China is already on its way of doing this. WeChat (built by Tencent, a government supported company) is the payment platform between businesses and customers nowadays. As soon as China gets reliable internet and power into its western parts, everything will become digital.
Just being digital isn't equal to a cryptocurrency.
I'm aware of Wechat and how pretty much everything is connected to it now. I'm more wondering of the global political-economic consequences of China beating the US at this.
What is this... jotting down some notes? I guess this will generate discussion because Sam wrote it, but it is probably one of the most boring and banal ideas in the space. And the exposition is very... shallow to say the least.
"A tricky part of this would be how to balance letting the network have control over itself and letting the government have some special degree of input on ‘monetary policy’. It’s certainly ok for the government to have some, but I think the network needs to be mostly in charge (e.g., the government couldn’t be allowed to arbitrarily inflate the currency when it wanted to)."
This is how the current monetary system works. The "government" can't "arbitrarily inflate the currency". I'm surprised at the lack of depth of this article, is this a brainfart? Haha.
"The "government" can't "arbitrarily inflate the currency"."
The US government can literally do this. They can print as much money as they feel like. It would be 'dumb' for sure, but the US treasury is indeed allowed to do this.
There was even talks of solving the national debt crisis by having Obama create a trillion dollar coin a couple years ago.
I think he was positing that they couldn't inflate in a future world of a GovCoin.
There is actually an interesting nugget in the Obama idea. The "trillion dollar coin" thing completely misunderstands market dynamics, but the idea of the Executive taking power back from The Federal Reserve is interesting.
The coin thing is a hack that would probably be challenged in court, because it's illegal for the Treasury to arbitrarily print money, except when it's silver.
So, you're not wrong in that the treasury can physically do those things, but it's in the same way that you wouldn't be wrong if you claim North Korea can do the same by illegally counterfeiting endless dollars.
The myth that the central bank prints money became prevalent following the Great Recession, when many were concerned about the unconventional policies of the central bank, which included intervention in the commercial paper market, mortgages and outright purchases of debt to keep the system from collapsing. By the end of the recession, the Federal Reserve had expanded its balance sheet by nearly $4 trillion.
Yes, seems more like a discussion starter to me. And that’s OK and perfectly acceptable. Whereas, your comment comes off as an overly critical meaningful discussion diverter. Better not to say anything at all. Now, I’d better follow my own advice.
Well, it is just a few hundred words. If he were taking it seriously, the topic would need to be addressed in length with more justifications than a bunch of "I thinks." But it seems everything Sam writes outside of business are just the sorts of essays a smart 18 year old who's really high might write.
Idea: If you made every government paycheck and contractor payment made with this currency it would be enough to become a standard of payment, and if you required taxes to be paid with it you'd always have demand.
Aren't they already? Government paychecks and contractor payments are typically direct deposit or electronic funds transfer. My paycheck was deposited directly in my bank account. My contractor payments were, as well. As long as the USDC and USD are the same, it doesn't make a difference.
I think we'll get viable cryptocurrencies when the people designing them understand the basic and well-known economics of how money works; AND, when basic scalability problems are solved.
It's well-known that deflationary currencies do not work. That is a severe problem that must be solved before cryptocurrency is viable. Limiting the total number of coins means that the currency is deflationary. Furthermore, our current system of loans is based on printing money and requiring payback with interest. That won't work with a limited number of coins.
It's also well-known that blockchain can't scale to handle the volume of transactions that the Visa network handles.
Most of the USD is already electronic. Could we get something cryptocurrency-like with minor improvements? Probably. Will the "crypto" community like it? Probably not, because the "crypto" community knows nothing about how real economics work.
> It's well-known that deflationary currencies do not work.
Deflationary currencies have worked out fine for literally thousand of years.
Inflationary currencies are a modern concept, with their own advantages AND disadvantages.
I'm surprised this is such a sticking point for people, and that they think the system will literally collapse, when we have centuries of history proving otherwise.
> It's also well-known that blockchain can't scale to handle the volume of transactions that the Visa network handles
Visa level only requires gigabyte level blocks. And that is well within the realm of what many cryptocurrencies are trying to accomplish.
Not Bitcoin core, though, obviously.
Blockchains can scale arbitrarily. They come with some disadvantages, for sure. But at visa levels, they are disadvantages of a certain scale, that matter to people who care about decentralization, to an insanely high degree.
For the vast majority of people, who are willing so compromise very slightly on matters of trust and decentralization, visa scale blockchains work fine.
Here's a thought experiment. Satoshi (who we'll pretend is Hal Finney) owns 10% of Bitcoin, we assume he's lost the keys. Bitcoin becomes a global, and universal currency as we slowly colonize the entire galaxy. Satoshi has been unfrozen from his cryogenic sleep, and remembers his keys. Satoshi now owns 10% of the entire economy of the galaxy.
Seems ridiculous right? Satoshi contributed nothing for hundreds or thousands of years yet still owns the same fixed portion of the total economy.
This is no different than of someone just happens to own a whole bunch of silver, and the price of silver goes up in the future.
Deflationary currencies are not a new thing.
Lots of things that have all the same properties as a currency already exist right now, and have existed for thousands of years.
There are already lots of limited supply things in the real world, and someone can already just buy a whole bunch of it, in hopes that the price will go up in the future.
And if you don't like the properties that a certain currency has, then you can feel free to use a different one.
Personally, though, I prefer using currencies that aren't guaranteed to decrease in value in the future (which is the definition of inflation).
Which is why most of my assets are not USD dollars, they are things like assets, stock, and other investments.
And, as for your specific example, I see no reason to believe that crypto will go up in value, over the LONG term, faster than investments. So in your hypothetical, Satoshi, IMO, would make less money than if he had invested it in an index fund.
Such is the power of compound investment.
You are also using a wired metric. Which is percentage value of dollars.
There are only 1.2 trillion dollars in circulation.
Do you have a problem with the fact that Jeff Bezos could own 10% of all USD in the world, if he wanted it?
> This is no different than of someone just happens to own a whole bunch of silver, and the price of silver goes up in the future.
Silver is a natural scarcity.
Bitcoin is an artificial scarcity.
To get 10% of Earth's silver supply one will need to invest a lot of equivalent real-life resources.
Satoshi just very cheaply early-mined 1M bitcoins.
> Deflationary currencies are not a new thing.
Commodity-based (i.e. based on natural scarcity) deflationary currencies are not a new thing, but "cryptocurrencies" are based on an artificial made-up scarcity, not even on a math-based scarcity (PoW math puzzles used for leader election only).
1. Not all cryptocurrencies are deflationary. Some have inflation built in.
2. Scalability will be much improved over the next year (see: lightning network, plasma, raiden, sharding, alternate consensus systems like dPOS, etc.; for a deep dive, this is a good place to start: https://multicoin.capital/2018/02/23/models-scaling-trustles...).
