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Bitcoin and positive vs. normative economics
- deleted 13y ago[deleted]
- perlpimp 13y agoI've hit a paywall that can be disabled with real dollars. Oh the sense of irony.
- wcummings 13y agoI have a really hard time taking a column called "The Conscience of a Liberal" seriously, even more so when he claims: "Stross doesn’t like that agenda, and neither do I; but I am trying not to let that tilt my positive analysis of BitCoin one way or the other." in a piece titled "Bitcoin is Evil".
- ubernostrum 13y agoHow about taking seriously someone who is, you know, well-known (to the point of receiving a Nobel Prize for his work) for being good at this economics stuff? If a Nobel-winning physicist was writing about physics, you wouldn't dismiss it because the physicist's politics don't agree with yours. Ditto Nobel-winning chemist writing about chemistry, etc.; why should economics be different? Also, his point about BitCoin enthusiasts being unable to distinguish between what makes a good currency and what pushes their ideological buttons may apply to you.
- rdl 13y agoKrugman is more like Chomsky -- he did some academic work (including a good textbook in microecon), but then left that to do politics, almost entirely disconnected from his academic record. The Econ "Nobel" is a little more rationally awarded than the Nobel Peace Prize, but neither is the same as Physics/Chem/Medicine. I think it's fine to judge Krugman's political arguments on political merits; there isn't "nobel-caliber" economics behind them. They're usually about things which economics doesn't even address.
- gruseom 13y agoChomsky certainly never left academic work for politics. He has divided his time evenly between the two for many decades.
- onebaddude 13y ago>Chomsky certainly never left academic work for politics. Neither did Krugman.
- ahomescu1 13y agoActually, I think that if a physicist/chemist came out with unproven theories or opinions (the original article is nothing more than an opinion), the community would react pretty much the same. Physics and chemistry (and economics as well) have proofs and experiments, and this post doesn't offer either of those. It makes perfect sense to dismiss it if you disagree with him, since he doesn't really say anything concrete.
- ubernostrum 13y agoHe poses a question: To be successful, money must be both a medium of exchange and a reasonably stable store of value. And it remains completely unclear why BitCoin should be a stable store of value. And then says he hasn't been able to get an answer to this question, that the BitCoin enthusiasts he's talked to have mostly avoided trying to answer the question, and that he has reason to suspect that BitCoin gets promoted not because it is useful as a currency but because it pushes the right ideological buttons for some people. And, one must admit, it is a perfectly legitimate question to ask when considering something's usefulness as a currency.
- mapgrep 13y agoOn the contrary, I'd rather listen to an economist who is upfront about his political viewpoints and transparent about how he tries to keep them from influencing what he here terms the "positive economics" -- i.e. the practical economic impact -- of Bitcoin or any other problem. As opposed to economists who conceal their political viewpoints to cover the fact that their supposedly scientific economic conclusions are intended to push a given agenda. One of the best ways to fight your own political biases in areas where you want to try and be more objective is to be incredibly up front about them. That way, people can say, "I think you are indulging your bias in specific manner X." I wish you would do that (be specific about any complaint) instead of dismissing Krugman simply for being honest and up front.
- randyrand 13y agoYou act like those are the only options. What about a moderate economist that actually considers both sides before creating an opinion?
- mapgrep 13y agoWhy do you assume you have to be moderate to consider both sides? Doesn't it seem like once you objectively consider both sides often enough you begin to develop informed opinions that could make it hard to remain a moderate? But that doesn't mean you stop considering both sides. (Also, this implication that moderates tend to be more reasonable is erroneous. Oftentimes the correct answer starts out as marginal aka "extreme" until it is slowly validated moves the whole discourse and moderate is redefined to where one extreme used to be. And oftentimes people are moderates out of ignorance; when you begin examining any given issue and have little knowledge it is natural to stake out a "on the one hand, on the other hand" position until you learn more. Then you cease to be a reasonable moderate, at precisely the moment your knowledge becomes formidable. But I am rambling and need to go outside now :)
- randyrand 13y agoYes I agree. Should have been "a moderate and/or a person that considers both sides." But you're getting it backwards - I was unclear. You don't have to be a moderate to consider both sides, but if you consider both sides in my experience you tend to come out more moderate than if you didn't.
- carbocation 13y agoUsually, journalists don't get to choose their own headlines. Does that fact change your read on this piece?
- hindsightbias 13y agoIt's not a column, it's a blog. This is his column: http://www.nytimes.com/2013/12/23/opinion/krugman-bits-and-barbarism.html?_r=0&adxnnl=1&partner=rssnyt&emc=rss&adxnnlx=1388265603-8sQkPUYl2FnUg3uClIK+Dg http://www.nytimes.com/2013/12/23/opinion/krugman-bits-and-b...
- Aqueous 13y agoOh boy - this should get a positive reaction!
- bdcravens 13y ago1) Bitcoin mining has a pretty horrible carbon footprint. ("but so does ..." doesn't eradicate this argument) 2) similar to the author's point that advocates can't tell the difference between "store" and "medium" of value, I can't tell you the number of arguments I've gotten in with people who equate a "store of value" to be the same thing as the "increase in value" 3) It's a 1% wet dream. Make money, potentially hidden income, avoid taxation? No money paid into the welfare state? WIN!
- lacero 13y agoThe only way you can make money off something like a currency is if demand > supply. What determines the supply? Solving problems with machines and energy only the 1% can afford. What determines the demand? The early bitcoin adopters hyping the "currency" so that they can later offload their bitcoins to bigger fools once they have made a good investment return.
- hendzen 13y agoActually, for your first point, you have to compare the carbon footprint of bitcoin to the carbon footprint of the alternative. What is the carbon footprint of all the different transaction processing systems run by Mastercard, Visa, Amex, etc? What about if you add in the cost of the massive mainframes that handle ACH transfers? The cost of printing millions of archaic paper checks? I'm not saying bitcoin replaces all those things (it certainly doesn't), but it aims to.
- seiji 13y agoThe other systems aren't based around grinding CPUs at 100% power utilization for days/weeks/months doing worthless busy work. Unless your power comes from a zero-carbon-footprint renewable resource, it's pretty ugly.
- hendzen 13y agoHigh hardware utilization is a good thing for efficiency because that enables ASICs to be produced that are growing increasingly more efficient. Right now one of the main metrics people use when evaluating the profitability mining hardware is Ghash/Watt, so the market is naturally incentivizing low OpEx and therefore less power usage (per transaction processed not the nominal amount of power used). Also, it's actually more efficient to have a smaller number of machines running at full utilization 24x7 than the typical massive datacenter that averages around 20-30% utilization [0]. That's because modern servers consume nearly as much power at 20-30% utilization as they do at 100%. [0] - http://bnrg.eecs.berkeley.edu/~randy/Courses/CS294.F09/wharehousesizedcomputers.pdf http://bnrg.eecs.berkeley.edu/~randy/Courses/CS294.F09/whare... (page 55)
- droidist2 13y agoThe title is pretty sensationalist. He doesn't really come close to arguing that it's evil in the piece.
