What is the difference? Maybe at the start, but after rich entities will buy the most, they will only need to decide whether to buy "shares" or hardware, a random person will not have more say either way.
>The scarcity of block chain space has led people to re-invent every last feature of the banks they thought they were going to be escaping.
This is a pretty funny point because every time I go on twitter and see people talk about crypto, what they're essentially having is a discussion about public policy, and often they seem to try to reinvent institutions that already exist without even knowing it. From market-makers, exchanges, insurance and so on, precisely as the author points out all the dreaded middlemen they were trying to avoid
The point is that Bitcoin has introduced an actual "digital cash" currency without institutional/governmental middlemen. That institutions can be built on top of that, and that some people want such institutions, doesn't change the novel utility of finally having a currency that functions like digital cash.
It's like saying it's ironic that people use physical USD for anonymous p2p transactions when USD banking systems have KYC laws. It's a non sequitur.
Well, take the upsides of cash (e.g. don't need to open a bank, prove residence, etc.) and now add the ability to exchange it digitally without the pointless gatekeeping of large corporations like Paypal.
But they won’t be the only vendor. There is no license required that gives them a monopoly on bitcoin. If they serve a market segment, great! Others will use something else. Bitcoin is entirely open - it’s a protocol.
Exactly. And barring an unlikely collapse, cash/dollar isn't going to fluctuate much at all in value. So... a feature.
At this point, bitcoin is a competitor to gold as an asset store. Maybe it will be more like a currency at some point. But there's a long way to go and a lot of forces against it for that to occur.
Seriously. Will it do the equivalent of being ~20k then go to 3k. Then come back to 29k? Highly unlikely. As much as people want to predict a collapse, you can't store a ton of money safely outside of Treasuries.
Theoretically companies like Mindgeek who have been kicked off of the VISA/Mastercard duopoly, would be able to use Bitcoin as a censorship-resistant way to accept online payment. There's additional benefits as mentioned earlier like not needing to comply with KYC laws.
Of course, as Bitcoin currently stands, it's difficult for this to come to fruition because most holders are speculators rather than people interested in using it as currency.
Because the fact that it's (in theory) anonymous means that most people think that it also cannot be regulated by laws. People just don't outright say that though because it might sound like enabling fraud, tax evasion, and other unsavory activities was the point.
How do you track money laundering? Not everyone doing it is a virtuous rebel Fighing The Powah. A lot of them are just plain old crooks or other kinds of criminals.
You can also not comply with KYC laws in the traditional banking system; you're just going to get roflstomp'd by the financial authorities, c.f. $200mm fine for Deutsche Bank for insufficient AML/KYC controls in 2012-2015 time period.
Why would you imagine the result will be any different for crypto-banking? FinCEN is already promoting KYC for exchange-hosted wallets.
With cash you can hand it to another person in payment. With conventional digital payments you request a trusted intermediary (your bank) to transfer that value to them. What if you don't trust banks but still want to be able to pay people?
Bitcoin was born in the Global Financial Crisis when the world was discovering the massive scam which the financial services industry had perpetrated, causing the whole problem. People wanted a way to do transactions without having to trust institutions which demonstrably couldn't be trusted. Hence Bitcoin which acts like digital cash with no trusted intermediary.
A lot of ways. And the banks reconcile the cash movement behind the scenes. As I understand it, in a simple example, if you send $1k to someone. And someone at their bank sends $1k to someone at your bank, there's nothing that the banks need to do other than record it.
That you brought up banking is precisely my point. Imagine if you needed a bank account to give someone $100 cash. Or to spend a few bucks at a street hotdog vendor.
Most people take it for granted that they need a bank to do anything, and they don't really consider how powerless they are over their own money. Like how it's illegal to carry too much cash (and it can simply be taken away). And how your bank can impose arbitrary restrictions against you like rejecting transactions and freezing your account. I've lost various bank accounts over the years as a permanent traveler. I'm banned from Paypal.
I want to be able to send $100 cash digitally with the operational minimalism of giving someone $100 cash in person. I want some control over my money even when I want to exchange it digitally.
It makes it illegal in practice, just not in name.
Are you really free if you have any arbitrarily defined “large” amount of money, only to have it sorted and it become YOUR burden of proof to show the origins of the cash?
In my country (Italy) is kind of illegal. I mean, not carrying too much cash (but of course if they find you with a suitcase full of cash, they will ask you where you got all that cash from), but you can't pay in a shop more than 2.000 euros (and they will lower this limit to 1.000 and possibly less in the future). Also you can't pay your employee cash, you have to pay in traceable manners something that you want to deduct from taxes like medical expenses, and so on.
Transaction with cash between private citizens are permitted tough (like buying a used car in cash), but it's not a good idea to do so if you don't trust the other party (because then how can I prove that I gave you the money?)
Cash transactions over 10,000 lakh are illegal in India [1]. Spain, France and Greece have all recently introduced limits [2]. Germany [3] has tried to introduce similar limits but have failed (so far). Australia's introducing a limit soon [4].
Sure, there are limits of non-tax-traceable payments in a few places. The part that surprised me was literally "carry too much cash" which is not quite the same thing.
> Most people take it for granted that they need a bank to do anything, and they don't really consider how powerless they are over their own money
People use banks because they provide financial services. You don't have to use banks, if for some reason you want to avoid them, but then you're left without access to those services. As far as I know, Bitcoin doesn't provide financial services, so it's not a replacement for banking.
Most banks provide most services at loss and make most of their money on mortgages. So they will provide payment services in the hope that 20 years later you get a mortgage from the bank you are familiar with.
Notice also that the whole business model relies on the bank having privileged access to central bank money and sharing that access with the plebs for some percentage interest. However current technology makes it feasible for central banks to simply interact with consumers directly. The only remaining problem is how to decide who is likely to pay back the loan. Retail banks could be relegated to credit check providers.
Understood that is a concern for you and some. I hope it gets there. But I'm not sure most people care.
Bitcoin isn't a currency yet. Most people can call up their credit card and get stuff blocked and returned instantly. Debit cards are definitely less of a service in that regard though and shouldn't be used like credit cards.
But the services are valued by most people.
As a currency, and as someone mentioned earlier - it's currently terrible due to it having an unstable valuation.
Credit cards are debt instruments. Very easy to use of course, but having credit card UX isn't required to qualify as a currency. There were no credit cards 100 years ago. Many countries still rely exclusively on cash and debit cards.
Agreed. My comment wasn't organized well and I can see that it linked the two statements, but I don't mean it like that.
I was referring to credit cards being a service that consumers value because they have fraud protection and other things. The parent was talking about arbitrary restrictions and freezing accounts. That typically happens when you have fraud on cash accounts (bank account, debit card, etc). And a credit card layer works extremely well.
I just had someone accidentally send me money on Venmo and I returned it to them right away. Cash or cash equivalent digital services are nice, but it limits "purchasing power" (great for consumers IMO, bad for merchants), has no rewards, and little to zero fraud protections.
Countries that use chip and pin on debit cards are definitely more secure. This should be in place in all countries. Fraud on a debit card is a nightmare. Fraud on a credit card is not usually a big deal for consumers.
Regardless of the various financial instruments, bitcoin cannot be a real currency when it's value is unstable.
The intent was 'actual digital cash', the result was 'instrument for speculation, money laundering and other fraud' which is entirely dependent on actual real money (and its institutions). Whether one finds that ironic or not is a matter of taste but it's clearly not exactly what the goal of "digital cash" was supposed to be.
That's just the reality of cash, no less in digital form, so it would be naive to think Bitcoin wouldn't inherit the same uses of USD (speculation, money laundering, fraud). It's just not very damning. Though I'm sure various people in the government/Visa would love to ban USD cash with the same demonization.
That’s completely wrong. You would never say “the US dollar has crashed compared to Microsoft stock“. That’s a dumb comparison to compare a currency to an investment. The dollar has been mostly stable the past 10 years. A gallon of milk is still around $3.50
The value of cash dollars changes all the time. You just don't notice it because you pay for everything in the same dollar denomination. But when everything gets more expensive year by year that's your dollar devaluing. CPI is one measure of that.
This is an extremely tiring response. Just because you're a pyscho doesn't mean bitcoin makes sense as a currency. The vast majority of institutions will not accept bitcoin as payment because they realize it's a horrible currency.
How does getting paid in BTC work? Are you set a rate of bitcoin you get paid that amount or do you have a salary in dollars and you get paid whatever btc satisfies that?
Any VPN service offers the option to pay in bitcoin, as do many other sites. There are entire marketplaces on Tor where bitcoin is the primary currency.
Dollar is still the king of money laundering. Regulatory support, shoddy bank regulations makes it a smooth experience of money launderers and mafia with USD.
Yes because the dollar is still the king of, well, money. All the Bitcoin fraud and money laundering ends up being dollar fraud and dollar money laundering, otherwise nobody would care.
Try to make a concrete point without encumbering it with sarcasm. I don't want to guess at what you mean and then have a meta discussion over whether I correctly interpreted your point.
Or maybe the other way around. Don't just assert. Explain.
From the article:
> The whole idea of proof-of-work mining is broken the instant hardware comes out which is specialized for mining and useless for general computation because at that point the need to have compute power for other purposes is absolutely irrelevant in having any effect on mining, and there ceases to be any force that causes mining to be distributed around the world. It becomes a "race to the bottom" to find where people can get the cheapest electricity, and then mining anywhere else - anywhere the government tries to make sure ordinary people actually get the benefit from electricity bought for tax money, for example - becomes first pointless, then a net loss.
It's the same story as some countries not having good quality coffee, avocados, quinoa, etc. because the export-quality goods are priced out of widespread domestic consumption.
With electricity production and distribution being a natural monopoly (and therefore typically regulated by the government), blockchain can't escape the realities of foreign exchange rates and government control.
Miners have no ability to retract or redirect transactions. And to exclude them would require 100% collusion. Miners as "middlemen" doesn't make sense.
Edit: Your comment was edited after I made this one. I see no relation between the quote from the article and how miners are supposed to be middlemen.
It doesn't take 100% collusion, but certainly no more than 51%, and I've read speculation (though no proof) that less is sufficient.
> middlemen
A mining cartel can't edit a blockchain, but they can choose to accept a different blockchain, which is effectively the same thing. Do you accept the premise that a sufficiently large cartel can exist, by state intervention in the price of electricity?
[Apologies for the edits. I often find I dislike my first draft.]
It requires 100% because it only takes one miner to include the transaction for it to eventually be included.
Chain splits do not "edit" blockchains, they still require their own proof of work, and they cannot modify transactions, only drop them. Honest participants in a chain that is orphaned will not have had their money spent in the new chain, leaving it available to spend again. That's all that can be done. It requires a lot of work to be done once, let alone maintained over time on consecutive blocks, and in extremely short order the rewards sacrificed by fucking with the blockchain make continued attacks expensive to the degree that they'd be practically impossible.
People aren't thinking this through. The "race to the bottom" endgame is not that miners consolidate in one state with subsidized electricity, but that mining operations eventually power themselves off-grid through renewables, making distribution entirely detached from geography and jurisdiction.
I agree that continued attacks makes a complicated situation, given the cartel participants would probably hold a significant amount of coin and would risk devaluing themselves against some other currency (though in the end-game scenario, what other currency matters?).
Let's imagine that the majority of domestic and international trade is conducted in Bitcoin, with maybe some alterations to the protocol to enable hundreds of thousands of transactions per second at essentially zero cost from the perspective of an individual actor (non-miner), even bursting up to tens of millions of transactions per second, somehow. Suppose then that two large governments, say the Unites States of America and the People's Republic of China, get into a little tiff about some boats hanging around the Taiwan Strait. Would these societies (in aggregate) prefer that their domestic and international trade be conducted in Bitcoin, or in a domestically-controlled currency?
A cartel could lock out a set of accounts from the Bitcoin network. Perhaps only temporarily, but long enough to have serious effects.
> power themselves off-grid through renewables
That'd be cool, but I doubt that off-grid will ever reach the efficiency and scale that on-grid will provide, due to fluctuations in the power sources and the economies of scale. It's hard to make a currency choice by betting on that technology, especially as the calculation could swap as the technology changes.
I grew up in Ukraine where my parents were earning and spending hryvna (local currency, high inflation) while saving in USD (much more stable).
And a big value prop in favor of US dollar was its immunity to local country’s politics.
Bitcoin has a potential to serve as that kind of saving “currency” a lot of people actually need.
Not to burst your bubble but assets with extreme volatility, like bitcoin, are not suitable for saving purposes. Investment maybe, but not saving. I assume "saving" purpose in this case means that it withholds its value while being easily liquidable.
If you on the other hand have a long saving window so you can tolerate huge swings in the price of the bitcoin (or other cryptocurrency) then the question arises why not diversify your investments like regular people and buy ETFs or other assets?
Maybe buying ETFs is harder than buying bitcoins, but in general the idea is (I assume) the same. However, what I feel most people are allured by with bitcoin is its random price movements where out of nowhere its price surges up and creates a total hysteria in the market.
I myself heavily dislike assets which price is mainly driven by emotional rationale and while bitcoin's idea may be good, I would not suggest anyone to put their savings in bitcoin. It would seem to encourage people to treat markets with magical thinking where the prices are set by otherworldly powers and not as tied to the revenue stream that is generated by the said asset.
Despite the crazy year, bitcoin still has less extreme volatility than some actual country's currencies. So for that small percentage of the world, bitcoin is a better "currency" too - besides for obvious things like local brick and mortar acceptance.
Sure but the de facto standard way of dealing with this issue is storing cash in a well-established fiat currency, like US dollar. Although I'm not sure what are you implying. I would assume buying US dollars is as easy as buying bitcoins in most cases. And more accepted too. The only problem being having to have either a bank account or physical notes somewhere stored.
This is solved on the vendor and the buyer side by using "acceptable thresholds of difference" that can be specified with a configuration file. For example, Coinbase Commerce uses this mechanism.
I use Bitcoin where ever possible, so your opening claim is wrong.
I've been banned from Paypal. I've run into many verification issues over the last decade with banks because I have no proof of residency once my driver's license expired.
Like physical cash, it doesn't need to be superior in all ways to be useful at all.
The actual only criteria of fiat money I learned in austrian high school was "government will accept taxes in that currency". We have quiet a long history of taxes here, ranging from cows or sacks of grain to gold to gold coins to gulden to reichsmark to schilling to euro. Probably a good measure of centuries more than the US (which basically got kickstarted with the UK system at the time). Funnily enough, the above definition was the only thing holding true through the centuries. Thing is, if your government accepts taxes in a certain currency (even if it's a foreign one, that's perfectly fine too) it creates a stability by itself which fosters the usability (call it user friendlyness if you like) of the currency.
In that sense, I'm fairly sure that unless you are personal friends with the president you cannot pay your taxes in Euro the same way you cannot pay them in ₿, Pesos or ¥ because the currency the US claims their taxes in is USD.
Please prove me wrong or gib a better definition if I'm wrong :)
Happy New Year everyone!
Bitcoin is obviously not money, and among the many reasons the fact that it does not serve as a store of value nor a means to defer payments, which is a single requirement that comprised the very definition of money, is just one of them.
No, it's not. It’s too volatile to be an efficient store of value or a useful unit of account for general purposes; it's got some use as a competitive medium of exchange for certain circumstances (but again not really with the generality of any major fiat currency.)
It's commodity that seems to (retrospectively, at least, and there is some reason to expect this to continue for the near future) have good investment performance if you are in a position to wait out down periods, which makes it nice as a component of an investment portfolio.
It's good at things that aren't the purpose of money, but mostly not good for things that are the purposes of money, except for a narrow subset of one of three major purposes of money.
It's not one guy bartering, it's a lot of services offering it as a payment option, treating it effectively like a foreign currency with a different set of payment providers
They really aren't. They accept bitcoins in exchange for goods/services, just like we see in any barter system.
Calling bitcoins "foreign currency" is just a desperate attempt to hide the obvious consequences of it's volatility, which eliminates it's role as money, not only as a store of value but also as unit of account.
> oh what is this very specific definition of what money is does the non-random guy on internet have?
Each and every single random guy on the internet who wants to buy stuff with money cares about money, and the properties that allow something to work as money.
Specifically, properties like being stable in its value within the market, and reliable both as a means of deferred payments and meet debts.
Bitcoin, or any cryptocurrency, is nothing of the sort. Far from it.
>> Bitcoin, or any cryptocurrency, is nothing of the sort. Far from it.
For some random guys on the internet. yes. Some other guys are using it without waiting for it to be everything the previous system had. (deferred payments etc.).
Do you live in the US? If so, how do you deal with the tax implications of buying lots of things with crypto? It's my understanding that each of those is considered a taxable event that you have to report on your tax return.
Yeah I guess so, it still seems like it could be a major pain. Especially if somebody, say, transferred money between wallets and didn't keep good records. Or messed up the cost basis somehow. Or didn't think to set aside the necessary taxes every time, and then finds themselves with an unexpectedly large tax bill at the end of the year.
It's another reason why using a cryptocurrency is still a gigantic hassle in comparison to fiat.
I have no proof of residency once my driver's license expired.
Every state I've lived in (13 so far) has an ID card that looks and acts exactly like a driver's license, with the only legal difference being that it is not valid for driving.
Unless you're not in America, in which case someone else can chime in.
If you don't live in the US, then it becomes difficult to prove state residency as they want things like pay stubs, cellphone bills, and rent payments. Or you need to find someone who can prove residency and then claim (lie) that you reside (domicile) with them.
I don't have any of that. But maybe you can appreciate that I don't want to have to jump through those hoops just to be able to send someone $100 digitally.
> But maybe you can appreciate that I don't want to have to jump through those hoops just to be able to send someone $100 digitally.
Surely you store fiat currency somewhere, and isn't there a "transfer money" button where you plug in an account number and institution and the money arrives shortly after?
While I assume you're talking about those without bank accounts in this statistic, it's also not true of most bank accounts in the US either so far as I can tell.
The inability to make transfers immediately and without fees between accounts held at different banks is bizarre for those used to UK banking.
Please humor me as to where this fictional place is. If you're born in a place you will have a birth certificate and can get documents to prove you are supposed to be there. I've never been to a country where this wasn't true. If you immigrate to a place you'd equally have documents to prove you should be there and can acquire things like a driver license or id cards to take with you. Barring complete war zones or jumping the border wall, I don't know of a place where this wasn't the case.
Yeah, Coinbase changed the other year, only for US citizens, where a passport is insufficient, you need to prove state residency (i.e. for most people, a driver's license).
But one of my points here is that, while I'm sure some people here are chomping at the bit to nail me with a gleeful "see? ironic!", I simply don't have to use Coinbase. I can, for example, exchange Bitcoin locally the same way I can trade USD for pesos with my roommate. I was SOL at one point when I was simultaneously banned from Paypal while my bank at the time spontaneously rejected further access to my own account, the two institutions I was depending on to operate abroad. It's what made me turn to Bitcoin, and I began considering how ridiculous the state of our financial status quo where I have precarious access to my own money.
I can appreciate that my outlier needs make it hard for people to relate to me the same way most people don't understand why an HNer cares about Linux when Windows works for them, but I think most people here are disappointingly eager to reject any possible upside of "digital cash". Even if its upsides are exceedingly niche for most people, that's not reason to dismiss them.
To me it's like reading an HN thread where everyone dismisses Purism's smartphone because Android and iPhone do the job for 99.9999% of people, and who the hell could possibly care about separating the CPU from cellular baseband? Or maybe they're claiming that only criminals would care about that. Well, that very few people are in a position to appreciate it has no basis on whether we deserve the option.
This is my last comment on this particular submission.
Are you primarily engaged in illegal actions for your source of income? Your other comments in this thread seem to imply that is the case. No judgement, but if so, I think this is a pertinent piece of information.
It is not difficult for most citizens in first world nations to keep and maintain a bank account.
22% of the US doesn't have a bank account. For myself when I lost my house I also ended up owing my bank money for an almost $500 overdraft used to pay the cost of moving bam no bank account and auto denial insofar as opening another account anywhere else.
Those analogies don't work for me. I already have "digital cash". The great bulk of the money I spend never takes physical form. And I use Linux because it's demonstrably superior for the tasks most important to me. Bitcoin, though, mainly seems to solve problems for speculators and people engaging in light financial crime. Is there a niche I'm missing?
The comment you replied to is the source. What other type of source would you like for what something "seems" like to an individual?
It seems to me that asking for sources is a common technique for discrediting opinions on HN. It looks like a legitimate question but obviously if they had a source it would be a fact rather than an opinion.
If you are actually interested in how that opinion is formed ask a relevant question or point out what they are missing.
Personally I find that opinion entirely reasonable given that there are no problems I have that Bitcoin would solve better than the alternatives unless I was inclined to buy something online anonymously or to speculate on Bitcoin itself.
Technically speaking, it's also a terrible investment vehicle for those same reasons. It's a fantastic parlor game of speculation though, where the point is the volatility.
You’re cherry picking your price analysis time period. Last year I could have said “BTC has trended down tremendously the last 2 years” and I’d have been right as well.
This is a pretty silly comment. It's you that's cherry picking. The overall trend of Bitcoin over its lifetime has been up. Any complete analysis of its time series would tell you that. Buying at any point in its history would have been a good idea.
No it isn't. I am not arguing that the price going up makes it good. That would be silly. I am merely disputing the characterization of the prior comment as 'cherry picking'.
So is roulette if you win. A "good investment" in many contexts has a 20 year lifespan and low risk profile, so TBD.
I'm not saying its bad, but its an extremely high risk investment so not suitable for the money you can't afford to lose. I've heard of many people withdrawing superannuation to put into crypto (or using credit) for example.
Well I don't think roulette is a good comparison, roulette has a capped upside with a known, negative expected value. Agree with the rest of your comment though.
I really dislike the way the finance industry has been conflating two notions that - while related - are actually different: that of volatility and that of risk.
Volatility results from the fact that the markets have a very hard time pricing an asset (because the asset's properties are hard to understand and its future behavior is therefor hard to predict).
This results in the creation of noise on the price signal.
It does not mean the asset is inherently bad. It just reflects lack of knowledge.
I stopped being annoyed by crypto generally when people stopped pitching me insane scams of how the entire internet 2.0 was going to run on blockchain (its not) and they accepted its a fun gambling vehicle.
Exactly. It frustrates me that the term "investment" has been stretched to include raw speculation. People are welcome to do either one, but it's dangerous when people confuse zero-sum and positive-sum games. Buying any currency, crypto- or otherwise, is like playing the ponies: for every dollar won, there's (at least) a dollar lost. That's very different than investing in a company, which hopefully uses the money to create value.
Would be true if bitcoin was full premined, but it wasn‘t.
There are still 900 new bitcoins mined per day, and with an open source / patent free environment the space is a competitive market, the cost to produce one should tend towards the price of selling it (less so when the price rises quickly).
So how is at least a dollar lost (for every dollar won)?
The new coins aren't handed out generally. They are rewards to the "miners". They're relevant only for people going into the mining business. I'm talking about price speculation.
For people speculating, there's always a buyer and a seller. If I buy $100 of Bitcoin from person A and then later sell that for $101 to person B, then I have gained a dollar. A dollar that A would have gotten had they held on, or B would have gotten had they bought in earlier. It's a zero sum game. Except that everybody involved is paying transaction fees, putting in otherwise-valuable time, and taking risk (e.g., of theft), so in reality it's a negative sum game.
That's very different than actual investing. If I put $100 into a friend's company, then they will hopefully use that money to create something more valuable than the total investment. I'll come out ahead, but so will my friend and my friend's customers. That's a positive-sum game.
This is only true if everyone using the currency agreed completely on its future value. Currently, some people think it'll tank and sell, and others think it'll rise and buy.
You can just hedge your exposure on a futures exchange and still use BTC to transact but be unexposed to any price movements. Although doing that is very complicated and defeats the purpose of an easy to use alternative to centralized cash.
Indeed but I wonder if one could build a platform that does this behind the scenes. User sends BTC to the online wallet, and the site hedges on behalf of the user on one of the liquid future exchanges, locking in the prevailing BTC price. People can make payments out of this online wallet with just as much ease as they're currently doing. Then they have an easy to use digital cash without any price risk.
The site charges a small fee for the service of derisking the holdings.
This does seem to solve a real user pain point (risk and the complexity of hedging) and benefits from scale economies.
> No one treats Bitcoin as a currency. ... And the reason behind that is obvious. Something whose value may double in a month or whose value may halve within weeks is a terrible currency.
Nope. I don't buy things in crypto only because of the reporting burden. Every cup of coffee bought with crypto has to be reported on a tax return.
It's reported as a security - other, which is laid out like the stock trades 1099. Your taxable amount is the difference in price between what you paid for the currency and what you "sold" it for (both in USD).
That makes no sense unless you are converting the bitcoin to dollars but then it's not being used as a currency. If it was a currency the business would accept bitcoin directly and thus there would be no need to report it on your tax returns.
That’s incorrect. When you buy something with bitcoin, even if it is priced in bitcoin, the IRS considers it a sale or exchange of a capital asset and you have to report the transaction on your return.
Most of Monero is actually paid for in Bitcoin via online exchanges. WH stopped doing auto-exchange just few weeks ago, but many other exchanges are still up with barely any kind of validation, not even an e-mail.
I’ll call BS on this - are you actively selling it to buy things online? And you buying BTC when you have spare money in checking accounts? Is your turnover like 10-20%? I’m guessing you’re a buy and hold person with BTC, which makes you an investor in it.
I'll admit that I do buy bitcoin for use as currency. It is still the easiest way to remain pseudonymous digitally. To me it's similar to gold. Most people use it as an investment vehicle, some use it because it's an efficient way to store value that is hard to track.
To a first order approximation, nobody uses bitcoin as a currency. There are a handful of enthusiasts who might use it such as yourself, but you are in the absolute minority of bitcoin holders.
HODL would not be the meme it was if the goal was to actually use bitcoin in day to day transactions.
> t buy things in crypto only because of the reporting burden.
