Investment is where you find something producing value in the real world and then buy and hold a piece of that. You're expecting a long stream of returns from the value being produced. Speculation is where you are making a bet on price movements in a way where economic productivity is irrelevant.
When people buy and sell commodities and currencies, they're speculating. They don't care about utility. There's no economic value being created, so one's investment doesn't grow during the time you hold, say, gold. Instead, it's a zero-sum activity: considering all participants together, wins and losses are equal. (Well, technically, losses are larger than wins, because there are always overhead costs.)
Bitcoin is easy to mistake for an investment, because it's meant to be deflationary. (It was even easier to mistake for one during the period where it only went up.) But I don't think holding Bitcoin means you own a slice of an economically productive asset. I think it's just a bet that the commodity price will go up, in the same way you bet if you buy gold or euros.
[1] Warren Buffett has talked about this distinction a lot, over the years. E..g: http://www.businessinsider.com/warren-buffett-investors-vers...
And a piece of art is not a productive asset either. Yet, it can and will have value. I don't think there is anything inherently wrong with that.
I'm happy to invest in things that I believe are likely to go up in value, whether those are companies, mineral rights, art, watches, Bitcoin, or water deposits.
What else? However, gold has some utility as jewelry etc. Cryptocurrencies are (currently) pure speculation.
Gold's utility as jewelry stems from its high value as a precious metal.
It's circular reasoning though, since we're also saying that it's high value is underpinned by its use as jewelry.
E.g. the Incas used gold for jewelry despite it being fairly abundant.
People in the past have traded using seeds as fiat, but they wore shiny or coloured things like shells, polished stones, polished metals.
Human vision is attracted to shiny and brightly coloured artefacts, it's not entirely subjective. This is why you can trick a child to accept a shiny coin in exchange for a high value item, or currency note, or even for a higher value coin that has less polish.
Never mind the fact that if widespread inflation or deflation occurs, the value of bitcoin will suffer as well.
Although bitcoin is a speculative investment, it can be argued to have some utility. Unfortunately, that utility mainly revolves around making purchases the government doesnt agree with.
False. Cryptocurrencies are _mostly_ speculation. Go to any dark web site and everything for sale is being transacted in crypto. Look at XRP - there are clearly large commercial organizations using that crypto for business purposes.
At the moment, Bitcoin's primary non-speculative use case is light financial crime: money laundering, capital control evasion, ransomware, buying various illegal stuff, ponzi schemes, etc. I agree that it's possible that one day trustless, distributed ledgers will deliver enormous amounts of value. But it's important to distinguish between delivered value and potential value.
Frankly, I'd probably rather use smart contracts with regular currency. If there was some kind of scam or theft then the financial institution might be able to reverse some of the charges.
Most of the advantages of cryptocurrency don't really sound like advantages to me.
Even financial markets will do it as needed. I used to write trading software. Some of our traders were trading on the DTB; being German, they were sticklers for rules. One day our traders jumped on something and made a lot of money. But it turned out that somebody at another company had fat-fingered an order at a very low price for a very large quantity. Large enough that it would have destroyed their company.
The exchange decided there was no point in that, so they unwound all the trades. I thought our guys would be mad. They were a little disappointed to lose the expected profit, but they were otherwise fine with it. They didn't see any sense in that kind of destruction just for a short-term gain.
If you were a jewelry-maker, I suppose you could call buying gold an investment.
I'm buying shares of an S&P 500 index now with the intention of selling them at a higher price in ~40-50 years. Am I a speculator or an investor?
This may be hidden from you if the index fund (or your broker) automatically reinvests. But either way, you own economically productive assets that a) create value for customers, and b) throw off a stream of cash. Even if the S&P 500 is at the exact same level in 50 years, you'll still gain significantly. That's obviously not true of commodities (e.g., gold, silver) or currencies.
I'm not saying this is actually happening, but when/if it does, it will work no differently than other currencies.
I'm not a fan of BTC or cryptocurrency, but I think there is definitely a case that nefarious use could bootstrap it into a real asset.
It’s also odd not to acknowledge that banks have had electronic transfers for decades. You wait seconds for a card transaction and almost every financial institution allows you to do transfers without visiting a physical office.
AFAIK, Bitcoin takes a minimum of 10 minutes assuming that I wish to pay the going transaction fee, or as long as 3 days (or even never!!!) if I use a de minimis fee. And that's assuming a significant risk that the value of the value transferred will not have the same value by the time the transaction actually goes through.
> there’s no value in any particular set of random numbers
What is the "intrinsic value" in e.g. an iPhone? Would that value exist without humans? I would say no, it only has value because people are willing to pay for it. So I'm left wondering what principled distinction you can draw between a particular set of random numbers and a particular arrangement of metal and glass, both of which people want, to determine that one has intrinsic value and one does not.
The iPhone, or any other phone, has the intrinsic value of being usable as a computing device, entertainment device, communications device, camera, thrown weapon, etc. If you want to be pedantic about it, the components that make up the iPhone have the intrinsic values of being usable for one or more of the above functions, and the materials that go into those components have the intrinsic value of being usable in industrial/commercial products or processes.
A bitcoin literally has no use inherent use on its own. It's simply a number. The exchange of these numbers has no intrinsic value, it would be like me and Adam exchanging a 2 and a 3 (not dollars or anything other units, literally just the numbers). Any value from the exchange is an additional layer of context imposed by me and Adam on the transaction--it's not intrinsic to the bitcoin itself.
