I don't find this argument persuasive. If the currency is liquid, you can simply spend the new currency rather than the old, while using the old currency you would have otherwise spent to acquire the new currency. The spending will have negligible impact on your investment outcomes, and you'll be supporting the currency that you're investing in.
That's a pretty big if. Also, currency is liquid nearly by definition, and bitcoin in relation to other currencies has demonstrated many properties that make it practically very illiquid (e.g. the uncertainty of day-to-day price changes).
The argument is basically an example of Gresham's law, which is used to explain why value-backed currency often loses out to fiat currency. IMO this doesn't apply to cryptocurrency because Gresham's law was formulated in contexts with lower liquidity and no electronic transmission.
Bitcoin is only hyperdeflationary because it's being pumped, to my mind. It's mostly used as an investment and speculation tool, not as a currency, that is, not for paying for goods and services.
It's not (yet) "digital gold", but rather "digital tulips" [1].
Agree. BTC is now a speculative tool similar to gold. If you want something that is more like a currency then bitcoin cash is better. The fees are like one penny.
Also I don't think the deflationary is an issue because of how fast crypto can change hands. For example, I go to buy a t-shirt for $10 and I pay the merchant $10 equivalent in bitcoin cash. The transaction confirms in 10 minutes or less and the merchant can send the crypto to an exchange to immediately convert it to fiat or any other crypto of their choice. Also most likely in the future, merchants will use some sort of centralized payment processor so when the buyer pays and the transaction confirms the seller immediately gets fiat cash instead of crypto, assuming they want fiat of course.
So the whole idea that crypto doesn't work as a currency is mostly a moot point IMO. Most people are thinking about that issue from a macroeconomic perspective as in if one crypto was used as the official currency. The days of that is coming to an end IMO. The future is going to be multiple cryptocurrencies competing with traditional fiats. The payment processors of the future will be able to process hundreds of different medium of exchanges through their point of sale system. A merchant has nothing to lose by accepting 100 different medium of exchanges if the other medium of exchanges are simply be converted to whatever the merchant's ideal store of value is.
Then it simply comes down to individual merchants and consumers deciding what medium of exchange to use and that is good for everyone. More freedoms is better. I think we can all agree on that.
> For example, I go to buy a t-shirt for $10 and I pay the merchant $10 equivalent in bitcoin cash.
This is why I don't think of bitcoin as a currency: I've never seen it used to denominate prices. As far as I can tell, not even Silk Road had prices set in bitcoin.
Paying "$10 equivalent in bitcoin cash" (or bitcoin, or litecoin, or whatever) is using those cryptocurrencies as a payment gateway; the currency in those transactions is $.
>Paying "$10 equivalent in bitcoin cash" (or bitcoin, or litecoin, or whatever) is using those cryptocurrencies as a payment gateway; the currency in those transactions is $.
Precisely. We're entering some real fiat currency inception here. Bitcoin is worth whatever people value it at, similar to most forms of currency (backed by the faith of the issuing government). Now we're going to faith upon faith.
Tulips come from seeds and are ornamental, once they are dead they can no longer be traded for value. There is no limit to the world-wide supply of tulips, and there is no such thing as distributed international observation and participation in tulips.
To further my antagonist response, the Smithsonian Mag recently did a report explaining that Tulip Mania was also not really a Tulip Mania and that reports were highly exaggerated; an author of a recent book on that time claims that there really is no lesson to learn from Tulip Mania, as tempting as the comparison may be.
Agreed! Tulips are an imperfect analogy. The only analogous part is the rally, which is not due to the intrinsic value of the item (gold is ornamental, a paper can pay coupons or dividends, etc), but due to the bandwagon effect.
Sure but bitcoin's weakness to pumping is what makes it a bad currency. Is that weakness going to a feature of all cryptocurrencies? I'd say any currency which is deflationary and has anonymous transactions will be vulnerable to pump and dumps.
Even if it weren't being pumped the finite limit on total 'coins' would be a disaster for any real currency in any situation with an expectation of meaningful future economic growth.
If it weren’t being pumped I don’t see this being a real issue. With fiat money has some smallest division possible (aka the penny).
When there is more money needed the banks print more money and so everyone’s money becomes worth less so we see inflation.
With a limited digital currency like BTC you would expect to see deflation and so over time transactions would require a smaller fraction of a coin as payment.
ideological beliefs about the nature of money (liberals not interested in non-state currencies, and Austrians believing that currencies must have intrinsic value)
You're correct, Austrian school is based on subjective value theory, this is gwern's phrasing not mine. I was in a rush and didn't cite properly, here is the link: http://www.gwern.net/Bitcoin-is-Worse-is-Better
Although to be fair a lot of non-scholarly "Austrians" cite the intrinsic value of gold as what makes it superior to Bitcoin. So he's right in the parlance of common rhetoric.
I also think he is right in that liberals tend to favor keynesianism because it makes it easier for the government to grow.
I'm still not sure what you meant by Keynesian, but that is a nice link to a very thorough discussion about bitcoin from 2011. Supply, Demand, What is Money, and What is Valuable are all unresolved questions even in 2017. The need for money fundamentally stems from needing a way to trade dissimilar goods (like hens for milk). Nations making money is a whole separate issue that has delayed the progress of mankind for millenia
Wow, you're clueless. I bet you'll believe every lie about Keynes and think yourself an expert despite never once picking up a copy of the General Theory.
Personal and name-calling will get you banned here regardless of how wrong someone else is. Please read https://news.ycombinator.com/newsguidelines.html and post civilly and substantively, or not at all.
