Investment is not legal tender, its moved from a functional role to a high risk investment strategy, would be my take. They're different buckets of money/value and expectations.
Imagine you have 6,050 bitcoins but they didn't work out for you the way that you hoped. The most reasonable thing to do is to still advertise a bullish position because otherwise you are devaluing your own asset.
There is a strong sentiment around bitcoin in El Salvador and it can make them money; but the experiment around it being a legal tender, well, failed.
That's probably why OP chose a highly editorialized "Tico Times" article as the source for this. What's even funnier is it's a Costa Rican newspaper. So one Central American country publishes an article smearing another Central American country, and then HN sees the bias-confirming headline and tries to glean some economic lesson from it. Classic.
> Salvadorans, with the exception of a few, never embraced Bukele’s initiative, who enjoys enormous popularity for his war against gangs, which dropped homicides to historic lows in El Salvador. A recent survey by the Central American University (UCA) revealed that 92% of Salvadorans did not use bitcoin in their transactions in 2024.
I would say this points to an actual failed experiment, if true.
8% of people used it at least one time in an entire year.
In a place where people (who have on average very low incomes) were given $30 worth of bitcoin by their government just for signing up to a wallet app, so a very, very large proportion of the populous (compared to any other country on Earth) already had an app and wallet set up and ready to go. That's not a lot. That's a clear indication that the experiment simply didn't work.
This "everything's going great as long as you squint hard enough" stuff is why people don't give cryptocurrency proponents the time of day. At some point admitting you've lost actually better preserves your ability to be heard at the next debate.
“Another change makes using bitcoin entirely voluntary. (Previously, the law mandated that businesses accept bitcoin for any goods or services they provided.) Additionally, bitcoin can no longer be used to pay taxes or settle government debts.”
They did this to receive a loan from the IMF. The IMF was withholding the loan because of BTC and would not disburse it until they got rid of its status as legal tender.
Yeah, the all so powerful IMF that can be thwarted by the incredibly difficult task of…checks notes….
not taking loans from them…
The IMF (or its donor nations) aren’t forcing anyone to take loans from them. Countries do that because the IMF offers much cheaper rates they can get anywhere else and is willing to forgive those loans far more easily than any other entity.
In return it expects certain good governance changes that are stated upfront as conditions to receive the loans you could very well get from anywhere else in the world.
Don’t like what they consider good governance? Don’t take a loan from them. Go get in the private market or the variety of nations willing to lend at far more onerous terms.
When a country takes an IMF loan, it’s often the political elites—not the general population—who make the decision. And in many cases, these elites personally benefit from the deal, even if it devastates their nation in the long run
For example, in Argentina (2001), President Fernando de la Rúa followed the IMF’s austerity policies despite mass protests. The economy collapsed, and he fled the country via helicopter. But the elites who benefited from privatization kept their wealth while everyday citizens suffered
Presumably they require their loan to be repaid in fiat because of their internal charter. If Bitcoin adoption eventually removes El Salvador's ability to issue fiat, their loan can't be repaid.
Hmm.. I didn't know that. Which makes the demand purely political then. I recall IMF making the same demand from an island country a few years ago too.
The IMF feels bitcoin is a risky asset and doesn’t want to be a part of that gamble when making its loan. The IMF has a history of making lots of conditions they feel minimize risk.
To me it looks more like my bank mandating I carry certain kinds of insurance in the terms of my mortgage than a political bias, but I am not an expert.
"urged officials to limit its exposure" is what the Reuters article said, so yeah. They think El Salvador's ability to repay the loan is tied too much to BTC.
Ecuador mints their own centavo coins, but they are not legal tender outside of Ecuador. They've never released their own $1 coin into general circulation – their ubiquitous Sacagawea dollars are minted in the US.
That's not really how that works. IMF can demand their loan be repaid in whatever currency they want. Its totally normal for international loans to be denominated in a currency other than the recipient's legal tender, particularly for high risk countries (although that is usually bad for the recipient)
They don't want Bitcoin in exchange. Seems entirely reasonable to me given how much the value of cryptocurrency fluctuates with low predictability. They could get paid in it one day and lose half the value the next.
This is why otc tradfi crypto futures are needed. You can buy a train car full of corn a year out trivially on a liquid futures market, regardless if corn prices fluctuate wildly you will pay what was agreed. Listing BTC derivatives would solve the predictability for fixed loan terms.
It is structurally disinflationary, not just deflationary. Bitcoin is still emitted every ~10 minutes with currently an average inflation rate just under 1% of its supply per year.
The "massive risk" the IMF sees is that without central banks or even less influential central banks the IMF existence would be threatened.
If an economy grows at 2% and the supply grows by 1% it is in permanent deflation. For a country like el salvador with much higher growth, the deflation can easily be much higher
You were discussing "structural" inflation, referring to Bitcoin as a system, not relative to inflation of goods and services in a specific economy. These are two distinct economic phenomena that can influence each other but should not be conflated.
Bitcoin's supply doesn't become inflationary or deflationary "structurally" based on the growth of x or y economies. The word inflation is used for both concepts but, structurally, Bitcoin will remain an inflationary system until around year 2140... then block subsidies are going to to stop, no new bitcoins are going to be emitted and then you (or more likely our descendants) can call Bitcoin a structurally deflationary money. Hence the use of the word disinflationary, it currently is in the process of becoming a deflationary system by progressively reducing the inflation of its own money supply (through "halvings" approx. every 4 years).
I'd much prefer a small amount of deflation to the massive inflation that USD is currently undergoing. And furthermore I think our economic system which encourages young people to take on debt in order to have niceties such as housing and transportation is massively exploitative and unsustainable.
> And furthermore I think our economic system which encourages young people to take on debt in order to have niceties such as housing and transportation is massively exploitative and unsustainable.
Deflation will kill that. Your loan will cost more over time instead of less. The assumption with inflation is loans will follow it. With deflation and loans not following then people who bought into the system might be well off but those who are not yet in are worse. Same thing with inflation and loans not following as is happening now.
From my (maybe naive) understanding of current economic theory, it's that a small amount of inflation is what grows an economy. And an important part of that is unpredictable levels of inflation/deflation.
So I'd assume a small amount of predictable deflation would shrink an economy.
High inflation effectively front loaded loans that had fixed repayments (such as mortgage repayments) and the high interest rates that went with them (they move togeter - its called the Fisher Effect - https://moneyterms.co.uk/fisher-effect/ ) meant lenders were willing to lend a much lower multiple or income.
In most places (and definitely in the UK) house prices were much lower relative to incomes when we had 10% annual inflation.
It's no longer legal tender; merchants will no longer be forced to accept it. That's the key point; if the state wants to indulge in speculation, that's its business (though you'd question whether a state which needs to take IMF loans, which are kind of a last resort, should really be engaging in this...)
Do you mean Chivo wallet? It will probably shut down. Strike is still operating (in many countries including the US and El Salvador) and has a physical office in El Salvador.
Speculative asset class fails as non-speculative legal tender class.
If king for the day with a sovereign wealth fund I wouldn't forbid investment choices like this on risk grounds, I mean you need risk assets as well as boring ones, right? But I have problems with the moral quality: it's like state investing in the casino business. Monaco? works fine. Anywhere else? It's got problems.
Like a lot of people, I probably fall into severe errors which would be bread and butter for "bad economics" reddit groups but truly, I can't see how this wasn't forseen and expected. It was about WHEN, not IF.
That reminds me of Hong Kong, where I used to live and which maintains a large sovereign wealth fund to ensure its currency is pegged to the US dollar.
While various US think tanks ranked it well on their checklists of "economic freedom", they tended to gloss over the rest of the recipe that made it work. Not just the huge sovereign wealth fund, but also how half the housing is government-run or subsidized and you don't really own land, you just rent it for a very long term from the government.
> you don't really own land, you just rent it for a very long term from the government.
This is probably economically a good idea, absent something like georgist land taxes. It eliminates some or all of the incentive to speculate in land, which is of course the whole problem El Salvador ran into with bitcoin as currency.
It hasn't entirely stopped rents in HK being untenably high, for many people. It has rent controls, but the system permits some very untenable outcomes which if left unchecked would re-create Kowloon Walled City.
So whilst politically I agree, practically I am unsure there is no land speculation: A waterfront view remains valuable in and of itself, no matter what.
Kowloon Walled City ended because it was attacked by the state, rather than through market forces.
Many of those people are now likely in worse shape effectively renting a cage sized bed, but now paying the governments cut on top of whatever black market shenanigans goes on in both the slum housing and kowloon.
Kowloon Walled City was neither a dystopia nor a utopia. It works and was able to maintain itself, but it could have been done better if it was actually supported by the government.
Right, obviously HK is a bit of a special case. Land in Manhattan would, I'm 100% certain, remain incredibly expensive.
The cool thing about leases is that you can change the cost of the lease periodically, which ensures that the value of the land does not accrue purely to the person occupying it.
Reminds me of the old macro economist joke: There are 4 types of economies, developed economy, developing economy, Japan, and Argentina. Maybe HK should be added to that joke...
There is no problem with property values or rent values being high because they are the result of demand for living in a high quality area. There isn't a problem either with these prices varying over time as the attractiveness of the area changes.
The problems are wholly on the supply side, where either
- there are bad laws that lead to any of the following, or
- developers legally or illegally cooperate to suppress supply
- landlords cooperate to push up rents or reduce quality.
- investors use land or housing units as speculative assets
- normal people want to use their primary residence as a way to build wealth, so politically support measure that artificially inflate their property values. Individually, this is not a problem, but when everyone does it, the system breaks.
The goal is to design a system where all of the above doesn't happen. A very big task.
Land in HK is weird. The lease thing is true but there are massive national parks that have nothing built at all.
The buildings that do exist are ~50 stories even though that's not optimal because of the typhoon situation. So constructive cost is high because government does not release enough land for development.
The rents are high because someone wants it that way. It's not a land scarcity problem IMO.
Also the government and the upcoming merge with China is strange in itself.
No. No liberal capitalist economy has ever had a famine. By contrast, most communist economies have created major famines, and history's largest famines have all been created by communist economies, outdoing even colonialism in their death tolls.
To save some time, can you define the True Scotsman here? Would the US in the 1920s count as a liberal capitalistic country for example? England in the 1860s?
Yes, and yes, which is one reason that, as it turns out, neither the US in the 01920s nor England in the 01860s experienced the famines that affected some other parts of the world at the same time. (In the 01920s Russia was experiencing its first famine that could reasonably be attributed to communism, and in the 01860s Sweden and Finland were experiencing their last famines before their transitions to capitalism.) But not, for example, Ireland in the 01840s and 01850s; that was neither, being colonialist and agricultural.
Nobody starved to death in "famines" like the so-called Lancashire Cotton Famine. By contrast, in the Finnish famine starting the next year, almost 10% of the population of Finland died. As it turns out, that was the last famine in Finland because it became capitalist over the following decades.
Yes, and England was at that time and for almost another century causing famines in its colonies abroad by preventing them from becoming either capitalist or liberal. Ireland didn't even get the worst of it; India suffered much worse under the English yoke.
Certainly, if we're talking about their effects on people who aren't privileged to participate in the capitalist economy itself. Being colonized is much the same experience regardless of what economic system your colonists' families live under overseas. And I'd expect illiberal capitalist economies to cause famines, too; liberalism is more important than capitalism for preventing famines.
> In the 1920s Russia was experiencing its first famine that could reasonably be attributed to communism
There were no famines in the USSR from 1947–1991, but there was a variety of considerations such as monarchy, civil war, 2 world wars, and anti-communist sanctions from the 1890-1947 period, so if anything, it appears that the evidence would imply communism ended the famines, not caused them.
Certainly communism did eventually stop causing famines in the Soviet Union, but the Holodomor personally overseen by Stalin was worse than any Tsarist famine. And we have many other examples of communism causing famine: Mao's Great Leap Forward caused history's worst famine, for example (history's only famine worse than Stalin's Holodomor), but also, for example, the Ethiopian famine many of us remember from the 80s was caused by the Derg (who were technically socialist rather than communist), and one aspect of Pol Pot's democide in Cambodia was a famine, as well.
> That reminds me of Hong Kong, where I used to live and which maintains a large sovereign wealth fund to ensure its currency is pegged to the US dollar.
That doesn't sound like a soverign wealth fund. Foreign currency reserves are not the same thing as a soverign weath fund.
HK has a currency pegged to the USD via a currency board, that is (similar to a stable coin) backed one-to-one with USD denominated short-dated treasuries. That is within the HK exchange fund operated by the HK Monetary Authority.