Okay, but you're just shifting the value down the line. What makes computing or entertainment valuable, other than the fact that they are things humans want?
I don't think it is a very good store of value - we mostly need store of value in the special cases of wars, extreme crises, and similar stuff - for normal times we can invest our money into businesses that really produce something. But bitcoin does not seem to be very usable in these circumstances. It is not well tested. It is also in danger of being replaced by some other cryptocurrency. And I don't thing there is space for more than two or three of them - just like money gravitated into gold and silver.
I have always question who says this. What makes you think deflation would be bad?
My conspiracy is that governments require inflation to print themselves out of bad policy. Without government abilities to do this, the government performs poorly. Common citizens do not lose 2-4% of their income in inflation.
Without inflation, i.e. fixed money supply, it would be impossible for a majority of loans to be repaid with interest, or give a positive return to investments. Note that this fact is independent of how well the borrower or business performs. (This is like a zero-sum game).
So, it would be irrational for investors or lenders to part with their deflationary money, as the net profit is always zero (or negative because of other costs).
I am very interested to know if there is a way around this problem.
Regardless of whether or not a deflationary end-state is better or worse, it seems non-controversial that the transition from our current situation to a deflationary one would be absolutely brutal. We're talking about turning the global economy on it's head.
It won't help how choosy investors are, or how well the economy performs. The money supply is fixed. So for someone to make 120 bitcoins from an investment of 100 bitcoins, someone else has to lose 20 bitcoins, which would be other investors, or the public (workers / consumers).
We currently have many currencies, if Bitcoin is so absurdly better, then maybe there would be a transition. Otherwise I'm sure many currencies will be used based on the application.
Bitcoin seems to be best for hording and spending. It holds value and can be transferred easy and cheap.
You can still have companies using currencies that incentivise loan/investing. Bitcoin currently exists and the loans keep being written.
I think as bitcoin grows its going to become big and boring. No 10x gains, not even 2x gains, like 10% swings over the course of a year. It wont be fun, it will be a store of value if you dont trust fiat. Right now I think its crazy undervalued which is causing the explosion of crypto. As BTC gets bigger, investment will start to look better as it provides better returns.
It can't get any bigger, the transaction limits, the "halvings", the liquidity issues after over a decade of operation, so I guess that experiment has run its course.
Ergo, there must be a hole in your theory somewhere.
Literally economics 101. Investment grinds to a halt and progress along with it.
Also, inflation means everyone needs to be investors or the money they worked hard for evaporates. Why should we force Joe Sixpack into being an investor for the good of the economy? He should be able to focus on earning money from his trade without having to worry about investing due to inflation being forced upon him.
Well, it's discouraged, but yes, basically. Under inflation, you need to invest money just to stay even. The lower inflation is, the less urgent the need to invest. With deflation, you're somewhat incentivized not to lend. A fixed money supply guarantees deflation, so yes, this would significantly reduce lending and the economic growth that lending stimulates.
> Also, inflation means everyone needs to be investors or the money they worked hard for evaporates. Why should we force Joe Sixpack into being an investor for the good of the economy?
If Joe Sixpack lives paycheck-to-paycheck he can ignore inflation entirely, it doesn't affect him a whit. Once he gets some savings, if he doesn't like risk he can buy bonds or something and continue ignoring inflation. But since you brought it up and since this seems to be a point of confusion for a lot of people, yes, let's see how a fixed money supply would affect Joe Sixpack.
If the government stops printing money, we are guaranteed to get deflation any time the GDP grows, right? With money supply held constant, "The US currency deflated by 2% last year" is equivalent to saying "The US GDP grew by 2% last year." And what makes the GDP grow? Joe Sixpack and his friends, out there mining ore or building furniture or otherwise increasing the amount of value in the world.
2% deflation also means that anyone with savings sees the buying power of their savings increase by 2%. If Scrooge McDuck has $5M in his mattress, his inflation-adjusted net worth increased by $100,000. He can retire and spend the rest of his life living very comfortably on the equivalent of $90k/year, and despite him doing no work, despite him incurring no financial risk, somehow every year he'll get a little wealthier.
How is that possible? Who's paying for his life of luxury? Joe Sixpack. Deflation is quite literally a tax by capital on labor. As long as the GDP is increasing, arguing for deflation is tantamount to saying, "I think some of that GDP growth created by workers should go to anyone with money." AFAIK this is universally understood to be a Bad Thing (tm) by virtually everyone.
He'll have to part with some of his wealth whenever buying something, and eventually it will still run out. It's not a stock that produces dividends, you have to spend the principal to take advantage of the value growth. Think of it as owning a $5M home that you have to sell a part of each time you buy something, even though the house increases in value.
> How is that possible? Who's paying for his life of luxury? Joe Sixpack. Deflation is quite literally a tax by capital on labor.
Joe Sixpack's salary would increase in value by default. As in, by default salaries would track GDP growth, how does that look like a tax to you? Companies will have to actively tell people "we're going to reduce your salary", which helps workers in the negotiation.
> How is that possible? Who's paying for his life of luxury? Joe Sixpack.
Or whoever is after the currency, just like whoever wants to buy a house pays for equity value growth.
> "I think some of that GDP growth created by workers should go to anyone with money." AFAIK this is universally understood to be a Bad Thing (tm) by virtually everyone.
As opposed to "I think some of that GDP growth created by workers should go to banks so that they can charge interest on everyone else and make easy profits."
