Their work is open source and they are using standard Bitcoin protocols. Zap is their wallet https://zaphq.io

Strike is a payment app that uses Bitcoin Lightning network internally to settle payments between financial institutions. It's useful for sending fiat currency denominated remittances instantly and without fees. https://strike.me

When they released Strike in El Salvador, it was an instant success. The president himself contacted Jack.

To add on to that, it's been used pretty nicely in the El Zonte beach town [1].

1: https://www.forbes.com/sites/tatianakoffman/2020/07/14/this-...

According to the article, someone donated "six-figure" amounts of Bitcoin to the town each year on the condition that they learn how to use Bitcoin:

> Beneficiaries of the digital currency had to learn how to use the Bitcoin itself, creating a Bitcoin economy.

If you give a relatively poor town the option to take free money as long as they learn how to use Bitcoin, of course they're going to learn how to use Bitcoin.

The real test is whether Bitcoin makes sense in an otherwise functioning economy where people aren't given free Bitcoin and they have the option to use a credit card that comes with a lot of consumer protections and zero (or even negative) fees.

The payment system mentioned in the Fine Article is built on top of Bitcoin, using Lightning Network.

There's nothing stopping them from putting various consumer protections and rewards programs on top of that, and plenty of motive to do so.

It's definitely a wait-and-see sort of thing, but I don't see as to how betting against it is the obvious move.

Why does the Strike app use LN or crypto at all? I just can't wrap my head around this.

They're a custodial wallet for your fiat currency, right? You deposit fiat with them. You withdraw fiat from them. You move it between accounts on their service. They, or a designed entity must hold that fiat on deposit on behalf of users.

When you 'send' that money (according to Jack Maller), they buy BTC for you, send it over the LN network, then convert it into a stablecoins. Which ends up, notionally, in one of the Strike custodial accounts.

So this Rube Goldberg machine of crypto is used for internal account transfers within Strike? Am I missing something? They're a centralized, trusted custodian (and a registered money services business). Why are they sending money from a Strike-owned account to another Strike-owned account this way? Could they not simply record a debit on one account and a credit on another account in any kind of traditional store? One they clearly already have?

Why wouldn't they have one account for each country, a small slush fund and/or debt facility to cover near-term transfers, then just record how much of the pot is attributed to each user account - and if money has to move across borders, send a wire from time to time.

Is this really just the most complicated intra-company account transfer of all time?

Or are they just doing it to avoid regulation?

It's worth watching the announcement from the Bitcoin conference (the link has been posted several times on this page).

The creator of Strike is a true believer. You can model this in religious terms if that helps.

He believes, intellectually and emotionally, that Bitcoin is better than fiat. That it's sound money, uncensorable, uninflatable, distributed, and that adopting it will make the world a better place.

From that perspective, the collapse of the fiat system is an inevitability. Something like Strike is an onramp; realizing the BTC as fiat on both sides is just a transitional technology, until the market cap of Bitcoin is sufficient to smooth out volatility and allow it to function as a unit of account.

It continues to baffle me that such a substantial fraction of HN users show less understanding of Bitcoin than my average nontechnical friend. I don't mean agreeing with it, to be clear; I'm of at least two minds on the subject myself.

But it doesn't seem to be going away, and at some point understanding how the cult thinks is going to come in handy. I'm not a Mormon but I do know enough about their history and theology to carry on a conversation.

Remittances with little fees or hassle.

That’s the purpose of the app; that doesn’t explain the role of crypto in this. TransferWise offers that without crypto.

It takes too long, it has significant fees, it can be censored and, as far as I know, requires a bank account, something 70% of the population in El Salvador don't have.

Strike is a fiat custodial wallet. They can also be censored in exactly the same way which is part of my confusion around the offering. In fact, it's not available in New York or Hawaii.

Further, Wise offers their multi-currency account, including in El Salvador (https://wise.com/us/multi-currency-account/) and allows you to store any of 56 currencies without conversion and offers banking details in 9 jurisdictions. It's kind of perfect for remittances because you can have your US parties ACH to your US routing and account number, and it appears in the multi-currency account, free, and very fast. Or $7.50 to receive a wire, instantly.