- smtddr 13y ago>>BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions. So basically it brings an ability to the middle-class that normally only the top 1% have. We know wealthy people use tax loopholes(and a few of them, laundering) and... why do the states need to monitor financial transactions? Don't tell me because terrorism. I'm sick of that being the reason for everything when we have this kind of nonsense[1] happening. I translate this to: "Bitcoin is designed to free non-rich people from the restrictions, fees & surveillance placed upon them by the wealthy elite" I don't know if crypo-currency will succeed long-term, but seeing how hardcore scared/doubtful some people are about it makes me think a nerve has been hit. I just hope that if btc fails, it fails naturally/organically/mathematically on its own... not because someone arbitrarily makes it illegal. 1. https://news.ycombinator.com/item?id=6954341 https://news.ycombinator.com/item?id=6954341
- dbla 13y agoThis may be the end result, but it seems to me like the more direct (but not necessarily simple) solution to this problem is to close up those loopholes for the rich. The government does need to collect taxes after all, and if nobody is paying then we've created another problem.
- seiji 13y agoIf r/bitcoin could speak, it would collectively say: "All tax is theft. It is our job to stop being stolen from. All money belongs to me for the benefit of myself. I am all that matters in society."
- sans-serif 13y agoI will not comment on how much value this kind of snark is not adding to the conversation, but note that fairer forms of tax e.g. property taxes exist and don't require state to track financial transactions.
- natrius 13y agoIgnore the flamebait headline. The distinction Krugman makes between positive and normative economics is a useful one. On the positive side, I think Krugman and DeLong are overestimating the strength of the floor for the value of a dollar. Hyperinflation would make it impossible for the Federal Reserve to buy up enough dollars to stabilize the value of the currency. Sure, you can pay taxes with them, but the government collects taxes to buy things, and if people no longer have faith in the dollar, the government won't be able to buy things with those tax dollars. There's no floor on the value of Bitcoin, but there's no floor on the value of the dollar either. On the normative side, I don't think one's position on the utility of central banking matters when it comes to Bitcoin. If blockchain currencies are the future, central banking is over, and our society will have to figure out how to make the economy work with endemic deflation. I think central banking is useful, but I don't see a future for it.
- mapgrep 13y ago>Hyperinflation would make it impossible for the Federal Reserve to buy up enough dollars to stabilize the value of the currency Even if this is true, where is the evidence that we're in imminent danger of hyperinflation? Despite mounting public debt, U.S. inflation has remained incredibly low since the start of the financial crisis four years ago, as has the interest rate that must be paid by the government to issue new debt. From what I can tell, we have on the one side a dollar that has endured as a value store and medium of exchange for hundreds of years, and which has proven remarkably resilient (valuable) by any objective measure throughout the worst economic implosion since the Great Depression (which the dollar also survived). On the other hand we have Bitcoin which is intriguing in many ways but which has demonstrable volatility even just in the short span of its existence. And which, as a feature, is not backed (in the hard economic sense) by any nation or bank. I mean it's cool and all but I see where Krugman is coming from.
- natrius 13y agoWe weren't in imminent danger of hyperinflation. I think mass adoption of Bitcoin will cause hyperinflation. If every merchant you patronize today accepted Bitcoin, would you rather have Bitcoin in your bank account or dollars? I'd rather have Bitcoin. They're easier to transfer, they can't be counterfeited, and their supply can't be manipulated. If every merchant accepts Bitcoin and every consumer agrees with my logic, hyperinflation of the dollar would occur. Coinbase and its 0% transaction fees will lead to rapid adoption of Bitcoin on the merchant side. I'm less confident about the consumer side, but I see that happening as well.
- deleted 13y ago[deleted]
- ashray 13y agoThis title of this post does a disservice to its contents. "Bitcoin is evil' makes it sound like it's a propaganda piece. I went in expecting some of the usual poorly researched allegations that we've been seeing over the past few weeks. But surprisingly, the post does make a few good points. > Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 million bitcoins is reached. Placing a floor on the value of bitcoins is… what, exactly? However, the analysis fails again because he wants to decouple bitcoin's role as a store of value from it being a medium of exchange. To which I would like to ask: What's the point of a store of value if ultimately it cannot be exchanged for something else ? That's like saying that the energy inside an atom's nucleus has no value. (prior to the discovery of controlled nuclear fission) Of course it had value but we couldn't use it without accessing it and tapping into it somehow. Bitcoin's value is closely coupled with its utility as a medium of exchange, which is based solely off some pretty excellent technology and principles. Now, don't get me wrong, I don't think its current value in terms of USD/Euros/etc. is necessarily linked well to it's current utility. However, there is value in being able to transfer something (a bitcoin or parts of it..) that no one else can transfer to someone across the world securely and almost instantly with little to no centralized control. This ability is what places a floor on its value, whatever that hypothetical floor may be. This is what excites the 'technical people' he mentions in his article. I don't expect non-technical people to 'get it' immediately, but people will get it, eventually. No one understood why email was important in the beginning either.
- username223 13y agoMaybe some day Bitcoin will be a cheaper way to transfer money than EBT, credit cards, etc. (a few percent). If/when that happens, people will hold Bitcoins for just long enough to complete a transaction -- microseconds -- rather than for however long it takes them to cash out their speculative bets.
- MarkPNeyer 13y agoYes. This is already happening to a small extent, and the use of bitcoin as a money transfer mechanism is where the value comes from. People who wish to transfer money using bitcoin do not care about the market price; if they have $1000 USD to send, they buy $1000 USD worth of bitcoins at market price, send them over the network in seconds, and then that value is converted into cash locally. They don't care about the market price, as long as it isn't volatile over the short time it takes to move the value. The market price of bitcoin is determined by the number of bitcoin holders who think they will go down in value; as coins gradually transfer to the hands of people who believe they hold long term promise, the market price of 'loose change' available for transfer will rise; that rise in price will actually _increase_ the use of btc as a transfer mechanism because it will attract more people seeing BTC as a store of value, which increases the store of bitcoins held for long term positions and thus the market price of BTC, etc. The increase of its usage as a medium of transfer ALSO increases the market price of BTC; that interplay between new value-minded long term investors and new users of btc as a transfer mechanism is what has been pushing the price up continually. the entrance and exit of speculators in the market is a short term distraction that has the benefit of spreading awareness but the drawback of adding to conception as a bubble. after about the 6th or 7th one of these 'boom and bust' cycles that triples/quadruples the market price, people will stop seeing this as a 'maybe' thing, and my guess is that will drive a massive one-time spike in the value.
- lowglow 13y agoThat's why I invest only in Dogecoin.
- cantbecool 13y agoSame, the it's the only alternative that seems like it could potentially take off.
- zenocon 13y agoPlacing a ceiling on the value of gold is mining technology, and the prospect that if its price gets out of whack for long on the upside a great deal more of it will be created. Placing a ceiling on the value of the dollar is the Federal Reserve’s role as actual dollar source, and its commitment not to allow deflation to happen. Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 million bitcoins is reached. Placing a floor on the value of bitcoins is… what, exactly? Where's the floor on the value of the dollar?
- natrius 13y agoHe claims that the ability to pay taxes in dollars and the Federal Reserve's willingness to buy up dollars to maintain their value places a floor on the value of the dollar. I disagree. In a crisis of confidence in the dollar, both factors would fail.
