Re:The Bitcoin Whales: 1,000 People Who Own 40 Percent of th...
by api on Friday December 08, 2017 @11:46AM
(#15879979)
I'm a bit of a lower-case-l libertarian and will chime in.
I don't see Bitcoin as ideal. I think its greatest weakness is that it's insanely deflationary, even worse than gold. But then again I'm not among those libertarians who dismiss the whole of Keynes or modern finance. I don't agree with Keynes on everything but he made some tremendously important observations. The big one is the velocity of money and the idea that money is a verb, not a noun. If you get this then you get 90% of the good parts of Keynes.
The other issue with Bitcoin is proof of work. It's wasteful as hell (PoW also stands for proof of waste) and also inherently biases the system toward oligopoly. Proof of work is subject to industrial economies of scale, leading inevitably to consolidation.
Proof of stake isn't perfect either. It's plutocratic, but then again so is proof of work since hardware costs money. It's a marginal improvement but not ideal. I don't think the ideal proof function has been discovered. It would be something that allowed anyone to "mine" with an acceptable but not excessive amount of overhead and that didn't contain strong systematic biases toward oligopoly.
The ideal currency would be one that could actually do the beneficial things central banks do but without the central bank. While Bitcoin is not going to do that, I don't see that as impossible. Bitcoin is really the first viable MVP of something I've heard best described as "software defined money." Software can be programmed to do a lot of things, so maybe software defined money could be programmed to do what central banks do but without a central authority.
In other words: if we can represent an ideal central bank mathematically then we can encode it into software. Imagine a currency that automatically "dropped money from helicopters" when monetary velocity fell, etc. Figuring out how to make this not game-able of course is hard as hell but it's probably solvable.
My problem with central banking is political and ethical. The moral hazard is simply enormous. IMHO the Federal Reserve is a fourth branch of government and one with only minimal democratic oversight. Placing fiat currency printing directly in the hands of government is dangerous though, so you're kind of damned either way.
The 2008 financial crash is a very good test case. In 2008 and the ensuing bailout years it became absolutely obvious to me that the degree to which you were saved from the crash was proportional to things like what school you went to (Ivy League, with a hierarchy there topped by Harvard and Yale) and how closely connected you were politically to the Fed and the center of the New York and Washington political power elites.
(Side note: those who have never lived on the East Coast probably don't understand the school hierarchy. What school you went to determines your social caste forever. It's a major reason I now live on the West Sieeeed.)
This always happens -- always -- when humans are in charge of stuff. It doesn't even require a conscious conspiracy or even a conscious sense of bias. It emerges from stuff like Dunbar's number and how humans weight things in decision making. If you are human you are racist, classist, sexist, and everything-else-ist. To claim otherwise is to be a liar or to not know thyself. Meat brains are not rational and suck at statistics.
The second deeper problem with central banks is that the system of interest rate setting and money lending is inherently feudal. Central banks set a base rate but you or I cannot borrow at this rate. We have to borrow from a bank at a higher rate. The interest I pay contains a plain vanilla handout to banks in proportion to their social distance from the Fed.
I understand some of the technical rationale for this but it's deeply and systematically unjust. A major side effect of this system is that every time there's a recession things like QE end up being wealth transfers to the top and in proportion to social connectedness to the Fed's governing elite. So every time the economy contracts the oligarchy is strengthened. It's easy to see the incentives this creates and they're perverse in the extreme. Top economic elites now have an incentive to mismanage the economy.
So the bottom line is that I like the innovation Bitcoin represents but I see it as only an alpha proof of concept.
Bitcoin as it is today is a bubble and is probably going to fail. It seems to be undergoing a deflationary collapse right now. Even if it survives this it is technically unable to scale to the size required for global monetary use.
Ethereum is a little better but still not ideal, and some of the people involved seem wonky. Most ICOs seem like straight up scams, which is not encouraging. Of course fiat money systems are riddled with pink sheet pump and dumps and Ponzi schemes and other scams so I guess that's just a thing. "All mature ecosystems contain parasites."