[edit] I'm not knocking crypto here, I'm trying to understand what they've built and why. I don't know why they're using crypto here at all. I'm seriously confused about their technical payments architecture. They seem to only use LN to move money, and between two of their own custodial accounts at that.

For what it's worth I've listened to over an hour of podcasts with Jack Mallers.

I am not well versed about the Strike wallet specifically, but I believe that it is a fiat wallet from the perspective of the sender and a lightning wallet from the perspective of the receiver.

Ok but why. They have a custodial wallet on both sides, the sender sends dollars, the receiver gets dollars. Why not just use addition and subtraction instead of LN? I can't think of a reason they would do this except to shoehorn LN into the app or avoid regulations in some way. Is there something I'm missing?

They use bitcoin exchanges around the world that are connected through Bitcoin Lightning network. Your dollars are exchanged to bitcoin at your local exchange, transferred via Lightning Network to an exchange in El Salvador, exchanged to dollars, and the dollars are then available at a local bank or ATM (or just kept in the app to pay someone else). Strike itself doesn't provide the liquidity, they use available local exchanges.

If you pay someone in the same country with the same currency, then it works probably like Paypal. You can't do that between countries, because the actual dollars have to be in the local bank.

This.

Wise charges $8 for $1000 transfer. Some of that is an ACH fee that is probably difficult to reduce.

Strike claims no fees are charged.

I'm talking about from a technical perspective.

ACH is roughly free - it costs about $0.0033 to the depository institution in bulk (citation available on request) - which makes sense as Strike also allows you to deposit via ACH in the US.

Their fees are likely dominated by risk, compliance and regulatory.

Obviously Strike's service isn't costless to operate so they're subsidizing their operations via investment.

> The real test is whether Bitcoin makes sense in an otherwise functioning economy where people aren't given free Bitcoin and they have the option to use a credit card that comes with a lot of consumer protections and zero (or even negative) fees.

Why don't they have this option today? These people are unbanked and it's good that someone is offering a service. It's pretty customary to have an upfront incentive to acquire the customer. I got a $10 Uber credit when I signed up and even a few hundred dollar bonus when I opened my brokerage account. But I guess I'm not from a "relatively poor town" so its not manipulation.

Apparently there is a blockchain based hearth stone clone.

Someone listed a card for 3.6 ETH two years ago [0]. In USD: $324 at $90 per ETH. Of course today the price of ETH has risen but the value of the card did not. It's not worth $10k. It's still worth $324 assuming the initial price was correct to begin with. The real price therefore is 0.12 ETH and those 0.12 ETH would be the salary of the creator of the NFT if you were a "freelancer" i.e. your income denominated in ETH goes down over time. Your best bet isn't to keep making NFTs. It's to make them as early as possible, get as many ETH as possible and then just sit on them and never do anything again.

[0] https://opensea.io/assets/0x67cbbb366a51fff9ad869d027e496ba4...

Hasn't that been the best course of action with any cryptocurrency at any time?

HODL anyone?

How a large a "cut" they take from every transaction is the question here.

As for cash,there's no cut taken by any middle man.

And when the central government or bank is involved in pushing a legal currency -- there shouldn't be any cut.

You know damn well that banks and credit card institutions take cuts of transactions. Why this aversion to Bitcoin on HN, even with LN?

Why the horror when someone asks how a free service is making their money, and how much? The quantification matters because we want to know if, in the future once they've spent all their VC money and have to make payroll themselves, it represents a better deal or not.

I agree, why would anyone provide payment infrastructure if they don't get paid?

1) information - which might be scary. 2) government control of some kind -

As for cash, the “cut” that is taken is via inflation. Governments print money increasing the total supply of currency and decreasing the purchasing power of your cash. It’s also called currency debasement and has a history almost as old as currency itself.

When that article was written the transaction fees were around $1.50-$2.00 USD which is already a lot for meals and snacks. Now that the average transaction fees are anywhere from $7 - $60 I doubt people are buying much with bitcoin's dialup throughput.

https://bitinfocharts.com/comparison/bitcoin-transactionfees...

Strike is using lightning where the fees are barely a few satoshis (much smaller than cents) most of the time. This isn't the Bitcoin of 2015, there has been lots of new development, lightning is here and is being used with growing adoption (1ml.com), there are other changes coming to improve the base layer itself (taproot, eltoo, etc).

