The point about efficiency increasing seems wrong. Yes, efficiency of hashing has increased, but it's an arms race. When Visa buys more efficient computers, we use less electricity to accomplish a goal. When I buy a better ASIC I still pour as much juice into it as I can afford to churn out hashes - and if the network is producing too many hashes they up the difficulty. As efficiency increases, with bitcoin we keep pouring the same amount of electricity into mining, but we're also pouring resources into building single-purpose chips that will be useless when bitcoin migrates to a different hashing algorithm.
But possibly less, if there's some sort of arbitrage going on. Also, the energy requirement can't fluctuate as much as the price of bitcoins does.
Note I'm not trying to be argumentative. I'm actually genuinely curious. Even just order of magnitude. Folks in the media talk about the energy cost, but never with any attempt to quantify it.
It looks like the best ASICs are at around 1.5 gigahash / joule. Certainly less than 2.
So 13 million gigahash per second translates into at least 6.5 megawatts. But 2 is a pretty aggressive figure, it's probably easily above 10 megawatts.
For sure. It can especially be less due to short term capital constraints. If power gets cheaper, people want to produce more but it takes time to make more ASICs. To give a real thorough answer, though, takes more numbers and possibly more expertise than I have.
> but we're also pouring resources into building single-purpose chips that will be useless when bitcoin migrates to a different hashing algorithm.
I don't get this argument. Why do they have to be used for something else after "you're done with them"? You've made your profit with them (since if you aren't going to make a profit with them, you aren't going to buy them in the first place), so what else would you use them for?
The ASIC's serve a purpose: mining Bitcoin and maintaining the Bitcoin network. I don't get why there has to be "something else" they need to be useful for. Bitcoin is the point.
There is the opportunity cost and the social cost. And there is no canonical, singular "point" about mining that one could refer to that would obviate those questions. But maybe the social cost is low, e.g., many miners and Bitcoin speculators would otherwise have been unemployed, and would have contributed at least as much carbon to the Earth's carbon budget had they done something else.
I see no reason to anticipate Bitcoin moving to a new hashing algo, given the investment in existing hardware, and that the hardware owners are the ones who vote with their gigahashes on how the network functions.
However, even if it were to change, there are several altcoins that use the same hashing algorithm (PeerCoin being the biggest), and/or someone will invent a new blockchain service to take advantage of the existing hardware. While I think there is great merit to ASIC-resistant hashing algorithms of ProtoShares/PrimeCoin/etc, that ASICs would ever become useless seems highly unlikely.
Attacks against cryptographic algorithms only get better. If SHA256 is weakened sufficiently, bitcoin (and altcoins that use SHA256) will need to move. Which it can, but that makes existing ASICs worthless.
Its worth nothing that as this arms race proceeds, the historical record of Bitcoin transactions becomes harder to undo, and 51% attacks become too costly for even some nation-states.
The total cost of mining a block will approximate the block reward plus transaction fees. To see how much of that cost is electricity, compare the cost of the hardware to the electricity it uses.
For example, on Amazon right now I see a Bitmain AntMiner U1 USB miner. It costs $70 and they claim it uses 2 watts and is a recent chip.
Let's say it has a lifetime of three years. Three years of two watts is 26 kWh, which will cost about $2.60, which means that for this chip, the electricity is only 4% of the total mining cost.
Of course the rest of the computer uses power, I'm assuming that either the computer is being used for something else as well, or a large operation has a special chassis holding lots of these chips and not wasting power on much else. Anyone who's not so efficient won't be able to compete.
The fact that bitcoin's mining cost is becoming dominated by hardware rather than energy is a very positive development, in my opinion.
Right now the ASIC vendors seem to be capital-constrained and are not producing enough ASICs to meet demand. At equilibrium we should expect that the cost of mining will equal the rate of BTC generation and a significant fraction of the cost of mining will be power.
Probably. On the other hand if chips get as optimized as they can get aside from further advance of Moore's Law, and they're produced in mass quantities, maybe people will start using them as heating elements in home water heaters.
A lot of the emerging currencies are focusing on memory-constrained hashing algorithms. RAM has price/energy ratios similar to what I mentioned for ASICs, and is already in mass production and about as optimized as major industry is able to make it.
I'm really pleased to see someone else hitting on the value of the blockchain data. One of the reasons I think Bitcoin itself will become more valuable over time is the amount of big data being added to the system via the transactions taking place. For the first time in the World's history, we actually have a completely transparent system financial system we can observe and use to make decisions.
I also think that aspect is interesting, but I wonder if it will really reveal as much interesting information as one hopes. If everyone used a single wallet (or small number of wallets) and made only "real" transactions, it'd be a transparent (if pseudonymous) data set about how money is flowing around in the Bitcoin universe. And that would actually give hard data for understanding an economy, of the sort that one has to estimate very imperfectly in other currencies.