The exchange fund also (and somewhat controversially) runs additional portfolios (with foreign shares and bonds, and private equity, real estate etc.) in the manner of a sovereign wealth fund.
This is such a huge thing. One of my relatives worked in the housing authority of the HK government - he said that at any given time at least 50% of the housing was publicly owned and rented directly to tenants for like 2k HKD (~300 USD)/mo.
That's why anyone can afford to live there. Actual property leases are incredibly expensive - in the 10s of millions of HKD.
Hong Kong functions as a free-trade market by socializing large parts of its basic economy.
Were you alive in the mid to late 90s? A string of balanced budgets and surpluses. There are new problems and no dot com bubble right now but most Americans were alive the last time we had balanced budgets. It is quite possible.
It became unbalanced by choice: a recreational war in the Middle East and tax cuts. The dotcom bubble helped, but those trillions in debt were not caused by people paying less capital gains tax on pets.com sales.
It was possible. That’s not the same as saying it is still possible at this debt level with the massive shortfalls in social security and other entitlements.
I do not think it’s possible without also seriously eroding the debt burden through sustained higher inflation. That horse has left the barn.
> Speculative asset class fails as non-speculative legal tender class.
This. Bitcoin proponents often claim that eventually everyone will use Bitcoin for payments ("Finally no more governments or central banks!") and that's why it will increase in value, so everyone should invest in BTC.
But this argument is fundamentally flawed: A currency, in order for it to work (in order for people to be able to trust it), needs to be stable in value. Which contradicts it being an investment vehicle and drastically varying in value over time.
And quite apart from that fundamental misalignment, sovereign states having some measure of control over their own monetary policy is arguably a pretty good thing.
And on top of that, consumers prefer institutions in the loop. That’s why people use Amex to pay for stuff, because if it goes wrong you’ve got a massive institution with a tonne of clout to help you out.
That is helpful context— it's too bad TFA wasn't a bit more clear on the history.
In any event, you could still make the case that prior to this bitcoin experiment, the people and economy of El Salvador still were benefiting from a human hand on the monetary tiller, it's just it was that of the US Fed rather than their own officials (elected or otherwise).
In fairness, markets can operate quite well with almost nobody in them being able to argue why. Gold has remarkable staying power but it is rare to find gold proponents who can explain why convincingly. A lot of the arguments for where the value comes from are bunk. If I hear one more person explaining that jewellery matters I'll ... go peacefully about my day I suppose.
Still holds its value though, the economy does not care if people understand why the price signals are so.
I would argue that, in the case of gold (as well as many fiat currencies) the value is tightly coupled to the trust people put into the asset, and the other way around. "Gold has always been valuable and quite stable, so it won't lose all of its value over night." (and similarly for USD, EUR, …)
None, really. They are all floating relative to each other. But USD is stable enough to know what you can get with $10. Although the last few years have put that to the test.
The USD doesn't frequently lose all or nearly all value as we see from cryptocoins. My $10 today will be worth $10 tomorrow barring nuclear war or an apocalypse.
And anything beyond 3m you put into real estate, stocks, or bonds anyway. Real rates have mostly been positive; and if not, that's the result of an economy wide equilibrium process that can't be undone risklessly by some magic beans.
Why do you think the USD has so many orders of magnitude usage? Nobody missed the question, that was the point: for currencies, stability is what makes them useful. You don’t have an incentive to hoard dollars hoping they’ll go up in value, so you spend them and boost the economy. Other countries use dollars because they have the same benefit: I can write a contract with you saying what we’ll pay over the next year and be confident that neither of us is going to be widely inconvenienced by the kind of swings Bitcoin has.
Remember that guy who spent 100BTC on a pizza? It’s a funny story but that’s why nobody uses Bitcoin for normal transactions.
> Why do you think the USD has so many orders of magnitude usage? Nobody missed the question, that was the point: for currencies, stability is what makes them useful.
Hint: cause and effect. You did miss the point and still do probably.
Gotta love crypto people putting "looking smarter than you" over actually explaining what it is they mean. If you've got a point to make, don't just hint at it, say something and then we can have a discussion. This just makes you look petty and like you're only in it to stroke your own ego.
> Gotta love crypto people putting "looking smarter than you"
Oh I'm sorry, that was your shtick. Apologies!
Also, I'm not a crypto person, I made some gains and sold a long time ago. I just have to laugh that you think one pointing out that an argument is weak makes one a part of the opposite tribe.
Then maybe you should explain the point you're trying to make instead of just hinting at it?
I didn't even specify if I thought you were pro or anti crypto - I just find that most conversations around crypto are dominated by statements of "the other side of this just doesn't understand basic facts like I do" instead of actually stating what the facts are and how they apply to the situation that would help someone learn what's being discussed.
I may very well be the stupid one here, and you may be quite a bit smarter than me, but I don't know because I still don't know the point you're hinting at making.
And 1 bitcoin in your possession today will be worth 1 bitcoin in your possession tomorrow, barring a successful and very expensive attack on the network.
You have little assurance that the buying power of $10 today will be the buying power of $10 tomorrow. If the tariffs had gone through as initially advertised, that would certainly not have been the case.
This is only true to the extent that your debts are denominated in Bitcoin. Until people want it for purposes other than speculation what matters is the exchange rate because that’s what everyone uses for their expenses.
A better way to put it is that a deflationary currency is, counterintuitively, not a particularly good currency.
The reality is, Bitcoin and similar, are not being used to actually purchase things. Not at any notable percentage. You're "best bet" is to horde it, and that doesn't make a good currency.
Intuition. If the majority of bitcoin usage was for transactions involving services and goods instead of speculative investment, there's a pretty strong case for a wager that the impact of speculative investment on its price would decrease.
I don't personally believe this will ever happen. BTC has too much legacy cruft. The "digital gold" narrative won out. Day-to-day transactions will happen in a newer, perhaps not invented yet crypto.
I agree but that’s like saying if my grandma had wheels she’d be a wheelbarrow innit? BTC is not set up to ever be a reasonable currency. Agree digital dollars is where we’re headed.
The problem is a currency which is also considered a precious good. It’s like using diamonds as the medium of exchange. Gold is far from the most valuable commodity, and silver even less so. So I think it means we should use some other crypto than BTC if we want to have it be a currency.
You should not sell your shares in the S&P 500 to buy pizza unless your financial situation changes drastically for the worse or I guess maybe you are near death. As I said in the other thread, the problem is that btc is too desirable in the market to be a functioning currency and using it for pizza or impulsive daily purchases is a nonstarter in reality.
But you’re wrong. People sell S&P and BTC everyday even if they aren’t dying.
This is time value of money. If I wait 20 years instead of buying a house, I can have more money. But that’s 20 years of my life I didn’t live in the house I wanted.
I could invest more in S&P and not go on vacation, but then I won’t have as much time to go on vacations.
Goods and services now can be more valuable than money later, and that’s why people sell. And that’s why deflationary currency is fine.
I notice you mentioned big ticket purchases which I specifically did not mention. Your argument looks a bit different if you replace houses and vacation with lattes and sneakers. We live in a consumer economy where a marginal drag on purchasing activity due to currency deflation would probably be pretty disruptive to put it mildly.
If you’re arguing that people would think harder about their purchases and frivolous spending would decline. I agree. And I think that’s a benefits
If you’re asking if people would not use their deflating currency to buy lattes and sneakers, I disagree. People like sneakers and lattes more than money. They prove this everyday by buying them instead of s&p.
There is an issue of the cost of a transaction - which nis bad for btc and s&p. Nobody wants a tax form for buying a pizza. But the regulatory environment creating high selling costs is orthogonal to the deflationary property.
The argument simply is that exchange should be frictionless and deflationary currency will slow the velocity of money. I guess you agree this will lead to reduced prosperity and economic activity, though you call it frivolous purchases. Your comment about preferences doesn’t play into it; this is about mechanics of exchange, and a precious asset is an inefficient medium for commerce which would lead to reduced economic activity because not only do you have to factor in the opportunity cost of buying a good or buying some other good (sneakers or s&p), now you also have hodling, zero economic activity, as a 3rd option with its own expected return and opportunity cost to forgo. When I buy sneakers, the s&p 500, or btc, my dollars don’t disappear. A counterparty receives them and they stay in the economy. If you pay me in btc and I just hold it, then that money effectively does disappear from the economy.
And I’m not even mentioning all the macro issues of not being able to provide liquidity in the form of new capital in times of crisis.
I agree that it will reduce the velocity of money and maybe “GDP”. But not prosperity, individuals being able to save wealth into the future is a better life outcome than more goods changing hands.
> and a precious asset is an inefficient medium for commerce
You are conflating liquidity with deflation. To be a currency it has to be liquid, we agree. We also agree btc is not as liquid as cash. But deflation or stability is orthogonal from liquidity.
> now you also have hodling, zero economic activity,
Already addressed. People want money to buy goods.
> my dollars don’t disappear.
The value isn’t lost in the exchange but it’s lost everyday due to inflation.
And by “lost” I mean transferred to government projects.
> that money effectively does disappear from the economy.
No it merely is saved for a future consumption date. If we average consumption needs of participants in the economy there is no reason to expect a monotonic hoarding effect. That would mean consumers are not satisfying their desires for goods.
Here is one last framing. The economy is not money, it’s goods and services. Money is just a tool for claiming them. So what does an inflationary currency do to help the economy? Does it cause more people to get out of bed and create new goods and services? No. It just transfers claims to resources to someone else.
> You are conflating liquidity with deflation. To be a currency it has to be liquid, we agree. We also agree btc is not as liquid as cash. But deflation or stability is orthogonal from liquidity.
I’m not; you have a limited view of what inefficiency means. The currency can be liquid and still inefficient for exchange due to other kinds of overhead such as opportunity cost of spending the currency itself.
The economy is not money but a frictionless (opportunity cost wise NOT liquidity wise as you keep trying to divert to) currency is better for facilitating exchange and access to goods and services.
I think a perfectly stable currency could be OK too but that would require incredible management on the monetary side to maintain that equilibrium. And absent being able to hit that bullseye it’s been proven, as much as things like this can be, that a stable little bit of inflation with a fiat currency is much stabler and leads to more prosperity than a currency bound by finite resources external to the economy.
Isn’t it enough that you can buy gold or whatever or bitcoin with your depreciating dollars? Why the fixation on it being a currency?
Maybe it's improved but when i played with btc and made 3x and freaked out and bought a secondhand pixel with my $800 stake in milliBTC the friction was huge. I paid unpredictable vig getting $ and I had very indirect access to sell price which was being constantly fucked over by whales playing.
A true economy of low friction btc transactions for pizza has never existed at the scale banks do pay wave. Its hypothetical frictionless, not actual. I'm willing to bet even legalised state coins will be tracked, frictive and taxed.
Totally. The practicalities of BTC or any crypto as currency today are also a big problem. On top of the fundamental whyyyy of it all. If you can easily convert to/from USD to crypto or other desired store of value doesn’t that provide the required buffer against inflation? Why imbue the currency itself with value? I know societies used to do it that way but that’s not really an argument for doing so in the present day on its own…
You could and should ask the same question about stock shares - and indeed there’s an entire profession with centuries of history around that – but it’s a fundamental error to ignore magnitude. The stock market is based on real value and that avoids wild swings when nothing has fundamentally changed - even through the mortgage bubble my portfolio made made gains because people still needed to buy food, cars, phones, clothing, etc. and if did even a little research it had been easy to spot companies whose fundamentals didn’t support their valuation. In contrast, a pure fiat currency like bitcoin has value only from social consensus and has far more volatility.
It might have worked if El Salvador made their own cryptocurrency which they control and could mint more of and backed it properly as a non-speculative legal tender, but they didn’t and that didn’t happen.
Yes. A "digital fiat" currency, basically. It could potentially incorporate privacy features from cryptocurrencies or replace digital payment providers. Or be a ginormous waste of time. I don't really know enough to tell you which one.
Unsurprised. I got the impression Bukele picked bitcoin in a sort of manic ADHD moment and no one pushed him on it, figuring it was their president’s personal indulgence.
Actually it was the for profit corporation that hijacked the Bitcoin GitHub repo a decade ago, Blockstream, that pushed the idea, Samson Mow specially is the one who deserves most blame.
It's just a private key. You don't "connect" private keys to the Internet. You just have poor processes keeping it hidden while not losing it. I'm surprised you think El Salvador can do that.