I still don't understand how the lightning network works and maintains the important blockchain feature of bitcoin.

https://github.com/lnbook/lnbook/blob/develop/03_how_ln_work... is a reasonable explanation of you're interested in the technical aspects.

My understanding is that you start by doing an actual BTC transaction of, say X USD, for which you pay the fee, and then you can "spend" up to X-fee USD in the lightning network. People who receive payment from you can opt for getting a BTC transaction from your stash or use it to do other payments.

The base idea is that it uses the BTC network as a dispute settlement fallback. "It works but is expensive, let's just exchange through the lightning network".

You can see Lightning as being a network that exchanges "BTC IOU". If the network decides for some reasons to be hostile to you and refuses to broadcast the transactions where you receive money, you still have a signed token that proves you have the BTC IOU and that are acceptable by the BTC network (for the cost of a fee)

So it's like withdrawing money from the bank as cash to use. I get that, but after I promise the money to bunch of people how does the system prevent me from double spending or just redepositing my money to my account?

Lightning is basically a way to avoid trading on the Bitcoin blockchain by passing transactions through third parties.

Its like a giant bar tab. You have this liquidity pool with the network participants do all their transactions and go back to the chain when when they decide to settle.

Essentially it nets off contra positions so they don't have to hit the chain in a gross basis, but only on a net basis.

To open a LN channel you need an on-chain transaction. Same for closing a channel. Currently a Bitcoin transaction is around 7 USD. So you need 14 USD to participate, assuming the transaction cost does not change. 14 USD is more than a daily income for the average citizen, most will be below 10 USD.

The thing is, Strike doesn't open LN channels for people. In fact, they only use LN to move money between custodial accounts they themselves are beneficial owners of. I can't for the life of me figure out why they'd use LN - or crypto at all - for this and not just an entry in the centralized database they already have tracking balances. Avoid regulation, maybe? But like why?

I've listened to an hour long Maller podcast and I simply don't get it.

Why are remittances so expensive if this is so simple? Maybe you are missing something here?

The function of lightning and the Bitcoin base layer is settlement and clearing, those 2 things are non-trivial.

Then there is also the legal aspect, which cannot be detached from those.

Generally the answer is regulation. So I suspect that is quite likely the answer here. Although since they are an MSB in at least the US they answer could just as easily be crypto fever.

For a centralized entity settlement and clearing aren’t hard. You have a money pile and a debt facility in both countries, then you wire money to net settle once in a while.

Channel factories will be able to open and close many channels at once, so if you open 100 channels in a single transaction, well then you can divide the onchain cost by 100.

Channel factories only work as long as all participants of the factory want their Bitcoin inside the LN. As soon as any party wants their Bitcoin in their Bitcoin wallet, the factory needs to close all channels. This makes is unusable in the real world as people can and will not commit their whole networth into static channels that need settlement of 100 or so unknown parties until they can send it anywhere else.

All of this also completely ignores the LN routing problem which is conveniently left out of the LN whitepaper as it is actually unsolvable at large scale unless you have very few supernodes coordinating everything. In the real world those are commonly known as "banks".

You can splice out bitcoin from a channel without closing the channel. The channel balance can go almost all outwards (some is kept to be able to pay transaction fees). In the channel factory scenario, one participant can receive bitcoin on chain without closing the whole factory. However, they will have to pay the transaction fee which could be prohibitively expensive.

> This isn't the Bitcoin of 2015

I agree, because I used bitcoin in 2015 and it actually worked well instead of being crippled to a few transactions per second for the whole network.

How are they getting their balance on to the bitcoin chain? How much does that cost? Once they are in control of their money and actually have it on the real chain and not some wallet app maker's sub-chain they still have to eat more giant transaction fees.

This approach will only work for people using this app, which defeats the whole purpose.

Maybe you should try to actually read up on what the lightning network is before you argue against some ill-informed strawman version of it.

No, CyberDildonics is right - and asking the pertinent question. Strike doesn't denominate customer deposits in any kind of crypto. They're a traditional custodial wallet for fiat deposits, and a registered money services business. They appear to be using the lightning network to move money between Strike's own accounts.

They seem to use their own lightning nodes - that they don't allow third parties onto - to move money between their own accounts, rather than amending the centralized database of who owns how many dollars directly. However, it's all closed and internal, and I simply do not get why they would do this.