> It's well-known that deflationary currencies do not work.
This is laughable. Your definition of "work" includes a presumption that we all want the government to control and manipulate the economy without regard for the interests of the individual.
Ask any individual citizen whether they would prefer that their savings increased in value or decreased in value, and I suspect they'll have a different answer as to whether a deflationary currency "works" for their purposes.
Sure, if you change the question you can get some people to change the answer. But if you're going to be fair, be sure to also ask what they want to happen to the loans they owe money on.
The amount of sweeping reform the US Gov would need to overcome in order to take action on this is pretty massive. Seems like it would not happen unless they felt their currency was threatened by digital currencies. Then they might move faster.
If they did do this tomorrow, it would instantly become the top market cap cryptocurrency in the world.
The hardest part about cryptocurrency is that the coin is only as good as the community around it including the holders. Fair distribution is the one feature that has been thus far unachievable and it would really require usage of a mandated government ID database. That would be the US Gov coin advantage beyond branding and enforcement weapons.
>Ideally the initial coins would be evenly distributed to US citizens and taxpayers— [...] The government can likely create a lot of de novo wealth for its citizens in the process.
This USDC proposal seems to reiterate the same themes as a previous blog post "American Equity".[1]
>, but I think the network needs to be mostly in charge (e.g., the government couldn’t be allowed to arbitrarily inflate the currency when it wanted to).
I doubt the USA government or any other modern government with fiat money would agree to this. Inflating currency is a hidden way to spend money it doesn't have. E.g. since Social Security payments are denominated in US Dollars, the govt can _nominally_ keep its payment promises by printing more USD.
Sure, the buying power of each USD for each SS recipient is severely reduced in that scenario but most citizens don't understand nominal dollars vs real buying power and therefore, it's a win-win for the govt.
A cryptocurrency that doesn't allow government flexibility to spend money that it doesn't have will have monumental political hurdles.
against a benchmark formula derived by the same US govt that can print more money. There has also long been discussion that the existing inflation measures are inaccurate [0].
> Inflating currency is a hidden way to spend money it doesn't have.
This seems to be a recurring area of confusion in every thread about cryptocurrencies, so let's clear it up now:
* The amount of money in circulation is manipulated by the Federal Reserve. When the Fed increases the money supply ("printing money"), it does so through banks, by creating money and letting them lend it. The recipient of the "printed money" is someone taking out a loan.
* Deficits are when the government spends more money than it takes in in revenue. It borrows money (by issuing Treasury notes and bonds) and spends it on food stamps or bombers or whatever. The amount of money in circulation does not change and there's no direct effect on inflation.
These are two separate things. The government can run a deficit without the Federal Reserve printing money. The Fed can print money without the government borrowing anything. Inflation is emphatically not something the government does so it will have more money to spend.
When inflation is too low, we print money. When we want to spend more than we take in, we borrow. Two related but separate things.
This is really not how it works. Many economists think this is how it works but actual real world events have made it very clear that governments cannot simply manufacture inflation [1]. Governments like Japan wish they could produce inflation.
Inflation is much, much, much more complicated than merely "too much money." It's much more about real economic quantities affecting the price level [2]. This is usually driven by demand for something an economy cannot manufacture itself, not government spending. See oil shocks [3] for real inflation.
That said, it's always funny to see paranoid Americans go on about the government stealing money via inflation. What do you think money is? Talk about missing the forest for the trees.
You also exhibit a rather dangerous lack of knowledge.
Look up the federal discount window And then treasury bonds.
Typically a bank can get interest free money and plow that into interest baring bonds backed by the government. They then get is free profit off the spread, this was a common back door method of 'liquidty injection' during the financial crisis. Liquidity injection, literally a euphemism for giving away money, and who gets the money? Those closest to the federal spigot, and what happens when you have more money chasing fewer resources? Inflation. Let's not even get into the bizarro world of inflation measurements, ( food and energy aren't even included ), most 'inflation' is seen in asset inflation, rich people can only eat so much cavier and blue fin tuna, the vast majority of their money goes into assets, so they take free money and put it into real estate and stocks and bonds, meanwhile the poor suckers trading their labor for cash see their real income lose purchasing power as the real assets they want like homes and a retirement fund, become increasingly difficult pipe dreams.
I'm truly sick of people who think they have economic knowledge try to explain away the real experience of the vast majority of people, such people and such experts are really just the well paid propagandists of the rich and powerful. Disgusting.
You also exhibit a rather dangerous lack of knowledge.
Look up the federal discount window And then treasury bonds.
Typically a bank can get interest free money and plow that into interest baring bonds backed by the government. They then get is free profit off the spread, this was a common back door method of 'liquidty injection' during the financial crisis. Liquidity injection, literally a euphemism for giving away money, and who gets the money? Those closest to the federal spigot, and what happens when you have more money chasing fewer resources? Inflation. Let's not even get into the bizarro world of inflation measurements, ( food and energy aren't even included ), most 'inflation' is seen in asset inflation, rich people can only eat so much cavier and blue fin tuna, the vast majority of their money goes into assets, so they take free money and put it into real estate and stocks and bonds, meanwhile the poor suckers trading their labor for cash see their real income lose purchasing power as the real assets they want like homes and a retirement fund, become increasingly difficult pipe dreams.
I'm truly sick of people who think they have economic knowledge try to explain away the real experience of the vast majority of people, such people and such experts are really just the well paid propagandists of the rich and powerful. Disgusting.
you can build in inflation into any crypto if you want. It is just the parameters you set when you create it. Bitcoin has fixed supply, but there are plenty of other altcoins that have inflationary aspects to the coin. Until recently, I thought inflation was bad, but it can have positive aspects to re-distribute currency to spenders and non-hodlers. Its a way for people to get access to new money that otherwise is held by a few.
> The current practices seem to be for governments to mostly ignore cryptocurrency and cryptocurrency enthusiasts to mostly ignore government
To me this is the biggest falsehood about cryptocurrency. There is virtually no anonymity in cryptocurrency. You can't do anything with cryptocurrency without verifying your ID. It is now ubiquitous to provide your driver license and social security on every reputable exchange.
I honestly find it more restrictive to use cryptocurrency than the few dollars I have in my pocket. I can take it outside and buy some candy in the alley without anyone having a record of it. Can't do that with cryptocurrency.
The only way to get around this is to mine your own coins. However, mining is impossible for individuals because of the mining farms.
That's not correct. You are talking about fiat ramps (to get "old" money in or out). If you mine or stake and get awarded and just use it within the ecosystem there's no need for "id verification". So saying "You cannot do anything with cryptocurrency without verifying your ID" is an overgeneralisation of "You cannot exchange other fiat money for cryptocurrency or visa versa without verifying your id".
1) Mining is still possible with individual GPUs for certain cryptocurrencies (e.g. Ethereum), although you probably aren't making more than 50 cents per days.
