For me, one of the best things about bitcoin is that it is actually going allow a lot of arrogant economic dogma to finally be put to the test, including that:
- currencies must be inflationary or the universe will explode and people will save so aggressively that they will die of hunger
- printing free money and giving it to rich banks is a good thing and doesn't totally fuck the little guy
- monetary stimulus smooths out economic cycles, and totally isn't part of the cause of the ridiculous boom-bust cycles we are having now
It has not shattered any belief in traditional currencies or governments for me. In fact, it has made me realize their value. People are just using it for speculation which makes it feel a lot more like a multi-level marketing scheme than a currency.
Volatility is reducing however. As the scale increases and the exact role that a currency will end up playing in the world becomes clear, so does its market cap. Amazon or google will never rapidly grow 100x in a few years again, and whichever crypto becomes the world reserve will have the same reduction in volatility as it scales.
I see cryptocurrency prices largely driven by speculation. There is no underlying value that justifies the price. This means that the people purchasing cryptocurrencies today are relying on someone else purchasing it at a higher price tomorrow in order to make a profit. I might have used the term MLM incorrectly when what I meant was pyramid scheme.
You are now using the term 'pyramid scheme' incorrectly.
Out of curiosity, do you consider other objects of speculation, including stocks, bonds, futures, derivatives, commodities and real estate, to be 'pyramid schemes'?
(Obviously people are also using them for speculation, but that doesn't mean that's the ONLY current use case.)
Let's not forget this one:
- regulating the exchanges aids in price discovery
From your comment I assume you're already familiar with the Mises Institute and the Austrian Business Cycle Theory?
That's not the (primary) problem with deflationary currencies. Say you're a typical citizen with at most a median income ($56,516, according to [1]). With that level of income, important purchases such as a (used) car, a post-secondary education, an unfortunate medical emergency, or any other large expense is usually going to require taking more than a trivial amount of debt[2].
Debt denominated in a deflating currency is effectively has a rising interest rate. Ideas about "aggressive saving" only make sense if have the ability to save. Since 3/4 (75%) of workers live paycheck to paycheck and 71% of those workers are in debt[4], a deflationary would directly increase most people's debt and effectively be a type of institutionalized usury.
> printing free money and giving it to rich banks is a good thing and doesn't totally fuck the little guy
Of course that's bad. Giving money to banks is one of the worst ways to run a "bailout". If you simply handed the money to citizens, a vast majority (that live paycheck to paycheck[4]) would spend it as normal players in the economy. The money would at least get a trip through the economy doing useful things before it ended up back in usual places money accumulates.
> monetary stimulus smooths out economic cycles ...
As for why any bailout might be necessary, in a perfect world it shouldn't be. However, in our imperfect reality we occasionally run into the fallacy of composition. Austerity tactics are often rational at the individual level, but we all do it at the same time we call it a slowing economy and a smaller GDP. A bailout is a workaround to fix that deadlock; it's bad, but it's probably better than a crashing GDP and a failing economy. The real fix would be some sort of policy or regulation that prevented the deadlock. Good luck on that part; it's a particularly difficult problem with a a lot of noise, complexity, and it's full of occasionally-rational participants - some of which are malicious.
> arrogant economic dogma
The arrogant dogma in economics is the notion that it is reducible to math[5][6].
[1] https://en.wikipedia.org/w/index.php?title=Household_income_...
[2] The current gap between real incomes and productivity[3] - and the increased availability and use of debt to (poorly) make up the difference - has the dual effect of making the use of debt much more likely and the size of the debt larger. However, the need for debt will still be common for most people regardless of our current situation.
[3] https://commons.wikimedia.org/w/index.php?title=File:Product...
[4] https://www.cnbc.com/2017/08/24/most-americans-live-paycheck...
IOW, the Ether guys thought that Satoshi was a chump who left too much value on the table.
The whole PoS swap makes that even more apparent in Ether's case. I mean hell they hardforked because some rich friends on the dev team got 'hacked' by a poorly written smart contract.
I agree that "market cap" is a bit misleading. What would be a better name?
Frankly, it's a misnomer to refer to Ethereum (and certain others) as being currencies in the first place. The newer, functional cryptos have much more in common with barrels of oil or bushels of wheat than with traditional money
In fact, the only thing that gives currencies their value is people's belief that they have value (much like gold before national currencies).
I'd also like to add that "countries" dont have goals, countries are made up of people, and only people have goals -- and all people are self-interested. The people in control of monetary policy are just as self-interested as the miners are, instead of receiving profit directly like the miners they inflate currencies to the benefit of major banks in their countries (and subsequently get highly paid jobs at those banks or elsewhere in the finance industry).
If you call these currencies, then you need to recognize that they are extremely deflationary and will never be used as fiat currencies are. If you call them speculative investments, you need to realize they're not backed by any actual value.
I haven't done a deep dive on Ethereum yet, so this is mostly addressing Bitcoin and all its derivatives.