- ubernostrum 13y agoIn a crisis significant and widespread enough to crash the dollar or any other government-backed currency you'd like to pick on, it seems likely that there would also be significant disruption to electrical and communication networks, which does not suggest BitCoin is a great thing to hold for that situation. (a similar point is often raised against gold, in that a post-economic-apocalypse world would not immediately have the infrastructure to verify claims like "this is one ounce of pure gold", meaning gold's utility as a medium of exchange would not be as high as suspected by people who buy it to hedge against such apocalypses)
- natrius 13y agoI'm not talking about a hypothetical doomsday scenario. Bitcoin is the crisis. The idea that holding Bitcoin is a better idea than holding dollars is spreading. The more it spreads, the higher the value of Bitcoin will be, and the lower the value of the dollar will be. Eventually, we will hit a tipping point. That's the crisis. That's the hyperinflation.
- Aqueous 13y agoI'm a liberal, a Keynesian, but my interest in BitCoin is completely non-ideological. And I resent being painted with an ideological brush by Krugman because I can see the elegance in BitCoin, and I can see the possibility that one day, in spite of my ideological beliefs that unregulated markets are susceptible to bubbles and destructive volatility, BitCoin or something like it might still be able to function as a stable, useful world currency. Ideology is never an accurate or complete description of the world. It is false awareness. What might be true under paradigm A might no longer be true under paradigm B, but at no point will an ideologue change his world-view to fit paradigm B. He will try to cram paradigm B into his ideology in order to preserve his ideology, rather than adjust his ideology to describe paradigm B. For instance a fiat currency heavily regulated by state monetary policy might have been the best idea in the 20th century, during which for the most part there was no Internet. But in the 21st century, where the Internet enables markets that can function more efficiently, a virtual currency with a self-regulating monetary policy might be a better replacement. The jury is still out on that. BitCoin is an experiment, and that's the best thing about the Internet - it is a laboratory for experiments, where we can try new and different monetary policies really quickly, whereas in the wildly inefficient 20th century we were locked into one monetary policy at a time. We're just figuring out what works the best, but Krugman calling BitCoin "evil" suggests to me that he is afraid of what we might find out.
- atmosx 13y agoYou seem pretty accustomed to economics. Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency? Then again, it's not a design a flaw - as I once thought - it's a clear choice: Why would anyone would want to own a non-deflationary asset? :-) So actually, in my view, BTC as a currency is already failed. No one will be eager to buy online (perform an actual exchange) when he can buy the same items using USD, because BTC will possibly have a higher value tomorrow. While the USD almost certainly will not. Best Regards, ps. FIAT currency is regulated by the FED and you know who runs the FED. BTC market is run by those who have huge amounts of BTC and you don't have a clue about who they are. Not sure which one is more secure for a society.
- 13y ago
- drdeca 13y agoThis seems to be mainly a reference to another article that has also been on HN. By approximate scroll down length on mobile, the ratio of content that isnt a quote, to that which is, seems to be approximately 7:5 . (not taking into account the fact the quoted text takes less horizontal space, but I did overestimate the new text length in a few small ways as well, so I hope that this ratio is at least approximately accurate) Essentially the article states a difference between "positive economics" (what is), and "nomfyvhbxgv economics" (what should be). The author claims that their political opponents tend to get the two confused (and that despite what people criticizing the article might think, that his political allies tend not to make the same mistake) They then go on to say that the other article suggests that bitcoin was created as a weapon, connecting to the "what should be" part of economics, quote the other article, and repeat from the other article the part about a "gold fetish". I personally believe that it didn't add a whole lot to what was already in the other article, though I admit I should probably reread the guidelines for comments and submissions. I intend to do that, and then possibly modify this post that I am now making.
- dlsx 13y agoBitcoin is terrible though you guys, in it's current state, it encourages hoarding and what used to be a promising currency is now a stagnant commodity. I like the utility of bitcoin, and I see it's value. But I do not hold the same optimism I did for the currency as I did in months past. I do not see a future where normal people will be paid primarily in bitcoins, and all the bitcoin people will be rich and happily ever after. No, just stop. Normal people hate this coin. They hate it, and they really hate people telling them this is where there money should go. Hacker News we are wrong about bitcoins, and we should feel bad for holding them in such high regard. They have done a lot more bad than good, and I am not sure the road forward is good or bad.
- mortenjorck 13y agoKrugman is to Bitcoin as Ebert was to video games. The central failure of Krugman's understanding of cryptocurrencies is in the value of mining. It's not simply throwing energy away into solving useless math problems; it's spending energy to create infrastructure. That infrastructure is the part that does have intrinsic value, that can be used for something else in the same way gold can be made into useful things. Look at Bitmessage or any of the other projects built on top of Bitcoin. These form the floor Krugman can't seem to find.
- jamroom 13y agoBut does Bitcoin really have a floor related to the energy put into the mining? Since the energy cost is paid for by the miners, do other players in Bitcoin "respect" that floor? I don't see that - there's nothing keeping a Bitcoin from going all the way to zero - regardless of the energy consumed in it's production, and Krugman argues that gold (and the feds) have a bottom that is greater than zero. My understanding could be wrong, as my understanding of Bitcoin would definitely be at the "noob" level :)
- sans-serif 13y agoNo, the floor is unrelated to the energy put into mining. The intrinsic value of Bitcoin is the ability to facilitate financial transactions. Brinks' entire CIT vehicle business is based upon just a subset of this function, and we can agree their value is not zero.
- kordless 13y agoBitcoin is able to facilitate transactions because of the power put into the computers running the Bitcoin network. Mining Bitcoin provides the functionality for validating the block chain. So, power into the network provides the value of security.
- dcc1 13y agoNewer mining equipment doesnt use as much electricity. Power is a variable but not an important one.
- atmosx 13y agoKrugman is right, I agree with him 100% on this, but almost every time I tried to make any sensible argument about bitcoin with people actually holding bitcoin, I hit a wall. Most people confuse currencies with assets, storage-medium with exchange, etc. While at the same they are just hoarding. I think that BTC will stick around because it has some unique qualities that are requested by the market such as partial anonymity, speed and size (a USB can contain whatever amount of USD). But it has some serious flaws and as a currency is clearly failed. It is a libertarian's dream, but I don't think that the US or DE or RU government can't monitor whoever moves money in and out of the BTC blockchain.
- Malician 13y agoI dealt with virtual game currency before I really started messing around with banks. There was a ton of, "What do you mean I can't do this", and "What do you mean this takes longer than five seconds.. four DAYS?!", and "they're closed? So I can't? What? You're joking with me, right?" I understand that dealing with money is incredibly hard due to regulation, but I would like something to use as a medium of exchange which doesn't leave me constantly infuriated.
- yxhuvud 13y agoMost of that probably has more to do with horribly bad legacy systems at the banks than it does with what currency is used. A little bit of competition will do well in showing what is possible, but shouldn't automatically replace the reigning currencies.
- SectioAurea 13y agoDefinitively solving the problem of "closed on Sunday" would seem to constitute more than a little competition for legacy financial institutions.