Deflation via credit default has shown to be harmful to wider economy 2x times in US history (monetary shocks). I am not aware of any conclusive study that a deflationary currency is bad for investment and progress. The easy counterpoint is Gold, which is often deflationary (when economic growth outpaces gold mining). We have had 10k years of investment that have shown your basic statement is false (deflationary currency causes investment to grind to a halt).
Inflationary fiat or credit based currency is a relatively new invention (1972 in the US). I have not seen any serious analysis showing that real investment has radically improved since going off the gold standard. Real investment has been growing for decades as real wealth increases, inflationary currency hasn't changed that very much AFAIK.
The dollar has been fiat since the 1930s. The gold standard from 1933-1972 was essentially in name only.
45-72 was bretton woods era which was still fixed price to gold.
It was only after 1972 that the value was allowed to be free floating, not tied to an amount of gold https://en.wikipedia.org/wiki/Nixon_shock
I wouldnt use an entry level economics class to judge technology that eliminates risk of government hyperinflation and lowers/eliminates cost of transactions.
The economic benefits of free/low cost transactions and money that can be saved/spent rather than invested may have its own benefits.
I didn't, the question was "What makes you think deflation would be bad?". That is entry level economics and has nothing to do with technology.
From what I can tell, the evidence on the expected deflation you're talking about paints a different picture: https://www.bis.org/publ/work186.pdf
You ask why people would buy stuff when they'll be cheaper later, but then again, why do people buy stuff now when they could put the money on the stock market and take it out later, when it will be worth more than the product costs?
How will you pay for things if you dont spend Bitcoin?
I find 0 of those good. Upgrading your car when you dont need to is wreckless spending. Maybe the Economy changes to become more conservative and less environmentally damaging.
Going out to eat + vacations are unnecessary expenses. And btw, I completely doubt people are going to stop doing those 3.
I'm sure you do. But the chef who makes their living cooking food doesn't. The person who makes their living running tours doesn't. And the people employed by both definitely don't.
> Upgrading your car when you dont need to is wreckless spending.
But that's what creates the used car market, which is much bigger than the new car market. When people stop buying new cars it means tons of layoffs, which means tons of reduced spending by all the previously employed auto workers, which means more businesses lay people off, etc etc.
Personal Consumption Expenditures make up ~70% of the US GDP. Unless you really enjoy recessions you don't want to see it go down.
The alternative really is between low inflation and price stability. Government tends to prefer low inflation because it encourages people to invest their assets in a productive way and because it's actually pretty difficult to avoid any inflation via monetary policy.
Intentional monetary inflation creates a value gradient, wherein the first spend of a new dollar can buy more than the second spend, and so on, until the knowledge that the new dollar is in circulation has normalized.
Now, what happens when you always spend new dollars into circulation through the same entity, but then remove old dollars at the same rate from those who only acquire dollars after they have been value-normalized? If you are an entity that can create new money, and destroy old money, you effectively get a discount on everything you buy. To a lesser extent, the same applies to anyone that can hoard a large enough quantity of money. You can withdraw a quantity from circulation, wait for prices to normalize for the new money supply, then buy at a lower price from hoarded money until people realize the circulating supply is now larger and raise their prices.
The counter to this is to restrict fiat money creation and discourage hoarding. Bitcoin already has a fixed-in-stone schedule for the creation of its money supply, but there is no way to stop someone from accumulating a large quantity, and then using the size of that hoard to act like a central bank.
In a deflationary model, old money gets more and more valuable with time. In 50 years, it's possible that one Bitcoin will be worth 10M€.
What happens then when someone finds a stash of 100k BTC on their grandpa's attic? They can destabilise the whole economy.
With inflationary currencies it's never an issue - a money is either in circulation, or "evaporates". If you find your grand-grandfather's savings on the attic, they won't be worth too much (even if it's still a fortune). If you find your grand-grandfather's crypto-savings, you're a trillionaire, and a king of the world.
these happened all the time before central banks were created; see the two-century CPI plot: http://www.businessinsider.com/chart-inflation-since-1775-20...
Doesn't take that to be informed. Studying a subject for example will do.
In fact in this case, to reach the same conclusions, all it needs is common logic.
>You’re using words and language that have been repeated to you over and over by those you perceive to have some authority
Or he made up his own mind -- ever thought of that possibility?
The beauty of Bitcoin and the whole crypto "space" is that they are more than just mere ponzi schemes. Don't let the pedants get to you--the crypto space transcends the entire gamut of frauds, scams and schemes. They're not only ponzi schemes but pyramid schemes, MLM scams, a pump & dump scams, exit scams, exchange scams, securities fraud, and a bunch of other named and unnamed scams you'd find in wikipedia.
Often times these scams are deeply layered, with scammers scamming other scammers.
Sometimes just best to simplify the whole thing as "a scam" instead of iterate through every single sub-scam, sub-fraud and sub-scheme that exists within the entire ecosystem. The whole thing is really quite remarkable and would be much more enjoyable to watch if it wasn't such a massive drain on earth's resources.
You're right though, it is more than just a mere ponzi scheme: https://en.wikipedia.org/wiki/Heaven%27s_Gate_(religious_gro...
Peer to peer using coinbase(email) for free and instant to friends.
Shift card for free and instant at merchants.
Bitcoin is beyond blockchain, companies have built products to trade BTC instantly, free, using the infrastructure already existing. The transaction time 'problem' doesnt really exist if you are into crypto, you know how to use it.
And I dont trust USD like I trust BTC. Historically Fiat currencies are awful.