But it's pretty easy to purposely foul the data if you want, especially given the ease-of-use of mixers. I would guess if Bitcoin usage gets more important, obfuscating schemes will only get more sophisticated and widespread.
The value? No. The more data you have about where money flows the less privacy we have and the more control you give law enforcement.
Think about all the Friend of Friend wire taps. Suddenly the $20 bill you bought starbucks with gets given as change to a drug dealer and you are on a known associate list.
You also have all sorts of issues where if 50% of the world's transactions were done in BTC the blockchain data would be too large for 90+% of nodes to store.
Luckily there are solutions to both. For example, at least two currencies are coming out using zero-knowledge proofs to break the links between transactions, and the "finite blockchain" idea would reduce the long-term blockchain storage to a constant few bytes per block, regardless of transactions per block.
The original plan for the zero-knowledge idea was to roll it into bitcoin, but so far the bitcoin devs aren't going for it, so it'll be just altcoins for now at least. The finite blockchain is probably too big of a structural change. There has been a fair amount of work on less extreme ways of compressing the blockchain that could work for bitcoin.
II'm optimistic about cryptocurrencies in general, but it could well be that Bitcoin itself will be made obsolete.
Anonymity it still a choice with Bitcoin, regardless of having a public blockchain.
Law enforcement is a strict finite resource. Much like the futility of trying to bring down bittorrent seeders, BTC has the advantage of technology, decentralization, and scale, which multiplies (in an increasing fashion over time) the complexity of being able to track individuals to cryptocurrencies. Is it possible with effort? Sure. But it's an incredibly expensive endevour. Especially when someone invests time and effort into trying to hide.
Think about all the Friend of Friend wire taps. Suddenly the $20 bill you bought starbucks with gets given as change to a drug dealer and you are on a known associate list.
While this is not something anyone who values privacy wants, this isn't that great of an example because the transaction history would show that the association is specious, as the association only exists through being a customer at the same establishment. A Venn Diagram of who "touched" which money wouldn't provide any value (this wouldn't stop people from making that association, I grant however).
However, this sounds a lot like contaminated currency[0], and no one thinks that just because you have a dollar bill that has illicit drugs on it means that you're drug dealer or associate with drug dealers. This ends up working for the benefit of those in the illicit drug industry much more than it harms those who are not, despite that both parties are using the same medium of exchange.
I was mystified about how infinite divisibility addresses the deflation argument. Then I found the author make this priceless statement in the comments:
"I agree with folks that I basically dodged the argument about deflation. I did it deliberately. Talking about deflation is like talking about God. Basically as soon as you mention the word all dialogue stops. People already have an idea in their head about whether it is good or bad and nobody listens any more. I admit I am no economic expert."http://bitcoinmagazine.com/9359/charles-stross-doesnt-know-t...
That pretty much answers the question of whether he's a libertarian. At this point does anybody besides hard libertarians like the mises institute think deflation can be a good thing?
First, I agree that libertarians are intellectually embarassing, and I am sad to see them arguing poorly for so many things I agree with.
Second, addressing deflation.
From the point of view of production: deflation would get priced into the value of the currency so that it wouldn't at all be clear that holding onto deflationary currency will net you more than actually investing it in productive activity.
From the point of view of consumption: Arguing that people will hold onto currency to eek out a little more value is like arguing that people in an inflationary economy will withohold selling goods and services to eek out a little more value. It just doesn't happen that way.
In an inflationary society, consumption can't and won't be deferred indefinitely (the rich would rather have their new boat now and the poor don't have an option to wait and buy food later). Same goes for production in an inflationary society.
Yes, these are good insights. If consumers hoard currency in a deflationary economy, we should expect producers to hoard in an inflationary one.
(I’d also argue that there is nothing special about “zero”, that slight inflation or deflation are not different in kind.)
Further, the tech industry fits every definition of deflationary – your dollars will buy more next year, and consumers hold expectations of same. But it has grown in wages, revenues, consumer benefit, persistently.
1. The only "producer" of fiat currency is the government that issues it. There is no incentive for a government to hoard money it creates to pay its own bills.
2. Even if we imagine a currency which must be produced, it's a matter of degrees. A little inflation is good, a little deflation isn't terrible.
3. Arguing that, because your dollar buys a better computer next year, it is the same as your dollar buying more food tomorrow than what it can today is beyond ridiculous.
If consumers (of goods) hoard currency in a deflationary environment then producers (of goods) should hoard commodities in an inflationary environment. In both cases they're acting rationally to maximize value.
