Arguably a lot of discussion is open to anyone (Bitcoin mailing list, Core github repo), where anyone is free to post their opinion on topics themselves.
It is not democratic as in "you have a vote to force others to comply to the majority", but more a democratic in "you can try to convince enough people that the major chain becomes how you like it, while the others run a minority fork".
People think "where the money goes, is where the miners go", but the blocksize wars showed that "where the users go, is where the miners go". Miners themselves don't decide on bitcoin rules, users do.
So I personally think that bitcoin is not necessarily democratic, but still highly people/community vs money driven.
> "you can try to convince enough people that the major chain becomes how you like it, while the others run a minority fork".
FWIW, that is also true for fiat. You can become an economist, or a journalist, or a politician, or a pundit, and try to convince your country to do economics differently. It's a tall order, but it's been known to succeed. If this seems harder than the equivalent for blockchains, it's only because cryptocurrencies have much fewer users, so your voice seems more powerful.
Good point. I think the subtle difference is that the traditional political democracy coerces the minority to use the system how they like it (ofc. not everywhere, maybe more on the money/legal tender side of things), whereas with Bitcoin there is no coercion by the majority. The majority would accept one set of currency, while others might use another, however markets will probably always decide on a winner when it comes to currency, which could feel as if you are "forced". Definitely a nuanced topic.
Democracy can be defined as a popularity contest; democracy does not = good. When I and others say "democratized money", it's not to say it is identical to the definition of democracy as it pertains to a populous voting 1 person 1 vote. More like "money that is not controlled by a single source but rather as large a group as cares to participate who also have access to and knowledge of the tech".
When people say democratized anything, it comes across as meaningless marketing speak. I don't mean the traditional non-political use of the word (i.e., simply making something easily accessible to a lot of people).
It's basically trying to claim some good, without having to quantify or justify that in any way.
The US dollar is ultimately controlled by democratic institutions even if you don't count individuals using it as having any control. Therefore it is democratized money by the same vague handwaving.
It might not be "democratic", to me personally it seems fair as you are not forced to run the rules that are imposed by others. It might not be the wise decision, but the market will decide on the "better" rules.
Do you think the 'market' can decide anything if people aren't playing by the 'rules' in the first place? The free market model does not account for widespread fraud.
What you're arguing for is "you have a vote (well you don't, but people much richer than you do) to force others to comply to a very small minority", how is that better than majority rule?
Well there are no votes, so you can't force anyone to run anything. You run what you like and hope others do as well. As I said miners follow users, not companies.
I can send Putin an email. If I'm sufficiently convincing he might decide to call off his illegal invasion of Ukraine. That doesn't change the nature of his autocracy.
Even if UN would finally vote to deem the invasion illegal (note: it apparently is not by the democratic votes of the UN), it probably wouldn't be stopped either.
I think comparing real world war scenarios with how consensus is found in decentralized open source protocols is a bit intellectually dishonest
The second point is objectively wrong. PoW needs participants to spend capital in order to keep the organization running, thus not the rich get richer, but the more efficient get richer. PoS participants have no sell pressure and no way of being "better" than their peers, which is why it is incredibly broken.
In a PoW system you have fierce competition and the drive to the cheapest energy. Which today is stranded energy, that the market would never buy.
It is hard to estimate what percentage is truly renewable. The biggest source of energy was hydroelectric. It is estimated that during rain season the renewable percentage is up to 70%. However even if you look at the lowest estimate of renewable energy (~25%) you get double the percentage of the best country.
Bitcoin is the true solution to monetizing cheap energy production. It removes a large risk associated with investing in renewables as the network is a buyer of last resort. Thus you know that your energy always sees 100% usage (which is a big problem with grids today)
Just a small thought experiment. Lets assume you want to build a charging station for EVs powered by your own solar farm at a somewhat remote location. 4 hours of the day you have a peak consumption of 100 units, the rest you only have 80 units consumption. Moving energy over large distances is incredibly expensive. Having a buyer for your energy (Bitcoin network) means that the investment carries a lot less risk.
PoW is a lot different, as burning real world resources (energy) brings sell-pressure to miners, whereas PoS only has cost of locking the funds. This means that regardless of the size of your "operation" cost scales very flat.
PoS also does not come with the property of innovation and disruption. In a PoW (especially ASIC-based) system you will find new ways to outperform your peers and disrupt old players.
PoW incentivices cheap energy in developing countries more than anything before. It is the fix for environmental problems.
> PoW incentivices cheap energy in developing countries more than anything before. It is the fix for environmental problems.
That can only become true if and when governments decide to suddenly ban PoW, so that all that cheap energy services anything other than crypto. I don't think it works as an argument in favor of PoW, for the same reason "we're only spreading knowledge of chemistry and democratizing process engineering" doesn't work as an argument in favor of drug cartels.
Also, 'SR2Z is right - "cheap energy in developing countries" == coal.
This is a spicy take, not least because the cheapest source of energy in the developing world (i.e. the one without environmental regulations) tends to be coal.
PoS burns capital in the sense that it could be invested in something else (I was looking at staking coins but it doesn't come near the yield I get from my 401k for example, which is effectively providing unsecured debt to finance innovation.)
IMO: it's much better than PoW as long as it doesn't end up too centralized. I'm not too sure how I feel about the minimum amount required to stake though, that seems a bit odd.
Um transaction costs alone make it not the best use of money. It isn't widely used for goods that you would want to use on a day to day basis / the transaction costs of using it / energy use for bitcoin are some of the low hanging counters to why it isn't the best form of widely used currency.
Are those things that can change over time? Certainly - but it hasn't happened yet.
These low hanging counters have been discussed over a lot.
