Let's extrapolate, and say that no country should adopt a purely digital currency. Would that be accurate?
I don't know too much about the topic domain, so for those who do, what would be required of a purely digital currency to be a good candidate for a national currency?
This slides in the assumption that you need a national currency.
No traditional nation-state will _really adopt_ a crypto-currency unless it bakes in some ability to seize or inflate it's subject's currency. If that exists in their desired crypto-currency then, of course, no one will ever use it without the threat of violence. Catch-22 for modern nation-states.
By that logic, private ownership of gold should be forbidden. That did happen once, during the Great Depression, but that policy was abandoned in the 1960s and nobody has made any attempt to reinstate it since.
This is the same reason that no government allows or encourages the large-scale ownership of property, land, minerals, gold, or anything else.
Except that they do. All the time.
Because governments are not evil machines that only want to steal your money. That's just a Dunning-Kreuger / nutjob interpretation of reality that is often repeated by a certain kind of broken individual.
those arn't liquid assets. who's suffering from dunning-kreuger effects now? nice puppet account you got there with 1 karma. also land and property are taxed so... yea
Governments are not evil machines. They're machines staffed by people and people do what people often do: follow the laws blindly because "it's their duty", exploit the existing laws to their advantage "because it's legal", and craft new laws to monkey-patch the flaws in older laws "because it's their job." When two opposing groups of people disagree with each other, they resort to theatrics and name-calling and the machine kind of idles in its current state. The machinery isn't evil and the people aren't evil. This is just how the machine works. If the people operating the machine decide it needs more of a resource, they'll try to get it by any any available means to keep the machine running. Their job, and belief in the machine depend on it. Whether or not the machine gives the world "a better place" is a coincidental side-effect of the machine that happens often, but not always.
Adopting a crypto-currency would give this machine less control over resources because it would either have too much transparency (no black budgets or quid-pro-quos) or perfect opacity (no ability to seize funds from victims or punish criminals financially).
Elections do not change the machine except in the sense of an oil-change--to optimize its continuous operation. The machine is never replaced. And people who do not believe in the machine are always attacked by the operators with a vested interest in the machine... a certain kind of broken individual.
Some very silly people have concluded that, since ultimately no rule or law can be enforced against the unwilling without some sort of ability to exercise power over them, making a law is logically equivalent to saying that anyone who breaks it should be shot; and, therefore, people who make laws against any but the most extreme crimes are violent thugs.
And thus it naturally follows that you shouldn't have to pay taxes. Isn't that convenient?
(I think this formulation was originally conceived by anarchists, where it is at least logically consistent, but tax protestors and some libertarians have adopted and deformed it into a convenient catch-all for "anything the government does that I don't like is ZOMGviolence.")
AFAIK libertarians have this "principle of non-aggression" which basically defines "anything I don't like" as an attack, and thus pretty much anything that government does becomes violence.
But in general, "monopoly on violence" is a legitimate concept and I think it's a requirement for a state-sized group of people to live in (a relative) harmony. You need to have some means to enforce coordination or else people get trapped in various destructive behaviours.
They also have a tendency to put capitalism up on a pedestal even though it requires the charging of economic rent. Apparently extracting taxes is a crime but extracting economic rent is to be lauded.
"Libertarianism is like Leninism: a fascinating, internally consistent political theory with some good underlying points that, regrettably, makes prescriptions about how to run human society that can only work if we replace real messy human beings with frictionless spherical humanoids of uniform density"
This holds for other political and economical ideologies as well - they may have some good and important points (that's why they gain followers), but ultimately pure theoretical models rarely work well when applied to the complexities of the real world. One needs to remember that and see places where tradeoffs are needed to be made.
They also very conveniently ignore a staggering (and bloody) history of corporate violence, whether against workers, the public at large, colonial states, arms and other sales, unsafe products, unsafe working conditions, and far too many more to enumerate.
Power exists. Violence exists. Both are independent of whether or not they're manifested in a state. Arguments to the contrary collapse into tautologies.
The article is pointing out that governments like to increase the money supply every year and Bitcoin doesn't allow that.
But a purely digital currency need not be a distributed cryptocurrency with a limited supply like Bitcoin.
From electronic transactions with the Fed down to direct deposits and debit and credit card purchases, US currency could function without paper bills already.
>The article is pointing out that governments like to increase the money supply every year and Bitcoin doesn't allow that.