Inflation: A producer should hoard goods because it will (likely) be worth more tomorrow than it is today. In the mean time they have to spend money to maintain storage of the good. They have to maintain the condition of the goods so it's still useful when they sell it. They have to pay people to maintain these things. Which means eventually they have to sell something in order to pay these costs associated with their hoarding. Very few goods (outside of raw materials like metals) can sit around for years at a time and gain value. If it's food, it'll rot. If it's a technology good, it'll be obsoleted. Even oil and many other non-dietary consumables will succumb to decay of some sort over time.
Deflation: A consumer should hoard cash because it will (likely) be worth more tomorrow than it is today. Outside of home security they don't need much to store it. They'll eventually spend some of it, because they need to eat and feed and clothe their family. But overall, the hoarding here is relatively cheap.
These may both be rational positions, but they are not equivalent positions or mirrors of each other. There is a symmetry, but similarity is not the same as equality.
Planets would have to align to make hoarding profitable for producers. Consider:
- The firm would need to choose potential future income over current income i.e. not need the cash flow and have no good way of investing that money (internally or externally)
- Current sales would have to cannibalize future sales, or else they would sell now and in the future
- The value of the future sale would have to be discounted by the chance that the customer buys from a competitor. So either you're talking about a monopoly or staggering inflation
I don't see this ever happening under what anyone would consider acceptable levels of inflation. What annual rate do you think you'd have to see before this makes any sense?
> From the point of view of production: deflation would get priced into the value of the currency ...
The discount rate cannot be negative. That is, lenders will never pay people to borrow money from them.
The natural interest rate since ancient times is about 10%/year. So if there is 1% annual deflation, lenders can charge 9%. If the deflation is 8%, lenders can charge 2%. But if deflation is 13%, lenders cannot charge -3% interest. You cannot possibly pay people to borrow money from you. At that point all the mortgaging, public works bonding, factoring, revolving credit, etc. comes crashing to a halt. And firey politicians start saying that mankind shall not be crucified on a cross of gold.
Apologies for the friendly fire, but we did manage to achieve negative real interest rates in recent history.
People bought debt from governments at a negative discount at several points during the Great Recession because it was perceived as less risky than a bank (they were afraid the bank would go under, and take with it their money), and less costly than a cash vault. So that once self-evident fact now has a couple of exceptions.
Of course, this doesn't help consumers, since they aren't safer than banks, and it doesn't apply to Bitcoins, since the cost to store them securely is zero.
Anyway, in a hypothetical bitcoin economy, I can't _imagine_ annual deflation in the range you are talking about (e.g. close to 10% or greater), because that should be "priced in" ahead of time. I mean, there should/could be some deflation (or even inflation) on a year-by-year basis, but it shouldn't be that high. Right?
Yet another bitcoin article written by someone who knows absolutely nothing about economics. Deflation is a devastating influence to a currency and economy. It is like a neutron bomb! To see such buffoons wave it away without even approaching a cursory understanding of it is truly tragic.
If there are any doubters out there, let me spell it out: "infinite divisibility" does NOT address the built in deflationary character of bitcoin.
While the bitcoin protocol is interesting in some aspects and even innovative at the margins, the currency portion of it is asinine. All it takes to understand this is to learn very basic economics and some knowledge of what exactly makes a currency a currency.
You're right, it is bombastic short-hand to concisely communicate how devastating deflation is and why central banks do everything they possibly can to avoid it. Here's just one recent example:
http://www.marketwatch.com/story/draghi-faces-deflation-thre...
Everyone is free to access wealth of information out there about deflation, starting with wikipedia.
>why central banks do everything they possibly can to avoid [deflation].
Right. It can't possibly be because inflation makes it easier for governments to repay debt obligations and increase their cash flow without overtly increasing taxes.
It doesn't make sense to take a notion of deflation you've picked up from the recent histories of fiat, credit-driven currencies and apply it to Bitcoin. The "neutron bomb" kind of deflation you have in mind is the sort that gets touched off when a massive credit bubble bursts, and a huge volume of credit money disappears from the economy as bad debts are written off en masse.
Since the issuance of credit is severely curtailed under Bitcoin (which may doom it as a currency for other reasons), I don't see how that kind of deflation can happen with it.
The U.S. dollar was essentially a gradually deflationary currency throughout the latter half of the 19th Century. Despite modern attempts to paint the period as a horror show of volatility and panics, there was actually quite robust economic progress and growth. The trend toward lower prices was widely appreciated and seen as a sign of material progress (assuming you weren't, say, a farmer with a vested interest in higher prices). There were some hard times following the panic of 1893, but nothing like the sort of calamity that happened in the 1930s, long after inflationary forces had already wrested a significant amount of control over the dollar.