Doesn’t the Lightning Network scale to millions of transactions per second, which is what El Salvador will be using? Fees are miniscule on LN, as well.

> .. millions of transactions per second, which is what El Salvador will be using?

Why would that be what El Salvador is using? That is such a weird notion, and one of the reasons Bitcoin is often incorrectly called unscalable.

How many financial transactions do you think an average person does per day? I don't know but probably not much more than one, maybe even less.

If you handle special B2B cases like high frequency trading separately, financial transactions ceases to be big data.

You think the average person does less than one financial transaction per day? O_o

I mean, sure, not everyone is out getting a coffee every morning, but that strikes me as roughly an order of magnitude below reality.

Let’s say, shopping three times a week, with 5 transactions per shopping trip; that’s already an average of 2 transactions a day, but worse, since it’s clustered in small time intervals.

How do possibly get 0-1 transactions per day per person?

That’s.. a society where people don’t use money. It’s not a thing.

Over the last three months, I've made on average slightly more than two transactions per week, most of which is due to buying food every 3 or 4 days. Everything else is a rounding error.

Now I won't claim my consumption pattern is typical, but it certainly shows that 0-1 transaction per day is possible. (What are the five shops you visit three times a week?)

Working from home during the pandemic, I’ve been making 4.3 transactions per week.

If I was still commuting, I’d add at least 5 a week for lunches, might add another 5 a week for train station Brötchen and cookie. If the restaurants were back to normal, might add two more per week for evening meals.

I think I prefer my new normal of the bulk shopping being a once a week collection, so that probably won’t go back to my old habit of whatever/wherever, but even then the local doesn’t have everything I want, so there will be a few additional transactions with grocery stores.

(My commute costs will likely be a once-per-year expense, so a rounding error for transactions per week).

> What are the five shops you visit three times a week

Ah, chemist, supermarket, coffee shop, butcher maybe bakery? Heck, I might run out of sugar and have to go shopping again! Is it really that weird?

I’d particularly like to point out that all-in-one shops are globally atypical, and specifically atypical in smaller communities.

I seriously think you should consider your buying patterns as not representative of... most people, in most places, and specifically not el salvador.

Apparently they are already using it. There is a local company running nodes and publishing their wallet for people to use.

That would mean people aren't actually using bitcoin, they are using this wallet's centralized lightning network balance.

If they want to actually send money to someone using bitcoin, they will have to get their balance on to the main chain, which means that they will have to take it off this wallet and then incur the transaction fees for getting to the bitcoin chain.

Then they will have to take the hit of the transaction fees again to get their actual bitcoin balance somewhere else. This is what happens when you use a purposely crippled cryptocurrency like bitcoin.

They could use litecoin, monero or bitcoin cash directly and not have any 'wallet app' that keeps their balance. Then they would be in control of their own money.

> If they want to actually send money to someone using bitcoin, they will have to get their balance on to the main chain

Strike payment recipients can withdraw their USD balance as BTC to any Lightning-enabled wallet (or any other wallet, for that matter) [1]:

    How to purchase bitcoin with Strike

    1. Open a Lightning wallet or Bitcoin wallet of your choice. (If
       you do not already have one, see our recommendations below)

    2. Generate a receive address or invoice for the amount of btc you
       wish to purchase.

    3. Scan with Strike and hit send. Done! You have just converted USD
       from Strike to btc in your wallet.

[1]: https://strike.me/faq/howtopurchase

I don't think so, if I have inbound capacity on my lightning node (hooked to my full node, so not centralized), they can just send money to me as long as the routes through the network have enough capacity.

The fees do fluctuate, thus layer 2 solutions. A few days ago I moved some bitcoin and two transaction fees were equivalent of USD 0.78 and 0.72. For finality in a few minutes, I thought it was reasonable.

It depends on what country you live in. A few transactions like these every day would amount to $20-30 per month. Whereas you could use cash and pay no fees.

> A few transactions like these every day...

You don't do "a few of these" every day. It's for moving significant amounts of money, where security starts to matter.

Lightning network is for small transactions. You don't need your daily purchase of a coffee to be on the Bitcoin blockchain for the rest of history.

> Whereas you could use cash and pay no fees.

Somebody still has to spend time and money managing all that cash, particularly in less safe countries.