There's an easy solution to that problem: spend BTC when you buy things, and then every week-end, buy it back to get rid of whatever monkey money (fiat) people gave you (salary,payments,etc...)
That seems like a lot of work, but it's easy to automate.
And if enough people do this, this will strengthen the BTC economy and weaken fiat, so you can feel good about yourself when you go to bed.
Bitcoin is volatile because it is not yet widely used and the market for is still relatively small.
Yes, people are investing to speculate on its price, but they are also investing because it has a fixed supply that cannot be inflated away by governments.
Take a look at the U.S. M2 money supply YTD and the DXY and consider what happens next as more wealthy investors begin to recognize this advantage inherent in Bitcoin.
Ask the people who bought hundreds of millions of dollars (without inflation) of drugs on Silk Road, Empire Market, White House Market etc since 2013 until now. I am making up hundreds of millions based on the seized Bitcoins by the FBI, the real number probably exceeded Billions a long time ago already.
The WannaCry and other ransomware folks don't sit on their millions of dollars of extorted Monero/Bitcoin either. They buy cars and fancy things with them, and that's one reason many of them got arrested.
Few real world examples of scams against everyday folks:
I also use Bitcoin as a currency (via Coinbase). I love the reactions. It’s not commonly accepted in my area so I’m only using it for haircuts and holiday bonuses, but would gladly buy more with it. Excited about Etherium’s DApps but having trouble creating viable ones in my industry (insurance). BTC’s transaction cost is worrisome (who is spending $6 in transactions fees for small purchases). Monero has some serious advantages over BTC (privacy and transaction costs).
My spouse in European and before her immigration to the US happened I would send her bitcoin or litecoin when she needed money (she was in school). It worked despite the volatility. She'd tell me when she needs some, I'd send it and she'd sell. Total flight time was ~10 minutes. Super useful for sending amounts that are less than 200 dollars.
As a freelance programmer/UX designer I offer my clients to pay in Bitcoin (yes, as a currency).
So far over the course of my decade-ish long career most invoices are paid via fiat but actually my record sale was paid in Bitcoin. The client paid for approx 500 consulting hours in BTC (and is still a client to this day, paying for many more hours than that batch in subsequent purchases albeit sometimes in fiat).
I prefer Bitcoin over government fiat currency when doing large transactions like that because of the risk that a bank will freeze the funds or hold the transaction arbitrarily without warning and on either side of the equation; ie- you don't know if the party sending or receiving may be subject to the freeze.
I wouldn't necessarily say that most of its market cap is coming from people treating it like a currency. But I most definitely think it is effectively a currency in some places and in some special circumstances.
I take it that the point of the post is that, by and large, due to the fact that the blockchain is public and analyzed and mining is conceivably traceable to special purpose hardware, it's not for many practical purposes usable as a stateless, institution-free vehicle for transactions.
I'm not sure how to square the circle on this, but it certainly is a currency in some cases.
Every Bitcoin transaction is crawling with industrial and governmental middlemen, often with the latter trying to arrest the former for stealing all your money.
That is a good way of thinking about it. "The Internet of Money" is a very good way of labeling it. The internet protocols itself and it's openess are very foundational like bitcoin. Everything we use today is built on top of that. BTC is really just the brand right now. Moving forward we will see if BTC is Yahoo/Myspace and who will be the Google/Amazon of this new sector.
Since Bitcoin transactions are enabled only by spending electricity, isn't the whole system dependent on utility companies, which are either in part or in whole extensions of the government?
If you want to be reductionist, you can argue that since almost all of the world's land, people, resources, and equipment are under the control of some government, it's hard for anything to be independent of them.
I don't think that's reductionist. I think that's a reasonable statement. It is indeed hard for anything to be independent of government control, except perhaps in failed states. Which is sort-of the definition of a failed state.
If electricity became less available the mining rate of Bitcoin would automatically adjust to the scarcity of available computation - it's not like there's a specified amount of electricity that has to be used per transaction.
It's less about steady-state global availability than burst capacity. What if the People's Liberation Army decides that temporary control of the Bitcoin network is a valuable capability?
Bitcoin is the digital version of those huge coins people had on Easter Island. Had the Easter Islanders invented fractional reserve banking they might have taken over the world instead of England.
Bitcoin isn't going to be a currency. It's a digital store of value. It will never be anything other than that. People may build new currencies on top of it in the near future. As the volatility fades from Bitcoin over time and it becomes extraordinarily boring (ie quite stable), some small nations will experiment with linking their fiat to Bitcoin for stability (seems laughable today, it won't be in a decade).
> The more scalable the network becomes, the more centralized it becomes, until ultimately a "scalable" cryptocurrency would be doing things exactly the same way as a credit card processor.
It’s like refactoring a codebase without understanding the problems behind the current implementation, and then acting surprised when the code is just as ugly.
I agree with you mostly, but market makers on exchanges are not middle-men, they are simply market participants like any other. Conceptually, there's no difference between a professional market maker and a individual who puts a limit order on the book.
Well, obviously the designer of bitcoin or any so called cryptos did not take a serious thought why centralized financial authorities are there. They believed books kept by those financial authorities are the real problems and thus they made the books public and introduced the mining process. The real problems have never been about records, they are really about the integrity of the transactions, which in turn pointing to the trustworthiness of the counterpart. By making books public can never ever resolve those trustworthiness issue and actually introduced more problems such as everyone is storing heaps of info which does not concern them at all, 51% attack etc. To establish trust between parties in the transactions, as you mentioned, market-makers, exchanges etc came into play, which defeats the purpose: to decentralize by introducing other centralized authorities which are actually less trustworthy than current ones. In other words, catch-22.
From the tone of your statement, I think you meant mis-understanding. I'll add also a misunderstanding of macroeconomics and a rejection of empiricism. The cryptocurrency folks read a bit too much of von Mises.
> And most of all: you can’t replace trust with tech.
I'd say, you can (Bitcoin is one of many recent exercises of replacing trust with math). But it's not worth the price. Or, put another way, trust is a ridiculously powerful optimization that enabled humanity to form societies in the first place. It's very similar to how introducing a central node into a network reduces communication costs from O(n^2) to O(n). In the general case, it's stupid to not take advantage of it.
I consider Bitcoin to be the closest we've came so far to expressing trust in units of energy. POW shows us how much computation has to happen to achieve mathematical guarantees in lieu of trust. Somebody could probably derive some upper and lower bounds on the energy costs of trust in terms of information theory. I'd love to read such a paper.
Bitcoin doesn't solve any trust problem outside of how many bitcoins are in each wallet.
Even in the very basic ecommerce use case: buyer purchases item online with bitcoin. The buyer must necessarily trust the vendor to deliver.
There's no recourse outside of the good graces of the vendor. There's no chargebacks or third party mediation.
Thus Bitcoin actually reverses the risk assumed by online purchases from the vendor to the buyer.
This is the reason why Bitcoin is a failure outside of niche grey and black market concerns. It is far worse for the consumer than existing solutions that isolate them from transaction risk, and will usually kick back a small percentage in cash back.
You know I thought about doing some type of crypto, but after finding out you have to pay to even establish a certificate and everything else. Shit your right back to being controlled by your balls to be recognized as a legitimate digital coin system. Just like SSL certs, yes you can create one, but will your browser say its authenticated, nope! Done with the entire system. Live in a tent and live off the land.
> re-invent every last feature of the banks they thought they were going to be escaping.
> centralized mining activity in a country where centralization means it's effectively owned by exactly the kind of government most people thought they DIDN'T want looking up their butts and where the people who that government allows to "own" this whole business work together as a cartel.
It looks to me like an attack on the reserve currency status of the USD. It's not a sure bet, but China is willing to tolerate it in the event it succeeds. Chins holds the mining power, so they effectively win if Bitcoin takes over. It's easy for them to clamp down and control.
> This is a pretty funny point because every time I go on twitter and see people talk about crypto, what they're essentially having is a discussion about public policy, and often they seem to try to reinvent institutions that already exist
The Bitcoin early adopters want to replace the incumbent systems with their own so that they can enrich themselves.
Now that Bitcoin has had time to play out, it feels like an attack on USD with way too many downsides.
This isn't a very good criticism. Lots of new things recapitulate the structures they are replacing in many ways, while improving on them in just one or a few areas. The fact that ground is being retread is not itself a criticism or a sign of a lack of innovation.
Yes, Bitcoin requires many of the same structures as traditional finance. That does not make them equivalent. Traditional finance does not allow you sovereignty over your money. Bitcoin has central custody, sure. But it's opt in. That's what makes it different. You may or may not care about this property, but its undeniable that it's novel in the digital realm, and empirically many people do care about it.
It's not that the structures are inherently bad, it's that such structures are, philosophically, the exact sorts of things that many early (and current) proponents of crypto wanted to avoid. In that sense bitcoin hasn't failed as a system in & of itself, but it has failed to achieve the philosophical goals of those people.
Bitcoin & crypto also might not be sovereign in origin but they have plenty of sovereign influence, basically as much as any sovereignty wants to impose on it. Especially as entities like the SEC & IRS come to terms with it, it will be just as vulnerable to government control as fiat currency. This is especially the case because any wide-spread adoption will require adoption by large financial institutions, which cannot avoid regulatory regimes of their local jurisdictions. From the US government's standpoint, US citizens holding bitcoins is not much different than US citizens holding Euros. How that money enters into the US economy & interacts with US financial institutions or changes hands from person to person are basically subject to the same rules & regulations. If you're conducting a a transaction in excess of $10,000 then whatever mechanism facilitates that will still be subject to CTR's, and any "suspicious" transaction of lower limits will still be reported, by law, to the government.
Basically, if you want to convert bitcoin to the local currency to buy something, you'll need to use some sort of off-ramp that will be a regulatory bottleneck. Want to build a "shadow" economy purely driven by crypto exchange? Well, you'll still have to deal with the IRS knocking on your door & saying "You have things of value that you are performing work to receive. We don't care what currency or form you received them in, you received things of value. Give us our cut."
In short, it doesn't matter that it wasn't created by a sovereign authority: The control a sovereign authority can exert over it is, contrary to many of the most philosophical hopes for crypto, indistinguishable from sovereign currency in everything but name & source of origin.
Let me be clear though: I'm not anti-crypto. I'm probably a little ambivalent, and a little optimistic that it might replace high-friction mechanisms that exist in current financial infrastructure. What I do believe is that crypto cannot both go mainstream and fulfill the philosophical hopes that many had wanted for it.
> It's not that the structures are inherently bad, it's that such structures are, philosophically, the exact sorts of things that many early (and current) proponents of crypto wanted to avoid. In that sense bitcoin hasn't failed as a system in & of itself, but it has failed to achieve the philosophical goals of those people.
I'm not sure that's quite true. Decentralization was a goal, but it wasn't necessarily the case that that decentralization had to pervade all use of the currency. The values of the ecosystem are that more decentralization is better - that's true, so Satoshi et al would have preferred to make decentralized transactions sufficiently scalable not to require centralized exchanges, but I don't think that it has fundamentally failed in its goals just because a lot of transactions happen in bank-like entities. The point is that users have the power to do it in a decentralized way.
> Bitcoin & crypto also might not be sovereign in origin but they have plenty of sovereign influence, basically as much as any sovereignty wants to impose on it. Especially as entities like the SEC & IRS come to terms with it, it will be just as vulnerable to government control as fiat currency. This is especially the case because any wide-spread adoption will require adoption by large financial institutions, which cannot avoid regulatory regimes of their local jurisdictions. From the US government's standpoint, US citizens holding bitcoins is not much different than US citizens holding Euros. How that money enters into the US economy & interacts with US financial institutions or changes hands from person to person are basically subject to the same rules & regulations. If you're conducting a a transaction in excess of $10,000 then whatever mechanism facilitates that will still be subject to CTR's, and any "suspicious" transaction of lower limits will still be reported, by law, to the government.
This just isn't accurate. It may in fact be vulnerable to some level of government influence, due to the fiat gateways involved. But it's just not true that it's equivalent to fiat in that regard. Cryptocurrencies will never be as regulable as fiat is, and I think it's pretty clear that that's true, given how widely they've been adopted by cyber criminals and darknet markets. Governments have been completely unable to prevent their use in this way, and will continue to be unable to do so.
It's true from a legal perspective that the government views it just like foreign currency (actually, in the US, they treat it like property, not currency, but we can ignore that for now). But from a technical perspective, its very very different. The technical differences make it very difficult to regulate. Think about music. When music got digitized, its legal status didn't change. It was just as illegal to download an MP3 as it was to steal a CD. What changed is the topology of the technical landscape underneath it, and that is what made all the difference.
> Basically, if you want to convert bitcoin to the local currency to buy something, you'll need to use some sort of off-ramp that will be a regulatory bottleneck. Want to build a "shadow" economy purely driven by crypto exchange? Well, you'll still have to deal with the IRS knocking on your door & saying "You have things of value that you are performing work to receive. We don't care what currency or form you received them in, you received things of value. Give us our cut."
I think you are under-weighting the significance of friction. In principle, sure, the IRS might do that - but we don't live in principle. We live in a physical world with resource constraints. If you make something harder to accomplish, it may no longer be economical to do it. Collecting income taxes from people that keep their money in crypto who don't want to pay them will never be as efficient as doing so in the fiat b...
I mean sovereignty in the sense of actual control. When you put your money in a bank account, you give up control of it to that bank. The money may legally be yours, but they physically possess it, and can keep you from transacting with it whenever they wish. I in fact just had this issue the other day. I have a company, and due to a clerical error with the state its registered in, my company was listed as being "not in good standing", and because of this, Wells Fargo froze my accounts and wouldn't let me transact for two weeks until I got the whole thing cleared up. That could never happen with a crypto wallet, because I have actual sovereignty over my crypto wallets, nobody can freeze them for any reason.
Ok, that's not sovereignty. Sovereignty refers to the highest authority in a territory. Yes, in traditional banking, customers cede control of the money they deposit with the bank to the bank. They do not cede the ownership of that money, which they continue to own. Now, transferring money without making a deposit is possible with any currency, not just BTC. You make it sound like it's a feature of BTC but it's not. It's a feature of the financial industry, whether it provides this particular service.
Highest authority means actual physical control. When your money is in a bank, the highest authority is the bank. Not you. This is the literal definition of sovereignty, and it's used in many digital contexts, not just crypto. E.g. 'self-sovereign identity'. This isn't a word usage made up by crypto, it's quite common, and this is its meaning.
Possession and ownership are two very different things. Physical control can be transferred without loss of ownership. This is what happens when somebody rents a car, or when somebody deposits money with a bank. Sovereignty is a concept very specific to political science. It doesn't make a lot of sense to use it in other contexts. You can use it, if you want, but it's usually a sign that the person using it doesn't really know what they're talking about.
Or maybe it's that you don't really know what you're talking about. People have been using the term in this way for quite a while, and it isn't specific to crypto. It also comports just fine with the dictionary definition. So it seems to me that it's you who's definition is idiosyncratic. But the meanings of words are beside the point. Sovereignty in this sense is a property crypto has that other financial assets do not, whatever word you want to use for it.
But in bitcoin they aren't mandatory and there are essentially no borders. I'm not a fan of it personally but you can cut out the middlemen if you like. As to if that will be the case in the future as more and more regulations (and criminal precedents are set) are added on then it because much murkier.
The middlemen are being created again yes, but they are being replaced with mostly open-sourced software solutions like smart contacts and auditable ledgers. Bitcoin started the party, but the other projects are now finding their feet with technology that uses open consensus as the basis for open, functional, opt-in systems.
Look at Gitcoin, this would not have been possible without the Bitcoin project gaining traction.
The problem is not with Bitcoin. The problem is the 1mb block size cap. The block size cap restricts the number of transactions that can be processed in a block. It's an artificial restriction of supply. When demand increases the price (tx fee) goes (way) up.
There is some magical thinking within the Bitcoin community that only a fixed block size will prevent centralization. I have never heard a solid argument to back that up. Everything in technology is growing exponentially (cpu power, network throughput, disc space). So in relative terms the block size is decreasing exponentially. Technically Bitcoin mining should get exponentially more decentralized. This is not happening.
If we let the block size grow at the same rate as the surrounding tech, or at least at some rate, the supply problem would go away. The transaction fee would go down and we would not need to use flaky and centralizing tech like the lightning network that mimics the financial system that we wanted to escape.
For a long time this was a theory. However several forks of Bitcoin have tried it in practice (eg BCH, LTC, BSV). Over several years these experiments have shown that if you stop restricting the block size you get a system that is dependable, cheap to use, and scalable.
My wish for 2021 is for people in Bitcoin to reconsider if they have made a mistake in restricting the blockchain. I hope they will have the courage to change their minds in light of data.
Not 100% sure but there was some news a few years back about miners setting up shop in towns which had really low energy costs because they bought a fixed block of power from a nearby source and thus it was super cheap... as long as they didn't have to go over that initial purchase, after that it became more expensive than normal for everyone.
I think he's exaggerating here, but there are definitely examples where people especially in China have setup huge operations with the help of local officials who give them sweetheart deals on the electricity prices -- seems likely that the officials helping this happen may get some sort of benefit from this arrangement, but not sure if that has actually been reported or just assumed. In Washington state there were a number of bitcoin operations that started in areas with low cost power that promised to bring jobs to the area and my understanding was that the local power company often did upgrades to lines and substations to accommodate the added power needs -- the local taxpayers definitely would either pay for that capital cost or pay the additional maintenance costs down the road.
> Can somebody elaborate on the stolen/corruption angle?
It's easy to find articles about stolen electricity [1][2], but since these are both about people who were arrested it seems the governments weren't helping them.
Those articles point out that the governments stopped it rather than enabling it for considerable periods of time. You probably have to pay off a police officer when you're climbing the tower, but I don't see any cases where corruption at wide scale was involved.
The articles point out the value of the electricity stolen but not the gained profit. E.g., what percentage of BTC was mined with stolen electricity based on the cases we've found so far?
If only a vanishingly small amount of BTC was mined with stolen electricity then the rest of the argument kind of falls apart.
> ... rather than enabling it for considerable periods of time.
The $3 million example from China was operational for over 2 years.
> The articles point out the value of the electricity stolen but not the gained profit.
Sure. Random internet source says average Chinese industrial electricity is $0.084/kWh. So that's approx. 36 million kWh total, or average 1.4 million kWh/month (1.4 GWh/mo) during their operation.
> E.g., what percentage of BTC was mined with stolen electricity based on the cases we've found so far?
https://digiconomist.net/bitcoin-energy-consumption/ for Mar 2017 through May 2019 estimates global BTC energy consumption at 10 TWh/yr (830 GWh/mo) minimum to 73 TWh/yr (6,100 GWh/mo) maximum. Absolute lower bounds are 3.4 TWh/yr-60TWh/yr (280-5000 GWh/mo).
So, making some hand-wavy assumptions that they did not scale their operation over time, or reduce mining if prices fell, and that their ASICs were approximately as good as everyone else's, they were anywhere from 0.2%-0.5% (early 2017) to 0.02-0.03% (2018 peak) of global BTC energy consumption.
Per https://www.blockchain.com/charts/total-bitcoins the number of BTC in circulation rose from 16.193M to 17.728M (= ~1.535M) coins during that time. Just as rough bounds, 0.02% would be 307 coins and 0.5% would be 7675 coins.
https://www.coindesk.com/price/bitcoin price in Mar 2017 was ~$1200 USD, peaking in 2018 at $19,000, and $8,700 in May 2019. I don't have a weighted average for that period, but I'd approximate the average price over the period as roughly $5k. So: our extreme low estimate of 307 coins, sold immediately on mining, yields revenue of $1.5 million (on $3mil stolen electricity). On the high end, $38 million in revenue. Probably they made something in between.
> If only a vanishingly small amount of BTC was mined with stolen electricity
That is just the one operation, which got caught. It doesn't include any other illegal operations which got caught, and it does not include illegal operations which have not been caught. 0.5% is small, but significant. 0.02% is maybe less so.
This estimate of percent-BTC-produced-with-unpaid-electricity doesn't include legal operations that went bankrupt and will not be able to pay what they owe to the local utility. (There was a lot of this after the 2018 boom-crash.)
> then the rest of the argument kind of falls apart.
I don't really agree. The incentives here are all terrible and will encourage more of this going forward, especially with BTC prices astronomical again.
(1) Burn as much electricity as possible. This is just bad for society and the world.
(2) Acquire electricity as cheaply as possible. In the absence of theft, this encourages consuming electricity in locales that do not price carbon production externalities into electricity costs. Obviously, theft makes electricity even less expensive.
(3) Maaaybe you can take your stolen profits and run, because BTC is pseudonymous and freshly mined coins aren't connected to real world identities. This encourages illegal operations.
proof of work is an energy black hole. it goes to where energy is cheapest. this means that it has a tendency to go to places where subsidies exist and destroy said subsidy. if there is a place where electricity is being propped up by taxes or other such things for the benefit of the community, there is no reason for them to not just plug in a bunch of miners there and suck that subsidy dry.
Well this isn’t new is it? I recall chat from 2015 where people were pointing out that mining is just bad. Even when Ethereum started growing, one of the big arguments quickly became that proof of stake would be a superior approach.
I agree. I think the use cases have never materialized. I do believe there’s potential in peer to peer, or at least federated approaches. Email works. Matrix works. Irc works.
But I don’t think that a globally replicated ledger is the way to go. Especially with the ambition to use it as the basis for a currency that’s expected to be used for every day purchases.
What is needed is an AI digital currency where training deep networks for representation learning has a side effect that mints coins without costing a lot of extra resources. Then mining coins is useful and we get more better AI to enslave humanity.
I think its a no brainer and possible doom scenario. Is it possible? There are common operations like... the L1L2 norm that are used across machine learning. Is there a way to craft an operation like a regularizer that is both useful and profitable? Or could up you use a block as an initialization parameter and somehow make use of it? A prediction task itself might work - solve this provably hard problem and you own the cash. I don’t know but it seems like what is needed.
I use bitcoin to buy things both onchain and via lightning and the experience is so smooth and much much better than the circa 2017 period when fees were high. Don't keep it on exchange. The real thing that is stopping adoption is countries trying to classify it as a commodity and insist to pay capital gains on every microtransaction. Some countries are backwards (US, UK) than the others. Germany and few other countries are forward looking. No VAT on bitcoin transactions and no CGT if held for a year.
because you can't use it as a money if you need to pay capital gains on every stick of gum you buy. they should find other ways to collect taxes that doesn't inhibit it.
If you held any other foreign currency you would have to track it like this. For example, I live in Canada and if I bought USD and then spent it over the course of a year in Canada I would be responsible for the capital gain tracked on each expenditure based on the day's exchange rate. It's hard to see how Bitcoin should be any different.
because the goal would be to have bitcoin be an international money, not a national one. i'm not saying people shouldn't pay taxes, i would just suggest that there are better ways to collect it such that it doesn't inhibit progress. as it exists right now it is infeasible to use bitcoin as money day to day and accurately report your taxes.
Possibly funny thought: If you have to declare a capital gain on every BTC purchase of a cup of coffee, why can't you declare a capital loss every time you spend dollars that you earned long ago, and which have decreased significantly in value since then, due to inflation?
Technically yes, the same rules apply as if you were trading in any international currency. If you sell yen at a profit to convert to USD & purchase something, you owe tax. What sort of tax can be complicated depending on how long the asset was held. I'm not an accountant, but I think assets held less than a year are taxed as personal income, so marginal rates apply. Assets held longer than a year are, I believe, taxed as regular capital gains.
I'm not sure what would/should happen with extremely short term trades, i.e, you convert to Euros from USD for a vacation, the USD crashes, you convert back upon return from your vacation. I doubt the IRS worries too much about it, but I suppose technically you should file Form 8949 along with a Schedule D.
The responses are valid as far as they go, but the larger point is that the government in a jurisdiction is free to inflate its own currency at great benefit to itself while simultaneously extracting taxes on fictitious "gains" of other currencies or equivalents (like BTC) against that currency.
What kind of things do you buy with it and where? I remember seeing some adoption back when steam started accepting it, but sometime later they stopped because it was too volatile. I thought paying fees for the transaction made bitcoin very unappealing as well. It's not anonymous either, so I just couldn't find a reason to use it as it didn't solve anything that I couldn't do with my credit card. And my credit card offers me protections against fraud.
I didn't say all criminal activity is done via bitcoin. But there are segments of crime like cryptotrojans and CP trading that seem to be almost exclusively bitcoin-based. Others, like internet drug ordering, are at least partially in bitcoin.
Edit: replaced "any" with "all" in the first sentence
They are not printing any more 500EU notes, but they do remain legal tender for now. They might start being worth more than 500EU over time. Seems like a good note to keep your cash savings in if you live in Europe.
Decline of cash is really a shame. When the $100 was introduced it was worth about $2k in today's dollars, and in my lifetime even it was worth almost $300
These are all terrible uses of Bitcoin, as mentioned in the OP. All transactions are publicly visible in an immutable database. With a little investigation, law enforcement can find out who owns certain accounts and trace transactions very easily from there. If you are a criminal, you want no paper trail whatsoever, which is why they use paper money.
I guess that’d work if you’re the guy from White Collar or something, but I’m not sure your average criminal would have the attention to detail and knowledge to get that all right. And one misclick or bug can pretty much seal your fate.
You are right though that you can take measures to make it much more difficult to trace.
Precautions on that or higher levels of expense and complexity, like burner phones, dead drops, networks of couriers, cell and gang org structure are standard procedures in organized crime. Un"organized" single small criminals might have a larger fraction of bad opsec, but they aren't all stupid.
A few will be caught by making mistakes, but the rest will learn from that. Criminal methods undergo evolutionary pressure.
What happens when the NSA hacks the mixing services or congress passes a law forcing them to store information for law enforcement? Surely the mixing services know at least for a certain amount of time where the coin is coming from and going to.