In order for transactions to be signed with the private key, the device holding them has to be connected to the internet, or at least be able to interface with another device that is. It is highly likely that anything involving their BTC reserves requires someone to be physically present at some sort of facility and it is 100% not available for hackers to just siphon whenever they wish with a virus. If possible, it would at least require physical infiltration.
Nobody wants to spend it anyway, just hoard or sell it to the next sucker willing to shell more $.
Among all the crypto shills I know I'm probably the only one who has used it for trade (0.25ish Bitcoins for a computer on caseking.de in late 2017 and few goodies on local bitcoin in the same year).
Mostly because transferring BTC is very expensive. Every time I’ve done it I’m shocked at the fees that sites like Bitbuy requires. So if you’re going to do it then it has to be for a good reason.
This is fascinating to me because we were told 15 years ago (ish) that one of the main things that made crypto special (besides it being guaranteed finite unlike fiat) was that unlike say, Visa, it would be economic to use, even for small transactions, because The Big Banks wouldn't take their ~3% cut of every transaction. We all assumed that cut was determined by greed, but if Bitcoin is expensive to transact in now, it could be that in free market terms, that there is actually a certain value people place on the ability to move funds around, and if Bitcoin were much cheaper, that there is room for middlemen to take margin and push the effective cost of using crypto closer to the fees we hate being charged by banks to use the card networks.
There are blockchains other than Bitcoin which have no or almost no fees for transactions. Bitcoin could have low TX fees, but its core developers have deliberately kept the maximum block size at 1 megabyte and have refused to increase it.
And the community "decided" to follow the core developers who controlled the narrative on r/bitcoin, bitcointalk and various exchanges when Bitcoin was forked, with the first chain (Core) remaining "Bitcoin" and the other fork then being labeled "Cash".
don't forget that when you use fiat you are also charged inflation, and your economic activity is kept inside their zoo for all kinds of benefits to the zoo keepers beside inflation.
The fees in Bitcoin are much higher than they have to be and there's absolutely zero desire from the developers or community to do anything about since number goes up, and that trumps all.
There are cryptocurrencies that follow the original idea but they're not as popular because they haven't increased in proce as much as Bitcoin.
a major difference you are not considering is that bitcoin fees are fixed and don't change based on the value of the transaction.
Right now they are at around 0.15$. That's too much IMO to go buy a 1$ coffee with bitcoin, but it would also be 0.15$ if you were buying a 2000$ macbook, a 60000$ car or a 2M$ house.
Bitbuy is just a random exchange. You're placing blame at the wrong layer. Blaming bitcoin for Bitbuy fees is like blaming the Federal Reserve for Western Union fees.
Under the former law where bitcoin was legal tender, if someone owed you money, they could insist that you accept bitcoin to settle the debt. Most people wanted nothing to do with bitcoin so they removed the legal tender designation.
“The reform eliminated the word “currency” when referring to bitcoin, but says it is “legal tender.” Despite the lack of clarity, it lifts, as required by the IMF, the obligation to accept it in transactions or debt payments, a key condition for it to be “legal tender,””
Edit to add a quote from your preferred link:
“Another change makes using bitcoin entirely voluntary. (Previously, the law mandated that businesses accept bitcoin for any goods or services they provided.) Additionally, bitcoin can no longer be used to pay taxes or settle government debts.”
If I can't pay my taxes with a token of economic exchange, and people aren't required to accept my tokens of economic exchange, the only remaining sense I can make of it being “legal tender” is that it is not illegal to use it, but that's not what “legal tender” means.
this article, though appearing pretty machine translated, points out that the law removes the obligation for anyone to accept Bitcoin as payment of a debt, while not (for some reason) removing the "legal tender" language -- which is a complete contradiction.
This makes as much sense as saying that Walmart has no obligation to accept Visa cards anymore, but that they're still a "valid method of payment at Walmart" -- except of course that "Legal Tender" has an explicit legal definition (apparently even in El Salvador).
This sounds like a really badly written piece of legislation. Perhaps there are shady dealings going on where someone powerful stands to lose a lot of money (or BTC) triggered by "if it ceases to be Legal Tender", but also apparently pressure was too great to abolish that legal tender status in practice, so this ridiculously-written law was passed to attempt to have it both ways.
That is actually the defining characteristic of legal tender: “money that is legally valid for the payment of debts and that must be accepted for that purpose when offered”
Its status in El Salvador was actually a bit more than _just_ legal tender; merchants were _required_ to accept it.
For instance, the euro is legal tender in the eurozone. I can pay a tax bill or a bank loan with 10cent coins, and technically they have to accept that (though note that some countries do have special rules around whether small change is legal tender). However, a merchant is not required to take my wheelbarrow full of 10cent coins in exchange for goods and services; no debt exists before the purchase.
El Salvador was forcing the merchant to take the wheelbarrow.
They care about the economic stability of a country they make loans to. Their loans often come with conditions about how the government can run fiscal or trade policy.
I don't know if that is good or bad but I have heard smart economists argue both sides.
It's reasonable when you think about it from a risk assessment point of view.
The IMF wants to feel that El Salvador (a) will likely be able repay the debt, (b) in a currency that is unlikely to devalue too much. For that reason, the debt would probably be in USD or some other prominent world currency (letting the debt be in El Salvador's local currency would risk them printing money to devalue it, threatening (b)).
So the IMF would probably make the debt in USD. In theory, bitcoin can be exchanged for USD, so in theory, El Salvador could exchange some of their bitcoin into USD to pay the IMF back. But what if bitcoin's value drops precipitously? Or if it becomes illiquid?
It seems the IMF thinks bitcoin is hype, so it expects its value to drop to near zero eventually. That would make it very difficult for a country that has large bitcoin reserves (instead of large reserves of a more stable currency) to repay the loan.
The trouble is, it needs to be more than that if it is to survive. Since inception, mining has mostly been subsidized by new bitcoin, which is capped by design (and about 95% distributed).
Satoshi’s paper assumed that transaction costs would make up for the exponentially declining subsidy, but that hasn’t really happened since it never lived up to his “digital cash” vision.
Ethereum solves both of these issues. It is an entire platform designed for the development of distributed applications and will probably win over BTC in the long-long-term.
There are tens of billions of dollars locked up in DeFi ecosystems with hundreds of millions of dollars worth of assets exchanging hands daily, but you would probably just say that it doesn't count for some inane reason.
I'm so curious what will happen as mining approaches the asymptote. When the mining rewards become more and more rare and if people aren't incentivizing the network with a lot of transactions, will transaction times just get slower and slower until it becomes a stranded asset?
But as the block rewards diminish from halving it will approach 0, so that will leave the only incentive for "miners" to secure the network to be transaction fees. At that point transaction fees will have to be extemely high to justify all that hash power right? So I can imagine it could get to the point where transaction fees exceed the value held in some wallets and you get stranded assets.
Alternatively, if transaction fees stay low, there might be very little incentive to secure the network with hash power and you could end up with fewer and fewer miners controlling the network and a 51% attack becomes quite feasible.
I'm really curious how this will play out over the next 100 years.
> The trouble is, it needs to be more than that if it is to survive.
But why is it necessary for it to survive? Like, I think even cryptocurrency true believers would acknowledge that there are better cryptocurrencies out there if you want a currency; bitcoin seems at this point of largely symbolic value.
I’m not talking about losing mindshare, I mean in the literal sense that transaction volume is necessary for Bitcoin to avoid an attack on the network. The incentive system that secures it is designed to increasingly rely on transaction fees increasing over time to make up for the diminishing pool of unmined Bitcoin that currently subsidize network security.
That largely hasn’t happened; transaction fees have dropped as it became a store of value and moved less frequently (and increasingly moved off-chain in tradfi rails).
Yeah, but what I mean is, if bitcoin went away tomorrow, why would anyone care? Advocates of cryptocurrency as currency, I think, have largely already gone beyond bitcoin in any case at this point, and the speculators could just move on to the next speculative asset.
Why does it need to be more than a store of value? If every single country In the world is off the gold standard and inflates their citizen's savings away at a whim, why does Bitcoin need to be more than a way to keep your savings safe, especially if it's the best way to do so with the least amount of government meddling.
Running the Bitcoin network securely is expensive. Currently, about 95% of the cost is covered by issuance of new Bitcoin, but the amount of remaining Bitcoin decays exponentially (currently it’s down to the last 5%).
The incentive design of Bitcoin assumed that it would be used as cash, so that transaction fees could take over as the main source of revenue for the miners that secure the network. As a “store of value”, it doesn’t generate enough transaction fees to secure the network.
The transaction fee is currently $1.64 and frequently spikes to tens of dollars. (Yes, sometimes LN can reduce that.) You can buy gold via something like $GLD for free.
There seems to be two concepts that are getting conflated. One concept is that BTC is a good investment. Historically that is undeniable.
The other concept is that it is a good medium of exchange. I think that is not so true because 1) its neither cheap nor easy to buy a lot of things with it 2) a thing that goes up in value is not a good medium of exchange because people don't want to spend it, they want to hoard it.
If you accept that BTC is a reasonable investment, but not a great medium of exchange then what is happening makes sense.
I am not saying that a decentralized token couldn't be a good medium of exchange -- honestly I don't know. But so far BTC is not that.
> a thing that goes up in value is not a good medium of exchange because people don't want to spend it, they want to hoard it.
So... traditional money is good because it forces poor people to spend it? Rich people have no problem converting cash into assets that go up in value and holding onto them converting back at need. It's only poor people that have to hold comparatively high percentage of their assets in something that loses value.
Yes it is good to have currency that is distinct from an investment asset. It allows you to do currency things with one, and investment things with the other.
Yes, exactly. It forces the poor (and the rich) to spend it.
When you take out a mortgage on a house its partly because someone took cash they received and deposited it in the bank. If they kept the cash the bank would not have reserves to loan.
You don't even need to do anything to deposit money in the bank anymore. Most people automatically receive their salary in the form of direct bank deposits. And if the value of your money grows, why would you want to do anything with it? You would just let it sit there in the bank.
Let me add a third concept which, to me, is a much more useful feature (as I wrote in a sister thread): a store of value for people whose governments like to control the money flow, dilute savings in the single available local fiat currency and confiscate savings calling it a money reform. Which, sadly, is a large part of the world.
Value oscillating against some golden reference by a factor of 4? Many will likely take that if it means avoiding their own government shenanigans. I saw a currency reform which turned savings to zero. My parents lived through two such devaluations. As did my grandparents. Buying dollars or another hard currency, if found, meant prison. In this setup a permissionless, anonymous store of value, warts and all, is very valuable.
Beautifully explained.
This applies to just about every single country in the world. There are no countries in the modern world that operate on the gold standard, which means they all print just about as much money as they want and deflate the savings of their citizens.
You're also conflating two distinct concepts: "Bitcoin the currency" and "Bitcoin the payment network."
The currency itself can be used independently of its base-layer network, which is intentionally slow and costly (functioning primarily as a settlement layer). This separation is enabled by off-chain or layer 2 systems, such as the Lightning Network or custodial platforms. These solutions retain Bitcoin's monetary benefits - like a predictable money supply, off/on ramping through the base layer - while enabling fast, cheap transactions. The tradeoff is that you must trust an intermediary, but this mirrors the same compromise inherent to digital USD payment systems (Venmo, credit cards, PayPal, etc.).
In fact, USD lacks a true "base layer" altogether. The closest equivalent would be the Federal Reserve Bank’s ledger, but accounts there are restricted to large financial institutions, not individuals.
It's not convenient to use "Bitcoin the payment network" for everyday financial transactions, just as it's not convenient to use the "USD the payment network" (e.g. the Federal Reserve ledger) for everyday financial transactions (in fact, it's impossible).
However, “Bitcoin the currency” and “USD the currency” work perfectly for daily use if you route them through trusted intermediaries (Strike, Cash App, PayPal, etc.). These third parties abstract away the base layer and offer fast, cheap, and reversible transactions.
But Bitcoin qua payment network is/was a major part of the Bitcoin value proposition—what a Bitcoin _is_ is an entry in a distributed ledger.
Whereas USD is ultimately bearer tokens. Yes, those tokens can be optimized away as entries on a balance sheet when held by a large entity. But USD is a token system, not a payment network. Bitcoin is the opposite.
> But Bitcoin qua payment network is/was a major part of the Bitcoin value proposition—what a Bitcoin _is_ is an entry in a distributed ledger.
