Exactly, people who claim btc is anonymous don’t know what they are talking about. You can literally trace every transaction ever made, and given nearly all on-off ramps to fiat require KYC, btc itself is not the problem.
The problem comes from privacy coins like Monero, which arguably should be outlawed (if not already)
unless the US ramps up nuclear or renewables to a level as of yet unseen, i can see the US building fresh water pipelines to central america in the next 25-50 years.
In the case of laundering Bitcoin— this seems to be a majorly misunderstood concept. Bitcoin transactions are completely transparent and observable by everyone who has an internet connection. Anyone (with an internet connection) can watch any wallet and observe any and all transactions. The notion of a country being a "good location for laundering bitcoins" doesn't really make sense, as Bitcoin are never in a location.
In terms of profiting from surplus electricity, Bitcoin (or cryptocurrency mining in general) is a great option as it's exceptionally simple to scale up and down in accordance with available cheap surplus. One major benefit that miners are taking advantage of is locating in close proximity to energy stations, reducing the inefficiency of transporting electrical energy over distance. This turns effectively "wasted" energy in to a solidly efficient energy store for infinite amount of time— for example: 1 BTC will always be equal to 1/21000000 of the total supply.
I agree with the rest of your comment, but there's some sleight of hand here:
> This turns effectively "wasted" energy in to a solidly efficient energy store for infinite amount of time— for example: 1 BTC will always be equal to 1/21000000 of the total supply.
It's not an efficient energy store if you can't get the energy back, it's just energy usage. Also, yes, 1 BTC will always be the same fraction of the total supply, but the actual value of it varies.
> As for the value of 1 BTC, it's value fluctuates if you operate on a base currency which is not BTC, but that is the same for any currency exchange.
Yes but also, even though 1 BTC will always be worth 1 BTC, the amount of work it buys you won't be the same, as with any currency. In theory, you can also store USD for an infinite amount of time (assuming you exchange the paper for new paper when it decays), but it, too, won't hold its value.
> In theory, you can also store USD for an infinite amount of time
This is actually not true, as 1 USD does not equal a static percentage of all USD. If you look at the stock-to-flow of storing value in USD compared to Bitcoin or even Gold, it's immediately apparent that USD or central bank backed fiat currency is an exceptionally inefficient way to store value as it's being debased at alarming rates.
This is why $1000 was worth way more in 1980 than it is today.
Edit Note: I actually just re-read your comment and realised I misread. I read store value for an infinite amount of time
I would point out that 1 BTC does not equal 1/21000000 of the total supply forever. For three main reasons a) wallet keys get lost making stored bitcoins unavailable. b) The developers/community may very well decide to change the total amount of bitcoins available in the future. c) With the rise of quantum computing it is conceivable that the public key encryption that is used to secure the wallets may be broken in the next few decades rendering bitcoin unusable.
EDIT: corrected public key, I had written "public/private" for some reason.
> wallet keys get lost making stored bitcoins unavailable
This does not remove Bitcoin from the network, just because it is never spent.
> The developers/community may very well decide to change the total amount of bitcoins available in the future
Actually it's not possible. You can fork the network if you get some level of consensus from developers, miners and node runners (not to mention a community that is willing to accept their value be debased) and increase the supply, but then by definition your coin is not on the Bitcoin chain, it is on your new forked chain.
This scenario doesn't have any particular features that make access to energy or mining bitcoin the differentiating factor. Illicit fiat and extortion can be used in order to launder illicit fiat in many ways.
The underlying problem actually lies in the fiat system, not the Bitcoin one.
Fiat currencies are exceptionally good instruments for exchange value for illicit purposes. Primarily this is because it is unknown what the total supply of fiat is (although there are reasonable models for estimation) and it's transactional history is impossible to define.
Both of these properties combined (although other factors undoubtably are at play) mean it's very easy for large amounts of fiat to exchange hands without any third parties knowing (i.e cash transactions).
This is the underlying issue that allows fiat currencies to be the best method for transacting for illicit purposes.
Wow this is perhaps the best critique of Bitcoin yet.
In summary, Bitcoin is bad because it allows money laundered using the existing financial system to flow into it. Forget the property, energy and hardware providers for accepting illicit funds. Bitcoin is the real problem.
You know how much each wallet contains but not whom it belongs to.
Hypothetically, if you cannot use a western exchange you might figure out how to buy Hondurian assests, and then resell for dollars. It entirely depends on how Honduras will setup KYC laws, if any at all.
The transactions pass through generally only 1-2 nodes which will be required to log everything unless they want to risk punishment for laundering illegal BTC, and people dont want to close their channel and end up with illegal BTC without evidence of how it happened, so yeah. There are huge problems with trying to build fungibility on top of a traceable foundation.
So then lightning network transactions are not automatically transparent, then. Transparency depends on the willingness and ability of nodes to log transactions, and then to share those records.
There are many further privacy issues on top of that that allow third parties to trace payments, so the current design is totally insufficient to be called not-transparent
> this seems to be a majorly misunderstood concept.
By you as well!
1. Yes, they are transparent, however mixers are a thing.
2. The 2 things confounding mixers are KYC and volume. El Salvador, a country, is in a position to ignore KYC and thereby promote mixing (laundering as one of the benefits) under its jurisdiction. Now they just have to attract the volume. You could never get away with this in the US.
There's more to it than the bitcoin fundamentals. Laws do matter and they come into play by location.
Remittances, things like wire transfers, account for 22% of their GDP.
Bitcoin will give that money back to the people with the way lower cost of transfers, esp through the Lightning Network that is planned to be widely used.
Elizabeth Stark boldly said 7 yrs ago and Bitcoin is like TCP and needs an http, and then built Lightning on top of Bitcoin and this is super exciting to see.
If I'm not mistaken, that 22% is not fees, but the actual wire transfers from people abroad [1,2]. IMHO, it doesn't indicate that transfers are too expensive, but that a lot of people can't find enough work or support in El Salvador and they need to rely on family/friends that emigrated. I don't know how that is going to be solved by Bitcoin.
I would argue that the population who can now operate and opt-out of a USD system where their money is being debased by 20%+ in the last year by a foreign government will be quite a bit better off.
Valuation and debasement are two very very different things with very different effects.
The US created 20% of all the dollars that have ever been created, ever– last year. This is infinitely more harmful than a reduction in price compared to another currency.
This seems to be a more and more common “argument” these days. X is happening and it has benefits for Y but it probably has more benefits for Z who i don’t like so its bad.
Additionally ill ignore your point completely and only address Z now.
> They will literally have more money in their pockets.
That's a big if. Bitcoin transfer fees might be cheaper, but you need to add the cost of converting dollars to bitcoin, plus the volatility of the coin, plus any fees from intermediaries and Lightning nodes.
> Good things happen when people have more money in their pockets
High amount of remittances are not a cause, but a symptom of underlying problems. Would you be as cavalier about the effects of this on ES economy if it was, say, Western Union saying they'd reduce 10% their transfer fees?
It's always the same thing with Bitcoin, apparently it's such a great technology that it can change anything despite the fact that the only "new" thing it can do is to be decentralized. Somehow the argument always ends up being that decreased transfer fees will revolutionize everything (despite the fact that transfer fees might not be lower, and that we've had continuously decreasing transfer fees for years and yet that didn't seem to bring any revolution).
Obviously I prefer lower fees. But integrating Bitcoin is not a guarantee that actual, practical fees will be lower. Given the risks of adopting Bitcoin (volatility, fixed economic policy, complexity, difficulty of use), I think potential benefits must be higher than “we maybe get lower transfer fees, or not”.
Your original comment claimed that El Salvador spends 22% of its GDP on transfer fees. You've since corrected it to say that the 22% estimate is for the remittances themselves. So why are you acting as if "higher transfer fees" is an accepted premise?
Good analogy with http. But keep going. After http people realized the importance of https. Sending credit card numbers and passwords in cleartext over the Internet was clearly a bad idea. So what is https in this analogy? Monero, PirateChain, Aeon, Wownero are the major contenders.
Interesting I had not heard of SCRT. The others I've vetted pretty deeply but of course I could be missing something. Everyone do your own research of course and it'll be interesting to see which one(s) win.
Your Abuela isn't going to be able to take her .05 Btc down to the local Bodega and buy groceries.
El Salvador already uses the US Dollar as its official currency. A migrant worker in the USA is going to face a lot more fees, scams, and difficulty to buy and send BTC than just wiring the same currency he earns to to a relative who can then spend in the same currency.
This Bitcoin thing is a marketing ploy from the corrupt Salvadoran president, and an attempt to get a few crypto whales to move to the country and cash out, and buy real estate.
They are doing it to make money how is making money a fad? The reality of living in a poor nation like this is that unless they take a gamble they will most likely continue with the same level of violence and poverty. Its very easy to look down on people from an ivory tower though and call it a waste.
In no scenario does "they" refer to El Salvador's poor population, especially not the indigenous peoples. The money will go to the colonizing foreign investors and circulate in things like CDOs. A few crumbs that fall off the table will go to improving the lives of the upper end of El Salvador's people, and incidentally some crumbs of the crumbs might fall down to the rest of the population. Trickle down, eh?
You defeated your own argument :) I’m referring to the whole nation as poor which it is. Poor people rarely benefit from any government economic policies but in order to have them the government needs to be in a place to offer them to start with.
There’s some other points to be argued such as people now are holding an asset that is volatile but deflationary in nature by default and they have the option to convert and hold a currency which will lose value over time (USD). I’m not saying “bitcoin is going to save them” but its at least a novel approach that i think is worth exploring for countries in this position.
Some crumbs of the crumbs doesn't invalidate my argument, it just demonstrates rising inequality: in other words, the benefits will disproportionately accrue to the wealth foreign investors.
Think of the worldwide effort, resources and brain power spent on memes since the creation of the internet, if we didn't create the internet surely we could be sending people to other galaxies by now.
You live in a country with a functional banking industry open to almost everyone and a function currency run by your government. You have no frame of reference in which to understand how things work in El Salvador. 70% of people don't have a bank account, the official currency is that of another country. A major source of their GDP is money sent back to El Salvador from people workit abroad. Just because it doesn't seem like a pressing problem to you, does not mean it isn't a pressing problem for some people.
depleted might be the wrong word, becomes inactive perhaps? I agree with your general assessments though, volcanic activity doesn't seem like a reliable source of energy.
An attempt to answer your "what's next?" question:
"What about you guys floating $1 billion in “Volcano Bonds” (backed by future #BTC mining output) for El Salvador to pay off the IMF loan - so they can tell the IMF to beat it."
It's a $1B loan to a country with a low debt rating. It's a risky investment already, and now you add Bitcoin with its price volatility? I don't know how that's a good idea from the investors point of view.
Good luck getting $1B to El Salvador as "almost charitable donations".
Not to mention the effect that trying to sell $1B-worth of Bitcoin could have on the market (even just a portion, Bitcoin is accepted nowhere for so they'd need real currency).
I think the idea is that they would take funding in whatever currency they want, pay off the IMF with whatever currency they want, and then investors would get BTC, which is what they want. No need to sell $1bn worth of BTC.
That'd solve the "selling Bitcoin" problem but not the one of managing the risk of a US$ loan that is paid back with Bitcoin. I mean, ES could pay you back in time without defaulting and you could find yourself losing quite a bit of money. I think people would be asking for far higher rates in that case.
The loan could be specified in BTC and not pegged to an exchange rate. Then as long as long as El Salvador kept mining they’d be able to pay it back with interest. I suspect many BTC holders would be happy to participate in that type of loan.
> a command or act of will that creates something without or as if without further effort
A fiat currency is one whose supply can be inflated by a command or act of will. The supply of Bitcoin cannot be inflated in this manner, so it's not a fiat currency. As properties, official and fiat are orthogonal. A currency can be one, or both, or neither.
“Fiat money is government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it”. [0] (Commodity-representative/redeemable currencies cam be created at will, but are also not fiat money.) Bitcoin is not fiat money, but not for the reason you present, which tries to use a definition of fiat from outside of the specific context to create a new definition for it in this context, where it has a well-established definition.
Aren't these two ways of stating the same monetary property? The reason that fiat currencies can be created by fiat is they aren't backed by anything.
> Commodity-representative/redeemable currencies cam be created at will
No they certainly can not. Not without an actual supply of the commodity. At least not in the case of redeemables. Obviously some 'representative' currencies, like those that Zimbabwe has tried, have ended up turning into fiat.
> > Commodity-representative/redeemable currencies cam be created at will
> No they certainly can not. Not without an actual supply of the commodity.
Yes they can. (And there is plenty of historical example of that happening.) Heck, pre-state-monopoly banknotes were essentially a redeemable virtual currency over the currency in which they were denominated which often relied very heavily on this trait.
There is a risk associated with doing so, but that's also true of fiat currency, though the exact failure mode is different.
If Bitcoin is money, then it is absolutely fiat money and always has been.
The alternatives would be that it is commodity money (which is not the case because you can't use a Bitcoin other than exchange it for something else) or representative money (which is not the case because Bitcoin isn't backed by anything else for which it can exchanged).
Up to this point, it's been a rather degenerate case of fiat money because the agreement that it has value has not been governmentally backed.
But now that's no longer the case. Congrats, Bitcoin, you now absolutely meet all the requirements of fiat money!
By whose fiat can the supply of Bitcoin be inflated?
And are precious metals fiat by the standard you've laid out? Or are they commodities strictly on thin premise that you can use silver as a disinfectant, etc?
>By whose fiat can the supply of Bitcoin be inflated?
That's not what "fiat" means in this context. Fiat money is simply money that is asserted to be valuable. Control over issuance of money by those who assert the value of money is not an essential element of fiat money.
For example, the US dollar is adopted as the currency of the Republic of Palau, and yet the Republic of Palau has no control over the US dollar. Does that suggest to you that, in Palau, the US dollar is not the fiat currency?
>And are precious metals fiat by the standard you've laid out? Or are they commodities strictly on thin premise that you can use silver as a disinfectant, etc?
Precious metals are not money; they're commodities. No-one thinks they're money. The question "are precious metals fiat?" is meaningless.