Transaction cost is pretty low in multiple views:
- You can globally settle billions of dollars worth of bitcoin for less than 10$ [0]
- FIAT Settlements between banks is a complicated and non-auditable process, which is internationally speaking also very slow
- You can build layers on top of bitcoin, i.e. the Lightning Network or liquid, which reduces transaction costs and time by a lot (sub cent range in the lightning network)
Energy usage is not tied to transaction throughput. It is vital to be very high in the future, as it secures this global and auditable settlement network. Mining is a very competitive business. Renewable and unused energy IS the cheapest energy available (without govt. subsidies), thus the most competitive miners will use them. Mining also "subsidizes" research in cheap energy, as it gives you a competitive advantage.
Im answering his question why bitcoin is not the best use of money:
(1) Most people don't settle on large volumes (thats typically banks/states/institutionals) so small volumes have a high cost percentage making it not a good daily driver. The fact that there is any transaction cost makes it challenging to work with as a daily money vehicle for consumers.
(2) It requires energy to exist and keep a ledger, it also requires energy to mine. Your comment on renewable energy isn't accurate sadly and unused energy works only if you can get access to it which isn't universally available. In some jurisdictions renewable energy beats on price but this is largely on huge projects that are bid into utility grids (At least in North America). It will get there but still needs more time.
I don't see how mining subsidizes research in cheap energy.
Understand they have been debated ad nasueum and the reason is that they haven't really passed muster for the use case we are talking about.
Don't equate my arguments as saying bitcoin is bad - it doesn't have a good universal use case for money and it does have negative environmental benefits associated with it.
(1) I think people assume that just because bitcoin exists banks will vanish. Bitcoin is the protocol that banks can use, but individuals as well. Also, micropayments on Bitcoin exist today. I encourage you to download a lightning network wallet (e.g. Breez Wallet: non-custodial and open source) and send me a "lightning-invoice" I can pay you in the sub-cent range.
(2) It requires real world resources to be spend and uses the most globally available resource, energy. I see it as a feature not a bug.
Renewable energy is the cheapest though[0] and thus the one that competitive miners need to use. Non-competitive miners get driven out very fast thanks to the difficulty adjustment.
Any percentage of optimization you can get in your energy production you can use to outperform other miners, thus get more of the block subsidy and drive out inefficient miners.
Bitcoin mining de-risks investments in energy producing facilities. You always have a buyer for your energy, which is a problem especially in renewables. [1]
I think from a scientific view, allowing and observing the experiment bitcoin is extremely interesting. Nothing like it has challenged economic thinking in the last decades.
It is very productive for a large population of the world.[0]
Not everyone gets paid in a stable currency or has easy access to it.
How it is challenging economic thinking? There is a near-zero chance cryptocurrencies replace an actual currency as the global reserve, so it's going to continue to be a novelty until people move on to something shinier.
> Not everyone gets paid in a stable currency or has easy access to it.
Bitcoin doesn't appear to solve this issue at all. How is private manipulation of Bitcoin any different than an authoritarian manipulating the local currency? If I was in a country with unstable currency, I'd want Euro or US Dollars, not bitcoin.
> What you refer to as private manipulation is called supply and demand, maybe try reading Econo101 :)
Does Econ 101 cover asset bubbles or financial manipulation? It's been so long, that I can't remember, but I promise you that prices can reflect things other than supply and demand once you manage to get past that first class.
> Bitcoin doesn't need permission though
No authoritarian would EVER cut off or filter the internet in their country. Nope, has never happened, will never happen.
> No authoritarian would EVER cut off or filter the internet in their country. Nope, has never happened, will never happen.
You're right, Myanmar just did that! Scary to think of it. Fortunately Bitcoin works over more communication protocols, but no internet is certainly not in any way easily defendable today. But i still think that physical and banked usd, euros and gold are more easily seizable by a government. A no internet scenario is probably economic suicide by any government.
I really don't get what you mean by financial manipulation in regards to bitcoin.
Cutting off internet is virtually the first thing an authoritarian government does at the sign of unrest. I want to say there's been something like a dozen in the last decade. If you include incomplete internet shutdowns, that list would probably grow well over 100. Hell, it's not just limited to authoritarian governments: the UK requires ISPs to filter certain sites.
I would not bet that the government is incapable of cutting off access to bitcoin.
The supply got less, while the demand didn't decrease. The intrinsic value increased because of the network and lindy effect, which is why institutional investors jumped in. Bitcoin entered a speculative bubble the moment the first block was created.
I would say we just don't know the price of bitcoin yet, hence the heavy volatility.
I wouldn't price it at all, because I don't see it as valuable, and I don't gamble, so I'm not going to short it. The supply got less because people bought bitcoin based on media hype. That's pretty classic manipulation.
I'm astonished that you have such a strong opinion, while not even trying to understand how pricing works. Good thing you're not gambling on that!
Media hype typically drives demand, not supply. Supply in bitcoin is a very fundamental concept and controversial topic, which is a function of proof of work, difficulty adjustment and block subsidy.
What exactly in supply and demand is manipulation? You can't just shout manipulation and argue with "media hype", which historically for bitcoin is very mixed[0] and affects any asset class?
Bitcoin has transitioned to "store of value", like gold, not "frequently transacted currency", like the dollar. There's plenty of other crypto currencies that fill that need.
For Bitcoin specifically. You can use a different token backed up by Bitcoin, but the actual implementation has these issues.
Transaction rates - Artificially kept low to profit miners.
Privacy - Every Bitcoin transactions is on a public blockchain.
Transaction fees - Using Bitcoin for even one transaction a day gets expensive.
Online only - Unlike cash only works with network access.
Conformation Time - Failing to wait for conformation in effect allows double spend attacks. Think 10 people buying computer equipment from different stores at the same time.