I know that's what hardcore Bitcoiners have typically pushed for, but I personally disagree. To me, the most interesting thing about Bitcoin is its predictable and unmanipulatable money supply. The payment network is nice though because it can let you easily and permissionlessly take your Bitcoin wherever you want. Fees are actually not that exorbitant, certainly cheaper than SWIFT transfers. The current average transaction fee is around 1 USD and the first confirmation, which is sufficient for most kind of transactions, takes 10 minutes on average.
> Whereas USD is ultimately bearer tokens. Yes, those tokens can be optimized away as entries on a balance sheet when held by a large entity. But USD is a token system, not a payment network. Bitcoin is the opposite.
USD cash is (paper bills and coins), not digital USD. Bitcoin is a digital bearer token system. As a side note, it wouldn't be very hard to replicate a cash system for Bitcoin, if there was an entity responsible for emitting and redeeming cash for digital Bitcoin (a bit like the US Mint but for Bitcoin).
thanks! yes I mean to check on bitcoin after major network upgrades like Taproot. okay that article was last updated 10 months, how is that panning out with standardized protocols and wallet integration and issuance?
I’m curious where the communities about this are, or are nowadays
Same here. I'd rather hold and use an asset that unstably increases in value greatly over time, than one which continuously goes down in value to 0 (all fiat currencies go to zero eventually)
That's a good point. The payment layer can be different then the ones I have and encountered, and it could evolve. Going forward I will keep that in mind because I think in the back of my head I just assume BTC is a pain to use and that may not always be the case.
Makes me wonder why the BTC original design tilted toward deflationary, since allegedly, 'satoshi' was trying to create currency, not speculation. Was it a two phase idea ? Attract people for 80 years as investment then when it's stable, use them as stupid coins ?
Deflation is the natural state of the economy because progress makes everything cheaper. We only have an inflationary system because central banks print money. Putting a central bank into code and micro-managing the money supply was not possible, so bitcoin is more like a commodity, like gold for example. Gold has worked just fine as a money for thousands of years.
Ergo, the exact reason it’s a horrible currency for the system.
It’s really just the infamous libertarian inability to consider the needs of the system as separate but still important and sometimes in tension with the desires of the individual.
It’s just a particularly goofy one because a deflationary currency very obviously cannot support an economy.
You're right, It is a horrible currency for the system. How would we prop up the military industrial complex and wars with foreign third world countries if we could no longer print money out of thin air? Just dreadful to think about.
We need to be clear about the features of money we are talking about (and there are many):
For money to work as a convenient way for people or companies to settle transactions, long-term inflation or deflation does not matter. If A wants cement and has mangoes, B wants pants and has mangoes and C wants mangoes and can do tooth fillings they just need something universally accepted to convert what they have into. And, a bit later, buy what they want. Most money satisfy this, but usually people want more features.
For money to also be a store of value it should maintain its purchasing power. This allows an individual to, say, pay for an education of a child when the child grows up: I can save in today's money and be fairly confident that when the time comes to pay it will cover the (future) cost. This feature is what people tend to refer to as "digital gold" as gold generally maintains its purchasing power over very long times.
For money to enable governments to stimulate society in different ways, money should be deflationary. Easy long term store of value makes people less responsive to short-term government stimuli. Without deflationary money a government cannot print extra money when it overspends or if not enough players want to lend to that government.
The last two tend to cause eternal strife between individualists (who want small government that does not do things people did not explicitly ask for) and progressivists (who want to push the society along the path they see as the best one).
There are more features of money (highly recommend reading "Broken Money" by Lyn Alden)
Hmm, sounds more like an IMF requirement than something the government wanted to do. It's not news that the IMF is opposed to the use of Bitcoin as legal tender.
It even seems that the above is a very minor change that in no way changes the outcome here. El Salvador did well and looks to continue to do well with its bitcoin policies.
In the 15 years since Bitcoin went viral, has someone proposed a reasonable social, legal and financial protocol for how a society can adopt a novel cryptocurrency without getting stuck in the phase where the cryptocurrency becomes a speculative asset rather than a common medium of exchange? By novel, I mean not using an existing cryptocurrency that is already stuck in the speculative asset phase.
Surely, if a government wants the people in the country to use a novel cryptocurrency, it has a lot of levers of control which some distributed libertarian minded community simply doesn't.
Customers use currencies if it lets them buy stuff. Shops accept currencies if people come and want to buy stuff with that currency. In touristy places, it's common to see people list their prices using currencies from common originating countries, regardless of the legal currency in that country.
Any new thing needs to be better than the current thing at least in one domain, if it wants to grow users. Fiat currencies work so well, that the only niches cryptocurrencies can find is crimes really, avoiding financial sanctions, etc.
Like China for example bans their citizens to trade the chinese currency for foreign currency (above small limits). Then buying bitcoin domestically makes sense if they don't trust the chinese government to keep their own currency valuable.
Of course, all the exchanges operating in countries where there is reasonable laws require KYC to be in place. Cryptocurrencies are also in many ways more trackable than non-crypto currencies. So for crime it makes no real sense to use most crypto currencies.
> Any new thing needs to be better than the current thing at least in one domain
For instance, my native country, in an effort to digitize the economy has passed a law that if you pay digitally or with a card at a restaurant you pay only 5% sales tax instead of 16% if you pay via cash. Some government wanting to encourage the adoption of a cryptocurrency can take similar measures. Governments have options that Vitalik Buterin does not.
While it is true that adoption remained relatively low, the reason why they abandoned it is that the IMF made it a condition for the Salvadorian government to be able to receive a 1.4B loan.
They didn't, the IMF just offers better terms than the free market. And they are still doing their Bitcoin thing, this was just a small concession they were willing to make.
El Salvador has had limited or very expensive access to the bond market for the past years. I thinkneed it, otherwise they wouldn't have made a law to loan money from El Salvador's pension funds with 0% interest.
Those issues are not really relevant when it comes to factors like transaction speeds and the diversity of assets available to transact with, such as stablecoins, as well as DeFi platforms to actually use those assets on.
yes it is, just use stables. frankly it is a much more convenient way to move money if the other person has it as well
e: and i’m no crypto obsessive really, i don’t think it was usable even 3 years ago but it’s pretty handy now, can easily send $20 in usdc on base or use it to purchase carbon offsets or use it on election/sports betting or use it to purchase deepseek r1 credits…
Too many malicious actors in crypto for it to become mainstream, sorry, not sorry
The community needs to self police and remove this problem if they ever want me to give it a third chance. There are several other fundamental issues in crypto, so not sure this will be enough on its own to reach mainstream adoption
For example, I don't want my transaction history on a public ledger, encrypted or not
"Crypto needs to self-police and remove malicious actors" and "Crypto needs to stop having a public ledger" are two contradictory actions where achieving one would make the other impossible.
If all you care about are transaction speeds then use the lightning network. Instant settlement of bitcoin and much lower fees. There are protocols like Cashu [1] that allow you to transact offline anonymously for no fees and settle on the lightning network.
Why do you need "diversity of assets to transact with"? Go to any store in almost any country and they usually accept a single currency. Maybe in some they take local + USD. You're arguing for something the market doesn't seem to care about outside of speculative trading for fiat gains.
And even if you really want stablecoins they've been added to bitcoin via the lightning network and taproot assets. Tether for example can be used via bitcoin [2]. There's a reason Bitcoin makes up well over 50% of the total crypto market.
You "can" do all these things on BTC. Almost nobody does. All of Tether & USDC usage takes place on other blockchains. The lightning network is notoriously tricky to use and isn't trustless. A diversity of assets enables things like PAXG, an ERC-20 token backed fully by real-world gold, as well as things like tokenized stocks, bonds, and t-bills, the last already existing, and the former surely coming in the near future.
Additionally BTC isn't "over 50% of the market", it's over 50% of the market capitalization, which is a huge difference. BTC doesn't have the raw TX speed to make up 50% of actual market activity.
Proof of Stake etc are a bit irrelevant for daily use. If you want to do something like make a bet on polymarket the newer chains are faster, easier and cheaper than bitcoin or ethereum on the whole. Polymarket uses polygon for example which is a fork off ethereum but it doesn't matter much which such network you use and the bets are denominated in US$. Bitcoin lightning is ok but more awkward to use than polygon et al.
Proof of Stake and no ceiling to supply are important if you are going to hold the thing for decades which is a different issue.
Those who continue to invest in and use the Lightning (layer 2) network think it will be used as currency but most see it as a long term storage of value, at least until infrastructure supporting layers 2 and 3 mature.
As for “magically,” there’s nothing magic about its increase in value as it replaces legacy technology, chiefly gold as a store of value.
Except it has none of the properties of gold as an asset. The value of bitcoin is highly correlated with equities and anti-correlated with gold. It’s the opposite of what you want to be holding as a hedge against a stock market crash.
Gold has a utility, used in a large swath of electronics. Can always be sold to make something. Bitcoin can only be sold if there is a fiat currency trading in it
Electronics didn't exist for the thousands of years that gold was used as currency. The fact is, it only has most of the value that it does because it was rare, malleable, particularly shiny, and because metallism was simply the easiest way (or at least one of the easiest ways) to invent the concept of currency and a monetary system.
Bitcoin's utility is that you can both hold it in your hands and send it across the world in 10 minutes with no intermediaries. Can't do that with gold.
No, I get it, thank you very much. Early adopter of BTC here, I've read the whitepaper and all that, sodl when I realized what an energy pig it had become.
The only thing that separates BTC from all the derivative shitcoins is hype and stories we tell about it. Bitcoin is itself interchangeable with an infinite number of related algorithms/schemes.
Gold extraction definitely has its problems, but it's a fundamental element of the universe.
In 100 years, I know which one will definitely still hold value.
When I think of the "properties" of gold I don't think of how the price behaves, but rather that the total supply of it is limited (though Bitcoin actually does a much better job at limiting supply, since gold'll keep being mined for a long time and the supply is hard to predict) and that, other than theft, there's no way for someone else to take it from you (compare to eg money at a bank that can collapse or in a stock of a company that can go bankrupt)
I've got good news for those people, you can't buy toilet paper with bitcoin today. And they aren't getting paid in bitcoin today, either. And if they tried to exchange bitcoin for fiat to buy toilet paper, they'd be subject to incredible fees that would make such a transaction pointless.
While people will always need to buy the essentials, I do buy that a deflationary currency could discourage discretionary spending. Maybe people are slightly less likely to splurge on a big purchase or a nice dinner. I don't know what the delta would be in GDP growth compared to now; it certainly could be negligible.
It's like those people who collect action figures and never take them out of the box. I'm not trying to knock it, but I don't think I'll ever understand it.
Because if you/they knew that, then they'd be buying more bitcoin.
On a much smaller scale, your dollar goes up by 5% every year but you still use it everyday because all your monies are in dollars. If all your monies are in btc, you'd have to sell to buy things.
If you suppose that BTC would be a widely adopted currency, you wouldn't "sell" it, you would simply exchange it for the good or service. But in this case if BTC is deflationary you would still hesitate to spend it. USD is inflationary, so there is hypothetically a small pressure to use it.
It used to be that buying a Bitcoin today would net you 10000x more if you waited a bit.
Then it was 100x more.
Now 10x more is the best people can dream of. The possibility of getting super rich from Bitcoin is now gone unless you're already rich to start with. Turning $100 into a million dollars made the whole world interested. Turning 100k into a million isn't anything interesting and it's out of reach of most normal people, and those who can throw 100k into something are already investing in other things with similar returns. As a normie, putting in $100 with the hopes of Bitcoin reaching a million would only get you $1000. That's not much different than a couple scratch off lottery tickets.
It'd be much smarter to find the new secret thing that costs $5 now and will net you a million dollars ten years down the road. There's loads of stuff out there that people aren't paying attention to yet. Crypto isn't one of those things.
It is permissionless, very liquid asset that the governments cannot dilute. For many people this is a very big deal. A significant part of the world population lives under regimes where the governments control the money flow, heavily dilute savings in the single local fiat currency and can confiscate savings under a guise of money reform.
While not nearly as bad, most democratic, developed countries dilute their fiat to the tune of 5-7% a year. Would I buy bitcoin if I have an easy access to a convenient currency with no (or at least significantly under the average GDP growth) debasement? Hell no! Otherwise, I will (together with gold, income-generating stocks, real estate, etc.) as an insurance against government spending run amok. My 2c.
Sure they can criminalize bitcoin possession or use their police force and state apparatus to serveil and track all bitcoin usage. But that is way more effort than simply turning on the money printer.
It's much simpler than that, they simply make selling bitcoin a capital gain event (which it is) and tax it. They could even make a separate special rate for cryptocurrency pretty easily.
Now maybe you think this is easy to avoid, in which case I would ask why you aren't already committing tax fraud.