> Lightning network is for small transactions.

That's why I said a few transactions every day on average, as in 2 or 3, which seems a conservative estimate.

> Somebody still has to spend time and money managing all that cash.

I don't know how you manage your cash, I manage it myself, and I certainly don't know anyone who pays $20 a month to have their cash "managed". Especially in a third-world country, it seems unimaginable.

> That's why I said a few transactions every day on average, as in 2 or 3, which seems a conservative estimate.

Lightning network has virtually no fees. You were replying to someone who managed to get a "real" Bitcoin blockchain transaction through for less than a dollar.

> I certainly don't know anyone who pays $20 a month to have their cash "managed"

I was thinking of the people managing cash registers.

Okay I didn't know that the LN has no fees. How does this network sustain itself economically?

It has virtually no fees, often just one satoshi (less than 1/10th of a cent).

If fees are less than 1/10th of a cent, it means they make less than $1 for every 1000 transactions. So how many transactions are they processing? In 2019, ~5000 transactions per month [1], so the entire lightning network was generating less than $5 per month in revenue. Something doesn't add up.

[1] https://www.opennode.com/blog/wp-content/uploads/2020/03/Ope...

It's up to the nodes how much they want to charge, which is a competitive thing. They might as well charge 1000x more, that's just the figure the market arrived at.

So, why do they charge so little? Running Lightning could be done for other reasons than just collecting fees, similar to why you might run a full Bitcoin node, even though it only costs you money: You are invested in the network as a whole.

It's also worth noting that Lightning is not actually that well-adopted yet, it's more of a solution "in principle". Just because some place accepts Bitcoin doesn't mean you can use Lightning. In that case, you can usually just use Dash, Bitcoin Cash or Litecoin, which all have very low fees. Hence, the pressure to actually adopt Lightning isn't that high - yet.

Yes, it's probably heavily subsidised so I expect fees to grow substantially if it becomes more popular. And the thing is the small fee is not the only fee that there is to pay. Apparently in order to open a "channel" the user needs to pay one BTC confirmation fee and another one to close it, but bitcoin enthusiasts somehow never mention this detail.

> Yes, it's probably heavily subsidised so I expect fees to grow substantially if it becomes more popular.

Transactions on the lightning network aren't scarce like space on a new block, so there's no reason for increased demand to substantially increase prices.

> Apparently in order to open a "channel" the user needs to pay one BTC confirmation fee and another one to close it, but bitcoin enthusiasts somehow never mention this detail.

That isn't true. You can open channels larger or smaller than 1BTC and the Bitcoin aren't really "paid", but rather "staked".

They mean not being robbed.

Transaction fees are 5 cents in the last couple days. The mempool is empty (see https://mempool.space/). If you are paying more, then that's an issue with the exchange or wallet that you are using.

No they aren't, you are misunderstanding that link. It gives an 'estimate' of 1 satoshi per byte. The actual current block is 12 satoshis per byte. Transactions are not a single byte of course. This is why the average transaction fee is $7 right now and was $60 a few weeks ago.

https://bitinfocharts.com/comparison/bitcoin-transactionfees...

Maybe you should actually check the blocks. If your transaction pays fee 5 cents it would easily get included in the mined blocks. Often immediately.

As I mentioned, if people are using wallets or exchanges that set the fee higher, that's their fault. They are stupidly overpaying and that's why average is high.

Since mempool is currently empty, the blocks include transactions with 1 sat/vB. For average transaction with 140vB that would be 140 sats, which is currently ~0.05 USD.

Yeah but imagine if you bought a beer for $4 and then next week the beer was actually worth $8 and the next it was worth $7 and then a few months later the beer was worth $50. The whole point of fiat is that it is stable and so you aren't fucking yourself by exchanging it for consumables.

Even if you buy with fiat, you're still giving up the opportunity cost of not buying Bitcoin. All of our pizzas in 2011 could have been millions

Yes, a stable currency also helps people to intelligently buy unstable assets. This is a point for the other team, not yours.

The beer will always be worth what you paid for it. The money you still have may, however, fluctuate in value.

