6 ms·

The Bitcoin Economics lesson for Engineers

63 points by rogueeconomist 13y ago

dwaltrip 13y ago
It's pretty funny how she uses E-gold as an example, which failed due to forcible dismantling by the government. Hint: Bitcoin was created for the sole purpose of avoiding problems of that nature. As for the rest of the article, not much content and many unsupported assertions. It would have been nice to hear why bitcoin is completely value-less, beyond not being "goverment backed". But I suppose that discussion would involve actually understanding bitcoin.
adamnemecek 13y ago
What a self-promotional garbage. Why was this not written when Bitcoin was valued at $1000?
- borplk 13y ago
  Next time it reaches $1000 she will come out with a shiny new article about how fabulous bitcoin is
bachback 13y ago
why the upvotes? but I'm sure the author is an expert in Elliptic Curve Cryptography and understands the subtleties of hierarchical deterministic wallets.
- Fuxy 13y ago
  Because we want everybody to see just how clueless she really is.
VMG 13y ago
Quote from the article: Bitcoin mining is not valuable for anything other than creating Bitcoins. Bitcoin is possibly the most valueless asset in history. If people no longer wish to hold or accept Bitcoin, the value will be exactly zero since it has no inherent value, making it an extremely fragile asset. Therein lies the trouble with taking lessons from economists who don't think it through. Also previously: * http://www.wired.com/magazine/2011/11/mf_bitcoin/ http://www.wired.com/magazine/2011/11/mf_bitcoin/ * http://www.forbes.com/sites/timworstall/2011/06/20/so-thats-the-end-of-bitcoin-then/ http://www.forbes.com/sites/timworstall/2011/06/20/so-thats-... * http://money.cnn.com/2013/04/12/investing/bitcoin-bubble/ http://money.cnn.com/2013/04/12/investing/bitcoin-bubble/ Don't get your hopes up just yet.
JumpCrisscross 13y ago
>Bitcoin is possibly the most valueless asset in history. If people no longer wish to hold or accept Bitcoin, the value will be exactly zero since it has no inherent value, making it an extremely fragile asset. Stock in a shell company also has zero inherent value. This is simply a localised critique of the "most valueless asset" accusation - many assets share that characteristic.
- terranstyler 13y ago
  And then there is fiat money, the elephant in the room of valueless things.
  - JumpCrisscross 13y ago
    Bitcoin is a fiat currency - it has no intrinsic value. Government-backed fiat has some intrinsic value - it can cancel tax obligations and thereby has a captive source of demand (taxpayers). But practically speaking, yes, most of any fiat currency's value is in its seignorage, not tax-cancelling intrinsic value.
    - interstitial 13y ago
      You don't know what fiat actually means. Fiat means, in a short and sweet manner, the government can force you to use it. No one can make you use bitcoin. If they do it is called 'blackmail'.
      - quesera 13y ago
        > Fiat means, in a short and sweet manner, the government can force you to use it. Fiat, both from the original Latin, and in practice, means "it shall be". In the case of money, it means that the token has no intrinsic value, and is not directly convertible into a backing resource with value. Its only value is that given to it by decree of the issuer. There is no component of government compulsion in the definition. In practice, some fiat monies are the only accepted legal tender currencies for some purposes (e.g. taxes) but it is not a requirement. A successful fiat currency implies that there is acceptance among users in its fiat value, and some of the most historically effective ways to get people to go along with your assertions boil down to making ultimatums backed up with sharp sticks.
terranstyler 13y ago
The lesson is: If you don't understand anything about something but need to opine, put the words "lesson" and "engineer" in the head to fake your understanding.
Fuxy 13y ago
She doesn't get it bitcoin will never reach 0 there will always be people buying and selling bitcoin just as there's customers for even the crappiest websites. Not to mention it's already reached critical mass which means it will never go away and the advantages outweigh the risks. Now will this hurt bitcoin? Yes. Is this a good thing in the long run? Definitely. It's always a bad thing when 70% of all speculation is done on one platform and that platform closes down. I'm somewhat glad mtgox was allowed to fail that juts proves that the awful too big to fail mentality of the US did not corrupt the bitcoin marketplace. This is a good thing in the long run even if it's going to hurt like hell in the short run.
- NateDad 13y ago
  Mt Gox was like the #3 exchange, not number 1 for some time, and definitely not 70%. They'd been having problems for a long long time, which is why a lost of people didn't want to go there anymore. They had name recognition, but it was nearly impossible to get cash out.
  - Fuxy 13y ago
    That's what I've been reading in the media anyway and i couldn't be bothered to check the numbers. I tried using them once and they were asking to many unnecessary questions so i just went elsewhere.
joosters 13y ago
"You might as well flush your money down the toilet by investing in the Egyptian pound." Does the author have some insider information on Egyptian currency trading? I hope they are putting their money where their mouth is by selling EGP on the foreign exchanges! Or in other words, the author opens this article by spouting speculative bullshit. Why then should we treat the rest of it as useful?
- drstrangevibes 13y ago
  exactly and therein lies the contradiction , here he says bitcoin is as valueless as fiat a particular fiat currency, and then later he goes on to say that fiat currency is much more valuable
vijucat 13y ago