This post really is less of a rebuttal and more of a DoS attack.
The tl;dr amounts to:
* author agrees with Stross that bitcoin is energy intensive.
* author says there have been improvements to carbon footprint (as if that some how address the issue of theft of other people's electricity/CPU cycles being more efficient than spending your own electricity)
* An argument about deflation that amounts to "there's no consensus in economics so it's fine if we run speculative experiments with economies"
* A non-argument assertion that bitcoin is somehow no worse than cash as a vehicle for illegal/unethical behavior.
Somehow this is suppose to amount to a take down of a dude who wrote literally an entire book about how algorithmically mediated systems which do not depend on human judgement are inherently inhuman and unconcerned about human ethical concerns.
"It’s hard to believe that an author who wrote about algorithmically run 2.0 economies and trading exchanges for personal reputations can fail to see the precursors of that tech in the real world."
wat.
Seems like the author seems to be the primary source of misunderstanding.
"Theft of other people's electricity" in the form of botnets, for the purpose of mining bitcoin is addressed by raising the difficulty to the point where you cannot meaningfully mine on CPUs or GPUs. This is done by prevalence of ASIC miners. In theory a botnet would still generate some revenue eventually, for any difficulty level, but there are expenses (time, if nothing else) to setting up a botnet; most importantly, there are more profitable uses a botnet could be put to if you're going to the trouble of building one.
No one steals CPU cycles to mine Bitcoin. CPUs are no longer profitable in the wake of Bitcoin ASICs, even with huge botnets.
Most of theoretical economics is, at best, approximations that only work sometimes. I don't care if Krugman tells you otherwise; economic theory is, at best, a feeble attempt to find a pattern that matches experimentally observed behaviors. So yes, it is fine to run economic experiments. And the great thing about Bitcoin is that no one is being forced to use it, which I can't say is true for most economic systems.
Do you disagree that Bitcoin is no worse than cash for illegal behavior?
Stross didn't actually describe or design any of the economic systems he wrote about; he just imagined them from an external perspective and wrote some vague description of what they might accomplish.
Either the botnet operators are small-time fools or the article is incorrect. More likely is that the malware used some more CPU-friendly cryptocurrency.
Even if you had a million slave computers, you really couldn't make all that much Bitcoin. There are significantly more profitable things to do with CPU time.
Bitcoin has cash-like properties and it is also digital (allowing fast transactions at a distance), making it more powerful than cash. I've come to see Bitcoin not as a neutral entity but as a force multiplier for criminals, scammers, and sociopaths. I am inclined to agree with Stross that law-abiding liberals (or as Bitcoiners call them, "sheep") have more to lose than gain from Bitcoin.
I keep hearing this meme of "inflation is always great, deflation is always bad" with nothing to support it but the same tired "inflation makes you spend money" argument.
Inflation encourages spending money but discourages earning it.
Deflation encourages earning money but discourages spending it.
People need to eat, so in the end these competing interests will always balance out, whether your currency is inflationary or deflationary.
Sure, but we have a economy that's extremely reliant on consumer spending, in fact it's about 70% of GDP these days [1]. Major deflation of the USD and the resulting decrease in spending would be devastating to the national economy [2]. Moderate inflation, however, serves to stimulate economic growth (while a similar degree of deflation would have a proportionally negative effect on growth).
Is this an ideal economic system? Maybe not, who knows. It's what we have though. And it is a direct consequence of an economy driven by growth, and one that encourages liberal individual consumption.
>Sure, but we have a economy that's extremely reliant on consumer spending, in fact it's about 70% of GDP these days
What a meaningless statement in this context. "Consumer spending" refers to private sector spending. This is as opposed to, for example, Government spending, which might also fluctuate with changes in monetary policy. What percentage of the GDP is estimated to come from consumer spending has little bearing on the effect changes in inflation rate might have on the economy. You are trying to oversimplify a vastly complex system.
If what you are implying (that there is a causal positive relationship between inflation and production) were true, it would be economically advantageous to adopt zimbabwe-style inflation.
>...would be devastating to the national economy
Please actually read the article you linked.
"Speculative lending practices in western states, a sharp decline in cotton prices, a collapsing land bubble, international specie flows, and restrictive lending policies in Great Britain were all to blame."
Deflation was a result of this panic, not the cause of it.
"If what you are implying (that there is a causal positive relationship between inflation and production) were true, it would be economically advantageous to adopt zimbabwe-style inflation."
"A little is good, a lot is bad" is in no way an inconsistent position - it's true about most things.
To dismiss concerns over deflation as a "tired argument" is to ignore a good amount of serious academic research (which has been conducted over nearly a century) about the role that deflation has to play in exacerbating (and possibly triggering) economic depressions.