2) Decentralized exchanges will let you convert any cryptocurrency to another (e.g. mined Ethereum to privacy centric coins and back again).
3) In addition to mining, earning crypto for work, and receiving crypto for payments, you can still buy crypto locally for cash.
"The US government could decide to treat USDC as a second legal currency, which would be hugely powerful."
I'd love for Sam to dig deeply into The Federal Reserve System and write about this topic with that knowledge.
[EDIT]: The more I think about this the more surprised I find myself. Sam assumes that the United States just can spin up a competitive currency to the Federal Reserve Note. This completely misunderstands the nature of the matrix and its power structure. For any seekers out there, following this rabbit hole is a fun romp on the way to spiritual awakening.
Amen, and it's not some bullshit guru/conspiracy theorist talk. People have no idea how important the monetary system is for power, and how it really works.
Russia is planning something like this, although the coin is far from reality. Venezuela has already put the coin out there, and it is called El Petro. From the above we can see that some countries are working on this already.
However, as ErikAugust noticed, the thought is cringe worthy to the Bitcoin/crypto loyalists.
Maybe I don't have enough imagination, but what are the realistic benefits of this compared to USD or existing cryptocurrencies? It seems like this would combine some of the worst features of each to make something that no one is happy with.
As others have already commented, existing currencies are already "digital". On my most recent trip abroad (to Copenhagen) I took some physical currency, and didn't use it at all.
Every transaction was digital and instantaneous (I use a Monzo Mastercard). I got a smartphone notification within 5 seconds of having approved the transaction.
The original promise of "cryptocurrencies" appeared, to me, to be decentralization, not their digital nature. The idea that a currency could be free from the control of a given government or set of governments.
This premise doesn't seem to have held for most current cryptocurrencies, as the prevalence of exchanges as central points of control has just led to governments targeting them to get the information they need to apply things like taxation and money laundering controls.
Having transaction data hidden from governments isn't the essential feature of decentralization in the original promise of cryptocurrencies. The essential feature is preventing a single party from tampering with transactions or account balances. This is still true for bitcoin and many others.
The Greek government froze accounts, Cyprus engaged in a 'bail in', governments constantly freeze accounts of 'bad' actors, payment processors will decide without cause to stop servicing clients because they are in adult content or because they are WikiLeaks.
There so many examples, it goes on and on ad nauseum.
if we're citing examples of why "trusted third parties" caused losses to a currencies' users, what about all the crypto currency exchanges that have been robbed/gone bust etc?
There's always that class of risk unless you do things properly without a trusted third party.
Unfortunately in the crypto currency space, most of that benefit appears to have been sacrificed in pursuit of the ability to trade faster to make money...
We have that with existing currencies in most countries. My bank will implement a journal and double-entry bookkeeping system, along with internal fraud controls to reduce the risk of a single staff member defrauding me.
There are then external controls (banking ombudsman, the police, the judiciary) if the bank decides to take my money from me.
Also in the country I live in (the UK) there is a government guarantee, that even if my bank fails entirely, up to £75000 I'll get my money back.
For all practical purposes, my bank is very unlikely to try and take my money from me like that.
whilst cryptocurrencies might in isolation provide that immutability, in practice we have seen several cases where trusted parties involved in the cryptocurrency ecosystem have taken currency from participants in their marketplaces.
I'd be willing to wager that the risks of me losing money to a traditional fiat fraud are far lower than my risks of making use of cryptocurrencies in practice given the current state of regulation of the exchanges that are used.
Take the time to read the original Bitcoin paper. It discusses various other electronic currency systems and why they weren't good enough.
The short answer, though, is that if you have a trusted 3rd party managing the monetary system, there's really no need for cyptocurrency. (Edit) Cryptocurrency solves the trust problem.
Overall, we can trust our government, thus there's no need for cryptocurrency.
You (and I'm guessing/assuming you're an American citizen, here, forgive me if I have it wrong) might be able to trust your government. Many of us in the Shithole Countries can not. Then, too, you may be able to trust your government at the present time (or, at least, believe you're able to) but that does not account for some future time when that might not be true.
Why would you trust say binance, or bitfinex ? what basis do you have for that trust?
And if you trade on a possibly more trustworthy exchange like coinbase, you're right back to trusting a government, as the US Gov could shut them down if they wanted...
Indeed, that's a theoretical benefit of the cryptocurrency world over fiat. However, in practice, what seems to be happening is that the decentralized aspect is sacrificed in the rush to make money, which promotes the use of trusted third party exchanges.
In reality, all that cryptocurrencies are doing is, partially, replacing governments and banks with unregulated companies who are still quite likely to be subject to government actions.
How would this be better than what we have now? If the answer is "cryptocurrency increases in value," I can assure you that's a terrible reason.
Cryptocurrency is slower than card networks. It's more expensive than practically any other way of sending money. And as far as scale goes, it would need to become orders of magnitude more efficient to handle even a small percentage of consumer transactions. After all, what's the point of a cryptocurrency if the only people who can host the full blockchain (or even acquire the full blockchain) are large banks and the government? I.e., where do you even get an internet connection that can accept, in near realtime, a full record of every monetary transaction performed with such a currency? Unlike card networks, every member of the network needs to process every transaction eventually.
I don't think cryptocurrency is at the point where the scalability concerns can be addressed to be used as legal tender for an economy as large as the US.
If this is meant to replace bonds or other government issued securities, what problem is it solving? I can't think of one.
> Cryptocurrency is slower than card networks. It's more expensive than practically any other way of sending money. And as far as scale goes, it would need to become orders of magnitude more efficient to handle even a small percentage of consumer transactions.
Cryptocurrency with a centralized authority is not subject to these issues. After all, if there is a trusted authority then what you really have is a database with some API layered on top. You don't need miners, you don't need a blockchain, etc. It's no more difficult to scale a currency like this than it is for Visa. Canada was looking at exactly this idea about 5 years ago, with the MintChip project.
Think of this as a bank account that you can interact with in a programmatic/scriptable fashion using a private key. Which is really a lot of what people find desirable about cryptocurrency.
The deflationary monetary policy ponzi-schemes, the waste of energy and data, etc can all go. And in turn, the government gets to eventually eliminate the cash economy and make sure that all of that gets taxed (this is the dark side of cryptocurrency - since everyone gets to see all transactions, it's quite easy to trace the flows of money, and it's only anonymous until you try to do something outside the network, like cash out or exchange it for real-world goods).
The "crypto" in "cryptocurrency" refers to the use of encryption primitives and digital signatures to ensure the authenticity of one's balance without needing to trust a central authority.
If you're trusting a central authority anyway, then all this is unnecessary, and you can replace it all with an API over a database, as paulmd's post suggests. But then you've eliminated the whole reason why people use cryptocurrency, and what differentiates it from Visa.