> Fiat money is simply money that is asserted to be valuable.
No. This is absolutely not the historical or academic definition of this term.
From investopedia:
> Fiat money gives central banks greater control over the economy because they can control how much money is printed. [0]
To (in the passive voice, no less) that any money which "is asserted to be valuable" is fiat money makes every object ever valued by any human into fiat money.
Moreover, it manufactures consent because it takes away the crucial ability to talk about money which can be capriciously inflated vs. money which cannot. And being in the latter category is, according to Bitcoin proponents (heck, according to me), among Bitcoin's strengths.
ES has not "made BTC fiat". It is making it legal tender. All that means is debts can be settled with BTC.
As for "tapping volcanoes" it's a PR exercise - El Salvador is one of the countries in the world with largest geothermal generation capacity.
"Tapping volcanoes" here in effect simply means mining bitcoin with part of their geothermal generating capacity. But "tapping volcanoes" got this a whole lot more attention than it otherwise would.
Option A: invest in that volcano and reduce greenhouse gas emissions.
Option B: invest in that volcano and mine bitcoin.
B makes them richer so long as other people keep expecting Bitcoin prices to rise (increasing demand), so I can see why they do this, but I'm not sure I like it. Even if the equipment, installation, and operation are all compensated for, it's wasting renewable energy on making heat and some money by gambling on future demand of a PoW-based system. But for a poor country, making money to get up to rich country living standards makes sense so... I can't even fault them.
They can subsidize the startup costs for harvesting geothermal energy from Bitcoin mining and then use the geothermal infrastructure to produce electricity for the country.
That sounds great. Let's hope that actually happens and hope that the geothermal equipment lasts longer than Bitcoin demand lasts. Perhaps, though, if that is actually the plan, they could say as much?
They can put the Bitcoin mine out in the middle of nowhere next to the volcano. Building a transmission and distribution infrastructure to the rest of the country can be funded by the Bitcoin mine.
They tried this in Italy 2000+ years ago. A wealthy city will spawn from the mine, but since bitcoin doesn't appease the gods like physical gold does, the city will be buried in ash.
Or option A + B: Invest in more geothermal - they already have a lot -, and use bitcoin mining when demand is low to help offset the cost. If mining makes it cost-effective to increase sources like geothermal past the point where it covers the base load so it reduces the need for peaker plants, that might be worthwhile (though of course the other option is to invest in storage)
But the potential geothermal output for El Salvador is huge.
Okay but that's not what they're saying, is it? If that was the plan, surely there would be a mention of said plan while they're announcing plans. Would be a bit weird to only announce "we're gonna turn heat into heat+money" but not "and also reduce our climate impact whenever possible".
This idea was presented to President Bukele during a Twitter Spaces[1] session where he discussed the bill with the Bitcoin community whilst it was going through voting. Mining Bitcoin was not something he has previously considered and openly ideated on the call with the community. It seems like a fully proposed plan for how Bitcoin mining will play a part in the country's overall energy policy has likely not yet been fully formed.
You're assuming there is a plan, rather than just the president using it to get attention. All that seems to have really happened is that he's asked someone at the majority government owned geothermal power company to look into doing it.
Who is saying they are going to do something better? You gave a couple of options, and I pointed out there was an additional option. They are still just options absent a commitment to a plan, and there's no indication anyone has set out any actual plans.
> use bitcoin mining when demand is low to help offset the cost
I've looked at income statements of a bunch of public companies that mine Bitcoin, and one of the most striking things is how much of the cost is actually depreciation of hardware. Granted, part of this is that they are running the hardware to its limits, but another aspect is that new improved mining hardware comes out frequently and pushes the old hardware over the profitability edge.
Basically, I'm skeptical that anyone can mine Bitcoin profitably without running the hardware 24/7. Other coins that use commodity hardware, maybe.
But aggressive depreciation of hardware is in part a function of how much the electricity costs. If you're running off what is in effect "waste", then that would change the amortisation significantly.
May well be that it won't change the cost structure enough - I treat this as the president deciding an announcement like this, which amounts to little more than "I've asked them to look into it", as a way to get some publicity. It could very well end up being silently put aside if the costs don't stack up.
That sounds a lot like Norway though, didn't they have this massive amount of money from some natural resource (oil I think) and made a big pension fund for the population?
There are obviously also counter-examples, but a currently-democratic country finding a new way to make money from natural resources, I wouldn't expect we have a large enough sample size to really say anything about that with certainty.
Edit: The Norway thing being (for those interested):
> [The oil fund] was established in 1990 to invest the surplus revenues of the Norwegian petroleum sector. It has over US$1.3 trillion in assets, including 1.4% of global stocks and shares, making it the world’s largest sovereign wealth fund. In May 2021, it was worth about $248,000 per Norwegian citizen.
"To prevent colonizing foreign investors from controlling your country, you just have to run your country how I, an educated wealthy westerner, think you should."
The economics of geothermal are often unfavorable for consumer/industrial electricity production. Bitcoin mining is unique in that provides a consistent consumer for electricity at a reliable price 24/7.
The long-term effect of Bitcoin mining will probably be to subsidize the creation of reliable constant-output power sources like geothermal and nuclear, with some of that capacity being used for consumer/industrial usage during peak hours.
If the price of Bitcoin goes down, it will reduce demand starting at the most expensive power sources used to mine Bitcoin. There is a lot of “buffer” for something like geothermal before Bitcoin falls enough for it to get axed.
Well, not exactly. There is the utility of enabling the chain.
And there is nothing stopping us from extracting gold using electricity. It's in basically all soil and sea water. Sure there are some required materials, but I'd water a guess that those materials are no harder to obtain than GPUs.
The only thing that stops this reckless mining are the forces of the market, and the same is true with crypto. Crypto miners tend to be extremely frugal, and I doubt any are any who are doing unprofitable mining in expectation of crypto going up.
Now from a crypto maximalist perspective, which I don't necessarily hold, isn't the cost of the electricity worth having a decentralized currency which enables all sort of different markets?
Crypto is always held up as wasteful in terms of energy, but I'd be curious to see the energy cost in comparison to current payment processing systems.
If anyone is interested, Visa reports that their payments network (and supporting infrastructure) uses 740,000 Gigajoules[0] in a year.
Can’t quite find a one for one measurement for Bitcoin, but due note this is the energy needs of all of Visa’s operations and they process in excess 100 billion transactions a year and Bitcoin (in 2020) averaged around 300,000 transactions a day[1].
If interested there is this[2] digiconomist article with more numbers (no clue as to the veracity of them).
So let's do the rough math and figure out the comparison
300k per day is around 100 million transactions per year, three orders of magnitude less than Visa.
BTC uses 110 terawatt hours per year right now[0], which is 396,000,000 gigajoules, a three order of magnitude difference in the other direction. Assuming everything scales nicely, if Bitcoin were the size of visa it would use ~6 orders of magnitude more energy.
OK, so that is way worse than I thought. I'm still not sold on the idea that it's a bad thing, but it's nice to put numbers to the situation.
It's actually a complete waste. All it produces is more security for the blockchain, which is of low marginal value. They could use that energy to produce something of actual value, like hydroponic food, or desalinated water, or run a data center, or literally anything else.
Bitcoin has value that they can spend on doing all of this. You are falsely saying the only value it provides is blockchain security when im sure that isn’t even a reason they thought about when doing this. Its to produced more money for the government and hopefully that translates to better public infrastructure.
Bitcoin has value that they can spend on doing all of this.
Money doesn't directly convert into food. Someone still has to consume the energy to actually make things. By using energy to mine bitcoin to buy food, one is potentially doubling energy consumed.
Right now there's a chicken and egg problem where cheap power is not near things that need it.
Crypto mining will allow places with cheap power sources to build up energy production. Once that's established it's easier to build up infrastructure for things like data centers.
I think it's somewhat of a Tragedy of the Commons situation.
Everybody would benefit from power being built in remote places, but nobody wants to be the one to pay to build it there. I'm not seeing why crypto mining is any different though; it's a for-profit endeavor like anything else.
I’m sorry you don’t see that it has value. It has value to me. In fact, I need a secure, permissionless, censorship resistant, non-state backed value storage system more than I need hydroponic food or desalinated water. The problem is the disconnect between your wants/needs and the needs of others in the world. Waste is entirely in the eye of the beholder.
PoW keeps things fair, you have to spend money on hardware and energy or become irrelevant.
In other consensus systems like PoS, whoever has the most capital controls pretty much everything and has 0 incentive to sell what they get since they aren't really spending any energy for their cryptographic signature.
It literally says "rich gets richer" in the protocol which is fundamentally broken in my humble opinion.
Compute power requires money though, no? Whoever has the most capital now controls the BTC blockchain, which happens to be mostly miners in China. It’s a lot easier for me to stake ETH than to buy hundreds of GPUs.
And my reward is linear with how much I stake or put down, whereas with economies of scale in mining the reward is more like quadratic. Seems to me that with PoS the rich get richer linearly, with PoW the rich get richer ~quadratically.
If I spend 0.01% of what the Chinese miners spend on my mining setup, I’m not getting 0.01% of the rewards.
The thing is, let's say you spend 100M$ on mining equipment today, that equipment is worth a lot less in a year from now and is worth practically nothing in 5+ years, so you can't just sit on it, you have to keep spending. Likewise with electricity, it's not free, you have to source it and spend money on it.
So whatever Bitcoin reward you get barely covers your running cost + small profit margin. Imagine like you're running from a monster, you can't stop or you'll become irrelevant.
Whereas with ETH, I can buy 100M$ worth of it, I'll get say 5% back which means I'm making 5M$ every year, thing is I don't have any pressure to sell it whereas the poorer stakers will have to sell to cover their cost of living or other reasons, so over time the % of my stake in eth grows. Things get even worse when you include custodians into the mix, exchanges will have much larger wallets and get much larger rewards which they may not share with the actual holders or keep a small % for themselves.
The other consensus algorithms all follow the same consolidation logic of capitalism. Specifically, power consolidates year after year similar to banks, media companies, communication companies, etc. It looks to me like the PoS systems algorithmically codify this logic, and since the consolidation exists digitally, I would have a hard time coming up with a plan to break up the PoS oligopolies. The reason why the digital consolidation hurts people in the PoS system comes form the fact that consolidation of money in PoS directly relates to consolidation of actual voting power in those systems.
PoW on the other hand will lead to consolidation around inexpensive energy: volcanoes in El Salvador, hydro in some northern countries, solar somewhere else, etc. However, those places will have some abstract voting power in the Bitcoin world, but exchanges, people, node operators, and businesses also have abstract voting power to balance against the cheap energy locations.
I should mention that the upside of all of this is that we can now choose the option to have accessible digital banking around the world, and people who print money will have less of an impact on world affairs.
I've gradually come around to the side of PoW being important as layer 1, because it's as close as we're likely to get to Lockean labor theory of property being directly manifest rather than built on a legal-deeds-and-titles national framework, and that has an immediate effect of building trust out of speculative value. PoW can be made more efficient along some axes, but not all of them. As such it puts every economy in a Red Queen's race to do things with available energy and computing power that are of more value than speculation.
However, PoS has an important role as the layer for specific applications and markets, since it acts more like central banking with the tradeoffs of such.
You got it. PoW is critical for layer 1. Ongoing capital expenditure requirement is critical to prevent ancestral oligarchies. One cannot retain censorship resistance or decentralization with oligarchies.
Honestly, why do you need BTC? You can't actually buy a whole lot with it, and you gotta convert to real currencies do anything meaningful anyway, which defeats the whole argument.
A) Ensuring the time-value of my labor is not eroded by the state through inflation.
Yes, there are day to day risks of fluctuations in value, but one just needs to compare the trend line of where BTC is going vs fiat currencies in the longer term. I’m not worried about 50% draw downs on an asset that appreciates > 100% pa.
B) ensuring that third parties like banks are unable to steal my funds. Through fees, charges, unauthorized transfers or just plain theft…
C) portability of funds around the globe, independent of foreign or domestic currency. Ever tried to wire funds globally on a weekend? Trade?
You are still looking at bitcoin like it’s a dollar bill. It’s not — it’s digital gold with more computational security than any system ever built by humanity.
A: Bitcoin has inflated 40% in value in the last month.
B: This is probably the strongest argument for Bitcoin and the original vision.
C: Sending BTC is immediate but since you can’t really use BTC to buy much (yet) you still need to sell and wait for funds to clear, which takes about as long as just wiring money.
When OP talks about "inflation" they're talking about the amount of money entering the money supply. Bitcoin didnt "inflate" even though it got more expensive. The price did, not the supply. The supply of BTC is algorithmically programmed and there will only ever be 21 million produced. You can't print more Bitcoin at will but a government can print their fiat currency, for better or worse.
That is not true, and is a trick to try to pollute the discussion about bcash or some other nonsense. There will only ever be 21 million coins in Bitcoin by definition. If there are more — for example fractional reserve “backed” tokens on EVM chains — or even chain fork scamcoins, these are not Bitcoin. Bitcoin is UTXOs on mainnet. And 21 millionth is produced near 2140.
Bitcoin is actually inherently shrinking in supply. Once the 21 million are created there can only be coin loss (via lost or destroyed wallets). And a deflationary currency is far from desirable.
I have heard lots of hand-waving arguments for why a deflationary currency is bad, but they have never made much sense to me.
A deflationary currency doesn’t mean no one will ever spend or invest. It simply means that there is less forced incentive to spend and consume in order to avoid inflation.
Inflationary currencies are like a tilted playing field, they artificially force savers to spend or invest in risky assets while skewing economic metrics to make the economy look better than it is.
While the gold standard was not deflationary, the relatively fixed supply resulted in strong stable economic growth until countries in Europe began secretly debasing their currencies in the run up to WWI.
Inflating fiat currencies gave the European countries the power to perpetuate the first endless war - I strongly believe if they had been forced to tax their citizens to pay for WWI instead of stealing the wealth of the people by inflation, the World wars would not have been so severe and so prolonged.
Since inflation and deflation are just monetary things, things like wages and asset values should move in lockstep with it, and this has historically been true. Wages go up over time, as do things like gold prices and stock indices, in dollar terms.