I buy computer hardware (SSDs, network switches etc.), recently bought t-shirts and etsy like stuff on gethaven.app
Bitcoin has always been pseudoanonymous and its perma history is something that I am aware off and not that bothered off. Though looks like the bitcoin devs are working towards something to improve privacy called taproot and schnorr.
The thing that it solves for me compared to traditional fiat currencies is that it retains its value very well over a period of time. some of the bitcoin stuff I bought long back and spent it on hardware now means I got the hardware for nearly more than 500% cheaper if I had chosen to hold it in dollar or other fiat currencies.
Fiat currencies are a liability (depreciating value) if you are not constantly trying to invest them just to keep their value from crashing due to accelerating money printing/inflation.
I think you might be one of a small handful of people that I've heard from that continue to use BTC as a currency for goods over the past few years. It's good to know that this still happens!
Out of curiosity, you mention depreciating value for fiat being a liability, which is absolutely true. That being said, doesn't appreciation also create a different sort of liability?
For example, let's say I buy a 1TB SSD for $60 worth of BTC on Monday, and then that same amount of BTC is worth $75 on Friday. In theory, would it be reasonable for me to feel like I've overpaid?
Of course in this scenario, I pay for rent, food, taxes etc. using fiat, so I'm exposed to the difference in conversion rates. I suppose if I lived somewhere where I could transact wholly in BTC for everything and its value wasn't in any way tied to a fiat currency and the value of goods and services were negotiated in BTC in a way that's entirely decoupled from market value on exchanges, this wouldn't be an issue for me. Is this possible?
What you are describing is basically how any fiat currency is used, so it's definitely possible to live in bitcoin land. The issue is that price fluctuation for bitcoin is so extreme, not that you can buy other currencies with it.
If on Monday 1 USD buys 1 EUR and on Friday it buys 2 EUR you would have "overpaid" as well for many goods that you could have imported and maybe more directly if you had invested in EUR denominated securities etc..
Well, instead of a liability, it could also be a feature. A mechanism that allows people by choice to reduce consumption, thus lowering their ecologic footprint.
Go lookup currency deflation and what happens at the end. The transaction rate is to low and the energy use is to high to be useful. We are near the end stage when people and institutions start hoarding it.
The current problem in fiat money is what the new money is funding. This is a society/government policy choice and isn't an inherent flaw in fiat money. In the west the money is primary used to boost asset prices instead of used for production.
Sounds like a defect in the technology to me. A good currency should be able to support the full range of social policies (like VAT).
One of the problems of the Euro is not being able to inflate different countries within the Eurozone at different rates. If Bitcoin were ever to become popular for regular transactions within many countries, it'd be a fiscal policy disaster. Pretty soon you'd hear Portugal, Italy, Spain, and Greece banning its use, along with similarly wobbly countries in other parts of the world. I remember Malaysia catching flak for halting foreign currency exchange during the Asian Financial Crisis, but it turned out to be a really smart move. It turns out that a globally integrated economy isn't always best for the smaller economies. They need to be able to adjust the spigot.
Edit: I suppose this suggests a feature request for Bitcoin: namespacing, of a sort. If the currency were able to support cross-namespace conversion controls, like a tax determined by a function of the velocity and acceleration of exchange ... that'd be pretty darn cool. Each country could pick its namespace, and have control over its exchange tax function. Taking it further, you could tax intra-namespace transactions. VAT with no bureaucracy. Each account could be tied to a citizen, transactions taxed at some progressive schedule, and then uniformly distributed to every account daily. The transaction tax could be dynamic, to encourage currency flow in bad times, and to add some friction when things are overheating.
You are confused. There is nothing in Bitcoin that prevents VAT. It's just Germany's policy. Elsewhere they charge VAT on it like any other currency. I have paid VAT on all my bitcoin transactions like any other currency. I am not in Germany.
My understanding is that the inability to control inflation is a “feature” of BTC, not a “bug”. I strongly suspect that this will eventually make BTC too rare for owners to trade very often, and not practical as a day-to-day currency.
The comment describes a liquidity crisis, when the market clams up and price begins to fluctuate wildly. It's not that things aren't tradeable, but that very few people want to.
If useful, the US Department of the Treasury can issue a coin or bill with a value of any denomination, including .005 USD, and so is “infinitely divisible”.
Bitcoin divisibility is limited, by design, to 0.00000001 BTC (1 Satoshi)
Whether this is “enough” is very difficult to answer definitively. If the demand for BTC is greater than the supply, the value of BTC will rise until supply and demand reach equilibrium. If the demand outpaces supply, holders (“HODLERS”) have less incentive to trade and more incentive to keep their BTC, because the value of their BTC increases.
If demand gets too great, few to no holders trade, because they get more value by doing nothing, and trades involving BTC slow or stop completely. (We can think of this as kind of a “consensus attack” by “store of value” advocates on the “medium of exchange” advocates.) The demand doesn’t go away, though, so supply and demand can’t reach equilibrium.
Eventually this would lead people to start using something else as a medium of exchange, perhaps just bartering at first, eventually settling on something common. So now we have a problem: BTC demand has been satisfied by another “medium of exchange”. But what happens to the “store of value” part of BTC if it is no longer the “medium of exchange”? Do coins become like works of art, traded infrequently for great sums? Or do they become worthless?
> If useful, the US Department of the Treasury can issue a coin or bill with a value of any denomination, including .005 USD, and so is “infinitely divisible”.
And how much does that cost? I bet it's more than 5 cents.
> Bitcoin divisibility is limited, by design, to 0.00000001 BTC (1 Satoshi)
Not by design, that's an implementation details that can easily be changed in the future if 1 sat starts to become valuable enough to make a difference.
> and trades involving BTC slow or stop completely.
Do you have an example of a single commodity in the history of humanity that simply stopped being traded because it became "too valuable"?
I can't even understand how that makes sense, if it's valuable some people will want to sell it and get something that is more useful to them, like a house, a car, whatever. People don't commonly decide to hold an asset until their death bed.
> But what happens to the “store of value” part of BTC if it is no longer the “medium of exchange”?
The problem is that when markets get turbulent, they can suddenly shift to going the other direction. Instead of everyone wanting to buy, suddenly no one wants to be the last one out the door. And with Bitcoin, what authority is going to stop the panic?
> What happened to Gold?
I suppose it depends on which branch of Bitcoin you're on. Are we talking about store of value or medium of exchange?
Soros' comments on gold are helpful.
> “Typically, a self-reinforcing process undergoes orderly corrections in the early stages, and, if it survives them, the bias tends to be reinforced, and is less easily shaken. When the process is advanced, corrections become scarcer and the danger of a climactic reversal greater”.
What commodities ceased being traded during the Great Depression?
> Are we talking about store of value or medium of exchange?
Mostly store of value for now, both when adoption improves and LN support is more widespread. Eventually the base layer will also need some capacity bumps.
> Soros' comments on gold are helpful.
A multi millennium bubble? Can't get more unprecedented than that.
In case you're not familiar with it, the Great Depression was a period of deflation.
I'm guessing you didn't bother reading Soros' comments I linked. Or maybe you're pretending you don't know the typical usage of "bubble" is in this context?
Can't the government force taxes to be paid in the currency of its choice, thereby making taxpayers (residents, visitors, and their counter-parties) subject to its currency?
> thereby making taxpayers (residents, visitors, and their counter-parties) subject to its currency?
It does not make them subject to inflation, no.
If you hold entirely cryptocurrency, you are not subject to the inflation of holding the currency. Instead, you can simply convert to that currency, only when you need to pay taxes.
This avoids the inflation, in the same way that hold stock in a company, and not holding any dollars, avoids you from being subject to inflation.
Suppose you had a particular debt, denominated in currency A, owed at the end of the year. Would you want to hold some amount of currency A throughout the year to ensure you could pay that debt? I suppose you could argue that you'd buy some currency swaps or somesuch, but most people would just hold that currency.
Remember the Asian Financial Crisis, when a bunch of the "tigers" had loans denominated in USD, Francs, etc., and then there was a big capital outflow, tanking their local currencies against those debts? People will want to make sure they don't float against the currency they owe.
Holding enough currency to have a small amount of hedged safety against risk of that currency changing in value is not really a good enough reason to say that a country would be able to "force" "taxpapers to be subject to its currency".
Even if we say that people would hold some of that original currency, there could still be a significant benefit to transferring most of your wealth to a deflationary currency. Therefore, people would still be able to avoid being subject to that original currency to a large degree.
> significant benefit to transferring most of your wealth to a deflationary currency
I'm not familiar with any evidence of that claim, despite my economics education. I suppose the best historical corollary would be gold? If so, I think we can agree that almost no one has adopted that practice. Do you think Bitcoin is different enough than gold such that it would motivate different behavior?
Let's consider the effects of owing tax in the national currency. Retail businesses would owe sales tax in that currency, perhaps paid quarterly. Rather than adding complexity to each sale, they'd probably price goods in the national currency, even if not a legal requirement (which it easily could be). If goods are priced in national currency, it's handy to keep your working capital in that same currency. ... The incentives start to align to keep the bulk of domestic economic activity using the domestic currency.
For comparison, we can look at behavior in countries which make significant use of some foreign currency. For example, in some central American countries, banks make it easy to keep a USD-denomimated bank account. Why do people want USD instead of gold?
> I suppose the best historical corollary would be gold?
Not really a good analogy. The difference between gold and other forms of alternative currency, is the ease at which it can be transferred.
This whole situation only works, in the case where it is simple and easy to transfer between the deflationary, and non deflationary currency.
Obviously, the ease at which it is possible to transfer currency to other people, is an important factor as to why someone would or would not use a currency.
> if goods are priced in national currency, it's handy to keep your working capital in that same currency.
Not necessarily. If there are easy ways of instantly transforming your deflationary currency, automatically, without you having to do anything, into that other currency, then there is no need to hold that other currency.
> Why do people want USD instead of gold?
Obviously it is because it is pretty difficult to spend gold at your supermarket.
This isn't a problem though, if you have a cryptocurrency credit card, for example, that immediately turns your deflationary crypto, into USD.
Imagine we had some kind of credit card that was linked to VTI (and the market didn't have these silly business hours). When you charge the card, it automatically sells shares to fund your purchase.
Would you use that card? How does it differ from the scenario you described for Bitcoin?
I can’t see the flagged post, so don’t attack me here, I’m just going to explain the bitcoiner view.
Your presumption that inflation is good and that bitcoin needs to be able to support whatever “social policies” governments decide is antithetical to the purpose of bitcoin.
Bitcoin was created to escape currency debasement because it is how the people are impoverished. Currency debasement is the engine that creates wealth inequality. The Catillion effect means that people who get the newly printed money (eg wall street) benefit from it, while the regular people only pay the cost via reduced purchasing power.
Bitcoin is really a savings technology that allows people to escape debased currencies, like the zimbabwe dollar or the Venezuelan peso.
It also has censorship features and other useful properties, but this is the aspect most at odds with the assumptions in your post that the other user apparently disliked.
> currency debasement ... is how the people are impoverished
I agree that's the heart of the Bitcoin thesis, but I am convinced the evidence does not support that claim. In fact, quite the opposite. Much of the original Bitcoin discussion had its roots in von Mises' theories and beliefs, one of which was the rejection of empiricism. It's tough to fruitfully discuss a topic when the conversants disagree over epistemology. We can try nonetheless.
I see it the other way. The government can print money and distribute it uniformly, such as with this year's CARES act (which is about as uniform as one can ask for in this political climate).
Regardless of government policy for how it distributes newly created currency, inflation is fundamentally beneficial for debtors and bad for creditors. Are "the people" predominantly creditors or debtors?
> The government can print money and distribute it uniformly, such as with this year's CARES act (which is about as uniform as one can ask for in this political climate).
It can, but it almost never does. Usually it just subsidizes or bails out businesses.
> Regardless of government policy for how it distributes newly created currency, inflation is fundamentally beneficial for debtors and bad for creditors.
If the inflation rate is stable/predictable (which is the goal for the USD) it makes no difference for creditors/debtors, it gets baked into the interest rate spread.
In the US, we have Social Security, Medicare, Medicaid, and countless other programs. Yang got mildly popular this election season with a basic income plan.
> A good currency should be able to support the full range of social policies
This is not true. An infrastructure that does not even support oppressive policies can be (and often is) better. It’s similar to how it’s better that you can’t plug the USB wrongly.
The Lightning Network doesn't solve the congestion problem for global adoption. To open a lightning channel you need an on-chain transaction. The same is true to close one. Assuming 2,500 transactions per block, you will need ~970 days to just open a lightning channel for each US citizen (assuming 350 million citizens and no other Bitcoin transactions).
Due to his limitation the Lightning Network is unsuited for any large scale use outside of exchanges.
>Assuming 2,500 transactions per block, you will need ~970 days to just open a lightning channel for each US citizen (assuming 350 million citizens and no other Bitcoin transactions).
>Due to his limitation the Lightning Network is unsuited for any large scale use outside of exchanges.
But do we need to onboard everyone everyone in a year? It's like saying the internet will never scale because modem manufacturers can't keep up.
I'm mostly guessing at this because I'm not very familiar with Lightning Network, but I think they'd need to be closed out periodically as well in order to settle up? Plus, I think you'd ideally want an account with each vendor that you deal with, not just one account, otherwise I think the channel would probably need to be managed by some central authority who manages the accounting between you and whoever you're keeping these side accounts with, which seems not great for a number of reasons....and then on top of that there's that 350 million is just one country, let alone the entire planet.
>I'm mostly guessing at this because I'm not very familiar with Lightning Network, but I think they'd need to be closed out periodically as well in order to settle up?
AFAIK they can be kept open indefinitely.
>Plus, I think you'd ideally want an account with each vendor that you deal with, not just one account, otherwise I think the channel would probably need to be managed by some central authority who manages the accounting between you and whoever you're keeping these side accounts with
The whole point of lightning is that you can use the network to route money between nodes, so you could make payments even if you don't have a channel open with the person you want to make payments with. It's not unlike how international wires work. If you bank with a local credit union in country A and you want to wire money to another local credit union in country B, the wire might bounce between multiple "correspondent banks" eg. credit union A -> big bank A -> big bank B -> credit union B.
> Don't keep it on exchange. The real thing that is stopping adoption...
The capital gains tax issue isn't stopping your average person from wanting to use Bitcoin. If we're being honest, how many people would be voluntarily reporting taxes on their Bitcoin purchases anyway? I suspect it would be similar to how many people self-reported the sales tax they owed on out of state online purchases before it was automated: Near zero.
The bottom line is that rational consumers like the features and services offered by traditional banks and credit cards.
If someone steals your credit card and spends a ton of money, you just call up the credit card company and get your money back.
If someone gets access to your Bitcoin wallet and takes all of your Bitcoin, that's it. Game over. Should have had better OPSEC, grandma.
Likewise, people don't want to manage wallet passphrases and key files themselves. They want an exchange to handle the details for them, including as much risk as they can move to the exchange.
The reality is that Bitcoin is still far and away an inferior experience to traditional payment methods. If I pay with Bitcoin, I have to deal with transaction fees and variable network delays and I have zero recourse if the vendor simply steals my money. With a credit card, the bank literally pays me 1-3% to use their credit card, payment is instant, and I can simply call the bank up and reverse charges if something goes wrong.
I don't understand all of these mental gymnastics to explain away Bitcoin's shortcomings for payments.
>> The capital gains tax issue isn't stopping your average person from wanting to use Bitcoin
How are you so sure? if I had to report and fill forms for every single transaction that I do, like say buying coffee or video games I would be put off with trying to use the currency. it is a way to cripple it's usage.
>> The bottom line is that rational consumers like the features and services offered by traditional banks and credit cards.
>> If someone steals your credit card and spends a ton of money, you just call up the credit card company and get your money back.
>> If someone gets access to your Bitcoin wallet and takes all of your Bitcoin, that's it. Game over. Should have had better OPSEC, grandma.
>> Likewise, people don't want to manage wallet passphrases and key files themselves. They want an exchange to handle the details for them, including as much risk as they can move to the exchange.
>> The reality is that Bitcoin is still far and away an inferior experience to traditional payment methods. If I pay with Bitcoin, I have to deal with transaction fees and variable network delays and I have zero recourse if the vendor simply steals my money. With a credit card, the bank literally pays me 1-3% to use their credit card, payment is instant, and I can simply call the bank up and reverse charges if something goes wrong.
I completely agree with these points. And I hope the ecosystem improves on these. Still the advantage of Bitcoin's fixed supply and it's ability to hold value vs fiat systems whilst it's capacity to also act as a currency is still something valuable. While it doesn't do everything the way horses (fiat) are now, it will get better as it is the car in the race.
This advice has always made me chuckle. It so profoundly misunderstands how non-techies actually think and operate, that I genuinely wonder how it arose. Exchanges exist and are incredibly popular because they're convenient. If you want to convince people to stop doing something that you think is bad, you need to provide a more convenient alternative, otherwise your advice will be ignored.
Or provide the myriad examples of why "Don't keep it on exchange" is good advice[0][1][2]. But it's not up to the advice-giver to do the due diligence.
Yes, it’s a good idea to keep your coins off the exchange, for all the reasons you’ve provided. The issue is that keeping your money off exchange is far less convenient, which is exactly why most people keep their couns on exchanges despite the risks. If the Bitcoin community in general wants people to stop getting hacked on exchanges, they need to provide more convenient alternatives rather than just continuing to say “keep your coins off the exchange” and blaming users who get hacked for not following this advice.
It’s a bit like recommending that everyone not drive to avoid dying in car crashes. This advice is strictly speaking true; the less you drive the less likely you are to die in a car crash. But it completely ignores why people drive and therefore most people won’t listen. As a society we’ve decided that rather than asking people to not drive, it makes more sense to focus on making driving safer per mile travelled. This is a much more effective strategy at reducing driver deaths.
If some people like to leave their house unlocked because it's convenient it's not my duty to make them a more convenient door lock, it's quite enough to warn them about the dangers and let them make their own decisions.
It's not like using a wallet is hard or inconvenient, it's just an extra step, like reaching for your keys before entering your house.
But there can certainly be a business opportunity there, sure.
This is exactly my point. To you it seems so easy, you have no idea why others don’t do it. Yet the fact that others aren’t doing it enough implies that it isn’t easy for everyone else, which is why the repeated advice given to non-techies isn’t working.
> To you it seems so easy, you have no idea why others don’t do it.
Oh, I know, it's because they haven't tried using a wallet yet. That's the biggest hurdle, choosing one and actually setting it up. After that it's about as convenient as the exchange.
A lot of people trust exchanges way too much, and so they don't see a reason to do any extra steps until they get burned.
I guess it's not impossible that things have gotten better. But at least in my neighborhood and in the online merchants I frequent, Bitcoin adoption has declined. I think the last time I saw a Bitcoin logo on the street was August 2019.
I'd also be interested in statistics demonstrating that the consumer transaction volume is now nontrivial. Last I looked, M-Pesa had orders of more magnitude in use despite launching around the same time as Bitcoin.
That a German seller doesn’t charge VAT does not imply that you do not have to pay VAT.
You may have to inform your tax office about the purchase, after which it will send you an invoice for VAT (happens for ‘normal’ bank transactions, too.)
“For EU-based companies, VAT is chargeable on most sales and purchases of goods within the EU. In such cases, VAT is charged and due in the EU country where the goods are consumed by the final consumer. Likewise, VAT is charged on services at the time they are carried out in each EU country.
VAT isn't charged on exports of goods to countries outside the EU. In these cases, VAT is charged and due in the country of import”
It's called "reverse charge". If there is a general tax agreement between your country and the EU, no VAT becomes due at the country of origin (of goods and/or services), but you are supposed to declare the purchase locally and pay local VAT, if applicable. There's also usually a marginal sum, below wich goods and services are free of charge (the sum of it, which includes any postage), about EUR 20.
(Mind that this mechanism requires tax or VAT IDs on both sides of the transactions, which are to be declared.)
Bitcoin is inflating, and will for 130 more years, though it is seeing increased adoption and is riding in price.
But in answer to your question,I’m glad you picked food fir your example— would you starve to hold onto your bitcoin?
Is your computer ten years old because next year better ones will come out? Or did you bite the bullet and upgrade because your time preference made it worthwhile?
It is true, deflation encourages savings, but that is the essence of capitalism, savings keeps people better able to avoid poverty in the event of a bad year, and capital accumulation makes you more able to do a startup and retain control.
Part of the reason there is so much VC money is inflation (VCs get new dollars cheap and carry trade through startups)with a hard currency like bitcoin the fotmula would be reversed, and founders would retain more ownership.
Completely agreeable, albeit it misses a point:
Governments can't print more of it.
That's it really, everything else is noise.
I can sympathize with btc (I wish we still had a gold standard, or a standard based on the price of common goods) but I don't see much the other benefits.
I mean, the 21 million cap is just a line of code no? No reason why if enough people agree to it they could just print more. Or they could fork and print more no? I find it strange that people speak of bitcoin's scarcity as if it were a physical thing.
Agreed. There have been 21 million forks of Bitcoin with all manner of modifications. You don't hear about them because practically no one agrees with them enough to mine/trade/use them. You could make your own fork in an afternoon. The hard part is convincing anyone else to care.
It has happened before. Ethereum Classic is the "original" version of Ethereum, but it's a nondescript altcoin, while the one that reversed transactions is the number #2 in the world.
I don't see why that can't happen to Bitcoin if the network participants (ideally normal users but practically the miners) and major stakeholders can benefit from it.
That's a good point and example, but I just don't imagine them thinking they would benefit from it is all. The future holds many mysteries, so it's at least possible, but I definitely would not bet on it, knowing what I do now.
It isn't as simple as that. Not only have you got to change that line of code, you need to convince all users of bitcoin to run that version of the code including miners. Otherwise you have forked the coin and you might be the only user of it (your version is incompatible with the rest).
You don’t need most to agree. Just the basic majority (50%+).
And of course that’s exactly what the major mining consortiums will do: Collude to increase the limit when it’s reached. After all, the rewards are in the mining, not the transaction fee.
> You don’t need most to agree. Just the basic majority (50%+). And of course that’s exactly what the major mining consortiums will do
You don't need anyone else to agree to start mining your own fork / altcoin. However, even if most of the miners change the protocol, it doesn't mean that the users will.
The miners aren't the only ones enforcing the limit, so is every other bitcoin node out there. Just because you have 51% of the mining capacity doesn't mean everyone else (merchants, users, exchanges)[1] will agree. If they decide to unilaterally change the block reward all that would do is cause them to mine worthless blocks.
No, miners are far more powerful than all the other stakeholders. While acceptance by merchants is a relevant factor, miners also have to facilitate any transaction. Any fork without miners is instantly unable to transact, making the coins useless and therefore worthless.
>Any fork without miners is instantly unable to transact, making the coins useless and therefore worthless.
The incentive structure discourages this. If half the hash power goes off to mine Bitcoin Infinite (the fork with uncapped Bitcoin generation), then mining the original Bitcoin would be twice as lucrative because there's half the competition. This gets better the more miners leave. If 95% of miners leave for Bitcoin Infinite, then mining Bitcoin becomes 20x more lucrative. There's the matter of the difficulty adjustment, but that has been historically dealt with using emergency difficulty adjustments.
Meanwhile, the miners who are mining the fork have real expenses (electricity, equipment), which need to be paid, and if there isn't sufficient demand for their Bitcoin Infinite coins, they'll quickly go bankrupt. Some napkin math:
* If the hash and economic power are both split 50-50, then there will be little impact in profitability, but also little impact on Bitcoin
* If 90% of the mining power goes to Bitcoin Infinite and only 25% of the economic power follows them, then the miners can expect to see a 72% drop in revenue. If their original profit margins were 20%, they can expect their profit margins to drop to -66%. If we use the price/generation rate of just prior to the last halving (May 2020), then that would represent a loss of $9.9M per day (not including opportunity costs/lost profits).
The incentive structure falls apart once Bitcoin original runs out of blocks to mine. That’s the starting point for this discussion.
The only incentive to mine then is to earn the transaction fee. These fees ($8) are currently orders of magnitude smaller than the mining reward of 6.25 coins ($125,000 at $20,000/coin). Either fees have to dramatically compensate by rising stratospherically or miners will depart for greener pastures. Yes, difficulty level drops eventually, but by then a large number of users have also followed miners off the network, in which case the price will drop too. As the price collapses, there will be a selling frenzy, further reducing the price. In this scenario, Bitcoin may settle to something as low as $10 per token.
Once miners depart en masse, network resilience will drop precipitously. That makes it an attractive target for someone to stage a coordinated attack, which would destroy remaining residual trust in the network and bringing about the end of Bitcoin original.
> You don’t need most to agree. Just the basic majority (50%+).
This is a common misconception about how consensus works. Everyone on the network has to agree, anyone who doesn't agree by definition won't be on the same network. They won't be able to receive the same fork of bitcoin that everyone else is sending.
On the contrary: Consensus is defined precisely at 50%+, not 100% as you imply. In Bitcoin, the longest chain wins, therefore any chain with 50%+ support of the total mining power will inevitably end up with the longest chain.
Forks are occurring all the time at the apex of the chain. They wither and die slowly as 50%+ miners accept successive blocks as the next block. That’s why most exchanges and users wait for six blocks on average to deem the transaction settled.
Bitcoin Cash is about trying to make transactions faster and cheaper by increasing the block size (and rate?). Upside: Might be able to use it directly to buy coffee with a reasonable UX. Downside: would likely lead to a small number of huge machines managing the world's blockchain. The Bitcoin Core group really wants people in poor nations to be able to run their own Bitcoin nodes on their cell phones eventually. They value decentralization above UX.
No, they want Bitcoin to be a "store of value", whatever that means. Poor people being able to run a full node on a low-end phone is pointless when a transaction fee due to the artificial block size limit is more than a months wages.
>Poor people being able to run a full node on a low-end phone is pointless when a transaction fee due to the artificial block size limit is more than a months wages.