Assuming the implementation was changed to support wider adoption, a fixed currency has significant economic issues. For example, making or taking a loan in a currency that’s gaining value quickly becomes untenable.
PS: Of course all of this could be changed, but acknowledging issues is the first step in selecting a new set of tradeoffs.
First off, thank you for making fair criticisms. Unfortunately some of your information is old.
You don’t need a bitcoin backed token, lightning does it.
Transaction rates are not artificially kept low. In fact most the vast majority of the time bitcoin has excess capacity.
Privacy- this is a legitimate concern but it is improving, slowly. Taoroot and Lightning are both privacy improvements.
So your daily transactions aren't meant for bitcoin. A distributed ledger that replicates all data globally for eternity is not an appropriate method for recording coffee purchases. Though I have done it. Bitcoin makes sense for settlement, and lightning is appropriate for coffee.
That said, I regularly clear bitcoin transactions for $1 or less in fees, and it is cheaper then every other form of payment in the world. You may think a SWIFT transaction is “free”, but its merely the cost is hidden. And don’t forget the inflation tax, that is a global wealth tax on any money held in an inflating currency. So compared to that, $1 to send $100 is cheap.
Online Only- I don’t think there is a solution to this criticism, but not sure what the issue is.
Lightning allows speed without double spend problems. Personally when moving large (for me) amounts of money I font mind waiting an hour for the confirmations. I certainly won’t trust a payment without them.
But bitcoin is voluntary, it doesn't have to be perfect in every regard.
"Online Only- I don’t think there is a solution to this criticism, but not sure what the issue is."
The fact that I need to connect to some peer-to-peer network or third party service for every transaction is a limiting factor. It reduces the efficiency of the system and increases latency, and it adds additional points of failure.
In fact it can be solved for electronic transactions and there is a mountain of published research on the topic that dates back to the late 80s. Here is a recent research paper:
The idea is to ensure that users who attempt to double spend can be identified and penalized later (e.g. by being added to a blacklist; some systems actually ensure that all transactions in which the cheating user participated can be identified, so merchants who try to evade the blacklist can also be penalized). The money has to be issued by a bank under the security definition. If anonymity is not a requirement -- and presumably a Bitcoin enthusiast does not care about anonymity since Bitcoin is not anonymous -- this can be easily achieved by using ordinary digital signatures.
I think you are not understanding how bitcoin works, and this exact problem of double spending was better solved by bitcoin. You dont need to trust a third oarty or “online service”, you can dimply run a bitcoin node. If it is that important a raspberry pi and SSD is cheaper than your average credit card terminal.
The credit card network, by the way, is much worse in this regard.
...so you need to be online, connected to the rest of the Bitcoin peer-to-peer network, to engage in a transaction. I am talking about offline transactions, where I only need to communicate with the other party in the transaction. Again, you can just read the paper I gave a link to, which describes this scenario, or any of the other hundreds of papers published on the topic.
Unlike many great ideas, those in the paper you cite just haven't yet gathered enough acceptance.
The value of the US dollar as a reserve currency is a faith-based article, and yet it works well. The confidence in the Fed to not unduly dilute the value has reinforced the resolve of the participants to continue to accept it as currency.
Bitcoin's paid many years of dues in this regard as well, and its garnered the confidence of its market participants despite its deficiencies.
> Transaction rates are not artificially kept low.
You can look it up, larger blocks where allowed in the past, 1MB is a completely arbitrary size that was overkill at the time but hasn’t increased. Even 1$ transactions are quite expensive though they are often much higher.
The lighting network has it’s own separate set of issues. It’s Bitcoin backed but loses some of Bitcoins advantages: https://arxiv.org/pdf/2006.08513.pdf
> Online Only- I don’t think there is a solution to this criticism, but not sure what the issue is.
It’s simply a dependency. Shops may have issues accepting CC payments after a hurricane for example, but they can always take cash.
Transaction clearance - Artificially kept centralised to keep states control supply.
Privacy - Every bank transaction requires real names.
Artificial scarcity - If everyone tried to withdraw the money from their banking accounts at or around the same time, all the banknotes in circulation would be unable to cover all the demand.
Transaction clearance between customers at the same bank don’t involve any central authority. In fact banks are reporting their net transactions between each other aka if A has 100,000 transactions for 100$ each with B that sum to zero net transfer they don’t need to report anything.
This is needed as otherwise banks could claim to have unlimited funds.
Bank notes provide privacy and are created on demand. Having 1:1 bank notes to M1 money supply would simply be wasteful.
Aside from its transaction costs, which may be mitigated by the lightning network, Bitcoin is still a lousy currency. One important function of money is the creation of credit. If you have a large quantity of money that you don't want to spend in the short term, the money is better put to use by loaning it to a small business or couple purchasing their first house.
Without regulation or FDIC insurance, very few people would be willing to give their bitcoins to a bank so that it could be lent out to people who have a better use for it. Even if a Bitcoin bank could exist, an economic downturn could cause a liquidity crisis, where everyone tries to withdraw their Bitcoin at once. The banks would have no way of returning the Bitcoins to many of their customers. Because there is no central bank that can print out Bitcoin, the entire Bitcoin financial system would be in ruin following the crisis.
This[1] is an insightful article from an economist who has experienced the real world economics from very close quarters.
I don't have any opinion about Bitcoin one way or another, though through these fascinating arguments I gain new insight about the money and its relationship with geopolitics, human civilisation and other aspects.
That article is from 2013 and so we must grade it on a curve. He makes several wrong assumptions about how bitcoin works because he’s thinking it is based on trust, and he is an inflationist.
I have yet to have an economist explain to me why deflation us bad- computers getting cheaper is good, fixed income people being able to afford things us good. Inflation mainly allows government to hand out money yo wall street in exchange for bribes at the expense of everyone else. That’s not good.