So why do governments prefer slight inflation? A slight amount of inflation first allows governments to print a bit more money than they're collecting, which allows them to spend a bit more. Comparatively, in a deflationary world, they would need to collect more taxes than they spend, which would be tough both politically and tough for balanced budgets, since government spending is useful.
Deflation would mean that you basically get a net worth bump just from holding on to cash. You would have a real, tangible benefit of not spending money but rather keeping it in a bank account. Money in a bank account does not contribute to productivity. Money spent, or invested in companies doing productive work, is preferable. To counter inflation you at the very least need to invest in something like a CD, which the bank can then use to loan out mortgages and the like, keeping the money flowing.
B) Bitcoin also has fees associated with it, not just when you convert it to or from fiat, but anytime you do a transaction. And I'm pretty sure Bitcoin has been stolen before. If you're purely talking about the state stealing it, well that's happened too; the US government has seized Bitcoin many times now.
Ok, hold up. Energy usage is a good thing and provides security, actually. You can’t ditch the energy and retain security. I’m sorry, but PoS is a bad and the wrong model for censorship resistant, non-state stores of value.
That's simply not true. Proof of work is nothing but an extremely expensive to randomly select the entity that gets to finalize the next block. The system leaks value like a sieve. Either the miners have to be compensated by printing money--and devaluaing everyone else's holdings--or by the transaction fees of a system that has a hard practical and ideological limits on its transaction capacity.
Avalanche already provides a compelling and less wasteful alternative, and it might not even be the last word.
This idea that Bitcoin got it all just right has become a quasi-religious belief, fueled by the motivated reasoning of monetary interest and ideological fantasy.
Yes it is true! You still don’t get it, and I don’t think I can convince you. Energy = Security. This is an fundamental axiom. Security of transactional data grows with every block in a PoW chain. PoS finally breaks down to mutant PoW with stake grinding; among other oligarchical concerns. We must spend energy to sustain the hardest money humans have known. Yes, it is a deep ideology that a monetary network must incur ongoing continued capital investment! Everyone looking for a cheap n easy way out with PoS. No free lunch.
You're right that it is an axiom: "a statement or proposition which is regarded as being established, accepted, or self-evidently true."
There's nothing "hard" about money that requires a nation's worth of energy simply to continue to exist.
Proof of stake isn't fundamentally flawed, and proof of work isn't perfect. They both have many variations, and there's certainly many more to explore yet.
The only free lunch I see people pining for is the idea that they can squat on a wasteful, moribund asset, expecting it to be worth much more in the future.
I don't think want vs need is as subjective as you say.
I could assert that I need a Maserati and no other vehicle will fit my requirements, and it would be pretty easy for others to counter that either my supposed need is really a want, or the requirements are arbitrary and unnecessary.
Likewise I think your needs regarding crypto are more of a want. What would be the consequence if you didn't get that? Would you die? Would your quality of life significantly decrease? How did you live most of your life already without Bitcoin?
Life without bitcoin: one can watch as the value in the output of ones labor encoded in fiat decreases over time, punishing saving and devaluating our lives work; or One can opt-out of this and store it in something that does not, and rewards saving.
It also has the benefit of security, integrity, audit ability, censorship resistance, transferable over arbitrary communication channels, etc.
Most folks live paycheck to paycheck, and so don’t feel savings inflation and the cruelty that this implies.
This has been invented. If it didn’t exist now for some reason, it would significantly decrease quality of life — I would be powerless to watch my saving erode into nothing. I would be powerless when the state decided it wanted to adjust interest rates to be negative (again, attacking saving). I would be powerless when any state decided that another state should be disconnected from the legacy financial networks. I would be powerless when they payment card networks started enforcing morality de jour. It would be like being arrested - some liberty taken from the individual and make them beholden to the state.
They call it being “orange pilled”. Once you get it, there is no other option to avoid growing poor slowly.
Stock is good too, any asset to escape fiat; but it’s the currency properties of bitcoin that have advantages over it - like 24/7 market. Not to mention portability. Transferability. Self-custody.
The valuation of companies should reflect production, however any sensible extrapolations of thus in recent times are no different than speculation in cryptocurrencies. It’s all perception. That’s all money is — a shared delusion that something stores value.
Bitcoin subsidizes the creation of constant-output power sources (geothermal, nuclear) which are not usually economical for highly variable consumer/industrial power usage. Long-term, these sources will probably power the grid during peak hours and power Bitcoin hardware during off-peak.
It also subsidizes the use of dirty power sources. The greenwashing of Proof of Work cryptocurrencies is insane. It's using the same amount of electricity as Argentina.
Green energy sources are cheaper when you don’t have to scale demand hour by hour. The overwhelming majority of Bitcoin power usage is already green and that will only increase.
Claims like “Bitcoin uses more electricity than <some poor country that doesn’t use much electricity>.” are totally irrelevant. Good. I want humanity to climb the Kardashev scale. If we have an invention that can help fund the creation of billions of watts of efficient energy capacity then that’s great!
> The overwhelming majority of Bitcoin power usage is already green and that will only increase.
Is there any source for this, the first part, that it is currently powered overwhelmingly by green energy? Anything I can find suggests otherwise. And the part of the claim that Bitcoin will use a greater share of green energy in the future is not very meaningful if you expect that is also true of every other industry.
PC gaming alone uses the same amount, there are many useless activities (well the both provide entertainment) that could be stopped if you want lower energy usage for the world.
Ban gaming and obviously ban fashions since that is close to catastrophic catastrophe regarding greenhouse gasses.
Yeah it's a really good point that additional security for the blockchain has low value. Really the total mining reward (txfees + subsidy) should adjust to offer just enough security. We now have the mechanisms in place to do something like that through DAOs, however it seems hopeless to apply that to Bitcoin, they are so resistant towards any change what so ever.
It's wild that it took the bitcoin subsidy less than 2 decades to become far too high proportional to it's externalities.
Yes, but it undermines the point of energy production, because the energy produced is not going to existing consumers of energy, it's going to feed the insatiable-by-design blockchain.
Imagine if there were a cryptocurrency based on proof-of-driving-things-between-cities with a mining reward, and Los Angeles invested in it. There would be an incredible incentive for expanding LA's highway infrastructure, and you'd expect LA to get a lot more highways, to but there would be no positive impact on actual commuters trying to use those highways to get around greater LA, and quite possibly a negative impact, because the more direct incentive is to use whatever highways are there - building more highways is an indirect incentive.
That analogy would hold if the additional energy produced for bitcoin mining had some negative impact on the existing energy infrastructure. It doesn't. If anything it creates an incentive for making energy production more efficient. The fact that energy is produced and consumed is not bad in itself. The Sun could be said to be "wasting" energy by sending it off into space.
> If anything it creates an incentive for making energy production more efficient.
How is this different from any other consumer of electricity? Every consumer wants to buy the cheapest electricity, and every producer wants to produce the most of it per energy input.
I'm not disputing that it creates an incentive for making energy production more efficient. It does! In the analogy I gave, there's definitely an incentive for building more highways ("There would be an incredible incentive for expanding LA's highway infrastructure") - it's just that this incentive is, at best, completely useless to existing commuters taking the highways.
I'm also not claiming that it's bad for energy to be produced and consumed. It's not! It's just irrelevant if you're looking to consume electricity, and someone else is producing and immediately consuming it. And it's bad for you as a consumer if production goes up and consumption goes up by even more.
Why is this a more direct reward than generating energy to sell?
In mining, revenue = efficiency * potential energy * BTC per unit produced energy
In selling energy, revenue = efficiency * potential energy * USD per unit produced energy
I don’t see the difference, other than the fact the former just adds to the pool of required energy (it’s strictly additive to the energy produced by the second)
Transporting power is extremely expensive and infeasible over large distances. So power needs to be generated near industry or homes. However, cryptocurrency can be mined anywhere and then sold.
Well if imagine with selling energy, the profit equation has more terms, which are difficult to model correctly.
With crypto the only really question is how will the price of the currency affect the break even point for hardware cost (assuming all mined tokens are sold immediately).
It's a direct reward for energy production, which has always been well rewarded. There is no reason to think PoW mining in any way rewards efficient energy production more so than any other use of energy.
Yes, but that is not a sufficient justification for war.
The idea that bitcoin incentivizing efficient power generation because it consumes all that power somehow being a justification for bitcoin is entirely bananas.
If your concede that there's a trade off then there is a point where the efficiency gains outweigh the negative externalities.
I think it's unknowable right now where we will land, and as an optimist I choose to believe we will end up on the right side of the trade off, based on the apparent efficiency of market forces.
There has literally never been a more clear and obvious way to waste energy for no reason, something which is happening at scale, during a time of energy crisis.
This has Easter Island written all over it.
'Hey, let's use all our resources to build Giant Heads! The person with the most heads gets to be the King!'.
How much money is there to be mined per year? On the order of 10 billion dollar? What share of the total hash rate could you realistically buy and power with your volcano? One percent? Probably not ten percent. What would the investment for the hardware be? I have a hard time imagining that you could make a noticeable difference this way even for an economy like Salvador's. And there are probably many better ways to spend money than buying mining ASICs.
I think this is only one part of the story for them. If 70% of their country is un-banked, many transactions are probably in cash, and there probably are a lot of undeclared sales and income that is not being taxed.
If they can really get their population using tools that would make it easier for the government to collect taxes, make it easier for tourists to visit and spend money, etc then the mining rewards are only one small part of their plan.
Of course none of this really needs to happen with crypto, they certainly could solve these problems in other ways, but I can't really blame them for trying this out.
I understand this argument, but if I had to choose right now which coin would be the best for my country, I would still go with Bitcoin. You don't get to choose which coin has the most backing, or the most diverse set of players from around the world.
There are other possibilities between poorly executing a bespoke cryptocurrency and using bitcoin even though it's not a good currency. There are options that already exist which have low volatility, low transaction costs, and don't require injecting more and more energy for security. If those options don't seem mature enough (they do to me, but I dunno, maybe they're not), then a good option would be to wait.
Is it a distribution problem? They can't build enough power cables, or they've already built them over as far an extent as is manageable? I can see how it's easier to just put a big data center on site, but it seems like it would be better to invest differently.
To invest in a data center requires things like reliable property rights, a functioning judicial system, peace and security, network connectivity and other supply chain issues. You want rule of law, peace, security and infrastructure.
The advantage of bitcoin is that once you mine the coins, it is a lot harder for someone to come and take them from you, whether that someone is a rebel group or a corrupt government official or just a local crime syndicate. Moreover you are not dependent on available network backbones or any of the other required infrastructure that a data center depends upon.
I think you misunderstood my question. My guess is that the plan to use the volcano for mining bitcoin is to put a big bitcoin mining data center close to it and powered by it. My question is why this is better than expanding distribution of the power generated to be used for more useful things across the country and region.
My guess would be that those other useful things also require rule of law, taxation capacity, property rights, social organization, etc, in order to be feasible long term investments.
One interesting thing to me is that Bitcoin is a lot easier to steal than money in banks. A bad actor can steal your private key and take all of your BTC, and it's gone forever. Try doing that with a bank account -- the bank will back you up, there are transfer limits.
How does this apply? This makes it easier for others to steal all of the money? I would think they would be selling those coins after mining them not holding on to them as some future investment.
Nevermind that banks in smaller countries can be a huge source of thief.
Coinbase or any other exchange can certainly steal your coins, just like a bank can steal your money. Hosting your own private key is like having your money in your mattress -- it's as secure as you allow it to be, and once stolen it's gone forever.
Tell that to my brother-in-law who had his identity stolen and several lines of credit taken out in his name. He’s spent the past 2 years working to resolve it with limited success. His credit score is still trashed and can’t buy a car nor house.
The country is already going all-out in its adoption of Bitcoin, so sure, why not go from "ludicrous" to "plaid" by bringing volcanoes into the mix?[a] For those not living in El Salvador, it will be fascinating to see how this unorthodox approach to monetary policy works out in the end.
Yeah. How can a country survive without unlimited QE? The poor residence will see their buying power constantly rise against all other currencies as the other countries of the world follow in USA's footsteps of unlimited manipulation. Realistically that might actually be tough for any of their exports however and may make everyone unemployed as their "currency" rises in value, but will they also all be rich? Frankly I think it is an amazing experiment.
As a Salvadoran living abroad but keeping an eye on politics there, I feel the need to comment given the amount of skepticism shown here, which is understandable given the history.
I believe that what the president, Nayib Bukele, and his team have done is monumental. The reason is that I also believe that the financial system crashed back in 2008 and has been kept alive by central banks worldwide. Last summer we saw how Lebanon banks reneged to pay back their customers their holdings in USD. This seems to be increasing. The thirst for USD around the world is increasing and all the so called printing by the FED is not getting to the other countries and international companies fast enough.
El Salvador is in a though position since it does not control its main currency. The other one, the Colón, while still legal tender is for all practical purposes unusable. It would take too long to grow the economy enough for it to be valued appropriately against the USD. Mandating BTC as legal tender is an awesome move. To me the most important benefit is that the 70% of the population which was excluded from banking and relegated to use physical currency will now be included. If the economy is an engine and money is the oil, El Salvador, which had only some drops of oil, will now get a complete oil change with synthetic on top of that. Lets remember that the law obligates the government to instruct all citizens on the use of the technology and to provide the means if necessary. This means that the government now has to provide connectivity to all citizens and teach them. Nayib has shown that he’s up to the task. For example, El Salvador is providing every child in the public school system with a laptop and free internet connectivity.
So I think this is beyond if BTC goes up to 200k. It doesn’t matter. If it goes back to 10k is OK too. What matters is that every citizen will now be included as equal in this new financial system.
> Mandating BTC as legal tender is an awesome move. To me the most important benefit is that the 70% of the population which was excluded from banking and relegated to use physical currency will now be included. If the economy is an engine and money is the oil, El Salvador, which had only some drops of oil, will now get a complete oil change with synthetic on top of that.
You are 100% incorrect. Bitcoin is wildly deflationary. Therefore it does not encourage an economy to function, it encourages people to hold onto it with white knuckles. It's not oil for the economy, it's sand.
