It's pretty funny how she uses E-gold as an example, which failed due to forcible dismantling by the government.
Hint: Bitcoin was created for the sole purpose of avoiding problems of that nature.
As for the rest of the article, not much content and many unsupported assertions. It would have been nice to hear why bitcoin is completely value-less, beyond not being "goverment backed". But I suppose that discussion would involve actually understanding bitcoin.
why the upvotes? but I'm sure the author is an expert in Elliptic Curve Cryptography and understands the subtleties of hierarchical deterministic wallets.
Quote from the article: Bitcoin mining is not valuable for anything other than creating Bitcoins. Bitcoin is possibly the most valueless asset in history. If people no longer wish to hold or accept Bitcoin, the value will be exactly zero since it has no inherent value, making it an extremely fragile asset.
Therein lies the trouble with taking lessons from economists who don't think it through.
>Bitcoin is possibly the most valueless asset in history. If people no longer wish to hold or accept Bitcoin, the value will be exactly zero since it has no inherent value, making it an extremely fragile asset.
Stock in a shell company also has zero inherent value. This is simply a localised critique of the "most valueless asset" accusation - many assets share that characteristic.
Bitcoin is a fiat currency - it has no intrinsic value.
Government-backed fiat has some intrinsic value - it can cancel tax obligations and thereby has a captive source of demand (taxpayers). But practically speaking, yes, most of any fiat currency's value is in its seignorage, not tax-cancelling intrinsic value.
You don't know what fiat actually means. Fiat means, in a short and sweet manner, the government can force you to use it. No one can make you use bitcoin. If they do it is called 'blackmail'.
> Fiat means, in a short and sweet manner, the government can force you to use it.
Fiat, both from the original Latin, and in practice, means "it shall be".
In the case of money, it means that the token has no intrinsic value, and is not directly convertible into a backing resource with value. Its only value is that given to it by decree of the issuer. There is no component of government compulsion in the definition.
In practice, some fiat monies are the only accepted legal tender currencies for some purposes (e.g. taxes) but it is not a requirement.
A successful fiat currency implies that there is acceptance among users in its fiat value, and some of the most historically effective ways to get people to go along with your assertions boil down to making ultimatums backed up with sharp sticks.
Both stocks in shell companies and fiat money are protected by international treaties and the military might of supporting governments. Has any government declared official and unequivocal support for Bitcoin yet?
No, I did mean the Greeks - but neither country is a great argument for the "fiat currency good, Bitcoin bad" argument.
Re. non-Cypriots, I'm sure that you're right - but the subject was the state's management of its currency, regardless of who owns it. One thing that your example does flush out though is that fiat currency can be crippled by speculation too - and at least Bitcoin does not conflate a currency and a tax regime.
I'm not a cheerleader for Bitcoin specifically, I'm just really, really sceptical about the robustness of traditional currency.
I'm not quite sure how one "closes" a country, but they have abdicated responsibility for many of the core functions of government, and to the individual citizens who are affected I'm sure the government seems "closed", if not the country [1].
Details and semantics aside, my point was that the security that governments allegedly bring to currency, and which Bitcoin allegedly lacks, is often much less concrete than we would wish.
Fiat money is backed by the government, which has a monopoly on force, which is backed by civil society voting it into power.
Value is a human invention, there's really no objective value for something other than what other people demand. The only real difference between bitcoin, fiat currency, and other assets, is that some assets have multiple demand uses -- they supply value for things other than as a currency, and US government assets simply have the way of a much larger, mature, 200 year old institution, with hundreds of millions of people backing it.
Here's the thing: If you are wronged by a crook on the stock market, or by the US government, there is a non-zero chance you can get justice through the courts. But if Mt Gox or Silk Road 2.0 runs off with your money, who has jurisdiction? Who you gonna sue?
The original article makes a lot of mistakes with regards to how bitcoins work, but that's counterbalanced by the hyperinflation/currency debasement hysteria of gold nuts and anarcho-libertarians who think BitCoin is somehow going to end the Fed and restore a pre-1920's Nirvana that never existed.
This "fiat currency is backed by the government" is being thrown around a lot, but what does that actually mean? Can you go and redeem your dollars for a piece of the government? Well, obviously not, but what is it that you mean by that?
And as for Mt Gox: Well, what if Toyota runs off with your money, who has jurisdiction? Who you gonna sue? May I suggest Japan's courts and Toyota? What does that even have to do with bitcoin? If you do business with someone you don't know, that may be risky, whether you give them dollar bills or bitcoin, and if you do business with someone you can identify in real life, some country will probably have jurisdiction over them and you can sue them there, no matter whether they stole your dollars, your bitcoins, or your car.
Bitcoin isn't regulated, there is no oversight or regulation. There is oversight and regulation over the car industry, just like there is over the financial industry. It doesn't stop all fraud or loss, but it does stop some.
I can't redeem my fiat currency for gold bars, but I can and must pay taxes for it, and that creates a demand floor. It means there will always be someone willing to trade dollars for something so that they can pay their taxes.
As for bitcoin being regulated: Well, first of all, that's not an inherent property of bitcoin, but of how it is currently handled politically. And actually, I would argue it isn't actually true. In lots of places, regulation of financial services applies to bitcoin just as it does to dollars, euros, stock, funds, insurance, ... - it may not necessarily consider the specifics of how bitcoin works, but it's not like you could legally operate an unregulated retirement fund in most countries just because you are using bitcoin, and all the general laws regarding fraud and stuff obviously still apply when bitcoin is involved.
As for needing dollars to pay taxes: That doesn't really make much sense, does it? If people didn't want to use it for anything but for paying taxes, how much taxes would they have to pay? If noone wants to actually have dollars, its market value would be zero, so if you measure the income that you want to tax in dollars, it would also be zero, and any percentage of that would still be zero, and so you would not have to pay any taxes at all, and thus would not need any dollars at all in order to pay them (and the government wouldn't even care, as dollars that noone wants to exchange for goods and services are completely useless for the government to have, so why collect them). The only way for the government to actually force the creation of a demand floor would be to force people to sell certain goods and services at government-mandated prices - in which case what you need in order to pay your taxes ultimately are those goods and services and not dollars.
> As for needing dollars to pay taxes: That doesn't really make much sense, does it? If people didn't want to use it for anything but for paying taxes, how much taxes would they have to pay?
As long as taxes are collected other than based on just income in the form of dollars, just as much (or possibly, quite a bit more in real terms) as if they wanted dollars for everything else as well as paying taxes.
