"a period of civil disorder in Albania in 1997, sparked by Ponzi scheme failures. The government was toppled and more than 2,000 people were killed" .. "By January 1997, Albanian citizens, who had lost a total of $1.2 billion—the population being only three million—took their protest to the streets"
There are now reports of people taking out mortgages or HELOCs to buy bitcoin. That is a disaster waiting to happen - it was bad enough when the mortgages were underwater because they'd been invested in houses which lost value, but bitcoins can potentially fall a lot further. Or be easily lost entirely.
Sure there will always be some people that do this. And it makes for a good story, so the media reports it. But I don't think this is something that is happening in significant numbers.
There is a new wave of people who've read the 10,000% return articles on fb or whatever who now wanna invest every penny that they have into bitcoin
It would also all but entirely nullify a major chunk of government power and control. If a nation is unhappy with the economic direction of their country they can inflate or deflate the monetary supply, manipulate national holding rates, and more. Or take 'offensive economics.' If a nation wants to attack an individual, group, or even another country assets can often be frozen. And we haven't even gotten into the implications this would have on the international banking system.
It's funny in a way. You just don't know if you're on the doorstep of a complete shift of era in economics, or if you're just watching another boom bust cycle. One's certainly much more likely than the other, but if I had a major vested interest in one outcome over the other - I'd certainly be looking to take proactive action to try to ensure it.
In the 80s and 90s, we found a way of connecting many computers together and here we are.
Now we found a way to create programmable: trust, value, scarcity and incentives. If that's not going to change the society over the next 20-30 years, I don't know what will.
Only land ownership could remain in the space of interest of governments then (being immovable).
I've seen variations of this argument repeated often. It sounds sexy but then when you probe it's hard to nail down something big enough we can't currently do that becomes possible. Financial markets are already very sophisticated and if anything retail investors are still not using the great products out there as much as they should (index funds are huge and yet most people still prepare very poorly for retirement). Maybe it's just a case of we still not knowing the actual killer app of crypto currencies and contracts and this is just like connected networks in the 70s. Or maybe this is like the segway and smart people are convinced it will revolutionize things but in the end it's just handwaving.
Bitcoin et al unlock a potential economic powerhouse the likes of which can be comparable to the internet. Just because you can do mostly everything that blockchain tech provides without one, doesn't mean it isn't incredibly valuable.
If you can already do everything that it provides that's pretty much the definition of not having any extra value. This is just extending the hand waving. What transactions will you be able to do with cryptocurrencies you can't already do with the modern financial system?
Retail financial products are only just now entering the internet era. At least in UK, before 2017 we did not have Vanguard, Monzo, Revolut. Nutmeg was less known. Older banks and investment accounts are still relatively hard to use via the internet (e.g. requiring ancient identity verification methods) and understand for unexperienced.
Cryptocurrencies have a chance to bring much faster improvements to this space. I think the biggest question right now is whether crypto can become self-regulated in practice and avoid being regulated by traditional centralised means. If we can protect average Joe from scams and help him navigate the finance space cheaper and simpler, we don't need old government for this.
It's pretty much inevitable IMO, given enough time, because removing intermediaries reduces cost and friction of the flow of value. In the future, the average Joe might:
- create his personal wealth account with a portfolio, after evaluating his character and beliefs (similar to how robo-advisers work) - instead of keeping any wealth in cash money, a small chunk of his portfolio will be spent for each transaction he makes (while being converted on the fly to a chunk of seller's portfolio, with value expressed in a stable-coin)
I think the goal should be to stop using any form of cash as a store of value, which is just a part of pre-internet history now. With cryptocurrencies available now for anyone to invest, make mistakes and learn, we have a pretty good start.
No one should use any currency as a store of value, use actual productive assets. And your argument that we should make financial products enter the Internet era is completely true. I just don't see where the cryptocurrencies help.
Did you know, for instance, that in the past ~8 years we nearly quadrupled the US monetary base? [1] What are your opinion on the economic decisions that led to this? The Fed themselves seem to believe it has failed to achieve what they set out to do which was to increase inflation, and to indirectly increase the real GDP. Here are a couple of interesting articles. [2][3] What of increasingly speculative ideas like negative interest rates? How do you feel about the government's decision to more or less ignore the mounting debt of the US? If the US dollar lost strength, perhaps as we move beyond the petro dollar, do you think it will maintain it's value as world reserve currency? Do you believe that banks, the Fed, and the government have your best interest in mind when making their decisions? [4]
These questions are rhetorical because your response doesn't matter. Nobody's does. Except 7 people in a room (currently 4). They make their decisions, you live with the consequences. Decentralized currencies change this enabling people to place their 'value' into something that nobody can manipulate, beyond normal market forces. The current absurd rise of Bitcoin is indeed somewhat scary and looks like it should be due for a major price correction at the minimum. If there was a central body in charge of Bitcoin then now might be the next time they decide that the next few hundred blocks will yield 10,000 bitcoins instead of 12.5 - just to try to lower the price and 'stabilize' the currency a bit. But this will not happen. The currency will continue unabated, controlled by market forces alone. This could be a good thing, it could be a bad thing. But you can make a decision without having to worry about the implications of what 4 people in a room decide. Interestingly this [inflation of supply] could be done theoretically in a fork, but then again it would be up to the market to decide the value and merit of such things instead of our 4 people.
