Remember in the first Captain America movie when his first role in the military was on a tour raising money for the war? That was actually a thing at that point in time. You had to actually convince people to invest or give money to fund a war. The USD was tied to gold in the real world and they couldn't just create more.
Nowadays, we don't have that. A President might have to ask Congress for funding, possibly. And even then, that money might simply be borrowed (adding systemic risk) or printed (devaluing the rest of our money). As a result, the amount of public support required for waging a war (or any huge expenditure) is much lower.
That's a good thing if the people in power are correct despite popular opinion. That's not always the case, though.
Anyway, this is not a primary reason for having fiat money, but it is a reason.
It's definitely a benefit--it just also has the potential to be abused.
Also, people don't need to be altruistic saviors, they can buy bonds.
https://www.federalreservehistory.org/essays/roosevelts_gold...
You only need to take a look at the many other highly intrusive powers the federal government was able to exercise at the time (everything from directing economic production, resource and price control, conscripting large chunks of the population into the war effort to internment of some of its own citizens) to recognize the idea a cryptocurrency would somehow act as a check is far fetched to put it very mildly.
Now compare that to the wars in Iraq and Afghanistan, or Syria. The difference is clear.
Besides, cryptocurrencies have a property gold doesn't: They take up no physical space and even huge quantities can be hidden easily and/or lost forever. If your government became oppressive, you couldn't take your life's savings in gold and leave the country. They could feasibly confiscate your gold [1] in a way they can't with crypto.
They can still point guns at you, conscript you, or imprison you, but their options are lot more limited with crypto.
https://en.wikipedia.org/wiki/War_bond
Cap, in the movie, was selling war bonds; i.e. getting people to loan money to the government. Nobody donated money to pay for WWII. (Donating metals, though, was a thing.)
In fact, my personal feeling is that retail war bonds were more a war propaganda/patriotism thing and the majority of the funding was through the normal commercial bond market.
I suspect your idea of the power of the executive branch is significantly and unrealistically inflated.
>that money might simply be borrowed
...but I don't think any cryptocurrency would have any effect on any government's hability to borrow money. What would stop a lender from trading 1 BTC from a note saying "I.O.U. 1 BTC"?
There's a limited number of Bitcoin in existence, and with each one you buy (issuing an IOU in return), the price goes up and people doubt your ability to pay back more and more.
This is almost exactly what's happening with Puerto Rico's debt crisis [1]. They've sold a bunch of bonds, were downgraded to "junk status" in 2014, and then defaulted on a bunch of them in 2015. Eventually you have to face the music and cannot borrow any more.
[1] https://en.wikipedia.org/wiki/Puerto_Rican_government-debt_c...
Sure, they're traded at very close to face value, but that's because traders trust the US government to pay. That's different for governments considered at risk of default. That could also become different for the US government, if the economy really goes south or if enough people start talking about defaults.
I don't see how criptocurrencies would change any of that. For how much less than 1 BTC would people trade a 1 BTC IOU backed by the US government?
Edit: As it stands now, there is a "lender of last resort" that can create new money as needed to fill in the gaps if those two account holders want to get their money out, so there's no need to distinguish the original vs bank-created money. But you can't create new Bitcoins, so there is a reason to distinguish Bitcoins on the blockchain vs those IOUs.
It doesn't benefit the sovereign authority directly, but neither does freedom of speech, religion, etc.
Cryptocurrency is similar except that it wastes a lot more energy to accomplish the same thing.
The government, of course, retains unlimited power to tax, so the ability to fund whatever it wants is retained in all cases.
Out of curiosity, what's the carbon footprint of bitcoin mining as compared to gold mining (and then parking the gold in a depository vault)?
Thankfully, USD is not based on gold at all.
Most knowledgeable cryto enthusiasts I know already know that fiat currencies work well enough for many people.
Folks like McKenzie will see no value in Bitcoin and other cryptos because their money needs are already satisfied. Good for them, but their narrow perspective excludes many valid use cases.
Consider these problems, for which Bitcoin offers a unique solution (and which folks like McKenzie may not even acknowledge as problems):
- civil asset forfeiture;
- capital controls;
- black market trading (remember, what's illegal to a foreign government might be a fundamental human right to you);
- intense privacy invasion by governments;
- widespread privacy loss through corporations (Equifax, Verizon).
Bitcoin doesn't need to ape the services offered by the likes of Visa, PayPal, and Chase. It needs to address those unmet needs that can't be addressed by the incumbents.
That's going to be a niche audience, at least initially. But that's how all marketplace disruptions begin.
Bitcoin offers no special protection against this. Your problems would arrive in the real world with guns. See shutdown of exchanges in China.