If bitcoin is "beyond blockchain", than what is it? Just a table of transactions in a Real Database™? If yes, whats the point?
You've just layered a very bank-sounding, very-centralized construct on top of your space-age "trustless" decentralized blockchain. How is it at all revolutionary since you've basically gone and re-invented a much shitter version of the credit card and traditional (evil) fiat banking.
> And I dont trust USD like I trust BTC. Historically Fiat currencies are awful.
I feel like bitcoin people live in some kind of alternate reality that I simply don't understand. Is it the fact that they have so much invested in the concept that they lose the ability to think clearly? Is it a cult? A religion?
I'm not sure, but it sure is an interesting phenomenon.
It's applying the formula of the shit book "The Secret" ("if you want it really hard, the universe will give it to you") to getting rich...
In 2020, Bitcoin will inflate slower than most fiat currencies. The culture enforces that this rate will not increase arbitrarily. Storing it in a digital safe you control will prevent seizures.
Are fiat people living in a cult or can they present arguments in good faith?
I can tell. You seem to think Bitcoin is another inflationary currency.
The excitement is that, Donald Trump doesnt have control over Bitcoin. China doesnt have control over bitcoin. No government does. People with computers have control over it. There are 21,000,000 Bitcoin ever ever ever. No amount of awful government can change that.
>How is it at all revolutionary since you've basically gone and re-invented a much shitter version of the credit card and traditional (evil) fiat banking.
Like I said, Bitcoin is rare and digital. I think you are complaining about payment processing companies. I have had an excellent experience using these companies with no fees on instant transactions.
Provably false. Bitcoin has been forked into multiple chains numerous time, creating many more then 21 million tokens. Given that there is no trademark on the term "Bitcoin", some of these forks can rightfully claim themselves to be The True Bitcoin.
In addition, there are thousands of other non-forked blockchains that are nearly identical to bitcoin, save for a few minor configuration changes.
> Bitcoin is rare and digital.
Absolutely false. Bitcoin is digital and infinitely creditable. This has been proven over and over again.
This is absurd. You could say the same for the dollar and the canadian dollar. You seem to think a new currency devalues every other currency.
What I don't understand is how you think your are insulated with bitcoin. If Trump does something so catastrophically stupid that USD is worthless, what will be the effects on the worldwide economy? How will bitcoin insulate you from something like the 07 recession, it won't make finding a job easier. At least the gold peppers can claim there is some value left in gold in a hypothetical nuclear post apocalypse, BTC instantly becomes worthless without widespread internet access. Without network access, what value is in a blockchain?
Obviously you're not 100% protected, but you're more protected from anything that doesn't affect the entire world.
Or do you think that holding dollars exposes you to an Amazon bankruptcy just as much as holding Amazon gift cards?
> BTC instantly becomes worthless without widespread internet access. Without network access, what value is in a blockchain?
Have you looked around at the world you live in? If network access ceases to exist the entire economy will collapse, I don't think Bitcoin is your biggest worry there.
I thought China had over 50% of the mining power
It's already banned in some countries, and many tax it. Evading those laws comes with risks, so many or most people comply. Exchanges end up being forced to hand some data over to the IRS/others. Overall, governments seem to have control over it nearly the same as they have control over the trade of anything else.
Fiat has ushered in an absolutely amazing period of global growth that has made us unbelievably wealthy. But there is inflation, so why not go with the thing that has no history?
Since around 1980, all the "amazing global growth" has largely gone to those who own and hold financial instruments, while those who make and those who serve have just been treading water all this time.
I can't imagine how unbelievably wealthy I would feel if my class's wages had risen commensurate with increases in productivity, but I certainly don't feel all that rich now.
I'm sure it's just a coincidence but the 1980s was the beginning of the "off-shore everything" trend.
Inflation has destroys savings for the masses who keeps cash more than investment. We've seen this a half dozen times in the last 100 years.
The gold standard was one of the worst fiscal policies ever. Its use was directly responsible for the destruction of millions of lives. Arguing to bring it back shows incredible nativity and a severe lack of history.
I suggest you read up on how horrible of an idea the gold standard was before you spout this kind of nonsense.
Can you propose some reading material?
I dont keep most of my bitcoin in coinbase.
The only thing I will say is that I keep my bitcoin in MANY locations and MANY wallets.
my bad
How so? What matters is the price at the time of transaction, no?
I bought BTC at 200, 400, 800, 1200, 3000, 11,000, and 7,000.
I like BTC wayyy better than USD. If I need to spend 2$ at taco bell, I'll just use my bitcoin.
The currency you're using is USD, since that's how Taco Bell set their prices and it's how you're measuring the value of your bitcoins (via the exchange rate).
I've yet to see any business set their prices in bitcoin. Everyone accepting bitcoin payment is setting their prices in fiat currency (e.g. $2), and accepting an equivalent amount of bitcoin (based on market rates); i.e. treating bitcoin as a payment gateway rather than a currency.
It's the same thing.
This a completely emotional argument, there's no logic behind it, you could also regret spending $2 at Taco Bell instead of on Bitcoin.
Shift card had like a 10$ fee for printing the card, but its free and instant.
The only time I did an on-chain transaction in the last 3 years was moving money to another exchange to buy alt-coins.
I increasingly feel that pro-crypto arguments are mostly motte and bailey. So Bitcoin is better than fiat because it's decentralized and censorship-resistant, with everything forever stored in the blockchain. It's also more convenient and efficient than fiat in daily use - when we discard all the decentralization and anti-censorship guarantees, skip the blockchain and use it as a private-issued, unregulated fiat.