"I have yet to have an economist explain to me why deflation us bad"
There are a few different issues. First, volatility is universally bad for a currency, because it makes all transactions in the currency more risky. Money should always be a medium of exchange first and foremost; there should be little to no room for speculating on the value of money and people should not have to factor in unexpected changes in the value of money when determining prices. In general people will switch from more volatile to less volatile currencies because less volatile currencies make trade more efficient.
Unexpected deflation is particularly bad, because in addition to the general problems with volatility, it also triggers defaults on loans (because money becomes more difficult to obtain). Too many defaults in too short a period of time will create a "contagion" effect by reducing the collateral held by lenders (who use loans as collateral for their own debts), which triggers even more defaults. Worse, as lenders see their collateral vanish, they will try to make up the difference with money, taking money out of circulation and causing even more deflation and thus more defaults. This is the "deflationary spiral" scenario.
Inflation is not some trick to hand money over to "Wall St." Rather, a low, predictable rate of inflation is targeted so that there will be some "breathing room" during an economic crisis. It does not hurt people on a fixed income because it can be planned for and the fixed income can be adjusted for inflation (e.g. someone could hold a portfolio of TIPS). It also has nothing to do with the price of computers, which have become cheaper because of economic growth (and in fact have become cheaper over decades of inflation). Inflation also encourages investment activity by discouraging the hoarding of money, which is a good thing for the economy.
It’s a shame you spent so much time patiently trying to explain all that to me, not realizing it’s probably the ten thousandth time I’ve heard this. I appreciate the efforts, bit that view is rationalization and I tried to save you the effort by pointing out that the technology industry has not stopped like you would expect if your view were reality.
And I assure you, as someone who holds bitcoin that has greatly appreciated, I can’t wait to spend it on things that depreciate.
In fact my spending has increased now that my spending power has increased dramatically.
OK, well, congratulations on your gains, you made a good bet, it paid off, and I hope you can put it to good use. It does not make anything I said false. You asked why deflation is bad, and I gave you a summary of the various reasons why.
As for what we should expect...why should the current situation be so surprising? The vast majority of merchants who "accept Bitcoin" use a third party payment processor that immediately converts Bitcoin into a fiat currency. The number of people who use Bitcoin as money, rather than as a system to communicate payments made in some other currency, is vanishingly small. The "technology industry" has mostly focused on non-monetary applications of blockchains and a lot of attention has been paid to "permissioned" blockchains because they are overwhelmingly more efficient.
> "I have yet to have an economist explain to me why deflation us bad"
1 bitcoin will always buy more and more and more and more. So you have zero incentive to spend your money today and you have all the incentive to wait as far as you possibly can before spending anything. The economy would grind to halt.
Isn't this obvious?
Besides, rich people can sit on their money instead of re-investing. They will never have to work and neither will their descendants. You basically established some kind of stupid cyberpunk feudalism.
You are arguing that the kings if the past with lots if gold starved, simply because their gold could buy more food over time. People don’t forgo food for decades to put more money into index funds despite the broad market increasing in value consistently over time.
Computers get cheaper every year such that even inflated dollars can be held to get a better computer next year.
And yet the technology industry has not ground to a halt.
Food is low tech, cell phones are high tech.
It is obvious- this argument in favor of government being able to debase the currency to fund wars and somehow that’s good for poor people is never going to hold water.
But here is another thought- no matter how much you call it stupid, or fuedalistic, leftists gave been making this argument fir over a decade now and Bitcoin has only gotten stronger.
You may even be able to make it “illegal” if you ignore the constitution and laws, but you cannot stop it.
Bitcoin will be the tool that liberates the people out from under your technocratic thumb.
Wow, I can't even make sense of what I read. It's like all the crazy conspiracy theories thrown into a blender and the outcome is: "Bitcoin liberates!".
I think you really have poor mental models of the world. I'm sorry but there's not even anything else I can say.
In the context of deflation goods getting 'cheaper' simply means that their nominal price falls, while real prices remain constant. If you thought that deflation makes people richer (or that inflation makes people poorer) then you were wrong.
Inly if you redefine “rich”. Increased purchasing power makes you richer, giving you a chance to build wealth. Inflation robs this from society and is oppression. I really don't care to be gaslit about economics.
Inflation only impacts actual cash. Land, stocks, gold, durable goods, even loans, and other forms of wealth are not directly impacted by steady state inflation.
Remember, if you have money in an interest generating account then you don’t have actual cash you have an IOU for cash with whatever institution you deposited that money with. Now, changes to the inflation rate or hyper inflation are another story, but consistent ~1.5% inflation is the goal.
The basic argument is that in small amounts, both inflation and deflation can be fine, but either one can become a problem. The issues with too much inflation are fairly obvious; the issues with too much deflation is that downward price pressure falls on everything. If deflation is so reliable that prices are going to be meaningfully lower if I can put off a big purchase for as long as possible, I'm going to do that. If enough people follow my lead, that hurts sellers. Wages go down -- more than likely through layoffs rather than pay cuts. And anyone who's already in debt -- and this doesn't just include your Uncle Bob who routinely puts too much on his credit card, it includes companies using lines of credit -- can end up in real trouble.
> computers getting cheaper is good
Sure, but -- even though I've seen this example trotted out before as a pro-deflation argument -- the prices of manufactured goods steadily fall due to continual improvements in manufacturing processes, economies of scale, and general technological progress. This has been particularly noticeable in computers over the last three decades, but Moore's Law isn't a supporting argument for the benefits of monetary deflation.
“This has been particularly noticeable in computers over the last three decades, but Moore's Law isn't a supporting argument for the benefits of monetary deflation.”
Asserting that an argument is not an argument is not a rebuttal.