The core invention of software defined money and distributed byzantine consensus is an absolutely revolutionary innovation and is going to change the world.
I don't see Bitcoin as ideal. I think its greatest weakness is that it's insanely deflationary, even worse than gold. But then again I'm not among those libertarians who dismiss the whole of Keynes or modern finance. I don't agree with Keynes on everything but he made some tremendously important observations. The big one is the velocity of money and the idea that money is a verb, not a noun. If you get this then you get 90% of the good parts of Keynes.
The other issue with Bitcoin is proof of work. It's wasteful as hell (PoW also stands for proof of waste) and also inherently biases the system toward oligopoly. Proof of work is subject to industrial economies of scale, leading inevitably to consolidation.
Proof of stake isn't perfect either. It's plutocratic, but then again so is proof of work since hardware costs money. It's a marginal improvement but not ideal. I don't think the ideal proof function has been discovered. It would be something that allowed anyone to "mine" with an acceptable but not excessive amount of overhead and that didn't contain strong systematic biases toward oligopoly.
The ideal currency would be one that could actually do the beneficial things central banks do but without the central bank. While Bitcoin is not going to do that, I don't see that as impossible. Bitcoin is really the first viable MVP of something I've heard best described as "software defined money." Software can be programmed to do a lot of things, so maybe software defined money could be programmed to do what central banks do but without a central authority.
In other words: if we can represent an ideal central bank mathematically then we can encode it into software. Imagine a currency that automatically "dropped money from helicopters" when monetary velocity fell, etc. Figuring out how to make this not game-able of course is hard as hell but it's probably solvable.
My problem with central banking is political and ethical. The moral hazard is simply enormous. IMHO the Federal Reserve is a fourth branch of government and one with only minimal democratic oversight. Placing fiat currency printing directly in the hands of government is dangerous though, so you're kind of damned either way.
The 2008 financial crash is a very good test case. In 2008 and the ensuing bailout years it became absolutely obvious to me that the degree to which you were saved from the crash was proportional to things like what school you went to (Ivy League, with a hierarchy there topped by Harvard and Yale) and how closely connected you were politically to the Fed and the center of the New York and Washington political power elites.
(Side note: those who have never lived on the East Coast probably don't understand the school hierarchy. What school you went to determines your social caste forever. It's a major reason I now live on the West Sieeeed.)
This always happens -- always -- when humans are in charge of stuff. It doesn't even require a conscious conspiracy or even a conscious sense of bias. It emerges from stuff like Dunbar's number and how humans weight things in decision making. If you are human you are racist, classist, sexist, and everything-else-ist. To claim otherwise is to be a liar or to not know thyself. Meat brains are not rational and suck at statistics.
The second deeper problem with central banks is that the system of interest rate setting and money lending is inherently feudal. Central banks set a base rate but you or I cannot borrow at this rate. We have to borrow from a bank at a higher rate. The interest I pay contains a plain vanilla handout to banks in proportion to their social distance from the Fed.
I understand some of the technical rationale for this but it's deeply and systematically unjust. A major side effect of this system is that every time there's a recession things like QE end up being wealth transfers to the top and in proportion to social connectedness to the Fed's governing elite. So every time the economy contracts the oligarchy is strengthened. It's easy to see the incentives this creates and they're perverse in the extreme. Top economic elites now have an incentive to mismanage the economy.
So the bottom line is that I like the innovation Bitcoin represents but I see it as only an alpha proof of concept.
Bitcoin as it is today is a bubble and is probably going to fail. It seems to be undergoing a deflationary collapse right now. Even if it survives this it is technically unable to scale to the size required for global monetary use.
Ethereum is a little better but still not ideal, and some of the people involved seem wonky. Most ICOs seem like straight up scams, which is not encouraging. Of course fiat money systems are riddled with pink sheet pump and dumps and Ponzi schemes and other scams so I guess that's just a thing. "All mature ecosystems contain parasites."
The core invention of software defined money and distributed byzantine consensus is an absolutely revolutionary innovation and is going to change the world.