- Tycho 13y agoSometimes I wonder if Bitcoin really is a weapon made by a nation state. Like Stuxnet. Or alternatively could a nation like North Korea co-opt it in an attempt to dislodge the dollar?
- deleted 13y ago[deleted]
- j2labs 13y agoThis is an easy one to understand. Krugman was a proponent of mass inflation, aka. helicopters of money, as a solution to the credit crisis. Bitcoin makes it basically impossible to manipulate the money supply the way the Fed has done to navigate the 2008 crisis. Krugman sees Bitcoin as a threat to the central banks ability to stabilize the economy.
- seiji 13y agoAlso see: the euro crisis. It isn't a "threat" so much as just foolish.
- pixelcort 13y agoOne capability of bitcoin not often addressed is the ability for the majority of its users to change the rules. If you can get the majority of users to agree to a change in the rules, then they will fork off the block chain in a direction that follows those new rules. Of course, you will have some percentage of users who like the old rules, and could theoretically continue on the old block chain. One rule change, for example, is to have miners vote on the reward for new blocks found. Then, every so often take the medium or a random vote and award that amount for new blocks mined. This would allow miners to regulate the amount of new coin being mined, which could level off the exchange rates between bitcoin and the world currencies.
- darkhorn 13y agoBitcoin is evil like book pressing machines are evil to hand written books economy (like few centuries ago)
- captainmuon 13y ago> Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 million bitcoins is reached. Placing a floor on the value of bitcoins is… what, exactly? Doesn't he get that point wrong (like many others)? The mining rate, and eventually the limit of 21 million bitcons places a limit on the supply of bitcoins, not on their value. If bitcoin is successful, it will only keep getting more and more valuable. Its hard to estimate how much, but the total market capitalization will probably that of a commodity like silver, or that of a nation state's currency. Also, I think bitcoin is not really supposed to be a store of value. Its main purpose is to pseudonymously buy and sell stuff (drugs, cough, cough). It's good enough if it can hold its value for a few hours - if someone builds a nice way to deposit dollars or euros, convert them, and immediately pay with the bitcoins, milliseconds would even suffice. In a market with such a high turnaround, of course, the value represented in bitcoin at a given time will be lower than for e.g. silver or gold, which are supposed to store value for a longer time (and also have applications as a material). Finally, I don't think bitcoin can replace "real" money. It might have worked a few decades ago when there was a kind of self-carrying growing economy. The only way todays econonmy is still running is because of massive state intervention, which is impossible if bitcoin in the main currency. I mean, we gave up the Bretton Woods system and the gold dollar for a reason...
- eudox 13y ago>BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions. And you are going to have to live with it, the same way the people who created Bitcoin will have to live with interventionist policies.
- etjossem 13y agoIt's great that Krugman is trying to to make a purely positive analysis of the potential impacts of Bitcoin. He's entirely correct in saying Bitcoin has zero inherent value, as opposed to gold and USD. But that's missing the point. Most of us don't think about owning gold in terms of how readily we can make pretty things out of it, or dollars in terms of how easily we can pay our taxes. We hold onto them because both have a reliable history of being easily traded for other goods and services. Ease of exchange trumps inherent value as soon as a currency's users regard it as stable, and Bitcoin hopes to be there in a few decades (presumably starting with the sort of people who follow interesting tech developments, rather than those who care about inherent value). As a side note, the headline is ridiculous linkbait and someone really ought to change it. Krugman spends most of the article explicitly stating that he doesn't want to muddy the discussion of how well BTC will actually work with normative/political arguments (i.e. the word "evil"). I can't help but feel like someone other than the author titled this article.
- username223 13y agoKrugman is smart and a bit condescending, with a sarcastic bent. "Is evil" was not prima facie humorous, but the way certain people in this thread have responded to the title without reading the article may have been part of the joke.
- etjossem 13y agoIt's still a totally inaccurate bait and switch title, which annoys me and makes me like his column a little less. If I click through to an article called "Bitcoin is Evil", maybe I actually want to read about how a Bitcoin-dominated world is going to making exploiting the poor trivially easy. I'm not convinced yet, but it's a plausible (if normative) argument someone could make, so there's no sense in making a joke out of it. Especially if - like Krugman - you already support redistributionist taxation and the welfare state.
- username223 13y ago"...making exploiting the poor trivially easy.... you already support redistributionist taxation and the welfare state." Judging by the clichés you use, exploiting the poor is probably a good thing in your Libertarian utopia.
- vijayboyapati 13y agoThere is perhaps no compliment greater than a criticism from the econostrologist in chief, Paul Krugman. He is right about one thing tho. Bitcoin IS a bubble. But that is not a pejorative. Any good that becomes money will have a price that is far higher than is warranted by its use demand. It doesn't matter whether the floor price is 10% of the monetary premium, 1% or 0%. The monetary premium is based not on the good's use value, but its serviceability as money. I.e., is it fungible, divisible, transportable, verifiable etc. And along all these attributes bitcoin shines - even more than gold. The best explanation of this so-called "bubble theory of money" is proffered by Moldbug. To wit: http://unqualified-reservations.blogspot.com/2011/04/on-monetary-restandardization.html http://unqualified-reservations.blogspot.com/2011/04/on-mone... and http://unqualified-reservations.blogspot.com/2013/04/bitcoin-is-money-bitcoin-is-bubble.html http://unqualified-reservations.blogspot.com/2013/04/bitcoin...
- kybernetikos 13y agoI'm glad this article makes the distinction between positive and normative economics. I have no problem with paying taxes and obeying almost all laws in a democratic country, and I am persuaded that inflation in sensible times and amounts is a good thing for the world. The paranoia and anti-society feelings that run so high in the bitcoin community actually put me off it. (Although I also dislike the fact that the Credit Card companies have the power to extract rent from nearly all transactions in the economy too - the fact that the price is the same regardless of whether the merchant is paying a fee or not means that cash transactions are subsidising credit cards). But I don't think bitcoin has much chance of becoming a state currency, and I think it would go horribly if it did, so most of that anti-state rhetoric is irrelevant. However, up until now, neither the government, nor the banks nor the credit card companies have provided me with an easy, cheap and safe way to make tiny transactions with my friends (and untrusted acquaintances) across the world. Bitcoin is currently useful. I can take a picture of a QR code with my phone or fill in a simple form on a web page and safely transfer tiny sums of money with no or minimal fee reasonably quickly anywhere in the world. That is wonderful and creates a floor on the value of bitcoin, until better options are available. Anyone who really doesn't want to see bitcoin succeeed (and that goes for Stross and Krugman) should make it a priority to work on making sure that dollars and pounds and euro balances are just as convenient, cheap and safe as bitcoin balances.
- etjossem 13y agoThree cheers to the mod who changed the title from "Bitcoin is Evil", even though that's what NYT wants to call it. The author spends most of the piece explicitly telling us that he will not be making a morality judgement about the currency. One quote in the article caught my eye: > BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions. Fun thought exercise: replace "BitCoin" with "cash." Businesses across the country choose to have a cash-only policy (or destroy receipts, avoid use of electronic records, and so on) to avoid paying taxes and having their transactions monitored. That's not to say this is wise or ethical behavior, but it certainly happens, even without cryptocurrency. So why do critics describe BTC as a libertarian threat and in-person cash transfers as normal?