> If noone wants to actually have dollars, its market value would be zero, so if you measure the income that you want to tax in dollars, it would also be zero
Wrong, if the market value of dollars was near zero, and you have a tax system that has taxes other than on cash income (e.g., ad valorem property taxes, income taxes that include as income the cash value of non-cash goods and services received in place of cash income, etc.) but demands taxes in dollars, than the tax in dollars will be very large numbers, which will require you to acquire very large numbers of dollars to pay. (If the value of dollars was actually zero, the tax would be infinite, but then, the value of dollars won't actually be zero, because as the value of dollars declines, the number of them needed to meet tax obligations increases, which shores up the value.)
If I was paid in bananas, what would be the value of those bananas that I would have to declare for taxes in dollars when the market value of dollars was zero? And how many dollars would I need in order to pay taxes on that income?
edit: forget that, you are right, of course - I guess it's not a good idea to treat infinity as a number ;-)
>This "fiat currency is backed by the government" is being thrown around a lot, but what does that actually mean?
It means the government will do it's best to ensure the value of its currency, the failure of which would be an existential threat to its existence. I believe many people consider this low risk, that they consider the likelihood of the government failing as much less likely than a particular company or commodity failing. (Of course that depends on the government.)
> I believe many people consider this low risk, that they consider the likelihood of the government failing as much less likely than a particular company or commodity failing. (Of course that depends on the government.)
Perhaps nearly as importantly than considering it low risk in an absolute sense, they consider the risk of it with particular government currencies as being strongly correlated to the risk of money, regardless of its type, losing its utility.
If the US government loses the ability to protect the dollar so rapidly that holders don't have a viable exit to alternative currencies, that probably involves a pretty fundamental breakdown in society (particularly for people located in and around the US.)
I don't think that that is what people usually mean when they say that, and it's not really true either. The goal of the government is to maintain power and hopefully a stable society or something - money is just a tool to that end, and not a goal in itself. After all, the goal of monetary policy usually is inflation, which tends to reduce the value of money. And also, currency is not the only area where governments will interfere as they deem it necessary.
Really, I think what you are saying boils down to "stuff that can have a big impact on society tends to be watched more closely by the government, and it's more likely that the government will interfere to maintain the status quo" - which is a valid point, but it's neither a particularly special thing with money, nor is there any guarantee that it's always to the benefit of the governed.
After world war II, people in Germany burn paper money in winter. Because, by that time, fiat money is cheaper than coal and wood.
That's funny it seems that this economist thinks fiat money can't never be valueless. Well, look Cyprus, and look Ukraine now. I am not saying Bitcoin won't never be valueless, but apparently fiat money is not completely invulnerable.
You know how Bitcoin prices spiked after Cyprus had it's banking issues? You do realize that that happened, and could only happen, because a large number of people believed the Cypriot currency was in fact not likely to remain "valueless" seeing as how it was still the sovereign currency of Cyprus, and were willing to exchange at least Bitcoin to hold it.
The examples you give, are not examples where just fiat money fails. They're examples of the entire architecture of a society falling apart (the government is being overthrown in the Ukraine, post WW1 Germany was in the midst of a massive recession). These are all situations where no currency retains a stable value since no currency allows you to eat, fuel vehicles or defend yourself. In those situations, Bitcoin is as valueless as anything else (more so, by virtue of being unusable without the internet).
Except there was no such thing as a sovereign currency of Cyprus as Cyprus is using the euro, but only balances in bank accounts in Cyprus were at risk, so people with euro bank accounts outside Cyprus selling bitcoins for euros were simply profiting from that risk asymmetry.
Except a shell company does generally have assets, IP and so on, when there is a bankruptcy, there is a chance the shareholders get something out of it. Also, Fiat money has the government (and well, the bank notes are worth at least something on ebay :)).
Bitcoin on the other hand, by design, has NO backing, if the system tank, you wont be able to get anything out of it.
Thus she's correct on that point, whether or not it's important.
"Except a shell company does generally have assets, IP and so on, when there is a bankruptcy, there is a chance the shareholders get something out of it."
As far as I know (and I'm aware I don't that much), a bankruptcy means zero value left for the (ante-bankruptcy) owners. Whoever steps in has to (only) put in some value, like the government paying/writing off unsolvable debts, or the next owner that has to effectively buy the bankrupt entity from the government. Am I wrong?
She doesn't get it bitcoin will never reach 0 there will always be people buying and selling bitcoin just as there's customers for even the crappiest websites.
Not to mention it's already reached critical mass which means it will never go away and the advantages outweigh the risks.
Now will this hurt bitcoin? Yes. Is this a good thing in the long run? Definitely.
It's always a bad thing when 70% of all speculation is done on one platform and that platform closes down.
I'm somewhat glad mtgox was allowed to fail that juts proves that the awful too big to fail mentality of the US did not corrupt the bitcoin marketplace.
This is a good thing in the long run even if it's going to hurt like hell in the short run.
Mt Gox was like the #3 exchange, not number 1 for some time, and definitely not 70%. They'd been having problems for a long long time, which is why a lost of people didn't want to go there anymore. They had name recognition, but it was nearly impossible to get cash out.
"You might as well flush your money down the toilet by investing in the Egyptian pound."
Does the author have some insider information on Egyptian currency trading? I hope they are putting their money where their mouth is by selling EGP on the foreign exchanges!
Or in other words, the author opens this article by spouting speculative bullshit. Why then should we treat the rest of it as useful?
exactly and therein lies the contradiction , here he says bitcoin is as valueless as fiat a particular fiat currency, and then later he goes on to say that fiat currency is much more valuable
The core argument surrounding Bitcoin can be brought to focus by asking the question : "Would you rather trust a government or a mathematical algorithm?". Of course, crypocurrencies are not just algorithms, they're more like algorithms + protocols, but still, that's a great question to ask at a gathering (of like-minded people); it generates some very interesting discussion.
My personal take is that : there are two kinds of people. Some need a Central authority. (They probably respect and believed everything uttered by their parents and teachers as children, too. I'd LOVE it if someone did a psychological study of such correlations in personal beliefs.) Others are suspicious of the utility of government. One need not be a full-blown anarcho-capitalist or whatever the well-read cool kids call it; it's just that the 2008 financial crisis has left a deeply unsettling feeling about whether governments are serving the common man. Such people would rather trust a computer science researcher's invention. I'm definitely in the 2nd camp.
I think the lack of central authority is what type 1 people find unsettling and unbelievable about Bitcoin. What the world needs is a "Cartoon guide to cryptocurrencies" book or video.
>> ""Would you rather trust a government or a mathematical algorithm?"."