The reason tax evasion with regular currency is so difficult is because pretty much all banks/financial institutions report your income to the state. But with crypto, especially anonymized ones like monero, the decentralized nature makes it almost impossible to track income and who it belongs to.
It is almost trivial for a 3-letter agency to track bitcoin flow. Every transaction is entirely public with only pseudonyms to obfuscate identity, and with the current KYC laws good luck not getting doxxed while buying BTC.
We need to move this discourse away from "crypto" and towards Monero specifically if we want any progress on adoption
Isn't a wallet just a private-public key pair? One could easily generate those on a whim and start transacting using them. I assume the KYC laws apply to exchanges but what about individuals with bitcoin directly trading with each other? No way to track that
Yes - I buy my bitcoin using a decentralised exchange over Tor. All the authorities can see is that I send a random person some money to their bank account. They have no idea what it's for, and would have to individually track down and successfully interrogate each different person I send money to, to discover how much bitcoin I had bought and even then they can't prove I own it.
Many of us in the BC is digital money camp argued the case that more transactions and a lower transaction fee could be most easily implemented, within the spirit of the founders intent, if we simply increased the size of the transaction buffer, mitigating an obvious bottleneck.
We argued against the complexity of SegWit and Lightning Network.
I think greed and politics won rather than engineering or economics good sense - people didnt want cheaper transactions, it now costs around $15 USD per BTC transaction.
Despite the proliferation of alt-coins using essentially the same code-base, with shorter block-times and larger buffers.. and more programmability - ultimately proof-of-stake might be a better implementation of the block minting process, than proof-of-work.
Transaction fees have been about as low as they can possibly be for months. It costs roughly $0.15 to move a UTXO right now.
The people who argued for increasing the block size were making a tradeoff between decentralization and "low" transaction fees. Increasing the block size makes the chain grow faster which causes several problems: the time to sync new blocks goes up, initial chain download time goes way up, and block verification takes more CPU.
The parameters were initially set so that anyone could run a full node for as many years as possible which is the most important part of the ecosystem by far. If you make it harder for the average person to run a node it doesn't matter how cheap the transactions are if ultimately a small group of people are capable of running it. You could argue that doubling or quadrupling the block size doesn't hurt decentralization, and maybe you're right, but that also doesn't move the needle much for transaction throughput either at least not enough to make a difference for adoption.
Bitcoin can and should be scaled in layers. The detractors are just impatient.
While it's not here yet, Vitalik's future plans for Ethereum involve making it possible to run validators on smartwatches[1], which is far more accessibly decentralized than BTC could be and far more possible with Ethereum's PoS consensus as opposed to PoW, without needing to cripple transaction speed to boot.
This says, afaict, the average BTC transaction cost today is $1:40 USD
The 5yr chart shows it spiking at $128 in April 2024.
If BTC transactions reliably cost 15c per transaction, it might make for a viable electronic money... but that is clearly not the case, so I think my point stands.
I think people mostly realized that the more immediate priority is establishing Bitcoin as an international reserve commodity. Its usage as a currency, either directly or via intermediary layers, is kind of secondary to that. Bitcoin is making pretty good progress in that regard.
Yeah the rest of us can continue geeking out over layered network protocol design and technologies like Lightning or Liquid. There is so much going on under the hood but it is so much easier to take the piss and learn nothing. That is no surprise, with the current state of the world.
It doesn't have to be "magic" that causes it to go up forever. People need a way to put large amounts of money in places that are difficult for governments to get to and /or easy to move across jurisdictional borders. Think: money launderers, people that are worried their corrupt government will seize their assets, people hiding money from someone they owe like a spouse in a divorce. These all seem to me to be reasonable use cases for bitcoin.
All the things that make bitcoin a pain to buy a pizza are irrelevant if your goal is to hide $100m in your shoe. Nothing can do that better than bitcoin and there is a demonstrated need.
If you assume the reason to use bitcoin isn't going away and the wealth of the world goes up-- while the supply of bitcoin is pretty constant-- it can keep going up without magic.
But that doesn't distinguish Bitcoin from other cryptocurrencies. The thing that distinguishes Bitcoin is fame, pure and simple. Everyone has heard of it.
Also nobody can premine it, no coalition of big stakeholders can lock you out of your coins, a 51% attack is less likely feasible than for any other PoW coin, the bandwidth needed for its blockchain is smaller than most alternatives, and it's less likely to conceal unknown cryptographic weaknesses. It's kind of shitty in some other ways, though.
While that's conceivable, Merkle-graph systems like Bitcoin are surprisingly resilient. It's been almost 20 years since MD5 was thoroughly broken, but still nobody has published a second preimage attack. For SHA2 and SHA3 nobody has even published a collision attack. And SHA-256 (what Bitcoin uses) is post-quantum-safe (Grover's algorithm still needs 2¹²⁸ time) though AFAIK there isn't yet a post-quantum cryptosystem deployed for signing transactions, which will require a hard fork.
Presumably if quantum computers (or better DLP algorithms on classical computers) start breaking keys, that will become a priority.
So I think there's an excellent chance that even if the math is solved Bitcoins will retain their value. Perhaps even without many of them getting stolen in the process. This is a big difference from many other uses of cryptography; if someone breaks IDEA 20 years from now, they can decrypt your PGP messages from the 20th century, and there's nothing you can do now to prevent that.
We still don't know if P = NP. You seem peculiarly certain it is, which is odd given that most of the people who study the topic strongly suspect otherwise. They could of course be wrong, but what makes you so sure?
Assuming P != NP we still don't have any proof that sha-2 etc can't be reversed (obviously there is a loss of data). It's implausible for now but someday I guarantee we will have the math that makes it trivial. It does not require P = NP.
That is not necessarily how this works. The only thing required to happen is that a super-majority of the miners running the bitcoin software voluntarily update to a new version. This is how changes have been done to BTC before.
Fame is part of it, but it's more that it's IMO probably the only truly decentralized cryptocurrency. Not just in terms of the nodes and miners being well spread out between organizations and parts of the world, but also in terms of its development and governance. Sure, there's a relatively small group of core contributors to Bitcoin, but they don't have much fame or personality cults around them like Ethereum's Vitalik does. They are really just restricted to maintaining and adding well-agreed-upon new features to Bitcoin. Eg when Segwit happened, a lot of miners held out on supporting it for a long time becasue it was a bit controversial. Meanwhile with Ethereum, if Vitalik really pushed for some controversial change, it would probably happen. Once you go further down the list than Ethereum, things get really bad, with many cryptos' development being entirely driven by a small group of people in a for-profit company, with miners and users that will blindly update to the newest version regardless of what's in it.
the fact that eth classic was created from this incident and still exists does inspire some confidence that ethereum's governance is somewhat decentralized also, to be fair.
And IIRC it wasn't a "scam", it was a bug in a smart contract.
ETH forked because the contract was poorly written and they didn't want to honor the contract because their buddies would have lost a lot of money and the project would have gotten an egg to their face.
That's true, but you could say the same thing about a Van Gough painting. There are lots of old pretty paintings. But if you paid $xxm for your Van Gough you can be pretty sure its still worth a lot in ten years. There are no guarantees. But that's not just true of Van Goughs and bitcoins.
Here's one good use: I looked into leaving the US to become a citizen elsewhere. I have about $15MM in my retirement. I would have to pay a penalty on my taxes for early withdrawal, and be taxed when I renounce my citizenship. In theory I could cash everything out, buy a huge amount of BTC, move to another country (within a week, or quickly!!), and then cash it out in their currency. Of course, all sorts of alarm bells would go off if a normal schmoe like me tried to move that much money out of my investment account, because I'm not rich enough to break finance laws like people worth 10x, 100x or 1,000x more than me can do without going to jail. And I'd be terrified that the other country would OOPS my deposit like in the film Blow with Johnny Depp.
I think the government is figuring this out and has access to a lot of info about BTC from the Binance settlement. That's just speculation on my part, it may not be true.
What I think a lot of people don't realize is that the US government is not very interested in going after people who do tax evasion in the $5-50 m range. People like that can afford lawyers and representatives, it will take years, and never get any headlines. They love to go after people for $5-50k evasion because they just get paid.
And it doesn't work unless you buy your bitcoin peer to peer, as any exchange will just leave a log relating your buying to your wallet, and liquidate it peer to peer as well. Any transactions with regulated institutions will doxx your wallet and then it's over, you can't use those funds anymore without being tracked (or at least trackable) by the feds.
I literally use USDT daily. Use it to pay for food delivery, for a massage or a manicure, or exchange it for cash delivered to my home. Literally 90% of my spending goes through it.
Yes, some Bitcoin people still hold on to the idea that somehow layer 2 or layer 3 systems will somehow make Bitcoin practical for regular payments again.
But largely that's been abandoned for the "store of value"/"number go up" speculative use-case which is easily 99.99% of the point of Bitcoin today.
That's a long post that seems to tell me it's bad for the economy. It's not my job to help the economy. Again, why should I use a money that loses value?
That's an odd take. What's bad for the economy is, for the most part, bad for you.
But to answer your question more directly, you should use a money that loses value because its purpose is as a medium of exchange and not a store of value. You need to have something in your life that you can reliably use to acquire things you need and exchange them for things you have (new laptop for hours worked). You want a hot potato, you get it, you pass it along to someone else. If you don't want to spend it on material goods and want to save, that's fine, you can instead "buy" a savings, or "buy" an index fund. You're still passing the hot potato around, but its giving you different things.
Now imagine you don't have a hot potato, you work and you get paid in... idk, something you don't want to get rid of. You struggle with letting go with your currency and so it costs you when you're trying to do exchanges. Similarly, if you're a shop owner or something, people are more hesitant to give you their currency as well. Things get slower, and darker, like a mechanical flashlight that you're spinning slower and slower.
> But to answer your question more directly, you should use a money that loses value because its purpose is as a medium of exchange and not a store of value
That's an odd definition of money. The ancient Greeks already thought that money is medium of exchange AND a store of value, and throughout history people have preferred money that held its value. It's also circular reasoning. A medium of exchange should lose value, so you should use money that loses value.
> you can instead "buy" a savings, or "buy" an index fund
So money that loses value creates inefficiencies in the economy, because people have to waste time worrying about preserving their wealth, investing, etc.
> You struggle with letting go with your currency
I still need to eat, to live somewhere, I want to experience things, a money that increases in value does not destroy my desire to consume.
=) you're conflating meanings, perhaps due to some of my handwaving. There's a difference between a medium of exchange that loses value, and a medium of exchange that LOSES value. People don't want the latter. That potato is too hot. You want something that loses a measured, controlled, amount of value over time. How much? About 3% per year seems to be a good number that people more educated than me tout around.
I'm also not sure that's a circular reasoning as I provide the reasons why you want a medium of exchange that loses value...
Hmmm... sure, I suppose you can look at it that way. In an inflationary-esque economy, you worry about saving your wealth, so you create instruments to do so: fractional reserve banking, mutual funds, etc. This is a problem with many solutions. On the other hand, in a deflationary-esque economy, you worry about spending your wealth, and perhaps more importantly, getting everyone around you to spend it as well. That problem has less solutions.
I said you struggle, you don't hold on forever, you struggle letting go. As in you eventually do let go, but not as quickly as if it had been depreciating. It functions as a brake on consumption, not a full stop. It slows things down. Slow is not good. Things start to go down when things slow.
Can you expand on the argument? You might as well have invested the 2021 "value" (regardless of in which currency it was disbursed) into some non-inflationary asset (like bitcoin, gold or some index fund) -- that should make you feel equally bad.
If the value of the dollar increased or stayed 100% stable we would be in a depression. In fact, the only time the dollar increased in value for long was the great depression.
The point of legal tender is that it reduces in value slowly over time, so you don't just hoard it under your bed. If someone paid me in BTC, I wouldn't spend it, I would hang on to it. That's not how currency works. Currency is the thing you want to spend, not hand on to.
Well the point of money is to use it at some point, your theory is right if people were to live for the infinity but we don't so at some point you will spend all your hard earned Bitcoin because you just don't want to die rich but live rich.
That's the basic reason why all this nonsense about how bad having an deflationary economy is crap. People spend at some point their money, they don't hold on to it for ever.
At some point a balance between reward (money taking more value) and loss (time spent starving, not benefiting from your assets) is reached.
And if you wrote this comment in December 2022, Bitcoin would be sitting at -70%.
I sincerely don't know anything about monetary policy, but I can't imagine that sort of volatility in the value of your currency is considered a good thing.