> This means that the government now has to provide connectivity to all citizens and teach them.
And when they don't provide connectivity and teach citizens?
> You are 100% incorrect. Bitcoin is wildly deflationary. Therefore it does not encourage an economy to function, it encourages people to hold onto it with white knuckles. It's not oil for the economy, it's sand.
In my opinion, that's the biggest lie that people have been made to believe to justify constant stealing of their purchasing power over time.
People will always spend money for things they need, they will also spend money for things they want, our current system is forcing them to spend it for the sake of spending it causing unnecessary over-consumerism.
It doesn't matter how much Bitcoin price will appreciate in 5 years. If I need to eat, I'll have to spend today, if I want to buy a house, I'll have to spend too. Instead, I will think twice on upgrading to the shiny new iPhone every year, maybe doing it once every 2-3 years, which is a good thing.
It also encourages them to invest their money. The choice isn't either spend money on over-consumerism or lose it, the choice is either spend it or invest it so someone else can allocate more resources to what they are doing.
For sure, but then you have to understand and research what you're investing in. We also end up with sky high (in my opinion unjustified) P/E ratios just because money doesn't have elsewhere to go and it creates all kinds of wild inaccurate pricing imo.
In this world where the currency doesn't depreciate like ~95% over a 100 year period, only investments which make sense will get money thrown at them.
This is not about incentives to spend or invest - it's about having a functioning basic unit of economic measure that is 1) stable 2) has integrity and 3) hopefully under the control over the government.
BTC isn't good for any of that.
USD is good for 1 and 2.
The gov. can move to re-establish it's currency and have 3 as well.
Just the opposite, during difficult times people rush to USD which bolsters 1 and 2.
That it's used widely and fungible is what gives it value.
If your own currency is destroyed, you use the one that has the most integrity that's relative to your country. For most nations the default would be USD. For Vietnam probably RMB. For Belarus either Euro or Rouble.
Then you develop integrity in governance and switch to a national currency.
A nations currency is actually a vert good measure of the competence and integrity of the leadership class.
This is why there is so much VC money that people build "disruptive" companies whose primary trick is "let's lose money until all our competitors who don't understand revenue is boring are out of business" :(.
This is presented in a conspiratorial manner. "Who wants their money to be worth less?" "Governments don't want you to know..."
It's very simple. 100 euros in your hand right now is worth more than a possible/probable 100 euros in your hand next week. And Jeff Booth is arguing that we are trapped in a mental prison because we agree with this obvious fact.
Inflation is a different problem: a bird in the hand is worth two in the bush, but if you have a bird in your hand you are better off trading it for a table because somehow a table in the hand depreciates less than a bird?
I mean, of course hodl, but not at the cost of dying of starvation or missing out on having your dream home, etc. Bitcoin subreddit is full of stories of people buying their first homes or cars, I've seen many people start their small businesses with their gains.
Life is short, you enjoy/spend what you have while you're here.
But currency needs to move in order to be, you know, a currency. The lack of upward price movement of e.g. the US dollar means that there is no advantage to sitting on it. Invest it, spend it, or lose it.
Inversely, with BTC, you would want to spend as little as humanly possible. Make whatever philosophical arguments you want: this is not adding oil to the engine. This is adding sand.
> Inversely, with BTC, you would want to spend as little as humanly possible.
Sign me up. Hyper-consumerism has laid waste to our planet, commoditized every human interaction, and polluted our minds with its drivel.
Behold Denmark and its glorious decision to punish its citizenry for saving any amount of money at all. Hope you weren't thinking of saving your pennies for a ticket out of the renter's racket, Denmark would prefer you stuff it in stocks and pay them their cut.
It's time we seized control of the engine and refashioned it into a tool that serves our welfare.
> Bitcoin subreddit is full of stories of people buying their first homes or cars, I've seen many people start their small businesses with their gains.
Sure. It's like the successful ipo's. While 1% succeeds and people want to have a startup, everyone forgets that 99% fails.
I earned the 2nd biggest amount of people i know personally and i can't buy a fancy car with it. On Reddit, you can see all people come together on a population of 10 billion, lol.
People that were interviewed for Bitcoin gains in the newspaper in 2020 had 20% of my gains in 2017. And it went life changing money either.
Seeing it on Reddit mostly means that you have found your "community".
Yeah that's all fine and dandy until you need to take out a loan and on top of high interest you also need to account for deflation - good luck getting a house mortgage and falling wages. Deflation puta pressure on price of work as well - but people don't like pay cuts.
It's very counterintuitive, but actually the more unbanked you are the more you needs loans/savings and the more complicated your personal financial balance sheet is. I'd recommend the book 'the poor and their money'[1] for the details on this, but essentially if you haven't got savings you are constantly borrowing and lending informally with your community to meet life needs like a new roof or school fees.
You know what happens then? House prices will fall because they won't have access to cheap money, so they'll end up being priced at their true value. Housing would stop being an investment, instead it would serve it's true purpose of providing lodging.
So you're going to end up paying more in real terms (since deflation), for a house that's going to be worth less, you're making less and you have to pay interest. Sounds like an amazing deal, would vote for bitcoin tomorrow !
Yes, and then you know what happens? Builders stop building because of dropping prices. Trees stop getting felled.
It's called a 'deflationary trap' and everything falls apart.
Nations need a stable currency to function, BTC is untenable.
There's not much to debate here because it simply won't work, it's Banana Republic kind of stuff. They'll never switch over to BTC as a nation it's pragmatically impossible.
If they had the ability to effectively switch over to BTC, then they'd have the ability to responsibly issue and manage a currency.
Correct. Keynesian economics is a fraud we're taught to disguise the fact that we're being robbed. You don't need an inflationary currency for a currency to work. Gold and silver worked just fine for thousands of years, and only ran into problems when corrupt governments and banks printed more paper receipts than they had reserves. Central banking just legalized this practice for private profit, and then the peg to gold and silver was eliminated once they had monopoly control.
Those years when "it worked fine" were also when the entire world lived in squalor and horrible conditions. Including kings. I don't think we should call the past horrors "fine" in any way. I'm not saying the gold had anything to do with it. But you shouldn't say that world was OK.
The US gold standard collapsed. That's a fact of history.
> People will always spend money for things they need, they will also spend money for things they want, our current system is forcing them to spend it for the sake of spending it causing unnecessary over-consumerism.
The worrying aspect is that the one thing that people want more than anything is to be the most rich and relevant person in a given area, hence the inflationary system to avoid people hoarding in order to reach this goal of theirs.
If you transition to an deflationary system and people fall in love with it....well there is a whole lot of room to go on the downside.
First people start giving up vacations, then dinners, then cars, that Netflix subscription, then the smartphone purchase, then the app purchase.. all in the name of hoarding.
Pretty soon the entire economy becomes a giant game of mental posturing to see who can go the distance without spending.
Paradoxically in this scenario the most rational thing to do is to spend like there is no tomorrow because society would be headed into chaos, so when the fecal matter hits the fan , at least you'll have good memories
People would spend very conservatively and nothing particularly interesting would happen. It would be virtually impossible to raise money for new businesses.
The crypto holders have an irrational fear/hate about inflation and forget that it's a requirement for people to spend their money and supporting the economy.
Is it really so difficult to imagine a world where people spent less conspicuously, and invested more prudently?
In a sound currency world, interest rates are set by the relative availability of funds for investment - that is, they are counter-cyclically market-determined: if there is little investment, rates will be low, if the economy is booming, rates will naturally rise.
Secondly, the rate of deflation is determined by the rate of increase in the economy: if the economy is shrinking over time, there is no deflationary incentive to hold - so here again the currency is counter-cyclical, discouraging rapid growth while allowing for measured growth.
It's 'definitely not sane' to fix the amount of currency in circulation, either fiat or gold or crypto, arbitrarily.
It would be like saying 'we're going to fix the amount of roads we have' and 'people will be forced to use the roads more sensibly!'.
The only reason for 'fixing' currency would be to prevent bad actors from running the printing press. Now - this is actually a very real problem historically - however, it's a pretty crude solution.
The smart thing to do is manage your currency smartly - literally like everything else in civilization.
You need good Public Health Policy, you need good Monetary Policy.
Infinitely divisible money is an unit with unlimited ability to scale to the circumstances - if more is needed, simply add another zero. You err in comparing this to roads, which are necessarily in proportion to the amount of traffic over them. Money needs only to be able to represent value, and the relative value of different things.
Good monetary policy may be practicable by angels or saints, but not by men, who stand at the gates of unimaginable wealth that emanates from the printing press. Literal trillions of dollars - who can even conceive of that value, let alone decline the exercise thereof? Better to take it out of our hands.
If there was no elasticity in the monetary supply, then in both 2009 and 2021 the entire US economy would have collapsed probably taking down the world with in 2008, and most nations would have been wiped out in 2021 as well.
Also, most major currencies are managed well enough.
If you don't like your local fiat units, then don't hold on to them. Exchange them for anything else you value more and use local currency on as that - currency. Currency was never meant to be a long term store of value.
People in El Salvador will simply have the free choice to put their money into BTC. If people in El Salvador make or lose a bit of money because they diversify their exposure, will they not have contributed to the overall price signal process of the free market? Why is it bad to give people options?
I wonder what percentage of people in El Salvador have enough money to "put into BTC". Wouldn't most of the poor population be living essentially hand to mouth and spending their meager amount of money on daily food and shelter?
On the question of principles vs practicals... the principles sound great and all. I also appreciate that this takes advantage of the large number of mobile devices already out there, and encourages the development of rural internet.
But, I predict that the practicals are not going to be good. Bitcoin transaction fees are high. If anything, this is a gift to large criminal organizations with a large footprint in the country which will be far more able to make use of their BTC. The law enforcement arm of this will not be ready or able to deal with it.
There is a role for cryptocurrency in helping the underserved gain access to banking. This plan does not sound like the right one to me.
> Bitcoin is wildly deflationary. Therefore it does not encourage an economy to function
With the rapid increase of the Money Supply of the USD, this is no different than any other Asset, especially Buyback driven stocks(where the supply diminishes over time!). To store value you also need to hold onto them with white knuckles. It also does not encourage an economy to function, hence why our GDP growth has slowed to a halt.
Without debating any of your points: bitcoin is a terrible choice for this. It is horribly volatile, it is incredibly expensive to transact in, it is an awful waste of energy.
Using a stablecoin on a proof of stake blockchain with high transaction rates would make a lot of sense.
But that wouldn't help the officials who pushed this get rich from their stash of bitcoin...
Once again, El Salvador is using lightning network which enable almost instant and practically free Bitcoin payments. PoS isn't perfect either and has it's own sets of problems.
It remains to be seen whether lightning network will actually work for this. If it does, then I'll allow that only the volatility and energy waste are the reasons this is a bad idea.
But yeah, if you sell this to me as a test of lightning at scale, then I'm definitely more interested in it, while still thinking a super volatile asset is a bad currency.
It does work, they have been using it in El Zonte town for quite some time now [1].
The volatility will come down as the market caps get larger, but it'll never go away (I mean even fiat currencies and gold's price fluctuate on a daily basis).
The energy usage (not waste if you consider it to be a useful thing) will only go up as the price goes up, but it'll use increasingly renewable % and stranded energy and even bankroll new renewable power plants that wouldn't have been profitable to start.
This "volatility will come down as the market cap gets larger" keeps getting thrown around, yet Bitcoin just lost 50% of its value at a market cap of 1 trillion USD. What market cap is required for Bitcoin to stop being volatile?
Well, how little volatility is needed to be called stable? Over a few years, large swings can happen with major forex pairs. Take GBP/USD for example: High of 1.71602 in 2014. Low of 1.14926 in 2020. It currently trades around 1.4.
So, not the same kinds of returns and drawdowns as BTC/USD, but enough to make one's eyes water and stomach churn. Forex has always had a reputation for volatility.
Gold is not a used directly as a currency anymore, in part for the reason that it's hard to control the value of an asset. It turns out that having some control over a currency's inflation/deflation is very powerful and good for economies to function.
Fiat currencies fluctuate too, even a big pair like USD/EUR has a high of ~0.9 and low of ~0.8 this year and if we are talking about smaller currencies like say the Turkish Lira, you're looking at much larger changes.
Gold isn't used directly because it's not convenient, are you gonna transport a heavy metal that you can't divide into small portions to pay for stuff? No! Lightning network wallets makes even tiny payments of couple satoshis very easy/instant/almost free.
Lightning is a horrible kludge to deal with the fact that Bitcoin is terrible at being a currency. It essentially boils down to this process:
1. Pay huge fees to take your money off the blockchain.
2. Whiz it around a new, totally independent, centralized network where you need an always-on connection to anyone you're paying or receiving from and need to trust any intermediaries you're using, with brand new fees for every transaction and even at rest (so you can pay a "watchtower" to help make sure you don't get cheated).
3. Pay more huge fees to put your money back on the blockchain when you're done.
4. Wonder how you got yourself into a situation where you have all the disadvantages of Visa and Bitcoin, with none of the advantages of either.
We already have existing coins, like Nano, that can handle transactions instantly, for zero fees, and with nearly no energy use, on the main chain.
Channel factories will open/close many channels at once, so you'll only pay a fraction of the blockchain transaction cost. It has the advantages of Bitcoin's security and p2p network speed.
Security and trust are a lot more important for currency, nano doesn't have that. It has easily been spammed [1]. It barely has a market cap of ~1B$ and has never recovered to it's 2017 prices, so it's not even remotely close to being an ideal candidate for a country's currency.
Eh, it got spammed and transactions slowed to BTC level (but still with no fees) for a couple months. Spam is a solvable problem. A hard limit of 4 transactions per second isn't.
Ya know what doesn't have security and trust? Putting your entire country on two custodial wallets and having all your citizen's wealth in the hands of two foreign companies (channel factoried or no). No one in El Salvador actually owns any Bitcoin. It baffles me how anyone could get on board with the original ideals of BTC, then defend what's happening now.
> But that wouldn't help the officials who pushed this get rich from their stash of bitcoin...