What differentiates it from Visa is that there is literally nothing behind Visas numbers. They could be pure fiction right now and no one but Visa would know. Also, Visa takes a cut. As more and more of the whole economy flows through payment processors, they have become de facto taxing bodies. Their fees drain the economy, and can be used to manipulate the economy to Visas whim. A government-backed cryptocurrency would be provably legitimate, and would cut Visa out of the loop.
Up-thread, the proposal is to fix the scalability & energy usage issues by having a trusted authority such as the U.S. government run a database with a payment API on top.
Under such a system - how do you know that there is anything behind the government's numbers? They could be pure fiction right now and no one but the government would know. Also, the government takes a cut. As the whole economy flows through their currency, they become a de jure taxing body. Their taxes drain the economy, and can be used to manipulate the economy to the government's whim.
It may shock you to learn that not everybody trusts the U.S. government. The growth of cryptocurrencies worldwide is largely fueled by the fact that the set of people who don't trust the U.S. government is larger than the set of people who do - and in fact, they've seen their biggest up-take in societies like Zimbabwe and Venezuela where trust in civil monetary authority has completely collapsed.
You are correct that it wouldn't bring any sort of additional guarantee of the money being backed beyond what fiat currency already has. But, the advantage is that it could be proven, mathematically, that each bit of the currency was actually issued by the federal reserve and is actually backed by the government. As it is now, it could just be a bug, or malware, or pure fiction invented by a company to make their numbers look better. And you can't prove that either way.
I am no economist, but I have never thought the idea of "trust" had much to do with the value of US currency. Certainly it's not backed by gold any longer. But I think it's backed by something real. Bombs. The US has more than enough to force others to accept their currency as having value.
You live in a bubble, your argument is not valid for millions of people that don’t have bank accounts, have you seen western union fees? Africa and Latin America will embrace cryptocurrencies because it will be faster and cheaper and will not require people to open a bank account, only a cell phone with data which most people already have
If you know more, could you share? I haven't read anything about cryptocurrency being successful in Africa or Latin America. (Versus, say, M-Pesa in Kenya.)
Fast but with very expensive fees, and the problem is also corruption, privacy, and abuse by banks and financial institution. With the blockchain beeing decentralized you wont get ripped off and you won't get tracked either (in a way) Also, imagine if Trump decides to ban or tax transfers from USA to LatinAmerica/Africa, then crypto will be the solution.
Probably this got downvoted because of the "you live in a bubble" part, which crosses into personal attack. Could you please (re-)read https://news.ycombinator.com/newsguidelines.html and edit those bits out of what you post here? This comment would be just fine without it.
To add to this point, M-Pesa has been a huge success in Kenya, but has had trouble expanding to other countries because of some inherent limitations of M-Pesa's model.
A cryptocurrency could enable the next evolution of mobile payment services like M-Pesa. I touched on this in a past blog post:
You've only scratched the surface of cryptocurrencies and come here to make bold, completely untrue statements about their properties.
Having a central actor, like a government, would solve a lot of scaling problem, as well as transaction history issues and also cost associated with making transactions.
> Having a central actor, like a government, would solve a lot of scaling problem, as well as transaction history issues and also cost associated with making transactions.
Then why Bitcoin, Ethereum, etc. instead of USD? Why the need for a crypto currency if everything is already in place? In place with laws and regulations.
The first line of the Bitcoin paper is :
"A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution".
The whole point of cryptocurrencies was to get rid of the third party in the first place...
"Cryptocurrency is slower than card networks." - not really, on a per-transaction basis. If you buy something at a store with a credit card, it takes weeks to get the money. With Bitcoin, you can spend the money in an hour. For small transactions, there's generally no need to wait past the point that the transaction is broadcast; and for online transactions it's not inconvenient to wait an hour before providing the product.
(of course, overall throughput is still atrocious)
Waiting that long before the merchant gets their money is a feature, not a bug. It forces the merchant to float a balance that can be used to issue refunds and charge backs back to the consumer without the bank, card network, or consumer taking the hit.
a) Nano (formerly RaiBlocks) which achieves 7000 tps, compared to Visa's capacity of 25k-65k tps (but VISA rarely spikes over 4000 tps), its wallets and network is already live
b) Solana (still in dev stages), which claims to be able to achieve 710k tps without network partitioning. This actually knock centralized systems out of the water. Of course, the centralized systems can always mimic the behavior and achieve similar throughput.
But the main point is, because a lot of money is in blockchain, a lot of it is being spent on finding ways to make it faster (which is why, innovation for faster throughput is happening in the blockchain field).
I just had to pay $8 to convert USD to another currency. The fee is less than $1, and often less than $0.10 to make an exchange like this via cryptocurrency.
In order to move money out of my own bank account, digitally, into another account, it is impossible to do instantly. Many banks charge a substantial fee, even for a 3 day turnaround[1].
Looking only at card networks, while ignoring the greater banking system is an incomplete view of the potential here.
> I just had to pay $8 to convert USD to another currency.
That's the cost of the spread.
If you tried to convert $10000 BTC to USD today, you would pay anywhere between -$200 and $200 (Or ????$, if the market decides to go crazy), depending on the exchange rate when your transaction would clear. With a forex transaction through a bank, the bank fixes the exchange rate (And charges you money for it.)
That was just the “fee” without even including the spread, which was much more, often +20% depending on the exchange.
Converting $10k BTC to USD would not cost $200 in transaction fees. If that’s how much you’re paying, find another exchange as you’re getting ripped off.
Converting BTC to another crypto currency would barely incur any cost at all.
there are new blockchain tech releasing this year that will scale to thousands of transaction per second and provides free transactions for end users. Companies like Consensys provides infrastructure so you don't have to run a full node but just connect to a full node with a light client. You need USDC to escape from volatility. The crypto market needs a stable currency with the assurance the peg doesn't break. Digital currency solves the problem with inbound/outbound wire fees in which cost me a few hundred last year...
Not inherently. If you compare apples to apples, accepting a credit card transaction is equivalent to accepting a zero-confirmation cryptocurrency transaction, which is just as fast as a CC charge (instantaneous.) And it is technically safer for a merchant to accept a 0-conf crypto tx because a CC charge is trivial to reverse (via a fraudulent chargeback) while a tx in the mempool of thousands of nodes is typically (not always!) hard to make disappear.
«It's more expensive than practically any other way of sending money»
Far from true. Average remittance fees are around $7 per $100 sent. Meanwhile Ethereum has fees typically under $0.50 per tx: https://bitinfocharts.com/comparison/ethereum-transactionfee... Of course there are periods of fee surges (over $5 per tx!), but it's not common.
«a full record of every monetary transaction performed with such a currency»
That's technically not needed. There have been proposals to implement what we call UTXO commitment sets, which is basically a way to revamp a blockchain so that it can discard old transactions and just keep track of current balances. (This is different, but roughly the same principle as "pruning.")
> accepting a credit card transaction is equivalent to accepting a zero-confirmation cryptocurrency transaction, which is just as fast as a CC charge (instantaneous.)
