I guess I'll give the blunt answer: many proponents of cryptocurrency have views on economics, politics, society, law, and contracts that are ignorant of the way those things really work. Many really do believe that currencies, transactions, and contracts can be implemented entirely by computer programs and that governments and courts should have no jurisdiction over such things.
If you don't believe me, go to some of the active crypto forums and get involved in political discussions. You'll see an astounding mix of techno-utopianism, extreme libertarianism, and baseless conspiracy theories about fiat money and governments in general.
The blockchain is an interesting technical achievement, and so are smart contracts, but they are not a replacement for laws and governments. Unfortunately, a lot of people think they are. Some people even insist that bitcoin doesn't have governance, but that's clearly not the case because the current controversy about the core developers is exactly about governance.
I bring this up because these kinds of beliefs are the reason people in the bitcoin community think the programmers who implement bitcoin are capable of solving the economic problems -- they reject the idea that there are any economic or social problems facing bitcoin that can't be solved with the underlying technology. They don't accept that these are social problems with social solutions.
If that's the case then it certainly does the job.
There are a lot of people out there who are very aware of how their saved money loses value and actively want an alternative that feels "safe". I don't know that Bitcoin is that alternative, but it's definitely trying to be and even I have to admit has been far more successful than I ever would have expected.
Inflation can be a good thing. It can be used to combat deflation, and the absence of inflation can lead to stagnation via the paradox of thrift. There are certain central bank policies that encourage inflation and are known to work pretty well, including QE, which was demonized by a lot of people but has now been proven an effective aid in the recovery from the 2008 crash.
The bitcoin approach focuses on the money supply only, but there are other factors to inflation. There is general agreement among economists that the money supply is the key driver of inflation in the long term, but in the short term, other factors can be involved.
Inflation is possible with a static supply of money, because the amount of money in circulation (versus the amount of money in savings accounts or bonds, or otherwise locked up) can change.
Inflation can also happen even with a static supply of money and no changes in the amount of money in circulation. An example is an oil price shock, caused by an embargo: oil is an input into many manufacturing processes, as well as people's cars, so a general increase in the prices of goods and services can be expected.
So, the bitcoin approach takes away some valuable monetary policy tools and it doesn't actually prevent inflation in the short term. People shouldn't believe that their bitcoins are protected from inflation.
Inflation the Hidden Tax
In addition to that, it makes it painfully obvious that someone out there, is through some means, conjuring money out of thin air. The thing each of us sweats and toils every day to earn? Someone gets the privilege of printing it and injecting it into the economy. I simplify it a bit, but that's essentially the gist of the criticism.
That last part sounds like an appeal to emotion. Being able to do things the rest of us aren't allowed to do is pretty much the whole point of having a government. They get to create money, levy taxes, imprison people, wage war, etc. Looking at all the special privileges the government has, the privilege to create new money doesn't seem particularly special.
- the 2% inflation number is completely wrong and real inflation is around 5%~10%
- with no government monetary intervention we should have deflation let's assume around 5%
the delta is now 10%~15% looks less insignificant.
Unfortunately currently don't have the links, I will try to post it later.
I can't find any evidence-based reason to believe that.
Inflation-linked government bonds (e.g. https://www.treasurydirect.gov/indiv/products/prod_tips_glan...) are extremely safe, and specifically protect against value lost to inflation.
There are some problems solved by bitcoin, but needing a stable store of value certainly is not one of them.
[0] http://www.investopedia.com/articles/investing/092215/top-5-...
Put money in wallet. Forget password. Destroy currency forever.
Not a well thought out ideal.
A lot of Venezuelans would disagree with you there. History clearly shows governments fail to act responisbly with currency. In the last 25 years, 21 countries experienced hyperinflation. What do you propose people in those counties do?
Your comment was big on problems but offered no solutions. Cryptocurrencies are a solution for many.
Take off the developed world rose tinted glasses for a moment and see that for a large majority of Earth's population their government and courts do not serve them well.
And this is not just poor countries, a woman in Saudi Arabia cannot open a bank account without a mans permission. That same woman can create a bitcoin wallet in one minute.