The price didn't move much after the announcement. The whole point is to attract those who have already gotten rich from their stash of bitcoin to come to the country.
>> Lets remember that the law obligates the government to instruct all citizens on the use of the technology and to provide the means if necessary. This means that the government now has to provide connectivity to all citizens and teach them. Nayib has shown that he’s up to the task. For example, El Salvador is providing every child in the public school system with a laptop and free internet connectivity.
That could have been done with just like a public bank instead of bitcoin though.
If this experiment works, it should benefit the people in El Salvador because they now have the option to transact and communicate their purchase preferences all around the globe instead of just to the people they meet in person. As for using normal banks, I reckon we had the whole 20th century to try that experiment. Now, banks seem a bit like hope-cope such that it seems like a matter of shitting in one hand and "could have been done with just like a public bank" in the other.
1) It only takes a bare minimum of competence to create a currency that has integrity, and is stable.
2) Extending that digitally, should not be a hard.
3) Using energy supplies to calculate made up numbers seems like a giant waste of energy - that energy could be used to heat homes and power other things.
4) BTC is wildly unstable, since El Salvador depends on imports - and - nobody accepts BTC for payment - it's going to be a wild ride.
5) Nobody is going to be issuing debt in BTC so that part is moot.
6) BTC is inappropriate for 'unbanked' people - they're going to be the target of hackers worldwide. Sure, you could make a 'government wallet' that protects them from that ... but then why not just do regular banking.
6) For a currency ... if for some reason you can't do #1 ... the best option, by far, is to use USD. Prices in USD are stable. They're accepted globally. You don't have to issue debt in USD, but you can if you want. You can also digitally bank in USD if you want, it's not that hard.
7) If you really think that the best way to leverage volcanic heat is to mine BTC ... then fine. Do that - and exchange it for whatever currency you need.
This whole concept is fairly insane, regular people I feel are going to pay a heavy price.
Lastly - the problem is not 'finances' - it's the fools managing the country. If they acted with a modicum of responsibility, you'd be able to have all of the normal things other countries do i.e. a currency, basic banking. None of that is actually that hard.
A better solution would be to approach an established bank somewhere: US, Canada, Brazil, UK, Germany and ask them to provide online banking for your citizens, probably in USD or a mix of USD and local currency.
Do the BTC mining if you really want to, but as a secondary thing.
Final Note: this already has the stench of corruption. My bet is that the leadership already has a big stake in BTC and are 'Doing a Musk' by propping it up and they will be grafting off the top of the mining activity.
I'm afraid that if I try to retort to each point we may end up talking past each other.
But I will say this, I think that your assumption in point 1 is wrong. I think that the mismanagement of the financial system worldwide has proven that there is no country currency invulnerable to manipulation.
Jeff Booth talks about this towards the end of this interview which is great in it's entirety IMO.
There are over 150 nations, most of them tiny that have a currencies, it's not rocket science.
A nations currency will have the integrity and competency of the governing class, so El Salvador will be able to have a basic currency when they are not corrupt.
Frankly, this whole thing stinks of corruption, my bet is that the leadership are already speculating on BTC and are making big statements like Musk to drive it up, and that their fingers will be in the pot of the BTC volcanic mining.
But it may be moot: you can't force people to use BTC and businesses, esp. those that import will balk at it, and citizens likely won't adopt it.
Ask a US, Canadian, UK, Brazilian bank to provide basic financial services for citizens and they'd do it in a heartbreat.
The 'currency problem' in El Salvador is just a symptom of underlying problems.
How stable are those national currencies to inflation over time though?
Notably, the British Pound Sterling is named such because 1 British pound originally represented a pound of Sterling Silver. Today it takes over 400 British pounds to buy 1 pound of sterling silver.
Twenty US Dollars were worth 1 oz of gold until 1933. Today it is nearly 2000 USD per oz.
I challenge your statement that it is easy for a government to manage a currency over the long term. In fact it seems impossible for politicians and central bankers to resist the temptation to inflate their currencies to infinity.
Why haven’t the US, Canadian, UK or Brazilian banks provided services to the 70% of El Salvadorans today? What are were they waiting for all this time? I believe it simply wasn’t profitable enough for them.
> so El Salvador will be able to have a basic currency when they are not corrupt.
Ok, so I’m going to straight-up ask you to either retract this racist statement or justify your position with evidence.
I want to see your proof that the government of El Salvador is corrupt. This link seems to indicate the opposite [1].
To help you see the light, let me highlight the fact that El Salvador lost their own currency after a bloody 12 year long civil war that was funded by an interventionist US government that raised an army of child soldiers in the 1980s.
Per Wikipedia [2], the Carter and Reagan administrations spent $1-2 million per day in 1980 dollars to raise and train this army of child soldiers.
Tell me again why El Salvador is corrupt and that is why they lost their currency?
> The thirst for USD around the world is increasing and all the so called printing by the FED is not getting to the other countries and international companies fast enough.
This is because all the Fed does is create reserves that it uses to purchase Treasuries on the open market. But when we talk of foreigners demanding USD, what they really demand are treasuries, thus more "printing" (it is electronic, reserves are just numbers in a database) actually reduces the supply of assets that foreigners want to hold. Of course the scale is not really relevant to make a big difference in either direction.
What would increase the supply of treasuries is more debt issuance. There is an insatiable thirst to hold risk free debt in stable jurisdictions where property rights are respected. That is why the U.S. can run enormous deficits every year and the yields on those deficits are negative in real terms. None of this has anything to do with the supply of Federal reserve liabilities, which are reserves, but with the supply of Treasury liabilities, both actual liabilities and the off-balance sheet stuff like mortgages which are federally insured and thus also risk-free. We live in a world where the globalization of capital means that the moment anyone has some money to save, they want to store it on account in some US Bank or as a US corporate bond or equity, as they don't trust their own local banks and their own local corporations. Thus the U.S. is the world's bank, and that's why there is a global demand for dollar-denominated assets independent of whatever the Federal reserve does to increase or decrease the supply of reserves within the US banking system. Adjusting those reserves with open market operations does absolutely nothing to supply more dollars to anyone in El Salvador (or in Kansas).
But the problem for El Salvador is not the technology of monetary systems, it is that El Salvador has an underground economy that prevents it from collecting taxes or having a working credit system. If all your dealings are under the table, you have nothing to show a loan officer. If you don't want to store your savings in a bank but want to instantly withdraw them and store them in a foreign bank or under your mattress, then you are not going to be able to get much in bank loans in your own currency. None of that will be solved or even improved with bitcoin. Proving once again that bitcoin is a solution in search of problem, even in the arena of El Salvador's monetary woes.
> But the problem for El Salvador is not the technology of monetary systems
I do believe that the monetary system IS the problem since El Salvador is dollarized and is subject to a foreign central bank antics while having no say in the matter. Having their own would be marginally better perhaps but IMO bitcoin is a much better solution.
The only reason nations get dollarized is because they do not trust the fiat currencies issued by their own government because the government chooses to extract more from seignorage than the benefits of having the currency or the government is not otherwise trusted to not seize bank accounts. Thus they choose to opt out of their local government-run system. That is an effect rather than a cause. Once that happens, a whole host of other problems occur, from breakdown in credit systems and payment systems to underground economies and loss of tax income. Bitcoin solves none of these problems, which are the core problems. Rather, trying to use bitcoins rather than seashells, gold doubloons, or foreign dollars is just an expression of the population's lack of trust in their own government and switching from one of these alt-currencies to another doesn't help the government at all. What would help the government is enforcing rule of law, establishing trust in financial institutions, providing value for amounts taxed so that there is popular support for taxation and trust that the money is well spent, and establishing faith in the government's currency. That is what would help El Salvador, not hoping that the US government makes it easier for foreign nationals to acquire dollar denominated debt.
Not gonna argue about bitcoin's merit, but this part:
> Lets remember that the law obligates the government to instruct all citizens on the use of the technology and to provide the means if necessary. This means that the government now has to provide connectivity to all citizens and teach them.
It's like proposing to dismantle old but working streetcars, because when the only way people can get around is by cars then the government will have to build decent highways. Sure, maybe the government should, but if it couldn't until now then what makes you think it will suddenly be able to?
I can't believe people still don't see the obvious issue that PoW has no sense and it's impact gets progressively worse as the market cap of BTC increases.
The more adoption BTC will have, the more incentive will powerful entities have to take part in mining (obvious analogy: US dollar, the people who control it have the most power in the global financial system).
Also, the more valuable BTC becomes, the more new miners will join in the mining race, since the average payout per kWh spent should stay at a relatively constant % of market cap.
Both of this observations lead to the clear conclusion that energy spent on useless hash cracking will continue to increase, which is just plain stupid. Humanity cannot afford to waste energy in such an obviously non-nonsensical way; if you want to keep the crypto train going, fine, but at the very least switch to PoS.
The short summary is that the environmental effect of Bitcoin mining is very small at present (12 GW consumption out of the world's 18 TW), but probably positive, because it slightly accelerates the renewable transition. But this could change.
I read through your answers in that thread and really enjoyed them. Thank you for taking the time to do that work. Have you considered consolidating those ideas into a blog post or similar? It sounds like you have some expertise in this area or maybe just like to research. Either way, I think others would really enjoy having access to your seemingly well thought out analysis in a place that isn't the HN comment section.
Thanks! Yeah, I've been thinking about that, especially because of the profoundly unrewarding nature of that conversation. A number of my previous HN comments are in Dercuano, Derctuo, and Dernocua, though those mostly consist of things other than HN comments, and some of the HN comments they contain are pretty embarrassing.
Generally I feel like the HN comments section is pretty aggressive and conformist, and there's a lot of people trolling. The social dynamic rewards rapid reaction, trolling, and conforming to the popular opinion (and especially cheering for it and denouncing those who disagree with it), and punishes the kind of careful investigation and thoughtful conversation that I value. I think it brings out the worst in me.
Looks like El Salvador is on a mission to make itself the world's fool. crypto "currencies" have no use case except for gamblers, stop wasting everyone's time. There is literally nothing more useless that this electricity could be used for
From what I've heard about Salvador, investors who plan to mine cryptocurrencies in El Salvador should include an armed to the teeth private army in their projected expenses, or else their mining equipment would soon change owners.
It does not have 'El' in my native language, just Сальвадор. Also, if salvadorians want english speakers to call their country with 'El', they should probably start using 'THE Estados Unidos' and 'THE Gran Bretana'.
(noob here) How does this work from a key security perspective? Can one person just walk off with the country's entire wallet? Does an HSM become the thing in the vault where the gold used to be?
The El Salvador government is directing a state run energy company to provide 'cheap' (does that mean free?) energy to those mining bitcoin in El Salvador. Are these miners even locals or are they Americans?
The miners will be getting cheap energy at the expense of the local population/ country.
Maybe the miner's profits will be taxed and go back to the government for a return on investment.
The thermal energy from the volacano is being pursued not because it is more efficient, but because it is more green and more moral.
El Salvador making bitcoin legal tender, and forcing it to be accepted in payments, is the best thing to happen to bitcoin. The only way this can work is if the government buys the bitcoin from merchants and give them dollars, so the government is the buyer of last resort for your bitcoin.
No where in the world can a bitcoiner force anyone to accept bitcoin for goods/services or exchange for dollars but El Salvador.
El Salvador receives millions of dollars in aid from the US. The US tax payer is funding bitcoin mining (through energy subsidy) and funding the El Salvador government trading facility of converting bitcoin to dollars. The government bears the transactions costs/ and the volatility risk.
El Salvador shouldn't receive a cent of US aid to support this, only private contributions. If the El Salvador government has enough money for bitcoin projects, they don't need US aid for humanitarian reasons.
Bitcoiners who support this can no longer claim to be about freedom, as this is coercive, and is only possible through massive government spending to subsidize it that El Salvador is doing.
This is only a victory for the miners being subsidized, and the bitcoiners who have a buyer of last resort.
Is it really a medium of exchange if statistics show that 95% of merchants convert to dollars immediately? Is it really a victory if you have to use government force to get people to accept it?
> El Salvador receives millions of dollars in aid from the US.
This has been true for decades. Not anymore. A couple of weeks back the US gov said that it would stop all USAID funding and give it instead to ONGs in El Salvador which are basically the opposition or anti-Bukele.
I assume that there are other ways that the US gov sends "aid" but I'm sure these will also stop soon enough.
Wow this is the REAL story then. I had no idea why this move to BTC came out of nowhere and passed as law so quickly. Really scummy move from the US, using aid money to bully small countries and enforce its will. Too many strings come with US foreign “aid”, it’s more like predatory lending. I hope this works out for El Salvador.
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[ 3.2 ms ] story [ 255 ms ] thread- will those moves make the country a good location for laundering bitcoins?
- generally speaking, is there no other way of profiting from surplus electricity (which essentially, this is)?
Nah. Bitcoin is actually a lot easier to trace than paper US Dollars.
The problem comes from privacy coins like Monero, which arguably should be outlawed (if not already)
You cannot (and should not try to) outlaw maths.
But also: outlaw where? Math doesn't recognize borders; the two are like oil and water.
Are you also in favour of outlawing Tor, E2EE, HTTPS? I am always surprised that some people want privacy outlawed.
Disclaimer: Monero contributor
- of course there are other ways, but given the return on kW/h, what's the _most_ profitable?
Making hydrogen, smelting aluminium, de-salinating water. But bitcoin can be transferred over internet, so the logistics is easier.
Undoubtedly there is, e.g. steel making - with the attendant logistical challenges. But few ways to fairly directly convert electricity into money.
In terms of profiting from surplus electricity, Bitcoin (or cryptocurrency mining in general) is a great option as it's exceptionally simple to scale up and down in accordance with available cheap surplus. One major benefit that miners are taking advantage of is locating in close proximity to energy stations, reducing the inefficiency of transporting electrical energy over distance. This turns effectively "wasted" energy in to a solidly efficient energy store for infinite amount of time— for example: 1 BTC will always be equal to 1/21000000 of the total supply.
> This turns effectively "wasted" energy in to a solidly efficient energy store for infinite amount of time— for example: 1 BTC will always be equal to 1/21000000 of the total supply.