But that's nonsense. If anything a sovereign digital currency would give governments even more fine-grained control over the money supply.
Of course governments shouldn't use Bitcoin, but a sovereign altcoin is a very interesting idea.
Sure, they couldn't use Bitcoin itself, but in a hypothetical world of government-backed cryptocurrencies Bitcoin would be more of a reserve commodity, like gold, than a circulating fiat currency.
Much of the appeal of Bitcoin is the limited supply. But from a Keynesian government point of view, that's a flaw.
A sovereign cryptocurrency without that limitation might be an interesting alternative to cash, but the bulk of our money couldn't be in a "hard" cryptocurrency unless we also eliminated fractional reserve banking.
(Why? In short, with fractional reserve banking, the total value of everyones checking and savings accounts is far greater than the supply of currency, whether paper or crypto.)
Do you need fractional reserve banking with cryptocurrency? The physical object limitation of hard currency simply doesn't exist.
But the real hallmark of FRB is that banks only need hold in reserve a fraction of their depositors' account balances. I don't see how CC would change that requirement. As scary as FRB is, without it lending would be a much, much more limited activity.
Money is funny - it's just an IOU. An IOU blown up to massive scale, obviously, but since a business sets the price of something and the market determines if it fits well in to a tradable value comparison, then I don't see how a digital IOU is any worse than a paper one, considering how little that paper is worth when everyone decides it has no value.
And let's be honest. If the value of paper can crash when people agree it has no value, it's just as easy for everyone to agree gold isn't worth a lick either. So in the end, we're just choosing a representation of an IOU we all agree upon, and if that's paper, rock, or digital (or 4 ton coins [0]) what does it matter, in the end?
(This all presumes some degree of safety in CC - with the recent value of Bitcoin thefts, people would ditch it really quickly on a national scale.)
I didn't mean to start a discussion of FRB, simply consider that it's what we have, and abandoning it is an even more radical step than replacing cash with a cryptocurrency.
> But the real hallmark of FRB is that banks only need hold in reserve a fraction of their depositors' account balances. I don't see how CC would change that requirement.
My question is, what will a CC replace? If the answer is all cash and electronic transactions, will there be enough CC, with FRB? If the answer is simply cash transactions (already limited), what's the point?
I understand the money supply and the multiplier effect of fractional reserve banking, but with an appropriately designed cryptocurrency you don't need it. You can literally just create more currency out of thin air and pump it into the economy like an instant perfectly efficient printing press.
In fact, you could probably utilize the increase in the money supply in much more productive ways than the current system, which primarily benefits banking institutions.
perhaps this is what they are actually talking about -- creating their own cryptocurrency. how would they prevent people from across the world from creating Greek Bitcoin? perhaps this would crete (I almost corrected that typo, but I'll leave it there haha) a strange secondary market whereby people not in greece mine bitcoin, and then sell it to ordinary Greeks for some fractional rate?
For a currency to take off, there must be a large market that requires you to use the currency (such as paying taxes to the IRS). This creates a base market which can be used as a springboard for wider adoption. BitCoin managed to take off because, IMHO, the novelty of the "cryptocurrency" and some of the problems it solved.
For a fiat currency to work, there must be faith in the currency and the governing bodies that support it.
The US dollar used to be tied to the price of gold and silver, then later entirely to gold, then it was turned fiat in the Nixon years.[1]
BitCoin, in particular, does not allow a central bank to "print" currency (which is a tool used to control the inflation rate). Without the ability for a central bank to regulate the creation of a fiat currency, there would eventually be an erosion of faith in the currency. Alternatively, a digital currency could be tied to a gold silver / other commodity standard, but then it's not much different than any other commodity.
The Canadian bank is experimenting with a digital currency, but it won't replace the paper+coin currency, only augment it.[2]
digital/analog really makes no difference for fiat currencies. What matters is the way their managed and peoples belief that they will continue to hold value for the long term. I doubt any states will go digital for awhile due to purely cultural/psychological reasons.
Humans like physical objects even if they're worse, just ask any vinyl record enthusiasts to explain why they like vinyl and you'll see this dynamic.
Another reason deflationary currency is perceived as bad is not just because it makes life harder for debt owners, but because it can lead to its own form of boom-and-bust cycles by reducing economic activity.