Except my charge is guaranteed to happen (or be rejected) within a reasonable amount of time. If you scale up anything to the size of, say, Visa, the transaction times are going to grow to be unbounded. I know my credit card charges are going to settle in about a day. There's no guarantee when the miners will work through the backlog of transactions and actually give me my money in any time frame.
If you're a small business, this matters a LOT.
> Average remittance fees are around $7 per $100 sent. Meanwhile Ethereum has fees typically under $0.50 per tx
My bank charged me $10 to send a 50k wire transfer last week. What service, exactly, is more expensive than a 7% fee?
Ethereum, meanwhile, swings in price violently enough that in the time it takes for an ACH transfer to complete, the value could have shifted enough to negate the entire savings on fees. What benefit does low fees have on a currency if the currency is worth 5-10% more or less day to day?
There's no reason to assume a government issued cryptocurrency will be any less volatile than cryptocurrency.
> There have been proposals to implement what we call UTXO commitment sets, which is basically a way to revamp a blockchain so that it can discard old transactions and just keep track of current balances.
And here we are, talking about creating a new legal tender for the second largest economy on the planet. As I said in my original post, it doesn't matter if it's on its way. Speculative fixes for a real problem don't make the problem go away. Major cryptocurrencies currently don't do it, so we shouldn't talk about them as if they do.
Even still, the number of balances will grow over time. Unlike a real bank, you can't just close an account when someone dies. Anyone can create as many balances as they want. And losing your private key means there's a permanent record of the money you lost.
With a CC it takes 1-3 business day for the merchant to receive spendable funds. With a crypto tx it takes minutes (the time for 1 confirmation). This is a huge advantage for cryptocurrencies.
«What service, exactly, is more expensive than a 7% fee?»
«Major cryptocurrencies currently don't do it, so we shouldn't talk about them as if they do.»
You spoke as if the problem was unfixable. I am clarifying it can be fixed. The reason most cryptocurrencies do not implement UTXO commitment sets is simply that having to store all txs is not (yet) an intolerable pain point.
While a valid point, setting up a merchant account also imbues the merchant with some trust properties that are not available with a cryptocurrency wallet. Namely, the ability to procedural and legal recourse if something goes wrong with any new transaction.
The Fed generates ~$90 BN of revenue for the US government every year.
And it does it by printing physical cash. I think the first step to traction would be convincing Congress that they can get by without $90 BN every year. (Edit: if they haven't already been convinced).
> A tricky part of this would be how to balance letting the network have control over itself and letting the government have some special degree of input on ‘monetary policy’. It’s certainly ok for the government to have some, but I think the network needs to be mostly in charge (e.g., the government couldn’t be allowed to arbitrarily inflate the currency when it wanted to).
This is a partially direct democracy (for monetary policy) using digital voting with no paper trail! Unless there are crap load of formal methods backing this, it sounds like a recipe for disaster.
(Also, if this is the problem to be solved, why don't we just pass a constitutional amendment requiring a referendum for certain changes to monetary policy...)
> The government can likely create a lot of de novo wealth for its citizens in the process.
The thing that always confuses me: where is the fundamental value creation? I don't see much other than maybe saving on some inefficiencies in the current monetary/financial system. But that's not "de novo wealth"; that's "financial engineering".
How does a state-backed cryptocurrency generate "de novo wealth"?
The only question I have after reading is - What does cryptocurrency actually mean according to the post?
Is it a digital currency?
But, USD is already mostly digital.
Or is it like a real cryptocurrency?
But, the selling point of cryptocurrency is decentralization.
Even if we ignore the decentralization, cryptocurrency has a lot of unresolved issues to work at a massive scale.
PoW burns a lot of energy. And PoS works by making rich richer because of the staking mechanism.
Transaction times on a huge scale network is slow. Yes, there is Lighting/Raiden etc being released but let's wait for it to be proven before we jump the gun.
Before someone says what about centralized cryptocurrency?
That is same as the digital USD. How will cryptocurrency be any different?
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[ 3.4 ms ] story [ 204 ms ] threadI'm aware of Wechat and how pretty much everything is connected to it now. I'm more wondering of the global political-economic consequences of China beating the US at this.
"A tricky part of this would be how to balance letting the network have control over itself and letting the government have some special degree of input on ‘monetary policy’. It’s certainly ok for the government to have some, but I think the network needs to be mostly in charge (e.g., the government couldn’t be allowed to arbitrarily inflate the currency when it wanted to)."
This is how the current monetary system works. The "government" can't "arbitrarily inflate the currency". I'm surprised at the lack of depth of this article, is this a brainfart? Haha.
The US government can literally do this. They can print as much money as they feel like. It would be 'dumb' for sure, but the US treasury is indeed allowed to do this.
There was even talks of solving the national debt crisis by having Obama create a trillion dollar coin a couple years ago.
There is actually an interesting nugget in the Obama idea. The "trillion dollar coin" thing completely misunderstands market dynamics, but the idea of the Executive taking power back from The Federal Reserve is interesting.
The coin thing is a hack that would probably be challenged in court, because it's illegal for the Treasury to arbitrarily print money, except when it's silver.
So, you're not wrong in that the treasury can physically do those things, but it's in the same way that you wouldn't be wrong if you claim North Korea can do the same by illegally counterfeiting endless dollars.
Probably on some basis, but it would also probably survive the kind of challenge you describe.
> because it's illegal for the Treasury to arbitrarily print money, except when it's silver.
Platinum, actually, not silver. [31 USC § 5112(k)] Which is why minting the coin as a platinum coin was an essential component of the idea.
https://www.investopedia.com/ask/answers/082515/who-decides-...
The myth that the central bank prints money became prevalent following the Great Recession, when many were concerned about the unconventional policies of the central bank, which included intervention in the commercial paper market, mortgages and outright purchases of debt to keep the system from collapsing. By the end of the recession, the Federal Reserve had expanded its balance sheet by nearly $4 trillion.
https://en.wikipedia.org/wiki/Petro_(cryptocurrency)
It's well-known that deflationary currencies do not work. That is a severe problem that must be solved before cryptocurrency is viable. Limiting the total number of coins means that the currency is deflationary. Furthermore, our current system of loans is based on printing money and requiring payback with interest. That won't work with a limited number of coins.
It's also well-known that blockchain can't scale to handle the volume of transactions that the Visa network handles.
Most of the USD is already electronic. Could we get something cryptocurrency-like with minor improvements? Probably. Will the "crypto" community like it? Probably not, because the "crypto" community knows nothing about how real economics work.
Deflationary currencies have worked out fine for literally thousand of years.
Inflationary currencies are a modern concept, with their own advantages AND disadvantages.
I'm surprised this is such a sticking point for people, and that they think the system will literally collapse, when we have centuries of history proving otherwise.