It's not an efficient energy store if you can't get the energy back, it's just energy usage. Also, yes, 1 BTC will always be the same fraction of the total supply, but the actual value of it varies.
As for the value of 1 BTC, it's value fluctuates if you operate on a base currency which is not BTC, but that is the same for any currency exchange.
(I am suggesting currency, though I also understand that BTC may not be unanimously agreed on as a currency— but in El Salvador's case it is)
Yes but also, even though 1 BTC will always be worth 1 BTC, the amount of work it buys you won't be the same, as with any currency. In theory, you can also store USD for an infinite amount of time (assuming you exchange the paper for new paper when it decays), but it, too, won't hold its value.
This is actually not true, as 1 USD does not equal a static percentage of all USD. If you look at the stock-to-flow of storing value in USD compared to Bitcoin or even Gold, it's immediately apparent that USD or central bank backed fiat currency is an exceptionally inefficient way to store value as it's being debased at alarming rates.
This is why $1000 was worth way more in 1980 than it is today.
Edit Note: I actually just re-read your comment and realised I misread. I read store value for an infinite amount of time
EDIT: corrected public key, I had written "public/private" for some reason.
This does not remove Bitcoin from the network, just because it is never spent.
> The developers/community may very well decide to change the total amount of bitcoins available in the future
Actually it's not possible. You can fork the network if you get some level of consensus from developers, miners and node runners (not to mention a community that is willing to accept their value be debased) and increase the supply, but then by definition your coin is not on the Bitcoin chain, it is on your new forked chain.
It seems you misunderstand. Illicit fiat and extortion can be used to access energy to mine Bitcoin, effectively laundering that illicit fiat.
The underlying problem actually lies in the fiat system, not the Bitcoin one.
How so?
Fiat currencies are exceptionally good instruments for exchange value for illicit purposes. Primarily this is because it is unknown what the total supply of fiat is (although there are reasonable models for estimation) and it's transactional history is impossible to define.
Both of these properties combined (although other factors undoubtably are at play) mean it's very easy for large amounts of fiat to exchange hands without any third parties knowing (i.e cash transactions).
This is the underlying issue that allows fiat currencies to be the best method for transacting for illicit purposes.
In summary, Bitcoin is bad because it allows money laundered using the existing financial system to flow into it. Forget the property, energy and hardware providers for accepting illicit funds. Bitcoin is the real problem.
By you as well!
1. Yes, they are transparent, however mixers are a thing.
2. The 2 things confounding mixers are KYC and volume. El Salvador, a country, is in a position to ignore KYC and thereby promote mixing (laundering as one of the benefits) under its jurisdiction. Now they just have to attract the volume. You could never get away with this in the US.
There's more to it than the bitcoin fundamentals. Laws do matter and they come into play by location.
This point comes back frequently, but it's actually not true.
In order to turn a profit from bitcoin, you need to offset hardware depreciation costs, and that usually means you need to mine 24/7.
Bitcoin will give that money back to the people with the way lower cost of transfers, esp through the Lightning Network that is planned to be widely used.
Elizabeth Stark boldly said 7 yrs ago and Bitcoin is like TCP and needs an http, and then built Lightning on top of Bitcoin and this is super exciting to see.
EDIT: removed “fees”, it’s just remittance based
1: https://data.worldbank.org/indicator/BX.TRF.PWKR.DT.GD.ZS?lo... 2: https://www.imf.org/external/pubs/ft/bop/2005/05-09.pdf
Good things happen when people have more money in their pockets - people save more, invest more, build more.
Check you financia privilege before making comments like that
https://remittanceprices.worldbank.org/en/corridor/United-St...
MoneyGram is free if you do it to a bank account. https://imgur.com/a/6B5G2ax
Perhaps the President should focus on that?
If his actual goal was to improve people's lives, perhaps...
I would argue that the population who can now operate and opt-out of a USD system where their money is being debased by 20%+ in the last year by a foreign government will be quite a bit better off.
You know Bitcoin has taken a 40% tumble in the last month, right?
The US created 20% of all the dollars that have ever been created, ever– last year. This is infinitely more harmful than a reduction in price compared to another currency.
Additionally ill ignore your point completely and only address Z now.
That's a big if. Bitcoin transfer fees might be cheaper, but you need to add the cost of converting dollars to bitcoin, plus the volatility of the coin, plus any fees from intermediaries and Lightning nodes.
> Good things happen when people have more money in their pockets
High amount of remittances are not a cause, but a symptom of underlying problems. Would you be as cavalier about the effects of this on ES economy if it was, say, Western Union saying they'd reduce 10% their transfer fees?
It's always the same thing with Bitcoin, apparently it's such a great technology that it can change anything despite the fact that the only "new" thing it can do is to be decentralized. Somehow the argument always ends up being that decreased transfer fees will revolutionize everything (despite the fact that transfer fees might not be lower, and that we've had continuously decreasing transfer fees for years and yet that didn't seem to bring any revolution).
Seems like a no-brainer win though? Even if it doesn’t revolutionize the country
So many conversations with Bitcoin advocates involve them putting ridiculous statements into the mouths of others.
No one said that or anything like it.
Of smaller ones, SCRT which is a whole privacy-focused smartchain would be my other pick.
El Salvador already uses the US Dollar as its official currency. A migrant worker in the USA is going to face a lot more fees, scams, and difficulty to buy and send BTC than just wiring the same currency he earns to to a relative who can then spend in the same currency.
This Bitcoin thing is a marketing ploy from the corrupt Salvadoran president, and an attempt to get a few crypto whales to move to the country and cash out, and buy real estate.
That couldn’t be more wrong.
Look into The Lightning Network
US-protected elections in 3...2...
In no scenario does "they" refer to El Salvador's poor population, especially not the indigenous peoples. The money will go to the colonizing foreign investors and circulate in things like CDOs. A few crumbs that fall off the table will go to improving the lives of the upper end of El Salvador's people, and incidentally some crumbs of the crumbs might fall down to the rest of the population. Trickle down, eh?
There’s some other points to be argued such as people now are holding an asset that is volatile but deflationary in nature by default and they have the option to convert and hold a currency which will lose value over time (USD). I’m not saying “bitcoin is going to save them” but its at least a novel approach that i think is worth exploring for countries in this position.
Consider how much brain power and resources have been spent on quant finance and crypto now in the past 20 years.
Imagine if all those resources had been spent on something more productive.
"100% clean, 100% renewable, 0 emissions energy from our volcano" . So when a volcano is depleted you plant another one ?
You can say the same thing about the sun and solar
Volcanos are only emissions.
I would like a one-way ticket to Mars, please.
- ES makes BTC fiat
- ES taps volcanoes to mine BTC
What next?
- ES uses natural wormholes to plot the future timeline and win Earth?
"What about you guys floating $1 billion in “Volcano Bonds” (backed by future #BTC mining output) for El Salvador to pay off the IMF loan - so they can tell the IMF to beat it."
https://twitter.com/maxkeiser/status/1403023717429559299
Not to mention the effect that trying to sell $1B-worth of Bitcoin could have on the market (even just a portion, Bitcoin is accepted nowhere for so they'd need real currency).
Did I miss a memo?
Or is this a sort of Freduian slip wherein you said 'fiat' when you meant to say 'official'?
It seems to me that we've been conditioned to conflate the two.
> a command or act of will that creates something without or as if without further effort
A fiat currency is one whose supply can be inflated by a command or act of will. The supply of Bitcoin cannot be inflated in this manner, so it's not a fiat currency. As properties, official and fiat are orthogonal. A currency can be one, or both, or neither.
0: https://www.merriam-webster.com/dictionary/fiat
[0] https://www.investopedia.com/terms/f/fiatmoney.asp#:~:text=F....
> not backed by a physical commodity
Aren't these two ways of stating the same monetary property? The reason that fiat currencies can be created by fiat is they aren't backed by anything.
> Commodity-representative/redeemable currencies cam be created at will
No they certainly can not. Not without an actual supply of the commodity. At least not in the case of redeemables. Obviously some 'representative' currencies, like those that Zimbabwe has tried, have ended up turning into fiat.
> No they certainly can not. Not without an actual supply of the commodity.
Yes they can. (And there is plenty of historical example of that happening.) Heck, pre-state-monopoly banknotes were essentially a redeemable virtual currency over the currency in which they were denominated which often relied very heavily on this trait.
There is a risk associated with doing so, but that's also true of fiat currency, though the exact failure mode is different.
The alternatives would be that it is commodity money (which is not the case because you can't use a Bitcoin other than exchange it for something else) or representative money (which is not the case because Bitcoin isn't backed by anything else for which it can exchanged).
Up to this point, it's been a rather degenerate case of fiat money because the agreement that it has value has not been governmentally backed.
But now that's no longer the case. Congrats, Bitcoin, you now absolutely meet all the requirements of fiat money!
And are precious metals fiat by the standard you've laid out? Or are they commodities strictly on thin premise that you can use silver as a disinfectant, etc?
That's not what "fiat" means in this context. Fiat money is simply money that is asserted to be valuable. Control over issuance of money by those who assert the value of money is not an essential element of fiat money.
For example, the US dollar is adopted as the currency of the Republic of Palau, and yet the Republic of Palau has no control over the US dollar. Does that suggest to you that, in Palau, the US dollar is not the fiat currency?
>And are precious metals fiat by the standard you've laid out? Or are they commodities strictly on thin premise that you can use silver as a disinfectant, etc?
Precious metals are not money; they're commodities. No-one thinks they're money. The question "are precious metals fiat?" is meaningless.
No. This is absolutely not the historical or academic definition of this term.
From investopedia:
> Fiat money gives central banks greater control over the economy because they can control how much money is printed. [0]
To (in the passive voice, no less) that any money which "is asserted to be valuable" is fiat money makes every object ever valued by any human into fiat money.
Moreover, it manufactures consent because it takes away the crucial ability to talk about money which can be capriciously inflated vs. money which cannot. And being in the latter category is, according to Bitcoin proponents (heck, according to me), among Bitcoin's strengths.
0: https://www.investopedia.com/terms/f/fiatmoney.asp
As for "tapping volcanoes" it's a PR exercise - El Salvador is one of the countries in the world with largest geothermal generation capacity.
"Tapping volcanoes" here in effect simply means mining bitcoin with part of their geothermal generating capacity. But "tapping volcanoes" got this a whole lot more attention than it otherwise would.
> BTC lmao XDDD
This world is sick
Option A: invest in that volcano and reduce greenhouse gas emissions.
Option B: invest in that volcano and mine bitcoin.
B makes them richer so long as other people keep expecting Bitcoin prices to rise (increasing demand), so I can see why they do this, but I'm not sure I like it. Even if the equipment, installation, and operation are all compensated for, it's wasting renewable energy on making heat and some money by gambling on future demand of a PoW-based system. But for a poor country, making money to get up to rich country living standards makes sense so... I can't even fault them.
They can subsidize the startup costs for harvesting geothermal energy from Bitcoin mining and then use the geothermal infrastructure to produce electricity for the country.
https://en.wikipedia.org/wiki/False_dilemma
But the potential geothermal output for El Salvador is huge.
This idea was presented to President Bukele during a Twitter Spaces[1] session where he discussed the bill with the Bitcoin community whilst it was going through voting. Mining Bitcoin was not something he has previously considered and openly ideated on the call with the community. It seems like a fully proposed plan for how Bitcoin mining will play a part in the country's overall energy policy has likely not yet been fully formed.
[1]: https://www.youtube.com/watch?v=IRnygiyuG0k&t=4s
I've looked at income statements of a bunch of public companies that mine Bitcoin, and one of the most striking things is how much of the cost is actually depreciation of hardware. Granted, part of this is that they are running the hardware to its limits, but another aspect is that new improved mining hardware comes out frequently and pushes the old hardware over the profitability edge.
Basically, I'm skeptical that anyone can mine Bitcoin profitably without running the hardware 24/7. Other coins that use commodity hardware, maybe.
May well be that it won't change the cost structure enough - I treat this as the president deciding an announcement like this, which amounts to little more than "I've asked them to look into it", as a way to get some publicity. It could very well end up being silently put aside if the costs don't stack up.
El Salvador is the largest producer of geothermal energy in Central America.
https://en.wikipedia.org/wiki/Electricity_sector_in_El_Salva...
And of course: why not do both, and more?
Edit: lots of downvotes, but at least a higher quality comment is on top now.
I'm not a fan of crypto or bitcoin, but if it funds their roll out of geothermal power, then that seems like a net-positive.
We'd all love if they did that instead of what was announced, but that's not the announcement.
Presumably because they have limited capital and can't solve all problems at once?
B makes the colonizing foreign investors richer. It won't do shit for the poor country.
1) owns a profitable state company
2) that does not require the cooperation of the population in order to be profitable
...the result is a dictatorship.
https://www.youtube.com/watch?v=rStL7niR7gs
There are obviously also counter-examples, but a currently-democratic country finding a new way to make money from natural resources, I wouldn't expect we have a large enough sample size to really say anything about that with certainty.
Edit: The Norway thing being (for those interested):
> [The oil fund] was established in 1990 to invest the surplus revenues of the Norwegian petroleum sector. It has over US$1.3 trillion in assets, including 1.4% of global stocks and shares, making it the world’s largest sovereign wealth fund. In May 2021, it was worth about $248,000 per Norwegian citizen.
https://en.wikipedia.org/wiki/Government_Pension_Fund_of_Nor...
In contrast, El Salvador right now is still fighting barbarism and anarchy.
Option B does not as the mining is always running and near the source.
The long-term effect of Bitcoin mining will probably be to subsidize the creation of reliable constant-output power sources like geothermal and nuclear, with some of that capacity being used for consumer/industrial usage during peak hours.
There has literally never been a more direct reward for efficient energy production.
And there is nothing stopping us from extracting gold using electricity. It's in basically all soil and sea water. Sure there are some required materials, but I'd water a guess that those materials are no harder to obtain than GPUs.
The only thing that stops this reckless mining are the forces of the market, and the same is true with crypto. Crypto miners tend to be extremely frugal, and I doubt any are any who are doing unprofitable mining in expectation of crypto going up.