Most people can understand government fiscal policy (to a useful extent anyway). Very few can understand an algorithm even when it's explained to them. They vote in the government and currency in it's current form (e.g. USD) has worked for generations. Trusting the government seems much safer.
Also with Bitcoin you are trusting more than an algorithm. You're trusting exchanges. You're trusting in the security of a digital system that can be hacked and you don't understand how to secure properly. With physical currency security is simple and understandable. With digital currency it's not.
When a government fucks up, you can vote to change it or sue them. When the algorithm eats your savings, there's no recourse. I'll put my trust with the concept that isn't claimed to be infallible here.
have you ever tried suing the government? My dad did. It's taken him 10 years, and he's probably lost about $2M in assets. Status of his suit is still unresolved.
> Most people can understand government fiscal policy (to a useful extent anyway). Very few can understand an algorithm even when it's explained to them. They vote in the government and currency in it's current form (e.g. USD) has worked for generations. Trusting the government seems much safer.
Do you know what people trust more than anything else? Other people. Trust in government feels so fundamental, but actually it is based on the fact that OTHER people trust the government, too. People trust a lot many things they don't understand, too. People trust https, for example. They feel safe because "everybody else is trusting it, too".
IMHO, this kind of normative ethics ("it is correct because everyone else says so") is why many societies have totally acceptable behaviours which are obviously wrong to outsiders : whipping women if they dare to drive in Saudi Arabia, ignoring abject poverty as it stares you in the eye in India (or even the West), punishing non-religious or sexually "deviant", etc;
Coming back to BitCoin : the burgeoning community that believes in BTC has the potential to reach critical mass and create the kind of numbers that will serve as a foundation for the kind of trust that the government, for example, or religion (despite being provably nonsensical), enjoys today.
TL;DR : it's not that people trust the government, they trust what other people trust. A good enough number of people trust BitCoin.
> "Would you rather trust a government or a mathematical algorithm?"
The government, obviously. They have the guns and can simply use those guns to annex the necessary mathematicians, should the need arise.
Far too often, people seem to forget that governments are the one that has the monopoly on use of force. Thinks like "logic" and "rhetoric" and "math" don't mean a damn thing when the conflict has been reduced down to basic natural selection.
We, as a species, are incredibly talented at postponing that conflict. We pile on more and more layers of indirection - such as "politics", "police", "lawyers" - hoping to avoid the violent battle that lies at the core of any real disagreement.
Unfortunately, geeks tend to fall prey to the "just-world fallacy" in these cases. We're used to the rigor and determinism of math and logic, and often assume that such concepts are universal.
> The government, obviously. They have the guns...
Guess what is common to the guerrilla soldiers in Vietnam, terrorists spread across the world, the hackers group Anonymous, and other trouble-makers whom the big bad government seems to fight and never win against : they're decentralized.
Also, there's not much use pointing a gun at a mathematician
a) after they've published the result
and
b) who can successfully publish his stuff anonymously (Satoshi)
> Unfortunately, geeks tend to fall prey to the "just-world fallacy" in these cases. We're used to the rigor and determinism of math and logic, and often assume that such concepts are universal.
Not at all. Diffie-Helman key exchange, for example, solves the problem of exchanging a secret key on an untrusted connection. It is exactly this kind of "there WILL be bad people; how do we make it work nevertheless" thinking that gave birth so many interesting results in cryptography that is going into the creation of new currencies, too.
Centralized government has had so much history of working well + there are not that many non-centralized protocols at work in real life yet (p2p, bittorrent, distributed consensus protocols like Plaxo, Raft, etc; are the only ones I know, for example) so you may be finding it difficult to believe in a decentralized protocol, that's all?
This is just silly - here we have someone lecturing us about economics who describes herself as a "Rogue Economist" - so are we expected to buy this analysis because she is an orthodox economist (which is how it reads), or because she is a "rogue economist"?
More significantly, the line "While we may dislike the government’s regulation and intervention into financial markets, their oversight prevents moral hazard and rampant fraud." is just laugh-out-loud funny - we've seen PLENTY of moral hazard and rampant fraud in orthodox financial markets, on a scale which is simply mind-boggling in comparison to anything happening at Mt.Gox.
Did the 18 people who upvoted this crap not even notice the glaring factual errors?
...the efficient market hypothesis (that free markets will regulate themselves)...
Fiat currencies (money) are pegged to real assets...
...it is as vulnerable to financial crises as any deregulated financial market... US subprime mortgage market, bubbles follow the same patterns for growth and implosion.
Most amusing is the idea that unlike USD, BTC has no protection against fraud. The same is true for most "regulated" transactions, credit card payments being a notable exception.
The tone of condescension that comes from professional economists is telling. It's impossible for them to just present their arguments, cleanly, simply and without ostentation and vitriol. They have to try to make you feel stupid for disagreeing with them.
When you don't have a sound scientific basis for your discipline, you need something to step in to fill the void - in order to make other humans believe in your worth. Economists use their enormous egos, as well as the frailties inherent in the egos of others.
Heather R Morgan has not written an article which rises above the flaws of her discipline. It starts with a jibe - oh, you invested in bitcoin, why not flush it down the toilet - that's HOW STUPID YOU WOULD BE...
Engineers and hackers don't have to worry about whether or not their discipline makes a genuine contribution. They have proved themselves time and time again. They build a product - ship it - and if it fails, they start working on the next idea. They don't have to worry about fighting over 'theories' with academics who desperately claw at one another for those disappearing tenure tracks.
As we who have spruiked for bitcoin have always said: "This is an experiment that might fail."
Heather might want to consider switching to a discipline in which experiments are even possible...
Well - I think it's important to address the tone. I was going to say more about the substantive argument - but didn't because I didn't want to write a wall of text. Also, I just see the argument as a very uncritical regurgitation of the intrinsic value argument against bitcoin and I've personally grown weary trying to encourage a greater level of depth to that discussion.
If you are interested - I've written at (great) length my thoughts about this argument here:
> Bitcoin really is a currency of “mere agreement” then you can begin to see that its mainstream acceptance will genuinely herald the dawn of a new age of human civilisation. And don’t be too quick to take that last statement as hyperbolic praise – it might be a statement of supreme pessimism about its potential for success, depending on your point of view.
Have you considered a career in science fiction or as a song writer?
"I'm torn between the light and dark,
Where others see their targets,
Divine symmetry.
Should I kiss the viper's fang,
Or herald loud,
the death of Man.
I'm sinking in the quicksand,
of my thought,
And I ain't got the power anymore."
I think David Bowie put it a little bit better and he did come up with a pretty great melody and chord progression for the tune, but don't let that get you down, you gotta start somewhere, right? I think he said it better because he had the ability to discern the difference between fantasy and reality. He then learned to channel his apocryphal visions in to art. You're wasting your talents here in reality, my friend!