The core argument surrounding Bitcoin can be brought to focus by asking the question : "Would you rather trust a government or a mathematical algorithm?". Of course, crypocurrencies are not just algorithms, they're more like algorithms + protocols, but still, that's a great question to ask at a gathering (of like-minded people); it generates some very interesting discussion. My personal take is that : there are two kinds of people. Some need a Central authority. (They probably respect and believed everything uttered by their parents and teachers as children, too. I'd LOVE it if someone did a psychological study of such correlations in personal beliefs.) Others are suspicious of the utility of government. One need not be a full-blown anarcho-capitalist or whatever the well-read cool kids call it; it's just that the 2008 financial crisis has left a deeply unsettling feeling about whether governments are serving the common man. Such people would rather trust a computer science researcher's invention. I'm definitely in the 2nd camp. I think the lack of central authority is what type 1 people find unsettling and unbelievable about Bitcoin. What the world needs is a "Cartoon guide to cryptocurrencies" book or video.
- k-mcgrady 13y ago
  >> ""Would you rather trust a government or a mathematical algorithm?"." Most people can understand government fiscal policy (to a useful extent anyway). Very few can understand an algorithm even when it's explained to them. They vote in the government and currency in it's current form (e.g. USD) has worked for generations. Trusting the government seems much safer. Also with Bitcoin you are trusting more than an algorithm. You're trusting exchanges. You're trusting in the security of a digital system that can be hacked and you don't understand how to secure properly. With physical currency security is simple and understandable. With digital currency it's not.
  - ben0x539 13y ago
    When a government fucks up, you can vote to change it or sue them. When the algorithm eats your savings, there's no recourse. I'll put my trust with the concept that isn't claimed to be infallible here.
    - 13y ago
glimmung 13y ago
This is just silly - here we have someone lecturing us about economics who describes herself as a "Rogue Economist" - so are we expected to buy this analysis because she is an orthodox economist (which is how it reads), or because she is a "rogue economist"? More significantly, the line "While we may dislike the government’s regulation and intervention into financial markets, their oversight prevents moral hazard and rampant fraud." is just laugh-out-loud funny - we've seen PLENTY of moral hazard and rampant fraud in orthodox financial markets, on a scale which is simply mind-boggling in comparison to anything happening at Mt.Gox.
- interstitial 13y ago
  Clearly, it's a new paradigm. It's different this time.
- red12ooster 13y ago
  Here here! I also didn't like her cheesy stock images in the article.
yummyfajitas 13y ago
Did the 18 people who upvoted this crap not even notice the glaring factual errors? ...the efficient market hypothesis (that free markets will regulate themselves)... Fiat currencies (money) are pegged to real assets... ...it is as vulnerable to financial crises as any deregulated financial market... US subprime mortgage market, bubbles follow the same patterns for growth and implosion. Most amusing is the idea that unlike USD, BTC has no protection against fraud. The same is true for most "regulated" transactions, credit card payments being a notable exception.
- NateDad 13y ago
  My guess is, half the people voted it up for pure schadenfreude, and the other half voted it up so they could talk smack back to her :)
  - williamcotton 13y ago
    Laughing at someone's misery is called schadenfreude. Laughing at someone's tragic folly is called comedy. Not knowing the difference between misery and folly is fucking hilarious.
    - NateDad 13y ago
      Folly and misery go hand in hand, would you not agree? I don't see why you appear to think they are mutually exclusive. I'd respond with more venom about your tone, but I hate feeding trolls.
grovulent 13y ago
The tone of condescension that comes from professional economists is telling. It's impossible for them to just present their arguments, cleanly, simply and without ostentation and vitriol. They have to try to make you feel stupid for disagreeing with them. When you don't have a sound scientific basis for your discipline, you need something to step in to fill the void - in order to make other humans believe in your worth. Economists use their enormous egos, as well as the frailties inherent in the egos of others. Heather R Morgan has not written an article which rises above the flaws of her discipline. It starts with a jibe - oh, you invested in bitcoin, why not flush it down the toilet - that's HOW STUPID YOU WOULD BE... Engineers and hackers don't have to worry about whether or not their discipline makes a genuine contribution. They have proved themselves time and time again. They build a product - ship it - and if it fails, they start working on the next idea. They don't have to worry about fighting over 'theories' with academics who desperately claw at one another for those disappearing tenure tracks. As we who have spruiked for bitcoin have always said: "This is an experiment that might fail." Heather might want to consider switching to a discipline in which experiments are even possible...
- lclarkmichalek 13y ago
  You haven't commented on the content of the article at all. I know attacking the tone is easy, but it's hardly constructive.
  - jpttsn 13y ago
    Grandparent has a valid point about the article's tone, and attacking tone can be constructive.
  - grovulent 13y ago
    Well - I think it's important to address the tone. I was going to say more about the substantive argument - but didn't because I didn't want to write a wall of text. Also, I just see the argument as a very uncritical regurgitation of the intrinsic value argument against bitcoin and I've personally grown weary trying to encourage a greater level of depth to that discussion. If you are interested - I've written at (great) length my thoughts about this argument here: http://reviewsindepth.com/2013/12/bitcoin-krugman-and-the-mere-agreement-of-value/ http://reviewsindepth.com/2013/12/bitcoin-krugman-and-the-me...