The claim that people having more purchasing power will stop the economy is self serving for inflationists and never supported by evidence.
In fact the opposite has been the case time and time again.
As I proved in the example you simply ignored.
So, like I said, I have never seen an argument. Just these kinds of self serving assertions.
If you don't like the Fed throwing money at rich people, you should probably be rooting for inflation. The historically low inflation of the past decade has them handing out money like candy.
We have not had low monetary inflation since at least the Ford presidency.
You are confusing the consumer price index for “inflation”. It’s understandable, this lie is one of the earlier examples of fake news.
When the fed prints money it goes to wall street and politically connected people. (This is quite literally the definition of fascism- a private economy run by government)
Wall Street profits from the inflation, but the rest of the people get poorer.
No. Everyone profits (the world economy grows).
Sure, some people will be left behind like blue collar americans but that’s mostly because of globalization.
Also people that put their money in the stock market for the long term will do much better than others. Even if they are poor, it doesn’t matter. Just buy SP500 with all the money you can spare.
At worst inflation is a tax on ignorance. If you keep buying crap you don’t need with your dollars instead of investing... it will suck for you.
What about those that are so poor that have zero money to spare in the first place? Well, that’s a situation that shouldn’t even exist. That’s why I live in European Social democracy where governments actually distribute wealth.
Besides the US can print as much dollars as they want because they have the largest economy and the largest military to keep the rest of us buying those dollars and inflating our own currencies in lockstep.
The US is not Zimbabwe. It’s not even comparable.
You can literally shove those dollars down the throat of the rest of the world for as long as the status quo is maintained.
No, inflation doesn’t hurt the poor the most! Have you even given this a minimal amount of thought?
Compare someone with a billion dollars and someone with 0 dollars today. Then huge inflation comes... who lost more purchasing power? Not the person with zero dollars, that’s for sure!
You really need to take a step back and start thinking because there are multiple people here spending their time and energy trying to explain something basic to you from first principles.
Have some self doubt about your worldview. You are dismissing sound logic based on what? Most of the things you reply don’t even make sense.
> I'm not an economist, but nothing has convinced me yet that bitcoin is not the best form of money.
Contrary to the Bitcoin crow I don't spend my days thinking about it so my argument may seem weak. You mention bitcoin being 'the best form of money'. Assuming there is a hierarchy of forms of money, from what I understand the main advantage of Bitcoin is that Government can not manipulate its quantity. I wonder if a world where there is no possibility for governments to use monetary policy in times of trouble to stabilize the economy is desirable.
I would say that it shouldn't be the role of a government to govern over money.
The economy is very complicated. There are no models that can predict the output of changing its parameters. It wasn't possible before to have the properties in money that we have with bitcoin (a gold standard was easily removable by a powerful government). The current central banking system is an experiment as much as anything before it and anything that will follow.
I see it like this. I want my economic output to be measured in something that is:
- salabale over time (1 btc is always 1/21 million of the monetary base)
- salabale over space (i want to work remote)
- understandable and auditable (the bitcoin concept can be understood by everyone, the code is auditable by mid-level developers)
> (1 btc is always 1/21 million of the monetary base)
Why is that good? Why should I, if I have 1 bitcoin, always have ownership of a fixed proportion of the entire societal monetary base?
This seems like a great deal for someone who has a bitcoin, and a terrible situation for new workers and the economy as a whole. If the economy expands, your fixed proportion of the monetary base sees you profit off the backs of others for nothing more than sitting on currency. Not investing, not even speculating, just sitting on it.
As an employee, in a growing economy denominated in bitcoin, you would see your pay drop frequently as the money supply gets stretched. There's no reason at all to think BTC-denominated salaries would be able to stay constant as the value of the money rises.
> I also would like to be able to save without having to put my economic output at risk.
That's not the same thing, a fixed proportion of the money supply does not guarantee that, nor is it a necessary precondition.
Further, this is not in the interest of wider society - work today should be valued more than work yesterday. If you want to grow your money, you make it work.
This is just a rehash of the problems with the gold standard now. But worse.
> As an employee, in a growing economy denominated in bitcoin, you would see your pay drop frequently as the money supply gets stretched. There's no reason at all to think BTC-denominated salaries would be able to stay constant as the value of the money rises.
Assuming the world productivity is denominated in 21 million bitcoin, if world productivity grows by 3% per year, my salary of 1 bitcoin gets more purchasing power. This is where you get a lever with your employer, he needs you to earn less, you don't have to negotiate to earn more (same applies to minimum wage, it needs to be adjusted upwards in a inflationary monetary system)
Every money is inherently more valuable yesterday than today, as you can divest it. I would argue that it is very much in the interest of the wider society to have their savings not inflated.
The best way to make your money work will always be to invest it in productivity, be it in educating yourself or investing it in companies. This investments need to be a lot more smarter and more sustainable than those of today, as the base money is not worth less every year.
I think wasteful spending is a property of an inflationary money, where smart spending would be a required property in a non-inflationary money.
There's no lever there. In a bitcoin economy there's no chance your contract gives you a fixed salary in the first place, it would be tied to some measure of inflation.
Like I said, most of the rest is just a rehash of gold standard stuff.
> Like I said, most of the rest is just a rehash of gold standard stuff.
Exactly, however bitcoin is infinitely better money than gold and makes the "gold standard" viable. Fortunately the gold standard has a lot of proponents globally, some of whom started embracing bitcoin.
I just hope that the experiment bitcoin keeps on going and I'm guessing we will see some form of resolution, maybe even in this decade. There is a lot to learn still.
Tbh. my very basic knowledge comes from strongly opinionated austrian economics literature, which tends to confirm my bias, and from [0], which at least gives me some data points to refer to.
Do you mind giving me some of your arguments why it's terrible?