Well - that's certainly the most charming jibe I've received about my writing. I tip my hat to you sir.
I would be keen to know your opinion after reading the whole article. I assume you haven't - because I do at least make an argument for that claim, and you don't attempt to address it before calling me deluded. Given the large amount of effort I put into that article, don't you think I might deserve this much at least?
Another thing you could learn from Bowie is how to write succinctly.
Listen dude, I don't think Bitcoin is valueless. It is an interesting solution to a number of technical challenges in distributed computing. It may even very well work as some sort of digital currency.
What I don't think is that it is going to change the world. You and every other maniac out there is actually doing a disservice to the acceptance of the technology. What kind of loony expects someone to read a 10,000 word essay that starts off with some sweeping claim about how 'everything's different now!'?
You don't know shit about the world. You couldn't possibly have enough experience or knowledge to piece together any sort of valid prediction, just like every other motherfucker out there. You've just got faith in some grand tale that honestly isn't that different from any other end-of-time story, like say, the Book of Revelations.
You're right to point the finger at economists when they make grand sweeping claims. They're just storytellers. There's a reason it is considered a liberal art.
Computer programmers and engineers aren't much more than storytellers either. There is even more danger of delusion in software because entire virtual worlds are created and then assumed to be real.
I don't expect you to read it at all. I couldn't give a tinker's cuss if you do or don't. Generally though, if you don't want to look like a fool, it's best not to express an opinion about a piece you haven't read.
The claim you are so hostile to is actually not even particularly controversial. It's a conditional statement for one thing (you don't even read an introduction carefully) and it's easily defended. It's a fact that no currency has ever been widely adopted without having some kind of intrinsic or government mandated value. Plain, historical fact. Bitcoin has no intrinsic or government mandated value. So if it gains widespread adoption, then I don't see how you could possibly deny the historical significance of this. A large amount of economic orthodoxy goes out the window.
If you are willing to address this argument, I'm willing to listen. But if you're just here to beat your chest and get all alpha on me then I might point out you're better off hitting the gym and cruising the bars. It's more likely to get you laid than arguing with me.
The claim I'm hostile to is ANYONE making grand claims without acknowledging that it is all just story telling.
Arguing with you about your faith in the world changing powers of Bitcoin would be like arguing with a Christian about the Bible.
I'm not saying that Bitcoin is useless. I'm not saying it is without value.
I'm saying that the kind of zealotry you're exhibiting is nauseating and nothing new.
There are vast capital machinery in place entwined with giant military fleets, tax collectors, fiat currency and billions of democratically elected positions of power. That shit has a lot of inertia and the concepts are so interdependent on one another that you can't just slot out 'US dollars' and drop in 'bitcoin'. Farmers and soldiers don't give two shits about your blog posts.
If you want to change the world you will have to deal with... the world.
The problem with bitcoin or tech or Christianity or any other kind of ideological zealotry is that you're basically putting on blinders and ignoring the world because you're so convinced that what you're doing is the only thing that matters.
"The rest of the world doesn't matter because it will all change so drastically that I don't need to know anything about it!"
Again, there is nothing wrong with bitcoin, tech, or Christians... Just zeal applied to grand narratives.
Would I be a zealot if I said the printing press precipitated a revolution in human society and culture? I'm just saying something similar about bitcoin IF it meets certain conditions in the future. If you bothered to read the article you would notice that I'm sceptical that it actually will.
Anyway - we're done here. I made a claim and presented an argument. You chastised that claim without reading the argument or even addressing the summarised version I just wrote for you. I am willing to listen to a counter-argument and consider it, but you refuse to provide one. So this is a waste of both our time.
I don't get how you can behave this way and yet accuse me of behaving like a religious zealot. Refusing to actually address an argument for a claim, while at the same time attacking that claim feels a lot like all the of the conversations I've had with zealots myself.
>> As we who have spruiked for bitcoin have always said: "This is an experiment that might fail."
It's fine to experiment but when Bitcoin became more mainstream the kind of stupid mistakes MtGox has made are inexcusable. Ordinary people were using it and are losing money now. You can't promote a new technology and push for it's adoption by a wide audience and just call it an experiment when it fails. That's reckless.
>> Heather might want to consider switching to a discipline in which experiments are even possible...
I presume the 'you' in your statement is directed at... well... who exactly? Who was promoting Bitcoin in a way that did not foreground its extreme risk front and center? Your journalistic finger wagging will not do here. I would like to see examples. And if you provide them, then I will accept in each such case that they were indeed irresponsible.
As for my last statement - I accept it comes off as no better. But I happen to actually mean it with more sincerity than you can possibly imagine. I was a PhD student in philosophy. After five years I quit because I couldn't stomach my own bullshit any more. I'm currently training myself in math, machine learning and programming. Even as a mediocre tech guy (and I don't doubt I'll ever be more than mediocre) - I'll add more value to the world than I ever did as a philosopher. I believe the same of economics.
Economics is fascinating. It's a fairly new discipline, and like, say, astronomy, conducting experiments can be tricky, but throwing the whole thing out is silly. There is a lot to be learned for those interested in learning, rather than just backing up their own political view of the world.
Well - I wasn't advocating that it should be entirely dismantled as a discipline. But I do believe it should be avoided by those with the sort of personality that would seek to make up for its flaws with their egotism. That's why I offered that suggestion to the author.
There is another huge difference, aside from the susceptibility to experiment of the two fields - in astronomy one studies an objective natural system, in the other one studies a subjective human-driven environment.
The thing that troubles me most about economics is its apparent inability to address the fact that it cannot (yet?) make even modestly accurate predictions, and seems to be in denial about the implications of that fact.
To be honest, I lost all interest in economics-as-science when I learned that its theories were based on the idea that people were "rational actors" - this so flies in the face of my life experience that it simply doesn't pass the smell test.
I wouldn't throw the /whole/ thing out, but we have to be realistic about its limitations, and the fact that small changes in human sentiment or worldview may potentially completely invalidate its core assumptions.
Also, in astronomy, the stars aren't actively searching for and exploiting flaws in your models, whereas in economics the main actors very definitely are.
I was cheering when you wrote that. I have a PhD in chemistry, where we actually do experiments, and am an armchair economist. I quit my science job to temporarily work for lyft while waiting on the IRS for 501(c)(3) status on a nonprofit I'm launching - and with lyft I do real-time economics, gauging supply and demand on a minute-by-minute basis, and observe whether or not my models are confirmed. It would do well for academic economists to actually get that level of experiential model-testing, informal as it may be. Obviously, they don't (I did undergrad at U of Chicago, I know the econ department there).