> It's also well-known that blockchain can't scale to handle the volume of transactions that the Visa network handles
Visa level only requires gigabyte level blocks. And that is well within the realm of what many cryptocurrencies are trying to accomplish.
Not Bitcoin core, though, obviously.
Blockchains can scale arbitrarily. They come with some disadvantages, for sure. But at visa levels, they are disadvantages of a certain scale, that matter to people who care about decentralization, to an insanely high degree.
For the vast majority of people, who are willing so compromise very slightly on matters of trust and decentralization, visa scale blockchains work fine.
Seems ridiculous right? Satoshi contributed nothing for hundreds or thousands of years yet still owns the same fixed portion of the total economy.
Deflationary currencies are not a new thing.
Lots of things that have all the same properties as a currency already exist right now, and have existed for thousands of years.
There are already lots of limited supply things in the real world, and someone can already just buy a whole bunch of it, in hopes that the price will go up in the future.
And if you don't like the properties that a certain currency has, then you can feel free to use a different one.
Personally, though, I prefer using currencies that aren't guaranteed to decrease in value in the future (which is the definition of inflation).
Which is why most of my assets are not USD dollars, they are things like assets, stock, and other investments.
And, as for your specific example, I see no reason to believe that crypto will go up in value, over the LONG term, faster than investments. So in your hypothetical, Satoshi, IMO, would make less money than if he had invested it in an index fund.
Such is the power of compound investment.
You are also using a wired metric. Which is percentage value of dollars.
There are only 1.2 trillion dollars in circulation.
Do you have a problem with the fact that Jeff Bezos could own 10% of all USD in the world, if he wanted it?
We already live in your "ridiculous" world, sir.
Silver is a natural scarcity. Bitcoin is an artificial scarcity. To get 10% of Earth's silver supply one will need to invest a lot of equivalent real-life resources. Satoshi just very cheaply early-mined 1M bitcoins.
> Deflationary currencies are not a new thing.
Commodity-based (i.e. based on natural scarcity) deflationary currencies are not a new thing, but "cryptocurrencies" are based on an artificial made-up scarcity, not even on a math-based scarcity (PoW math puzzles used for leader election only).
2. Scalability will be much improved over the next year (see: lightning network, plasma, raiden, sharding, alternate consensus systems like dPOS, etc.; for a deep dive, this is a good place to start: https://multicoin.capital/2018/02/23/models-scaling-trustles...).
This is laughable. Your definition of "work" includes a presumption that we all want the government to control and manipulate the economy without regard for the interests of the individual.
Ask any individual citizen whether they would prefer that their savings increased in value or decreased in value, and I suspect they'll have a different answer as to whether a deflationary currency "works" for their purposes.
If they did do this tomorrow, it would instantly become the top market cap cryptocurrency in the world.
The hardest part about cryptocurrency is that the coin is only as good as the community around it including the holders. Fair distribution is the one feature that has been thus far unachievable and it would really require usage of a mandated government ID database. That would be the US Gov coin advantage beyond branding and enforcement weapons.
This USDC proposal seems to reiterate the same themes as a previous blog post "American Equity".[1]
>, but I think the network needs to be mostly in charge (e.g., the government couldn’t be allowed to arbitrarily inflate the currency when it wanted to).
I doubt the USA government or any other modern government with fiat money would agree to this. Inflating currency is a hidden way to spend money it doesn't have. E.g. since Social Security payments are denominated in US Dollars, the govt can _nominally_ keep its payment promises by printing more USD.
Sure, the buying power of each USD for each SS recipient is severely reduced in that scenario but most citizens don't understand nominal dollars vs real buying power and therefore, it's a win-win for the govt.
A cryptocurrency that doesn't allow government flexibility to spend money that it doesn't have will have monumental political hurdles.
[1] http://blog.samaltman.com/american-equity
https://www.bloomberg.com/news/articles/2018-05-02/the-consu...
This seems to be a recurring area of confusion in every thread about cryptocurrencies, so let's clear it up now:
* The amount of money in circulation is manipulated by the Federal Reserve. When the Fed increases the money supply ("printing money"), it does so through banks, by creating money and letting them lend it. The recipient of the "printed money" is someone taking out a loan.
* Deficits are when the government spends more money than it takes in in revenue. It borrows money (by issuing Treasury notes and bonds) and spends it on food stamps or bombers or whatever. The amount of money in circulation does not change and there's no direct effect on inflation.
These are two separate things. The government can run a deficit without the Federal Reserve printing money. The Fed can print money without the government borrowing anything. Inflation is emphatically not something the government does so it will have more money to spend.
When inflation is too low, we print money. When we want to spend more than we take in, we borrow. Two related but separate things.
This is really not how it works. Many economists think this is how it works but actual real world events have made it very clear that governments cannot simply manufacture inflation [1]. Governments like Japan wish they could produce inflation.
Inflation is much, much, much more complicated than merely "too much money." It's much more about real economic quantities affecting the price level [2]. This is usually driven by demand for something an economy cannot manufacture itself, not government spending. See oil shocks [3] for real inflation.
That said, it's always funny to see paranoid Americans go on about the government stealing money via inflation. What do you think money is? Talk about missing the forest for the trees.
[1] https://www.bloomberg.com/news/articles/2018-03-22/the-great...
[2] http://bilbo.economicoutlook.net/blog/?p=10554
[3] https://www.investopedia.com/ask/answers/06/oilpricesinflati...
Look up the federal discount window And then treasury bonds.
Typically a bank can get interest free money and plow that into interest baring bonds backed by the government. They then get is free profit off the spread, this was a common back door method of 'liquidty injection' during the financial crisis. Liquidity injection, literally a euphemism for giving away money, and who gets the money? Those closest to the federal spigot, and what happens when you have more money chasing fewer resources? Inflation. Let's not even get into the bizarro world of inflation measurements, ( food and energy aren't even included ), most 'inflation' is seen in asset inflation, rich people can only eat so much cavier and blue fin tuna, the vast majority of their money goes into assets, so they take free money and put it into real estate and stocks and bonds, meanwhile the poor suckers trading their labor for cash see their real income lose purchasing power as the real assets they want like homes and a retirement fund, become increasingly difficult pipe dreams.
I'm truly sick of people who think they have economic knowledge try to explain away the real experience of the vast majority of people, such people and such experts are really just the well paid propagandists of the rich and powerful. Disgusting.
Look up the federal discount window And then treasury bonds.
Typically a bank can get interest free money and plow that into interest baring bonds backed by the government. They then get is free profit off the spread, this was a common back door method of 'liquidty injection' during the financial crisis. Liquidity injection, literally a euphemism for giving away money, and who gets the money? Those closest to the federal spigot, and what happens when you have more money chasing fewer resources? Inflation. Let's not even get into the bizarro world of inflation measurements, ( food and energy aren't even included ), most 'inflation' is seen in asset inflation, rich people can only eat so much cavier and blue fin tuna, the vast majority of their money goes into assets, so they take free money and put it into real estate and stocks and bonds, meanwhile the poor suckers trading their labor for cash see their real income lose purchasing power as the real assets they want like homes and a retirement fund, become increasingly difficult pipe dreams.