facepalm 13y ago
Complete bullshit. If my computer gets hacked, my bank passwords will also be stolen and my money is in danger. Banks have also gone bust before. I don't know what the eventual value of Bitcoin will be, but this economist doesn't, either...
- drstrangevibes 13y ago
  getting cash stolen is even worse
jbb555 13y ago
One reason the value should rise faster than this is that there are a limited amount of bitcoin in circulation. (That is, not help as long term assets). And the number needed for day to day transations is growing very quickly. So it's likely the price to acquire those needed for day to day transactions will also grown fairly rapidly.
weavejester 13y ago
This article has very little intelligent to say. There are plenty of legitimate criticisms against Bitcoin, but I really thought we were past the stage when economists with little or no understanding of Bitcoin attempt to weigh in on the subject.
quarterto 13y ago
Bitcoin mining is not valuable for anything other than creating Bitcoins Bitcoin mining ensures the validity of the blockchain. Bitcoin is valuable as the unit of account by which things can be entered into the blockchain. Good luck trying to convince people that a distributed, consistent transaction ledger has no value.
- NateDad 13y ago
  By the same token, what value does gold mining have beyond "creating" gold?
  - graeham 13y ago
    Gold has value and use aside from as a currency.
    - NateDad 13y ago
      It has some very niche uses, but they're incredibly limited and would not put gold's value at even 0.1% of its current value. The bitcoin protocol has quite a lot of potential uses (see master coin and colored coins), even if actual bitcoins were worth nothing monetarily.
  - XorNot 13y ago
    A Bitcoin is not anything useful by itself. You can't melt that hash down and plate electronics with it. But you have hit on an important point, because throughout history almost every empire bankrupted itself at one point or another when it made a big find of gold, and quickly mined and spent a lot of it presuming it was rich...and instead, tanked its currency valuations and found itself much worse off because not only had they inflated the hell out of their currency, they'd not adjusted any of their tax rates to match.
- mkempe 13y ago
  Further, if or when Bitcoin transactions with scripted contracts become commonplace, mining would support the long-term existence and enforcement of such contracts.
NateDad 13y ago
"Oh you silly engineers and your bit of coins, let me econ'splain how dumb you were." Madam, there is nothing in your article that any of the engineers who were (and are) so excited by bitcoin didn't already know long before you'd even heard of bitcoin.
lesingerouge 13y ago
On-topic: I remember my undergrad course in macroeconomics. It was a total and utter mess. Just tons and tons of theories and formulas that could not be demonstrated, but had to be memorized. Most macro-economists suffer greatly from the lack of a "credible" scientific base for their studies. Hence the article, a generous serving of all possible stereotypes that macro-economy can give. BUT, I also remember microeconomics, and that was a totally different story. Most useful when thinking about markets and how people behave, but interesting if applied to greater scales (macro-micro-economics?). Off-topic, but considered interesting: Am I the only one that finds it frustrating that Subtle blogs have no local comments? I find it diminishes the value of the text in itself.
deleted 13y ago
[deleted]
rjtavares 13y ago
In the article, an economist assumes engineers have no knowledge about economics. In return, Hacker News assumes economists have no knowledge. And this comment assumes everybody in Hacker News thinks the same way about economists. Assumptions...
deleted 13y ago
[deleted]
- dnautics 13y ago
  actually strictly speaking the value of gold was that it was yellow (and pretty much only that) because its yellowness meant that verification of its purity was easy.
- mikekekeke 13y ago
  I agree with you, but I don't know why you bothered. Articles like this just aren't worth responding to anymore. They probably never were.
Patient0 13y ago
"As people watch asset prices rise and people make money herding mentality kicks in and many people jump on the bandwagon with hopes of grabbing some of the riches." A few too many mixed metaphors in this article! I'm trying to imagine herds of people jumping on a bandwagon... What is a bandwagon anyway, I realise now I've never known - it's only ever used in the phrase/cliche "jumping on the bandwagon".
Thiz 13y ago
The article is bullshit. Here are the real three lessons we have learned the hard way. #1 My money stays in my wallet. All the time. #2 If not possible #1, know the names of those who keep your money, you're trusting them, they should be held accountable and strongly punished by law to set a precedent. Do not trust your money to a faceless business. #3 Cryptomoney is the future, spend more in research, protect wallets, methods to test solvency, public audits, webs of trust, etc. This tragically had to happen so we could learn these lessons. Monetary darwinism at its best. We will raise from the ashes stronger, Spartans.
threepipeproblm 13y ago
To me, it seems like this article merely repeats Keynsian axioms without bothering to argue for them. Not, in my experience, the way engineers like to be talked to.
stefan_kendall 13y ago
"Fiat currencies (money) are pegged to real assets and backed by governments, which give their valuation credibility." LOL. "Pegged to real assets." Hilarious! It's like this author has literally no understanding of "value".