BTC doesn't work as legal tender since it's deflationary, has high fees, and is slow. Bukele got lucky gambling on BTC, perhaps now would be a good time to cash out.
The only reason BTC doesn't work as legal tender (but original Bitcoin did) was the GitHub repo was hijacked by Blockstream and several hacks injected to corrupt the project.
I don't particularly like BTC (as it senselessly burns huge amounts of energy, thereby actively contributing to the destruction of our biosphere), but this news post is intentionally misleading. As reported by many other outlets (e.g. [1,2]), El Salvador abandons BTC to qualify for an IMF loan - so the IMF is pressuring them towards this move (presumably for political reasons).
Its not like IMF had a gun to their head. They could have refused the loan.
At the end of the day they abandoned the policy because they believe it will help the economy to abandon it (indirectly via the loan). I certainly wouldn't call that a success.
As a cryptocurreny enthusiast I think the execution here and it's goals weren't aligned to begin with. It was nothing more than a custodial wallet and it was not implemented or deployed in any meaningful way. You can't write any useful smart contract to "do" anything and without any of that it doesn't compete for shit against centralized digital payment systems in terms of efficiency or simplicity.
By branding itself as "crypto-friendly", El Salvador managed to get Tether to relocate there. That seems like a pretty big deal for a country that otherwise would never attract any sort of tech company.
So I wouldn't call it a "failed experiment" per se - more like a publicity stunt that has achieved publicity.
929 comments
[ 4.0 ms ] story [ 434 ms ] threadSounds like the term "Failed Experiment" is the writer's assertion and not the government official position.
There is a strong sentiment around bitcoin in El Salvador and it can make them money; but the experiment around it being a legal tender, well, failed.
> Salvadorans, with the exception of a few, never embraced Bukele’s initiative, who enjoys enormous popularity for his war against gangs, which dropped homicides to historic lows in El Salvador. A recent survey by the Central American University (UCA) revealed that 92% of Salvadorans did not use bitcoin in their transactions in 2024.
I would say this points to an actual failed experiment, if true.
In a place where people (who have on average very low incomes) were given $30 worth of bitcoin by their government just for signing up to a wallet app, so a very, very large proportion of the populous (compared to any other country on Earth) already had an app and wallet set up and ready to go. That's not a lot. That's a clear indication that the experiment simply didn't work.
--https://reason.com/2025/02/03/el-salvador-walks-back-its-bit...
Sounds pretty failed to me.
not taking loans from them…
The IMF (or its donor nations) aren’t forcing anyone to take loans from them. Countries do that because the IMF offers much cheaper rates they can get anywhere else and is willing to forgive those loans far more easily than any other entity.
In return it expects certain good governance changes that are stated upfront as conditions to receive the loans you could very well get from anywhere else in the world.
Don’t like what they consider good governance? Don’t take a loan from them. Go get in the private market or the variety of nations willing to lend at far more onerous terms.
For example, in Argentina (2001), President Fernando de la Rúa followed the IMF’s austerity policies despite mass protests. The economy collapsed, and he fled the country via helicopter. But the elites who benefited from privatization kept their wealth while everyday citizens suffered
The IMF is the pinnacle of western imperialism.
Presumably they require their loan to be repaid in fiat because of their internal charter. If Bitcoin adoption eventually removes El Salvador's ability to issue fiat, their loan can't be repaid.
https://www.imf.org/en/Blogs/Articles/2021/07/26/blog-crypto...
To me it looks more like my bank mandating I carry certain kinds of insurance in the terms of my mortgage than a political bias, but I am not an expert.
US dollars are also not legal tender outside the US, with a few exceptions (I think including both El Salvador and Ecuador.)
Actually I can't think of any fiat currency that hasn't at least halved in value?
You can also offset the risks of sudden devaluation through matching assets and liabilities, trading derivatives and so on.
The "massive risk" the IMF sees is that without central banks or even less influential central banks the IMF existence would be threatened.
Bitcoin's supply doesn't become inflationary or deflationary "structurally" based on the growth of x or y economies. The word inflation is used for both concepts but, structurally, Bitcoin will remain an inflationary system until around year 2140... then block subsidies are going to to stop, no new bitcoins are going to be emitted and then you (or more likely our descendants) can call Bitcoin a structurally deflationary money. Hence the use of the word disinflationary, it currently is in the process of becoming a deflationary system by progressively reducing the inflation of its own money supply (through "halvings" approx. every 4 years).
So how many IMF bailout loans must be dispersed, without condition of course, before this BTC economy will magically work?
I'd much prefer a small amount of deflation to the massive inflation that USD is currently undergoing. And furthermore I think our economic system which encourages young people to take on debt in order to have niceties such as housing and transportation is massively exploitative and unsustainable.
Deflation will kill that. Your loan will cost more over time instead of less. The assumption with inflation is loans will follow it. With deflation and loans not following then people who bought into the system might be well off but those who are not yet in are worse. Same thing with inflation and loans not following as is happening now.
So I'd assume a small amount of predictable deflation would shrink an economy.
Anyone know more about this?
High inflation effectively front loaded loans that had fixed repayments (such as mortgage repayments) and the high interest rates that went with them (they move togeter - its called the Fisher Effect - https://moneyterms.co.uk/fisher-effect/ ) meant lenders were willing to lend a much lower multiple or income.
In most places (and definitely in the UK) house prices were much lower relative to incomes when we had 10% annual inflation.
Wasn’t El Salvador supposed to be Balaji’s first “Network State”? What happened to strike wallet and that whole crypto grifter crew?
They always seem to get out before the prices tumble.
If king for the day with a sovereign wealth fund I wouldn't forbid investment choices like this on risk grounds, I mean you need risk assets as well as boring ones, right? But I have problems with the moral quality: it's like state investing in the casino business. Monaco? works fine. Anywhere else? It's got problems.
Like a lot of people, I probably fall into severe errors which would be bread and butter for "bad economics" reddit groups but truly, I can't see how this wasn't forseen and expected. It was about WHEN, not IF.
That reminds me of Hong Kong, where I used to live and which maintains a large sovereign wealth fund to ensure its currency is pegged to the US dollar.
While various US think tanks ranked it well on their checklists of "economic freedom", they tended to gloss over the rest of the recipe that made it work. Not just the huge sovereign wealth fund, but also how half the housing is government-run or subsidized and you don't really own land, you just rent it for a very long term from the government.
This is probably economically a good idea, absent something like georgist land taxes. It eliminates some or all of the incentive to speculate in land, which is of course the whole problem El Salvador ran into with bitcoin as currency.
So whilst politically I agree, practically I am unsure there is no land speculation: A waterfront view remains valuable in and of itself, no matter what.
Many of those people are now likely in worse shape effectively renting a cage sized bed, but now paying the governments cut on top of whatever black market shenanigans goes on in both the slum housing and kowloon.
>The Kowloon Walled City was exempt and remained under the control of Qing China.
https://www.thecollector.com/kowloon-walled-city-lawlessness...
https://en.wikipedia.org/wiki/999-year_lease https://en.wikipedia.org/wiki/999-year_leases_in_Hong_Kong#V...
The cool thing about leases is that you can change the cost of the lease periodically, which ensures that the value of the land does not accrue purely to the person occupying it.
Reminds me of the old macro economist joke: There are 4 types of economies, developed economy, developing economy, Japan, and Argentina. Maybe HK should be added to that joke...
I contrast that to places like the USA and Canada that have huge amounts of area but policies that encourage inefficient land usage.
The problems are wholly on the supply side, where either
- there are bad laws that lead to any of the following, or - developers legally or illegally cooperate to suppress supply
- landlords cooperate to push up rents or reduce quality.
- investors use land or housing units as speculative assets
- normal people want to use their primary residence as a way to build wealth, so politically support measure that artificially inflate their property values. Individually, this is not a problem, but when everyone does it, the system breaks.
The goal is to design a system where all of the above doesn't happen. A very big task.
P.S. I don't know anything about HK.
The buildings that do exist are ~50 stories even though that's not optimal because of the typhoon situation. So constructive cost is high because government does not release enough land for development.
The rents are high because someone wants it that way. It's not a land scarcity problem IMO.
Also the government and the upcoming merge with China is strange in itself.
These are well-known historical facts.
Nobody starved to death in "famines" like the so-called Lancashire Cotton Famine. By contrast, in the Finnish famine starting the next year, almost 10% of the population of Finland died. As it turns out, that was the last famine in Finland because it became capitalist over the following decades.
England was a capitalistic economy in the 1850s, no?
There were no famines in the USSR from 1947–1991, but there was a variety of considerations such as monarchy, civil war, 2 world wars, and anti-communist sanctions from the 1890-1947 period, so if anything, it appears that the evidence would imply communism ended the famines, not caused them.
https://www.hawaii.edu/powerkills/COM.ART.HTM has more details, and https://en.wikipedia.org/wiki/Category:20th-century_famines lists some other examples, along with the odd non-communist famine. But none in liberal capitalist economies.
That doesn't sound like a soverign wealth fund. Foreign currency reserves are not the same thing as a soverign weath fund.
> The Exchange Fund of Hong Kong is the primary investment arm and de facto sovereign wealth fund of the Hong Kong Monetary Authority.
https://en.wikipedia.org/wiki/Exchange_Fund_(Hong_Kong)
It's also 10th-largest on:
https://en.wikipedia.org/wiki/Sovereign_wealth_fund#Largest_...
The exchange fund also (and somewhat controversially) runs additional portfolios (with foreign shares and bonds, and private equity, real estate etc.) in the manner of a sovereign wealth fund.
That's why anyone can afford to live there. Actual property leases are incredibly expensive - in the 10s of millions of HKD.
Hong Kong functions as a free-trade market by socializing large parts of its basic economy.
Trump Calls for Wealth Fund in Executive Order https://www.nytimes.com/2025/02/03/us/politics/sovereign-wea...
Not in my lifetime
Were you alive in the mid to late 90s? A string of balanced budgets and surpluses. There are new problems and no dot com bubble right now but most Americans were alive the last time we had balanced budgets. It is quite possible.
It was possible. That’s not the same as saying it is still possible at this debt level with the massive shortfalls in social security and other entitlements.
I do not think it’s possible without also seriously eroding the debt burden through sustained higher inflation. That horse has left the barn.
This. Bitcoin proponents often claim that eventually everyone will use Bitcoin for payments ("Finally no more governments or central banks!") and that's why it will increase in value, so everyone should invest in BTC.
But this argument is fundamentally flawed: A currency, in order for it to work (in order for people to be able to trust it), needs to be stable in value. Which contradicts it being an investment vehicle and drastically varying in value over time.
In any event, you could still make the case that prior to this bitcoin experiment, the people and economy of El Salvador still were benefiting from a human hand on the monetary tiller, it's just it was that of the US Fed rather than their own officials (elected or otherwise).
Still holds its value though, the economy does not care if people understand why the price signals are so.
So there's an implicit question there which apparently you and everyone else missed.
Remember that guy who spent 100BTC on a pizza? It’s a funny story but that’s why nobody uses Bitcoin for normal transactions.
Hint: cause and effect. You did miss the point and still do probably.
Oh I'm sorry, that was your shtick. Apologies!
Also, I'm not a crypto person, I made some gains and sold a long time ago. I just have to laugh that you think one pointing out that an argument is weak makes one a part of the opposite tribe.
I didn't even specify if I thought you were pro or anti crypto - I just find that most conversations around crypto are dominated by statements of "the other side of this just doesn't understand basic facts like I do" instead of actually stating what the facts are and how they apply to the situation that would help someone learn what's being discussed.
I may very well be the stupid one here, and you may be quite a bit smarter than me, but I don't know because I still don't know the point you're hinting at making.
You have little assurance that the buying power of $10 today will be the buying power of $10 tomorrow. If the tariffs had gone through as initially advertised, that would certainly not have been the case.
The reality is, Bitcoin and similar, are not being used to actually purchase things. Not at any notable percentage. You're "best bet" is to horde it, and that doesn't make a good currency.
But most of the comments are about how stable currency and stores of wealth are actually bad! It kind of sounds like we think bitcoin is working.
If USD is inflating and Gold is staying still, is gold “deflating”?
but then starved to death while hodling?
I don't personally believe this will ever happen. BTC has too much legacy cruft. The "digital gold" narrative won out. Day-to-day transactions will happen in a newer, perhaps not invented yet crypto.
Why would anyone sell? Well at some point in your life you want to use the money to accomplish your life goals
This is time value of money. If I wait 20 years instead of buying a house, I can have more money. But that’s 20 years of my life I didn’t live in the house I wanted.