I'm truly sick of people who think they have economic knowledge try to explain away the real experience of the vast majority of people, such people and such experts are really just the well paid propagandists of the rich and powerful. Disgusting.
A main reason is so that government debt can grow perpetually/exponentially. Hence a hidden tax taken from wages.
Opinions are my own not my employers.
To me this is the biggest falsehood about cryptocurrency. There is virtually no anonymity in cryptocurrency. You can't do anything with cryptocurrency without verifying your ID. It is now ubiquitous to provide your driver license and social security on every reputable exchange.
I honestly find it more restrictive to use cryptocurrency than the few dollars I have in my pocket. I can take it outside and buy some candy in the alley without anyone having a record of it. Can't do that with cryptocurrency.
The only way to get around this is to mine your own coins. However, mining is impossible for individuals because of the mining farms.
1) Mining is still possible with individual GPUs for certain cryptocurrencies (e.g. Ethereum), although you probably aren't making more than 50 cents per days.
2) Decentralized exchanges will let you convert any cryptocurrency to another (e.g. mined Ethereum to privacy centric coins and back again).
3) In addition to mining, earning crypto for work, and receiving crypto for payments, you can still buy crypto locally for cash.
I'd love for Sam to dig deeply into The Federal Reserve System and write about this topic with that knowledge.
[EDIT]: The more I think about this the more surprised I find myself. Sam assumes that the United States just can spin up a competitive currency to the Federal Reserve Note. This completely misunderstands the nature of the matrix and its power structure. For any seekers out there, following this rabbit hole is a fun romp on the way to spiritual awakening.
Every transaction was digital and instantaneous (I use a Monzo Mastercard). I got a smartphone notification within 5 seconds of having approved the transaction.
The original promise of "cryptocurrencies" appeared, to me, to be decentralization, not their digital nature. The idea that a currency could be free from the control of a given government or set of governments.
This premise doesn't seem to have held for most current cryptocurrencies, as the prevalence of exchanges as central points of control has just led to governments targeting them to get the information they need to apply things like taxation and money laundering controls.
Are there examples of this actually happening? I'd think that would be pretty damaging to any bank that engaged in such behavior.
The US government seized all gold.
The Greek government froze accounts, Cyprus engaged in a 'bail in', governments constantly freeze accounts of 'bad' actors, payment processors will decide without cause to stop servicing clients because they are in adult content or because they are WikiLeaks.
There so many examples, it goes on and on ad nauseum.
There's always that class of risk unless you do things properly without a trusted third party.
Unfortunately in the crypto currency space, most of that benefit appears to have been sacrificed in pursuit of the ability to trade faster to make money...
There are then external controls (banking ombudsman, the police, the judiciary) if the bank decides to take my money from me.
Also in the country I live in (the UK) there is a government guarantee, that even if my bank fails entirely, up to £75000 I'll get my money back.
For all practical purposes, my bank is very unlikely to try and take my money from me like that.
whilst cryptocurrencies might in isolation provide that immutability, in practice we have seen several cases where trusted parties involved in the cryptocurrency ecosystem have taken currency from participants in their marketplaces.
I'd be willing to wager that the risks of me losing money to a traditional fiat fraud are far lower than my risks of making use of cryptocurrencies in practice given the current state of regulation of the exchanges that are used.
The short answer, though, is that if you have a trusted 3rd party managing the monetary system, there's really no need for cyptocurrency. (Edit) Cryptocurrency solves the trust problem.
Overall, we can trust our government, thus there's no need for cryptocurrency.
Why would you trust say binance, or bitfinex ? what basis do you have for that trust?
And if you trade on a possibly more trustworthy exchange like coinbase, you're right back to trusting a government, as the US Gov could shut them down if they wanted...
In reality, all that cryptocurrencies are doing is, partially, replacing governments and banks with unregulated companies who are still quite likely to be subject to government actions.
Cryptocurrency is slower than card networks. It's more expensive than practically any other way of sending money. And as far as scale goes, it would need to become orders of magnitude more efficient to handle even a small percentage of consumer transactions. After all, what's the point of a cryptocurrency if the only people who can host the full blockchain (or even acquire the full blockchain) are large banks and the government? I.e., where do you even get an internet connection that can accept, in near realtime, a full record of every monetary transaction performed with such a currency? Unlike card networks, every member of the network needs to process every transaction eventually.
I don't think cryptocurrency is at the point where the scalability concerns can be addressed to be used as legal tender for an economy as large as the US.
If this is meant to replace bonds or other government issued securities, what problem is it solving? I can't think of one.
Cryptocurrency with a centralized authority is not subject to these issues. After all, if there is a trusted authority then what you really have is a database with some API layered on top. You don't need miners, you don't need a blockchain, etc. It's no more difficult to scale a currency like this than it is for Visa. Canada was looking at exactly this idea about 5 years ago, with the MintChip project.
http://business.financialpost.com/news/fp-street/canadian-mi...
Think of this as a bank account that you can interact with in a programmatic/scriptable fashion using a private key. Which is really a lot of what people find desirable about cryptocurrency.
The deflationary monetary policy ponzi-schemes, the waste of energy and data, etc can all go. And in turn, the government gets to eventually eliminate the cash economy and make sure that all of that gets taxed (this is the dark side of cryptocurrency - since everyone gets to see all transactions, it's quite easy to trace the flows of money, and it's only anonymous until you try to do something outside the network, like cash out or exchange it for real-world goods).
Maybe not a bad idea, though. It might make some government payments (such as Social Security) more efficient?
Why not?
If you're trusting a central authority anyway, then all this is unnecessary, and you can replace it all with an API over a database, as paulmd's post suggests. But then you've eliminated the whole reason why people use cryptocurrency, and what differentiates it from Visa.
Under such a system - how do you know that there is anything behind the government's numbers? They could be pure fiction right now and no one but the government would know. Also, the government takes a cut. As the whole economy flows through their currency, they become a de jure taxing body. Their taxes drain the economy, and can be used to manipulate the economy to the government's whim.
It may shock you to learn that not everybody trusts the U.S. government. The growth of cryptocurrencies worldwide is largely fueled by the fact that the set of people who don't trust the U.S. government is larger than the set of people who do - and in fact, they've seen their biggest up-take in societies like Zimbabwe and Venezuela where trust in civil monetary authority has completely collapsed.
I am no economist, but I have never thought the idea of "trust" had much to do with the value of US currency. Certainly it's not backed by gold any longer. But I think it's backed by something real. Bombs. The US has more than enough to force others to accept their currency as having value.
Latin America: http://www.idgconnect.com/abstract/10231/latin-america-warms...