Although the point is contested, many economists believe that the competing interests you describe will not balance out.
> is to ignore a good amount of serious academic research
Economics is perhaps second only to psychology in the amount of internal inconsistency it experiences as an allegedly somewhat scientific field.
>(which has been conducted over nearly a century)
Is this supposed to convince me? Half of contemporary economic theory gets thrown out the window every few decades.
>Although the point is contested
No shit. Equally legitimate disciplines of economics reach completely different conclusions on the matter, which doesn't say much for the legitimacy of overarching economic theory in general.
Just as a very basic overview, here's some of what Wikipedia has to say about it:
I really love this article. The author puts so many solid points forward.
I would like to offer a possibility about Stross. Hasn't anyone considered that he's simply trolling? I've read all of his books and even met him once in SF. It seems much more likely to me that he is playing a game here and his recent comments do not reflect his actual thoughts.
"Being a sci-fi author is about being open to possibilities. When a writer loses that ability to see what might be, maybe it’s time for him to step aside and make way for a new generation of authors who still can."
What an insulting way to conclude an article.
"If you lack the vision to agree with me about Bitcoin, maybe you're old and terrible at your job."
It should be noted that Charles Stross wrote a book, Neptune's Brood, where a bitcoin-like currency is used to finance interstellar colonization, so a lack of vision is not really a problem.
I suspect Stross may have been trolling, just to try to ward off the existential risk that bitcoin and autonomous economic entities edge us closer to. Either that or he's holding btc himself and figures that fomenting debate will be good for the value levitation.
"Slow money" in Neptune's Brood is a digital currency, and is confusingly referred to as a "bitcoin" a few times, but it's actually a really fascinating idea that's very different from BTC.
The gist of it, if I remember it right, is that all transactions are authenticated by an interstellar 2-phase commit handshake. The distances involved keep the value of the currency stable, because transactions can take decades to process, and the direction of the signal is actually used as a form of authentication, to guard against (literal) MITM attacks. The goal of slow money was to have a currency that was stable enough to finance multi-century interstellar colonization projects.
The amount of energy "wasted" by the Bitcoin network will always be approximately the amount of energy that can be bought with the Bitcoins mined in a given period.
If the cost of energy is higher than the value of the Bitcoins the miners earn, miners will stop mining.
Some miners don't care about cost (people who get free electricity) but they are not a significant factor.
Miners also have to cover the cost of their hardware, so they want to leave a significant margin for profit.
The cost of power for the Bitcoin network is very small compared to worldwide power usage.
The unstated and assumption here is that the recipient of the bitcoins is the same as the person who bears the cost of mining them. Stealing computing resources is one way for this assumption to be violated.
I don't know though, that this amount of theft is significant compared to the bulk of resources spent on bitcoin.
Bitcoin mining, from my cursory research however, doesn't really consume much electricity compared to the aggregate of all usage across the world, as you've stated.
If you could let me know where I can get illicit access to ASIC miners I'm all ears. From what I can tell those fucking things are guarded by all who own them in a severe way.
EDIT: I'm not actually interested in stealing time on people's ASICs to mine bitcoin. I just think it's effectively impossible to do so. But I'm genuinely curious to know if there's a plausible attack vector.
No one steals computing resources to mine Bitcoins. Bitcoin ASICs made Bitcoin botnets completely unprofitable.
On the other hand, a small number of miners (none of the big mining groups) steal (if you want to call it that) electricity from, say, dorm rooms or apartment buildings. However, I doubt these people contribute even a percent of the network's total hashing power.
proof of work is inherently wasteful in a way that other systems are not.
Exactly how wasteful they are is yet to be determined. This depends on how much value a successful attack on the blockchain could be to an attacker. The greater the value, the greater the cost of the proof-of-work system needed to prevent it.
The argument about deflation is moot, since Bitcoin isn't the only digital currency. At this point there's a website that lets you create your own with a few clicks.
Rather than a single deflationary currency, what we have is a lot of privately-issued competing currencies. Hayek advocated a system like this, arguing that it would result in stable prices and economies without need of a central bank.
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[ 3.7 ms ] story [ 130 ms ] threadNote I'm not trying to be argumentative. I'm actually genuinely curious. Even just order of magnitude. Folks in the media talk about the energy cost, but never with any attempt to quantify it.
So 13 million gigahash per second translates into at least 6.5 megawatts. But 2 is a pretty aggressive figure, it's probably easily above 10 megawatts.
Unfortunately though, my guess is that it is very very tough to estimate due to the sheer variety of hardware that is being used.
I am sure that a large number of people are still mining with GPUs which consume more power/mhash than ASICs.