Black market trading
If your opsec is perfect, maybe. See Ross Ulbricht.
intense privacy invasion by governments
Bitcoin keeps a public record of every transaction, forever. That is trivial to tie to your real world activity, in retrospect. It has not been important enough to do yet, but the data is there and data is already collected on other selectors linked to all online activity.
widespread privacy loss through corporations (Equifax, Verizon)
Bitcoin solves this how? Companies checking credit record will require your real world identity and past records. Why would they want to participate in your crypto-anarchist future?
Pseudo-anonymity is not anonymity, and most of the features you have listed as desirable, people simply don’t want, even if bitcoin could deliver them in a meaningful way for non technical people. For better or worse, they are revolutionary ideas which require a change of laws and government, not a change of tech.
The bar is so much lower than many think. Ulbricht posted the first advertisements of Silk Road with accounts publicly linked to his personal email address.
>Bitcoin keeps a public record of every transaction, forever. That is trivial to tie to your real world activity, in retrospect. It has not been important enough to do yet, but the data is there and data is already collected on other selectors linked to all online activity.
Privacy isn't automatic in bitcoin, but it's easy enough in practice to break the public link in the blockchain. Depositing into an exchange account or other bitcoin service and then withdrawing a few days later is usually enough. If you want privacy from the exchange too, then exchanging bitcoin for a cryptocurrency with anonymity built-in (ie. monero or zcash), and then exchange that back to bitcoin at an exchange that doesn't require user identification. (Alternatively, convince your intended recipients to accept monero/zcash directly and don't even bother with bitcoin.) (It's possible that in the future, the Lightning Network functionality for Bitcoin will add some anonymity as a byproduct to transactions using it.)
If you're willing to live outside the law, bitcoin could help you do so (with difficulty). If you want to live normally, it can't help you. So I guess I'm trying to say - change the law, not the tech.
You have a job, so you get wages. These wages are sent to a bitcoin address. Now your employer can track every transaction you make. There's no reason why this would not also have to be reported for tax reasons, so your government can also track every transaction you make. You buy something, now that company can have a decent chance of tracking your spending too!
There are ways around these issues, but nothing _straightforward_ or scalable. Not everyone can or will use a tumbler for all their wages.
Bitcoin does not offer a compelling solution for privacy concerns.
Intrinsically, the blockchain is antithetical to this: it stores a record of every transaction. It was not designed to achieve privacy, full stop (unlike, say, Zcash).
Extrinsically, you can use things like tumblers or anonymous wallets, but in practice this relies on trusted third parties (just not orthodox ones) and the reliability of your own personal opsec in the face of centralized parties "bolted on" to the blockchain to hide your activity. Moreover, the easiest way to buy and sell Bitcoin is through companies with extensive KYC requirements, essentially all of whom can and will participate with law enforcement.
Finally, there are already companies crawling the blockchain continuously to develop creditworthiness models they can sell to financial institutions. They are extremely good at uniquely fingerprinting wallets, or wallet activity, to social media profiles elsewhere.
I mean, I agree with you entirely: that is BitCoin’s unique value proposition. It’s just good to see it out on the table.
Cryptocurrencies create a minimum coverage of ability to conduct financial operations, they are assets that a third party can not freeze, they are assets that a third party can not invalidate. Of course the first use cases will be illegal ones.
Bitcoins can be divided, the smallest fraction is called a "Satoshi" and is a millionith of a Bitcoin (So a cent is 500 Satoshis). The blockchain is a peer-to-peer, which while technically 3rd party, is not something that "you have coin on". The blockchain is basically a cryptographically signed ledger that says a certain public key has this much bitcoins. If you have the matching private key, you have the coins. Exchanges are mostly used to exchange between Bitcoin and some other currency, like US Dollars or another crypto currency.
How would cryptocurrencies prevent the police from seizing your private keys? They can already throw you in jail if you refuse to provide passwords, or the keys themselves.
Crypto: Government is incapable of taking your money and must prosecute in order to coerce you to turn it over. And you could still refuse and accept your jail time.
Edit: People replying to me are missing the point. This is about the case where the government is wrongfully taking your money. Under the current system your money can be seized without your knowledge and you have to prove it was taken wrongfully after the fact. With crypto the burden is shifted to the government who has to prove they have the right to seize it in the first place.
In case of crypto, the storage media containing the private keys could be seized. Failing that, the government can always obtain an injunction to blacklist your addresses to exchanges, nodes and miners as long as those operate within their jurisdiction.
You could use a brain wallet to mitigate these risks to some extent, but I doubt it is possible to put all your assets in one place and you expose yourself to the risk of cryptanalysis by torture.
I really like XMR but converting your money to XMR would still leave a paper trail.
In most jurisdictions (including the US) the sanction for contempt of court is potentially unlimited: the convicted individual may find that they are only freed when they comply with the court’s requirements.
IOW, good luck with that.