Now from a crypto maximalist perspective, which I don't necessarily hold, isn't the cost of the electricity worth having a decentralized currency which enables all sort of different markets?
Crypto is always held up as wasteful in terms of energy, but I'd be curious to see the energy cost in comparison to current payment processing systems.
Can’t quite find a one for one measurement for Bitcoin, but due note this is the energy needs of all of Visa’s operations and they process in excess 100 billion transactions a year and Bitcoin (in 2020) averaged around 300,000 transactions a day[1].
If interested there is this[2] digiconomist article with more numbers (no clue as to the veracity of them).
[0]: https://usa.visa.com/dam/VCOM/download/corporate-responsibil.... [1]: https://www.blockchain.com/charts/n-transactions [2]: https://digiconomist.net/bitcoin-energy-consumption/
300k per day is around 100 million transactions per year, three orders of magnitude less than Visa.
BTC uses 110 terawatt hours per year right now[0], which is 396,000,000 gigajoules, a three order of magnitude difference in the other direction. Assuming everything scales nicely, if Bitcoin were the size of visa it would use ~6 orders of magnitude more energy.
OK, so that is way worse than I thought. I'm still not sold on the idea that it's a bad thing, but it's nice to put numbers to the situation.
[0] https://www.google.com/amp/s/hbr.org/amp/2021/05/how-much-en...
Money doesn't directly convert into food. Someone still has to consume the energy to actually make things. By using energy to mine bitcoin to buy food, one is potentially doubling energy consumed.
Crypto mining will allow places with cheap power sources to build up energy production. Once that's established it's easier to build up infrastructure for things like data centers.
Everybody would benefit from power being built in remote places, but nobody wants to be the one to pay to build it there. I'm not seeing why crypto mining is any different though; it's a for-profit endeavor like anything else.
In other consensus systems like PoS, whoever has the most capital controls pretty much everything and has 0 incentive to sell what they get since they aren't really spending any energy for their cryptographic signature.
It literally says "rich gets richer" in the protocol which is fundamentally broken in my humble opinion.
And my reward is linear with how much I stake or put down, whereas with economies of scale in mining the reward is more like quadratic. Seems to me that with PoS the rich get richer linearly, with PoW the rich get richer ~quadratically.
If I spend 0.01% of what the Chinese miners spend on my mining setup, I’m not getting 0.01% of the rewards.
So whatever Bitcoin reward you get barely covers your running cost + small profit margin. Imagine like you're running from a monster, you can't stop or you'll become irrelevant.
Whereas with ETH, I can buy 100M$ worth of it, I'll get say 5% back which means I'm making 5M$ every year, thing is I don't have any pressure to sell it whereas the poorer stakers will have to sell to cover their cost of living or other reasons, so over time the % of my stake in eth grows. Things get even worse when you include custodians into the mix, exchanges will have much larger wallets and get much larger rewards which they may not share with the actual holders or keep a small % for themselves.
PoW on the other hand will lead to consolidation around inexpensive energy: volcanoes in El Salvador, hydro in some northern countries, solar somewhere else, etc. However, those places will have some abstract voting power in the Bitcoin world, but exchanges, people, node operators, and businesses also have abstract voting power to balance against the cheap energy locations.
I should mention that the upside of all of this is that we can now choose the option to have accessible digital banking around the world, and people who print money will have less of an impact on world affairs.
However, PoS has an important role as the layer for specific applications and markets, since it acts more like central banking with the tradeoffs of such.
B) ensuring that third parties like banks are unable to steal my funds. Through fees, charges, unauthorized transfers or just plain theft…
C) portability of funds around the globe, independent of foreign or domestic currency. Ever tried to wire funds globally on a weekend? Trade?
You are still looking at bitcoin like it’s a dollar bill. It’s not — it’s digital gold with more computational security than any system ever built by humanity.
B: This is probably the strongest argument for Bitcoin and the original vision.
C: Sending BTC is immediate but since you can’t really use BTC to buy much (yet) you still need to sell and wait for funds to clear, which takes about as long as just wiring money.
A deflationary currency doesn’t mean no one will ever spend or invest. It simply means that there is less forced incentive to spend and consume in order to avoid inflation.
Inflationary currencies are like a tilted playing field, they artificially force savers to spend or invest in risky assets while skewing economic metrics to make the economy look better than it is.
While the gold standard was not deflationary, the relatively fixed supply resulted in strong stable economic growth until countries in Europe began secretly debasing their currencies in the run up to WWI.
Inflating fiat currencies gave the European countries the power to perpetuate the first endless war - I strongly believe if they had been forced to tax their citizens to pay for WWI instead of stealing the wealth of the people by inflation, the World wars would not have been so severe and so prolonged.
So why do governments prefer slight inflation? A slight amount of inflation first allows governments to print a bit more money than they're collecting, which allows them to spend a bit more. Comparatively, in a deflationary world, they would need to collect more taxes than they spend, which would be tough both politically and tough for balanced budgets, since government spending is useful.
Deflation would mean that you basically get a net worth bump just from holding on to cash. You would have a real, tangible benefit of not spending money but rather keeping it in a bank account. Money in a bank account does not contribute to productivity. Money spent, or invested in companies doing productive work, is preferable. To counter inflation you at the very least need to invest in something like a CD, which the bank can then use to loan out mortgages and the like, keeping the money flowing.
Avalanche already provides a compelling and less wasteful alternative, and it might not even be the last word.
This idea that Bitcoin got it all just right has become a quasi-religious belief, fueled by the motivated reasoning of monetary interest and ideological fantasy.
There's nothing "hard" about money that requires a nation's worth of energy simply to continue to exist.
Proof of stake isn't fundamentally flawed, and proof of work isn't perfect. They both have many variations, and there's certainly many more to explore yet.
The only free lunch I see people pining for is the idea that they can squat on a wasteful, moribund asset, expecting it to be worth much more in the future.
I could assert that I need a Maserati and no other vehicle will fit my requirements, and it would be pretty easy for others to counter that either my supposed need is really a want, or the requirements are arbitrary and unnecessary.
Likewise I think your needs regarding crypto are more of a want. What would be the consequence if you didn't get that? Would you die? Would your quality of life significantly decrease? How did you live most of your life already without Bitcoin?
This has been invented. If it didn’t exist now for some reason, it would significantly decrease quality of life — I would be powerless to watch my saving erode into nothing. I would be powerless when the state decided it wanted to adjust interest rates to be negative (again, attacking saving). I would be powerless when any state decided that another state should be disconnected from the legacy financial networks. I would be powerless when they payment card networks started enforcing morality de jour. It would be like being arrested - some liberty taken from the individual and make them beholden to the state.
They call it being “orange pilled”. Once you get it, there is no other option to avoid growing poor slowly.
So holding stock in companies that, I don't know, actually produce something isn't an alternative? That just doesn't pass the sniff test.
The valuation of companies should reflect production, however any sensible extrapolations of thus in recent times are no different than speculation in cryptocurrencies. It’s all perception. That’s all money is — a shared delusion that something stores value.
https://www.vice.com/en/article/pkby7z/a-fossil-fuel-power-p...
Claims like “Bitcoin uses more electricity than <some poor country that doesn’t use much electricity>.” are totally irrelevant. Good. I want humanity to climb the Kardashev scale. If we have an invention that can help fund the creation of billions of watts of efficient energy capacity then that’s great!
Is there any source for this, the first part, that it is currently powered overwhelmingly by green energy? Anything I can find suggests otherwise. And the part of the claim that Bitcoin will use a greater share of green energy in the future is not very meaningful if you expect that is also true of every other industry.
https://theconversation.com/bitcoin-isnt-getting-greener-fou...
https://www.infokreek.com/green-bitcoin-the-impact-and-impor...
https://medium.com/crypto-lucid/enough-with-bitcoins-greenwa...
https://www.motherjones.com/environment/2021/05/bitcoin-mini...
It's wild that it took the bitcoin subsidy less than 2 decades to become far too high proportional to it's externalities.
Imagine if there were a cryptocurrency based on proof-of-driving-things-between-cities with a mining reward, and Los Angeles invested in it. There would be an incredible incentive for expanding LA's highway infrastructure, and you'd expect LA to get a lot more highways, to but there would be no positive impact on actual commuters trying to use those highways to get around greater LA, and quite possibly a negative impact, because the more direct incentive is to use whatever highways are there - building more highways is an indirect incentive.
How is this different from any other consumer of electricity? Every consumer wants to buy the cheapest electricity, and every producer wants to produce the most of it per energy input.
I'm also not claiming that it's bad for energy to be produced and consumed. It's not! It's just irrelevant if you're looking to consume electricity, and someone else is producing and immediately consuming it. And it's bad for you as a consumer if production goes up and consumption goes up by even more.
I have no idea what your point is about the Sun.
In mining, revenue = efficiency * potential energy * BTC per unit produced energy
In selling energy, revenue = efficiency * potential energy * USD per unit produced energy
I don’t see the difference, other than the fact the former just adds to the pool of required energy (it’s strictly additive to the energy produced by the second)
With crypto the only really question is how will the price of the currency affect the break even point for hardware cost (assuming all mined tokens are sold immediately).
Yeah, too bad this happens not long after we discovered that energy production creates massive issues with regards to our future on this planet.
Not having to pay for the inefficiency in producing the energy you actually needs seems to be... more direct?
The idea that bitcoin incentivizing efficient power generation because it consumes all that power somehow being a justification for bitcoin is entirely bananas.
I think it's unknowable right now where we will land, and as an optimist I choose to believe we will end up on the right side of the trade off, based on the apparent efficiency of market forces.
This has Easter Island written all over it.
'Hey, let's use all our resources to build Giant Heads! The person with the most heads gets to be the King!'.
If they can really get their population using tools that would make it easier for the government to collect taxes, make it easier for tourists to visit and spend money, etc then the mining rewards are only one small part of their plan.
Of course none of this really needs to happen with crypto, they certainly could solve these problems in other ways, but I can't really blame them for trying this out.
The advantage of bitcoin is that once you mine the coins, it is a lot harder for someone to come and take them from you, whether that someone is a rebel group or a corrupt government official or just a local crime syndicate. Moreover you are not dependent on available network backbones or any of the other required infrastructure that a data center depends upon.
Nevermind that banks in smaller countries can be a huge source of thief.
[a] https://www.youtube.com/watch?v=VO15qTiUhLI
I believe that what the president, Nayib Bukele, and his team have done is monumental. The reason is that I also believe that the financial system crashed back in 2008 and has been kept alive by central banks worldwide. Last summer we saw how Lebanon banks reneged to pay back their customers their holdings in USD. This seems to be increasing. The thirst for USD around the world is increasing and all the so called printing by the FED is not getting to the other countries and international companies fast enough. El Salvador is in a though position since it does not control its main currency. The other one, the Colón, while still legal tender is for all practical purposes unusable. It would take too long to grow the economy enough for it to be valued appropriately against the USD. Mandating BTC as legal tender is an awesome move. To me the most important benefit is that the 70% of the population which was excluded from banking and relegated to use physical currency will now be included. If the economy is an engine and money is the oil, El Salvador, which had only some drops of oil, will now get a complete oil change with synthetic on top of that. Lets remember that the law obligates the government to instruct all citizens on the use of the technology and to provide the means if necessary. This means that the government now has to provide connectivity to all citizens and teach them. Nayib has shown that he’s up to the task. For example, El Salvador is providing every child in the public school system with a laptop and free internet connectivity.
So I think this is beyond if BTC goes up to 200k. It doesn’t matter. If it goes back to 10k is OK too. What matters is that every citizen will now be included as equal in this new financial system.
You are 100% incorrect. Bitcoin is wildly deflationary. Therefore it does not encourage an economy to function, it encourages people to hold onto it with white knuckles. It's not oil for the economy, it's sand.
> This means that the government now has to provide connectivity to all citizens and teach them.
And when they don't provide connectivity and teach citizens?
In my opinion, that's the biggest lie that people have been made to believe to justify constant stealing of their purchasing power over time.
People will always spend money for things they need, they will also spend money for things they want, our current system is forcing them to spend it for the sake of spending it causing unnecessary over-consumerism.
It doesn't matter how much Bitcoin price will appreciate in 5 years. If I need to eat, I'll have to spend today, if I want to buy a house, I'll have to spend too. Instead, I will think twice on upgrading to the shiny new iPhone every year, maybe doing it once every 2-3 years, which is a good thing.
In this world where the currency doesn't depreciate like ~95% over a 100 year period, only investments which make sense will get money thrown at them.
If the P/E is high, it mostly has to do with what i mentioned and your are late to the "party".
But high p/e stocks != Fiat money as the op mentioned.
BTC isn't good for any of that.
USD is good for 1 and 2.
The gov. can move to re-establish it's currency and have 3 as well.
That it's used widely and fungible is what gives it value.
If your own currency is destroyed, you use the one that has the most integrity that's relative to your country. For most nations the default would be USD. For Vietnam probably RMB. For Belarus either Euro or Rouble.
Then you develop integrity in governance and switch to a national currency.
A nations currency is actually a vert good measure of the competence and integrity of the leadership class.
How Inflation Is Stealing Your Wealth | Jeff Booth | Pomp Podcast #572 https://www.youtube.com/watch?v=RuCqFjU9Wi4
It's very simple. 100 euros in your hand right now is worth more than a possible/probable 100 euros in your hand next week. And Jeff Booth is arguing that we are trapped in a mental prison because we agree with this obvious fact.
A) time value of money
B) inflationary aspects of fiat currency vs hard currency
I mean, it's literally the #1 meme for cryptocurrency.
Life is short, you enjoy/spend what you have while you're here.
Inversely, with BTC, you would want to spend as little as humanly possible. Make whatever philosophical arguments you want: this is not adding oil to the engine. This is adding sand.
Sign me up. Hyper-consumerism has laid waste to our planet, commoditized every human interaction, and polluted our minds with its drivel.
Behold Denmark and its glorious decision to punish its citizenry for saving any amount of money at all. Hope you weren't thinking of saving your pennies for a ticket out of the renter's racket, Denmark would prefer you stuff it in stocks and pay them their cut.