EDIT: Speaking of economic models and confirmation:
Also, a careful examination of the bitcoin chart reveals that it does not look like the traditional bubble (yet). Go to http://bitcoinity.org/markets and set it to 2 years and log scale (hidden control in upper left of the graph). The chart, rather, looks like this: https://duckduckgo.com/traffic.html Which is a web platform growth curve.
I get that MtGox made a lot of obviously severe errors in implementation. But I'm also aware that popular wisdom has been (for some time) to avoid it. And further, it should be immediately obvious to anybody with a shred of sense that you do not hand over piles of cash (which is the closest approximation to Bitcoin) to an unregulated, opaque private enterprise.
Yeah, it sucks for the people who lost money. But with the exception of a minority, they were obviously dabbling with things they did not understand.
Nothing about this speaks at all to the long-term viability of Bitcoin as a currency. In fact, I think it'll probably be a benefit in the long-term - there needed to be a large, damaging demonstration of the requirement for security, and this event will cause a lot of changes.
One reason the value should rise faster than this is that there are a limited amount of bitcoin in circulation. (That is, not help as long term assets). And the number needed for day to day transations is growing very quickly. So it's likely the price to acquire those needed for day to day transactions will also grown fairly rapidly.
This article has very little intelligent to say. There are plenty of legitimate criticisms against Bitcoin, but I really thought we were past the stage when economists with little or no understanding of Bitcoin attempt to weigh in on the subject.
Bitcoin mining is not valuable for anything other than creating Bitcoins
Bitcoin mining ensures the validity of the blockchain. Bitcoin is valuable as the unit of account by which things can be entered into the blockchain. Good luck trying to convince people that a distributed, consistent transaction ledger has no value.
A Bitcoin is not anything useful by itself. You can't melt that hash down and plate electronics with it.
But you have hit on an important point, because throughout history almost every empire bankrupted itself at one point or another when it made a big find of gold, and quickly mined and spent a lot of it presuming it was rich...and instead, tanked its currency valuations and found itself much worse off because not only had they inflated the hell out of their currency, they'd not adjusted any of their tax rates to match.
Further, if or when Bitcoin transactions with scripted contracts become commonplace, mining would support the long-term existence and enforcement of such contracts.
"Oh you silly engineers and your bit of coins, let me econ'splain how dumb you were."
Madam, there is nothing in your article that any of the engineers who were (and are) so excited by bitcoin didn't already know long before you'd even heard of bitcoin.
On-topic: I remember my undergrad course in macroeconomics. It was a total and utter mess. Just tons and tons of theories and formulas that could not be demonstrated, but had to be memorized. Most macro-economists suffer greatly from the lack of a "credible" scientific base for their studies. Hence the article, a generous serving of all possible stereotypes that macro-economy can give.
BUT, I also remember microeconomics, and that was a totally different story. Most useful when thinking about markets and how people behave, but interesting if applied to greater scales (macro-micro-economics?).
Off-topic, but considered interesting: Am I the only one that finds it frustrating that Subtle blogs have no local comments? I find it diminishes the value of the text in itself.
In the article, an economist assumes engineers have no knowledge about economics. In return, Hacker News assumes economists have no knowledge. And this comment assumes everybody in Hacker News thinks the same way about economists.
actually strictly speaking the value of gold was that it was yellow (and pretty much only that) because its yellowness meant that verification of its purity was easy.
"As people watch asset prices rise and people make money herding mentality kicks in and many people jump on the bandwagon with hopes of grabbing some of the riches."
A few too many mixed metaphors in this article! I'm trying to imagine herds of people jumping on a bandwagon...
What is a bandwagon anyway, I realise now I've never known - it's only ever used in the phrase/cliche "jumping on the bandwagon".
Here are the real three lessons we have learned the hard way.
#1 My money stays in my wallet. All the time.
#2 If not possible #1, know the names of those who keep your money, you're trusting them, they should be held accountable and strongly punished by law to set a precedent. Do not trust your money to a faceless business.
#3 Cryptomoney is the future, spend more in research, protect wallets, methods to test solvency, public audits, webs of trust, etc.
This tragically had to happen so we could learn these lessons. Monetary darwinism at its best.
To me, it seems like this article merely repeats Keynsian axioms without bothering to argue for them. Not, in my experience, the way engineers like to be talked to.
98 comments
[ 2.9 ms ] story [ 115 ms ] threadHint: Bitcoin was created for the sole purpose of avoiding problems of that nature.
As for the rest of the article, not much content and many unsupported assertions. It would have been nice to hear why bitcoin is completely value-less, beyond not being "goverment backed". But I suppose that discussion would involve actually understanding bitcoin.
Therein lies the trouble with taking lessons from economists who don't think it through.
Also previously:
* http://www.wired.com/magazine/2011/11/mf_bitcoin/
* http://www.forbes.com/sites/timworstall/2011/06/20/so-thats-...
* http://money.cnn.com/2013/04/12/investing/bitcoin-bubble/
Don't get your hopes up just yet.
Stock in a shell company also has zero inherent value. This is simply a localised critique of the "most valueless asset" accusation - many assets share that characteristic.
Government-backed fiat has some intrinsic value - it can cancel tax obligations and thereby has a captive source of demand (taxpayers). But practically speaking, yes, most of any fiat currency's value is in its seignorage, not tax-cancelling intrinsic value.
Fiat, both from the original Latin, and in practice, means "it shall be".
In the case of money, it means that the token has no intrinsic value, and is not directly convertible into a backing resource with value. Its only value is that given to it by decree of the issuer. There is no component of government compulsion in the definition.
In practice, some fiat monies are the only accepted legal tender currencies for some purposes (e.g. taxes) but it is not a requirement.
A successful fiat currency implies that there is acceptance among users in its fiat value, and some of the most historically effective ways to get people to go along with your assertions boil down to making ultimatums backed up with sharp sticks.
How "protected" did their money turn out to be?
http://en.wikipedia.org/wiki/2012%E2%80%9313_Cypriot_financi...
And weren't a lot of the people who were hit by the levy on deposits actually non-Cypriots using Cypriot banks as tax havens?
Re. non-Cypriots, I'm sure that you're right - but the subject was the state's management of its currency, regardless of who owns it. One thing that your example does flush out though is that fiat currency can be crippled by speculation too - and at least Bitcoin does not conflate a currency and a tax regime.
I'm not a cheerleader for Bitcoin specifically, I'm just really, really sceptical about the robustness of traditional currency.
