problem. A deflationary currency drives people to not spend. When people do not spend and aggregate demand goes down you end up in a recession. Read the article linked at the bottom of the Atlantic article on why deflation is bad: http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm http://www.federalreserve.gov/boarddocs/speeches/2002/200211... If Bitcoin stabilizes in the future it could maybe be used as a currency. But right now when every purchase decision is prefaced with a 'how much is BTC worth right now' decision it adds too much friction to a transaction.

msandford 13y ago
A compute cycle has fallen in price faster than anything else in the world except perhaps shares of the East India Company or Dutch tulips. People still buy computers. And TVs and cell phones and flash drives and etc, etc, etc. Surely if the falling price of a good with respect to the currency it's purchased in would prompt people not to buy then nobody would purchase computers. And yet it's a thriving industry. Please help me reconcile this fact with the author's statement that would indicate that precisely the opposite should be happening.
- maxerickson 13y ago
  What sort of everyday value can I get from the bitcoins in my wallet? The material goods you mention are good for all sorts of things. (My point being that they are not great comparisons, I'm staying out of the argument about deflation)
  - msandford 13y ago
    You've missed the point. From the article: "When prices fall, people put off buying things. And when people put off buying things, companies put off investing. And then the economy slumps—and keeps slumping. " I will make a more specific claim: the author is arguing that when the price of things in a given currency fall, people delay purchasing. This can be re-stated that as the ratio of money to goods declines, so too will the purchase of goods. The ratio of money to a specific good declining can happen in one of two ways. Either 1) the currency as a whole appreciates in value relative to everything in the economy (usually called "deflation") or 2) the good becomes cheaper to extract, manufacture, grow or otherwise produce which then allows business to price it less expensively In either case 1 or 2 the ratio of money to a good has decreased. We normally would say it has "gotten cheaper" Computers are a good which has gotten cheaper in real terms and nominal terms and especially in absolute terms. A desktop computer used to cost $2000 or more for anything decent (adjusted for inflation perhaps $5000 or more), today a quite respectable laptop can be purchased for $800 which has hundreds if not thousands of times the capability of the $2000 machine from 20 years ago. The world as it exists today does have a computer industry, in fact it's huge. Compared to 1993 it's at least 10x larger, and surely quite a bit more: http://en.wikipedia.org/wiki/File:Personal_computers_(million)_ITU.png http://en.wikipedia.org/wiki/File:Personal_computers_(millio... So according to the author's "when things get cheaper people stop buying" argument the computer industry should have been shrinking over the last 20 years, not growing. But we can clearly see from the world that exists today that the computer industry has grown over the last 20 years. How should I reconcile the author's argument with the reality I see around me? I feel I have no choice but to conclude that the notion that "falling prices causes people to reduce their purchases" might not be a universal truth, or perhaps it contains only a little truth inside it.

clin_ 13y ago

Congratulations, you found a semantic exception but missed the entire point. The point is that it's not just some people hordeing money. The fact that ratio of spending has not grown proportionately with BTC value suggests that recent demand for BTC is almost entirely speculative. Sorry if this is kind of a nasty reply, but I'm really tired of people with no comprehension of how money functions being in denial about their pet technology.

waterlesscloud 13y ago
Ironically, anyone who doesn't understand how economies can function with multiple currencies which have different characteristics has little to no comprehension of how money works. Or much of economic history, for that matter.
- clin_ 13y ago
  You're awfully presumptuous. The global economy functions with many, many different currencies, nearly all of which are managed by a central bank. It's widely accepted that currencies are best that which are regionally segmented, because the qualities and monetary needs of different economies tend to vary locally. See wikipedia on Optimal Currency Area. Thus, we consider individual currencies on a case by case basis. By almost every conventional and widely-accepted measure, bitcoin is a terrible currency with little chance of remaining stable. a.) it's region agnostic b.) hugely speculative c.) inelastic, practically constant supply d.) difficult to centrally manage. Please, tell me more about economic history.