This also forces other issues: e.g. offline wallets are a standard answer to security concerns but those are more vulnerable to physical compromise. This scenario needs a lot more discussion of threat models.
And they sold your shoes.
In other words, "the rest of us" of Patrick's folks do not represent the people for whom crypto is a necessity and not a luxury. So if money is already working for you, keep using it and ignore this fad
Do you know what people are doing in Venezuela right now? They are trading in Dollars, Peruvian Pesos and Brazilian Reals.
I bet Chinese people are also using Dollars to evade their capital controls.
You can use Bitcoins on a black market for illegal goods in a dictatorship, as you can use Bitcoins for illegal goods in a democracy.
I don't think the second condition "assuming the US gov ..." is compatible with the first. My objections to fiat and my fondness for cryptocurrencies is much more in line with what the slide's authors seem to be saying -- specifically, I feel that it gains in ethics, rather than effectiveness.
The problem that would be solved is that the US government would no longer be able to continue operations in exactly the same manner. Bailouts for failed companies are no longer a given -- the money has to come from somewhere, and if the government comes to your door and says "give me 10 bitcoins so that I can give them to these idiots who lost billions of bitcoins making bets on the real estate market, but they also get to keep the billions they made while those bets were winning", you're going to do your best to vote those people out on their ear. Similarly when it comes to financing a state of perma-war against the very concept of being afraid.
But their main source of income are taxes. And why would taxes change?
>and if the government comes to your door and says "give me 10 bitcoins [...]", you're going to do your best to vote those people out
Why would that be different with 10 bitcoins than with 10 thousand dollars?
My point about "coming to your door" was not bitcoins vs. dollars, but taxes vs. FOMC. If the government really wants to give away the value equivalent of trillions of dollars, they have to get the money from increasing receipts, rather than just monetizing debt. They can take on debt, but they have to pay for it, rather than use accounting tricks to borrow at zero interest to support zero interest "loans".
That said, you're probably right; no effective political action is going to be taken in opposition to tax levies, especially if they're aimed at the "1%" -- by the time the 1% becomes the 30% (vis a vis AMT) people will have forgotten why they cared.
USD is inflationary. Ceteris paribus, a rational actor would generally prefer to hold something deflationary. The (epsilon-) no-arbitrage argument suggests that the frequently raised “but then no one will ever invest in things” objection doesn’t actually make any sense.
USD is highly controlled (but not by you). This is a technical and legal issue, not a fundamental problem with fiat currencies in general, but it’s impossible to ignore. Bitcoin sidesteps it entirely. What actually drove me to try Bitcoin is when a paperwork error by the state comptroller led to them withdrawing several thousand dollars from my bank account with no warning. I eventually got it back when they realized they made a mistake, but Wells Fargo still charged me “legal fees” and the realization that I really didn’t have control over my money was uncomfortable. With bitcoin I can use my money however I want, whenever I want, and no one else can. No paperwork, no ACH/fed clearing, no delays, no surprise fees, no one stealing money out of my account with impunity. That’s only the tip of the iceberg for how much the legacy financial system sucks, and most of it can’t be fixed with a software upgrade.
Fiat could theoretically work as well as bitcoin in terms of convenience and reliability, but it never does in practice and there’s no way to avoid governments instituting worse policies later on.
I also don’t think most Bitcoin supporters want the government to get rid of USD. It’s about adding choice, not forcing everyone to do something different.
Do you think the state comptroller could not seize your cryptocoin assets if you refuse to pay your taxes?
I'm with you, reasonable Bitcoin supporters should not want to get rid of USD. I personally think of Bitcoin like having a Paypal account, except less businesses accept it, and after dinner when we get the check none of my friends have ever said "hey do you have the bitcoin app on your phone". Maybe that will change soon.
Not by simply helping themselves to my account. They'd have to, like, talk to me first, possibly even use Due Process. That's a huge improvement.
This is only true for savers and the vast majority of Americans, likely the world, are debtors (source: http://time.com/money/4709270/americans-die-in-debt/).
That said, you're probably right that interest rates would be lower since the demand for debt would go down since Bitcoin is deflationary but then again that goes against what you stated in the first place.
Also don't forget if you want to save, to earn interest means you need to lend so at the end of the day you're going to need debtors.
And even with some sort of smart contract placing your Bitcoin on deposit (payment channels might achieve this. Committing your Bitcoin to a channel and charging market rate fees), there's no fractional reserve banking so at least credit/money supply swings won't be so drastic and we can avoid the volatility in the business cycle we experience with fiat currencies.
It's a good job that the computer you store your bitcoin on never has any security issues.
This is an honest question: Say north korea suddenly waged total was on US, or a massive natural disaster happens, but the government didnt have huge reserves of money to pay for defense or aid? Should they suddenly issue a tax on their citizens to raise capital, and hope they pay in a timely manner?