If you know, for example, that your cash holdings were going to grow at 10% per year, then you'd be far less willing to spend any or invest in other assets, as merely putting bitcoin under a mattress increases value. This will reduce consumption and investment in the larger economy, inducing a recession or depression until overall demand for currency fell, pushing those who hold it to spend or invest to avoid losses. Of course, that equilibrium won't be permanent, and the cycle would begin a new, but with the major disadvantage that central banks nor government monetary policy can reduce the severity of the swings. (Although it's a matter of faith among Austrians that somehow there would either not be any more business cycles, or somehow the boom/bust wouldn't be "as bad")
Bitcoin to me looks like a good way to have a distributed settlement/clearing house system for transactions. But as a replacement for fiat currency, nope.
> you'd be far less willing to spend any or invest ... This will reduce consumption and investment in the larger economy
Or maybe consumers will stop buying the latest and greatest just because advertisers convinced them it will make them happy. Instead, consumers will demand higher quality products, which increases overall spending on R&D instead and decreases spending on marketing. Then we will all have better products and be more productive.
Agree completely. The argument that mindless consumption is a good thing just because it drives the economy is short-sighted and ridiculous. If money itself is wealth-generating then people are going to be much more mindful about their spending on worthless shit that serves no purpose other than to stall the degradation of their wealth and entertain then temporarily at the cost of our environment.
You do know that there's a negative interest rate in the Euro financial zone right? They are charging you to hold on to cash to force you to spend (or "invest") it now.
How can the future hold value when technology continues to drive the cost of living down? Can capitalism continue when I have all of the world's information available on my $300-700 smartphone? When I can connect with anyone in the world for pennies?
http://en.m.wikipedia.org/wiki/Amdahl%27s_law Making one input cheaper has limited benefits. Sure all your digital entertainment might get really cheap, but your still going to want heat, food, and a bed etc.
Anyway, 'finance' is more or less a meaningless part of the economy. Print more money and the nominal GDP goes up except that does not build a house etc. MMO's are an interesting way to study a lot of this stuff, and even there deflation does all kinds of bad things.
PS: My entertainment budget has been close to zero for a while now spening less on entertainment is not going to effect me much.
We have a deflationary economy in Japan. It's been going on for two decades now. Let's see how it shapes out. They are the canary. We will all be there one day. The world can't continue growing indefinitely. Most countries have stabilizing populations, so all we have now are 'emerging economies' They are picking up the slack for the time being.
At the sane time I dont see distributed production manufacturing of bespoke products or services as the answer. A modern twist on artisanal/guild like system of the past seems like a 'pastoral dream' as it were.
Still the neo liberal economic system is reaching its useful life and I don't think it will end up lil Moore's law where they keep finding ways to keep the 'law' viable.
You're making the mistake here of assuming that the problems of deflationary currency are related to consumer habits. The real problem is related to business habits. If your cash holdings are growing at 10%/year, you would be downright stupid to hire someone unless they can guarantee a greater than 10% return. If you're a capital holder (like a VC) you would be stupid to invest in businesses that can't guarantee that kind of growth either.
Lots of the economy shuts down during deflationary periods, it's why we typically try to avoid them.
Couldn't a central bank just reimplement its monoply on money creation as a monoploy on mining, then sell those mined BTC below market value to banks to give out as loans? Adjusting the discount given based on the amount they want to increase inflation as they already do, essentially replacing the mint with miners. If the price of miners + electricity ever becomes < the price of printing paper currency + losses due to forgery this might be a good idea.
After mining stops spitting out coins they would just charge transaction fees (sales tax) instead of mining like the btc network already assumes will happen.
Of course it could, but it would be stupid. Why bother with mining, if they don't want anyone else to be able to do it? The point of mining is distributed consensus. You don't need a crazy algorithm to reach consensus with yourself.
Bloated governments are grasping at straws. Look at the US with FATCA, taxing it's citizens wherever they are. I prefer to keep socking away savings in my offline bitcoin account and then exchanging it for Euros when I'm back home. Just look at all the people who had 'safe' accounts in Cyprus, or in the US underwritten by FannieMae. Bitcoin is the Libertarian's / Anarcho-Capitalist's dream; true freedom from the whims of greedy governments.
I'm assuming you are ok with an association with cypherpunks / crypto-anarchy, because one certainly exists even if newcomers would rather relegate these roots to history. Hal Finney was a cypherpunk and bitcoin wouldn't be possible without his RPOW system. Wei Dai, who was cited in the original bitcoin whitepaper, was also a cypherpunk, and praised Tim May's crypto-anarchist manifesto. The list goes on...