- A_COMPUTER 13y agoI don't know enough about economics to know if it's possible to "de-politicize" it, separate a theorist from a particular type of government. But I perceive that Krugman, master of his intellectual domain, becomes deranged in the presence of the name "bitcoin" because technological innovations don't go in reverse, and disruptive ones change the facts on the ground. In those circumstances all government can do is either accept it or go full-on North Korea. In his world, the state must have at least the power, even if it must only judiciously decide when to apply it, to direct all human activity to maintain stability and order. If bitcoin really does threaten the power of the state to tax, the government's reaction is going to turn his utopian social contract "we're-all-in-it-together" paradise into a dystopian surveillance hell-state. and he, as the cheerleader of the State (if anyone remembers him) goes from being a good guy to a bad guy. I can understand how then that bitcoin presents a scary proposition. I don't know how closely he's been paying attention to the rest of the news on how the government has been reacting to things on the Internet it can't control, like encrypted communications, but the government isn't taking the "acceptance" route, it's going the North Korea route. If he wrote a "PGP is evil" article about how it destroys the ability of the State to keep tabs on pedophiles and terrorists and tax cheaters, it would be derided here with a lot more force.
- JumpCrisscross 13y agoI love rule-based central banking. It injects predictability and stability into a monetary system and has had fantastic results in the developing world. Cryptocurrencies allow for rule-based monetary systems without the risk of a central bank failing to adhere to its rules prescription. A world of competing crypto currencies would be fascinating - various rule systems being adopted and phased out as (a) critical flaws are discovered, (b) more competitive rules are introduced, or (c) the global economy's needs and hence optimal rules system change. The downside of discretionless rules-based central banking is it makes learning, and thus evolving, very expensive, requiring a rerooting of the currency and thus monetary system. This is why developed countries do better with discretionary central banks - their economies are too complicated for any known rules systems to work reliably and their central banks trusted enough not to be stupid. I love the future Bitcoin portends - a world of competing and overlapping rules-based and discretionary monetary systems. I am fairly confident, however, that Bitcoin is not competitive for that world. Still, it's a great introduction and has its social value as a stepping stone.
- nhaehnle 13y agoI would argue that the rules of Bitcoin are not very useful for economic development. Perhaps the most important lesson in the history of money is that the amount of money needs to flexibly adjust to economic circumstances. The existing fiat system achieves this, because banks create and destroy money in a decentralized, market-controlled fashion by giving out loans and having them paid back. When a firm invests using bank loans, then the money supply and economic activity increase in lock-step. The result is an economy that was so stable in historical comparison that many economists declared the "macro problem" to be solved (the so-called "Great Moderation"; obviously, 2007 showed that they were hilariously wrong). Metal standards do not achieve this, and they fail in two ways: The economy can grow faster than the supply of metal; that's the more usual failure mode. But the supply of metal can also grow faster than the economy, which is just as bad (i.e., Spain and the in-flux of metal from America). Bitcoin can only fail in one of these modes, but since that's the more usual failure mode anyway, it's just as bad as a metal standard. So that belongs to the normative discussion that Krugman talks about: An economy based on Bitcoin as money is going to suffer through the same problems (gratuitous recessions and mass unemployment) that economies based on metal standards used to suffer from [0]. We already know that, so let's just not go there. [0] Similarly, economies based on the Euro suffer the same problem via the exact same mechanisms, as do economies where politicians implement unnecessary austerity.
- dimitar 13y agoI think most commentators here missed the point of the article. Bitcoin is evil not because it fails at x, because the interest in it propagates bad (Krugman POV) economics. Krugman/Stross assume this type of economics is the 'Austrian school'/Goldbug economics.
- gweinberg 13y agoMost likely Krugman didn't choose the title.
- guscost 13y agoBitcoins can only be as evil as cars, guns, LEDs, pin-and-tumbler locks, trusted computers, square-rigged ships, Jacquard looms, and enriched uranium. The point is that these are technologies, not people.
- steveklabnik 13y agoThere's an assumption here which may or may not be true: technologies are ethically neutral. Some reasonable people disagree with this assumption.
- guscost 13y agoBut can technology be immoral? I'm a bit rusty on all that stuff but it sounds like we're talking about two (subtly) different questions. I would argue that technology can be used for evil, but technology just sitting there by itself is no more evil than rocks or sand. If you can prove that a certain technology can not or will not be used for good, then that raises different questions.
- frabcus 13y agoIt's pretty clear that the hydrogen bomb is, in the sense you give, "immoral". Sure, you can come up with complex, hypothetical scenarios where it has value, but fundamentally it has but one purpose, which is to murder millions of people. In most moral systems, murder of one person is immoral, never mind millions.
- grinnbearit 13y agoOr maybe mutual assured destruction prevents the potential murder of millions giving an atomic bomb positive moral value
- semiel 13y agoWho changed the title from the original's "Bitcoin is evil"? I thought Hacker News was opposed to editorial titles.
- edward 13y agoWhy does he write it as BitCoin? I'm sure he is aware that it is normally written as Bitcoin.
- EGreg 13y agoI am an on again off again fan of Krugman in some respects. In this case he has managed to clarify the discussion, which is good! The truth is that bitcoins derive most of their value from being a great medium of exchange and enabling things (smart contracts are ahead) that otherwise wouldn't be possible. Things like making no recourse payments online for the first time ever. Bank of America did an analysis on the value of bitcoin and concluded that one of the components is the payment network. If PayPal's market cap is billions, why not bitcoin? So I see this as giving a "floor" to the value of bitcoin via demand the same way as the US government's demand for dollars from its citizens (or the controversial petrodllar warfare theory and other shenanigans) boosts demand for the dollar. There is definitely a lot of demand boost in that. And for now there is alsothe speculative bubbl. I don't know what the value of bitcoins should be, but it's certainly not zero - there will be demand for it by chinese millionaires trying to get their $ out of the country and bypass currency controls, and other things like that. And if the market cap is high enough, moving a few million dollars in bitcoins at a time won't move the market. Demand drives the price up.
- XorNot 13y agoIf you couldn't turn Bitcoins into USD, would you accept them as payment for something? That's your floor price. It's 0.
- EGreg 13y agoYes, if I can trade them for something else I need. Cashing out is a hassle anyway. It's true that dollars are more liquid. Does that mean you wouldn't accept a ton of free stuff if you couldny trade it for dollars but only other services?
- XorNot 13y agoThen why am I getting it for free? That's the point - it's not free. You don't need a currency for "free". You need a currency for things which have value.
- ChristianMarks 13y agoKrugman is somewhat like Bishop Berkeley, no fool, arguing against infinitesimals before they acquired--in the 20th Century--a rigorous basis. The auditability of Bitcoins distinguishes them from the inaccessibility of the highly mathematized and virtually untraceable instruments of the financial crisis.
- jokoon 13y agoFinally Krugman talks about it...