I'm not sure why every user needs to run a full node. Satoshi himself said that SPV clients would be enough for most users:
"Simplified Payment Verification is for lightweight client-only users who only do transactions and don't generate and don't participate in the node network. They wouldn't need to download blocks, just the hash chain, which is currently about 2MB and very quick to verify (less than a second to verify the whole chain)."[0]
It's not clear what benefit the user or the currency gains from having 90% of users running full nodes instead of, say, 50% or 10% doing so. In any case, when people in poor nations have phones that can manage uninterrupted 24/7 connections to the bitcoin network, they'll probably also be able to afford 2 TB of storage (currently costing about $50) which would be enough to store 10 years of 4 MB blocks.
Sure it's a line of code but if you fork and change that line of code you need to find consensus on the network to accept your fork as the "true" Bitcoin. See Bitcoin cash for an example.
> Completely agreeable, albeit it misses a point: Governments can't print more of it.
That only matters if Bitcoin has a monopoly for a given use case. Bitcoins chief advantage is its hash power, and therefore, its security. So far, the only use case I can think of that relies strongly on that is digital gold use case.
For everything else, having a constrained money supply has side effects that are often pretty undesirable. Folks can simply mint new coins for those use cases.
Yes, if electricity was FREE, at which point printing money is the best next logical step as you've achieved free energy with utopia just around the corner.
"Why would one person want to reduce the ability to apply economic policy in their country?"
What do you think happens to your currency when they print more of it?
One problem with gold though is that we know where plenty of gold is, its just too expensive to mine. Once the price of gold rises, more gold becomes profitable to mine, supply increases, and the price goes back down.
"They" print more every day. In the US, I think the economic stimulus has been a success this year. Trump should have spent his campaign talking about all the efforts to boost unemployment insurance benefits. He might have fared a bit better in the election.
All governments would have to follow suit in lock step for that to work, at which point you have far bigger problems, i.e why not just nuke the internet all together, far easier.
that's just a normal bank with more steps. why even use bitcoin infrastructure when credit cards and digital banking is much easier/faster in this case?
I have been reading about people pining for gold standard but doesn't anyone anymore remember the Great Depression where the gold standard actually made the matters a lot worse when the governments couldn't print more money? I get the ideological pathos but gold standard doesn't seem very realistic to me anymore. Whenever a negative feedback loop happens in economy you want to have very robust means to stop it if necessary.
Perhaps the most powerful thing about Bitcoin is that the guy who created it is unknown (if Satoshi was a guy or a lone person at all) and that it mostly runs on autopilot and at this point is not governed by a single body. It can't be sued. The creator of it can't be sued. And yes, more of it can't be made and there is deflation built into it. Genius.
I mean... "can't" is a pretty strong word. Sure, they probably can't break SHA256 or elliptic cryptography, but you really think a government couldn't sanction every single [random crypto coin] developer, seize every obtainable asset, and generally strong-arm them into changing the rules? I think people are not being imaginative enough with the tools state entities have at their disposal to coerce whatever result they want.
It is next to impossible to seize bitcoin if you make it so. The government could try coerce custodial companies, but it will only be effective on the first time; next time, people will move their bitcoins to safer places where government intromission will be immensely costly.
I was real excited the first time that Bitcoin was explained to me. I saw it as the first real alternative to paper money. But what I soon learned is that most of the people associated with Bitcoin saw it as digital gold and were only interested in seeing the value rise and cashing out.
I've seen a few positive developments every once in a while that fail to get much adoption. So I keep waiting and waiting. It increasingly looks to me like whatever solution eventually wins will be built upon the existing banking system ;<(.
Same here. I thought it sounded great because I have zero knowledge of monetary policy, which has been at it in modern form since Isaac Newton. So naturally I thought it was a godsend. Truth is: financial institutions aren't just something a few hackers can whip up in a decade. The mill-billionaire bitcoin hackers were in the right place at the right time for lightening to strike. I think like ADAS/SDV, cryptocurrency has a looooong way to go.
> "But what I soon learned is that most of the people associated with Bitcoin saw it as digital gold "
Since it was basically designed to work like a pseudo-physical commodity, and most of the rhetoric to support its existence is warmed-over goldbuggery, why should this be surprising?
Because you could easily tweak the algorithms to make it act like stockpiling cheese. If you use a value time pair adding inflation that reduces the value of old coins is trivial.
Gold seems like it was always an odd thing to pin an economy to to begin with. A resource that isn't inherently tied to value that seems to have been "chosen" by centuries of evolution towards a scarce material that could be centrally controlled. What's more, it has become less scarce as better technologies have emerged for extracting it. And just like printing excess fiat currency, early gold rushes showed the same type of rapid inflation in local economies, with money made by those selling mining tools & services to miners, and those purchasing the mined gold to arbitrage it out to other geographical regions. It was still just an abstraction layer put on top of direct bartering to solve the liquidity problems inherent to direct bartering once the # of goods and services reach a high enough level.
The fundamental principal of economics that many people miss when they focus mainly on monetary supply is that the velocity of capital [0] is of equal or perhaps even greater importance.
Bitcoin is pretty much the modern gold, if you’re looking for something revolutionary as in “can be used for day to day transactions” you’ll have to check more modern cryptocurrencies that aim to be stable, regulated, and fast.
Seems like adoption as a payment method halted when Bitcoin had scaling issues.
Now the community seems pretty split in two. There's people who are for Bitcoin and see it as a store of value and people who are for Bitcoin Cash who see it as a store of value and a method of payment.
The main contention seems to be around block sizes and wether to increase the block size to make it more scalable, hence the BCH fork.
They both want to scale transactions, they just disagree about how. Bitcoin Cash wants much higher transaction throughput at the base layer (i.e. the actual blockchain). While Bitcoin wants the high throughput lower value transactions to happen at layers built on top of the base chain, e.g. Lightning
The difficulty in criticizing Bitcoin and what it could have been is that everyone willing to engage you on it is quite literally invested in being right.
Zealots betting the house can't afford to be wrong because it would often make them bankrupt.
> The pseudonymity of coins being owned by the bearer of some
> cryptographic key is a failure; People have been eavesdropping and
> aggressively analyzing the block chain from day 1. And the block chain
> will always be there, it will always be public, and it will always be
> subject to further analysis. And we are learning that analysis of that
> record is sufficient to destroy any pretense of anonymity or
> pseudonymity.
Yeah, privacy is a joke on blockchains. Perhaps that is why actually private coins like Monero are having such 'difficulty' getting adoption on mainstream platforms, with shitcoins getting preference. I suspect that if coinbase tried to add Monero, they would get a very angry letter from the CIA/FBI (perhaps this already happened, they have been having 'technical difficulties' adding it for years now).
I wonder how many Bitcoin users have read and understand the following extensive list of privacy "pitfalls" (mistakes that can reveal information about unwary Bitcoin users):
It makes me wonder how many people have gotten busted for either buying or selling drugs with cryptocurrencies, thinking it was automatically safe and private.
It's simply an extra layer & bit of effort law enforcement has to jump through, and as understanding of crypto permeates society & law enforcement, even those barriers will be removed.
Well, I think it's important to keep in mind that the criticisms seem specific to bitcoin, not crypto in general, and some of them are perfectly valid observations (even if you don't consider them "bugs")
Most BTC holders are on exchanges that all have KYC rules in place, so there is no anonymity or privacy assumed. It is just like buying KO shares on Etrade.
Whether privacy is a joke or not on Bitcoin isn't the point. Consider most systems in place 10 years ago all were discovered to have holes in them and have been subsequently patched. The belief that today's software, or tomorrow's software, will also have a non-joke level privacy option that is functional long term is, in my opinion, unobtainable.
Bitcoin still manages to be useful in proving identity, however.
Related: the current rise of Bitcoin prices has been peculiar to me, and seems to be a bit of a canary in an inflationary coal mine.
We've injected trillions of dollars of fiat into the economy this year. It feels like the sky-high valuations of technology companies and Bitcoin are "shock absorbers" of sorts, or early signals of inflation-yet-to-come. If we assume the market is efficiently pricing these assets (like AirBnB's IPO) then it could very well be that the actual value of a fiat dollar has dropped dramatically -- making sky-high valuations more reasonable -- and we'll only see that reflected in the price of consumer goods and commodities once industry leaders collectively feel comfortable the economy is on track again. After all, you can only charge what consumers can afford to pay.
I'm an armchair economist at best. I just can't make sense of the market right now, and wouldn't be surprised to see the price of things like groceries, beer and travel double or triple what they were in 2019. Is there anybody writing about this that I haven't been paying attention to? Am I missing something?
But a stock represents ownership of a real company that (hopefully) will make profits that can be distributed as a dividend or be used to grow the company and increase the value.
A Bitcoin is totally speculative and has virtually no useful purpose in the real world yet. You can’t actually buy stuff with it from stores, due to its niche status, high fees, slow transactions, and wild price fluctuations.
Looking at it that way, it’s clear that a stock is a much safer investment than a Bitcoin.
It doesn't matter how safe an investment is. Uncorrelated alternative assets (metals, crypto, art, etc), when added to your portfolio, lower the total volatility (risk) and boost the risk adjusted returns. You can take a really crappy asset with low returns and high volatility (like gold) and add it to your portfolio to boost your risk adjusted return.
In short, from a quantitative perspective, it never makes sense to look at a security or asset in isolation. Instead one must consider the total portfolio as a whole.
Source: work as a quant trader
tldr: If the question is "does crypto have a place in everyone's portfolio?" The answer is emphatic an "yes". And indeed, we are quickly moving towards a world in which crypto is held by most institutional investors. Even at this early stage, the institutional flows into btc is staggering. And it will only increase with time. From my vantage point as an insider, btc is here to stay. full stop
Sure, maybe put a few percent of your portfolio in it. But my point is that Bitcoin is highly speculative and risky compared to pretty much any other kind of investment. Even gold has industrial uses and isn’t simply a token of value like Bitcoin.
I will concede though that there is a huge market of derivatives which often seem pretty unusual and risky to an amateur investor such as myself, so maybe Bitcoin isn’t that different from some of those investments. I don’t know a lot about that market, other than that it played a large role in the Great Recession, which is a dubious distinction.
One of the most common critiques of modern portfolio theory is that it defines risk by volatility rather than downside risk. While a stock will never have price-to-book multiple less than 1 (unless fraud has occurred) a cryptocurrency has no such limit on how far it can fall.
Well a crypto currency can only fall 100%, so it's not unlimited. Moreover, some stocks do actually have a P/B ratio below one, for example Deutsche Banks PB is currently around 0.3.
You could instead look at downside deviation instead of volatility, but in my experience standard volatility and upside/downside deviation look very similar for most securities. This is somewhat paradoxical for me personally, but it is what it is.
I just wanted to point out that stocks have had price to book multiples less than one, per various comments by Buffett and Benjamin Graham. Also, for another example, there are funds that sell at a discount to the total value of shares held by the fund.
> stocks have had price to book multiples less than one
It's not even that unusual, or newsworthy. It's pretty common for banks, basically the rule for European banks. I'm still not convinced the numbers are "real" though. As I understand it, there are a few main arguments as to why "buy and strip" price arbitrage doesnt happen, and I'm not sure which is/are true:
- Regulatory barriers. JPM or Apple can't just buy Deutsche Bank because lawmakers won't allow it.
- They're too big to be bought out out by (European?) private equity, or controlling stakes aren't available.
- That's not real book value. Try to wind it down and it'll evaporate.
Maybe there are more. I understand that dividends and buybacks are currently limited by regulators in Europe, and that closes one valve for the price arbitrage, but still...
All investments have an inherent risk. Typically there is a direct relationship between risk and return. The more risky an investment is the higher the return investors demand. Thus, when considering an investment, a key question to ask is whether the expected return on the investment is commensurate with the risk that this particular investment entails. This is called a mean-variance analysis, and before investing in BTC, or in the stock market for that matter, you should probably do exactly that kind of analysis.
BTC prices have approximately zero relation to inflation in the real economy (for whatever definition of that you want to use). Rising BTC prices are driven by pyramid scams, fraud, and speculation. There is no useful signal here related to anything else.
I've seen sources to corroborate institutional demand, but is there a source for your claim on the link to federal monetary policy? Ideally beyond correlation to show causation.
Is there a useful signal in the dollar price? Price of silver? They are all used in hedging bets. Same for BTC, people with a lot of cash are looking for a safe spot while we have the possibility of hyper inflation.
The entire BTC market cap is minuscule -- about 600bn as of this writing.
That seems like a lot, but compare it to Apple -- the market cap of just this one company's stock is currently ~2,238bn.
The market cap of gold, US dollars, Euros, etc. are all many times more than Apple. The value of all BTC is a tiny microscopic speck compared to the amount of USD or gold in the world.
This means (among other things) a few small players (with tiny capital relative to, say, the size of all USD) can swing the BTC market either way with a comparatively tiny amount of value moving around.
That would seem to greatly limit BTC's usefulness as any kind of inflation gauge for the broader economy.
Correct, and those countries' economies also give us little to no signal about US dollar inflation. The proposition was that BTC prices somehow inform us about that.
For individual humans that’s like saying ”My net worth is $100k and that is more than most people earn in a year”. Yes that is true, it is larger. But it is meaningless comparison and misleading at best.
comparing GDP to market cap is also a very irrelevant kind of comparison. Just because the use the same dimension (like dollar) doesn't mean they are directly comparable.
Hey leopict, strange question... I saw your comment about the PG::Internal Error in the 'Is Apple Silicon Ready' thread but wasn't able to reply there. I've been experiencing the same thing for two weeks and have tried everything. Did you have any luck resolving the issue?
There is no meaningful threat of hyperinflation in first world economies until China's GDP per capita has reached $20k - $30k and even then there are investment opportunities in India (if they get their corruption under control) or other Asian countries.
(or) you are wrong and there are some people who see asset inflation caused by stupid governments printing for everything and moving away wealth from these systems into Bitcoin.
If the limited supply was the only thing bitcoin had going for it then it would merely perform exactly like gold but it is over performing which means there is an additional irrational component driving bubbles and busts.
In theory the USD price of bitcoin is tracking the inflation of the USD but with excessive volatility. However, it is possible for it to grow slightly faster than inflation if a significant portion of the central bank money is arriving in cryptocurrencies. In practice it's getting dwarfed by the factors you mentioned. Lots of irrational investors are pumping BTC until it crashes.
Over the long term (several decades) you can expect it to perform like gold once it has turned into a mature market.
Why coca-cola would 3ple their prices in 2021? The loans are cheap, the wages are stagnant, energy and raw materials are cheap.
I really don't see this scenario playing out unless the financial institutions collapse.
> If we assume the market is efficiently pricing these assets (like AirBnB's IPO) then it could very well be that the actual value of a fiat dollar has dropped dramatically
Note that many other assets such as energy, financial, and real estate stocks, consumer goods, etc. are not experiencing sky-high valuations - indeed, some of those asset classes are down for the year.
So it's not just fiat dollars that have dropped dramatically in value by your reasoning.
It seems to me more likely the market is simply overpricing one class of assets (tech stocks) here. Occam's Razor comes to mind.
Overpricing one class of assets is functionally equivalent to underpricing the other classes. Facing inflation, money will aggregate first in the assets most likely to maintain + outpace an increase in monetary supply. Once they start appearing too overpriced, the overflow will affect other industries.
I'd invoke Occam's Razor to state that inflation due to increase in monetary supply is more likely to manifest as "overpricing" of one or two asset classes first. As opposed to a crash, where one asset class bottoms out and takes the other with it, stimulus and inflation, in theory, would cause the opposite -- would they not?
I haven't studied hyperinflation. So consider me inquisitive on the subject. But it's certainly happened before, and the dynamics seem like they have the potential to create a positive feedback loop similar to a crash.
I think you're right.
The economic stimulus is mostly going in rich people's pockets which happen to like the idea of BTC and Tesla.
They're likely worried about inflation, so they need to invest the money.
And that's how you get BTC and Tesla's meteoric rise.
If by "rich people" you mean institutional investors, then yes. The flows into crypto from institutional investors is absolutely staggering. And it will only continue. This is just the beginning.
Even if the returns of btc were poor, it would still be a very attractive investment as uncorrelated assets boost the risk adjusted returns of a portfolio.
Your armchair analysis is on the mark. in a fiat dominated world, any market distortions caused by monetary mismanagement (money printing through QE, asset inflation) is not visible as everything in the market is priced in the same underlying asset (USD globally). Since bitcoin is outside this system it is actually holding up a mirror to the increasing worthlessness of the USD and other mismanaged fiat currencies.
> as everything in the market is priced in the same underlying asset
> the increasing worthlessness of the USD
I think you must be using words different from what I take them to mean, which means you can draw radically different conclusions from how I read them.
If everything in the economy is tied together, such that $10 is still an hour of work at a grocery store, and $10 still buys you a lunch or three gallons of milk, and $10 still buys you 4 gallons of gas, etc etc, then I don't see how you can say that there has been some kind of "secret" sky-high inflation over the past few years that is only detectable "from the outside."
Inflation is defined by the purchasing power of money within the economy. If that's not changing, inflation isn't happening.
Pointing to a single asset whose price is fluctuating wildly and insinuating that that is the only real source of truth, and that literally everything else is hiding the true cost of living seems to be just showing what you want to believe.
(Note, I'm not saying that there's been no inflation. It's been about 2.5%/yr over the past 20 years. But simply that the notion that it isn't visible from "inside" the economy is contradictory.)
To my understanding, inflation -- and the causes of such -- is something that can only really be assessed ex post facto.
What's being asked is, "is what we're seeing a warning sign of inflation-yet-to-come?" Rephrased, "are people bullish on technology stocks and Bitcoin because they're speculating that there's major fiat inflationary risk and these asset classes are most likely to hold value?"
Not really. It’s a matter of what you’re measuring. If you measure inflation by assessing the price of a Whopper, you won’t find much. If you measure inflation by measuring the cost of college tuition, you’ll find plenty. What’s meaningful varies dramatically from person to person. That’s why I think it’s almost pointless to talk about inflation as a single, measurable thing.
Consumer inflation is well defined and a policy goal so it does make sense. The problem is that you have to clarify which goods are inflating, otherwise you run into misunderstandings.
> If everything in the economy is tied together, such that $10 is still an hour of work at a grocery store, and $10 still buys you a lunch or three gallons of milk, and $10 still buys you 4 gallons of gas, etc etc, then I don't see how you can say that there has been some kind of "secret" sky-high inflation over the past few years that is only detectable "from the outside."
The key ingredient missing from your calculation is time. If you are simply measuring how much an hour of work can purchase now, you are completely ignoring that some people want to save money.
If $10 is the measurement for an hour of work and 4 gallons of gas today, in a decade or so, you might need $20 to pay for 4 gallons of gas, and you might get paid $20 for an hour of work. But somebody who saved $10 worked today, and chooses to spend it a decade later, will only be able to acquire 2 gallons of gas. The result of their labour would have been reduced to half.
This is what Bitcoin intends to fix. We want to be able to store wealth into the future - so that an hour worked today is still worth an hour (or more) tomorrow. The potential appreciation in purchasing power is reward for thrift.
As it stands, if one wants to preserve wealth into the future, they must put money into risky investments to ensure that the dollar value of the savings appreciates at a greater rate than its purchasing power is lost to inflation. They also run the risk that their savings or pensions could be lost with companies going bust or if hyperinflation occurs.
Bitcoin is a pension plan.
As for using Bitcoin as a reference frame of measurement, there's a good reason to do this. Bitcoin is a fixed system of measurement which is disjoint of time or other externalities. There is an absolute maximum of 21M bitcoin, so any whole bitcoin is always 1/21M of the total supply. This is a truth that holds today and in a decade. It is immutable.
Consider measurement of length. If you only have cows in a field, how do you measure the length of a field? You could say it is 100 cows long and 80 cows wide, but how long is the cow? The cow grows as it ages. Once you get hold of an external tool of measurement - a meter (or yard, etc), then you can measure both the field and each cow against it.
The same is now true for economic value. Before Bitcoin, there was no fixed scale of measurement. The dollar was flexible, just as any other commodity. Bitcoin OTOH, is not flexible. The exchange rate of BTC/USD might be flexible, but when you use BTC as the frame of reference, you can instead measure how much value the dollar is losing against bitcoin. https://usdsat.com
As you can see, the dollar is losing value so rapidly that inflation of the dollar is negligible. It is the perception of inflation which is causing it to plummet far quicker than the actual rate of inflation.
Economists weren’t born yesterday. Inflation is measured in many ways, most often by looking at a basket of goods where the prices are relatively non-volatile. Using the USD/Bitcoin ratio as a yardstick for inflation seems very misguided, as Bitcoin is heavily speculated.
Inflation is a loss of value, most directly observed in rising prices.
Everything else–money supply, borrowing costs, etc are linked to it, but do not necessarily correlate. The price of a Big Mac is almost certain to be a far better approximation than any of those indicators.
Historically, inflation always meant inflation of the money supply. Its definition has changed over time and you've been swindled.
If you have a name for something, name the root cause, otherwise you're obfuscating its study, and perpetuating the non-identification of the root cause.
"Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation." [0]
Isn’t the issue exactly that money supply is increasing decoupled from the real economy? This is why quantitative easing hasn’t particularly increased consumer prices, which are one important indicator of value.
Money supply rarely goes directly to consumers, it first has to be spent by the receiving parties and distributed to the wider economy before consumer prices begin increasing.
But it doesn't happen without the prerequisite of money being printed.
That hasn’t happened though - money has gone to corporations and asset holders. It hasn’t trickled down to consumers. Banks aren’t lending to small businesses.
Inflation is the result of consumer demand outpacing supply. It's effectively a measure of how much work could not be done. From this perspective hyperinflation is just the result of the government demanding exceedingly far more work than the country as a whole can do. Prices adjust upwards until the existing money supply is exactly enough to pay for all the work that can be done.
If you have a lot of unemployment and inflation is low that basically means there is very little work for your people. This is the reason why 2% inflation is a policy goal. You always want there to be just a tiny little bit more work than there are workers. If there is a way to do more work thanks to technology that is increasing productivity it will be done.
It's not just a quantitative problem, it's also a qualitative one. You want the dollars to circulate and therefore it makes sense to look at the most important subset of goods that is relevant to the every day person.
> Inflation doesn't need to be measured in many ways, you can view it directly on the m2 money supply
but this chart doesnt take into account increases in productive capacity. If there exists production capacity to match this growth in money supply, goods will remain relatively priced the same, even if more is printed.
So? They can still be idiots. Idiocy does not have an age limit.
>> Inflation is measured in many ways, most often by looking at a basket of goods where the prices are relatively non-volatile.
Meaning you remove the items from the basket if it's price jump too much ? so if you tamper with the items in the basket you can project(pretend) that the inflation is not happening.?
>> using the USD/Bitcoin ratio as a yardstick for inflation seems very misguided, as Bitcoin is heavily speculated.
No it doesn't need to be a yardstick as Bitcoin is not yet in full circulation in the economy but it's growth indicates people are increasingly prioritising it over paper to store value.
Re: speculation, everything is a speculation, there are those who keep holding USD in cash and banks and keep speculating that the economic prophets will do the right thing to retain value in their chosen currency.
It seems a bit arrogant to claim that every one of the thousands of economists who study inflation are idiots.
You can look up the methodologies used to determine the basket of goods. By non-volatile I mean that they’re aggregates over purchasing categories - for example, it’s not the simply the price of a “40inch TV” or cod fillet (which may change in ways non-representative of general purchasing practices - as TVs of a given size get cheaper, or cod has a good year) but an aggregate over the entire purchasing category (fresh fish, consumer electronics) based on typical purchasing habits.
If almost the entirety of the money ends up, in the medium run, in the hands of a few wealthy people who want to invest, it explains the lack of inflation for everything but investments
Consider that the money is mostly going to the owners of assets. Assets have the unfortunate property of only giving returns to their owners and most people simply do not own assets so it's an incredibly poor way of introducing money to consumers.
Overall inflation is at roughly the same nearly flat level it's been for a decade. Food has gone up and energy has gone down, and both of those are easily explained by coronavirus-related supply and demand shifts.
If that were true then it would be time to rejoice and watch underemployment disappear. The central bank can then unload its balance sheets and reduce inflation to sustainable levels. If that does not help you can also increase taxation to take care of inflation. There are a lot of tools that can trivially deal with too much inflation but with deflation the only tool you have is the central bank pumping money into the market and so far it is failing to achieve its stated goals.
> After all, you can only charge what consumers can afford to pay.
In the US, it is more like "you can only charge what consumers can go into debt for". The self-correcting force of consumer inflation on price discovery has been time-delayed buffered and confusing price signals for a long time for select industries by acommodative consumer debt issuance. Without that effect upon price discovery, I suspect the number one reason bankruptcies occur to consumers to trade categories every few years as the inflation works its way through different key industries and their customers. Which is why US personal bankruptcy has been quite consistently caused by medical bills for decades [1].
When/If this inflation wave takes root in the consumer sector, it first has to overcome the deflationary secular bias that has plagued developed world economies for a few decades. I suspect this is because price discovery in wages has been quite robust, but in goods and services it is obfuscated by many means (consumer debt issuance is only one of many mechanisms), and the end effect is people are functionally broke.
If it breaks that deflationary bias, then it will break a great many households who cannot bear inflation while their wages stay functionally unresponsive to the same inflation. If that happens, then I expect the deflationary bias to turn into a depression.
Thanks. This is super interesting. Can I rephrase to make sure I understand?
What you're saying is that; due to debt issuance in the US, it's hard for commodities and consumer goods to be priced efficiently. I interpret "confusing price signals" to mean that e.g. Apple can charge $1k for an iPhone and sell out to families who wouldn't typically be able to afford it, but the price of bread remains the same. Your medical bill comment -- you're basically saying that when one of these families hits a statistically predictable snag, they're instantly bankrupt because they've always been functionally broke, propped up by the consumer debt industry?
And so you're saying that most commodity goods face deflationary pressure as a means to stabilize the market? So if the price of commodity goods does increase significantly beyond the capacity of debt issuance, we're likely to see a depression?