I mean, for a start 'Austrian' economics is a joke.
There's plenty of literature out there about the end of gold standards in various countries. The upshot of it is that economies get warped by constrained currency supply and those who already have tend to get more, over those who produce or invest.
> I mean, for a start 'Austrian' economics is a bit of a joke.
More specifically, Austrian economics is overtly and proudly ideological rather than empirical; it is about advancing an agenda not describing reality.
It's worth taking seriously, but as a particular group’s body of theology and religious propaganda, not as science.
Calling a position a joke, and calling that a fact, is not very persuasive. I can't tell if you're a troll, or just a lousy debater, but you're trying to win the argument by default. You don't get to do that, at least not here. Either some evidence or some argument would strengthen your position; drive-by dismissive mockery just makes you look lazy and unwilling to actually engage in substantive conversation.
I am unwilling to engage in substantive conversation when it comes to Austrian economics. There's little point to it, those who are adherents are not going to change their minds, it's an idealogical, rather than empirical position to take.
I'm not trying to win a debate here, nor am I interested in debating the merits of a system that I don't think has any.
In a non-inflationary monetary system cost of goods decreases every year, thats how productivity growth works.
You seem to have it backwards, this is where the Econo101 book from the parent comment might help ;) /s
Inflation drives down the purchasing power, hence why milk gets more expensive every year, even though we get much more efficient at producing it. Remove inflation and 1 bitcoin buys you a liter today and 1.03 litres next year.
Salaries are negotiable and the renegotiation lever is skewed towards the employee. e.g. "i accept the pay cut of 3%, but will need 2 days of vaction more" vs "please employer pay me 3% more to combat inflation"
You won't get more rich by sitting on your salary, but you will also not get more poor like you do today.
If the milk seller doesn't lower his prices a competitor will do that, as he is able to do that with the bigger margin the better productivity brought.
Here in Italy I already have 28 days of paid vacation and can't be fired without motive and a judge can reinstate the worker if the motive was not valid
That's a political issue, it has nothing to do with how currencies work
If the milk seller is going to lower the prices to beat competitors, workers will compete on salaries as well
nothing different from what we have now, the only difference is that rich people could amass fortunes much more easily than today
they'll just need to keep their money in the bank (i.e. their gold reserve will keep appreciating by the virtue of existing)
Rich get richer today by being closer to the money source. In the "bitcoin standard" non-rich people can even keep their money in the bank and don't lose purchasing power by not risking it.
Rich and non-rich will always want to take risk to increase their net worth, however the assets must perform much better to outperform the money. Unlike today where almost all investments appreciate when measured in fiat.
edit:
> That's a political issue, it has nothing to do with how currencies work
Would you agree that it would be a good thing if the base monetary layer would enable that? I only see that happening with a monetary policy that respects savings and is not alterable by a few elected and unelected officials
Unfortunately my salary is fixed today as well and not only does it shrink as a portion of global productivity, but also as a portion of the monetary supply.
The collective energy spent by Bitcoin miners equals the energy consumption of Argentina, yet the Bitcoin network only processes a small fraction of the number of transactions per day that Visa processes. For reference, Visa itself consumes only a small fraction as much energy as Argentina.
In other words, you must cover the cost of vastly more energy per Bitcoin transaction compared to the mainstream financial system. Environmental concerns aside, that amounts to a huge tax on every transaction that reduces the economic efficiency of the system. Note also that this is a per-transaction tax, regardless of transaction size, making Bitcoin less useful for small transactions.
There is also the fact that such a high energy cost per transaction causes the value of Bitcoin to be more strongly correlated with the price of energy. Energy prices are notoriously volatile; hence Bitcoin's value will also be volatile. Volatility makes a currency less useful (it introduces risk into every transaction and disincentives investment) and a very volatile currency will eventually be abandoned entirely. It should surprise nobody that the overwhelming majority of merchants who "accept cryptocurrency" as payment do so via services that immediately convert that cryptocurrency payment into their local fiat currency, because the majority of the world's fiat currencies have very stable values (compared to Bitcoin etc.).
I could go on but to be honest the technical objections to Bitcoin outweigh the economic objections, at least in my opinion. Happy to get into those objections as well if anyone is interested.
>Bitcoin network only processes a small fraction of the number of transactions per day that Visa processes
Btc is not replacing visa. Btc is replacing central banks. The appropriate comparison here is what is the energy cost of the banking infrastructure of the incumbent system.
>Environmental concerns aside
I am concerned that you are using electricity to power your computer, access the internet, and comment on HN. Are you the arbiter of "moral" energy use? Am I? Slippery slope, and an anti-human one at that.
>Energy prices are notoriously volatile; hence Bitcoin's value will also be volatile.
This is not how it works. There is an argument to be made for risk of on-grid miners sudden increase of electricity prices in the case of a power shortage. Miners don't like this type of risk, so they choose to locate at places with abundant supplies and stables prices of electricity. Miners sign long-term electricity agreements. Risk to off grid miners is another level removed from on grid miners.
>will eventually be abandoned entirely.
According to how you feel? All signs point otherwise.
>the technical objections to Bitcoin outweigh the economic objections
You are free to make your own fork, BIP, or new "crypto" and compete. Good luck. By the way, there are 7999 "crypto" coins competing and losing so far.
Western Union has a lower transaction rate than Visa, so does that make it necessarily less useful or valuable (either absolutely or per-kilowatt)?
Also, as you noted the energy usage is correlated with the value, not the transaction rate. Transaction rate limits could be changed arbitrarily without affecting the energy usage of the coin.
However you have the causal relationship backwards: The value of the coin determines what level of electricity spending is profitable for miners. The electricity spending of miners doesn't determine the value.