Details and semantics aside, my point was that the security that governments allegedly bring to currency, and which Bitcoin allegedly lacks, is often much less concrete than we would wish.
[1] http://www.theguardian.com/commentisfree/2014/feb/24/christi...
Value is a human invention, there's really no objective value for something other than what other people demand. The only real difference between bitcoin, fiat currency, and other assets, is that some assets have multiple demand uses -- they supply value for things other than as a currency, and US government assets simply have the way of a much larger, mature, 200 year old institution, with hundreds of millions of people backing it.
Here's the thing: If you are wronged by a crook on the stock market, or by the US government, there is a non-zero chance you can get justice through the courts. But if Mt Gox or Silk Road 2.0 runs off with your money, who has jurisdiction? Who you gonna sue?
The original article makes a lot of mistakes with regards to how bitcoins work, but that's counterbalanced by the hyperinflation/currency debasement hysteria of gold nuts and anarcho-libertarians who think BitCoin is somehow going to end the Fed and restore a pre-1920's Nirvana that never existed.
And as for Mt Gox: Well, what if Toyota runs off with your money, who has jurisdiction? Who you gonna sue? May I suggest Japan's courts and Toyota? What does that even have to do with bitcoin? If you do business with someone you don't know, that may be risky, whether you give them dollar bills or bitcoin, and if you do business with someone you can identify in real life, some country will probably have jurisdiction over them and you can sue them there, no matter whether they stole your dollars, your bitcoins, or your car.
I can't redeem my fiat currency for gold bars, but I can and must pay taxes for it, and that creates a demand floor. It means there will always be someone willing to trade dollars for something so that they can pay their taxes.
As for needing dollars to pay taxes: That doesn't really make much sense, does it? If people didn't want to use it for anything but for paying taxes, how much taxes would they have to pay? If noone wants to actually have dollars, its market value would be zero, so if you measure the income that you want to tax in dollars, it would also be zero, and any percentage of that would still be zero, and so you would not have to pay any taxes at all, and thus would not need any dollars at all in order to pay them (and the government wouldn't even care, as dollars that noone wants to exchange for goods and services are completely useless for the government to have, so why collect them). The only way for the government to actually force the creation of a demand floor would be to force people to sell certain goods and services at government-mandated prices - in which case what you need in order to pay your taxes ultimately are those goods and services and not dollars.
As long as taxes are collected other than based on just income in the form of dollars, just as much (or possibly, quite a bit more in real terms) as if they wanted dollars for everything else as well as paying taxes.
> If noone wants to actually have dollars, its market value would be zero, so if you measure the income that you want to tax in dollars, it would also be zero
Wrong, if the market value of dollars was near zero, and you have a tax system that has taxes other than on cash income (e.g., ad valorem property taxes, income taxes that include as income the cash value of non-cash goods and services received in place of cash income, etc.) but demands taxes in dollars, than the tax in dollars will be very large numbers, which will require you to acquire very large numbers of dollars to pay. (If the value of dollars was actually zero, the tax would be infinite, but then, the value of dollars won't actually be zero, because as the value of dollars declines, the number of them needed to meet tax obligations increases, which shores up the value.)
edit: forget that, you are right, of course - I guess it's not a good idea to treat infinity as a number ;-)
It means the government will do it's best to ensure the value of its currency, the failure of which would be an existential threat to its existence. I believe many people consider this low risk, that they consider the likelihood of the government failing as much less likely than a particular company or commodity failing. (Of course that depends on the government.)
Perhaps nearly as importantly than considering it low risk in an absolute sense, they consider the risk of it with particular government currencies as being strongly correlated to the risk of money, regardless of its type, losing its utility.
If the US government loses the ability to protect the dollar so rapidly that holders don't have a viable exit to alternative currencies, that probably involves a pretty fundamental breakdown in society (particularly for people located in and around the US.)
Really, I think what you are saying boils down to "stuff that can have a big impact on society tends to be watched more closely by the government, and it's more likely that the government will interfere to maintain the status quo" - which is a valid point, but it's neither a particularly special thing with money, nor is there any guarantee that it's always to the benefit of the governed.
Just like BTC.
That's funny it seems that this economist thinks fiat money can't never be valueless. Well, look Cyprus, and look Ukraine now. I am not saying Bitcoin won't never be valueless, but apparently fiat money is not completely invulnerable.
The examples you give, are not examples where just fiat money fails. They're examples of the entire architecture of a society falling apart (the government is being overthrown in the Ukraine, post WW1 Germany was in the midst of a massive recession). These are all situations where no currency retains a stable value since no currency allows you to eat, fuel vehicles or defend yourself. In those situations, Bitcoin is as valueless as anything else (more so, by virtue of being unusable without the internet).
Seems to me there's nothing stopping Bitcoin fulfilling that requirement.
The currency in use in Cyprus is the Euro - the problem with Cyprus was their dodgy banks not the currency itself.
Bitcoin on the other hand, by design, has NO backing, if the system tank, you wont be able to get anything out of it.
Thus she's correct on that point, whether or not it's important.
As far as I know (and I'm aware I don't that much), a bankruptcy means zero value left for the (ante-bankruptcy) owners. Whoever steps in has to (only) put in some value, like the government paying/writing off unsolvable debts, or the next owner that has to effectively buy the bankrupt entity from the government. Am I wrong?
If you don't understand anything about something but need to opine, put the words "lesson" and "engineer" in the head to fake your understanding.
Not to mention it's already reached critical mass which means it will never go away and the advantages outweigh the risks.
Now will this hurt bitcoin? Yes. Is this a good thing in the long run? Definitely.
It's always a bad thing when 70% of all speculation is done on one platform and that platform closes down.
I'm somewhat glad mtgox was allowed to fail that juts proves that the awful too big to fail mentality of the US did not corrupt the bitcoin marketplace.
This is a good thing in the long run even if it's going to hurt like hell in the short run.
I tried using them once and they were asking to many unnecessary questions so i just went elsewhere.
Does the author have some insider information on Egyptian currency trading? I hope they are putting their money where their mouth is by selling EGP on the foreign exchanges!
Or in other words, the author opens this article by spouting speculative bullshit. Why then should we treat the rest of it as useful?
My personal take is that : there are two kinds of people. Some need a Central authority. (They probably respect and believed everything uttered by their parents and teachers as children, too. I'd LOVE it if someone did a psychological study of such correlations in personal beliefs.) Others are suspicious of the utility of government. One need not be a full-blown anarcho-capitalist or whatever the well-read cool kids call it; it's just that the 2008 financial crisis has left a deeply unsettling feeling about whether governments are serving the common man. Such people would rather trust a computer science researcher's invention. I'm definitely in the 2nd camp.