- Articulate 13y agoIt is deplorable that he used the word "evil" to describe Bitcoin. He fails to point out that Bitcoin is a system and of course it is possible for individuals to use this system to achieve some personal nefarious goals; but we have literally watched banks knowingly gamble huge sums of money in the centrally banked system and the whole system came crashing down. The decentralized nature of Bitcoin will not allow a few major players to crash the system, and then use the government to bail it out... and as a side note the government doesn't ever bail anyone out, it leverages its authority to force taxpayers (today and future generations) to bail out a system so that it can maintain the status quo.
- wdr1 13y ago> It is deplorable that he used the word "evil" to describe Bitcoin. Krugman is clearly an intelligent man, but in his public writing he has a habit of declaring things he doesn't like as "evil." Given we know he's not stupid, I assume it's to increase the attention he receives. Based on the re-shares from my left-of-center friends, it tends to work.
- Articulate 13y agoA few minutes after I posted that, I regretted that my comment focused on that. Krugman wrote another article implying that Bitcoins were "barbarous" and likened them to digging up mostly useless gold. I feel like he must think Bitcoin is serious because he is writing about it regularly- I wish I had focused more on his economic theory in my comment... maybe next time.
- SectioAurea 13y agoLike many technology and finance pundits, he seems to be currently in a love/hate relationship with Bitcoin. See also Business Insider's recent turnaround and subsequent breathless tabloid-style coverage of cryptocurrency news.
- deleted 13y ago[deleted]
- anoncowherd 13y agoKrugman's rants can be safely ignored. He either genuinely thinks that the solution to problems created by printing and borrowing way too much money is.. printing and borrowing shitloads more money, or he doesn't actually think that and is a government shill instead. Either way, he's not to be trusted. >> BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions So? Damaging States' ability to forcefully confiscate everyone's wealth is a distinctly good thing, here in the real world.
- kungfooguru 13y ago>>BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions. What does that sound like? Maybe an earlier top post on HN http://blog.oleganza.com/post/71410377996/crypto-anarchy-does-not-require-anonymity http://blog.oleganza.com/post/71410377996/crypto-anarchy-doe...
- paul 13y agoI'm most bullish on bitcoin when I read articles such as this one, and most skeptical when I read the thoughts of the bitcoin believers. It's truly the most interesting technological development in years, if only because it reveals how little anyone really understands money or economics. Here's another interesting (though imperfect) way of thinking about bitcoin: it's a decentralized corporation, where bitcoins are ownership shares and the business is money transfer, like a decentralized Western Union. And for further thought, could other types of businesses also be structured in this way?
- peterjancelis 13y agoExactly. Bitcoin is the first autonomous corporation.
- erikpukinskis 13y agoThe next thing we need is an autonomous web host.
- shitgoose 13y agohttps://freenetproject.org https://freenetproject.org
- greyman 13y agoI am not a libertarian and do not have a political agenda, but it is imaginable that certain parts of the government could be replaced with the structure like this one. I don't know how the transition could happen, but at the end, the mining in the network will be done by citizens, bitcoins will be named "bitvotes", and every citizen will mine those bitvotes, or they could be distributed fairy (one bitvote to each citizen). Then, the citizens could vote about anything with those bitvotes, and the bitcoin technology ensures that the voting is provably fair and verification of the correct voting results doesn't require any third party. But again, this is not my agenda and I don't know if it would be good; I just say that the bitcoin technology invention allows this to happen.
- salient 13y agoI've never agreed much with Krugman's theories, but at least he understands a thing or two about economy. However, what I've always found him to be always clueless about is - technology. You have a better chance finding a more insightful tech article from a random tech blogger than from Krugman. He always misses the point. Without exception. I don't know even why he keeps doing this to himself. He just ends up embarrassing himself. How can Bitcoin, a technology, that has shown so much promise, in many other ways besides being "money" (which some still disagree it is), be "evil"? Also, as someone else has mentioned, he says FIAT money is backed by men with fun, and Bitcoin by "nothing" (another point where he shows just how little he understands technology in general), yet Bitcoin is the "evil" one?
- CamperBob2 13y agoHowever, what I've always found him to be always clueless about is - technology. You have a better chance finding a more insightful tech article from a random tech blogger than from Krugman. He always misses the point. Without exception. I don't know even why he keeps doing this to himself. He just ends up embarrassing himself. Yes, a textbook example of the Dunning-Krugman effect. He doesn't know what he doesn't know, and he's OK with that, because hey, Nobel Prize.
- shimon 13y agoUS Government taxes certainly do support the US Dollar's value, but that support was more vital at the creation of the currency than it is today. Today's value is secured by the many merchants who trade in the dollar at fairly predictable prices. Iran comes to mind as a merchant who could make a similar commitment to a cryptocurrency. What if you could suddenly buy oil at BTC X per barrel? This could establish enough of a link between BTC and a high-volume commodity that it could create some stable value, and might appeal ideologically to a class of economic actors that are already somewhat motivated to avoid trade in dollars and euros.
- sarreph 13y agoDoes anyone else think that Paul Krugman looks a lot like Chris Parnell? Couldn't stop thinking about it when watching Chris as Dr Spaceman on 30Rock.
- tlrobinson 13y agoI was not disappointed to find this as the top comment (at the time I viewed the article): 1998 - Another "evil" prediction from Mr. Krugman: --- The growth of the Internet will slow drastically, as the flaw in "Metcalfe's law"--which states that the number of potential connections in a network is proportional to the square of the number of participants--becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's. --- But hey, the future of the dollar might be the same as that of the fax machine ???
- swalsh 13y agoMaybe as an economist, his predictions about economics will be more accurate than his predictions about technology?
- mike_hearn 13y agoThe two cannot really be unentwined, especially not now.
- wpietri 13y agoSomebody took a careful look at that set of predictions. It's a reasonably good record: http://marginalrevolution.com/marginalrevolution/2010/12/paul-krugmans-predictions.html http://marginalrevolution.com/marginalrevolution/2010/12/pau... Your apparent heuristic of "they said one wrong thing so we can ignore them" is faulty. It just encourages the typical pundit's trick of never saying anything. I'd much rather hear from people who state things clearly and are sometimes wrong.
- Thiz 13y ago"Stross doesn’t like that agenda, and neither do I" Statists gonna hate bitcoin, no matter what.
- frabcus 13y agoI'm a statist, and I like Bitcoin. In particular, I think a mixed economy half run by the state, half free markets works pretty well. There is no contradiction between Bitcoin and the existence of a state. There are lots of ways of regulating and taxing. Sure, Bitcoin might change the details of them - that's just growing pains. e.g. I would make it compulsory for any company granted limited liability to register the public keys of all Bitcoin wallets it has the private keys of with the tax office. Or, if necessary later because that's too hard to track, tax either land or carbon emissions directly (rather than income or exchange of goods).
- forgottenpaswrd 13y ago" I try to get them to explain to me why BitCoin is a reliable store of value" I don't believe that BitCoin is a reliable store of value like the dollar is not a reliable store of value. I went to the US after a year to visit family(I live in Europe) and was surprised how much prices had gone up. Probably you don't see that when it is incremental, but you get to see after some time out. The same happens with civil liberties. US was one of the countries with higher freedom in the world, but the tendency is so bad, compared to countries that were really bad in the past, but the tendency is so good. Paper money, or digital money by the way is a medium of exchange. And there lies their utility as Mr Krugman knows.. I am biased about Mr Krugman, for me he is a puppet of central banks that create money and compete against bitcoin. He was awarded the Nobel Memorial price paid by a central bank and he owes his position from defending Wall Street against Main Street.