In my opinion taking trust and centralization out of anything is a good idea. And this is something that decentralized currencies offer. Currencies whose value tends to increase over time have a sordid past. On the other hand I think that rather begs the question of whether we've 'solved' economics, or are just building up for an even lovelier epitaph before we even hit the centennial of 1929.
[1] - https://fred.stlouisfed.org/series/BASE/
[2] - https://www.stlouisfed.org/Publications/Regional-Economist/J...
[3] - https://www.stlouisfed.org/publications/regional-economist/t...
[4] - https://today.yougov.com/news/2017/05/11/trust-banks-not-uni...
Suppose that bitcoin or similar are used as currency in practice (that it's very far of happening, by the way). Even if you are able to do all your operations in a cryptocurrency, you will need to pay taxes. Governments only accept their own currency, so, you need to get it to pay taxes, so, demand of national currency is going to exist always.
>> "economic vessels like national bonds and other treasuries that nations rely on to borrow money?"
This is only an institutional arrangement. Nations with their currency don't really need markets to get money. For instance, in the case of USA, the FED can produce so much money as they think is appropriate (1).
I think that cryptocurrency fans suffer from that old illusion that economy can be separated from politics.
(1).- Video of Greenspan explaining it: https://www.youtube.com/watch?v=DNCZHAQnfGU
Your notion that crypto fans can't separate economy from politics doesn't seem right. Re-read the Bitcoin genesis block. Bitcoin began because of bullshit by bankers and barristers. Politics is the reason for Bitcoins existence.
Never mind the currency, crypto or not, you can expect inflation when real resources are reduced and you have to grow the monetary base to keep the economy working. See (1) for more details.
I didn't say anything about risk.
I didn't say that crypto fans can't separate economy from politics, quite the opposite, I said that, it seems to me, crypto fans think, erroneously, that economics can be separated from politics.
If you need to pay your taxes where that currency will come from? You are going to need to win it somehow.
Instead of exchange currencies in order to be able to pay taxes, why not accepting payment in the government currency in the first place?
You don't need to exchange all your currency to pay taxes, and in the hypothetical scenario we're discussing you would want the rest to remain in cryptocurrencies because that is what you need to pay all your other expenses. Beyond the network effect, exchanging only the amount you need for taxes would improve security and limit your exposure to currency manipulation.
At the danger of being somewhat off-topic: The tv show Mr Robot explores a scenario comparable to that in a very interesting and well-made way.
That's hundreds of dollars per person if each and every adult in the US bought exactly an equal share of all lottery tickets. In reality only x% of people play and the distribution is going to he heavily distorted. Lotteries are a major drain on society, but government's love the 'free' money. So we have them.
[1] - https://www.statista.com/statistics/215265/sales-of-us-state...
Lotteries explicitly and extensively inform the consumer precisely what their odds of getting a significant ROI are (namely "slim to none") and lotteries are heavily audited and regulated to make sure they deliver exactly those odds. When polled, those that play understand those odds for the most part and those who play the lottery compulsively understand that they have a problem, in spite of the compulsion.
A rather poor choice of analogy since I think all of us would be perfectly happy if these cryptocurrencies were managed the same way.
Lottery tickets are almost always negative expected value which means you're basically lighting money on fire, and governments worldwide love them. More generally the US government acts as an oligarchy. Government self interest, followed by special interests are what generally drive government action. Public utility (and opinion) play a very minor role. And yes, I even have a source for this as well as I understand this is not what many people want to believe. [3]
[1] - https://www.fool.com/investing/2016/09/25/how-much-does-the-...
[2] - http://news.gallup.com/poll/193874/half-americans-play-state...
[3] - http://www.princeton.edu/~mgilens/Gilens%20homepage%20materi...
However, around 64% of Americans own their home [1]. How many of them are taking out HELOCs against their homes to buy lottery tickets? Once concern is people are taking out HELOCs for crypto speculation.
[1] https://en.wikipedia.org/wiki/Home-ownership_in_the_United_S...
Homeowner is not the right term for most of that 64%, because most have a mortgage balance, which when subtracted from their < $1,000 in savings, makes the picture even uglier, and makes most of their future financial well-being dependent and correlated with their local real estate market.
Edit: The stat actually means 64% of homes are occupied by their owner. But "owner" is still misleading, as the article linked to above says:
"However, homeowner equity has fallen steadily since World War II and is now less than 50% of the value of homes on average."
Because to me it should be easy to understand that Lottery isn't marketed/treated as an investment (crypto has started to be legitimately treated as such), and historical returns don't suggest it would work.