It's pretty funny how she uses E-gold as an example, which failed due to forcible dismantling by the government. Hint: Bitcoin was created for the sole purpose of avoiding problems of that nature. As for the rest of the article, not much content and many unsupported assertions. It would have been nice to hear why bitcoin is completely value-less, beyond not being "goverment backed". But I suppose that discussion would involve actually understanding bitcoin.

adamnemecek 13y ago

What a self-promotional garbage. Why was this not written when Bitcoin was valued at $1000?

borplk 13y ago
Next time it reaches $1000 she will come out with a shiny new article about how fabulous bitcoin is

bachback 13y ago

why the upvotes? but I'm sure the author is an expert in Elliptic Curve Cryptography and understands the subtleties of hierarchical deterministic wallets.

Fuxy 13y ago
Because we want everybody to see just how clueless she really is.

VMG 13y ago

Quote from the article: Bitcoin mining is not valuable for anything other than creating Bitcoins. Bitcoin is possibly the most valueless asset in history. If people no longer wish to hold or accept Bitcoin, the value will be exactly zero since it has no inherent value, making it an extremely fragile asset. Therein lies the trouble with taking lessons from economists who don't think it through. Also previously: * http://www.wired.com/magazine/2011/11/mf_bitcoin/ http://www.wired.com/magazine/2011/11/mf_bitcoin/ * http://www.forbes.com/sites/timworstall/2011/06/20/so-thats-the-end-of-bitcoin-then/ http://www.forbes.com/sites/timworstall/2011/06/20/so-thats-... * http://money.cnn.com/2013/04/12/investing/bitcoin-bubble/ http://money.cnn.com/2013/04/12/investing/bitcoin-bubble/ Don't get your hopes up just yet.