This isn't at all different from the way many people separate their investments and savings accounts from their checking accounts, except that in this case, the investment/savings accounts get "magical crypto guarantees."
This isn't rocket science.
That is an option.
I dont care about 'trust' when I spend 2 dollars at taco bell on my shift card. I dont care about 'trust' when I give my friend 200 dollars with coinbase email.
5 bitcoin? Yeah I'll take that out of coinbase.
But this is a payment platform IMO. I use paypal and venmo too. They dont charge fees and I dont really care about decentralization magic.
So you used a "totally not a bank, but really a bank" bank, eh?
2FA > a piece of paper under my bed.
But also I keep my bitcoin in lots of places, a few bucks in coinbase for free transactions is like keeping cash in my wallet.
It's a matter of opinion. However, the only reason for bitcoin to exist is to avoid banks and payment processors. Hence it's illogical to make heavy use of coinbase/etc. regardless of what opinion you have.
Bitcoin has many downsides (volatility, no recourse, vast energy usage, paranoid wallet security, high fees, long confirmation time, etc.) and one upside (no need to trust processors/banks).
If you think that processors/banks are bad, then you might find that the upside outweighs the downsides, and make many on-chain bitcoin transactions. Yet you shouldn't use coinbase/etc. in this case, since they're a bank/processor, hence you'd be removing the only upside that bitcoin has.
On the other hand, if you don't think that processors/banks are bad, then the upside of bitcoin isn't worth all of the downsides. You might as well use regular currency, with all of its advantages over bitcoin (instant payments, lower fees, lower volatility, recourse, less paranoid security, etc.). In this case there's no need to use coinbase/etc. because there's no need to use bitcoin.
Those intermediaries do serve a role in converting between traditional currencies and cryptocurrencies, but it only makes sense to use them occasionally, e.g. buying a stash of bitcoins and immediately 'withdrawing' them to your private, on-chain-only wallet. If you're regularly converting back and forth, or maintaining a non-zero balance on their systems, you would always be better off doing something else (either sticking to fiat, or sticking to crypto).
Not true. If your purpose is holding inflation-resistant money, payment processors and bitcoin banks may be perfectly ok.
This is more motivation to transition from currency based societies and focus on outcomes that benefit labor first
It’s plain there is no free market when currency monopolists can control not just what we work on looks like, but whether anything is worked on at all
There is great demand for the end of war, housing, social services, and universal healthcare. Cottage industry can rise around that instead of digital assistants that schedule hair cuts.
But we’re forced to prioritize the tasks the currency monopolists dictate, putting our own communities second
Adam Smith only mentions a markets in the context of a free labor market for workers of equal condition to move about freely
Mandate universal healthcare. It’s just as important to a secure and free nation as guns and is a potent first step to saying “we’re not interested in addressing the needs of stock markets and distant currency monopolists.”
The solution to hoarding capital is inflation or direct taxation of asssts.
Look at an inflation chart from 1900-today. 1984-today is basically flat. It’s never been less risky to hoard dollars.
That sounds like the current to me. Too much is locked up (in too few hands) instead of doing what currency should do. That is, reduce the friction of trade (i.e., goods, skills, etc.) Currency is a lubricant. It's no surprise things are drying up.
At least if the current "1%" hoard dollars or euros in their mattress they slowly lose their wealth thanks to inflation. After a generation or two they'll have lost a significant share of their treasure. Therefore they have an incentive to actually invest the money to fight the effects of inflation. In doing so they contribute to the economy.
With a deflationary currency like bitcoin it goes like this:
1/ Buy bitcoins
2/ Bury your keys in a bunker in Antartica
3/ There is no step 3, just watch as you become wealthier while doing absolutely nothing. You want a loan to start your business or buy a house? Well tough luck, you should have mined BTC in 2013.
The deflationary nature of Bitcoin is why it managed to be successful in the first place, it gives a strong incentive to be an early adopter. However in the long term I don't see how it's sustainable, it makes it borderline useless as a currency. On the other hand I don't see how an inflationary cryptocurrency could gain traction if it's not backed by a huge entity such as a government or multinational company because who would bother buying SimiasCoin if you know it's going to lose value at a steady pace in the future? And why would a government or multinational corporation bother creating a cryptocurrency they can't easily control instead of printing bills like they do today?
Long story short, they don't.
One simple tool used for this:
> Treasury Inflation-Protected Securities (or TIPS) are the inflation-indexed bonds issued by the U.S. Treasury. The principal is adjusted to the Consumer Price Index (CPI), the commonly used measure of inflation. When the CPI rises, the principal adjusts upward. If the index falls, the principal adjusts downwards.[8] The coupon rate is constant, but generates a different amount of interest when multiplied by the inflation-adjusted principal, thus protecting the holder against the official inflation rate (as asserted by the CPI)
So what happens is, the finance people use freshly printed money to buy up the things all the poor little people need. But let’s not call it speculation.
Crypto is a democratizing force in a corrupt and unaccountable world.
>Crypto is a democratizing force in a corrupt and unaccountable world.
Assuming that cryptocurrencies are successful they might cause some turmoil in the top 1% as early adopters with thousands of BTCs become the new 1% and current rich people who missed the bus might drop among the pleb. But after this initial period what happens? People who HODLed thousands of BTC will be hugely rich and remain so, people who don't have a lot of money still have to pay for housing and food so they can't save money to bridge the gap.