It's time we seized control of the engine and refashioned it into a tool that serves our welfare.
If you don't want to consume, then you can just...not consume.
Why buy bitcoin in order to not sell it, ever?
If no one would spend money, the related countries would go bust within a year.
Sure. It's like the successful ipo's. While 1% succeeds and people want to have a startup, everyone forgets that 99% fails.
I earned the 2nd biggest amount of people i know personally and i can't buy a fancy car with it. On Reddit, you can see all people come together on a population of 10 billion, lol.
People that were interviewed for Bitcoin gains in the newspaper in 2020 had 20% of my gains in 2017. And it went life changing money either.
Seeing it on Reddit mostly means that you have found your "community".
[1] https://www.amazon.com/Their-Money-Oxford-India-Paperbacks/d...
It's called a 'deflationary trap' and everything falls apart.
Nations need a stable currency to function, BTC is untenable.
There's not much to debate here because it simply won't work, it's Banana Republic kind of stuff. They'll never switch over to BTC as a nation it's pragmatically impossible.
If they had the ability to effectively switch over to BTC, then they'd have the ability to responsibly issue and manage a currency.
The US gold standard collapsed. That's a fact of history.
The worrying aspect is that the one thing that people want more than anything is to be the most rich and relevant person in a given area, hence the inflationary system to avoid people hoarding in order to reach this goal of theirs.
If you transition to an deflationary system and people fall in love with it....well there is a whole lot of room to go on the downside.
First people start giving up vacations, then dinners, then cars, that Netflix subscription, then the smartphone purchase, then the app purchase.. all in the name of hoarding.
Pretty soon the entire economy becomes a giant game of mental posturing to see who can go the distance without spending.
Paradoxically in this scenario the most rational thing to do is to spend like there is no tomorrow because society would be headed into chaos, so when the fecal matter hits the fan , at least you'll have good memories
In a sound currency world, interest rates are set by the relative availability of funds for investment - that is, they are counter-cyclically market-determined: if there is little investment, rates will be low, if the economy is booming, rates will naturally rise.
Secondly, the rate of deflation is determined by the rate of increase in the economy: if the economy is shrinking over time, there is no deflationary incentive to hold - so here again the currency is counter-cyclical, discouraging rapid growth while allowing for measured growth.
Is that sand? Or sanity?
It would be like saying 'we're going to fix the amount of roads we have' and 'people will be forced to use the roads more sensibly!'.
The only reason for 'fixing' currency would be to prevent bad actors from running the printing press. Now - this is actually a very real problem historically - however, it's a pretty crude solution.
The smart thing to do is manage your currency smartly - literally like everything else in civilization.
You need good Public Health Policy, you need good Monetary Policy.
Good monetary policy may be practicable by angels or saints, but not by men, who stand at the gates of unimaginable wealth that emanates from the printing press. Literal trillions of dollars - who can even conceive of that value, let alone decline the exercise thereof? Better to take it out of our hands.
If there was no elasticity in the monetary supply, then in both 2009 and 2021 the entire US economy would have collapsed probably taking down the world with in 2008, and most nations would have been wiped out in 2021 as well.
Also, most major currencies are managed well enough.
If you don't like your local fiat units, then don't hold on to them. Exchange them for anything else you value more and use local currency on as that - currency. Currency was never meant to be a long term store of value.
That a widely, blindly believed economist mantra without much basis.
People now don't want to spend money even at the time when interest rates are near negative.
The few countries still with relatively high rates, and credible economy are the ones which register growth.
But, I predict that the practicals are not going to be good. Bitcoin transaction fees are high. If anything, this is a gift to large criminal organizations with a large footprint in the country which will be far more able to make use of their BTC. The law enforcement arm of this will not be ready or able to deal with it.
There is a role for cryptocurrency in helping the underserved gain access to banking. This plan does not sound like the right one to me.
With the rapid increase of the Money Supply of the USD, this is no different than any other Asset, especially Buyback driven stocks(where the supply diminishes over time!). To store value you also need to hold onto them with white knuckles. It also does not encourage an economy to function, hence why our GDP growth has slowed to a halt.
Using a stablecoin on a proof of stake blockchain with high transaction rates would make a lot of sense.
But that wouldn't help the officials who pushed this get rich from their stash of bitcoin...
But yeah, if you sell this to me as a test of lightning at scale, then I'm definitely more interested in it, while still thinking a super volatile asset is a bad currency.
The volatility will come down as the market caps get larger, but it'll never go away (I mean even fiat currencies and gold's price fluctuate on a daily basis).
The energy usage (not waste if you consider it to be a useful thing) will only go up as the price goes up, but it'll use increasingly renewable % and stranded energy and even bankroll new renewable power plants that wouldn't have been profitable to start.
1: https://www.forbes.com/sites/tatianakoffman/2020/07/14/this-...
So, not the same kinds of returns and drawdowns as BTC/USD, but enough to make one's eyes water and stomach churn. Forex has always had a reputation for volatility.
I think when Bitcoin approaches Gold's price, you can expect similar volatility because by then large institutions/countries would be holding it.
Also on a long term basis, it appreciates an average of ~300% year over year which is much better than the dollar which is depreciating on purpose.
Gold isn't used directly because it's not convenient, are you gonna transport a heavy metal that you can't divide into small portions to pay for stuff? No! Lightning network wallets makes even tiny payments of couple satoshis very easy/instant/almost free.
1. Pay huge fees to take your money off the blockchain.
2. Whiz it around a new, totally independent, centralized network where you need an always-on connection to anyone you're paying or receiving from and need to trust any intermediaries you're using, with brand new fees for every transaction and even at rest (so you can pay a "watchtower" to help make sure you don't get cheated).
3. Pay more huge fees to put your money back on the blockchain when you're done.
4. Wonder how you got yourself into a situation where you have all the disadvantages of Visa and Bitcoin, with none of the advantages of either.
We already have existing coins, like Nano, that can handle transactions instantly, for zero fees, and with nearly no energy use, on the main chain.
Security and trust are a lot more important for currency, nano doesn't have that. It has easily been spammed [1]. It barely has a market cap of ~1B$ and has never recovered to it's 2017 prices, so it's not even remotely close to being an ideal candidate for a country's currency.
1: https://www.coindesk.com/nanos-network-flooded-spam-nodes-ou...
Ya know what doesn't have security and trust? Putting your entire country on two custodial wallets and having all your citizen's wealth in the hands of two foreign companies (channel factoried or no). No one in El Salvador actually owns any Bitcoin. It baffles me how anyone could get on board with the original ideals of BTC, then defend what's happening now.
The price didn't move much after the announcement. The whole point is to attract those who have already gotten rich from their stash of bitcoin to come to the country.
That could have been done with just like a public bank instead of bitcoin though.
It's a wildly irresponsible financial move.
1) It only takes a bare minimum of competence to create a currency that has integrity, and is stable.
2) Extending that digitally, should not be a hard.
3) Using energy supplies to calculate made up numbers seems like a giant waste of energy - that energy could be used to heat homes and power other things.
4) BTC is wildly unstable, since El Salvador depends on imports - and - nobody accepts BTC for payment - it's going to be a wild ride.
5) Nobody is going to be issuing debt in BTC so that part is moot.
6) BTC is inappropriate for 'unbanked' people - they're going to be the target of hackers worldwide. Sure, you could make a 'government wallet' that protects them from that ... but then why not just do regular banking.
6) For a currency ... if for some reason you can't do #1 ... the best option, by far, is to use USD. Prices in USD are stable. They're accepted globally. You don't have to issue debt in USD, but you can if you want. You can also digitally bank in USD if you want, it's not that hard.
7) If you really think that the best way to leverage volcanic heat is to mine BTC ... then fine. Do that - and exchange it for whatever currency you need.
This whole concept is fairly insane, regular people I feel are going to pay a heavy price.
Lastly - the problem is not 'finances' - it's the fools managing the country. If they acted with a modicum of responsibility, you'd be able to have all of the normal things other countries do i.e. a currency, basic banking. None of that is actually that hard.
A better solution would be to approach an established bank somewhere: US, Canada, Brazil, UK, Germany and ask them to provide online banking for your citizens, probably in USD or a mix of USD and local currency.
Do the BTC mining if you really want to, but as a secondary thing.
Final Note: this already has the stench of corruption. My bet is that the leadership already has a big stake in BTC and are 'Doing a Musk' by propping it up and they will be grafting off the top of the mining activity.
But I will say this, I think that your assumption in point 1 is wrong. I think that the mismanagement of the financial system worldwide has proven that there is no country currency invulnerable to manipulation.
Jeff Booth talks about this towards the end of this interview which is great in it's entirety IMO.
How Inflation Is Stealing Your Wealth | Jeff Booth | Pomp Podcast #572 https://www.youtube.com/watch?v=RuCqFjU9Wi4
A nations currency will have the integrity and competency of the governing class, so El Salvador will be able to have a basic currency when they are not corrupt.
Frankly, this whole thing stinks of corruption, my bet is that the leadership are already speculating on BTC and are making big statements like Musk to drive it up, and that their fingers will be in the pot of the BTC volcanic mining.
But it may be moot: you can't force people to use BTC and businesses, esp. those that import will balk at it, and citizens likely won't adopt it.
Ask a US, Canadian, UK, Brazilian bank to provide basic financial services for citizens and they'd do it in a heartbreat.
The 'currency problem' in El Salvador is just a symptom of underlying problems.
Notably, the British Pound Sterling is named such because 1 British pound originally represented a pound of Sterling Silver. Today it takes over 400 British pounds to buy 1 pound of sterling silver.
Twenty US Dollars were worth 1 oz of gold until 1933. Today it is nearly 2000 USD per oz.
I challenge your statement that it is easy for a government to manage a currency over the long term. In fact it seems impossible for politicians and central bankers to resist the temptation to inflate their currencies to infinity.
Why haven’t the US, Canadian, UK or Brazilian banks provided services to the 70% of El Salvadorans today? What are were they waiting for all this time? I believe it simply wasn’t profitable enough for them.
Ok, so I’m going to straight-up ask you to either retract this racist statement or justify your position with evidence.
I want to see your proof that the government of El Salvador is corrupt. This link seems to indicate the opposite [1].
To help you see the light, let me highlight the fact that El Salvador lost their own currency after a bloody 12 year long civil war that was funded by an interventionist US government that raised an army of child soldiers in the 1980s.
Per Wikipedia [2], the Carter and Reagan administrations spent $1-2 million per day in 1980 dollars to raise and train this army of child soldiers.
Tell me again why El Salvador is corrupt and that is why they lost their currency?
[1] https://www.transparency.org/en/cpi/2020/index/slv
[2] https://en.m.wikipedia.org/wiki/Salvadoran_Civil_War
This is because all the Fed does is create reserves that it uses to purchase Treasuries on the open market. But when we talk of foreigners demanding USD, what they really demand are treasuries, thus more "printing" (it is electronic, reserves are just numbers in a database) actually reduces the supply of assets that foreigners want to hold. Of course the scale is not really relevant to make a big difference in either direction.
What would increase the supply of treasuries is more debt issuance. There is an insatiable thirst to hold risk free debt in stable jurisdictions where property rights are respected. That is why the U.S. can run enormous deficits every year and the yields on those deficits are negative in real terms. None of this has anything to do with the supply of Federal reserve liabilities, which are reserves, but with the supply of Treasury liabilities, both actual liabilities and the off-balance sheet stuff like mortgages which are federally insured and thus also risk-free. We live in a world where the globalization of capital means that the moment anyone has some money to save, they want to store it on account in some US Bank or as a US corporate bond or equity, as they don't trust their own local banks and their own local corporations. Thus the U.S. is the world's bank, and that's why there is a global demand for dollar-denominated assets independent of whatever the Federal reserve does to increase or decrease the supply of reserves within the US banking system. Adjusting those reserves with open market operations does absolutely nothing to supply more dollars to anyone in El Salvador (or in Kansas).
But the problem for El Salvador is not the technology of monetary systems, it is that El Salvador has an underground economy that prevents it from collecting taxes or having a working credit system. If all your dealings are under the table, you have nothing to show a loan officer. If you don't want to store your savings in a bank but want to instantly withdraw them and store them in a foreign bank or under your mattress, then you are not going to be able to get much in bank loans in your own currency. None of that will be solved or even improved with bitcoin. Proving once again that bitcoin is a solution in search of problem, even in the arena of El Salvador's monetary woes.
I do believe that the monetary system IS the problem since El Salvador is dollarized and is subject to a foreign central bank antics while having no say in the matter. Having their own would be marginally better perhaps but IMO bitcoin is a much better solution.
> Lets remember that the law obligates the government to instruct all citizens on the use of the technology and to provide the means if necessary. This means that the government now has to provide connectivity to all citizens and teach them.
It's like proposing to dismantle old but working streetcars, because when the only way people can get around is by cars then the government will have to build decent highways. Sure, maybe the government should, but if it couldn't until now then what makes you think it will suddenly be able to?
There's an exponential decay of rewards of mining BTC (50% every 4 years).
Do you think the price of BTC will increase exponentially, faster than the decay over the long term? I don't think so.
This implies that the energy consumption of bitcoin mining will eventually decay exponentially too.
The short summary is that the environmental effect of Bitcoin mining is very small at present (12 GW consumption out of the world's 18 TW), but probably positive, because it slightly accelerates the renewable transition. But this could change.
Generally I feel like the HN comments section is pretty aggressive and conformist, and there's a lot of people trolling. The social dynamic rewards rapid reaction, trolling, and conforming to the popular opinion (and especially cheering for it and denouncing those who disagree with it), and punishes the kind of careful investigation and thoughtful conversation that I value. I think it brings out the worst in me.
http://canonical.org/~kragen/dercuano
http://canonical.org/~kragen/derctuo
http://canonical.org/~kragen/dernocua.git
This has been true for decades. Not anymore. A couple of weeks back the US gov said that it would stop all USAID funding and give it instead to ONGs in El Salvador which are basically the opposition or anti-Bukele.
I assume that there are other ways that the US gov sends "aid" but I'm sure these will also stop soon enough.