JumpCrisscross 13y ago

>Bitcoin is possibly the most valueless asset in history. If people no longer wish to hold or accept Bitcoin, the value will be exactly zero since it has no inherent value, making it an extremely fragile asset. Stock in a shell company also has zero inherent value. This is simply a localised critique of the "most valueless asset" accusation - many assets share that characteristic.

terranstyler 13y ago
And then there is fiat money, the elephant in the room of valueless things.
- JumpCrisscross 13y ago
  Bitcoin is a fiat currency - it has no intrinsic value. Government-backed fiat has some intrinsic value - it can cancel tax obligations and thereby has a captive source of demand (taxpayers). But practically speaking, yes, most of any fiat currency's value is in its seignorage, not tax-cancelling intrinsic value.
  - interstitial 13y ago
    You don't know what fiat actually means. Fiat means, in a short and sweet manner, the government can force you to use it. No one can make you use bitcoin. If they do it is called 'blackmail'.
    - quesera 13y ago
      > Fiat means, in a short and sweet manner, the government can force you to use it. Fiat, both from the original Latin, and in practice, means "it shall be". In the case of money, it means that the token has no intrinsic value, and is not directly convertible into a backing resource with value. Its only value is that given to it by decree of the issuer. There is no component of government compulsion in the definition. In practice, some fiat monies are the only accepted legal tender currencies for some purposes (e.g. taxes) but it is not a requirement. A successful fiat currency implies that there is acceptance among users in its fiat value, and some of the most historically effective ways to get people to go along with your assertions boil down to making ultimatums backed up with sharp sticks.

terranstyler 13y ago

The lesson is: If you don't understand anything about something but need to opine, put the words "lesson" and "engineer" in the head to fake your understanding.

Fuxy 13y ago

She doesn't get it bitcoin will never reach 0 there will always be people buying and selling bitcoin just as there's customers for even the crappiest websites. Not to mention it's already reached critical mass which means it will never go away and the advantages outweigh the risks. Now will this hurt bitcoin? Yes. Is this a good thing in the long run? Definitely. It's always a bad thing when 70% of all speculation is done on one platform and that platform closes down. I'm somewhat glad mtgox was allowed to fail that juts proves that the awful too big to fail mentality of the US did not corrupt the bitcoin marketplace. This is a good thing in the long run even if it's going to hurt like hell in the short run.

NateDad 13y ago
Mt Gox was like the #3 exchange, not number 1 for some time, and definitely not 70%. They'd been having problems for a long long time, which is why a lost of people didn't want to go there anymore. They had name recognition, but it was nearly impossible to get cash out.
- Fuxy 13y ago
  That's what I've been reading in the media anyway and i couldn't be bothered to check the numbers. I tried using them once and they were asking to many unnecessary questions so i just went elsewhere.

joosters 13y ago

"You might as well flush your money down the toilet by investing in the Egyptian pound." Does the author have some insider information on Egyptian currency trading? I hope they are putting their money where their mouth is by selling EGP on the foreign exchanges! Or in other words, the author opens this article by spouting speculative bullshit. Why then should we treat the rest of it as useful?

drstrangevibes 13y ago
exactly and therein lies the contradiction , here he says bitcoin is as valueless as fiat a particular fiat currency, and then later he goes on to say that fiat currency is much more valuable

vijucat 13y ago

The core argument surrounding Bitcoin can be brought to focus by asking the question : "Would you rather trust a government or a mathematical algorithm?". Of course, crypocurrencies are not just algorithms, they're more like algorithms + protocols, but still, that's a great question to ask at a gathering (of like-minded people); it generates some very interesting discussion. My personal take is that : there are two kinds of people. Some need a Central authority. (They probably respect and believed everything uttered by their parents and teachers as children, too. I'd LOVE it if someone did a psychological study of such correlations in personal beliefs.) Others are suspicious of the utility of government. One need not be a full-blown anarcho-capitalist or whatever the well-read cool kids call it; it's just that the 2008 financial crisis has left a deeply unsettling feeling about whether governments are serving the common man. Such people would rather trust a computer science researcher's invention. I'm definitely in the 2nd camp. I think the lack of central authority is what type 1 people find unsettling and unbelievable about Bitcoin. What the world needs is a "Cartoon guide to cryptocurrencies" book or video.