> I interpret "confusing price signals" to mean that e.g. Apple can charge $1k for an iPhone and sell out to families who wouldn't typically be able to afford it, but the price of bread remains the same.
It is more an interplay between wages and price signals of consumer goods and services than between price signals of separate commodities and consumer goods. Consumer debt (primarily credit card, but also HELOC) distorts the timely impact of purchasing signals upon pricing, but wages-offered signals are much quicker to respond. The debt acts as phantom wages, but only for awhile does this levitating act suspend disbelief in the pricing signals, until the debt service overwhelms consumers. By then, the purchasing decision has already long since been priced into the market, and the correction of the debt overwhelming the consumer is either completely ignored because it is by now disconnected, or attenuated away into irrelevance.
"Awhile" in this use case is longer than the time horizon of most consumers, on the order of a few months to a few years depending upon the individual, but in any case long enough to modify consumer behavior. The glass half-full perspective is this behavior implies a strong optimistic bias to consumers; nearly everyone believes they will make the debt nut over time. Looking at the historic patterns of US institutions laying off however, most working and middle class US consumers should be much more secularly pessimistic in looking after their own interests: they should be acting on a cash-basis only, and make very austere purchasing decisions therefrom until they can use capital to help themselves, instead of capital using them via debt (with extremely few exceptions, like home mortgage in very circumscribed circumstances which most of them do not qualify for).
> Your medical bill comment -- you're basically saying that when one of these families hits a statistically predictable snag, they're instantly bankrupt because they've always been functionally broke, propped up by the consumer debt industry?
Correct. Most working and middle class families are under-insured. Using plans that only pay 80% of covered procedures. Or have very high annual deductibles to afford the premiums, which are orders of magnitude more than what they can pay from savings. Most such families struggle to find $400 to spare [1]. A typical high-deductible-low-premium health plan will typically set back a family $2-4,000 before the plan kicks in, and for many of these families, the plan offered by employers only pays 80% of covered procedures, and there are many exceptions to covered procedures.
Unless you are well-educated, persistent, have time to set aside, apply an extremely low time preference, and able to learn the ropes, these families are completely unprepared for the probable budget killing black swans. One bad broken bone, or God forbid a serious disease, they first get blind-sided by a $2,500 deductible. Which they'll take on debt to meet. Then they start getting the bills and dunning letters. Many of which are wrong, but that's where the "well-educated, persistent, have time to set aside" part comes into play: you have to be willing to pay the cost in your own time and energy to make the phone calls and figure out which bills are legitimately what you have to pay, and which the insurance company has to pay, and do other people's jobs for them by pointing out where it says in the black letter policies their own companies wrote. So many of these families start good-naturedly taking on more debt for multi-hundred (if they're lucky) and multi-thousand (typical) bills they shouldn't, which they cannot afford.
It is not unusual for a mean household income of $68,000 to get blindsided with $30,000 in medical debt. At high double-digit interest rates. Mix in a chronic, terminal or serious illness, and they start racking up nearly that much every single year. The US system is fundamentally broken.
This is very informative. During the financial crises of 2007 to 2010 about 3 to 4M properties went into foreclosure. I have not looked into statistics of home ownership vs rent for those impacted by covid, but given the number of infected you stated and if there are long term care requirements, could this lead to another large set of foreclosures? Unlike last time though, the housing supply currently seems fairly tight in many areas, so a large pricing collapse downward seems not nearly as likely.
> I have not looked into statistics of home ownership vs rent for those impacted by covid, but given the number of infected you stated and if there are long term care requirements, could this lead to another large set of foreclosures?
US numbers are missing on how many enter aftercare; when someone contracts COVID-19 then is eventually discharged from acute care to rehabilitation, as far as I have been able to tell, they disappear from the statistical models, lumped into an unhelpful puddle called "Recovered". Only the insurance companies and Medicare/Medicaid have those numbers for their individual policy holders. That's why I think only a hedge fund would have the funding and clout to call up and cajole those kinds of numbers out from each of those entities to assemble a data mosaic.
Because of this, there is just no telling how widespread this issue is at this time. It is widespread enough that some medical specialists like pulmonologists and cardiologists are noting very abnormal (worst in their professional experience) rates of complications requiring extensive and sometimes life-long rehabilitation. Not widespread enough (yet?) to tax the available rehabilitation resources. We have rough ideas of available rehabilitation resources in the US, but to make a speculative bet on this ahead of the crowd, you'd need this information before it gets to that point. One microsecond after the headline "US Rehab Units Full from COVID Patients" hits the Reuters news wire, all the good bets are already placed.
A common narrative going around is with the anticipated failure of US politicians to enact sufficient financial relief for working and middle class members, there will be a lot of foreclosures on that dynamic alone, and residential rental will see lots of demand. Lots of long bets have already been placed on residential multi-family rental ventures (wish I knew of an exclusively US MFH residential REIT, but my EFT screening yielded none such, lots of them are over-salted with extensive commercial properties holdings, but I'm only using public data sources).
Backing in from your 4M figure, if the US hits a 20% (and declining, as the number of infected keeps rising) rate of long-term aftercare complications, then it starts to seriously toy with the possibility of a medical bankruptcy-induced foreclosure wave just as big as the 2007-10 recession. This is on top of the pain from economic disruption, which lowers the threshold when medical bankruptcy would be declared; I'm pretty sure that data of general versus medical DTI before bankruptcy is declared could be teased out of historical bankruptcy data at various banks and then assembled into risk tranches along various categories of profiling, pretty straightforward ML work. The US political and financial establishment will probably try to amortize the pain out as much as possible through piling up medical social benefits debt and various kinds of staged mortgage note relief for the capital holders (I see insufficient political power on all sides to directly assist citizens sufficiently to have the same effect, and the decision makers are probably tunnel visioned into the systemic damage done if the capital underwriters of the notes zero out without noticing they get a two-fer by transiting the stimulus funds through those who took out mortgages first). So whether the US enters another credit crisis comes down to some mix of political, monetary, and currency exchange factors.
> Unlike last time though, the housing supply currently seems fairly tight in many areas, so a large pricing collapse downward seems not nearly as likely.
I suspect this is more due to the large amounts of monetary stimulus that makes its way into investment venture fundings than organic demand shaping.
But yes, I believe for partly the reason you cite, and mostly the reason I gave, that the pressure to hold up residential (and to some extent commercial) real estate asset pricing is immense, and likely to continue. The US is ...
Actually the real problem is that the iPhones are not produced in the US so any profit that accrues goes to well paid Apple engineers and Apple shareholders. If you are not a highly skilled worker you are not going to get a share of the profit. That's the general problem first world countries are facing, lack of demand for low skilled labor unless it is illegal immigrant labor because that is the only form of labor that is cheap enough to compete with foreign countries. You can either train everyone (very hard) or make sure there are enough low skilled jobs (government stimulus).
If that were really true the trivial fix would be to train more medical personnel and invest into more food production. In reality it's just a temporary corona related increase.
You are not missing anything, QE means the value of the currency has dropped, there is no escaping this simple fact. Whether it can be hidden for a while and for how long, remains to be seen.
> Bitcoin are "shock absorbers" of sorts, or early signals of inflation-yet-to-come.
Bitcoin doesn't go up because inflation is coming. The current value of bitcoin is an early indication of people betting on inflation. There doesn't need to be inflation, there only needs to be an expectation of inflation for investors to pile into bitcoin, thus massively driving up the price. And investors piling in will drive the price massively because there's a fixed supply of bitcoin so the price is entirely driven by demand and the current present value of all the bitcoins in existence is still ~500Bn, the same amount as a company on the stock excahnge. The price of all the gold in the world for comparison is ~10Tn. Or to put it another way, if inflation now doesn't happen, the price of bitcoin looks ridiculous and there'd be a massive crash as everyone floods back out. In fact, further than that, if inflation doesn't sky rocket then the value of BTC looks silly.
Yes, many have speculated that as oil and gold prices in the past acted as hedges against inflation, btc may very well be that next place that investors go in times of heavy inflation. If liquidity is good, I think that this works. But the problem is that liquidity in bitcoin is so different from other classes of investments, and we don't fully know what is possible with this kind of market yet.
> It feels like the sky-high valuations of technology companies and Bitcoin are "shock absorbers" of sorts, or early signals of inflation-yet-to-come. If we assume the market is efficiently pricing these assets (like AirBnB's IPO) then it could very well be that the actual value of a fiat dollar has dropped dramatically -- making sky-high valuations more reasonable
To me, the most reasonable interpretation of these valuations is a savings glut. People are being given extra income, but instead of going out and spending it on more impulse purchases (such as fine dining or an exotic vacation), they're shoveling that into savings accounts. And assets that reflect a long-term saving mindset--real estate, stocks--are going up in price, while more immediate consumptive assets (e.g., food) are staying stable.
> wouldn't be surprised to see the price of things like groceries, beer and travel double or triple what they were in 2019.
That would be an effective inflation rate of 100-200%. If you're assuming that would happen within a year, the number of countries right now with that high of an inflation rate is 3: Venezuela, Zimbabwe, and Iran. Even the developing world doesn't regularly see inflation quite that high, you'd expect more like 10-30% annual inflation for those countries.
> We've injected trillions of dollars of fiat into the economy this year
When the government issues debt and then uses the money to send out cheques, that money had to come from investors in the first place. So the money was reallocated, not created. (New assets did get created: someone is going to hold those bonds and count them as part of their assets. But they can't use these bonds directly to buy groceries.)
When the government issues bonds, they sell them for commercial bank money, the same type of money in your bank account.
When the central bank later buys those bonds from banks (they never buy them directly), something different happens: the bonds are exchanged for "bank reserves", a different type of digital money that only exists as numbers in the central bank's database. This "money" cannot be used to buy groceries.
> A central bank implements quantitative easing by buying financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply.
Quantitative easing increases the money supply. They've injected trillions. Who got it is a separate question.
Quantitative easing only increases "bank reserves" in the accounts at the fed, not the money supply. The accounts at the fed are an isolated system. To increase the money supply, commercial banks need to create money via loans.
The reserve requirement is 0%, increasing a bank's reserves doesn't allow them to lend more. There are mechanisms that allow an increase in bank reserves to be spent in the economy without loans [0].
I read the post you linked, and was surprised by the description of money being created when a UK bank buys a government bond from a pension fund. I thought commercial banks were only allowed to create money when creating loan assets. Is creation of money when banks buy assets a unique feature of the UK banking system, or does it also happen elsewhere?
If banks would buy financial assets and create money in the process as described in the post, then that would certainly be inflationary. (e.g. I can imagine hypothetical legislation that forces banks to buy government bonds, that would be the time to run for inflation protection.) As far as I understand, this has not happened, or at least not to the degree that it caused inflation. The effect of QE has been to increase bank reserves but not the money supply, which is why we haven't seen inflation since the financial crisis.
The purpose of QE is to cause inflation, the federal reserve is explicitly trying to avoid a Japan situation where there are low interest rates and deflation [0]. To avoid a deflationary spiral [1].
I can't find a source that explains the mechanism for how QE affects the economy.
But recently, the U.S. Treasury has issued a ton of debt to the Federal Reserve. The Fed is creating dollars and handing them to the Treasury in exchange for T-notes. The recent debt increase has actually created U.S. Dollars out of thin air. Following this line of thought, those dollars have made their way into the "real" economy in the form of PPP loans and Covid checks. It was a similar story in 2008, but the amount of federal debt held by the Fed has exploded this year [1].
Furthermore, the last time the Fed has tried to draw down its balance sheet of federal debt, commodity prices went crazy and Jerome Powell had to abandon that quantitative tightening program. So, it's not even like the Fed can easily move those T-notes to the private sector and pull USD out of circulation -- we're stuck in an inflationary period.
The fed creates bank reserves, which is different from the commercial bank money in your account. It's quite confusing because both are called "dollars", but they can't be used in the same way.
I have been buying small amounts of bitcoin since around 2015. I have a very small portfolio, but growing?
Recently I have had friends that are very far from the tech scene, but well versed in investment risk pick up BTC as institutions announced the onboarding of coins.
I have no idea if $30k / btc is reasonable or insane, but I think we will know when bitcoin gets to the final price as the correlation to gold gets closer to 1.
Housing price is up, but not rent (all over US), that is driven by lower rates rather than inflation.
All that said, a ton of money was dumped on the market. We won't know until later in the year what the result of that is.
On the other hand, the existince of a cryptocurrency ecosystem has given us a really easy and clear indicator that a company or individual is lacking in scruples, and that we should move on from whatever they're hawking.
That’s nonsense. Bitcoin is as good a store of value as gold due to one unique feature: scarcity. Actually, it’s even less power consuming than the gold industry and is much more transparent. I wouldn’t really advise bitcoin for anything else, like day to day transactions, although I and many of my friends have used bitcoin to transact on dark markets and it works.
The only argument I’ve heard about gold being better than bitcoin is that you can do something with gold. That’s horse in my opinion. Gold is good for nothing useful imo, but is used in jewlery and other because it has value (not the other way around, as in gold has value because people make jewelry with it).
> Gold is good for nothing useful imo, but is used in jewlery and other because it has value (not the other way around, as in gold has value because people make jewelry with it).
You do know that gold has super low reactivity and it's a very good conductor, right? :-)
How often is it used for that use case? Does gold have a high value due to this? No. I would even say that we might see more use industrially if people weren’t inflating its price by using it as a store of value.
Stats that include gold used as a store of value show much different numbers. But as I said earlier, the price of gold was never inflated by industrial use, it’s the other way around. The good thing about bitcoin: you’re investing in something that won’t negatively impact real world use cases.
But industrial use is big (see the link from the other poster, 37% in the US), and growing. Gold is a very useful material and not only for its shininess.
This is an underappreciated possibility of bitcoin.
All that insane amount of gold that's collecting dust in vaults being used as a store of value? Suddenly free to be used productively if bitcoin replaces it. Same with real estate that owners let sit unsed because they're primarily using it as a store of value rather than a productive asset.
Their scarcity is not "like". The owner of beanie babies has/had full power to produce any amount of beanies, inflating their supply. The owner could start up the factory again and flood the earth with beanies.
Bitcoin scarcity is protected by mathematics and the nature of the universe. And the public ledger.
I guess anyone can dream up a new mathematical system and ledger and unlimited dreams can be dreamt making more supply of electronic currency. But the specific instance of a dream "bitcoin" and it's public ledger cannot be inflated.
I could take an A4 sheet and draw a triangle on it. It's scarce (there's only one A4 sheet with that precise badly-drawn triangle), but since nobody wants it, it's worth as much as the paper it was drawn on.
The same happens with both Bitcoin and gold. Since they are scarce, as long as there's enough demand their price will increase. However, there's a difference: gold has industrial uses for which there are no replacements with the same characteristics, and this provides a baseline level of demand. For Bitcoin, that is not the case; for any use case, there is (or can be created) another cryptocurrency which can be used instead of Bitcoin. This means there's no floor for the Bitcoin demand; for instance, if everyone decides that Ethereum's proof-of-stake is the best thing since sliced bread, the demand for Bitcoin can almost completely evaporate, and its price will go to zero. (There's a small intrinsic demand for Bitcoin as a collectible, since it was the first proof-of-work cryptocurrency, but that by itself is not enough to sustain its price.)
Was there an industrial demand when gold rush was a thing? Do we see significant proof that industrial use has a significant impact in gold being used as a store of value (besides theories)? Is that industrial use strongly linked to gold’s high price? Then how do you explain bitcoin replacing gold successfully?
With only the industrial value of gold propping it up, its value would likely drop to 1/50th of the current price. So who cares about having a floor if it’s that low?
If Bitcoin all of a sudden had a floor that was also 1/50th of its current value, no one would care.
Bitcoin doesn't store anything, you can only get real wealth back for it if someone decides to trade. Then they are in the position of holding a worthless token that they have to dump on somebody else, ideally higher - and people only buy if they expect that to happen. Theoretically pumps and dumps could continue indefinitely, but in reality people are going to get bored of it and move to newer and more shiny ponzis.
Real wealth has value regardless of what other people think about it and has it by itself. A profitable company is a form of wealth even if nobody wants to buy it - because it generates profits. Same for farmland. Things with direct utility have value in that utility. Utility is ultimately defined by physical needs, which makes it an objective metric of value that can only be estimated better or worse by humans. Value isn't subjective - people and societies that are too wrong about valuations for too long wither and die (possibly conquered). The West as a whole is definitely on that path.
Gold was a store of value when governments forced people to pay taxes in it - selling what they had for gold - for thousands of years. It's not a store of value as that ended. Some people just didn't get the memo yet, but new generations are visibly unenthusiastic about gold, so it's only cultural inertia.
It has some utility in itself, so it's better than bitcoin, but its price based on that demand alone would be much lower.
From what I understand, the availability of coin that can be "mined" halves every year (?), so at some point there will be essentially no new coin. What you have is what you have out there. It will just keep going up in price to include all the accumulating "worth". That should be fun to watch.
In addition, just yesterday the headline flashed in front of me, Marketwatch: "After recent price spike, bitcoin requires enough power for a country of more than 200 million people".
Bitcoin doesn’t care about these articles. Ignore it if you want - many people do. Bitcoin gives the choice to opt of the current financial system. No problem if you don’t, it’s completely voluntarily.
the biggest difference between this rally and 2017 is that it appears to be mostly just bitcoin and, to a smaller extent, eth, and seems largely driven by institutions who now feel it is finally investable.
imo there isn’t quite the same level of excitement even though the price is much higher now. just feels like another asset Wall Street is accumulating.
This is written from the perspective of a person who believes in blockchain-based currencies but thinks Bitcoin as an implementation of said currency is a failure. He thinks the concept of mining is a fundamental flaw.
But he keeps the door open for different implementations. Personally, I think the whole concept of blockchain-based currencies is flawed. But let’s not go there right now.
The value of Bitcoin is very high and that’s very scary. Who is buying? All those investors who have no place else to go? Gambling on Bitcoin to find ‘growth’?
Bitcoin is quickly becoming too big to fail. But it will fail at some point, because I believe it isn’t anything. (You may disagree, but hear me out). So when the music stops, I think it could be the event that triggers another 2007/2008. Bot big enough by itself. But it triggers the same avalanche of bankruptcies, the dominos will fall.
This time though, all financial instruments to save us are exhausted. Interest is zero. The worst may yet to come.
Why would you put your money in gold rather than bitcoin?
Also why is the concept of blockchain as currency is flawed? What construction would you use instead for a currency that is trusted throughout the world?
I agree that it’s inherently flawed, however I don’t see how it would be big enough to trigger another 2008. That seems way out of proportion to me. I think bitcoins affect on the real economy is just too small.
Bitcoin total market cap is ~$500 billion, so it's still a pretty small niche, and I think there's quite a ways to go before it becomes "too big to fail".
For comparison, the market cap of gold is ~$10 trillion. The majority of the US economy is not hooked into Bitcoin, and very few institutional investors have any significant exposure to Bitcoin. Contrast that with the '08 financial crisis that was based in real estate -- the US real estate market at the peak of the crisis was ~$23 trillion [1], with nearly every major financial institution heavily exposed.
There does seem to be a fundamental design issue in bitcoin and proof of work in general: Mining has economies of scale and therefore winner takes all mechanics leading to centralization.
At that point the mechanism that ensures ledger integrity is the calculation that if the miner tampers with the ledger, that would destroy trust in the coin and hurt the miner in that way.
But 1) that's exactly how conventional currencies work too and 2) it's actually an untested hypothesis. Who knows what would happen in a world where the economy runs on bitcoin and there's some "good reason" to deviate from the protocol.
Re: 1, I don't see conventional currencies working that way.
Has any government promised how and why they will maintain their currency. They supposedly claim they help people why screwing up the very same people. Case in point, the 2008 crisis and the various modern monetary based crises.
I agree that governments can manipulate their monetary policy in ways that are not in the best interests of their people. But I also don't see how widespread crypto currency would 1) have prevented the '08/'09 financial collapse, and 2) it appears that fiat monetary policy has more flexibility in responding to such crisis by inserting liquidity, facilitating the controlled dissolution of defunct financial institutions, etc.
2008 is a great example of why fiat currency is helpful. The government can simply create more to stimulate cash flow and/or prevent a crisis of confidence in a non-government institution.
But when the government 'simply create more', they are not creating any more wealth. They are creating more units of currency to represent the same wealth as before, which eventually makes every unit of currency worth slightly less.
The people who have assets in cash end up paying for it. That includes the poor who have most of their net worth in cash as they live paycheck to paycheck, and whose purchasing power has been stagnant for decades.
If the government "prints" money and immediately distributes it uniformly to the population, it benefits the poor most of all. Especially debtors.
This year was a great example. Mortgage refinancing bonanza. If inflation really takes hold, those debtors will be very happy.
> And that’s not a “rich get richer” kind of thing — the poverty rate fell. And it’s no surprise. Peter Ganong, Pacal Noel, and Joseph Vavra found that under the CARES superdole, “two-thirds of UI eligible workers can receive benefits which exceed lost earnings and one-fifth can receive benefits at least double lost earnings.”
A miner can not tamper with the ledger. A miner can prevent certain transactions from coming through if they are the only miner on the network, but they can't forge transactions.
The entire point of some of the alt-coins was to address all these complaints. So instead of piling onto Bitcoin which is years of stuff we already know about, focus on those alt-coins that support the ideas you want in a cryptocurrency.
I've been reading about the tech behind bitcoin and I find it interesting yet have been skeptical due to some perceived flaws. I've been concerned about the market externality due to the amount of energy it takes to mine blocks. What are some alt coins worth exploring?
It really hadn't hit home to me that yes, BTC is being mined using ASICS by a handful of players, probably operating out of various authoritarian regimes. We've got the US getting all angry because TikTok is a Chinese country, and yet we've oestensibly got libertarians telling us to move out money into a currency controlled by Chinese BTC miners. It'd be fascinating if China could cause a recession in the west by taking down bitcoin overnight.
That's not even the real danger. The real danger is that by controlling 51% of the network, authoritarian regimes can block transactions by people they don't like or cause people to accept money that turns out not to exist.
It depends on the target. If some rich, nontechnical bitcoin hodler announced "I can't spend my money because the government is censoring my transactions," do you think the response would be a community investigation (which would risk all the investigators' bitcoins losing their value) or deriding the complainer as a conspiracy theorist who doesn't get how Bitcoin's design makes censorship impossible?
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[ 5.7 ms ] story [ 414 ms ] threadThis is a pretty funny point because every time I go on twitter and see people talk about crypto, what they're essentially having is a discussion about public policy, and often they seem to try to reinvent institutions that already exist without even knowing it. From market-makers, exchanges, insurance and so on, precisely as the author points out all the dreaded middlemen they were trying to avoid
The point is that Bitcoin has introduced an actual "digital cash" currency without institutional/governmental middlemen. That institutions can be built on top of that, and that some people want such institutions, doesn't change the novel utility of finally having a currency that functions like digital cash.
It's like saying it's ironic that people use physical USD for anonymous p2p transactions when USD banking systems have KYC laws. It's a non sequitur.
Still, note that you don't need Paypal to move Bitcoin.
At this point, bitcoin is a competitor to gold as an asset store. Maybe it will be more like a currency at some point. But there's a long way to go and a lot of forces against it for that to occur.
Who are they? How many are they? What insight do they have that we don't have? Is this chance higher than the possibility of collapse for Bitcoin?
Of course, as Bitcoin currently stands, it's difficult for this to come to fruition because most holders are speculators rather than people interested in using it as currency.
Why would Bitcoin transactions be exempt from KYC?
In many situations lack of KYC is a bug, not a feature.
Some people seem to be actually believe that.
You just happen to be one of them.
You don't.
Just like free speech, tracking what people do with their money is a violation of basic human rights.
Giving governments that kind of power is downright crazy.
If you want to catch criminals, resort to traditional ways.
You can also not comply with KYC laws in the traditional banking system; you're just going to get roflstomp'd by the financial authorities, c.f. $200mm fine for Deutsche Bank for insufficient AML/KYC controls in 2012-2015 time period.
Why would you imagine the result will be any different for crypto-banking? FinCEN is already promoting KYC for exchange-hosted wallets.
Bitcoin was born in the Global Financial Crisis when the world was discovering the massive scam which the financial services industry had perpetrated, causing the whole problem. People wanted a way to do transactions without having to trust institutions which demonstrably couldn't be trusted. Hence Bitcoin which acts like digital cash with no trusted intermediary.
Most people take it for granted that they need a bank to do anything, and they don't really consider how powerless they are over their own money. Like how it's illegal to carry too much cash (and it can simply be taken away). And how your bank can impose arbitrary restrictions against you like rejecting transactions and freezing your account. I've lost various bank accounts over the years as a permanent traveler. I'm banned from Paypal.
I want to be able to send $100 cash digitally with the operational minimalism of giving someone $100 cash in person. I want some control over my money even when I want to exchange it digitally.
Which country is that? It's not illegal anywhere I know of.
Are you really free if you have any arbitrarily defined “large” amount of money, only to have it sorted and it become YOUR burden of proof to show the origins of the cash?
Transaction with cash between private citizens are permitted tough (like buying a used car in cash), but it's not a good idea to do so if you don't trust the other party (because then how can I prove that I gave you the money?)
[1] https://babatax.com/cash-transaction-limit-in-india-cash-pay...
[2] https://wolfstreet.com/2017/01/28/europe-limits-on-cash-tran...
[3] https://www.theguardian.com/world/2016/feb/08/german-plan-pr...
[4] https://www.accountantsdaily.com.au/business/14087-governmen...
People use banks because they provide financial services. You don't have to use banks, if for some reason you want to avoid them, but then you're left without access to those services. As far as I know, Bitcoin doesn't provide financial services, so it's not a replacement for banking.
Notice also that the whole business model relies on the bank having privileged access to central bank money and sharing that access with the plebs for some percentage interest. However current technology makes it feasible for central banks to simply interact with consumers directly. The only remaining problem is how to decide who is likely to pay back the loan. Retail banks could be relegated to credit check providers.