A cryptocurrency could enable the next evolution of mobile payment services like M-Pesa. I touched on this in a past blog post:
https://medium.com/@petershin45/hate-bitcoin-this-might-chan... (You can scroll down to the section titled "How Bitcoin can help the poor and unbanked")
Having a central actor, like a government, would solve a lot of scaling problem, as well as transaction history issues and also cost associated with making transactions.
Then why Bitcoin, Ethereum, etc. instead of USD? Why the need for a crypto currency if everything is already in place? In place with laws and regulations.
The first line of the Bitcoin paper is : "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution".
The whole point of cryptocurrencies was to get rid of the third party in the first place...
(of course, overall throughput is still atrocious)
Two cryptocurrencies come to mind:
a) Nano (formerly RaiBlocks) which achieves 7000 tps, compared to Visa's capacity of 25k-65k tps (but VISA rarely spikes over 4000 tps), its wallets and network is already live
b) Solana (still in dev stages), which claims to be able to achieve 710k tps without network partitioning. This actually knock centralized systems out of the water. Of course, the centralized systems can always mimic the behavior and achieve similar throughput.
But the main point is, because a lot of money is in blockchain, a lot of it is being spent on finding ways to make it faster (which is why, innovation for faster throughput is happening in the blockchain field).
In order to move money out of my own bank account, digitally, into another account, it is impossible to do instantly. Many banks charge a substantial fee, even for a 3 day turnaround[1].
Looking only at card networks, while ignoring the greater banking system is an incomplete view of the potential here.
1. https://www.nerdwallet.com/blog/banking/ach-transfers-costs-... M
That's the cost of the spread.
If you tried to convert $10000 BTC to USD today, you would pay anywhere between -$200 and $200 (Or ????$, if the market decides to go crazy), depending on the exchange rate when your transaction would clear. With a forex transaction through a bank, the bank fixes the exchange rate (And charges you money for it.)
Converting $10k BTC to USD would not cost $200 in transaction fees. If that’s how much you’re paying, find another exchange as you’re getting ripped off.
Converting BTC to another crypto currency would barely incur any cost at all.
It's a legal pump and dump scheme!
Not inherently. If you compare apples to apples, accepting a credit card transaction is equivalent to accepting a zero-confirmation cryptocurrency transaction, which is just as fast as a CC charge (instantaneous.) And it is technically safer for a merchant to accept a 0-conf crypto tx because a CC charge is trivial to reverse (via a fraudulent chargeback) while a tx in the mempool of thousands of nodes is typically (not always!) hard to make disappear.
«It's more expensive than practically any other way of sending money»
Far from true. Average remittance fees are around $7 per $100 sent. Meanwhile Ethereum has fees typically under $0.50 per tx: https://bitinfocharts.com/comparison/ethereum-transactionfee... Of course there are periods of fee surges (over $5 per tx!), but it's not common.
«a full record of every monetary transaction performed with such a currency»
That's technically not needed. There have been proposals to implement what we call UTXO commitment sets, which is basically a way to revamp a blockchain so that it can discard old transactions and just keep track of current balances. (This is different, but roughly the same principle as "pruning.")
Except my charge is guaranteed to happen (or be rejected) within a reasonable amount of time. If you scale up anything to the size of, say, Visa, the transaction times are going to grow to be unbounded. I know my credit card charges are going to settle in about a day. There's no guarantee when the miners will work through the backlog of transactions and actually give me my money in any time frame.
If you're a small business, this matters a LOT.
> Average remittance fees are around $7 per $100 sent. Meanwhile Ethereum has fees typically under $0.50 per tx
My bank charged me $10 to send a 50k wire transfer last week. What service, exactly, is more expensive than a 7% fee?
Ethereum, meanwhile, swings in price violently enough that in the time it takes for an ACH transfer to complete, the value could have shifted enough to negate the entire savings on fees. What benefit does low fees have on a currency if the currency is worth 5-10% more or less day to day?
There's no reason to assume a government issued cryptocurrency will be any less volatile than cryptocurrency.
> There have been proposals to implement what we call UTXO commitment sets, which is basically a way to revamp a blockchain so that it can discard old transactions and just keep track of current balances.
And here we are, talking about creating a new legal tender for the second largest economy on the planet. As I said in my original post, it doesn't matter if it's on its way. Speculative fixes for a real problem don't make the problem go away. Major cryptocurrencies currently don't do it, so we shouldn't talk about them as if they do.
Even still, the number of balances will grow over time. Unlike a real bank, you can't just close an account when someone dies. Anyone can create as many balances as they want. And losing your private key means there's a permanent record of the money you lost.
With a CC it takes 1-3 business day for the merchant to receive spendable funds. With a crypto tx it takes minutes (the time for 1 confirmation). This is a huge advantage for cryptocurrencies.
«What service, exactly, is more expensive than a 7% fee?»
It's the worldwide average of all remittance companies. See http://remittanceprices.worldbank.org/en which claim 7.13%.
«Major cryptocurrencies currently don't do it, so we shouldn't talk about them as if they do.»
You spoke as if the problem was unfixable. I am clarifying it can be fixed. The reason most cryptocurrencies do not implement UTXO commitment sets is simply that having to store all txs is not (yet) an intolerable pain point.
How long does it take you to set up a merchant account? With cryptocurrency, it's practically instant.
The Fed generates ~$90 BN of revenue for the US government every year.
And it does it by printing physical cash. I think the first step to traction would be convincing Congress that they can get by without $90 BN every year. (Edit: if they haven't already been convinced).
Then why would the government bother to implement this? If anything it's disincentivized to set things up in this fashion.
https://www.nytimes.com/2018/05/04/upshot/should-the-fed-cre...
This is a partially direct democracy (for monetary policy) using digital voting with no paper trail! Unless there are crap load of formal methods backing this, it sounds like a recipe for disaster.
(Also, if this is the problem to be solved, why don't we just pass a constitutional amendment requiring a referendum for certain changes to monetary policy...)
> The government can likely create a lot of de novo wealth for its citizens in the process.
The thing that always confuses me: where is the fundamental value creation? I don't see much other than maybe saving on some inefficiencies in the current monetary/financial system. But that's not "de novo wealth"; that's "financial engineering".
How does a state-backed cryptocurrency generate "de novo wealth"?
Is it a digital currency?
But, USD is already mostly digital.
Or is it like a real cryptocurrency?
But, the selling point of cryptocurrency is decentralization.
Even if we ignore the decentralization, cryptocurrency has a lot of unresolved issues to work at a massive scale.
PoW burns a lot of energy. And PoS works by making rich richer because of the staking mechanism.
Transaction times on a huge scale network is slow. Yes, there is Lighting/Raiden etc being released but let's wait for it to be proven before we jump the gun.
Before someone says what about centralized cryptocurrency?
That is same as the digital USD. How will cryptocurrency be any different?