I came across someone last week who was mining with a CPU, I am confident he's not the only one.
I don't get this argument. Why do they have to be used for something else after "you're done with them"? You've made your profit with them (since if you aren't going to make a profit with them, you aren't going to buy them in the first place), so what else would you use them for?
The ASIC's serve a purpose: mining Bitcoin and maintaining the Bitcoin network. I don't get why there has to be "something else" they need to be useful for. Bitcoin is the point.
However, even if it were to change, there are several altcoins that use the same hashing algorithm (PeerCoin being the biggest), and/or someone will invent a new blockchain service to take advantage of the existing hardware. While I think there is great merit to ASIC-resistant hashing algorithms of ProtoShares/PrimeCoin/etc, that ASICs would ever become useless seems highly unlikely.
For example, on Amazon right now I see a Bitmain AntMiner U1 USB miner. It costs $70 and they claim it uses 2 watts and is a recent chip.
Let's say it has a lifetime of three years. Three years of two watts is 26 kWh, which will cost about $2.60, which means that for this chip, the electricity is only 4% of the total mining cost.
Of course the rest of the computer uses power, I'm assuming that either the computer is being used for something else as well, or a large operation has a special chassis holding lots of these chips and not wasting power on much else. Anyone who's not so efficient won't be able to compete.
The fact that bitcoin's mining cost is becoming dominated by hardware rather than energy is a very positive development, in my opinion.
A lot of the emerging currencies are focusing on memory-constrained hashing algorithms. RAM has price/energy ratios similar to what I mentioned for ASICs, and is already in mass production and about as optimized as major industry is able to make it.
That unit does 1.6 Gigahash / second.
The bitcoin earned in a period of time will roughly follow that proportion.
Very exciting stuff. I'm glad to be part of it.
But it's pretty easy to purposely foul the data if you want, especially given the ease-of-use of mixers. I would guess if Bitcoin usage gets more important, obfuscating schemes will only get more sophisticated and widespread.
Think about all the Friend of Friend wire taps. Suddenly the $20 bill you bought starbucks with gets given as change to a drug dealer and you are on a known associate list.
You also have all sorts of issues where if 50% of the world's transactions were done in BTC the blockchain data would be too large for 90+% of nodes to store.
II'm optimistic about cryptocurrencies in general, but it could well be that Bitcoin itself will be made obsolete.
Law enforcement is a strict finite resource. Much like the futility of trying to bring down bittorrent seeders, BTC has the advantage of technology, decentralization, and scale, which multiplies (in an increasing fashion over time) the complexity of being able to track individuals to cryptocurrencies. Is it possible with effort? Sure. But it's an incredibly expensive endevour. Especially when someone invests time and effort into trying to hide.
While this is not something anyone who values privacy wants, this isn't that great of an example because the transaction history would show that the association is specious, as the association only exists through being a customer at the same establishment. A Venn Diagram of who "touched" which money wouldn't provide any value (this wouldn't stop people from making that association, I grant however).
However, this sounds a lot like contaminated currency[0], and no one thinks that just because you have a dollar bill that has illicit drugs on it means that you're drug dealer or associate with drug dealers. This ends up working for the benefit of those in the illicit drug industry much more than it harms those who are not, despite that both parties are using the same medium of exchange.
[0] http://en.wikipedia.org/wiki/Contaminated_currency
"I agree with folks that I basically dodged the argument about deflation. I did it deliberately. Talking about deflation is like talking about God. Basically as soon as you mention the word all dialogue stops. People already have an idea in their head about whether it is good or bad and nobody listens any more. I admit I am no economic expert." http://bitcoinmagazine.com/9359/charles-stross-doesnt-know-t...
That pretty much answers the question of whether he's a libertarian. At this point does anybody besides hard libertarians like the mises institute think deflation can be a good thing?
Second, addressing deflation.
From the point of view of production: deflation would get priced into the value of the currency so that it wouldn't at all be clear that holding onto deflationary currency will net you more than actually investing it in productive activity.
From the point of view of consumption: Arguing that people will hold onto currency to eek out a little more value is like arguing that people in an inflationary economy will withohold selling goods and services to eek out a little more value. It just doesn't happen that way.
In an inflationary society, consumption can't and won't be deferred indefinitely (the rich would rather have their new boat now and the poor don't have an option to wait and buy food later). Same goes for production in an inflationary society.
(I’d also argue that there is nothing special about “zero”, that slight inflation or deflation are not different in kind.)
Further, the tech industry fits every definition of deflationary – your dollars will buy more next year, and consumers hold expectations of same. But it has grown in wages, revenues, consumer benefit, persistently.
2. Even if we imagine a currency which must be produced, it's a matter of degrees. A little inflation is good, a little deflation isn't terrible.