Bitcoin isn't a currency yet. Most people can call up their credit card and get stuff blocked and returned instantly. Debit cards are definitely less of a service in that regard though and shouldn't be used like credit cards.
But the services are valued by most people.
As a currency, and as someone mentioned earlier - it's currently terrible due to it having an unstable valuation.
I was referring to credit cards being a service that consumers value because they have fraud protection and other things. The parent was talking about arbitrary restrictions and freezing accounts. That typically happens when you have fraud on cash accounts (bank account, debit card, etc). And a credit card layer works extremely well.
I just had someone accidentally send me money on Venmo and I returned it to them right away. Cash or cash equivalent digital services are nice, but it limits "purchasing power" (great for consumers IMO, bad for merchants), has no rewards, and little to zero fraud protections.
Countries that use chip and pin on debit cards are definitely more secure. This should be in place in all countries. Fraud on a debit card is a nightmare. Fraud on a credit card is not usually a big deal for consumers.
Regardless of the various financial instruments, bitcoin cannot be a real currency when it's value is unstable.
USD vs Bitcoin is a comparison of currency.
I pay for most things in Bitcoin.
I just built a new computer from parts I ordered off of Newegg, paid 100% with Bitcoin. I pay my rent in Bitcoin. I get paid in Bitcoin.
If you wouldn't mind reviewing https://news.ycombinator.com/newsguidelines.html and sticking to the rules when posting here, we'd be grateful.
https://news.ycombinator.com/newsguidelines.html
The emergent cartel of miners becomes that.
From the article:
> The whole idea of proof-of-work mining is broken the instant hardware comes out which is specialized for mining and useless for general computation because at that point the need to have compute power for other purposes is absolutely irrelevant in having any effect on mining, and there ceases to be any force that causes mining to be distributed around the world. It becomes a "race to the bottom" to find where people can get the cheapest electricity, and then mining anywhere else - anywhere the government tries to make sure ordinary people actually get the benefit from electricity bought for tax money, for example - becomes first pointless, then a net loss.
It's the same story as some countries not having good quality coffee, avocados, quinoa, etc. because the export-quality goods are priced out of widespread domestic consumption.
With electricity production and distribution being a natural monopoly (and therefore typically regulated by the government), blockchain can't escape the realities of foreign exchange rates and government control.
Edit: Your comment was edited after I made this one. I see no relation between the quote from the article and how miners are supposed to be middlemen.
It doesn't take 100% collusion, but certainly no more than 51%, and I've read speculation (though no proof) that less is sufficient.
> middlemen
A mining cartel can't edit a blockchain, but they can choose to accept a different blockchain, which is effectively the same thing. Do you accept the premise that a sufficiently large cartel can exist, by state intervention in the price of electricity?
[Apologies for the edits. I often find I dislike my first draft.]
Chain splits do not "edit" blockchains, they still require their own proof of work, and they cannot modify transactions, only drop them. Honest participants in a chain that is orphaned will not have had their money spent in the new chain, leaving it available to spend again. That's all that can be done. It requires a lot of work to be done once, let alone maintained over time on consecutive blocks, and in extremely short order the rewards sacrificed by fucking with the blockchain make continued attacks expensive to the degree that they'd be practically impossible.
People aren't thinking this through. The "race to the bottom" endgame is not that miners consolidate in one state with subsidized electricity, but that mining operations eventually power themselves off-grid through renewables, making distribution entirely detached from geography and jurisdiction.
I agree that continued attacks makes a complicated situation, given the cartel participants would probably hold a significant amount of coin and would risk devaluing themselves against some other currency (though in the end-game scenario, what other currency matters?).
Let's imagine that the majority of domestic and international trade is conducted in Bitcoin, with maybe some alterations to the protocol to enable hundreds of thousands of transactions per second at essentially zero cost from the perspective of an individual actor (non-miner), even bursting up to tens of millions of transactions per second, somehow. Suppose then that two large governments, say the Unites States of America and the People's Republic of China, get into a little tiff about some boats hanging around the Taiwan Strait. Would these societies (in aggregate) prefer that their domestic and international trade be conducted in Bitcoin, or in a domestically-controlled currency?
A cartel could lock out a set of accounts from the Bitcoin network. Perhaps only temporarily, but long enough to have serious effects.
> power themselves off-grid through renewables
That'd be cool, but I doubt that off-grid will ever reach the efficiency and scale that on-grid will provide, due to fluctuations in the power sources and the economies of scale. It's hard to make a currency choice by betting on that technology, especially as the calculation could swap as the technology changes.
And the reason behind that is obvious. Something whose value may double in a month or whose value may halve within weeks is a terrible currency.
If I expect it’s value to increase then I would be a fool to spend it. If I expect it’s value to drop I would be a fool to accept it.
Cryptocurrencies are anything but currencies.
Bitcoin has a potential to serve as that kind of saving “currency” a lot of people actually need.
If you on the other hand have a long saving window so you can tolerate huge swings in the price of the bitcoin (or other cryptocurrency) then the question arises why not diversify your investments like regular people and buy ETFs or other assets?
Maybe buying ETFs is harder than buying bitcoins, but in general the idea is (I assume) the same. However, what I feel most people are allured by with bitcoin is its random price movements where out of nowhere its price surges up and creates a total hysteria in the market.
I myself heavily dislike assets which price is mainly driven by emotional rationale and while bitcoin's idea may be good, I would not suggest anyone to put their savings in bitcoin. It would seem to encourage people to treat markets with magical thinking where the prices are set by otherworldly powers and not as tied to the revenue stream that is generated by the said asset.
I've been banned from Paypal. I've run into many verification issues over the last decade with banks because I have no proof of residency once my driver's license expired.
Like physical cash, it doesn't need to be superior in all ways to be useful at all.
Just because a random guy barters bitcoins for goods/services, that by no means implies that bitcoin is anything close to money.
There is a very specific definition of what money is, and bitcoin's volatility alone rules it completely out.
Bitcoin is obviously not money, and among the many reasons the fact that it does not serve as a store of value nor a means to defer payments, which is a single requirement that comprised the very definition of money, is just one of them.
No, it's not. It’s too volatile to be an efficient store of value or a useful unit of account for general purposes; it's got some use as a competitive medium of exchange for certain circumstances (but again not really with the generality of any major fiat currency.)
It's commodity that seems to (retrospectively, at least, and there is some reason to expect this to continue for the near future) have good investment performance if you are in a position to wait out down periods, which makes it nice as a component of an investment portfolio.
It's good at things that aren't the purpose of money, but mostly not good for things that are the purposes of money, except for a narrow subset of one of three major purposes of money.
It takes two to barter.
> treating it effectively like a foreign currency
They really aren't. They accept bitcoins in exchange for goods/services, just like we see in any barter system.
Calling bitcoins "foreign currency" is just a desperate attempt to hide the obvious consequences of it's volatility, which eliminates it's role as money, not only as a store of value but also as unit of account.
https://en.wikipedia.org/wiki/Money
Each and every single random guy on the internet who wants to buy stuff with money cares about money, and the properties that allow something to work as money.
Specifically, properties like being stable in its value within the market, and reliable both as a means of deferred payments and meet debts.
Bitcoin, or any cryptocurrency, is nothing of the sort. Far from it.
For some random guys on the internet. yes. Some other guys are using it without waiting for it to be everything the previous system had. (deferred payments etc.).
Isn't that trivial to do from a reporting point of view? Just export your wallet history and do a lookup on that day's price.
It's another reason why using a cryptocurrency is still a gigantic hassle in comparison to fiat.
Every state I've lived in (13 so far) has an ID card that looks and acts exactly like a driver's license, with the only legal difference being that it is not valid for driving.
Unless you're not in America, in which case someone else can chime in.
I don't have any of that. But maybe you can appreciate that I don't want to have to jump through those hoops just to be able to send someone $100 digitally.
Surely you store fiat currency somewhere, and isn't there a "transfer money" button where you plug in an account number and institution and the money arrives shortly after?
The inability to make transfers immediately and without fees between accounts held at different banks is bizarre for those used to UK banking.
But one of my points here is that, while I'm sure some people here are chomping at the bit to nail me with a gleeful "see? ironic!", I simply don't have to use Coinbase. I can, for example, exchange Bitcoin locally the same way I can trade USD for pesos with my roommate. I was SOL at one point when I was simultaneously banned from Paypal while my bank at the time spontaneously rejected further access to my own account, the two institutions I was depending on to operate abroad. It's what made me turn to Bitcoin, and I began considering how ridiculous the state of our financial status quo where I have precarious access to my own money.
I can appreciate that my outlier needs make it hard for people to relate to me the same way most people don't understand why an HNer cares about Linux when Windows works for them, but I think most people here are disappointingly eager to reject any possible upside of "digital cash". Even if its upsides are exceedingly niche for most people, that's not reason to dismiss them.
To me it's like reading an HN thread where everyone dismisses Purism's smartphone because Android and iPhone do the job for 99.9999% of people, and who the hell could possibly care about separating the CPU from cellular baseband? Or maybe they're claiming that only criminals would care about that. Well, that very few people are in a position to appreciate it has no basis on whether we deserve the option.
This is my last comment on this particular submission.
It is not difficult for most citizens in first world nations to keep and maintain a bank account.
Do you have a source for that?
It seems to me that asking for sources is a common technique for discrediting opinions on HN. It looks like a legitimate question but obviously if they had a source it would be a fact rather than an opinion.
If you are actually interested in how that opinion is formed ask a relevant question or point out what they are missing.
Personally I find that opinion entirely reasonable given that there are no problems I have that Bitcoin would solve better than the alternatives unless I was inclined to buy something online anonymously or to speculate on Bitcoin itself.
You’re cherry picking your price analysis time period. Last year I could have said “BTC has trended down tremendously the last 2 years” and I’d have been right as well.
If you want to make the opposite argument, that it has a downward trend, you have to cherry pick a fairly small period.
You have to cherry-pick narrow enough time period to see bitcoin dropping in price.
If you pick sufficiently large time period bitcoin always grows. This screms 'investment'.
I'm not saying its bad, but its an extremely high risk investment so not suitable for the money you can't afford to lose. I've heard of many people withdrawing superannuation to put into crypto (or using credit) for example.
Volatility results from the fact that the markets have a very hard time pricing an asset (because the asset's properties are hard to understand and its future behavior is therefor hard to predict).
This results in the creation of noise on the price signal.
It does not mean the asset is inherently bad. It just reflects lack of knowledge.
https://miro.medium.com/max/1838/1*Ao2C0phpSfknHvorWl2a3Q.pn...
Would be true if bitcoin was full premined, but it wasn‘t.
There are still 900 new bitcoins mined per day, and with an open source / patent free environment the space is a competitive market, the cost to produce one should tend towards the price of selling it (less so when the price rises quickly).
So how is at least a dollar lost (for every dollar won)?
For people speculating, there's always a buyer and a seller. If I buy $100 of Bitcoin from person A and then later sell that for $101 to person B, then I have gained a dollar. A dollar that A would have gotten had they held on, or B would have gotten had they bought in earlier. It's a zero sum game. Except that everybody involved is paying transaction fees, putting in otherwise-valuable time, and taking risk (e.g., of theft), so in reality it's a negative sum game.
That's very different than actual investing. If I put $100 into a friend's company, then they will hopefully use that money to create something more valuable than the total investment. I'll come out ahead, but so will my friend and my friend's customers. That's a positive-sum game.
The site charges a small fee for the service of derisking the holdings.
This does seem to solve a real user pain point (risk and the complexity of hedging) and benefits from scale economies.
Nope. I don't buy things in crypto only because of the reporting burden. Every cup of coffee bought with crypto has to be reported on a tax return.
It's reported as a security - other, which is laid out like the stock trades 1099. Your taxable amount is the difference in price between what you paid for the currency and what you "sold" it for (both in USD).
If you're talking about the US, I think you're wrong: you need to declare all your hobby income, and since 2018, you can't deduct hobby expenses.
See e.g. https://www.creditkarma.com/tax/i/hobby-income-taxed https://turbotax.intuit.com/tax-tips/self-employment-taxes/4...
That's annoying. Would be nice if they didn't keep changing things around all the time.
You should.
And then report every cup of coffe on your tax return.
And file on actual physical paper, preferably printed with a font that's hard to machine-read.
I, for one, have and will continue to use it as a currency in some cases. I'm quite sure I'm not the only one.
HODL would not be the meme it was if the goal was to actually use bitcoin in day to day transactions.
There's an easy solution to that problem: spend BTC when you buy things, and then every week-end, buy it back to get rid of whatever monkey money (fiat) people gave you (salary,payments,etc...)
That seems like a lot of work, but it's easy to automate.
And if enough people do this, this will strengthen the BTC economy and weaken fiat, so you can feel good about yourself when you go to bed.
Yes, people are investing to speculate on its price, but they are also investing because it has a fixed supply that cannot be inflated away by governments.
Take a look at the U.S. M2 money supply YTD and the DXY and consider what happens next as more wealthy investors begin to recognize this advantage inherent in Bitcoin.
Ask the people who bought hundreds of millions of dollars (without inflation) of drugs on Silk Road, Empire Market, White House Market etc since 2013 until now. I am making up hundreds of millions based on the seized Bitcoins by the FBI, the real number probably exceeded Billions a long time ago already.
The WannaCry and other ransomware folks don't sit on their millions of dollars of extorted Monero/Bitcoin either. They buy cars and fancy things with them, and that's one reason many of them got arrested.
Few real world examples of scams against everyday folks:
https://www.youtube.com/results?search_query=canada+bitcoin+...
Safeway now has BTC ATMs and we we'll be able to drop "canada" from the query and get good results from the US soon.
So far over the course of my decade-ish long career most invoices are paid via fiat but actually my record sale was paid in Bitcoin. The client paid for approx 500 consulting hours in BTC (and is still a client to this day, paying for many more hours than that batch in subsequent purchases albeit sometimes in fiat).
I prefer Bitcoin over government fiat currency when doing large transactions like that because of the risk that a bank will freeze the funds or hold the transaction arbitrarily without warning and on either side of the equation; ie- you don't know if the party sending or receiving may be subject to the freeze.
I wouldn't necessarily say that most of its market cap is coming from people treating it like a currency. But I most definitely think it is effectively a currency in some places and in some special circumstances.
I take it that the point of the post is that, by and large, due to the fact that the blockchain is public and analyzed and mining is conceivably traceable to special purpose hardware, it's not for many practical purposes usable as a stateless, institution-free vehicle for transactions.
I'm not sure how to square the circle on this, but it certainly is a currency in some cases.
It's more like TCP/IP than businesses built on top of the protocol.
These technologies are style and no substance to the masses. Propped up by fetishists and speculators.
> The more scalable the network becomes, the more centralized it becomes, until ultimately a "scalable" cryptocurrency would be doing things exactly the same way as a credit card processor.
So much talk about the benefit of crypto currencies seems - in my eyes at least - based on a fundamental misunderstanding of how societies work.
And most of all: you can’t replace trust with tech.
From the tone of your statement, I think you meant mis-understanding. I'll add also a misunderstanding of macroeconomics and a rejection of empiricism. The cryptocurrency folks read a bit too much of von Mises.
I'd say, you can (Bitcoin is one of many recent exercises of replacing trust with math). But it's not worth the price. Or, put another way, trust is a ridiculously powerful optimization that enabled humanity to form societies in the first place. It's very similar to how introducing a central node into a network reduces communication costs from O(n^2) to O(n). In the general case, it's stupid to not take advantage of it.
I consider Bitcoin to be the closest we've came so far to expressing trust in units of energy. POW shows us how much computation has to happen to achieve mathematical guarantees in lieu of trust. Somebody could probably derive some upper and lower bounds on the energy costs of trust in terms of information theory. I'd love to read such a paper.
Even in the very basic ecommerce use case: buyer purchases item online with bitcoin. The buyer must necessarily trust the vendor to deliver.
There's no recourse outside of the good graces of the vendor. There's no chargebacks or third party mediation.
Thus Bitcoin actually reverses the risk assumed by online purchases from the vendor to the buyer.
This is the reason why Bitcoin is a failure outside of niche grey and black market concerns. It is far worse for the consumer than existing solutions that isolate them from transaction risk, and will usually kick back a small percentage in cash back.
Every new scam or venture that runs into regulatory issues is a fascinating trip that often results in "well yeah that's a terrible idea..."
> centralized mining activity in a country where centralization means it's effectively owned by exactly the kind of government most people thought they DIDN'T want looking up their butts and where the people who that government allows to "own" this whole business work together as a cartel.
It looks to me like an attack on the reserve currency status of the USD. It's not a sure bet, but China is willing to tolerate it in the event it succeeds. Chins holds the mining power, so they effectively win if Bitcoin takes over. It's easy for them to clamp down and control.
> This is a pretty funny point because every time I go on twitter and see people talk about crypto, what they're essentially having is a discussion about public policy, and often they seem to try to reinvent institutions that already exist
The Bitcoin early adopters want to replace the incumbent systems with their own so that they can enrich themselves.
Now that Bitcoin has had time to play out, it feels like an attack on USD with way too many downsides.
Yes, Bitcoin requires many of the same structures as traditional finance. That does not make them equivalent. Traditional finance does not allow you sovereignty over your money. Bitcoin has central custody, sure. But it's opt in. That's what makes it different. You may or may not care about this property, but its undeniable that it's novel in the digital realm, and empirically many people do care about it.
Bitcoin & crypto also might not be sovereign in origin but they have plenty of sovereign influence, basically as much as any sovereignty wants to impose on it. Especially as entities like the SEC & IRS come to terms with it, it will be just as vulnerable to government control as fiat currency. This is especially the case because any wide-spread adoption will require adoption by large financial institutions, which cannot avoid regulatory regimes of their local jurisdictions. From the US government's standpoint, US citizens holding bitcoins is not much different than US citizens holding Euros. How that money enters into the US economy & interacts with US financial institutions or changes hands from person to person are basically subject to the same rules & regulations. If you're conducting a a transaction in excess of $10,000 then whatever mechanism facilitates that will still be subject to CTR's, and any "suspicious" transaction of lower limits will still be reported, by law, to the government.
Basically, if you want to convert bitcoin to the local currency to buy something, you'll need to use some sort of off-ramp that will be a regulatory bottleneck. Want to build a "shadow" economy purely driven by crypto exchange? Well, you'll still have to deal with the IRS knocking on your door & saying "You have things of value that you are performing work to receive. We don't care what currency or form you received them in, you received things of value. Give us our cut."
In short, it doesn't matter that it wasn't created by a sovereign authority: The control a sovereign authority can exert over it is, contrary to many of the most philosophical hopes for crypto, indistinguishable from sovereign currency in everything but name & source of origin.
Let me be clear though: I'm not anti-crypto. I'm probably a little ambivalent, and a little optimistic that it might replace high-friction mechanisms that exist in current financial infrastructure. What I do believe is that crypto cannot both go mainstream and fulfill the philosophical hopes that many had wanted for it.
I'm not sure that's quite true. Decentralization was a goal, but it wasn't necessarily the case that that decentralization had to pervade all use of the currency. The values of the ecosystem are that more decentralization is better - that's true, so Satoshi et al would have preferred to make decentralized transactions sufficiently scalable not to require centralized exchanges, but I don't think that it has fundamentally failed in its goals just because a lot of transactions happen in bank-like entities. The point is that users have the power to do it in a decentralized way.
> Bitcoin & crypto also might not be sovereign in origin but they have plenty of sovereign influence, basically as much as any sovereignty wants to impose on it. Especially as entities like the SEC & IRS come to terms with it, it will be just as vulnerable to government control as fiat currency. This is especially the case because any wide-spread adoption will require adoption by large financial institutions, which cannot avoid regulatory regimes of their local jurisdictions. From the US government's standpoint, US citizens holding bitcoins is not much different than US citizens holding Euros. How that money enters into the US economy & interacts with US financial institutions or changes hands from person to person are basically subject to the same rules & regulations. If you're conducting a a transaction in excess of $10,000 then whatever mechanism facilitates that will still be subject to CTR's, and any "suspicious" transaction of lower limits will still be reported, by law, to the government.
This just isn't accurate. It may in fact be vulnerable to some level of government influence, due to the fiat gateways involved. But it's just not true that it's equivalent to fiat in that regard. Cryptocurrencies will never be as regulable as fiat is, and I think it's pretty clear that that's true, given how widely they've been adopted by cyber criminals and darknet markets. Governments have been completely unable to prevent their use in this way, and will continue to be unable to do so.
It's true from a legal perspective that the government views it just like foreign currency (actually, in the US, they treat it like property, not currency, but we can ignore that for now). But from a technical perspective, its very very different. The technical differences make it very difficult to regulate. Think about music. When music got digitized, its legal status didn't change. It was just as illegal to download an MP3 as it was to steal a CD. What changed is the topology of the technical landscape underneath it, and that is what made all the difference.
> Basically, if you want to convert bitcoin to the local currency to buy something, you'll need to use some sort of off-ramp that will be a regulatory bottleneck. Want to build a "shadow" economy purely driven by crypto exchange? Well, you'll still have to deal with the IRS knocking on your door & saying "You have things of value that you are performing work to receive. We don't care what currency or form you received them in, you received things of value. Give us our cut."
I think you are under-weighting the significance of friction. In principle, sure, the IRS might do that - but we don't live in principle. We live in a physical world with resource constraints. If you make something harder to accomplish, it may no longer be economical to do it. Collecting income taxes from people that keep their money in crypto who don't want to pay them will never be as efficient as doing so in the fiat b...
What do you mean sovereignty? Do you mean property? Traditional finance is not only compatible with the ownership of money, it relies entirely on it!
The middlemen are being created again yes, but they are being replaced with mostly open-sourced software solutions like smart contacts and auditable ledgers. Bitcoin started the party, but the other projects are now finding their feet with technology that uses open consensus as the basis for open, functional, opt-in systems.
Look at Gitcoin, this would not have been possible without the Bitcoin project gaining traction.
There is some magical thinking within the Bitcoin community that only a fixed block size will prevent centralization. I have never heard a solid argument to back that up. Everything in technology is growing exponentially (cpu power, network throughput, disc space). So in relative terms the block size is decreasing exponentially. Technically Bitcoin mining should get exponentially more decentralized. This is not happening.
If we let the block size grow at the same rate as the surrounding tech, or at least at some rate, the supply problem would go away. The transaction fee would go down and we would not need to use flaky and centralizing tech like the lightning network that mimics the financial system that we wanted to escape.
For a long time this was a theory. However several forks of Bitcoin have tried it in practice (eg BCH, LTC, BSV). Over several years these experiments have shown that if you stop restricting the block size you get a system that is dependable, cheap to use, and scalable.
My wish for 2021 is for people in Bitcoin to reconsider if they have made a mistake in restricting the blockchain. I hope they will have the courage to change their minds in light of data.
Fortunately we have Monero! And pretty much every other issue too he raises, Monero has it better.
> [BTC mining] is often done using electricity which is effectively stolen from taxpayers with the help of government officials
Can somebody elaborate on the stolen/corruption angle?
https://news.bitcoin.com/bulgarian-electricity-company-unvei...
https://www.coindesk.com/illegal-miners-in-russia-stole-6-6m...
It's easy to find articles about stolen electricity [1][2], but since these are both about people who were arrested it seems the governments weren't helping them.
[1] https://phys.org/news/2019-07-china-police-bitcoin-miners-mn...
[2] https://news.bitcoin.com/bulgarian-electricity-company-unvei...
The first four links for me are:
* 13 arrested for stealing $3million of electricity to mine BTC (China)
* Illegal Crypto Miner Caught After Stealing More Than $400k [in electricity] (Russia)
* Bulgarian Electricity Company Unveils Details of Historic Power Theft [it's Bitcoin miners]
* Bitcoin mining operators steal $1.5 million in electricity (Australia)
These are just the ones who've been caught so far.
The articles point out the value of the electricity stolen but not the gained profit. E.g., what percentage of BTC was mined with stolen electricity based on the cases we've found so far?
If only a vanishingly small amount of BTC was mined with stolen electricity then the rest of the argument kind of falls apart.
The $3 million example from China was operational for over 2 years.
> The articles point out the value of the electricity stolen but not the gained profit.
Sure. Random internet source says average Chinese industrial electricity is $0.084/kWh. So that's approx. 36 million kWh total, or average 1.4 million kWh/month (1.4 GWh/mo) during their operation.
> E.g., what percentage of BTC was mined with stolen electricity based on the cases we've found so far?
https://digiconomist.net/bitcoin-energy-consumption/ for Mar 2017 through May 2019 estimates global BTC energy consumption at 10 TWh/yr (830 GWh/mo) minimum to 73 TWh/yr (6,100 GWh/mo) maximum. Absolute lower bounds are 3.4 TWh/yr-60TWh/yr (280-5000 GWh/mo).
So, making some hand-wavy assumptions that they did not scale their operation over time, or reduce mining if prices fell, and that their ASICs were approximately as good as everyone else's, they were anywhere from 0.2%-0.5% (early 2017) to 0.02-0.03% (2018 peak) of global BTC energy consumption.
Per https://www.blockchain.com/charts/total-bitcoins the number of BTC in circulation rose from 16.193M to 17.728M (= ~1.535M) coins during that time. Just as rough bounds, 0.02% would be 307 coins and 0.5% would be 7675 coins.
https://www.coindesk.com/price/bitcoin price in Mar 2017 was ~$1200 USD, peaking in 2018 at $19,000, and $8,700 in May 2019. I don't have a weighted average for that period, but I'd approximate the average price over the period as roughly $5k. So: our extreme low estimate of 307 coins, sold immediately on mining, yields revenue of $1.5 million (on $3mil stolen electricity). On the high end, $38 million in revenue. Probably they made something in between.
> If only a vanishingly small amount of BTC was mined with stolen electricity
That is just the one operation, which got caught. It doesn't include any other illegal operations which got caught, and it does not include illegal operations which have not been caught. 0.5% is small, but significant. 0.02% is maybe less so.