k-mcgrady 13y ago
>> ""Would you rather trust a government or a mathematical algorithm?"." Most people can understand government fiscal policy (to a useful extent anyway). Very few can understand an algorithm even when it's explained to them. They vote in the government and currency in it's current form (e.g. USD) has worked for generations. Trusting the government seems much safer. Also with Bitcoin you are trusting more than an algorithm. You're trusting exchanges. You're trusting in the security of a digital system that can be hacked and you don't understand how to secure properly. With physical currency security is simple and understandable. With digital currency it's not.
- ben0x539 13y ago
  When a government fucks up, you can vote to change it or sue them. When the algorithm eats your savings, there's no recourse. I'll put my trust with the concept that isn't claimed to be infallible here.
  - 13y ago

glimmung 13y ago

This is just silly - here we have someone lecturing us about economics who describes herself as a "Rogue Economist" - so are we expected to buy this analysis because she is an orthodox economist (which is how it reads), or because she is a "rogue economist"? More significantly, the line "While we may dislike the government’s regulation and intervention into financial markets, their oversight prevents moral hazard and rampant fraud." is just laugh-out-loud funny - we've seen PLENTY of moral hazard and rampant fraud in orthodox financial markets, on a scale which is simply mind-boggling in comparison to anything happening at Mt.Gox.

interstitial 13y ago
Clearly, it's a new paradigm. It's different this time.
red12ooster 13y ago
Here here! I also didn't like her cheesy stock images in the article.

yummyfajitas 13y ago

Did the 18 people who upvoted this crap not even notice the glaring factual errors? ...the efficient market hypothesis (that free markets will regulate themselves)... Fiat currencies (money) are pegged to real assets... ...it is as vulnerable to financial crises as any deregulated financial market... US subprime mortgage market, bubbles follow the same patterns for growth and implosion. Most amusing is the idea that unlike USD, BTC has no protection against fraud. The same is true for most "regulated" transactions, credit card payments being a notable exception.

NateDad 13y ago
My guess is, half the people voted it up for pure schadenfreude, and the other half voted it up so they could talk smack back to her :)
- williamcotton 13y ago
  Laughing at someone's misery is called schadenfreude. Laughing at someone's tragic folly is called comedy. Not knowing the difference between misery and folly is fucking hilarious.
  - NateDad 13y ago
    Folly and misery go hand in hand, would you not agree? I don't see why you appear to think they are mutually exclusive. I'd respond with more venom about your tone, but I hate feeding trolls.

grovulent 13y ago

The tone of condescension that comes from professional economists is telling. It's impossible for them to just present their arguments, cleanly, simply and without ostentation and vitriol. They have to try to make you feel stupid for disagreeing with them. When you don't have a sound scientific basis for your discipline, you need something to step in to fill the void - in order to make other humans believe in your worth. Economists use their enormous egos, as well as the frailties inherent in the egos of others. Heather R Morgan has not written an article which rises above the flaws of her discipline. It starts with a jibe - oh, you invested in bitcoin, why not flush it down the toilet - that's HOW STUPID YOU WOULD BE... Engineers and hackers don't have to worry about whether or not their discipline makes a genuine contribution. They have proved themselves time and time again. They build a product - ship it - and if it fails, they start working on the next idea. They don't have to worry about fighting over 'theories' with academics who desperately claw at one another for those disappearing tenure tracks. As we who have spruiked for bitcoin have always said: "This is an experiment that might fail." Heather might want to consider switching to a discipline in which experiments are even possible...

lclarkmichalek 13y ago
You haven't commented on the content of the article at all. I know attacking the tone is easy, but it's hardly constructive.
- jpttsn 13y ago
  Grandparent has a valid point about the article's tone, and attacking tone can be constructive.
- grovulent 13y ago
  Well - I think it's important to address the tone. I was going to say more about the substantive argument - but didn't because I didn't want to write a wall of text. Also, I just see the argument as a very uncritical regurgitation of the intrinsic value argument against bitcoin and I've personally grown weary trying to encourage a greater level of depth to that discussion. If you are interested - I've written at (great) length my thoughts about this argument here: http://reviewsindepth.com/2013/12/bitcoin-krugman-and-the-mere-agreement-of-value/ http://reviewsindepth.com/2013/12/bitcoin-krugman-and-the-me...

facepalm 13y ago

Complete bullshit. If my computer gets hacked, my bank passwords will also be stolen and my money is in danger. Banks have also gone bust before. I don't know what the eventual value of Bitcoin will be, but this economist doesn't, either...

drstrangevibes 13y ago
getting cash stolen is even worse

jbb555 13y ago

One reason the value should rise faster than this is that there are a limited amount of bitcoin in circulation. (That is, not help as long term assets). And the number needed for day to day transations is growing very quickly. So it's likely the price to acquire those needed for day to day transactions will also grown fairly rapidly.

weavejester 13y ago

This article has very little intelligent to say. There are plenty of legitimate criticisms against Bitcoin, but I really thought we were past the stage when economists with little or no understanding of Bitcoin attempt to weigh in on the subject.

quarterto 13y ago

Bitcoin mining is not valuable for anything other than creating Bitcoins Bitcoin mining ensures the validity of the blockchain. Bitcoin is valuable as the unit of account by which things can be entered into the blockchain. Good luck trying to convince people that a distributed, consistent transaction ledger has no value.