Too bad that you don't like libertarianism, because Satoshi Nakamoto (you might have heard of him) expressed all kinds of libertarian and anarcho-capitalist ideas.
Bitcoin is not viable. A centralized fiat crypto currency, with the same mechanism as bitcoin except centrally authorized by government authority rather than mined is very viable for a government. All transactions become trackable and every cent in circulation can be accounted for.
You don't need or want Bitcoin in that model - the whole point of Bitcoin is that it's decentralised and all transactions are trackable by all parties (but not necessarily destinations). A government would just want essentially our current bank account system, except without paper cash.
That'll probably happen sooner or later.
I don't understand why everyone says stuff like this as though mixers don't exist. BTC is 100% private if you use mixers and multiple wallets, which are painless and easy.
62 comments
[ 4.3 ms ] story [ 119 ms ] threadI don't know too much about the topic domain, so for those who do, what would be required of a purely digital currency to be a good candidate for a national currency?
No traditional nation-state will _really adopt_ a crypto-currency unless it bakes in some ability to seize or inflate it's subject's currency. If that exists in their desired crypto-currency then, of course, no one will ever use it without the threat of violence. Catch-22 for modern nation-states.
http://en.wikipedia.org/wiki/Gold_Reserve_Act
Except that they do. All the time.
Because governments are not evil machines that only want to steal your money. That's just a Dunning-Kreuger / nutjob interpretation of reality that is often repeated by a certain kind of broken individual.
Governments are not evil machines. They're machines staffed by people and people do what people often do: follow the laws blindly because "it's their duty", exploit the existing laws to their advantage "because it's legal", and craft new laws to monkey-patch the flaws in older laws "because it's their job." When two opposing groups of people disagree with each other, they resort to theatrics and name-calling and the machine kind of idles in its current state. The machinery isn't evil and the people aren't evil. This is just how the machine works. If the people operating the machine decide it needs more of a resource, they'll try to get it by any any available means to keep the machine running. Their job, and belief in the machine depend on it. Whether or not the machine gives the world "a better place" is a coincidental side-effect of the machine that happens often, but not always.
Adopting a crypto-currency would give this machine less control over resources because it would either have too much transparency (no black budgets or quid-pro-quos) or perfect opacity (no ability to seize funds from victims or punish criminals financially).
Elections do not change the machine except in the sense of an oil-change--to optimize its continuous operation. The machine is never replaced. And people who do not believe in the machine are always attacked by the operators with a vested interest in the machine... a certain kind of broken individual.
And thus it naturally follows that you shouldn't have to pay taxes. Isn't that convenient?
(I think this formulation was originally conceived by anarchists, where it is at least logically consistent, but tax protestors and some libertarians have adopted and deformed it into a convenient catch-all for "anything the government does that I don't like is ZOMGviolence.")
But in general, "monopoly on violence" is a legitimate concept and I think it's a requirement for a state-sized group of people to live in (a relative) harmony. You need to have some means to enforce coordination or else people get trapped in various destructive behaviours.
"Libertarianism is like Leninism: a fascinating, internally consistent political theory with some good underlying points that, regrettably, makes prescriptions about how to run human society that can only work if we replace real messy human beings with frictionless spherical humanoids of uniform density"
This holds for other political and economical ideologies as well - they may have some good and important points (that's why they gain followers), but ultimately pure theoretical models rarely work well when applied to the complexities of the real world. One needs to remember that and see places where tradeoffs are needed to be made.
[0] - http://www.antipope.org/charlie/blog-static/2013/12/why-i-wa...
Power exists. Violence exists. Both are independent of whether or not they're manifested in a state. Arguments to the contrary collapse into tautologies.
But a purely digital currency need not be a distributed cryptocurrency with a limited supply like Bitcoin.
From electronic transactions with the Fed down to direct deposits and debit and credit card purchases, US currency could function without paper bills already.
But that's nonsense. If anything a sovereign digital currency would give governments even more fine-grained control over the money supply.
Of course governments shouldn't use Bitcoin, but a sovereign altcoin is a very interesting idea.
Sure, they couldn't use Bitcoin itself, but in a hypothetical world of government-backed cryptocurrencies Bitcoin would be more of a reserve commodity, like gold, than a circulating fiat currency.
A sovereign cryptocurrency without that limitation might be an interesting alternative to cash, but the bulk of our money couldn't be in a "hard" cryptocurrency unless we also eliminated fractional reserve banking.