This volatility is exactly the reason it isn’t useful _for now_. In the past countries have created currencies, and it’s never been the case that they capitalize from 0 to _a lot_ in such a short time period. That’s why the USD chart is meaningless as a comparison against the same timeline. Wait 20-50 years and then we’ll see.
As far as I know no one is arguing that platinum is a future global currency, or letting customers buy products with it. Both are increasingly true for Bitcoin.
The main reason I never got into Bitcoin is that I considered its deflationary nature a disaster and crippling flaw (for a currency).
That said, it's become much less a currency and more a fiat commodity one stashes like beanie babies so my original reasoning isn't particularly applicable at this point.
I may not buy a pizza with my bits, but I'd sure as hell buy a house, pay off my student debt, or whatever my proverbial lambo is. I only have enough BTC for really one big ticket purchase in my life, even if it increases in value forever.
Actually, a deflationary currency is an interesting concept for Basic Income- if everyone is given an amount of BTC at birth, so that it appreciates in value by the time they're old enough to spend it, they have a nice nest egg to build off of.
Of course, it only works if the currency circulates. I wonder if there's real world examples of deflationary currencies. Has it ever been tried?
Yes I think of it as an investment vs. a currency. For example I may also sell TSLA stock to buy a house but not to buy groceries if I think it still has lots of room to run.
I don't think the deflationary nature of btc and other crypto that are a finite in design is necessarily a bad thing.
The most common objection is that it leads to intertemporal decisions. Is that really bad?
If you knew that your money increases in value over time you might only spend it when it's really necessary instead of driving an ever expanding economy that consumes a finite world.
Maybe a finite world needs a finite economy?
If my money reflect the wear and tear on our common ecology I might be more restricted in its use.
41 comments
[ 21.1 ms ] story [ 115 ms ] threadhttps://en.wikipedia.org/wiki/Gresham%27s_law
Am I the only one where this was the reason I was thinking?
Interestingly, thinking honestly about bitcoin made me a Keynesian.
It's not (yet) "digital gold", but rather "digital tulips" [1].
[1]: https://en.wikipedia.org/wiki/Tulip_mania
Also I don't think the deflationary is an issue because of how fast crypto can change hands. For example, I go to buy a t-shirt for $10 and I pay the merchant $10 equivalent in bitcoin cash. The transaction confirms in 10 minutes or less and the merchant can send the crypto to an exchange to immediately convert it to fiat or any other crypto of their choice. Also most likely in the future, merchants will use some sort of centralized payment processor so when the buyer pays and the transaction confirms the seller immediately gets fiat cash instead of crypto, assuming they want fiat of course.
So the whole idea that crypto doesn't work as a currency is mostly a moot point IMO. Most people are thinking about that issue from a macroeconomic perspective as in if one crypto was used as the official currency. The days of that is coming to an end IMO. The future is going to be multiple cryptocurrencies competing with traditional fiats. The payment processors of the future will be able to process hundreds of different medium of exchanges through their point of sale system. A merchant has nothing to lose by accepting 100 different medium of exchanges if the other medium of exchanges are simply be converted to whatever the merchant's ideal store of value is.
Then it simply comes down to individual merchants and consumers deciding what medium of exchange to use and that is good for everyone. More freedoms is better. I think we can all agree on that.
This is why I don't think of bitcoin as a currency: I've never seen it used to denominate prices. As far as I can tell, not even Silk Road had prices set in bitcoin.
Paying "$10 equivalent in bitcoin cash" (or bitcoin, or litecoin, or whatever) is using those cryptocurrencies as a payment gateway; the currency in those transactions is $.
Precisely. We're entering some real fiat currency inception here. Bitcoin is worth whatever people value it at, similar to most forms of currency (backed by the faith of the issuing government). Now we're going to faith upon faith.
Tulips come from seeds and are ornamental, once they are dead they can no longer be traded for value. There is no limit to the world-wide supply of tulips, and there is no such thing as distributed international observation and participation in tulips.
To further my antagonist response, the Smithsonian Mag recently did a report explaining that Tulip Mania was also not really a Tulip Mania and that reports were highly exaggerated; an author of a recent book on that time claims that there really is no lesson to learn from Tulip Mania, as tempting as the comparison may be.
https://www.smithsonianmag.com/history/there-never-was-real-...
When there is more money needed the banks print more money and so everyone’s money becomes worth less so we see inflation.
With a limited digital currency like BTC you would expect to see deflation and so over time transactions would require a smaller fraction of a coin as payment.
https://unenumerated.blogspot.com/2011/05/bitcoin-what-took-...
AFAIK one of the main underpinning of the Austrian school is: https://en.wikipedia.org/wiki/Subjective_theory_of_value
Although to be fair a lot of non-scholarly "Austrians" cite the intrinsic value of gold as what makes it superior to Bitcoin. So he's right in the parlance of common rhetoric.
I also think he is right in that liberals tend to favor keynesianism because it makes it easier for the government to grow.
That said, it's become much less a currency and more a fiat commodity one stashes like beanie babies so my original reasoning isn't particularly applicable at this point.
Actually, a deflationary currency is an interesting concept for Basic Income- if everyone is given an amount of BTC at birth, so that it appreciates in value by the time they're old enough to spend it, they have a nice nest egg to build off of.
Of course, it only works if the currency circulates. I wonder if there's real world examples of deflationary currencies. Has it ever been tried?
The most common objection is that it leads to intertemporal decisions. Is that really bad?
If you knew that your money increases in value over time you might only spend it when it's really necessary instead of driving an ever expanding economy that consumes a finite world.
Maybe a finite world needs a finite economy?
If my money reflect the wear and tear on our common ecology I might be more restricted in its use.