I think the lack of central authority is what type 1 people find unsettling and unbelievable about Bitcoin. What the world needs is a "Cartoon guide to cryptocurrencies" book or video.
Most people can understand government fiscal policy (to a useful extent anyway). Very few can understand an algorithm even when it's explained to them. They vote in the government and currency in it's current form (e.g. USD) has worked for generations. Trusting the government seems much safer.
Also with Bitcoin you are trusting more than an algorithm. You're trusting exchanges. You're trusting in the security of a digital system that can be hacked and you don't understand how to secure properly. With physical currency security is simple and understandable. With digital currency it's not.
As for voting...
Do you know what people trust more than anything else? Other people. Trust in government feels so fundamental, but actually it is based on the fact that OTHER people trust the government, too. People trust a lot many things they don't understand, too. People trust https, for example. They feel safe because "everybody else is trusting it, too".
IMHO, this kind of normative ethics ("it is correct because everyone else says so") is why many societies have totally acceptable behaviours which are obviously wrong to outsiders : whipping women if they dare to drive in Saudi Arabia, ignoring abject poverty as it stares you in the eye in India (or even the West), punishing non-religious or sexually "deviant", etc;
Coming back to BitCoin : the burgeoning community that believes in BTC has the potential to reach critical mass and create the kind of numbers that will serve as a foundation for the kind of trust that the government, for example, or religion (despite being provably nonsensical), enjoys today.
TL;DR : it's not that people trust the government, they trust what other people trust. A good enough number of people trust BitCoin.
The government, obviously. They have the guns and can simply use those guns to annex the necessary mathematicians, should the need arise.
Far too often, people seem to forget that governments are the one that has the monopoly on use of force. Thinks like "logic" and "rhetoric" and "math" don't mean a damn thing when the conflict has been reduced down to basic natural selection.
We, as a species, are incredibly talented at postponing that conflict. We pile on more and more layers of indirection - such as "politics", "police", "lawyers" - hoping to avoid the violent battle that lies at the core of any real disagreement.
Unfortunately, geeks tend to fall prey to the "just-world fallacy" in these cases. We're used to the rigor and determinism of math and logic, and often assume that such concepts are universal.
You clearly have a definition of 'trust' that differs significantly from my own :)
Guess what is common to the guerrilla soldiers in Vietnam, terrorists spread across the world, the hackers group Anonymous, and other trouble-makers whom the big bad government seems to fight and never win against : they're decentralized.
Also, there's not much use pointing a gun at a mathematician a) after they've published the result and b) who can successfully publish his stuff anonymously (Satoshi)
> Unfortunately, geeks tend to fall prey to the "just-world fallacy" in these cases. We're used to the rigor and determinism of math and logic, and often assume that such concepts are universal.
Not at all. Diffie-Helman key exchange, for example, solves the problem of exchanging a secret key on an untrusted connection. It is exactly this kind of "there WILL be bad people; how do we make it work nevertheless" thinking that gave birth so many interesting results in cryptography that is going into the creation of new currencies, too.
Centralized government has had so much history of working well + there are not that many non-centralized protocols at work in real life yet (p2p, bittorrent, distributed consensus protocols like Plaxo, Raft, etc; are the only ones I know, for example) so you may be finding it difficult to believe in a decentralized protocol, that's all?
More significantly, the line "While we may dislike the government’s regulation and intervention into financial markets, their oversight prevents moral hazard and rampant fraud." is just laugh-out-loud funny - we've seen PLENTY of moral hazard and rampant fraud in orthodox financial markets, on a scale which is simply mind-boggling in comparison to anything happening at Mt.Gox.
...the efficient market hypothesis (that free markets will regulate themselves)...
Fiat currencies (money) are pegged to real assets...
...it is as vulnerable to financial crises as any deregulated financial market... US subprime mortgage market, bubbles follow the same patterns for growth and implosion.
Most amusing is the idea that unlike USD, BTC has no protection against fraud. The same is true for most "regulated" transactions, credit card payments being a notable exception.
Laughing at someone's tragic folly is called comedy.
Not knowing the difference between misery and folly is fucking hilarious.
I'd respond with more venom about your tone, but I hate feeding trolls.
When you don't have a sound scientific basis for your discipline, you need something to step in to fill the void - in order to make other humans believe in your worth. Economists use their enormous egos, as well as the frailties inherent in the egos of others.
Heather R Morgan has not written an article which rises above the flaws of her discipline. It starts with a jibe - oh, you invested in bitcoin, why not flush it down the toilet - that's HOW STUPID YOU WOULD BE...
Engineers and hackers don't have to worry about whether or not their discipline makes a genuine contribution. They have proved themselves time and time again. They build a product - ship it - and if it fails, they start working on the next idea. They don't have to worry about fighting over 'theories' with academics who desperately claw at one another for those disappearing tenure tracks.
As we who have spruiked for bitcoin have always said: "This is an experiment that might fail."
Heather might want to consider switching to a discipline in which experiments are even possible...
If you are interested - I've written at (great) length my thoughts about this argument here:
http://reviewsindepth.com/2013/12/bitcoin-krugman-and-the-me...
Have you considered a career in science fiction or as a song writer?
"I'm torn between the light and dark, Where others see their targets, Divine symmetry. Should I kiss the viper's fang, Or herald loud, the death of Man. I'm sinking in the quicksand, of my thought, And I ain't got the power anymore."
I think David Bowie put it a little bit better and he did come up with a pretty great melody and chord progression for the tune, but don't let that get you down, you gotta start somewhere, right? I think he said it better because he had the ability to discern the difference between fantasy and reality. He then learned to channel his apocryphal visions in to art. You're wasting your talents here in reality, my friend!
I would be keen to know your opinion after reading the whole article. I assume you haven't - because I do at least make an argument for that claim, and you don't attempt to address it before calling me deluded. Given the large amount of effort I put into that article, don't you think I might deserve this much at least?
Listen dude, I don't think Bitcoin is valueless. It is an interesting solution to a number of technical challenges in distributed computing. It may even very well work as some sort of digital currency.
What I don't think is that it is going to change the world. You and every other maniac out there is actually doing a disservice to the acceptance of the technology. What kind of loony expects someone to read a 10,000 word essay that starts off with some sweeping claim about how 'everything's different now!'?
You don't know shit about the world. You couldn't possibly have enough experience or knowledge to piece together any sort of valid prediction, just like every other motherfucker out there. You've just got faith in some grand tale that honestly isn't that different from any other end-of-time story, like say, the Book of Revelations.
