5 ms·

> people are hoarding them expecting increases in value. This is not a good hallmark of a currency and is a flaw that all the derivative coins fail to address.

> people are hoarding them expecting increases in value. This is not a good hallmark of a currency and is a flaw that all the derivative coins fail to address. This is the fundamental problem with all non-fiat currencies and is why the world moved off the gold standard

secabeen 13y ago
This. Currencies function well when they grow in-line with the growth in the economies they serve. When they fail to do so, people become reticent to actually use them in commerce, which increases hoarding, increasing theoretical value, but reducing actual utility.
- broolstoryco 13y ago
  could you please point me to any theories or papers that discuss this? (genuinely curious)
  - secabeen 13y ago
    There are some citations in the Disadvantages Section of the Gold Standard article on Wikipedia: http://en.wikipedia.org/wiki/Gold_standard#Disadvantages http://en.wikipedia.org/wiki/Gold_standard#Disadvantages
  - bunderbunder 13y ago
    Read up on the theory around liquidity traps. It's not a popular idea among certain schools of economists, but it is a pretty mainstream idea.
patrickmay 13y ago
It's one reason given for moving off the gold standard, and may even have been the actual reason for some to support that. The primary reason, however, was for governments to take control of the money supply and use it for political goals. Inflation is less visible than taxation.
Aqueous 13y ago
No, it's a fundamental problem with all upstart currencies that have yet to gain widespread adoption. All currencies are going to start off at $0, being worth nothing. Obviously the price can only go up as adoption occurs. So any start-up currency has a "growth phase" during which its value increases exponentially. It will never make sense to spend a start-up currency during this phase. The utility of the currency will depend on how many vendors ultimately accept it. And during the growth phase the number of vendors also increases exponentially. For the very same reason it doesn't make any sense to spend the currency during this time it makes a lot of sense to accept the currency during this time. The reason a lot of us have invested in BitCoins at this stage is that we believe the growth phase will be followed by a stable phase, where adoption has reached an equilibrium or a saturation point. It is during this phase that the coin becomes a currency which makes sense to spend, and its utility as a currency can be realized. We may be wrong; we may be right. Currencies have always been issued by governments before now, and up-start currencies have only really been possible since the advent of the Internet. Economists have never really had a chance to study a currency growing from $0 value in real time as they have had with BitCoin.
- whatevsbro 13y ago
  > All currencies are going to start off at $0, being worth nothing. That's far from guaranteed. Gold started off as a commodity, worth much more than nothing. It ended up being a means of exchange because its properties are suitable: it's highly valuable, easily divisible and durable, and other stuff I forget now. But those are the reasons it started being used as money. In fact, it's possible that nothing that will be widely used as a currency in the future will start off at zero value.
  - FeloniousHam 13y ago
    Planet Money has a great episode on why gold: http://www.npr.org/blogs/money/2011/02/07/131363098/the-tuesday-podcast-why-gold http://www.npr.org/blogs/money/2011/02/07/131363098/the-tues...
- riffraff 13y ago
  I don't see why new currencies should start at $0. Think of AWS and getting a "100 EC2 m1.large instance hours" only instead of a single voucher you get 100 amcoinz.

secabeen 13y ago

This. Currencies function well when they grow in-line with the growth in the economies they serve. When they fail to do so, people become reticent to actually use them in commerce, which increases hoarding, increasing theoretical value, but reducing actual utility.

broolstoryco 13y ago
could you please point me to any theories or papers that discuss this? (genuinely curious)
- secabeen 13y ago
  There are some citations in the Disadvantages Section of the Gold Standard article on Wikipedia: http://en.wikipedia.org/wiki/Gold_standard#Disadvantages http://en.wikipedia.org/wiki/Gold_standard#Disadvantages
- bunderbunder 13y ago
  Read up on the theory around liquidity traps. It's not a popular idea among certain schools of economists, but it is a pretty mainstream idea.

patrickmay 13y ago

It's one reason given for moving off the gold standard, and may even have been the actual reason for some to support that. The primary reason, however, was for governments to take control of the money supply and use it for political goals. Inflation is less visible than taxation.

Aqueous 13y ago

No, it's a fundamental problem with all upstart currencies that have yet to gain widespread adoption. All currencies are going to start off at $0, being worth nothing. Obviously the price can only go up as adoption occurs. So any start-up currency has a "growth phase" during which its value increases exponentially. It will never make sense to spend a start-up currency during this phase. The utility of the currency will depend on how many vendors ultimately accept it. And during the growth phase the number of vendors also increases exponentially. For the very same reason it doesn't make any sense to spend the currency during this time it makes a lot of sense to accept the currency during this time. The reason a lot of us have invested in BitCoins at this stage is that we believe the growth phase will be followed by a stable phase, where adoption has reached an equilibrium or a saturation point. It is during this phase that the coin becomes a currency which makes sense to spend, and its utility as a currency can be realized. We may be wrong; we may be right. Currencies have always been issued by governments before now, and up-start currencies have only really been possible since the advent of the Internet. Economists have never really had a chance to study a currency growing from $0 value in real time as they have had with BitCoin.

whatevsbro 13y ago
> All currencies are going to start off at $0, being worth nothing. That's far from guaranteed. Gold started off as a commodity, worth much more than nothing. It ended up being a means of exchange because its properties are suitable: it's highly valuable, easily divisible and durable, and other stuff I forget now. But those are the reasons it started being used as money. In fact, it's possible that nothing that will be widely used as a currency in the future will start off at zero value.
- FeloniousHam 13y ago
  Planet Money has a great episode on why gold: http://www.npr.org/blogs/money/2011/02/07/131363098/the-tuesday-podcast-why-gold http://www.npr.org/blogs/money/2011/02/07/131363098/the-tues...
riffraff 13y ago
I don't see why new currencies should start at $0. Think of AWS and getting a "100 EC2 m1.large instance hours" only instead of a single voucher you get 100 amcoinz.