But when she needs to turn it back into fiat, guess what, she's going to need a bank account to receive the funds from the exchange.
The whole idea is to create a new financial ecosystem that doesn't rely on old fiat currencies.
[0] - https://blogs.wsj.com/moneybeat/2014/10/15/inside-hudson-riv...
I say BTC lack economic understanding not from some theoretical view but from some of the almost religious decisions that comes from the project (fixed issue, low tx volume, etc). It is almost like they don't want people to use it for anything important.
But i will search out Alex's posts more often though.
However, the fixed supply does incentivize holders (ahem hodlers) to increase the value of the coin - whether that is by starting companies that use BTC, spamming HN with BTC/Reddit related posts, etc. It's an interesting way of arranging a bunch of people in a sort of distributed boiler room.
That said, once the mining subsidy completely ends (assuming BTC is still actively used then) its possible we will see some calls to increase the supply. Otherwise the transaction fees will need to become huge (or the price will need to rise 1-2 orders of magnitude) to support current levels of mining activity.
That however, is irrelevant to its lack of utility as a unit of exchange. In particular, if Bitcoin is "going to the moon" - i.e. expected to always increase in purchasing power superlinearly, why is it ever rational to spend a Bitcoin (or a Satoshi)? This is the problem with hyperdeflation.
See: https://bitcointalk.org/index.php?topic=1842146.msg18340002#...
Bitcoin is digital gold. The idea that is should be used as currency only seems plausible to the biggest proponents of a return to gold standards.
But for everyone who believe in inflationary currency, bitcoin is still a viable value store, which definitely can be used for all sorts of contracts.
Imho on average it's easier for computer scientists and engineers trained and practiced at algorithmic/systems/recursive thinking to learn (and invent) the relevant economics than it is for economists to learn computer science. The emerging field of cryptoeconomics is an amalgamation of high-assurance systems engineering and mechanism design (applied game theory), and computer scientists and engineers are on average better equipped to understand both parts of it than most economists are.
There's also an invaluable degree of street smarts and intuition in people who build and work on complex systems of varying non-/determinism and value-at-risk on a daily basis than in folks who just study/model them.
>Bitcoin seems like technically great but it fails on many of the economic aspects (e.g. making a currency with a fixed amount basically ensures it can never be used to write long term counteracts in).
Fwiw Bitcoin's issuance model is what it is b/c Satoshi wanted a strong incentive for people to bootstrap Bitcoin in the early days via mining, and a scarce deflationary currency was a simple and effective means of achieving that. He succeeded obviously. Any problems down the road resulting from that can theoretically be fixed with some kinds of derivatives, or worst case-scenario with a non-contentious hard fork to change the issuance model. But that would require a clear crisis affecting the value of the currency that everyone could agree would need solving, which likely won't be the case for as long as there are non-trivial mining rewards.
Does it? It seems horrendously, even criminally, inefficient to me.
1. The value (not necessarily price) of the currency will fluctuate wildly since they money supply cannot grow and shrink along with demand for it. The fixed supply will make these swings even wilder.
2. In a currency which is constantly deflating at say 3% a year, you would never want to take a loan unless you can cover that 3% plus any other return on capital you require. You're going to be paying back BTC that is going to be more expensive every year passing. Imagine a 5 year contract for 10 BTC a year. The next year is it 10.3 BTC (deflation adjusted). And at year five you are paying back BTC worth 11.6 BTC.
3. If you are on the other side, any counter party (default) risk is also huge since you are losing an asset that you could have held on to for zero risk and still gained 3% a year.
To enter a contract you need a stable currency. It is like building a house with a yardstick that keeps getting longer and longer. And it is very difficult to figure out what the value and exchange rate of BTC will be in a year from now, much less longer.
Most of the arguments against the core team revolve around the economics and future of the coin, but the tech team seems to think that somehow their coding experience gives them insight into that.
Bitcoin seems like technically great but it fails on many of the economic aspects (e.g. making a currency with a fixed amount basically ensures it can never be used to write long term counteracts in).