NateDad 13y ago
By the same token, what value does gold mining have beyond "creating" gold?
- graeham 13y ago
  Gold has value and use aside from as a currency.
  - NateDad 13y ago
    It has some very niche uses, but they're incredibly limited and would not put gold's value at even 0.1% of its current value. The bitcoin protocol has quite a lot of potential uses (see master coin and colored coins), even if actual bitcoins were worth nothing monetarily.
- XorNot 13y ago
  A Bitcoin is not anything useful by itself. You can't melt that hash down and plate electronics with it. But you have hit on an important point, because throughout history almost every empire bankrupted itself at one point or another when it made a big find of gold, and quickly mined and spent a lot of it presuming it was rich...and instead, tanked its currency valuations and found itself much worse off because not only had they inflated the hell out of their currency, they'd not adjusted any of their tax rates to match.
mkempe 13y ago
Further, if or when Bitcoin transactions with scripted contracts become commonplace, mining would support the long-term existence and enforcement of such contracts.

NateDad 13y ago

"Oh you silly engineers and your bit of coins, let me econ'splain how dumb you were." Madam, there is nothing in your article that any of the engineers who were (and are) so excited by bitcoin didn't already know long before you'd even heard of bitcoin.

lesingerouge 13y ago

On-topic: I remember my undergrad course in macroeconomics. It was a total and utter mess. Just tons and tons of theories and formulas that could not be demonstrated, but had to be memorized. Most macro-economists suffer greatly from the lack of a "credible" scientific base for their studies. Hence the article, a generous serving of all possible stereotypes that macro-economy can give. BUT, I also remember microeconomics, and that was a totally different story. Most useful when thinking about markets and how people behave, but interesting if applied to greater scales (macro-micro-economics?). Off-topic, but considered interesting: Am I the only one that finds it frustrating that Subtle blogs have no local comments? I find it diminishes the value of the text in itself.

deleted 13y ago

[deleted]

rjtavares 13y ago

In the article, an economist assumes engineers have no knowledge about economics. In return, Hacker News assumes economists have no knowledge. And this comment assumes everybody in Hacker News thinks the same way about economists. Assumptions...

deleted 13y ago

[deleted]

dnautics 13y ago
actually strictly speaking the value of gold was that it was yellow (and pretty much only that) because its yellowness meant that verification of its purity was easy.
mikekekeke 13y ago
I agree with you, but I don't know why you bothered. Articles like this just aren't worth responding to anymore. They probably never were.

Patient0 13y ago

"As people watch asset prices rise and people make money herding mentality kicks in and many people jump on the bandwagon with hopes of grabbing some of the riches." A few too many mixed metaphors in this article! I'm trying to imagine herds of people jumping on a bandwagon... What is a bandwagon anyway, I realise now I've never known - it's only ever used in the phrase/cliche "jumping on the bandwagon".

Thiz 13y ago

The article is bullshit. Here are the real three lessons we have learned the hard way. #1 My money stays in my wallet. All the time. #2 If not possible #1, know the names of those who keep your money, you're trusting them, they should be held accountable and strongly punished by law to set a precedent. Do not trust your money to a faceless business. #3 Cryptomoney is the future, spend more in research, protect wallets, methods to test solvency, public audits, webs of trust, etc. This tragically had to happen so we could learn these lessons. Monetary darwinism at its best. We will raise from the ashes stronger, Spartans.

threepipeproblm 13y ago

To me, it seems like this article merely repeats Keynsian axioms without bothering to argue for them. Not, in my experience, the way engineers like to be talked to.

stefan_kendall 13y ago

"Fiat currencies (money) are pegged to real assets and backed by governments, which give their valuation credibility." LOL. "Pegged to real assets." Hilarious! It's like this author has literally no understanding of "value".