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In Search of a Stable Electronic Currency

panarky 13y ago
I have immense respect for Shiller, but I think he got a few things wrong in this piece. The Bitcoin phenomenon seems to fit the basic definition of a speculative bubble — that is, a special kind of fad, a mania for holding an asset in expectation of its appreciation. Shiller correctly identified the housing bubble long before others did, so he has a lot of credibility here. But doesn't truly disruptive innovation exhibit a similar pattern? Whether it's Google, or Tesla, or Netflix, the "mania" to hold the asset proves to be justified as entire industries are transformed. The central problem with Bitcoin in its present form, though, is that it doesn’t really solve any sensible economic problem. The current monetary system is unfree, just like communication systems before the internet were unfree. I cannot transmit value over space and time, across borders, to anyone, for arbitrarily small or large amounts, at nearly zero cost. That seems like a "sensible economic problem" that needs a solution. Despite its flaws, Bitcoin does a pretty good job solving these problems today, and future generations of cryptocurrency will only get better. I don't argue that cryptocurrencies can or should replace government currencies, but they clearly accomplish something valuable. After all, if cryptocurrencies had zero utility, why would so much talent be devoted to stealing them?
- pron 13y ago
  > I don't argue that cryptocurrencies can or should replace government currencies, but they clearly accomplish something valuable. They might, but I wouldn't say it's "clear" just yet. The only clearly valuable thing Bitcoin accomplishes now is the facilitation of illegal trade online. Valuable – certainly, but a new technology whose crowning achievement so far is facilitating crime has a big PR problem. And that's not Bitcoin's only PR problem. Its association with wingnut (hacker-)libertarianism is another ball and chain, which gives Bitcoin the good old Glen Beck treatment. I think Bitcoin adopters should market it as a terrific way to spend small amounts of cash online. Unfortunately, Bitcoin's volatility doesn't help to make this case, so that is probably the first thing that should be addressed. Bitcoin supporters should understand one thing: uncontrolled volatility, even when it's pointing up, perhaps especially when it's pointing up, isn't a good sign. Every currency is based on one thing – trust – and if Bitcoin is ever to become a currency, it should loudly declare that it's in the hands of responsible people; not criminals, speculators and wingnuts.
  - lukifer 13y ago
    > The only clearly valuable thing Bitcoin accomplishes now is the facilitation of illegal trade online. How do you figure? Being able to send money across the world for next to nothing (compare to credit card fees, not to mention the higher prices of Western Union or hawala) has immense value. Charitable organizations have already raised large sums using crypto-coins. You are correct about volatility. It makes more sense right now to treat as a highly fungible asset than a currency; it will be interesting to see if it can self-stabilize without any central organization.
    - pron 13y ago
      Bitcoin's role as a large-sum money-transfer mechanism for legitimate purposes hinges on availability of immediate exchange at each end of the transaction (immediate because of the volatility). Bitcoin exchanges aren't getting the best PR lately, either. I don't think responsible organizations would allow the use of Bitcoin as a transfer medium in the current chaos just to save some money. So this utility, I claim, is more theoretical at this moment. In any event, the volume of such transactions by established, lawful, and respected organizations is probably too limited to be categorized as clear value just yet.
    - betterunix 13y ago
      "Being able to send money across the world for next to nothing (compare to credit card fees, not to mention the higher prices of Western Union or hawala) has immense value." This is likely to end as Bitcoin exchanges discover the cost of compliance.
      - lukifer 13y ago
        The cost of compliance is a serious issue, true. I would hope that at least some states recognize the value in letting the experiment play out without interference, as with the early days of the internet, but with real money on the line it's harder to dismiss as a mere toy. However, I wouldn't neglect the "gray market" use cases of Bitcoin: things that happen outside the law, but are not as nefarious or blatantly illegal as Silk Road. Immigrants sending money home to their families, secondary savings accounts for those in countries with unstable currencies, etc.

I have immense respect for Shiller, but I think he got a few things wrong in this piece. The Bitcoin phenomenon seems to fit the basic definition of a speculative bubble — that is, a special kind of fad, a mania for holding an asset in expectation of its appreciation. Shiller correctly identified the housing bubble long before others did, so he has a lot of credibility here. But doesn't truly disruptive innovation exhibit a similar pattern? Whether it's Google, or Tesla, or Netflix, the "mania" to hold the asset proves to be justified as entire industries are transformed. The central problem with Bitcoin in its present form, though, is that it doesn’t really solve any sensible economic problem. The current monetary system is unfree, just like communication systems before the internet were unfree. I cannot transmit value over space and time, across borders, to anyone, for arbitrarily small or large amounts, at nearly zero cost. That seems like a "sensible economic problem" that needs a solution. Despite its flaws, Bitcoin does a pretty good job solving these problems today, and future generations of cryptocurrency will only get better. I don't argue that cryptocurrencies can or should replace government currencies, but they clearly accomplish something valuable. After all, if cryptocurrencies had zero utility, why would so much talent be devoted to stealing them?

pron 13y ago
> I don't argue that cryptocurrencies can or should replace government currencies, but they clearly accomplish something valuable. They might, but I wouldn't say it's "clear" just yet. The only clearly valuable thing Bitcoin accomplishes now is the facilitation of illegal trade online. Valuable – certainly, but a new technology whose crowning achievement so far is facilitating crime has a big PR problem. And that's not Bitcoin's only PR problem. Its association with wingnut (hacker-)libertarianism is another ball and chain, which gives Bitcoin the good old Glen Beck treatment. I think Bitcoin adopters should market it as a terrific way to spend small amounts of cash online. Unfortunately, Bitcoin's volatility doesn't help to make this case, so that is probably the first thing that should be addressed. Bitcoin supporters should understand one thing: uncontrolled volatility, even when it's pointing up, perhaps especially when it's pointing up, isn't a good sign. Every currency is based on one thing – trust – and if Bitcoin is ever to become a currency, it should loudly declare that it's in the hands of responsible people; not criminals, speculators and wingnuts.
- lukifer 13y ago
  > The only clearly valuable thing Bitcoin accomplishes now is the facilitation of illegal trade online. How do you figure? Being able to send money across the world for next to nothing (compare to credit card fees, not to mention the higher prices of Western Union or hawala) has immense value. Charitable organizations have already raised large sums using crypto-coins. You are correct about volatility. It makes more sense right now to treat as a highly fungible asset than a currency; it will be interesting to see if it can self-stabilize without any central organization.
  - pron 13y ago
    Bitcoin's role as a large-sum money-transfer mechanism for legitimate purposes hinges on availability of immediate exchange at each end of the transaction (immediate because of the volatility). Bitcoin exchanges aren't getting the best PR lately, either. I don't think responsible organizations would allow the use of Bitcoin as a transfer medium in the current chaos just to save some money. So this utility, I claim, is more theoretical at this moment. In any event, the volume of such transactions by established, lawful, and respected organizations is probably too limited to be categorized as clear value just yet.
  - betterunix 13y ago
    "Being able to send money across the world for next to nothing (compare to credit card fees, not to mention the higher prices of Western Union or hawala) has immense value." This is likely to end as Bitcoin exchanges discover the cost of compliance.
    - lukifer 13y ago
      The cost of compliance is a serious issue, true. I would hope that at least some states recognize the value in letting the experiment play out without interference, as with the early days of the internet, but with real money on the line it's harder to dismiss as a mere toy. However, I wouldn't neglect the "gray market" use cases of Bitcoin: things that happen outside the law, but are not as nefarious or blatantly illegal as Silk Road. Immigrants sending money home to their families, secondary savings accounts for those in countries with unstable currencies, etc.