Crypto is just attractive enough it could pull the wrong type of attention from everyday people acting as investors.
I don't agree with direct regulation, but I can definitely see why the government would be worried.
If I spend all my money but still owe creditors more, that's what I'm on the hook for. That's real debt.
https://en.wikipedia.org/wiki/Seigniorage#Seigniorage_as_a_t...
"Economists regard seigniorage as a form of inflation tax, redistributing real resources to the currency issuer. Issuing new currency, rather than collecting taxes paid out of the existing money stock, is then considered in effect a tax that falls on those who hold the existing currency."
That makes inflation distortionary, not some ideal tax on wealth. Governments can't just run away with inflation as an alternative to tax.
What if I say they do something bad with that debt too, is it still OK?
b) Interest rates are being paid for decades via taxes, money that could have been put to use much better. I'd say it's similar enough and don't think "it works differently" is an argument here
Put as question: how much would you like legally binding financial advice by someone up to their ears in debt?
"Legally binding" and "advice" are mutually exclusive concepts. And it's 100% possible you can give great financial advice and be in debt. "Max out your 401k and a Roth IRA" is great advice in 99% of circumstances. Just because someone is paying off high interest credit cards instead doesn't make the advice invalid or their choice of priorities incorrect.
Anyone who has applied a modicum of thought to the issue. The US already has more per-capita public funding going to healthcare than any other nation, we simply don't get a good return on it because that is perceived as "socialism".
And pursuing a highly conservative fiscal policy (far off the right side of the Overton window) is not going to change that, nor advance the cause of said "socialist" policies. It's flabbergasting that you would suggest that as any kind of a reasonable cause-and-effect.
You need to explain this. Many of us just think it's a good replacement for gold and other precious metals. Is gold a "financial weapon of mass destruction"?
how bitcoin will end looks very ugly to me in any case. either collapsing a global economy or bringing an unprecedented global inflation
But there must be something bad about it as well, right?
1- Limited supply prevents money printing and inflationary theft. Besides there are many coin alternatives and a BTC can be divided to a hundred million units.
2- No `central` authority is a big plus (probably the best property of it). Once crypto coin pass its infancy, the volatility will be much lower.
3-Ease of access. Another superb property.
2 - this is false. if you know how currencies work you will know that this whole "decentralization" makes no sense. central authority is required for a currency because price needs to be stabilized. unlike what some people believe, bitcoin will not "self-stabilize" because currency stabilization has nothing to do with how many people use it. currency stabilization works by an authority dictating how much it should worth and manipulating market towards it. this is not some conspiracy, it is a protection provided for all currency users. not only bitcoin offer zero protection (completely exposed to vol risk), but also it is not really decentralized as 40% of entire bitcoin owned is owned by 1000 people only.
3 - yes, this is a good property. so there should be a state sponsored coin.
Barely anyone uses bitcoin as a percentage of the world's total population, this isn't even remotely feasible today, or likely even in five years.
this comparisons are _not_ doing either bitcoin nor gold justice.
bitcoin is far more liquid, accessible and usable than gold ever will be. I will start calling it Internet Liquid Gold... because while the transactions might be slow, being able to transfer it across continents multiple times back and forth is possible before someone can go to their version of fort knox and put actual gold in a truck.
https://www.cnbc.com/2017/08/23/germanys-central-bank-just-s...
Precisely, because it's slow and expensive. If you're going to hold out transfers of IOUs in place of actual gold, that can work for any commodity; a Bitcoin IOU would function just as well as a gold IOU. As a practical example, most Bitcoin exchanges allow transfers between members instantaneously and without any notable fees. Of course, that reintroduces a trust relationship. The point of having actual gold in-hand, or actual bitcoins recorded on the blockchain, is that the transfer is completed and effectively irreversible. You don't get that with IOUs.
If we were able to infinitely replicate gold and bitcoins, gold would still have value, bitcoins would not.
as an aside, no one can make infinite of anything so I do not think that part of the comment applies.
Collateralized Debt Obligations - every word in the acronym screams credit. A CDO is an instrument that guarantees you a cash flow based on debt. A guarantee for you is an obligation for someone else. Chains of these guarantees and obligations is what enabled the housing bubble. The breaking of these chains caused the Great Recession.
As far as we know, the crypto bubble is not highly leveraged. One Bitcoin is worth one Bitcoin. It could trade for $1 or $1 million, but you are never obligated to take the offered price as a buyer or seller. Yes, it's complex. But it is technically complex, not relationships-obligations complex.
Good news, crypto is still two orders of magnitude smaller
Just curious, what is it about speculation that has govs so worried? It’s quite clear at this point Bitcoin has grown far too large and most are now speculating on its value as a store so what benefit is there to step in, attempt to regulate it, and risk its undoing? To me, I’m reminded of Sean Parker’s Social Network quote about putting ads on TheFacebook, It’s like you’re throwing the greatest party on campus and someone’s saying it’s gotta be over at 11