- azernik 13y agoFor the last 30 years inflation (drop in buying power/value of the US dollar) has been between 0.1 and 4.6%; before that, during a period of record inflation, its value fell bye an eye-popping 10-13% a year. By comparison with Bitcoin's volatility, that is an astounding store of value.
- james1071 13y agoI think you will see rather bigger falls than that with Bitcoin, once the early investors sell out.
- belluchan 13y agoThe new title is much better.
- MarkMc 13y ago> Underpinning the value of gold is that if all else fails you can use it to make pretty things. But this 'floor' only accounts for, say, 3% of the price of gold. Whatever makes the remaining 97% a reliable store of value could also provide Bitcoin with 100% of its store of value. A similar point comes from Tim Harford's fascinating description of the currency used on the Pacific island of Yap: ------------------------ Oddly enough, there is a near real-world equivalent to the Ningi, the triangular rubber coin larger than Mars dreamed up by the humorist Douglas Adams. It can be found on the island of Yap, in Micronesia in the West Pacific. Their coins, the rai, are stone wheels with a hole in the middle. Some are fairly portable a handspan or less across, and the weight of a couple of bags of sugar. But the most valued stones are far bigger - one British sailor wrote in the late nineteenth century of a stone wheel that was four and a half tons in weight and over nine feet in diameter. In other words, it was almost completely immovable. Yap’s stone money used to be a serious business. The stones were quarried and carved on the island of Palau, 250 miles away One Victorian naturalist witnessed four hundred men from Yap, a tenth of the adult male population, at work in the quarries of Palau. Getting the stones from Palau to Yap on a little bamboo boat was a difficult and sometimes lethal affair - some of them weighed as much as two cars. (And rai were especially valuable if someone had died on the expedition to fetch them.) The biggest stones might have been used for major transactions such as buying land or wives; more modestly sized stones - a couple of feet across - were exchangeable for a pig. Even then, it would have been a lot easier to move the pig than to move the stone. All this meant that for purely practical reasons, the Yap islanders had to develop an important monetary innovation: they divorced ownership of the stone from physical control of the object. If you wanted to buy my pig, that transaction would be publicly witnessed: I’d give you the pig and in exchange, you’d transfer ownership of one of your stones - the one leaning against the tree, second on the left behind your hut. Now everybody would know that that particular stone was Tim’s stone. You and I wouldn’t have to go to the trouble of actually moving the thing. One day, a crew from the quarries were bringing a new large stone from Palau when they ran into a storm not far from the coast of Yap. The stone sank while the men swam to shore to tell the tale of their lucky escape and their loss. But of course, if the stone propped up outside your hut doesn’t need to move around to change ownership, why should the stone at the bottom of the sea be any different? This giant stone on the seabed had an owner - the chief who had sponsored the expedition to get it. And now his ownership could be transferred to another rich islander, and then to another, just as with any other stone. It was perfectly good money, even though it was out of sight and out of reach. ------------------------ From "The Undercover Economist Strikes Back" by Tim Harford: http://www.amazon.com/Undercover-Economist-Strikes-Back-Ruin%C2%97/dp/1594631409 http://www.amazon.com/Undercover-Economist-Strikes-Back-Ruin...
- josephlord 13y agoI'm not sure Krugman's understanding of normal money is that great (or at least it is just developing): http://www.debtdeflation.com/blogs/2013/12/17/oh-my-paul-krugman-edition/ http://www.debtdeflation.com/blogs/2013/12/17/oh-my-paul-kru... That said I also don't see that there is any reason that the value couldn't drop to zero or near zero. Maybe the next crypto currency could be called BitTulip.
- master_shake 13y agoevery article from PK: "you see this nobel prize? yeah bitch. I AM the muthafuckin' economy. Now worship this bitcoin opinion piece that highlights my lack of technological understanding. I am your God."
- onebaddude 13y agoEvery article, huh? Krugman has much insight to offer about the world of economics, although I know it's hip to rip on him nowadays. Oh well, stay ignorant.
- mrb 13y agoIt boggles my mind that Krugman continues to fail to see the point. I am not the only one who has noticed his blindness [4]. Or is he deliberately avoiding discussing certain aspects of Bitcoin (notably as a payment processing platform)? "Underpinning the value of gold is that if all else fails you can use it to make pretty things." This is a very weak and in fact invalid argument. I can't believe Krugman is quoting this! "If all else fail" then gold would lose 90%+ of its value overnight. Look: roughly 45% of the world's gold production is used for financial speculation, 45% for jewelry, and 10% for industrial purposes [1]. In other words, 90% of gold buyers are buying mostly because they believe gold will preserve its value. And "if all else fail" (if speculators exit the gold market), prices will drop, and jewelry buyers will redirect their desire to other precious metals [2], leaving only industrial demand as buyers. Suddenly the world would be producing 10 times more gold than the demand, leaving the prices depressed. And again, Krugman completely misses the point of Bitcoin having value not as a currency, but as a payment processing platform. Overstock CEO Byrne said it beautifully: *"You’re getting rid of the interchange fees. We’re paying credit card companies around 2%. For a company whose margin is 1%, picking up 2% on that is quite attractive." [3] [1] http://www.gold.org/investment/statistics/demand_and_supply_statistics/ http://www.gold.org/investment/statistics/demand_and_supply_... [2] For the same reason people prefer expensive diamond over cheap cubic zirconia, even though both are practically indistinguishable to the naked eye. Yes they CZ is less hard, but most jewelry buyers don't care about hardness. They buy diamonds because they are expensive, that is all. [3] http://www.coindesk.com/overstock-unveils-more-details-bitcoin-adoption/ http://www.coindesk.com/overstock-unveils-more-details-bitco... [4] http://www.washingtonpost.com/blogs/the-switch/wp/2013/12/23/heres-what-paul-krugman-doesnt-get-about-bitcoin/?tid=pm_business_pop http://www.washingtonpost.com/blogs/the-switch/wp/2013/12/23...
- thaumasiotes 13y agoYour numbers are badly off. Jewelry is the use referred to when Krugman says "you can use it to make pretty things". (Gold in industrial use is generally invisible). Gold isn't used in jewelry because it's expensive. It's used because it's pretty, it's soft and workable, and it doesn't tarnish. And it's gentler to your skin; my sister's ears are too sensitive to wear cheap nickel earrings. Now, I agree with you that the statement you quote from Krugman is invalid. But there's no reason to go around interpreting him as saying something wildly different than what he said. Gold bars are a store of value. Jewelry is not.