You're right to point the finger at economists when they make grand sweeping claims. They're just storytellers. There's a reason it is considered a liberal art.
Computer programmers and engineers aren't much more than storytellers either. There is even more danger of delusion in software because entire virtual worlds are created and then assumed to be real.
Math is the language of nature.
Truth is the language of man.
Learn to tell the difference.
I don't expect you to read it at all. I couldn't give a tinker's cuss if you do or don't. Generally though, if you don't want to look like a fool, it's best not to express an opinion about a piece you haven't read.
The claim you are so hostile to is actually not even particularly controversial. It's a conditional statement for one thing (you don't even read an introduction carefully) and it's easily defended. It's a fact that no currency has ever been widely adopted without having some kind of intrinsic or government mandated value. Plain, historical fact. Bitcoin has no intrinsic or government mandated value. So if it gains widespread adoption, then I don't see how you could possibly deny the historical significance of this. A large amount of economic orthodoxy goes out the window.
If you are willing to address this argument, I'm willing to listen. But if you're just here to beat your chest and get all alpha on me then I might point out you're better off hitting the gym and cruising the bars. It's more likely to get you laid than arguing with me.
Arguing with you about your faith in the world changing powers of Bitcoin would be like arguing with a Christian about the Bible.
I'm not saying that Bitcoin is useless. I'm not saying it is without value.
I'm saying that the kind of zealotry you're exhibiting is nauseating and nothing new.
There are vast capital machinery in place entwined with giant military fleets, tax collectors, fiat currency and billions of democratically elected positions of power. That shit has a lot of inertia and the concepts are so interdependent on one another that you can't just slot out 'US dollars' and drop in 'bitcoin'. Farmers and soldiers don't give two shits about your blog posts.
If you want to change the world you will have to deal with... the world.
The problem with bitcoin or tech or Christianity or any other kind of ideological zealotry is that you're basically putting on blinders and ignoring the world because you're so convinced that what you're doing is the only thing that matters.
"The rest of the world doesn't matter because it will all change so drastically that I don't need to know anything about it!"
Again, there is nothing wrong with bitcoin, tech, or Christians... Just zeal applied to grand narratives.
Getting my drift yet, dude?
Anyway - we're done here. I made a claim and presented an argument. You chastised that claim without reading the argument or even addressing the summarised version I just wrote for you. I am willing to listen to a counter-argument and consider it, but you refuse to provide one. So this is a waste of both our time.
I don't get how you can behave this way and yet accuse me of behaving like a religious zealot. Refusing to actually address an argument for a claim, while at the same time attacking that claim feels a lot like all the of the conversations I've had with zealots myself.
It's fine to experiment but when Bitcoin became more mainstream the kind of stupid mistakes MtGox has made are inexcusable. Ordinary people were using it and are losing money now. You can't promote a new technology and push for it's adoption by a wide audience and just call it an experiment when it fails. That's reckless.
>> Heather might want to consider switching to a discipline in which experiments are even possible...
And you're complaining about condescension?
Why is that so hard to understand?
As for my last statement - I accept it comes off as no better. But I happen to actually mean it with more sincerity than you can possibly imagine. I was a PhD student in philosophy. After five years I quit because I couldn't stomach my own bullshit any more. I'm currently training myself in math, machine learning and programming. Even as a mediocre tech guy (and I don't doubt I'll ever be more than mediocre) - I'll add more value to the world than I ever did as a philosopher. I believe the same of economics.
The thing that troubles me most about economics is its apparent inability to address the fact that it cannot (yet?) make even modestly accurate predictions, and seems to be in denial about the implications of that fact.
To be honest, I lost all interest in economics-as-science when I learned that its theories were based on the idea that people were "rational actors" - this so flies in the face of my life experience that it simply doesn't pass the smell test.
I wouldn't throw the /whole/ thing out, but we have to be realistic about its limitations, and the fact that small changes in human sentiment or worldview may potentially completely invalidate its core assumptions.
EDIT: Speaking of economic models and confirmation:
https://news.ycombinator.com/item?id=6867999
Also, a careful examination of the bitcoin chart reveals that it does not look like the traditional bubble (yet). Go to http://bitcoinity.org/markets and set it to 2 years and log scale (hidden control in upper left of the graph). The chart, rather, looks like this: https://duckduckgo.com/traffic.html Which is a web platform growth curve.
I get that MtGox made a lot of obviously severe errors in implementation. But I'm also aware that popular wisdom has been (for some time) to avoid it. And further, it should be immediately obvious to anybody with a shred of sense that you do not hand over piles of cash (which is the closest approximation to Bitcoin) to an unregulated, opaque private enterprise.
Yeah, it sucks for the people who lost money. But with the exception of a minority, they were obviously dabbling with things they did not understand.
Nothing about this speaks at all to the long-term viability of Bitcoin as a currency. In fact, I think it'll probably be a benefit in the long-term - there needed to be a large, damaging demonstration of the requirement for security, and this event will cause a lot of changes.
Insert "economic theory" instead of "product".
I don't know what the eventual value of Bitcoin will be, but this economist doesn't, either...
The bitcoin protocol has quite a lot of potential uses (see master coin and colored coins), even if actual bitcoins were worth nothing monetarily.
But you have hit on an important point, because throughout history almost every empire bankrupted itself at one point or another when it made a big find of gold, and quickly mined and spent a lot of it presuming it was rich...and instead, tanked its currency valuations and found itself much worse off because not only had they inflated the hell out of their currency, they'd not adjusted any of their tax rates to match.
Madam, there is nothing in your article that any of the engineers who were (and are) so excited by bitcoin didn't already know long before you'd even heard of bitcoin.
Off-topic, but considered interesting: Am I the only one that finds it frustrating that Subtle blogs have no local comments? I find it diminishes the value of the text in itself.
Assumptions...
A few too many mixed metaphors in this article! I'm trying to imagine herds of people jumping on a bandwagon...
What is a bandwagon anyway, I realise now I've never known - it's only ever used in the phrase/cliche "jumping on the bandwagon".
Here are the real three lessons we have learned the hard way.
#1 My money stays in my wallet. All the time.
#2 If not possible #1, know the names of those who keep your money, you're trusting them, they should be held accountable and strongly punished by law to set a precedent. Do not trust your money to a faceless business.
#3 Cryptomoney is the future, spend more in research, protect wallets, methods to test solvency, public audits, webs of trust, etc.
This tragically had to happen so we could learn these lessons. Monetary darwinism at its best.
We will raise from the ashes stronger, Spartans.
LOL. "Pegged to real assets." Hilarious!
It's like this author has literally no understanding of "value".