This estimate of percent-BTC-produced-with-unpaid-electricity doesn't include legal operations that went bankrupt and will not be able to pay what they owe to the local utility. (There was a lot of this after the 2018 boom-crash.)
> then the rest of the argument kind of falls apart.
I don't really agree. The incentives here are all terrible and will encourage more of this going forward, especially with BTC prices astronomical again.
(1) Burn as much electricity as possible. This is just bad for society and the world.
(2) Acquire electricity as cheaply as possible. In the absence of theft, this encourages consuming electricity in locales that do not price carbon production externalities into electricity costs. Obviously, theft makes electricity even less expensive.
(3) Maaaybe you can take your stolen profits and run, because BTC is pseudonymous and freshly mined coins aren't connected to real world identities. This encourages illegal operations.
Thanks for reading :-).
I agree. I think the use cases have never materialized. I do believe there’s potential in peer to peer, or at least federated approaches. Email works. Matrix works. Irc works.
But I don’t think that a globally replicated ledger is the way to go. Especially with the ambition to use it as the basis for a currency that’s expected to be used for every day purchases.
https://sentient.org/
https://arxiv.org/abs/1903.09800
https://www.researchgate.net/profile/Andrea_Merlina2/publica...
https://arxiv.org/abs/2001.09244
https://link.springer.com/chapter/10.1007%2F978-3-030-59595-...
I use bitcoin to buy things both onchain and via lightning and the experience is so smooth and much much better than the circa 2017 period when fees were high. Don't keep it on exchange. The real thing that is stopping adoption is countries trying to classify it as a commodity and insist to pay capital gains on every microtransaction. Some countries are backwards (US, UK) than the others. Germany and few other countries are forward looking. No VAT on bitcoin transactions and no CGT if held for a year.
The inflation effect causing cash to lose value is something you suck up - it's incentive to invest the cash.
I'm not sure what would/should happen with extremely short term trades, i.e, you convert to Euros from USD for a vacation, the USD crashes, you convert back upon return from your vacation. I doubt the IRS worries too much about it, but I suppose technically you should file Form 8949 along with a Schedule D.
Has anything changed that I should look into?
Drugs, CP, cryptotrojan ransom, other crime related transactions.
Bitcoin value is directly related to relevant criminal activity.
Edit: replaced "any" with "all" in the first sentence
Its very risky to buy with bitcoin if you are in a jurisdiction that makes drugs illegal. I think still cash is king in those places.
You are right though that you can take measures to make it much more difficult to trace.
A few will be caught by making mistakes, but the rest will learn from that. Criminal methods undergo evolutionary pressure.
Bitcoin has always been pseudoanonymous and its perma history is something that I am aware off and not that bothered off. Though looks like the bitcoin devs are working towards something to improve privacy called taproot and schnorr.
The thing that it solves for me compared to traditional fiat currencies is that it retains its value very well over a period of time. some of the bitcoin stuff I bought long back and spent it on hardware now means I got the hardware for nearly more than 500% cheaper if I had chosen to hold it in dollar or other fiat currencies.
Fiat currencies are a liability (depreciating value) if you are not constantly trying to invest them just to keep their value from crashing due to accelerating money printing/inflation.
Out of curiosity, you mention depreciating value for fiat being a liability, which is absolutely true. That being said, doesn't appreciation also create a different sort of liability?
For example, let's say I buy a 1TB SSD for $60 worth of BTC on Monday, and then that same amount of BTC is worth $75 on Friday. In theory, would it be reasonable for me to feel like I've overpaid?
Of course in this scenario, I pay for rent, food, taxes etc. using fiat, so I'm exposed to the difference in conversion rates. I suppose if I lived somewhere where I could transact wholly in BTC for everything and its value wasn't in any way tied to a fiat currency and the value of goods and services were negotiated in BTC in a way that's entirely decoupled from market value on exchanges, this wouldn't be an issue for me. Is this possible?
If on Monday 1 USD buys 1 EUR and on Friday it buys 2 EUR you would have "overpaid" as well for many goods that you could have imported and maybe more directly if you had invested in EUR denominated securities etc..
The current problem in fiat money is what the new money is funding. This is a society/government policy choice and isn't an inherent flaw in fiat money. In the west the money is primary used to boost asset prices instead of used for production.
Sounds like a defect in the technology to me. A good currency should be able to support the full range of social policies (like VAT).
One of the problems of the Euro is not being able to inflate different countries within the Eurozone at different rates. If Bitcoin were ever to become popular for regular transactions within many countries, it'd be a fiscal policy disaster. Pretty soon you'd hear Portugal, Italy, Spain, and Greece banning its use, along with similarly wobbly countries in other parts of the world. I remember Malaysia catching flak for halting foreign currency exchange during the Asian Financial Crisis, but it turned out to be a really smart move. It turns out that a globally integrated economy isn't always best for the smaller economies. They need to be able to adjust the spigot.
Edit: I suppose this suggests a feature request for Bitcoin: namespacing, of a sort. If the currency were able to support cross-namespace conversion controls, like a tax determined by a function of the velocity and acceleration of exchange ... that'd be pretty darn cool. Each country could pick its namespace, and have control over its exchange tax function. Taking it further, you could tax intra-namespace transactions. VAT with no bureaucracy. Each account could be tied to a citizen, transactions taxed at some progressive schedule, and then uniformly distributed to every account daily. The transaction tax could be dynamic, to encourage currency flow in bad times, and to add some friction when things are overheating.
Bitcoin divisibility is limited, by design, to 0.00000001 BTC (1 Satoshi)
Whether this is “enough” is very difficult to answer definitively. If the demand for BTC is greater than the supply, the value of BTC will rise until supply and demand reach equilibrium. If the demand outpaces supply, holders (“HODLERS”) have less incentive to trade and more incentive to keep their BTC, because the value of their BTC increases.
If demand gets too great, few to no holders trade, because they get more value by doing nothing, and trades involving BTC slow or stop completely. (We can think of this as kind of a “consensus attack” by “store of value” advocates on the “medium of exchange” advocates.) The demand doesn’t go away, though, so supply and demand can’t reach equilibrium.
Eventually this would lead people to start using something else as a medium of exchange, perhaps just bartering at first, eventually settling on something common. So now we have a problem: BTC demand has been satisfied by another “medium of exchange”. But what happens to the “store of value” part of BTC if it is no longer the “medium of exchange”? Do coins become like works of art, traded infrequently for great sums? Or do they become worthless?
And how much does that cost? I bet it's more than 5 cents.
> Bitcoin divisibility is limited, by design, to 0.00000001 BTC (1 Satoshi)
Not by design, that's an implementation details that can easily be changed in the future if 1 sat starts to become valuable enough to make a difference.
> and trades involving BTC slow or stop completely.
Do you have an example of a single commodity in the history of humanity that simply stopped being traded because it became "too valuable"?
I can't even understand how that makes sense, if it's valuable some people will want to sell it and get something that is more useful to them, like a house, a car, whatever. People don't commonly decide to hold an asset until their death bed.
> But what happens to the “store of value” part of BTC if it is no longer the “medium of exchange”?
What happened to Gold?
The Great Depression.
https://en.m.wikipedia.org/wiki/Deflation#Deflationary_spira...
If you're looking for commodities only, it's easy enough to Google "commodities bubble".
https://en.m.wikipedia.org/wiki/2000s_commodities_boom#Opini...
The problem is that when markets get turbulent, they can suddenly shift to going the other direction. Instead of everyone wanting to buy, suddenly no one wants to be the last one out the door. And with Bitcoin, what authority is going to stop the panic?
> What happened to Gold?
I suppose it depends on which branch of Bitcoin you're on. Are we talking about store of value or medium of exchange?
Soros' comments on gold are helpful.
> “Typically, a self-reinforcing process undergoes orderly corrections in the early stages, and, if it survives them, the bias tends to be reinforced, and is less easily shaken. When the process is advanced, corrections become scarcer and the danger of a climactic reversal greater”.
http://blogs.reuters.com/great-debate/2010/09/30/gold-as-the...
What commodities ceased being traded during the Great Depression?
> Are we talking about store of value or medium of exchange?
Mostly store of value for now, both when adoption improves and LN support is more widespread. Eventually the base layer will also need some capacity bumps.
> Soros' comments on gold are helpful.
A multi millennium bubble? Can't get more unprecedented than that.
I'm guessing you didn't bother reading Soros' comments I linked. Or maybe you're pretending you don't know the typical usage of "bubble" is in this context?
What it can't do, though, is force people to accept them.
If you want your money to inflate, you are free to use any infatuation currency that you want.
But other people, who prefer to not be subject to inflation, are now free to not be subject to it.
It does not make them subject to inflation, no.
If you hold entirely cryptocurrency, you are not subject to the inflation of holding the currency. Instead, you can simply convert to that currency, only when you need to pay taxes.
This avoids the inflation, in the same way that hold stock in a company, and not holding any dollars, avoids you from being subject to inflation.
Remember the Asian Financial Crisis, when a bunch of the "tigers" had loans denominated in USD, Francs, etc., and then there was a big capital outflow, tanking their local currencies against those debts? People will want to make sure they don't float against the currency they owe.
Even if we say that people would hold some of that original currency, there could still be a significant benefit to transferring most of your wealth to a deflationary currency. Therefore, people would still be able to avoid being subject to that original currency to a large degree.
I'm not familiar with any evidence of that claim, despite my economics education. I suppose the best historical corollary would be gold? If so, I think we can agree that almost no one has adopted that practice. Do you think Bitcoin is different enough than gold such that it would motivate different behavior?
Let's consider the effects of owing tax in the national currency. Retail businesses would owe sales tax in that currency, perhaps paid quarterly. Rather than adding complexity to each sale, they'd probably price goods in the national currency, even if not a legal requirement (which it easily could be). If goods are priced in national currency, it's handy to keep your working capital in that same currency. ... The incentives start to align to keep the bulk of domestic economic activity using the domestic currency.
For comparison, we can look at behavior in countries which make significant use of some foreign currency. For example, in some central American countries, banks make it easy to keep a USD-denomimated bank account. Why do people want USD instead of gold?
Not really a good analogy. The difference between gold and other forms of alternative currency, is the ease at which it can be transferred.
This whole situation only works, in the case where it is simple and easy to transfer between the deflationary, and non deflationary currency.
Obviously, the ease at which it is possible to transfer currency to other people, is an important factor as to why someone would or would not use a currency.
> if goods are priced in national currency, it's handy to keep your working capital in that same currency.
Not necessarily. If there are easy ways of instantly transforming your deflationary currency, automatically, without you having to do anything, into that other currency, then there is no need to hold that other currency.
> Why do people want USD instead of gold?
Obviously it is because it is pretty difficult to spend gold at your supermarket.
This isn't a problem though, if you have a cryptocurrency credit card, for example, that immediately turns your deflationary crypto, into USD.
Would you use that card? How does it differ from the scenario you described for Bitcoin?
I'm happy to hear reasons to change my mind. What's disgusting?
Your presumption that inflation is good and that bitcoin needs to be able to support whatever “social policies” governments decide is antithetical to the purpose of bitcoin.
Bitcoin was created to escape currency debasement because it is how the people are impoverished. Currency debasement is the engine that creates wealth inequality. The Catillion effect means that people who get the newly printed money (eg wall street) benefit from it, while the regular people only pay the cost via reduced purchasing power.
Bitcoin is really a savings technology that allows people to escape debased currencies, like the zimbabwe dollar or the Venezuelan peso.
It also has censorship features and other useful properties, but this is the aspect most at odds with the assumptions in your post that the other user apparently disliked.
I agree that's the heart of the Bitcoin thesis, but I am convinced the evidence does not support that claim. In fact, quite the opposite. Much of the original Bitcoin discussion had its roots in von Mises' theories and beliefs, one of which was the rejection of empiricism. It's tough to fruitfully discuss a topic when the conversants disagree over epistemology. We can try nonetheless.
> Currency debasement ... creates wealth inequality.
I see it the other way. The government can print money and distribute it uniformly, such as with this year's CARES act (which is about as uniform as one can ask for in this political climate).
Regardless of government policy for how it distributes newly created currency, inflation is fundamentally beneficial for debtors and bad for creditors. Are "the people" predominantly creditors or debtors?
It can, but it almost never does. Usually it just subsidizes or bails out businesses.
> Regardless of government policy for how it distributes newly created currency, inflation is fundamentally beneficial for debtors and bad for creditors.
If the inflation rate is stable/predictable (which is the goal for the USD) it makes no difference for creditors/debtors, it gets baked into the interest rate spread.
I'm hopeful.
This is not true. An infrastructure that does not even support oppressive policies can be (and often is) better. It’s similar to how it’s better that you can’t plug the USB wrongly.
Due to his limitation the Lightning Network is unsuited for any large scale use outside of exchanges.
>Due to his limitation the Lightning Network is unsuited for any large scale use outside of exchanges.
But do we need to onboard everyone everyone in a year? It's like saying the internet will never scale because modem manufacturers can't keep up.
AFAIK they can be kept open indefinitely.
>Plus, I think you'd ideally want an account with each vendor that you deal with, not just one account, otherwise I think the channel would probably need to be managed by some central authority who manages the accounting between you and whoever you're keeping these side accounts with
The whole point of lightning is that you can use the network to route money between nodes, so you could make payments even if you don't have a channel open with the person you want to make payments with. It's not unlike how international wires work. If you bank with a local credit union in country A and you want to wire money to another local credit union in country B, the wire might bounce between multiple "correspondent banks" eg. credit union A -> big bank A -> big bank B -> credit union B.
The capital gains tax issue isn't stopping your average person from wanting to use Bitcoin. If we're being honest, how many people would be voluntarily reporting taxes on their Bitcoin purchases anyway? I suspect it would be similar to how many people self-reported the sales tax they owed on out of state online purchases before it was automated: Near zero.
The bottom line is that rational consumers like the features and services offered by traditional banks and credit cards.
If someone steals your credit card and spends a ton of money, you just call up the credit card company and get your money back.
If someone gets access to your Bitcoin wallet and takes all of your Bitcoin, that's it. Game over. Should have had better OPSEC, grandma.
Likewise, people don't want to manage wallet passphrases and key files themselves. They want an exchange to handle the details for them, including as much risk as they can move to the exchange.
The reality is that Bitcoin is still far and away an inferior experience to traditional payment methods. If I pay with Bitcoin, I have to deal with transaction fees and variable network delays and I have zero recourse if the vendor simply steals my money. With a credit card, the bank literally pays me 1-3% to use their credit card, payment is instant, and I can simply call the bank up and reverse charges if something goes wrong.
I don't understand all of these mental gymnastics to explain away Bitcoin's shortcomings for payments.
How are you so sure? if I had to report and fill forms for every single transaction that I do, like say buying coffee or video games I would be put off with trying to use the currency. it is a way to cripple it's usage.
>> The bottom line is that rational consumers like the features and services offered by traditional banks and credit cards. >> If someone steals your credit card and spends a ton of money, you just call up the credit card company and get your money back. >> If someone gets access to your Bitcoin wallet and takes all of your Bitcoin, that's it. Game over. Should have had better OPSEC, grandma. >> Likewise, people don't want to manage wallet passphrases and key files themselves. They want an exchange to handle the details for them, including as much risk as they can move to the exchange. >> The reality is that Bitcoin is still far and away an inferior experience to traditional payment methods. If I pay with Bitcoin, I have to deal with transaction fees and variable network delays and I have zero recourse if the vendor simply steals my money. With a credit card, the bank literally pays me 1-3% to use their credit card, payment is instant, and I can simply call the bank up and reverse charges if something goes wrong.
I completely agree with these points. And I hope the ecosystem improves on these. Still the advantage of Bitcoin's fixed supply and it's ability to hold value vs fiat systems whilst it's capacity to also act as a currency is still something valuable. While it doesn't do everything the way horses (fiat) are now, it will get better as it is the car in the race.
This advice has always made me chuckle. It so profoundly misunderstands how non-techies actually think and operate, that I genuinely wonder how it arose. Exchanges exist and are incredibly popular because they're convenient. If you want to convince people to stop doing something that you think is bad, you need to provide a more convenient alternative, otherwise your advice will be ignored.
[0]:https://cryptosec.info/exchange-hacks/
[1]:https://coiniq.com/cryptocurrency-exchange-hacks/
[2]:https://selfkey.org/list-of-cryptocurrency-exchange-hacks/
Yes, it’s a good idea to keep your coins off the exchange, for all the reasons you’ve provided. The issue is that keeping your money off exchange is far less convenient, which is exactly why most people keep their couns on exchanges despite the risks. If the Bitcoin community in general wants people to stop getting hacked on exchanges, they need to provide more convenient alternatives rather than just continuing to say “keep your coins off the exchange” and blaming users who get hacked for not following this advice.
It’s a bit like recommending that everyone not drive to avoid dying in car crashes. This advice is strictly speaking true; the less you drive the less likely you are to die in a car crash. But it completely ignores why people drive and therefore most people won’t listen. As a society we’ve decided that rather than asking people to not drive, it makes more sense to focus on making driving safer per mile travelled. This is a much more effective strategy at reducing driver deaths.
It's not like using a wallet is hard or inconvenient, it's just an extra step, like reaching for your keys before entering your house.
But there can certainly be a business opportunity there, sure.
Oh, I know, it's because they haven't tried using a wallet yet. That's the biggest hurdle, choosing one and actually setting it up. After that it's about as convenient as the exchange.
A lot of people trust exchanges way too much, and so they don't see a reason to do any extra steps until they get burned.
I guess it's not impossible that things have gotten better. But at least in my neighborhood and in the online merchants I frequent, Bitcoin adoption has declined. I think the last time I saw a Bitcoin logo on the street was August 2019.
I'd also be interested in statistics demonstrating that the consumer transaction volume is now nontrivial. Last I looked, M-Pesa had orders of more magnitude in use despite launching around the same time as Bitcoin.
You may have to inform your tax office about the purchase, after which it will send you an invoice for VAT (happens for ‘normal’ bank transactions, too.)
https://europa.eu/youreurope/business/taxation/vat/vat-rules...:
“For EU-based companies, VAT is chargeable on most sales and purchases of goods within the EU. In such cases, VAT is charged and due in the EU country where the goods are consumed by the final consumer. Likewise, VAT is charged on services at the time they are carried out in each EU country.
VAT isn't charged on exports of goods to countries outside the EU. In these cases, VAT is charged and due in the country of import”
(Mind that this mechanism requires tax or VAT IDs on both sides of the transactions, which are to be declared.)
1. https://qz.com/1285209/bitcoin-pizza-day-2018-eight-years-ag...
But in answer to your question,I’m glad you picked food fir your example— would you starve to hold onto your bitcoin?
Is your computer ten years old because next year better ones will come out? Or did you bite the bullet and upgrade because your time preference made it worthwhile?
It is true, deflation encourages savings, but that is the essence of capitalism, savings keeps people better able to avoid poverty in the event of a bad year, and capital accumulation makes you more able to do a startup and retain control.
Part of the reason there is so much VC money is inflation (VCs get new dollars cheap and carry trade through startups)with a hard currency like bitcoin the fotmula would be reversed, and founders would retain more ownership.
Current fees are 8$. That's still too high
That's it really, everything else is noise.
I can sympathize with btc (I wish we still had a gold standard, or a standard based on the price of common goods) but I don't see much the other benefits.
On top of this, governments could ban btc.
I don't see why that can't happen to Bitcoin if the network participants (ideally normal users but practically the miners) and major stakeholders can benefit from it.
And of course that’s exactly what the major mining consortiums will do: Collude to increase the limit when it’s reached. After all, the rewards are in the mining, not the transaction fee.
You don't need anyone else to agree to start mining your own fork / altcoin. However, even if most of the miners change the protocol, it doesn't mean that the users will.
[1] https://en.bitcoin.it/wiki/Economic_majority
The incentive structure discourages this. If half the hash power goes off to mine Bitcoin Infinite (the fork with uncapped Bitcoin generation), then mining the original Bitcoin would be twice as lucrative because there's half the competition. This gets better the more miners leave. If 95% of miners leave for Bitcoin Infinite, then mining Bitcoin becomes 20x more lucrative. There's the matter of the difficulty adjustment, but that has been historically dealt with using emergency difficulty adjustments.
Meanwhile, the miners who are mining the fork have real expenses (electricity, equipment), which need to be paid, and if there isn't sufficient demand for their Bitcoin Infinite coins, they'll quickly go bankrupt. Some napkin math:
* If the hash and economic power are both split 50-50, then there will be little impact in profitability, but also little impact on Bitcoin
* If 90% of the mining power goes to Bitcoin Infinite and only 25% of the economic power follows them, then the miners can expect to see a 72% drop in revenue. If their original profit margins were 20%, they can expect their profit margins to drop to -66%. If we use the price/generation rate of just prior to the last halving (May 2020), then that would represent a loss of $9.9M per day (not including opportunity costs/lost profits).
The only incentive to mine then is to earn the transaction fee. These fees ($8) are currently orders of magnitude smaller than the mining reward of 6.25 coins ($125,000 at $20,000/coin). Either fees have to dramatically compensate by rising stratospherically or miners will depart for greener pastures. Yes, difficulty level drops eventually, but by then a large number of users have also followed miners off the network, in which case the price will drop too. As the price collapses, there will be a selling frenzy, further reducing the price. In this scenario, Bitcoin may settle to something as low as $10 per token.
Once miners depart en masse, network resilience will drop precipitously. That makes it an attractive target for someone to stage a coordinated attack, which would destroy remaining residual trust in the network and bringing about the end of Bitcoin original.
This is a common misconception about how consensus works. Everyone on the network has to agree, anyone who doesn't agree by definition won't be on the same network. They won't be able to receive the same fork of bitcoin that everyone else is sending.
Forks are occurring all the time at the apex of the chain. They wither and die slowly as 50%+ miners accept successive blocks as the next block. That’s why most exchanges and users wait for six blocks on average to deem the transaction settled.
or just wait for a lull in the transaction volume and pay pennies per tx? eg https://blockstream.info/tx/3b9ce26a827b014e5f6cda461f5fa112... from last block only paid 14 cents.
"Simplified Payment Verification is for lightweight client-only users who only do transactions and don't generate and don't participate in the node network. They wouldn't need to download blocks, just the hash chain, which is currently about 2MB and very quick to verify (less than a second to verify the whole chain)."[0]
It's not clear what benefit the user or the currency gains from having 90% of users running full nodes instead of, say, 50% or 10% doing so. In any case, when people in poor nations have phones that can manage uninterrupted 24/7 connections to the bitcoin network, they'll probably also be able to afford 2 TB of storage (currently costing about $50) which would be enough to store 10 years of 4 MB blocks.
[0] https://blockchain.news/wiki/satoshi-quote-on-trust
That only matters if Bitcoin has a monopoly for a given use case. Bitcoins chief advantage is its hash power, and therefore, its security. So far, the only use case I can think of that relies strongly on that is digital gold use case.
For everything else, having a constrained money supply has side effects that are often pretty undesirable. Folks can simply mint new coins for those use cases.
Yes, if electricity was FREE, at which point printing money is the best next logical step as you've achieved free energy with utopia just around the corner.
I never really understood that line of reasoning. Why would one person want to reduce the ability to apply economic policy in their country?
Certainly, you could use Gold instead of Bitcoin as a similar investment tool, right?
What do you think happens to your currency when they print more of it?
One problem with gold though is that we know where plenty of gold is, its just too expensive to mine. Once the price of gold rises, more gold becomes profitable to mine, supply increases, and the price goes back down.
https://www.slowboring.com/p/the-cares-superdole-was-a-huge-...
It might not be good for the people as a whole, but preventing your money from being inflated is very good for any given person taken individually.
Welcome to China, you just lost the majority of your mining pool.
I've seen a few positive developments every once in a while that fail to get much adoption. So I keep waiting and waiting. It increasingly looks to me like whatever solution eventually wins will be built upon the existing banking system ;<(.
Since it was basically designed to work like a pseudo-physical commodity, and most of the rhetoric to support its existence is warmed-over goldbuggery, why should this be surprising?
The fundamental principal of economics that many people miss when they focus mainly on monetary supply is that the velocity of capital [0] is of equal or perhaps even greater importance.
[0] https://www.aier.org/article/what-is-money-velocity-and-why-...
Now the community seems pretty split in two. There's people who are for Bitcoin and see it as a store of value and people who are for Bitcoin Cash who see it as a store of value and a method of payment.
The main contention seems to be around block sizes and wether to increase the block size to make it more scalable, hence the BCH fork.
I can't believe btc got this far.
I never bought anything because it sounds ridiculous and the kind of thing any western government would ban immediately - turns out I was wrong.
I know people who are completely clueless about the economy who retired just by betting on BTC.
Zealots betting the house can't afford to be wrong because it would often make them bankrupt.
He's among a very small group of original authors. He quite literally bought into Bitcoin when it was just an idea.
"Don't be snarky."
"Please don't post shallow dismissals, especially of other people's work. A good critical comment teaches us something."
https://news.ycombinator.com/newsguidelines.html
See https://www.linkedin.com/pulse/id-known-what-we-were-startin...
Yeah, privacy is a joke on blockchains. Perhaps that is why actually private coins like Monero are having such 'difficulty' getting adoption on mainstream platforms, with shitcoins getting preference. I suspect that if coinbase tried to add Monero, they would get a very angry letter from the CIA/FBI (perhaps this already happened, they have been having 'technical difficulties' adding it for years now).
https://en.bitcoin.it/wiki/Privacy
Are you careful to avoid these numerous privacy pitfalls? If not, you're leaking information about yourself, into the public ledger (blockchain)
Bitcoin still manages to be useful in proving identity, however.