And I don't really see how Bitcoin are going to help with corruption and accountability when one of its main use cases today (beyond speculation) are powering online black markets.
No, I'm arguing traditional currency is no longer necessary. Rich people don't own currency, they own assets. Currency is for poor schmucks who don't know how finance works. Currency is for a convenient way of taxing the masses and devaluing their life's savings at the behest of the 1%.
What's the solution? Asset backed certificates. Store your savings in a diversified portfolio backed by the incredibly valuable "means of production". These certificates can be settled in real-time given their levels of liquidity. Merchants can sell things denominated in one asset, and customers can pay with arbitrary certificates (say, apple stock) - settlement occurs at transaction time instantly.
Howso? The ultra-wealthy elites managed to seize control of crypto in like two years. They control all of the major mining ops and a huge % of the coins themselves.
People say this all the time without backing it up. Tell us, exactly how is that true? What is the exact feature of BTC that somehow makes it incorruptible, and changes millenia of human behavior? What exactly about BTC would prevent the wealthy people from buying up all the things the poor little people need?
Right, deflation.
"In economics, deflation is a decrease in the general price level of goods and services.[1] Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the value of currency over time, but deflation increases it. This allows one to buy more goods and services than before with the same amount of currency."
Merely increasing the number of available coin doesn't create inflation unless it matches the demand for it.
[1] https://fivethirtyeight.com/features/the-slow-death-of-ameri...
Look at Warren Buffer, one of the best investors in the world and he has hundred billion dollars just sitting around as he sees no good investment opportunities.
Apple & other companies are hoarding money as well, much faster than they can spend it or invest. Instead they are buying back there shares because what else to do with all that cash.
These class-warfare arguments are interesting because rarely do they actually include the benefits to the financial system. These arguments also make the assumption that governments are more efficient at spending money than individuals, a claim that just isn’t proven out by facts. Dead-weight loss is a real thing. Warren Buffet spending a dollar means a dollar goes into the economy. The the State of California spending a dollar means that perhaps $0.75 actually goes into the economy.
What you seem to be arguing for is redistribution. But redistribution has deadweight losses as well as the unintended consequences of changing behavior. Perhaps a new business wouldn’t be started if taxation were at 75% — the reward wouldn’t be worth the risk, so the new economic activity from the new business wouldn’t happen at all — the associated jobs and tax revenue from that new venture would be zero.
Individuals with a million dollars to create a business would create more than a million dollars in economic activity because they’d ostensibly be producing a product or a service which would result in more economic benefit than the taxable value of that million dollars. If government taxed that money at 100%, and just completely redistributed it, that would result in $1 million - x% actually reaching the economy because government doesn’t create any new value and in fact, it reduces value because of unavoidable deadweight loss. Not to mention government taxing that money at 100% means that money wouldn’t likely be earned in the first place — why even bother?
The government created the computer and the internet...funds most major pharmaceutical, chemical, material sciences, and theoretical scientific research. The value created by the US government alone is estimated to be in the low hundreds of trillions and that's just measuring value created to this date.
The reduction of friction created by government regulation is estimated to provide a value equal in many cases to 100% of the price of the transaction (as in, the transactions simply wouldn't happen without government regulation creating sufficient trust between the parties).
Excessive taxation is a burden, but taxation in itself is not.
I wonder if you can trace parallels between this observed circumstance, and our current low interest rates & low levels of inflation.
The farmers put the bills in the ground, right next to the seeds, but it does not make the farm more plentiful. The villagers learnt the hard lesson: that plenty does not follow money.
If you really wanted to help them grow their economy then you would try to offshore production into that country which leads to infrastructure investments and productivity growth.
>You fucking idiots stop burying the money in the ground and use it as a medium of exchange.
And lo, as everyone has more faith in the US treasury than the village tin roof hut a market was opened in the middle of the village and they exchanged the dollars for food grown by farmers less stupid then them.
The villagers then became wealth investment managers and charged fees to the farmers to invest their money, which involved holes in the ground.
People hoard(ed) currency in the past and present as well
The implications are big: with the current trend of concentrating wealth to only a small fraction of the population, at least all that money is not 'gone'. Even though the rich probably don't pay much taxes over it, their banks will invest it in other companies. If this bitcoin hoarding ever becomes a trend, the consequences for the economy will be disastrous.
These bitcoins were bought with cash, which is now sitting in the sellers "savings" account. The dollars did not disappear in thin air.
What's not clear to me: is this just the keys stored underground and clients have access? or is this "cold storage"?
I'd speculate that more than 7% of the world's gold is locked up in bunkers, where it can be accounted for and borrowed against.
Nobody is shocked to know that gold is stored in vaults. Nobody is shouting that the folks buying overpriced coins from stupid mints are going to decimate the world economy with their irresponsible hoarding.
We're all just totally comfortable that, yeah... in a situation where a-bombs start dropping, gold would probably be a functional store of value.
But they'll want a bunch of a heavy yellow metal? At least the small piece of steel is easier to carry around.
So now we have 0.01% interest 'savings' accounts! They are just as liquid as our checking accounts.
The important ideas of Keynes in a nutshell:
* Monetary velocity: wealth is a verb, not a noun. The wealth of nations is measured in their rate of transactions, not how much cash or idle assets they are hoarding.
* Idle vs. productive investment: if currency is deflationary people will store currency, a non-productive investment. If currency is inflationary people will invest it in productive activities.