I could invest more in S&P and not go on vacation, but then I won’t have as much time to go on vacations.
Goods and services now can be more valuable than money later, and that’s why people sell. And that’s why deflationary currency is fine.
If you’re asking if people would not use their deflating currency to buy lattes and sneakers, I disagree. People like sneakers and lattes more than money. They prove this everyday by buying them instead of s&p.
There is an issue of the cost of a transaction - which nis bad for btc and s&p. Nobody wants a tax form for buying a pizza. But the regulatory environment creating high selling costs is orthogonal to the deflationary property.
The argument simply is that exchange should be frictionless and deflationary currency will slow the velocity of money. I guess you agree this will lead to reduced prosperity and economic activity, though you call it frivolous purchases. Your comment about preferences doesn’t play into it; this is about mechanics of exchange, and a precious asset is an inefficient medium for commerce which would lead to reduced economic activity because not only do you have to factor in the opportunity cost of buying a good or buying some other good (sneakers or s&p), now you also have hodling, zero economic activity, as a 3rd option with its own expected return and opportunity cost to forgo. When I buy sneakers, the s&p 500, or btc, my dollars don’t disappear. A counterparty receives them and they stay in the economy. If you pay me in btc and I just hold it, then that money effectively does disappear from the economy.
And I’m not even mentioning all the macro issues of not being able to provide liquidity in the form of new capital in times of crisis.
I’m advocating for stable currency. Not bitcoin.
> you agree this will lead to reduced prosperity
I agree that it will reduce the velocity of money and maybe “GDP”. But not prosperity, individuals being able to save wealth into the future is a better life outcome than more goods changing hands.
> and a precious asset is an inefficient medium for commerce
You are conflating liquidity with deflation. To be a currency it has to be liquid, we agree. We also agree btc is not as liquid as cash. But deflation or stability is orthogonal from liquidity.
> now you also have hodling, zero economic activity,
Already addressed. People want money to buy goods.
> my dollars don’t disappear.
The value isn’t lost in the exchange but it’s lost everyday due to inflation. And by “lost” I mean transferred to government projects.
> that money effectively does disappear from the economy.
No it merely is saved for a future consumption date. If we average consumption needs of participants in the economy there is no reason to expect a monotonic hoarding effect. That would mean consumers are not satisfying their desires for goods.
Here is one last framing. The economy is not money, it’s goods and services. Money is just a tool for claiming them. So what does an inflationary currency do to help the economy? Does it cause more people to get out of bed and create new goods and services? No. It just transfers claims to resources to someone else.
I’m not; you have a limited view of what inefficiency means. The currency can be liquid and still inefficient for exchange due to other kinds of overhead such as opportunity cost of spending the currency itself.
The economy is not money but a frictionless (opportunity cost wise NOT liquidity wise as you keep trying to divert to) currency is better for facilitating exchange and access to goods and services.
I think a perfectly stable currency could be OK too but that would require incredible management on the monetary side to maintain that equilibrium. And absent being able to hit that bullseye it’s been proven, as much as things like this can be, that a stable little bit of inflation with a fiat currency is much stabler and leads to more prosperity than a currency bound by finite resources external to the economy.
Isn’t it enough that you can buy gold or whatever or bitcoin with your depreciating dollars? Why the fixation on it being a currency?
A true economy of low friction btc transactions for pizza has never existed at the scale banks do pay wave. Its hypothetical frictionless, not actual. I'm willing to bet even legalised state coins will be tracked, frictive and taxed.
You lost me at stable currency. BTC is a speculative asset. Gold is a speculative asset. Neither are stable currencies.
If you'd like to speculate and INVEST in BTC, go ahead. But I'm quite frankly tired of people claiming it to be a currency.
They even have their own tracker, https://bitcoin.gob.sv/
For example, about 1 hour ago they bought 1m in BTC: https://bitcoin.gob.sv/tx/83ddfe67485d322e9c017d8ba6aee53d8f...
The address is : 32ixEdVJWo3kmvJGMTZq5jAQVZZeuwnqzo
Among all the crypto shills I know I'm probably the only one who has used it for trade (0.25ish Bitcoins for a computer on caseking.de in late 2017 and few goodies on local bitcoin in the same year).
It's not just expensive, it's difficult, slow, error-prone and offers 0 convenience over standard means of payments.
I've been using LN regularly for over a year. It works fine and it's extremely cheap.
Technically cryptocurrencies were meant to be held and exchanged directly, without an exchange.
Of course that isn’t convenient for non-enthusiasts…
How fortunate we are that crypto exchanges, run by private companies with little government regulation, operate out of the goodness of their heart /s…
Don't get me wrong, satoshi is a genius, but there are severe tradeoffs required to get the properties bitcoin wants.
this should all be added to that 3% card fees.
There are cryptocurrencies that follow the original idea but they're not as popular because they haven't increased in proce as much as Bitcoin.
Right now they are at around 0.15$. That's too much IMO to go buy a 1$ coffee with bitcoin, but it would also be 0.15$ if you were buying a 2000$ macbook, a 60000$ car or a 2M$ house.
By the way all the comments in a thread like this will look like bots
Wat
Under the new rules, bitcoin is no longer considered "currency," though it remains "legal tender."
https://reason.com/2025/02/03/el-salvador-walks-back-its-bit...
https://x.com/monicataher/status/1884971499129610322
Edit to add a quote from your preferred link:
“Another change makes using bitcoin entirely voluntary. (Previously, the law mandated that businesses accept bitcoin for any goods or services they provided.) Additionally, bitcoin can no longer be used to pay taxes or settle government debts.”
If I can't pay my taxes with a token of economic exchange, and people aren't required to accept my tokens of economic exchange, the only remaining sense I can make of it being “legal tender” is that it is not illegal to use it, but that's not what “legal tender” means.
This makes as much sense as saying that Walmart has no obligation to accept Visa cards anymore, but that they're still a "valid method of payment at Walmart" -- except of course that "Legal Tender" has an explicit legal definition (apparently even in El Salvador).
This sounds like a really badly written piece of legislation. Perhaps there are shady dealings going on where someone powerful stands to lose a lot of money (or BTC) triggered by "if it ceases to be Legal Tender", but also apparently pressure was too great to abolish that legal tender status in practice, so this ridiculously-written law was passed to attempt to have it both ways.
El Salvador keeps buying the Bitcoin for its strategic reserve. Businesses and citizens can keep using it.
But for getting an IMF loan, IMF (which, to put it mildly, doesn't like Bitcoin) required the end to Bitcoin legal tender status.
Now the businesses are free to accept it or not instead of being required to accept it. That's all. The government plans to keep buying and using it.
Right, so it's no longer legal tender.
https://www.merriam-webster.com/dictionary/legal%20tender
For instance, the euro is legal tender in the eurozone. I can pay a tax bill or a bank loan with 10cent coins, and technically they have to accept that (though note that some countries do have special rules around whether small change is legal tender). However, a merchant is not required to take my wheelbarrow full of 10cent coins in exchange for goods and services; no debt exists before the purchase.
El Salvador was forcing the merchant to take the wheelbarrow.
I don't know if that is good or bad but I have heard smart economists argue both sides.
The IMF wants to feel that El Salvador (a) will likely be able repay the debt, (b) in a currency that is unlikely to devalue too much. For that reason, the debt would probably be in USD or some other prominent world currency (letting the debt be in El Salvador's local currency would risk them printing money to devalue it, threatening (b)).
So the IMF would probably make the debt in USD. In theory, bitcoin can be exchanged for USD, so in theory, El Salvador could exchange some of their bitcoin into USD to pay the IMF back. But what if bitcoin's value drops precipitously? Or if it becomes illiquid?
It seems the IMF thinks bitcoin is hype, so it expects its value to drop to near zero eventually. That would make it very difficult for a country that has large bitcoin reserves (instead of large reserves of a more stable currency) to repay the loan.
Bitcoin tried for 15-20 years to find a use case but now it’s just an asset class like gold and nothing else, it will never be more than that.
Satoshi’s paper assumed that transaction costs would make up for the exponentially declining subsidy, but that hasn’t really happened since it never lived up to his “digital cash” vision.
Tokenized stocks are coming this year.
Alternatively, if transaction fees stay low, there might be very little incentive to secure the network with hash power and you could end up with fewer and fewer miners controlling the network and a 51% attack becomes quite feasible.
I'm really curious how this will play out over the next 100 years.
But why is it necessary for it to survive? Like, I think even cryptocurrency true believers would acknowledge that there are better cryptocurrencies out there if you want a currency; bitcoin seems at this point of largely symbolic value.
That largely hasn’t happened; transaction fees have dropped as it became a store of value and moved less frequently (and increasingly moved off-chain in tradfi rails).
The incentive design of Bitcoin assumed that it would be used as cash, so that transaction fees could take over as the main source of revenue for the miners that secure the network. As a “store of value”, it doesn’t generate enough transaction fees to secure the network.
Lol, gold that can be teleported around the globe for fractions of a cent, yeah.. it sucks that bitcoin will never be more than that.
The other concept is that it is a good medium of exchange. I think that is not so true because 1) its neither cheap nor easy to buy a lot of things with it 2) a thing that goes up in value is not a good medium of exchange because people don't want to spend it, they want to hoard it.
If you accept that BTC is a reasonable investment, but not a great medium of exchange then what is happening makes sense.
I am not saying that a decentralized token couldn't be a good medium of exchange -- honestly I don't know. But so far BTC is not that.
I'll deny it.
Bitcoin has seen large gains, that is undeniable. However, that is not the same thing as being a good investment.
So... traditional money is good because it forces poor people to spend it? Rich people have no problem converting cash into assets that go up in value and holding onto them converting back at need. It's only poor people that have to hold comparatively high percentage of their assets in something that loses value.
When you take out a mortgage on a house its partly because someone took cash they received and deposited it in the bank. If they kept the cash the bank would not have reserves to loan.
Value oscillating against some golden reference by a factor of 4? Many will likely take that if it means avoiding their own government shenanigans. I saw a currency reform which turned savings to zero. My parents lived through two such devaluations. As did my grandparents. Buying dollars or another hard currency, if found, meant prison. In this setup a permissionless, anonymous store of value, warts and all, is very valuable.
The currency itself can be used independently of its base-layer network, which is intentionally slow and costly (functioning primarily as a settlement layer). This separation is enabled by off-chain or layer 2 systems, such as the Lightning Network or custodial platforms. These solutions retain Bitcoin's monetary benefits - like a predictable money supply, off/on ramping through the base layer - while enabling fast, cheap transactions. The tradeoff is that you must trust an intermediary, but this mirrors the same compromise inherent to digital USD payment systems (Venmo, credit cards, PayPal, etc.).
In fact, USD lacks a true "base layer" altogether. The closest equivalent would be the Federal Reserve Bank’s ledger, but accounts there are restricted to large financial institutions, not individuals.
However, “Bitcoin the currency” and “USD the currency” work perfectly for daily use if you route them through trusted intermediaries (Strike, Cash App, PayPal, etc.). These third parties abstract away the base layer and offer fast, cheap, and reversible transactions.
Whereas USD is ultimately bearer tokens. Yes, those tokens can be optimized away as entries on a balance sheet when held by a large entity. But USD is a token system, not a payment network. Bitcoin is the opposite.
I know that's what hardcore Bitcoiners have typically pushed for, but I personally disagree. To me, the most interesting thing about Bitcoin is its predictable and unmanipulatable money supply. The payment network is nice though because it can let you easily and permissionlessly take your Bitcoin wherever you want. Fees are actually not that exorbitant, certainly cheaper than SWIFT transfers. The current average transaction fee is around 1 USD and the first confirmation, which is sufficient for most kind of transactions, takes 10 minutes on average.
> Whereas USD is ultimately bearer tokens. Yes, those tokens can be optimized away as entries on a balance sheet when held by a large entity. But USD is a token system, not a payment network. Bitcoin is the opposite.
USD cash is (paper bills and coins), not digital USD. Bitcoin is a digital bearer token system. As a side note, it wouldn't be very hard to replicate a cash system for Bitcoin, if there was an entity responsible for emitting and redeeming cash for digital Bitcoin (a bit like the US Mint but for Bitcoin).
if there is, it’s poorly advertised
does seem like a huge swing and a miss for lightning to only have unstable value units of account going over it
the market clearly wants something else, and has that, on other networks at large volumes
I’m curious where the communities about this are, or are nowadays
Ergo, the exact reason it’s a horrible currency for the system.