3. Arguing that, because your dollar buys a better computer next year, it is the same as your dollar buying more food tomorrow than what it can today is beyond ridiculous.
They are not the same thing in any rational way.
Deflation: A consumer should hoard cash because it will (likely) be worth more tomorrow than it is today. Outside of home security they don't need much to store it. They'll eventually spend some of it, because they need to eat and feed and clothe their family. But overall, the hoarding here is relatively cheap.
These may both be rational positions, but they are not equivalent positions or mirrors of each other. There is a symmetry, but similarity is not the same as equality.
- The firm would need to choose potential future income over current income i.e. not need the cash flow and have no good way of investing that money (internally or externally)
- Current sales would have to cannibalize future sales, or else they would sell now and in the future
- The value of the future sale would have to be discounted by the chance that the customer buys from a competitor. So either you're talking about a monopoly or staggering inflation
I don't see this ever happening under what anyone would consider acceptable levels of inflation. What annual rate do you think you'd have to see before this makes any sense?
The discount rate cannot be negative. That is, lenders will never pay people to borrow money from them.
The natural interest rate since ancient times is about 10%/year. So if there is 1% annual deflation, lenders can charge 9%. If the deflation is 8%, lenders can charge 2%. But if deflation is 13%, lenders cannot charge -3% interest. You cannot possibly pay people to borrow money from you. At that point all the mortgaging, public works bonding, factoring, revolving credit, etc. comes crashing to a halt. And firey politicians start saying that mankind shall not be crucified on a cross of gold.
People bought debt from governments at a negative discount at several points during the Great Recession because it was perceived as less risky than a bank (they were afraid the bank would go under, and take with it their money), and less costly than a cash vault. So that once self-evident fact now has a couple of exceptions.
Of course, this doesn't help consumers, since they aren't safer than banks, and it doesn't apply to Bitcoins, since the cost to store them securely is zero.
Anyway, in a hypothetical bitcoin economy, I can't _imagine_ annual deflation in the range you are talking about (e.g. close to 10% or greater), because that should be "priced in" ahead of time. I mean, there should/could be some deflation (or even inflation) on a year-by-year basis, but it shouldn't be that high. Right?
If there are any doubters out there, let me spell it out: "infinite divisibility" does NOT address the built in deflationary character of bitcoin.
While the bitcoin protocol is interesting in some aspects and even innovative at the margins, the currency portion of it is asinine. All it takes to understand this is to learn very basic economics and some knowledge of what exactly makes a currency a currency.
What a fair and emotionally unladen assessment of an economic phenomenon.
Everyone is free to access wealth of information out there about deflation, starting with wikipedia.
Right. It can't possibly be because inflation makes it easier for governments to repay debt obligations and increase their cash flow without overtly increasing taxes.
Since the issuance of credit is severely curtailed under Bitcoin (which may doom it as a currency for other reasons), I don't see how that kind of deflation can happen with it.
The U.S. dollar was essentially a gradually deflationary currency throughout the latter half of the 19th Century. Despite modern attempts to paint the period as a horror show of volatility and panics, there was actually quite robust economic progress and growth. The trend toward lower prices was widely appreciated and seen as a sign of material progress (assuming you weren't, say, a farmer with a vested interest in higher prices). There were some hard times following the panic of 1893, but nothing like the sort of calamity that happened in the 1930s, long after inflationary forces had already wrested a significant amount of control over the dollar.
The tl;dr amounts to:
* author agrees with Stross that bitcoin is energy intensive.
* author says there have been improvements to carbon footprint (as if that some how address the issue of theft of other people's electricity/CPU cycles being more efficient than spending your own electricity)
* An argument about deflation that amounts to "there's no consensus in economics so it's fine if we run speculative experiments with economies"
* A non-argument assertion that bitcoin is somehow no worse than cash as a vehicle for illegal/unethical behavior.
Somehow this is suppose to amount to a take down of a dude who wrote literally an entire book about how algorithmically mediated systems which do not depend on human judgement are inherently inhuman and unconcerned about human ethical concerns.
"It’s hard to believe that an author who wrote about algorithmically run 2.0 economies and trading exchanges for personal reputations can fail to see the precursors of that tech in the real world."
wat.
Seems like the author seems to be the primary source of misunderstanding.
Most of theoretical economics is, at best, approximations that only work sometimes. I don't care if Krugman tells you otherwise; economic theory is, at best, a feeble attempt to find a pattern that matches experimentally observed behaviors. So yes, it is fine to run economic experiments. And the great thing about Bitcoin is that no one is being forced to use it, which I can't say is true for most economic systems.
Do you disagree that Bitcoin is no worse than cash for illegal behavior?