"Western Union has a lower transaction rate than Visa, so does that make it necessarily less useful or valuable (either absolutely or per-kilowatt)?"
The transaction rate is not what matters; what matters is the energy spent per transaction. Visa process many more transactions for much less energy than Bitcoin, and is therefore more efficient. I suspect Western Union's energy consumption is roughly in proportion to Visa's, but I have no data (the Visa example comes right out of their annual report, which covers both the number of transactions and amount of energy consumed).
"The electricity spending of miners doesn't determine the value."
The energy cost determines the transaction fees. Higher transaction fees make Bitcoin less valuable by imposing a greater burden on using the system. Yes, there are other factors that determine price of Bitcoin, but if nothing else changed ("all things being equal") then volatility in energy prices would trigger volatility in transaction fees and thus volatility in Bitcoin's overall value.
My point was that WU and Visa solve totally different problems which have different challenges. Why should it be expected they would have a similar cost per transaction?
> Higher transaction fees make Bitcoin less valuable by imposing a greater burden on using the system ... volatility in energy prices would trigger volatility in transaction fees and thus volatility in Bitcoin's overall value.
Good point, that is certainly a risk with Bitcoin.
EDIT: Actually thinking about it more I'm not sure why this would be true. Since the transaction rate is not related to the number of miners, volatility in energy prices might cause miners to enter/leave the system but I don't see why it would impact the coin prices.
Whichever miner mines the block that a transaction is included in must collect at least enough in transaction fees to cover the energy spent on mining. Since the block size (and thus number of transactions that can be recorded per block) is fixed, this implies that any increase in the global price of energy will raise Bitcoin transaction fees (all things being equal). This assumes that the transaction rate is always at the maximum possible; if the transaction rate is too low and blocks are not being filled, the effect is even more pronounced as there are fewer transactions over which the energy cost can be recuperated (last I checked, Bitcoin is already operating at its maximum transaction rate, but someone may want to correct me on that).
The reason it impacts coin prices is that higher transaction fees make Bitcoin less desirable as a medium of exchange and reduces demand. To put it another way, let's say I am paid in Bitcoin. If transaction fees increase, I will need to demand a higher nominal salary, at least enough to cover the transaction fees incurred when I spend my salary. Likewise, any merchants that accept Bitcoin payments will raise their prices, to cover the fees they will have to pay. Yet the same work is being done and the same goods are being sold; hence, inflation, or in other words, the value of Bitcoin has decreased.
If transaction demand stays equal, and the rate of transactions that can be processed stays equal, then why would the fees raise? If electricity costs go up, miners will be priced out of the market, and then difficulty will go down for other miners making it profitable again once the hash rate drops enough.
Miners can't choose the transaction fees, they will either process the most expensive transactions they see or just stop mining. If they stop mining, that doesn't impact the rate of transactions that can be processed.
The number of miners does not really matter. Whatever miner mined a given block must receive enough to cover the electricity cost, regardless of how many other miners are involved. There is also no particular incentive for a miner to reduce his own electricity consumption in response to the difficulty being reduced. The only reason miners will shut their equipment down is if they are unable to cover their electricity costs because e.g. nobody is willing to pay the higher transaction fees.
Obviously everything I described is a simplified model where energy costs change equally for all miners. The real world is not that simple, but there is some correlation in energy costs across different regions as there is a global market for typical fuels (coal, natural gas, uranium, etc.).
It is also important to remember that transaction fees are not in proportion to transaction sizes. People doing large Bitcoin transactions could absorb much higher fees, so in all likelihood nobody would be priced out of the market (and Bitcoin would be dominated by large transactions, which is more or less the case right now).
I am not suggesting miners will react to the difficulty change. The difficulty change reacts to the miners.
Miners will shut their equipment down as soon as the electricity costs become greater than the rewards. When some of the miners shut their equipment down, that causes a difficulty change which makes mining profitable again for the remaining miners, and also keeps the transaction rate the same. The miners have no way to impact what transaction fees are acceptable because they have no control over the transaction rate.
3. Bitcoin Mining will make investments in renewable energy a lot less riskier as you can scale up as much as you want and always have a buyer. This drives out fossil fuel miners
4. Once bitcoins true price has been found, holders will spend to consume as much as they need/want to. Just like every other currency, except without the inherent need to spend(fixed issuance)
> 1. You don't decide whats a waste of energy or not.
Whether or not it's a "waste", it's certainly a massive amount. More than all of Argentina or Netherlands[0], as was posted here on HN recently. As of 2020, every single Bitcoin transaction uses the equivalent of 15 full charges of a Tesla car battery[1].
Also: You don't decide whether I (or others) decide what's a waste of energy or not.
The energy costs of a block are not in relation with the amount of transactions in it. Just because you have two numbers, doesn‘t mean you should divide them.
Short rant:
The current settlement system is layers up on layers of legacy systems. How do international settlements exactly work? How long do they take? Where does money come from? Why should flawed metrics and corruptable humans decide when to issue currency?
Bitcoin follows a simple set of rules that everyone can understand in days of intense learning. An average developer can audit the code and can verify these rules. It‘s a simple and beautiful system that HN just loves to hate, for whatever reason.
> The energy costs of a block are not in relation with the amount of transactions in it. Just because you have two numbers, doesn‘t mean you should divide them.
Right, they are unrelated. The energy costs are driven by how much Bitcoin is valued, so the more Bitcoin succeeds, the higher the energy costs go. The transaction rate does not increase, it stays around 400K/day, enough for everybody in Russia to make one transaction a year. Or for another example, for every business in the US to make 5 transactions a year. Is that a good thing or a bad thing?