We've injected trillions of dollars of fiat into the economy this year. It feels like the sky-high valuations of technology companies and Bitcoin are "shock absorbers" of sorts, or early signals of inflation-yet-to-come. If we assume the market is efficiently pricing these assets (like AirBnB's IPO) then it could very well be that the actual value of a fiat dollar has dropped dramatically -- making sky-high valuations more reasonable -- and we'll only see that reflected in the price of consumer goods and commodities once industry leaders collectively feel comfortable the economy is on track again. After all, you can only charge what consumers can afford to pay.
I'm an armchair economist at best. I just can't make sense of the market right now, and wouldn't be surprised to see the price of things like groceries, beer and travel double or triple what they were in 2019. Is there anybody writing about this that I haven't been paying attention to? Am I missing something?
A Bitcoin is totally speculative and has virtually no useful purpose in the real world yet. You can’t actually buy stuff with it from stores, due to its niche status, high fees, slow transactions, and wild price fluctuations.
Looking at it that way, it’s clear that a stock is a much safer investment than a Bitcoin.
In short, from a quantitative perspective, it never makes sense to look at a security or asset in isolation. Instead one must consider the total portfolio as a whole.
Source: work as a quant trader
tldr: If the question is "does crypto have a place in everyone's portfolio?" The answer is emphatic an "yes". And indeed, we are quickly moving towards a world in which crypto is held by most institutional investors. Even at this early stage, the institutional flows into btc is staggering. And it will only increase with time. From my vantage point as an insider, btc is here to stay. full stop
I will concede though that there is a huge market of derivatives which often seem pretty unusual and risky to an amateur investor such as myself, so maybe Bitcoin isn’t that different from some of those investments. I don’t know a lot about that market, other than that it played a large role in the Great Recession, which is a dubious distinction.
Most people are unaware, the the derivative volume of btc is yuuuge compared to the spot volume.
You could instead look at downside deviation instead of volatility, but in my experience standard volatility and upside/downside deviation look very similar for most securities. This is somewhat paradoxical for me personally, but it is what it is.
It's not even that unusual, or newsworthy. It's pretty common for banks, basically the rule for European banks. I'm still not convinced the numbers are "real" though. As I understand it, there are a few main arguments as to why "buy and strip" price arbitrage doesnt happen, and I'm not sure which is/are true:
- Regulatory barriers. JPM or Apple can't just buy Deutsche Bank because lawmakers won't allow it.
- They're too big to be bought out out by (European?) private equity, or controlling stakes aren't available.
- That's not real book value. Try to wind it down and it'll evaporate.
Maybe there are more. I understand that dividends and buybacks are currently limited by regulators in Europe, and that closes one valve for the price arbitrage, but still...
Asset prices are up across the board.
As far as I know, they have not proven they even have 1 billion on reserve. How can they claim 21 billion?
Is this pyramid scheme the real reason bitcoin prices are so high?
That seems like a lot, but compare it to Apple -- the market cap of just this one company's stock is currently ~2,238bn.
The market cap of gold, US dollars, Euros, etc. are all many times more than Apple. The value of all BTC is a tiny microscopic speck compared to the amount of USD or gold in the world.
This means (among other things) a few small players (with tiny capital relative to, say, the size of all USD) can swing the BTC market either way with a comparatively tiny amount of value moving around.
That would seem to greatly limit BTC's usefulness as any kind of inflation gauge for the broader economy.
600bn is more than gdp of majority of countries.
Bitcoin gives a PRICE APPRECIATION RETURN
One could call this then a “greater fool” play except it has algorithmic reduction in supply which repairs “greater fool” aspect.
Over the long term (several decades) you can expect it to perform like gold once it has turned into a mature market.
Note that many other assets such as energy, financial, and real estate stocks, consumer goods, etc. are not experiencing sky-high valuations - indeed, some of those asset classes are down for the year.
So it's not just fiat dollars that have dropped dramatically in value by your reasoning.
It seems to me more likely the market is simply overpricing one class of assets (tech stocks) here. Occam's Razor comes to mind.
I'd invoke Occam's Razor to state that inflation due to increase in monetary supply is more likely to manifest as "overpricing" of one or two asset classes first. As opposed to a crash, where one asset class bottoms out and takes the other with it, stimulus and inflation, in theory, would cause the opposite -- would they not?
I haven't studied hyperinflation. So consider me inquisitive on the subject. But it's certainly happened before, and the dynamics seem like they have the potential to create a positive feedback loop similar to a crash.
And that's how you get BTC and Tesla's meteoric rise.
Even if the returns of btc were poor, it would still be a very attractive investment as uncorrelated assets boost the risk adjusted returns of a portfolio.
> the increasing worthlessness of the USD
I think you must be using words different from what I take them to mean, which means you can draw radically different conclusions from how I read them.
If everything in the economy is tied together, such that $10 is still an hour of work at a grocery store, and $10 still buys you a lunch or three gallons of milk, and $10 still buys you 4 gallons of gas, etc etc, then I don't see how you can say that there has been some kind of "secret" sky-high inflation over the past few years that is only detectable "from the outside."
Inflation is defined by the purchasing power of money within the economy. If that's not changing, inflation isn't happening.
Pointing to a single asset whose price is fluctuating wildly and insinuating that that is the only real source of truth, and that literally everything else is hiding the true cost of living seems to be just showing what you want to believe.
(Note, I'm not saying that there's been no inflation. It's been about 2.5%/yr over the past 20 years. But simply that the notion that it isn't visible from "inside" the economy is contradictory.)
What's being asked is, "is what we're seeing a warning sign of inflation-yet-to-come?" Rephrased, "are people bullish on technology stocks and Bitcoin because they're speculating that there's major fiat inflationary risk and these asset classes are most likely to hold value?"
The key ingredient missing from your calculation is time. If you are simply measuring how much an hour of work can purchase now, you are completely ignoring that some people want to save money.
If $10 is the measurement for an hour of work and 4 gallons of gas today, in a decade or so, you might need $20 to pay for 4 gallons of gas, and you might get paid $20 for an hour of work. But somebody who saved $10 worked today, and chooses to spend it a decade later, will only be able to acquire 2 gallons of gas. The result of their labour would have been reduced to half.
This is what Bitcoin intends to fix. We want to be able to store wealth into the future - so that an hour worked today is still worth an hour (or more) tomorrow. The potential appreciation in purchasing power is reward for thrift.
As it stands, if one wants to preserve wealth into the future, they must put money into risky investments to ensure that the dollar value of the savings appreciates at a greater rate than its purchasing power is lost to inflation. They also run the risk that their savings or pensions could be lost with companies going bust or if hyperinflation occurs.
Bitcoin is a pension plan.
As for using Bitcoin as a reference frame of measurement, there's a good reason to do this. Bitcoin is a fixed system of measurement which is disjoint of time or other externalities. There is an absolute maximum of 21M bitcoin, so any whole bitcoin is always 1/21M of the total supply. This is a truth that holds today and in a decade. It is immutable.
Consider measurement of length. If you only have cows in a field, how do you measure the length of a field? You could say it is 100 cows long and 80 cows wide, but how long is the cow? The cow grows as it ages. Once you get hold of an external tool of measurement - a meter (or yard, etc), then you can measure both the field and each cow against it.
The same is now true for economic value. Before Bitcoin, there was no fixed scale of measurement. The dollar was flexible, just as any other commodity. Bitcoin OTOH, is not flexible. The exchange rate of BTC/USD might be flexible, but when you use BTC as the frame of reference, you can instead measure how much value the dollar is losing against bitcoin. https://usdsat.com
As you can see, the dollar is losing value so rapidly that inflation of the dollar is negligible. It is the perception of inflation which is causing it to plummet far quicker than the actual rate of inflation.
Everything else is just a derivative of this. You're measuring the side effects of inflation. If you want the deeper cause, it's here.
Everything else–money supply, borrowing costs, etc are linked to it, but do not necessarily correlate. The price of a Big Mac is almost certain to be a far better approximation than any of those indicators.
This really isn't that complicated.
Historically, inflation always meant inflation of the money supply. Its definition has changed over time and you've been swindled.
If you have a name for something, name the root cause, otherwise you're obfuscating its study, and perpetuating the non-identification of the root cause.
"Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation." [0]
[0] https://mises.org/library/defining-inflation
But it doesn't happen without the prerequisite of money being printed.
If you have a lot of unemployment and inflation is low that basically means there is very little work for your people. This is the reason why 2% inflation is a policy goal. You always want there to be just a tiny little bit more work than there are workers. If there is a way to do more work thanks to technology that is increasing productivity it will be done.
but this chart doesnt take into account increases in productive capacity. If there exists production capacity to match this growth in money supply, goods will remain relatively priced the same, even if more is printed.
So? They can still be idiots. Idiocy does not have an age limit.
>> Inflation is measured in many ways, most often by looking at a basket of goods where the prices are relatively non-volatile.
Meaning you remove the items from the basket if it's price jump too much ? so if you tamper with the items in the basket you can project(pretend) that the inflation is not happening.?
>> using the USD/Bitcoin ratio as a yardstick for inflation seems very misguided, as Bitcoin is heavily speculated.
No it doesn't need to be a yardstick as Bitcoin is not yet in full circulation in the economy but it's growth indicates people are increasingly prioritising it over paper to store value.
Re: speculation, everything is a speculation, there are those who keep holding USD in cash and banks and keep speculating that the economic prophets will do the right thing to retain value in their chosen currency.
You can look up the methodologies used to determine the basket of goods. By non-volatile I mean that they’re aggregates over purchasing categories - for example, it’s not the simply the price of a “40inch TV” or cod fillet (which may change in ways non-representative of general purchasing practices - as TVs of a given size get cheaper, or cod has a good year) but an aggregate over the entire purchasing category (fresh fish, consumer electronics) based on typical purchasing habits.
https://www150.statcan.gc.ca/n1/pub/62f0014m/62f0014m2019001...
When things are added or removed it’s because people have stopped buying that thing (DVD rentals for example).
Or simply that there are thousands of speculators. (Which isn't even that many people considering the number of people who speculate in stocks.)
It's already the case. Not 2x or 3x but double digits inflation on groceries notably meat products won't be surprising when we do the math next year.
In the US, it is more like "you can only charge what consumers can go into debt for". The self-correcting force of consumer inflation on price discovery has been time-delayed buffered and confusing price signals for a long time for select industries by acommodative consumer debt issuance. Without that effect upon price discovery, I suspect the number one reason bankruptcies occur to consumers to trade categories every few years as the inflation works its way through different key industries and their customers. Which is why US personal bankruptcy has been quite consistently caused by medical bills for decades [1].
When/If this inflation wave takes root in the consumer sector, it first has to overcome the deflationary secular bias that has plagued developed world economies for a few decades. I suspect this is because price discovery in wages has been quite robust, but in goods and services it is obfuscated by many means (consumer debt issuance is only one of many mechanisms), and the end effect is people are functionally broke.
If it breaks that deflationary bias, then it will break a great many households who cannot bear inflation while their wages stay functionally unresponsive to the same inflation. If that happens, then I expect the deflationary bias to turn into a depression.
[1] https://www.debt.org/bankruptcy/statistics/
What you're saying is that; due to debt issuance in the US, it's hard for commodities and consumer goods to be priced efficiently. I interpret "confusing price signals" to mean that e.g. Apple can charge $1k for an iPhone and sell out to families who wouldn't typically be able to afford it, but the price of bread remains the same. Your medical bill comment -- you're basically saying that when one of these families hits a statistically predictable snag, they're instantly bankrupt because they've always been functionally broke, propped up by the consumer debt industry?
And so you're saying that most commodity goods face deflationary pressure as a means to stabilize the market? So if the price of commodity goods does increase significantly beyond the capacity of debt issuance, we're likely to see a depression?
It is more an interplay between wages and price signals of consumer goods and services than between price signals of separate commodities and consumer goods. Consumer debt (primarily credit card, but also HELOC) distorts the timely impact of purchasing signals upon pricing, but wages-offered signals are much quicker to respond. The debt acts as phantom wages, but only for awhile does this levitating act suspend disbelief in the pricing signals, until the debt service overwhelms consumers. By then, the purchasing decision has already long since been priced into the market, and the correction of the debt overwhelming the consumer is either completely ignored because it is by now disconnected, or attenuated away into irrelevance.
"Awhile" in this use case is longer than the time horizon of most consumers, on the order of a few months to a few years depending upon the individual, but in any case long enough to modify consumer behavior. The glass half-full perspective is this behavior implies a strong optimistic bias to consumers; nearly everyone believes they will make the debt nut over time. Looking at the historic patterns of US institutions laying off however, most working and middle class US consumers should be much more secularly pessimistic in looking after their own interests: they should be acting on a cash-basis only, and make very austere purchasing decisions therefrom until they can use capital to help themselves, instead of capital using them via debt (with extremely few exceptions, like home mortgage in very circumscribed circumstances which most of them do not qualify for).
> Your medical bill comment -- you're basically saying that when one of these families hits a statistically predictable snag, they're instantly bankrupt because they've always been functionally broke, propped up by the consumer debt industry?
Correct. Most working and middle class families are under-insured. Using plans that only pay 80% of covered procedures. Or have very high annual deductibles to afford the premiums, which are orders of magnitude more than what they can pay from savings. Most such families struggle to find $400 to spare [1]. A typical high-deductible-low-premium health plan will typically set back a family $2-4,000 before the plan kicks in, and for many of these families, the plan offered by employers only pays 80% of covered procedures, and there are many exceptions to covered procedures.
Unless you are well-educated, persistent, have time to set aside, apply an extremely low time preference, and able to learn the ropes, these families are completely unprepared for the probable budget killing black swans. One bad broken bone, or God forbid a serious disease, they first get blind-sided by a $2,500 deductible. Which they'll take on debt to meet. Then they start getting the bills and dunning letters. Many of which are wrong, but that's where the "well-educated, persistent, have time to set aside" part comes into play: you have to be willing to pay the cost in your own time and energy to make the phone calls and figure out which bills are legitimately what you have to pay, and which the insurance company has to pay, and do other people's jobs for them by pointing out where it says in the black letter policies their own companies wrote. So many of these families start good-naturedly taking on more debt for multi-hundred (if they're lucky) and multi-thousand (typical) bills they shouldn't, which they cannot afford.
It is not unusual for a mean household income of $68,000 to get blindsided with $30,000 in medical debt. At high double-digit interest rates. Mix in a chronic, terminal or serious illness, and they start racking up nearly that much every single year. The US system is fundamentally broken.
> And so yo...
US numbers are missing on how many enter aftercare; when someone contracts COVID-19 then is eventually discharged from acute care to rehabilitation, as far as I have been able to tell, they disappear from the statistical models, lumped into an unhelpful puddle called "Recovered". Only the insurance companies and Medicare/Medicaid have those numbers for their individual policy holders. That's why I think only a hedge fund would have the funding and clout to call up and cajole those kinds of numbers out from each of those entities to assemble a data mosaic.
Because of this, there is just no telling how widespread this issue is at this time. It is widespread enough that some medical specialists like pulmonologists and cardiologists are noting very abnormal (worst in their professional experience) rates of complications requiring extensive and sometimes life-long rehabilitation. Not widespread enough (yet?) to tax the available rehabilitation resources. We have rough ideas of available rehabilitation resources in the US, but to make a speculative bet on this ahead of the crowd, you'd need this information before it gets to that point. One microsecond after the headline "US Rehab Units Full from COVID Patients" hits the Reuters news wire, all the good bets are already placed.
A common narrative going around is with the anticipated failure of US politicians to enact sufficient financial relief for working and middle class members, there will be a lot of foreclosures on that dynamic alone, and residential rental will see lots of demand. Lots of long bets have already been placed on residential multi-family rental ventures (wish I knew of an exclusively US MFH residential REIT, but my EFT screening yielded none such, lots of them are over-salted with extensive commercial properties holdings, but I'm only using public data sources).
Backing in from your 4M figure, if the US hits a 20% (and declining, as the number of infected keeps rising) rate of long-term aftercare complications, then it starts to seriously toy with the possibility of a medical bankruptcy-induced foreclosure wave just as big as the 2007-10 recession. This is on top of the pain from economic disruption, which lowers the threshold when medical bankruptcy would be declared; I'm pretty sure that data of general versus medical DTI before bankruptcy is declared could be teased out of historical bankruptcy data at various banks and then assembled into risk tranches along various categories of profiling, pretty straightforward ML work. The US political and financial establishment will probably try to amortize the pain out as much as possible through piling up medical social benefits debt and various kinds of staged mortgage note relief for the capital holders (I see insufficient political power on all sides to directly assist citizens sufficiently to have the same effect, and the decision makers are probably tunnel visioned into the systemic damage done if the capital underwriters of the notes zero out without noticing they get a two-fer by transiting the stimulus funds through those who took out mortgages first). So whether the US enters another credit crisis comes down to some mix of political, monetary, and currency exchange factors.
> Unlike last time though, the housing supply currently seems fairly tight in many areas, so a large pricing collapse downward seems not nearly as likely.
I suspect this is more due to the large amounts of monetary stimulus that makes its way into investment venture fundings than organic demand shaping.
But yes, I believe for partly the reason you cite, and mostly the reason I gave, that the pressure to hold up residential (and to some extent commercial) real estate asset pricing is immense, and likely to continue. The US is ...
Bitcoin doesn't go up because inflation is coming. The current value of bitcoin is an early indication of people betting on inflation. There doesn't need to be inflation, there only needs to be an expectation of inflation for investors to pile into bitcoin, thus massively driving up the price. And investors piling in will drive the price massively because there's a fixed supply of bitcoin so the price is entirely driven by demand and the current present value of all the bitcoins in existence is still ~500Bn, the same amount as a company on the stock excahnge. The price of all the gold in the world for comparison is ~10Tn. Or to put it another way, if inflation now doesn't happen, the price of bitcoin looks ridiculous and there'd be a massive crash as everyone floods back out. In fact, further than that, if inflation doesn't sky rocket then the value of BTC looks silly.
To me, the most reasonable interpretation of these valuations is a savings glut. People are being given extra income, but instead of going out and spending it on more impulse purchases (such as fine dining or an exotic vacation), they're shoveling that into savings accounts. And assets that reflect a long-term saving mindset--real estate, stocks--are going up in price, while more immediate consumptive assets (e.g., food) are staying stable.
> wouldn't be surprised to see the price of things like groceries, beer and travel double or triple what they were in 2019.
That would be an effective inflation rate of 100-200%. If you're assuming that would happen within a year, the number of countries right now with that high of an inflation rate is 3: Venezuela, Zimbabwe, and Iran. Even the developing world doesn't regularly see inflation quite that high, you'd expect more like 10-30% annual inflation for those countries.
When the government issues debt and then uses the money to send out cheques, that money had to come from investors in the first place. So the money was reallocated, not created. (New assets did get created: someone is going to hold those bonds and count them as part of their assets. But they can't use these bonds directly to buy groceries.)
https://en.wikipedia.org/wiki/Quantitative_easing
When the central bank later buys those bonds from banks (they never buy them directly), something different happens: the bonds are exchanged for "bank reserves", a different type of digital money that only exists as numbers in the central bank's database. This "money" cannot be used to buy groceries.
Quantitative easing increases the money supply. They've injected trillions. Who got it is a separate question.
[0] https://positivemoney.org/how-money-works/advanced/how-quant...
If banks would buy financial assets and create money in the process as described in the post, then that would certainly be inflationary. (e.g. I can imagine hypothetical legislation that forces banks to buy government bonds, that would be the time to run for inflation protection.) As far as I understand, this has not happened, or at least not to the degree that it caused inflation. The effect of QE has been to increase bank reserves but not the money supply, which is why we haven't seen inflation since the financial crisis.
I can't find a source that explains the mechanism for how QE affects the economy.
[0] https://www.investopedia.com/articles/investing/051315/what-... [1] https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral
Furthermore, the last time the Fed has tried to draw down its balance sheet of federal debt, commodity prices went crazy and Jerome Powell had to abandon that quantitative tightening program. So, it's not even like the Fed can easily move those T-notes to the private sector and pull USD out of circulation -- we're stuck in an inflationary period.
[1] https://fred.stlouisfed.org/series/FDHBFRBN
Recently I have had friends that are very far from the tech scene, but well versed in investment risk pick up BTC as institutions announced the onboarding of coins.
I have no idea if $30k / btc is reasonable or insane, but I think we will know when bitcoin gets to the final price as the correlation to gold gets closer to 1.
Housing price is up, but not rent (all over US), that is driven by lower rates rather than inflation.
All that said, a ton of money was dumped on the market. We won't know until later in the year what the result of that is.
The only argument I’ve heard about gold being better than bitcoin is that you can do something with gold. That’s horse in my opinion. Gold is good for nothing useful imo, but is used in jewlery and other because it has value (not the other way around, as in gold has value because people make jewelry with it).
You do know that gold has super low reactivity and it's a very good conductor, right? :-)
100% of all cases. You just used gold to ask that question.
https://geology.com/minerals/gold/uses-of-gold.shtml
All that insane amount of gold that's collecting dust in vaults being used as a store of value? Suddenly free to be used productively if bitcoin replaces it. Same with real estate that owners let sit unsed because they're primarily using it as a store of value rather than a productive asset.
Jade however is actually without any industrial application and is purely valued for it's scarcity.
Bitcoin scarcity is protected by mathematics and the nature of the universe. And the public ledger.
I guess anyone can dream up a new mathematical system and ledger and unlimited dreams can be dreamt making more supply of electronic currency. But the specific instance of a dream "bitcoin" and it's public ledger cannot be inflated.
I could take an A4 sheet and draw a triangle on it. It's scarce (there's only one A4 sheet with that precise badly-drawn triangle), but since nobody wants it, it's worth as much as the paper it was drawn on.
The same happens with both Bitcoin and gold. Since they are scarce, as long as there's enough demand their price will increase. However, there's a difference: gold has industrial uses for which there are no replacements with the same characteristics, and this provides a baseline level of demand. For Bitcoin, that is not the case; for any use case, there is (or can be created) another cryptocurrency which can be used instead of Bitcoin. This means there's no floor for the Bitcoin demand; for instance, if everyone decides that Ethereum's proof-of-stake is the best thing since sliced bread, the demand for Bitcoin can almost completely evaporate, and its price will go to zero. (There's a small intrinsic demand for Bitcoin as a collectible, since it was the first proof-of-work cryptocurrency, but that by itself is not enough to sustain its price.)
If Bitcoin all of a sudden had a floor that was also 1/50th of its current value, no one would care.
Real wealth has value regardless of what other people think about it and has it by itself. A profitable company is a form of wealth even if nobody wants to buy it - because it generates profits. Same for farmland. Things with direct utility have value in that utility. Utility is ultimately defined by physical needs, which makes it an objective metric of value that can only be estimated better or worse by humans. Value isn't subjective - people and societies that are too wrong about valuations for too long wither and die (possibly conquered). The West as a whole is definitely on that path.
Gold was a store of value when governments forced people to pay taxes in it - selling what they had for gold - for thousands of years. It's not a store of value as that ended. Some people just didn't get the memo yet, but new generations are visibly unenthusiastic about gold, so it's only cultural inertia. It has some utility in itself, so it's better than bitcoin, but its price based on that demand alone would be much lower.
In addition, just yesterday the headline flashed in front of me, Marketwatch: "After recent price spike, bitcoin requires enough power for a country of more than 200 million people".
imo there isn’t quite the same level of excitement even though the price is much higher now. just feels like another asset Wall Street is accumulating.
That's from Phillip Hallam-Baker.
Is there evidence Hal was Satoshi, or is this just more speculation?
Or am I misunderstanding his response?
But he keeps the door open for different implementations. Personally, I think the whole concept of blockchain-based currencies is flawed. But let’s not go there right now.
The value of Bitcoin is very high and that’s very scary. Who is buying? All those investors who have no place else to go? Gambling on Bitcoin to find ‘growth’?
Bitcoin is quickly becoming too big to fail. But it will fail at some point, because I believe it isn’t anything. (You may disagree, but hear me out). So when the music stops, I think it could be the event that triggers another 2007/2008. Bot big enough by itself. But it triggers the same avalanche of bankruptcies, the dominos will fall.
This time though, all financial instruments to save us are exhausted. Interest is zero. The worst may yet to come.
Also why is the concept of blockchain as currency is flawed? What construction would you use instead for a currency that is trusted throughout the world?
It may never be solved, but I believe no crypto currency will ever solve an inate human trust problem.
For comparison, the market cap of gold is ~$10 trillion. The majority of the US economy is not hooked into Bitcoin, and very few institutional investors have any significant exposure to Bitcoin. Contrast that with the '08 financial crisis that was based in real estate -- the US real estate market at the peak of the crisis was ~$23 trillion [1], with nearly every major financial institution heavily exposed.
[1]: https://www.federalreserve.gov/releases/z1/dataviz/z1/balanc...
That people will seriously get hurt, that’s not a question.
If Bitcoin prices go up 10x nobody really cares. If housing prices go up 10x then people can't afford shelter and become homeless.
At that point the mechanism that ensures ledger integrity is the calculation that if the miner tampers with the ledger, that would destroy trust in the coin and hurt the miner in that way.
But 1) that's exactly how conventional currencies work too and 2) it's actually an untested hypothesis. Who knows what would happen in a world where the economy runs on bitcoin and there's some "good reason" to deviate from the protocol.
Has any government promised how and why they will maintain their currency. They supposedly claim they help people why screwing up the very same people. Case in point, the 2008 crisis and the various modern monetary based crises.
The people who have assets in cash end up paying for it. That includes the poor who have most of their net worth in cash as they live paycheck to paycheck, and whose purchasing power has been stagnant for decades.
This year was a great example. Mortgage refinancing bonanza. If inflation really takes hold, those debtors will be very happy.
> And that’s not a “rich get richer” kind of thing — the poverty rate fell. And it’s no surprise. Peter Ganong, Pacal Noel, and Joseph Vavra found that under the CARES superdole, “two-thirds of UI eligible workers can receive benefits which exceed lost earnings and one-fifth can receive benefits at least double lost earnings.”
https://www.slowboring.com/p/the-cares-superdole-was-a-huge-...