It isn't true that something is necessarily worth what one pays for it. This assumption provides for a nice way to model economic transactions but it isn't always true. For instance, life saving heart surgery has a definite cost and it is worth far more to the recipient in some cases than what they pay for it. In the other direction I don't think that the cost of government services is worth what I pay for them since I think the U.S. government squanders far too much money on national defense.

Why does it matter how many dollars the beer is worth? It is worth the same number of bitcoins yesterday, today, and tomorrow. That's the only stability that is relevant.

> Why does it matter how many dollars the beer is worth?

Because you can buy beer for dollars, so if your local beer costs 50$ in BTC it makes sense to sell BTC for USD and order beer. And if your beer suddenly costs 0.001$ in BTC it makes sense to sell it off to someone in USD and refuse selling in BTC.

> It is worth the same number of bitcoins yesterday, today, and tomorrow. That's the only stability that is relevant.

This is the most idiotic argument ever, if this was true it would be irrelevant if a currency depreciates/appreciates.

This goes both ways. Why buy a beer for $5 if Bitcoin is going up? You should just buy Bitcoin instead. Why buy $5 beer if instead you can buy index funds?

Because I want a $5 beer today, and one next week as well. Why buy bitcoin until you die and never have beer? Are you even living at that point?

> Because I want a $5 beer today

So then why feel bad about trading some BTC for it? The regret would be for not buying back.

Who's doing that? People can choose to hold whatever assets they want in whatever proportions they think are best (assuming they are not shut out of the fiat banking system, and live in a stable developed country).

That’s fine as long as my job is willing to pay me in a constant amount of bitcoin and everything else I need to buy can be bought with bitcoin. If my salary is still in dollars, then what I can purchase for a day’s wages will vary hugely.

> That’s fine as long as my job is willing to pay me in a constant amount of bitcoin and everything else I need to buy can be bought with bitcoin.

It also requires the goods and services you buy to be traded in dollars. If stores buy food, gas, etc. wholesale in dollars, for example, and sells it to you for bitcoin, there's going to be a problem.

Presumably, in El Salvador, salaries would be denominated in BTC. That's the only thing that'd make any sense. (And, barring external regulatory force, it's very likely to be what a free job market where employees mostly spend BTC would move to doing.)

I don't see why they would be denominated in BTC, given that BTC will be legal tender alongside USD, and USD is a much more stable currency.

Making it a legal currency won't even force anyone to accept it. As far as I understand, it will simply mean that the government will accept payments in BTC.

> the government will accept payments in BTC.

The telling thing would be what the gov't pays in (e.g., for tax returns). Do they pay you back in BTC? or fiat?

Seeing how not being able to print more money when you need it worked out for the government of e.g. Greece, I would be surprised if El Savlador chooses BTC for paying its debts.

El Salvador does not have its own currency; it has been using USD since 2001. It can't print money either way.

Imports and exports are not priced in BTC though, in the same way that there aren't really imports or exports priced in gold.

Given the massive volatility of BTC it presents a massive opportunity for arbitrage that mostly has downsides for consumers who want stable supplies of goods.

The real currency we all have is time

If you believe that, I have a pizza to sell you. Same eternal price as that famous pizza from 2010: 10,000 bitcoins.

How would that come about? Serious question. I do not see how price controls like that could possible work, unless El Salvador closes its borders to all trade.

>It is worth the same number of bitcoins yesterday, today, and tomorrow.

That would be nice but it goes against the "number go up" theory of "bitcoin investing".

This kind of fiat stability is very challenging for small and poor countries. In fact, El Salvador doesn't _have_ its own currency for this reason -- they switched to the US dollar decades ago!

Is it worse to peg your economy to a decentralized cryptocurrency, or a fiat currency controlled by a large powerful near-neighbor who only occasionally even remembers you exist? (and sure as hell will not modify their fiscal policy with the needs of your economy).

Having a backup official decentralized currency doesn't seem ridiculous to me. Maybe I'd use Eth or something that can scale better, but the point is the same.

> Is it worse to peg your economy to a decentralized cryptocurrency, or a fiat currency controlled by a large powerful near-neighbor who only occasionally even remembers you exist?

A currency needs stability. Speculation needs volatility.

Speculation only works when there's a stable currency to dump your value into when the the security your trading is going in the wrong direction.

> A currency needs stability.

The word “currency” is inherently a tautology. How does something become a currency?