I don't agree absolutely 100% with these, but I think Keynes was at least onto something especially with the first. The problem with the first is that velocity also includes transactions that don't actually do anything or that even "create" negative value. Gambling increases monetary velocity but doesn't accomplish anything and may actually destroy value. A real value-centric velocity statistic is impossible because value is a biological/humanistic concept and is non-computable. The main problem with the second is that if people are pessimistic about investments they will still hoard, but using things like real estate and gold. Another problem with the second point is that over-using this strategy to drive investment creates bubbles, as we have seen.
Finally I must point out that Keynes gets a ton of flak for stuff he did not advocate, like insane levels of public and private debt. Keynes would have been shocked and horrified at the levels of debt in our current system, and in fact his whole counter-cyclic government spending strategy was designed to prevent this.
Blame politicians and banks for the debt problem, not Keynes. Politicians invoke Keynes when they want to ratchet up spending during downturns but then they conveniently forget the other part-- namely that Keynes also advocated reducing government spending and repaying debt proportionally during times of abundance. Keynes basically argued that government could be used as ballast against economic oscillation.
Would you concede that the economic policies rooted in Keynes's ideas created an environment that allowed for the snowballing issues we have?
The issue that isn't present in your comment is top-down imposed order vs. bottom-up emergent order. To me, the former is degenerative, while the latter is sustainable.
I still don't understand why significant deflation is a desirable characteristic for a currency. Mild deflation is tolerable unless the economy is experiencing hyper-growth like the early 20th century, but Bitcoin is more deflationary than gold. Strong economic arguments that I don't have time to type in can be made that an ideal currency (as a medium of exchange) is slightly inflationary (in the monetary base sense) to the degree that the economy as a whole is growing.
Edit: collapse you say? But its value has held up! But this is exactly what happens (for a while) in a deflationary collapse. The value of money skyrockets but its velocity tanks.
http://charts.woobull.com/bitcoin-velocity/
Of course given all of Bitcoin's undesirable characteristics as a store of value I suspect that its value in USD/EUR/etc. will eventually tank as well. This might take a while unless something causes a panic since the market for BTC is slow and thinly traded.
IMHO all deflationary cryptocurrencies will undergo this kind of collapse.
Of course not all cryptocurrencies need be deflationary. Software defined money can be programmed to do anything you want it to do within the bounds of what is possible under e.g. the CAP theorem and other relevant concepts from distributed systems.
Cryptocurrency as a system is also inflationary in a whole-systems sense as new money can be created by forking a code base or creating a token on those coins (e.g. Ethereum) that support it. This argument holds as long as all these currencies are reasonably fungible without too much hassle. As it stands things like shapeshift.io make converting them fairly easy at least for the popular ones.
"Earth is a poor store of life because it requires a constant stream of light to maintain." Hm no, that doesn't work...
Why was Bitcoin invented; what problem does it solve?
Cryptocurrencies are designed to waste increasing amounts of energy that grow both with time and the popularity of the system. Right now we're not able to pull energy from Sun fast enough to power them (see all the global energy issues, fossil fuels, etc.). And even if we eventually could, cryptocurrencies would only grow to consume all available energy. And even if we could keep up with that, it's an incredibly unnecessary waste if you compare all the other uses that energy could be put to. The guarantees that cryptocurrencies give are not worth the upkeep.
And that's all without discussing the other side of the coin - waste heat.
Actually there are thousands of other things that take way more energy and pollute way more than cryptocurrency mining. In fact you can locate your miners anywhere, unlike, say, your shipping vessels. So there's an incentive to place the miners next to, say, hydrothermal plants.
Why aren't you fervently arguing for the other orders-of-magnitude-larger polluters to be replaced? Lord knows we have alternatives to them too.
By the way, do you know about Bitcoin's emission curve and what is going to happen to mining after bitcoins are no longer emitted?
> And even if we eventually could, cryptocurrencies would only grow to consume all available energy.
That's a lot of energy! Could you provide some kind of grounds for your opinion here?
Because here I'm arguing against the trend, not just absolute magnitude. Almost every other human endeavour has incentives to reduce waste and upkeep. Cryptocurrencies require ever increasing energy use for maintaining the system.
(Note that I also frequently argue against various zero-sum games in the economy, like advertising, which are yet another unnecessary waste of precious resources. I try to be consistent with that position.)
> what is going to happen to mining after bitcoins are no longer emitted?
Isn't it true that Bitcoin requires continuous energy expenditure through mining to maintain the integrity of the network?
> That's a lot of energy! Could you provide some kind of grounds for your opinion here?
I'm talking about the dream/goal scenario of cryptocurrency advocates, in which cryptocurrencies replace fiat and become the new basis for the entire global economy. And the grounds are that the system is designed in a way that you literally make money burning electricity, so as long as electricity is cheaper than payoff somewhere (or you can steal some), there's strong incentive for everyone to try and burn energy.
Which increases energy costs until that profit gets small.
As long as there is a more valuable use for energy than getting a 0.1% profit mining Bitcoin, I don't see why mining would ever consume all energy, that's ridiculous.
No matter what layers of indirection(multi-party-sigs,bio-metric based encryption, etc) you put on it, at the end the private key has to come out in order to use it.
With Gold, you see gold in your vault, you know it is yours.
You see dollar in your pocket you can be sure you can spend that dollar tomorrow.
You see a strip of paper with your private key in your pocket, there is no guarantee that you can spend those cryptocoins tomorrow.