It’s really just the infamous libertarian inability to consider the needs of the system as separate but still important and sometimes in tension with the desires of the individual.
It’s just a particularly goofy one because a deflationary currency very obviously cannot support an economy.
For money to work as a convenient way for people or companies to settle transactions, long-term inflation or deflation does not matter. If A wants cement and has mangoes, B wants pants and has mangoes and C wants mangoes and can do tooth fillings they just need something universally accepted to convert what they have into. And, a bit later, buy what they want. Most money satisfy this, but usually people want more features.
For money to also be a store of value it should maintain its purchasing power. This allows an individual to, say, pay for an education of a child when the child grows up: I can save in today's money and be fairly confident that when the time comes to pay it will cover the (future) cost. This feature is what people tend to refer to as "digital gold" as gold generally maintains its purchasing power over very long times.
For money to enable governments to stimulate society in different ways, money should be deflationary. Easy long term store of value makes people less responsive to short-term government stimuli. Without deflationary money a government cannot print extra money when it overspends or if not enough players want to lend to that government.
The last two tend to cause eternal strife between individualists (who want small government that does not do things people did not explicitly ask for) and progressivists (who want to push the society along the path they see as the best one).
There are more features of money (highly recommend reading "Broken Money" by Lyn Alden)
https://apnews.com/article/bitcoin-elsalvador-bukele-musk-tr...
It even seems that the above is a very minor change that in no way changes the outcome here. El Salvador did well and looks to continue to do well with its bitcoin policies.
Surely, if a government wants the people in the country to use a novel cryptocurrency, it has a lot of levers of control which some distributed libertarian minded community simply doesn't.
Any new thing needs to be better than the current thing at least in one domain, if it wants to grow users. Fiat currencies work so well, that the only niches cryptocurrencies can find is crimes really, avoiding financial sanctions, etc.
Like China for example bans their citizens to trade the chinese currency for foreign currency (above small limits). Then buying bitcoin domestically makes sense if they don't trust the chinese government to keep their own currency valuable.
Of course, all the exchanges operating in countries where there is reasonable laws require KYC to be in place. Cryptocurrencies are also in many ways more trackable than non-crypto currencies. So for crime it makes no real sense to use most crypto currencies.
For instance, my native country, in an effort to digitize the economy has passed a law that if you pay digitally or with a card at a restaurant you pay only 5% sales tax instead of 16% if you pay via cash. Some government wanting to encourage the adoption of a cryptocurrency can take similar measures. Governments have options that Vitalik Buterin does not.
I don't follow it closely, but that idea seems to have faded and now it's just an asset to buy and hold while it magically goes up forever.
In this regard, crypto currency is not really a currency that people can use for their daily lives without worry and risk from volatility
e: and i’m no crypto obsessive really, i don’t think it was usable even 3 years ago but it’s pretty handy now, can easily send $20 in usdc on base or use it to purchase carbon offsets or use it on election/sports betting or use it to purchase deepseek r1 credits…
in fact short of wiring i have not found any service allowing me to send more than that in a day and certainly not with instant deposit
gpay takes 1-5 days to appear in account, i can spend the money i transfer here immediately
The community needs to self police and remove this problem if they ever want me to give it a third chance. There are several other fundamental issues in crypto, so not sure this will be enough on its own to reach mainstream adoption
For example, I don't want my transaction history on a public ledger, encrypted or not
Why do you need "diversity of assets to transact with"? Go to any store in almost any country and they usually accept a single currency. Maybe in some they take local + USD. You're arguing for something the market doesn't seem to care about outside of speculative trading for fiat gains.
And even if you really want stablecoins they've been added to bitcoin via the lightning network and taproot assets. Tether for example can be used via bitcoin [2]. There's a reason Bitcoin makes up well over 50% of the total crypto market.
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1. https://cashu.space/
2. https://www.coindesk.com/business/2025/01/30/tether-brings-i...
Additionally BTC isn't "over 50% of the market", it's over 50% of the market capitalization, which is a huge difference. BTC doesn't have the raw TX speed to make up 50% of actual market activity.
Proof of Stake and no ceiling to supply are important if you are going to hold the thing for decades which is a different issue.
As for “magically,” there’s nothing magic about its increase in value as it replaces legacy technology, chiefly gold as a store of value.
What is the current supply of gold and what will it be in 2050?
The only thing that separates BTC from all the derivative shitcoins is hype and stories we tell about it. Bitcoin is itself interchangeable with an infinite number of related algorithms/schemes.
Gold extraction definitely has its problems, but it's a fundamental element of the universe.
In 100 years, I know which one will definitely still hold value.
On a much smaller scale, your dollar goes up by 5% every year but you still use it everyday because all your monies are in dollars. If all your monies are in btc, you'd have to sell to buy things.
Then it was 100x more.
Now 10x more is the best people can dream of. The possibility of getting super rich from Bitcoin is now gone unless you're already rich to start with. Turning $100 into a million dollars made the whole world interested. Turning 100k into a million isn't anything interesting and it's out of reach of most normal people, and those who can throw 100k into something are already investing in other things with similar returns. As a normie, putting in $100 with the hopes of Bitcoin reaching a million would only get you $1000. That's not much different than a couple scratch off lottery tickets.
It'd be much smarter to find the new secret thing that costs $5 now and will net you a million dollars ten years down the road. There's loads of stuff out there that people aren't paying attention to yet. Crypto isn't one of those things.
It is permissionless, very liquid asset that the governments cannot dilute. For many people this is a very big deal. A significant part of the world population lives under regimes where the governments control the money flow, heavily dilute savings in the single local fiat currency and can confiscate savings under a guise of money reform.
While not nearly as bad, most democratic, developed countries dilute their fiat to the tune of 5-7% a year. Would I buy bitcoin if I have an easy access to a convenient currency with no (or at least significantly under the average GDP growth) debasement? Hell no! Otherwise, I will (together with gold, income-generating stocks, real estate, etc.) as an insurance against government spending run amok. My 2c.
At best it will work as long as few enough people are doing it that the government doesn't care.
We argued against the complexity of SegWit and Lightning Network.
I think greed and politics won rather than engineering or economics good sense - people didnt want cheaper transactions, it now costs around $15 USD per BTC transaction.
Despite the proliferation of alt-coins using essentially the same code-base, with shorter block-times and larger buffers.. and more programmability - ultimately proof-of-stake might be a better implementation of the block minting process, than proof-of-work.
The people who argued for increasing the block size were making a tradeoff between decentralization and "low" transaction fees. Increasing the block size makes the chain grow faster which causes several problems: the time to sync new blocks goes up, initial chain download time goes way up, and block verification takes more CPU.
The parameters were initially set so that anyone could run a full node for as many years as possible which is the most important part of the ecosystem by far. If you make it harder for the average person to run a node it doesn't matter how cheap the transactions are if ultimately a small group of people are capable of running it. You could argue that doubling or quadrupling the block size doesn't hurt decentralization, and maybe you're right, but that also doesn't move the needle much for transaction throughput either at least not enough to make a difference for adoption.
Bitcoin can and should be scaled in layers. The detractors are just impatient.
[1]: https://vitalik.eth.limo/general/2024/10/23/futures4.html
https://bitcoinfees.net/
Checking now :
https://ycharts.com/indicators/bitcoin_average_transaction_f...
This says, afaict, the average BTC transaction cost today is $1:40 USD
The 5yr chart shows it spiking at $128 in April 2024.
If BTC transactions reliably cost 15c per transaction, it might make for a viable electronic money... but that is clearly not the case, so I think my point stands.
All the things that make bitcoin a pain to buy a pizza are irrelevant if your goal is to hide $100m in your shoe. Nothing can do that better than bitcoin and there is a demonstrated need.
If you assume the reason to use bitcoin isn't going away and the wealth of the world goes up-- while the supply of bitcoin is pretty constant-- it can keep going up without magic.
Presumably if quantum computers (or better DLP algorithms on classical computers) start breaking keys, that will become a priority.
So I think there's an excellent chance that even if the math is solved Bitcoins will retain their value. Perhaps even without many of them getting stolen in the process. This is a big difference from many other uses of cryptography; if someone breaks IDEA 20 years from now, they can decrypt your PGP messages from the 20th century, and there's nothing you can do now to prevent that.
And IIRC it wasn't a "scam", it was a bug in a smart contract.
It's not illegal to move money out of your investment accounts, it's just reported so that yes, you can have a tax liability.
I too, would like tax-free investments and funds.
Seriously, that's all I got.
What I think a lot of people don't realize is that the US government is not very interested in going after people who do tax evasion in the $5-50 m range. People like that can afford lawyers and representatives, it will take years, and never get any headlines. They love to go after people for $5-50k evasion because they just get paid.
However, I find time and time again that HN crows is absolutely unaware of how useful crypto can be in everyday life, so I offer my perspective.
But largely that's been abandoned for the "store of value"/"number go up" speculative use-case which is easily 99.99% of the point of Bitcoin today.
Legal tender 1: -15%
Legal tender 2: +115%
Guess which one has been deemed a "Failed experiment".
What do you mean, why should my money NOT go up in value?
https://singlelunch.com/2020/10/21/badeconomics-putting-400m...
But to answer your question more directly, you should use a money that loses value because its purpose is as a medium of exchange and not a store of value. You need to have something in your life that you can reliably use to acquire things you need and exchange them for things you have (new laptop for hours worked). You want a hot potato, you get it, you pass it along to someone else. If you don't want to spend it on material goods and want to save, that's fine, you can instead "buy" a savings, or "buy" an index fund. You're still passing the hot potato around, but its giving you different things.
Now imagine you don't have a hot potato, you work and you get paid in... idk, something you don't want to get rid of. You struggle with letting go with your currency and so it costs you when you're trying to do exchanges. Similarly, if you're a shop owner or something, people are more hesitant to give you their currency as well. Things get slower, and darker, like a mechanical flashlight that you're spinning slower and slower.
That's an odd definition of money. The ancient Greeks already thought that money is medium of exchange AND a store of value, and throughout history people have preferred money that held its value. It's also circular reasoning. A medium of exchange should lose value, so you should use money that loses value.
> you can instead "buy" a savings, or "buy" an index fund
So money that loses value creates inefficiencies in the economy, because people have to waste time worrying about preserving their wealth, investing, etc.
> You struggle with letting go with your currency
I still need to eat, to live somewhere, I want to experience things, a money that increases in value does not destroy my desire to consume.
I'm also not sure that's a circular reasoning as I provide the reasons why you want a medium of exchange that loses value...
Hmmm... sure, I suppose you can look at it that way. In an inflationary-esque economy, you worry about saving your wealth, so you create instruments to do so: fractional reserve banking, mutual funds, etc. This is a problem with many solutions. On the other hand, in a deflationary-esque economy, you worry about spending your wealth, and perhaps more importantly, getting everyone around you to spend it as well. That problem has less solutions.
I said you struggle, you don't hold on forever, you struggle letting go. As in you eventually do let go, but not as quickly as if it had been depreciating. It functions as a brake on consumption, not a full stop. It slows things down. Slow is not good. Things start to go down when things slow.
Do you see the absurdity?
The point of legal tender is that it reduces in value slowly over time, so you don't just hoard it under your bed. If someone paid me in BTC, I wouldn't spend it, I would hang on to it. That's not how currency works. Currency is the thing you want to spend, not hand on to.
and they both can share the same unit of account.
The Unadulterated Gold Standard articles have a more detailed discussion of this.
Well the point of money is to use it at some point, your theory is right if people were to live for the infinity but we don't so at some point you will spend all your hard earned Bitcoin because you just don't want to die rich but live rich.
That's the basic reason why all this nonsense about how bad having an deflationary economy is crap. People spend at some point their money, they don't hold on to it for ever.
At some point a balance between reward (money taking more value) and loss (time spent starving, not benefiting from your assets) is reached.
I sincerely don't know anything about monetary policy, but I can't imagine that sort of volatility in the value of your currency is considered a good thing.
[1] https://finance.yahoo.com/news/el-salvador-changes-bitcoin-r... [2] https://www.msn.com/en-us/money/financial-regulation/el-salv...
What were Bukele's goals with his policy of adopting bitcoin?
At the end of the day they abandoned the policy because they believe it will help the economy to abandon it (indirectly via the loan). I certainly wouldn't call that a success.
somehow everyone forgets that wars don't make sense and shouldn't really be financeable... and yet they are.
BTC can burn orders of magnitude more energy if it makes financing wars just twice as hard as it is today...
So I wouldn't call it a "failed experiment" per se - more like a publicity stunt that has achieved publicity.