Stross didn't actually describe or design any of the economic systems he wrote about; he just imagined them from an external perspective and wrote some vague description of what they might accomplish.
Even if you had a million slave computers, you really couldn't make all that much Bitcoin. There are significantly more profitable things to do with CPU time.
Inflation encourages spending money but discourages earning it.
Deflation encourages earning money but discourages spending it.
People need to eat, so in the end these competing interests will always balance out, whether your currency is inflationary or deflationary.
Is this an ideal economic system? Maybe not, who knows. It's what we have though. And it is a direct consequence of an economy driven by growth, and one that encourages liberal individual consumption.
[1] http://en.wikipedia.org/wiki/Consumer_economy [2] http://en.wikipedia.org/wiki/Panic_of_1837
What a meaningless statement in this context. "Consumer spending" refers to private sector spending. This is as opposed to, for example, Government spending, which might also fluctuate with changes in monetary policy. What percentage of the GDP is estimated to come from consumer spending has little bearing on the effect changes in inflation rate might have on the economy. You are trying to oversimplify a vastly complex system.
If what you are implying (that there is a causal positive relationship between inflation and production) were true, it would be economically advantageous to adopt zimbabwe-style inflation.
>...would be devastating to the national economy
Please actually read the article you linked.
"Speculative lending practices in western states, a sharp decline in cotton prices, a collapsing land bubble, international specie flows, and restrictive lending policies in Great Britain were all to blame."
Deflation was a result of this panic, not the cause of it.
"A little is good, a lot is bad" is in no way an inconsistent position - it's true about most things.
Although the point is contested, many economists believe that the competing interests you describe will not balance out.
Some Wikipedia links:
http://en.wikipedia.org/wiki/Deflation#Deflationary_spiral
http://en.wikipedia.org/wiki/Debt_deflation
Economics is perhaps second only to psychology in the amount of internal inconsistency it experiences as an allegedly somewhat scientific field.
>(which has been conducted over nearly a century)
Is this supposed to convince me? Half of contemporary economic theory gets thrown out the window every few decades.
>Although the point is contested
No shit. Equally legitimate disciplines of economics reach completely different conclusions on the matter, which doesn't say much for the legitimacy of overarching economic theory in general.
Just as a very basic overview, here's some of what Wikipedia has to say about it:
http://en.wikipedia.org/wiki/Price/wage_spiral
http://en.wikipedia.org/wiki/Stagflation
I would like to offer a possibility about Stross. Hasn't anyone considered that he's simply trolling? I've read all of his books and even met him once in SF. It seems much more likely to me that he is playing a game here and his recent comments do not reflect his actual thoughts.
What an insulting way to conclude an article.
"If you lack the vision to agree with me about Bitcoin, maybe you're old and terrible at your job."
The gist of it, if I remember it right, is that all transactions are authenticated by an interstellar 2-phase commit handshake. The distances involved keep the value of the currency stable, because transactions can take decades to process, and the direction of the signal is actually used as a form of authentication, to guard against (literal) MITM attacks. The goal of slow money was to have a currency that was stable enough to finance multi-century interstellar colonization projects.
As we watch out for fallacies, we need to be careful not to invoke the fallacy fallacy :)
The amount of energy "wasted" by the Bitcoin network will always be approximately the amount of energy that can be bought with the Bitcoins mined in a given period.
If the cost of energy is higher than the value of the Bitcoins the miners earn, miners will stop mining.
Some miners don't care about cost (people who get free electricity) but they are not a significant factor.
Miners also have to cover the cost of their hardware, so they want to leave a significant margin for profit.
The cost of power for the Bitcoin network is very small compared to worldwide power usage.
I don't know though, that this amount of theft is significant compared to the bulk of resources spent on bitcoin.
Bitcoin mining, from my cursory research however, doesn't really consume much electricity compared to the aggregate of all usage across the world, as you've stated.
EDIT: I'm not actually interested in stealing time on people's ASICs to mine bitcoin. I just think it's effectively impossible to do so. But I'm genuinely curious to know if there's a plausible attack vector.
On the other hand, a small number of miners (none of the big mining groups) steal (if you want to call it that) electricity from, say, dorm rooms or apartment buildings. However, I doubt these people contribute even a percent of the network's total hashing power.
Exactly how wasteful they are is yet to be determined. This depends on how much value a successful attack on the blockchain could be to an attacker. The greater the value, the greater the cost of the proof-of-work system needed to prevent it.
http://www.antipope.org/charlie/blog-static/2013/12/why-i-wa...
Rather than a single deflationary currency, what we have is a lot of privately-issued competing currencies. Hayek advocated a system like this, arguing that it would result in stable prices and economies without need of a central bank.