The solution to Bitcoin's extremely low capacity for transactions is for it to be only actually traded on-chain by the largest institutions, like gold moving between vaults in the old days of metal-backed currencies. But in that world, most companies and certainly most individuals would trade using layers upon layers of complex systems built on top of Bitcoin, not Bitcoin itself. Very likely those layers will involve some form of centralization. So what's the point of all this elegance?
Also I might add that the probability that the layers that people will use will be open source is very high. This inherently makes it more accessible to everyone.
If we look at the Lightning Network (a 2nd layer solution), there are 3 mainstream solutions, all open source.
On top of that you can have something like chaumian ecash, which is even more privacy preserving and cheaper.
Yes, we will need layers on top of Bitcoin, but thats a good thing. The base layer needs to be expensive (small blocks) in order to keep the cost of running a node as low as it is now (<$100)
It's awesome, but it should get even more awesome as BTC gains mainstream acceptance. The energy usage should hopefully one day match that of the USA or at least India to be even more secure.
After all, if Bitcoin is going to become the global reserve currency a 51% attack should be absolutely impossible. Right now all the mining being done is rewarded with a measly ~$55 million per day. That's within the reach of some rich individuals to outspend, to say nothing of big businesses, hedge funds, or even nation states. I think spending about $1B a day on mining would be more appropriate in the long run.
Why buy them yourself? Just pay the people who already have them to find hashes for you. Pay noticeably better than the existing pools and they would line up at your door.
Miners are motivated by profit. They won't necessarily even know that you're trying to do a 51%, just that you're buying hashrate and are willing to pay them more than they're getting elsewhere.
edit: In fact, you could run a legitimate mining pool at a small loss for a while to build trust. Participating in your loss leader mining pool would be attractive to miners since the other pools, that skim some profit for themselves to support their operations, can't compete on price with one willing to lose a little bit of money. If you want, break it out into 3 "different" pools that you control so that it even looks to the naive like there's no 51% control. Then spring your trap.
51%ing Bitcoin is well within the resources of a motivated hedge fund, major corporation, or country. The motivation just isn't there right now.
The motivation is extremely simple, as you can just short bitcoin, do your stunt and then cash in the rewards as you just crashed bitcoin.
However the game theory behind what you are saying is completely nonsense, which is why no one ever did nor will do your technically and economically impossible stunt.
I don't think you could ever find the "true price" of a pure store of value asset like Bitcoin. Gold has been around for thousands of years and is still volatile enough that no one would want to use it for daily transactions.
The characteristics of a great store of value are different than that of a great currency - it seems naive to me to think that Bitcoin would ever act like a fiat currency that way.
It's because the currency gold is priced in is going down year by year. Why should you spend your gold if your fiat is worth less tomorrow?
That's besides the point that gold is practically unusable as a currency for convenience reasons (divisibility, verification, storage, transportation).
A great currency is a currency that preserves your value over time, as currency is what you earn for spending your time and skill. You shouldn't be forced to take a risk to maintain your wealth. Today it's risky not to divest your fiat.
I don't see why it shouldn't. I will always want the best SoV in exchange for my services, why would I want something else? If I need to exchange the currency for a SoV everytime, I might get the SoV from the get-go.
A good medium of exchange should have:
- Little to no transaction fee
- Near instantaneous transaction time
- stable value
The characteristics of Bitcoin that make it such a good store of value make it really bad at these. Computation-heavy proof of work creates a secure and immutable network, but also makes it more expensive and slows down transaction times. It's scarcity makes it a speculative asset prone to booms and busts, but gives it the best chance of long term value growth.
But I guess what you're saying is that as a buyer, why would I not want my money to live as a strong store of value up until the point of transaction, which I think I agree with. It'd be nice if you could own Amazon stock and then pay at McDonalds with USD taken out of the value of those stocks (though tracking capital gains would be annoying). In that situation though, Amazon stock is the good store of value and United States Dollar is the good medium of exchange.
> - Little to no transaction fee - Near instantaneous transaction time
That can be done with Bitcoin today. Download a lightning capable wallet in the appstore of your choice and post an invoice, I can instantaneously pay that to your wallet with near zero fees.
> stable value
That is basically what I was saying earlier, we don't know the correct price yet. However bitcoin is only volatile upwards (if your time horizon is > 2 years)
Bitcoin is the perfect settlement base for layers built on top. The Lightning Network uses Bitcoin for its trustlessness and payments are also denominated in bitcoin.
I know that I sound like the typical Bitcoin-shill, but I really think that this is the one of the most important projects of our lifetime. It is the first shot at seperating money from power. Some of us just need to accept that we missed the early train and didn't get rich (we all would have sold at $200 if we bought at $0.30), but accept it for what it is. The first and only trustless, permissionless and decentralized monetary network.
Yes I 100% agree Lightning Network solves a lot of the medium of exchange issues and in a really cool way too.
I don't see the volatility stopping though. And being volatile upwards might be good for the spender who's been saving that money long term, but probably not for the seller who needs to count on that revenue to cover its monthly expenses.
Can you point me to some blog/video that really lays out how all this is supposed to work. I don't necessarily mean the technical side but how a bitcoin world would look like.
> There is a reason the target inflation is at ~2% almost everywhere. We need inflation to keep the economy going.
Inflation is completly based on politics and it's as much an experiment as central banking is. It works until it doesn't. Also it's incredibly hard to truly calculate.
Deflation is the best thing for employees. Imaging having the leverage in contract renegotiation. "They" don't want you to want inflation.
Stability rather than inflation or deflation is probably the best.
Inflation being good is a myth that was made popular by the fact that it gives the government and banks power, so economists who promote inflation are themselves promoted and selected by people in power. It is now so prevalent an idea that few question it.
Bitcoin mining allows energy companies to de-risk an investment in green energy solutions such as solar. If you place some miners onsite you always have full demand (which is a problem during peak production times). Bitcoin mining is a energy revolution.