- bjornsing 13y agoEven if he's slightly off I still think Krugman is right in identifying Bitcoin's main weakness: it's the world's "hardest" currency ever - much "harder" than gold - and that will make it very volatile, which in turn will make it difficult to use as a store of value or (independent) medium of exchange. What I mean by "hard" in this context is that its supply is constrained. If you look a fiat currency it can (and is) produced in whatever volume necessary by the central bank, in order to avoid a fall in prices. Gold has a similar (but distributed) mechanism: when the gold price goes up people mine more gold, increasing the money supply. Note that that property of gold works even if it's the primary medium of exchange: if there is too much deflation then an ounce of gold will buy you more goods and services, making it more worthwhile to mine it - which in turn increases the money supply and acts as a counterforce to price deflation. But this is obviously a flaw in the design of Bitcoin, not in crypto currencies generally. It should be possible to create one with potentially infinite supply, but where the cost of mining a coin remains relatively stable over time. Such a crypto currency would be usable as a store of value and as a (primary) medium of exchange. I'd love to see that "infinite supply crypto coin", but unfortunately I'm much less optimistic that it would become as popular as Bitcoin. It wouldn't be usable as an investment/speculation vehicle, and that's probably the main use of Bitcoin right now.
- diminoten 13y ago> Underpinning the value of gold is that if all else fails you can use it to make pretty things. Is this really why gold has value? Are you kidding me?
- mcguire 13y ago"(b) that the Federal Reserve is a potential dollar sink and has promised to buy them back and extinguish them if their real value starts to sink at (much) more than 2%/year (yes, I know)." I had not heard thing. Buy dollars back with what?
- Rogerh91 13y agoI had recently thought about this very topic, and having spent just a bit more time than Krugman on it, and knowing a bit more about bitcoin, I find it somewhat interesting that we arrived at drastically different opinions about the morality of it. I have a rather more positive (haha, pun intended) take on it given what has happened with the conventional monetary system, one that Krugman and any mainstream economist would probably agree with: the system is (largely) broken, and we must look for solutions. If Bitcoin is the technologist's experimental solution, it is worth embracing because it delivers on change. Krugman's solutions will focus more on government force as a constraining framework, instead of extensions of innovation---but I believe at the core of it all, the "libertarians" he decries are also the same people he would agree with on the utter folly of our current banking/finance dominated economy. My expanded thoughts can be read here: https://medium.com/technology-meets-policy/fd097809f88f https://medium.com/technology-meets-policy/fd097809f88f
- dgacmu 13y agoOk. Krugman actually annoyed me enough with this one to respond. Here's an attempt to start a slightly more technically sophisticated dialogue with Krugman about Bitcoin. http://da-data.blogspot.com/2013/12/to-krugman-finding-intrinsic-value-of.html http://da-data.blogspot.com/2013/12/to-krugman-finding-intri... Now if I could find one of my economist colleagues to actually get him to read it... :-)
- brownbat 13y agoKrugman and Stross base their critique on Bitcoin's libertarian appeal, as if they took the promises of a few cypherpunks as reliable predictions. Those in Krugman and Stross's "libertarianism is evil" camp should take heart that some people out there think Bitcoin is a huge win for developing economies, and will cause only incremental disruption for places like the EU or US. For the rich countries: Governments have many tools in their belt before they just lie down and accept, say, universal tax fraud, or the end of monetary policy. People interested in tax policy (sometimes very) slowly come up with good ideas to reduce fraud, like putting down the SSN of all claimed dependents (which made a lot of children disappear one year, but jumped revenues), or double reporting of W-2s. They likely wouldn't just roll over if we moved to BTC. For the poor countries: A better medium of exchange, allowing cheaper remittances, easier cross border trade, or a relatively more reliable store of value than local currency is an enormous win. There are lots of options going forward. Bitcoin could be a passing fad. Bitcoin could liberate the economically oppressed while providing little more than a nice toy for those in wealthy countries. Bitcoin could destroy monetary policy and lead to barricades of wealth while destroying the capacity of governments to benefit their most vulnerable citizens. But it's not safe to make moral approbations based on picking one of these uncertain results and assuming it is inevitable (especially, IMHO, by picking the most outlandish of the three).
- lcuff 13y agoThe title is just link bait. Very annoying.
- novalis78 13y agoWhat's quite interesting in this piece from Krugman is that for the first time I hear hime doubt his previous outright negative stance. He slips in some "clues" how he is actually "not trying to be swayed one way or the other" when everything else I have read or heard from him regarding Bitcoin was entirely negative. Maybe he is just trying to keep the door open in case Bitcoin's success will prove him similarly wrong as his funny predictation in 98 where he mentioned that "the Internet is going to disappear in 2005". Regarding the Charles Stross article, someone else had written a very good counter-piece just the other day: http://www.ofnumbers.com/2013/12/18/charles-stross-takes-on-the-bitcoin-community/ http://www.ofnumbers.com/2013/12/18/charles-stross-takes-on-...
- mikekij 13y agoIf Krugman is short bitcoin, I'm long.
- rumcajz 13y ago> [Placing a floor on the value of gold is that you can make pretty things of it.] Placing a floor on the value of bitcoins is… what, exactly? The fact that the blockchain serves as a tool for global distributed consensus. There's unlimited number of applications that can take advantage of that, irrespective of actual price of Bitcoin as a currency.
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- thedawn 13y agoCan't understand how it going to work. In my opinion the banks will kill the Bitcoin before it will really start working, I don't see how they are going to let it succeed.
- generalseven 13y agoI'm a founder of PikaPay, bringing Bitcoins to Twitter since 2011, so here's my take: One of the most interesting social & tech experiments since the Internet itself. We are witnessing a revolution. The number of nodes in the Bitcoin network makes it the most secure system of its kind. If it were used as currency, you could say technically that it was one of the most (if not the most) counterfeit-secure currencies in the world. If it were used as a medium of exchange, due to network effects alone it would be extremely valuable. I appreciate Krugman's raising the discourse even slightly above the level of "evil hackers." I don't think he realizes that the Bitcoin movement transcends politics and economics. With Bitcoin (as technology) you can actually even create a system that Krugman himself would like to use.
- jessaustin 13y agoAs is often my habit, I skimmed the voluminous commentary here before reading TFA: I've got to stop doing that. I clicked through expecting a massive paper and got four original paragraphs, along with quotes of stuff we've already seen on HN. I'll ignore the moralistic Stross material, both because that is wise and because Krugman takes pains to emphasize the positive nature of his argument. The tentpole of that is that there is no theoretical floor for the exchange value of BTC. This is roughly true, but I don't think it entails the disastrous consequences that excite so many BTC antagonists. Even if it's difficult to imagine hyperinflation of USD (although I'm not quite so confident as Krugman in the Fed's dollar sink policy: if this is not a new policy why didn't it work in the 1970s; if it is new why shouldn't we expect it to change?) we've seen hyperinflation of many other currencies, a number of which were held by more investors than currently hold BTC. If such hyperinflation was disastrous, then it was mostly for those who held the affected currency, and mostly in proportion to their holdings. No tinpot dictator has decreed the use of BTC; if you think they're overvalued then just sell them. Of course if there is eventually a giant terminal sell-off of BTC for reasons, investors might just choose some other set of cryptocoins, some of which might have an appropriately theoretical floor. Would Krugman care to opine on the positive fate of those theoretically worthier assets?
- dschiptsov 13y agoTL;DR - but when I try to get them to explain to me why BitCoin is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange. (or what a clever crypto technology it is based upon).