(Why? In short, with fractional reserve banking, the total value of everyones checking and savings accounts is far greater than the supply of currency, whether paper or crypto.)
But the real hallmark of FRB is that banks only need hold in reserve a fraction of their depositors' account balances. I don't see how CC would change that requirement. As scary as FRB is, without it lending would be a much, much more limited activity.
Money is funny - it's just an IOU. An IOU blown up to massive scale, obviously, but since a business sets the price of something and the market determines if it fits well in to a tradable value comparison, then I don't see how a digital IOU is any worse than a paper one, considering how little that paper is worth when everyone decides it has no value.
And let's be honest. If the value of paper can crash when people agree it has no value, it's just as easy for everyone to agree gold isn't worth a lick either. So in the end, we're just choosing a representation of an IOU we all agree upon, and if that's paper, rock, or digital (or 4 ton coins [0]) what does it matter, in the end?
(This all presumes some degree of safety in CC - with the recent value of Bitcoin thefts, people would ditch it really quickly on a national scale.)
/rambling
[0] http://en.m.wikipedia.org/wiki/Rai_stones
> But the real hallmark of FRB is that banks only need hold in reserve a fraction of their depositors' account balances. I don't see how CC would change that requirement.
My question is, what will a CC replace? If the answer is all cash and electronic transactions, will there be enough CC, with FRB? If the answer is simply cash transactions (already limited), what's the point?
In fact, you could probably utilize the increase in the money supply in much more productive ways than the current system, which primarily benefits banking institutions.
what if Keynes is wrong?
For a fiat currency to work, there must be faith in the currency and the governing bodies that support it. The US dollar used to be tied to the price of gold and silver, then later entirely to gold, then it was turned fiat in the Nixon years.[1]
BitCoin, in particular, does not allow a central bank to "print" currency (which is a tool used to control the inflation rate). Without the ability for a central bank to regulate the creation of a fiat currency, there would eventually be an erosion of faith in the currency. Alternatively, a digital currency could be tied to a gold silver / other commodity standard, but then it's not much different than any other commodity.
The Canadian bank is experimenting with a digital currency, but it won't replace the paper+coin currency, only augment it.[2]
[1] https://en.wikipedia.org/wiki/Nixon_Shock [2] http://business.financialpost.com/2013/09/19/canadian-mint-p...
Humans like physical objects even if they're worse, just ask any vinyl record enthusiasts to explain why they like vinyl and you'll see this dynamic.
If you know, for example, that your cash holdings were going to grow at 10% per year, then you'd be far less willing to spend any or invest in other assets, as merely putting bitcoin under a mattress increases value. This will reduce consumption and investment in the larger economy, inducing a recession or depression until overall demand for currency fell, pushing those who hold it to spend or invest to avoid losses. Of course, that equilibrium won't be permanent, and the cycle would begin a new, but with the major disadvantage that central banks nor government monetary policy can reduce the severity of the swings. (Although it's a matter of faith among Austrians that somehow there would either not be any more business cycles, or somehow the boom/bust wouldn't be "as bad")
Bitcoin to me looks like a good way to have a distributed settlement/clearing house system for transactions. But as a replacement for fiat currency, nope.
Or maybe consumers will stop buying the latest and greatest just because advertisers convinced them it will make them happy. Instead, consumers will demand higher quality products, which increases overall spending on R&D instead and decreases spending on marketing. Then we will all have better products and be more productive.
I can at least dream, can't I?
How can the future hold value when technology continues to drive the cost of living down? Can capitalism continue when I have all of the world's information available on my $300-700 smartphone? When I can connect with anyone in the world for pennies?
Anyway, 'finance' is more or less a meaningless part of the economy. Print more money and the nominal GDP goes up except that does not build a house etc. MMO's are an interesting way to study a lot of this stuff, and even there deflation does all kinds of bad things.
PS: My entertainment budget has been close to zero for a while now spening less on entertainment is not going to effect me much.
At the sane time I dont see distributed production manufacturing of bespoke products or services as the answer. A modern twist on artisanal/guild like system of the past seems like a 'pastoral dream' as it were.
Still the neo liberal economic system is reaching its useful life and I don't think it will end up lil Moore's law where they keep finding ways to keep the 'law' viable.
Lots of the economy shuts down during deflationary periods, it's why we typically try to avoid them.
After mining stops spitting out coins they would just charge transaction fees (sales tax) instead of mining like the btc network already assumes will happen.