You see a private key(encrypted or not) on that Gold Bar, you do not know that it is truly yours unless you managed all steps of the encryption yourself.
If you did manage all the steps of encryption yourself, then storing that information in a vault was pretty much pointless.
I suppose one way these vaults can offer some sort of safety is that you come to them with your wallet, you make an onchain transaction into wallet whose private keys require both you and the vault to decrypt.
This way both parties can be reasonably sure that the wallet stays unaffected until you come with a request to open it.
Still a problem remains, you have to trust the vault to stick around and not lose their encryption keys.
If you do not need vault's keys to open your wallet you've gained nothing by storing your keys at the vault.
If you need the vault's keys you have to put your faith in vault not mishandling those keys, which means a single point of failure.
It's easier to verify than opening a vault to check on your gold.
If society adopts these incentivized crypto-assets that $10B the could become valued at trillions of dollars, which then is buying power shifted away from society as a whole - and where those holders have done no work to actual make those gains. This attracts enough bad actors and incentives bad behaviour.
One could do multi-signature wallets with Bitcoin. So, for example, there could be three keys: one with you, one with your significant other, and one with a third party custodian, and it'd take, say, 2 out of 3 signatures to spend out of the wallet. It doesn't change the bearer nature of Bitcoin, which, some would argue, is a feature.
this, among the myriad other points missed by the discussion, is what's special about BTC (arguably, other digital "currencies", as well)
there's so much more to BTC. it's not simply any one of the [currency, investment, speculation] because it's also a [transaction network, messaging platform, clock, vault].
What I don't understand is if fiat currencies are so bad, why do people express the value of bitcoin in a fiat currency (like USD)? They are just like the goldbugs, hoping and praying that the world will collapse back into the dark ages
Feel free to use them, I won't. There's no point when Bitcoin is so simple to move.
> What I don't understand is if fiat currencies are so bad, why do people express the value of bitcoin in a fiat currency (like USD)?
Because it's one of the most practical things to measure against, because almost everything is also measured against it?
I don't get this argument, if I say a car is worth $20k that means the car is actually worthless because I'm measuring it's value in USD?
Or someone in the US saying that meters are actually a stupid and useless unit because before everyone gets used to using it you have to constantly convert it to imperial.
Mostly because businesses do accounting and pay taxes in usd, so bitcoin is just used as a pass through gimmick to make sales. There is no path to the price stabilization of bitcoin, it's purely deflationary, no one is going to set prices in something that has no monetary policy.
Your password can be stored in your memory. Or it can be something like the 100th sentence in your favorite book.
You must use securely-generated random key phrases, or you will lose your coins.
What you're describing is a dictionary attack and it trades comprehensiveness for speed.
There's many more words than characters in any language. Using words as your alphabet gets you ($WORDS)^N possible passwords of length N instead of 128^N for an ascii alphabet. For humans remembering random words is easier.
Choosing a grammatically correct sentence instead of random words is little different in terms of complexity reduction than choosing a word based password (e.g. Password1) instead of random characters.
Obviously if the attacker can build a target specific dictionary they'll have a higher probability of success.
Bitcoin is cryptography's biggest bug bounty.
This just goes to show where the hype and misunderstanding around this has led.
It is not too far off to say bitcoin's only reason for being, is to "hold them yourself," i.e. conduct all your financial dealings with zero third parties.
A bank holding your bitcoins is just nonsensical if you understand the relative merits of each system.
The merits of the banking system are a centralized efficiency in conducting "transactions at a distance," and economies of scale in preventing fraud, theft, and other losses,
Trying to inject bitcoin into the banking system is like trying to re-insert a vestigial organ into a species long after the organ has been pruned from the evolutionary tree.
Nobody seems to have much interest in bitcoin's purported raison d'etre, but are more interested in a perceived potential for appreciation. That much of past appreciation has been shown to be the result of various systemic manipulations, rather than genuine organic demand, seems not to register with most people, or is unknown.
That perceived potential for appreciation would seem to eventually rest on people having an interest in using bitcoin for the uses around which it was designed. Should that day come, a shift from the game of "musical chairs-hot potato-hype machine," to a system of digital cash, the system would require a major re-working to support the number of users one would think would be proportional to the current valuation.
But like you said most people aren't comfortable or willing to shoulder this sort of risk in their financial lives.
Another curiosity, or countervailing force to bitcoin's design goals is the ever growing 'blockchain' record that needs to be stored locally to partake in the bitcoin system in the spirit it was conceived.
The blockchain is growing at a fairly constant rate, has anyone ever plotted blockchain growth relative to projected future storage costs and bandwidth capabilities necessary to onboard new users?
So what is the point of bitcoin other than the original goal of "be your own bank"?
But not just your own bank, your own datacenter as well!
Looks like in the future people hoard currency instead of spending and investing it then. That ought to be interesting.
It also demonstrates the costs associated with non-reversible transactions, these vaults aren't storing gold ingots or priceless artifacts, just private keys. Banks around the world don't need to worry too much about this (well, within reason) because if somebody manages to break into their digital vault not everything is lost and they can mitigate the damages retroactively.
With bitcoin "if you don't hold the keys, you don't own the coins" but if you do hold the keys you better be absolutely paranoid with them because there's no plan B if they get compromised or destroyed. For this reason I think that even if cryptocurrencies manage to become mainstream many people (including myself) would rather let a bank manage and insure their wallet than manage it themselves. Too stressful otherwise.