> What do you think the Fed was attempting to do? The Fed was attempting to save a system from complete collapse.
> it sounds like you are advocating there be no way for an agency of a democratic government to dynamically adjust money supply (or interest rates)
This is the crux of the problem. Modern societies need currency and yet the management of the supply of that currency that is equitable to all participants remains illusive.
> Say north korea suddenly waged total was on US, or a massive natural disaster happens, but the government didnt have huge reserves of money to pay for defense or aid?
The government would use its existing resources, any reserves they put aside for this type of contingency or they could borrow (e.g. bonds) the necessary funds.
The interests of participants are mutually exclusive: debtors want high inflation, lenders want deflation.
You are misinterpreting me. To be more explicit : cryptocurrencies suck for the exact reason you explained (if you look around in this discussion, that's exactly the point I'm making against any cryptocurrency fan) yet saying that current system is working properly is foolish. The recent history (since the 80s) is a good illustration that interest rate isn't a good enough tool for money supply control. And actually it should have been predicted: you have two independent things you want to control (consumer price inflation and asset price inflation) then you can't control them with only one variable. The fed's policy ignored the asset price, and it had the bad consequences I was talking about, but if you chose to control the asset price you'll probably cause deflation and kill economic growth. My take: because it's a system with 2 degrees of freedom, we should have at least two variables to adjust. If the first one is the interest rate, what should the second one be ? I don't know, but probably taxes (On savings ? On capital held maybe ?).
In reality the state has basically unlimited power to affect the economy, but it chooses to limit what levers are allowed to be used in order to provide stability and confidence. And also out of morality-driven ideology of the same sort the that gave rise to Bitcoin.
All functioning currencies are about trust. Both Bitcoin and fiat currency has trust. Bitcoin has more trust than some governments fiat currencies and less than others.
Bitcoin is the first truly international wire transfer system all others are based on contracts between banks in an international network.
It's an international currency with no country or bank owning it. That alone makes it extremely valuable.
More or less valuable than the electrical generating capacity dedicated to creating bitcoins?
How would this work in practice? Naturally you would need a free/open/secure mobile app (maybe such an app exists already?). Is there a way to hold and transfer fractions of bitcoin without using exchanges? Can I purchase fractions of coin from exchanges and transfer those fractions into my personal wallet?
There are free open source mobile apps for holding and transferring Bitcoin. ("Mycelium Bitcoin Wallet" is one, but I'm not terribly familiar with it or any other mobile apps.)
>Is there a way to hold and transfer fractions of bitcoin without using exchanges?
Yes and yes. You don't have to have an integer amount of bitcoin, and you can hold bitcoin directly. (In fact the main big point of bitcoin was that people can hold it directly instead of only being able to have 3rd parties manage it for them.)
>Can I purchase fractions of coin from exchanges and transfer those fractions into my personal wallet?
Yeah. (All US exchanges do require you to identify yourself pretty rigorously, so it is hard to transfer between USD and BTC without a paper trail. So yes, it makes it hard if your goal for using BTC was to go 100% off-grid, but otherwise I don't think it's a show-stopping issue except for anyone engaged in illegal activity, earning a lot from it, and wanting to get it into USD easily.)
In such a scenario, the US government cannot continue all other operations as it does currently, as its activities are financed by issuing practically risk-free USD bonds (if the US government defaults on its bonds, the USD is gone).
In a market with decentralized money, the US government would have to issue bonds on equal footing with profitable, private enterprises, and would consequently have to pay market interest rates. No market would lend out to a government in a decentralized currency when that government is unwilling or unable to pay back, thus removing the option of issuing more bonds to pay dividends on current bond issue. It just wouldn’t work as it does now.
No wonder the US can be the world super power when it can start a war and have the rest of the world finance it by buying the bonds the US government issued to pay for it.
It also helps to understand the history of money and how it came to be in the first place, and how fundamentally currencies and states go hand in hand. David Graeber's "Debt" is good in that sense.
And in case that's not enough, here's JPM's Jamie Dimon's take on it: https://www.bloomberg.com/news/articles/2017-10-13/jamie-dim...
It's also weird how bankers, anarchists, and MMT economists come to agree on this.
Exactly. I know a few local shops & bars that accept bitcoin. Although it sounds cool, I‘m always asking myself „why should I?“. It’s way more convenient to just throw some coins or put the Credit card on the reader for about 1 second to pay for my beer, instead of initiating a transaction on the distributed ledger.
For those singing the praises of cryptocurrency I pose this question:
Say the United States decides to allow decentralized cryptocurrencies to become the dominant medium of exchange in the US; say it even gets rid of the $USD. What problem do you think this would solve? (assuming the US gov desires to continue all other operations in exactly the same manner as it does currently).