> Speculation only works when there's a stable currency to dump your value into when the the security is going in the wrong direction.

Precious metals long predate government monies. Gold and silver couldn’t have become currency under the definition you’ve presented here.

> couldn’t have become currency under the definition you’ve presented here.

gold and silver were bad currencies back then, when people had no real alternative. People clipped coins, and debase the currency. People horded them when times were tough, and prevented lending and circulation, causing issues with the economy regarding liquidity.

Have a read of https://en.wikipedia.org/wiki/John_Law_(economist)#Economic_... and educate yourself about the past.

"... only works when there's a stable currency to dump your value into ..."

    Hence the rise of algorithmic stable coins.

You mean like... Tether?

Tether is the counterexample of what she/he said. Tether is not algorithmic, it's backed by fiat.

> ... it's backed by fiat.

That's highly debatable. I'll grant you, it's advertised to be.

There are several alternatives nowadays, you're being dishonest by only mentioning the most controversial one.

> you're being dishonest by only mentioning the most controversial one.

No. Your argument is "Yeah, we know it's terrible... so you can't hold it against us." Nevermind the fact that coinbase started to support Tether.

I think what's most interesting to me (and should be to you as a pro-crypto advocate) is that underlying backing in tether appears to be highly volatile, yet it's not represented in the price. Also what should be shocking is hodlers don't care about this either.

Nobody cared about Bernie Madoff as long as their accounts and the market kept going up. As soon as people tried to take their money out, however....

How is that my argument, I haven't even supplied an argument? Don't read between the lines, there was nothing there. I pointed out that you purposefully took the most controversial one. There are several others, see a siblingreply for examples if you really didn't know there were any others.

I wouldn't call me a pro-crypto advocate, just as I wouldn't call you an anti-crypto advocate. I like to keep track of what's happening in the crypto space but I'm not advocating pro or against it.

My opinion on Tether is that there should be a lot more transparency regarding their backed funds and personally I wouldn't touch it with a ten foot pole.

For the sake of argument, what's the absolute best alternative to Tether that you feel could safely be used as an example?

Because you quickly resorted to ad hominem attacks even though you failed to provide any alternative or even a single counter example.

I don't know what the absolute best alternative is or how you would define the absolute best, I just know that there are several alternatives. The grandparent knows this as well, hence my post. [0] https://coinmarketcap.com/view/stablecoin/

I've asked for your opinion on what you feel is the best counterexample you can put up.

It does not seem you're able to point out anything at all.

Is that because you are aware that there is actually no good argument to refute OP's point? And thus you resorted to name-calling?

Can you define this please? What does it mean to be the absolute best alternative stablecoin? Once I know that I can try and answer your question.

DAI is the most used stablecoin - https://coinmarketcap.com/currencies/multi-collateral-dai/. It's completely decentralized.

“FUD” implies it is false. Maybe you can argue against some of those, but I have no idea how anyone would argue Bitcoin has a stable value.

You argue it is stable by arguing you never need to convert it to fiat. If your economy is running 100% on Bitcoin it doesn't matter what the exchange rate to USD our any other currency is. (Note I'm not actually arguing this is the case in El Salvador, just pointing out that there is a theoretical argument that could be made.)

That is only true if the entire global economy is running 100% on bitcoin. The second you need to trade with another economy (like any nation needs to in order to import/export goods), you are bitten by the same issue.

The US is El Salvador's largest trading partner - so Bitcoin's price relative to the USD does matter.

>That is only true if the entire global economy is running 100% on bitcoin.

100% on bitcoin means no services, no goods, an economy where nothing but bitcoin exists. As soon as I need to drink water the price of water and the income of the operator of the well will go down over time because of the fixed supply and the hoarding of currency.

I think there's probably some middle ground here. Like say the national economy is 100% on Bitcoin and then as long as they have a balanced trade with other countries (i.e. no long term trade deficit/surplus) they can deal with those obligations in fiat currency. But I'm just guessing here.

No currency ever has been 100% stable. The exchange rate is how we perceive it in the modern economy, but fluctuation in commodity prices was the indicator of an stable, or not, currency when the gold standard was in place. That will be the indicator if bitcoin, or any other currency, achieve 100% use, which in itself is impossible. But there is no guarantee to stability, bitcoin doesn’t provide it any more than the usd backed by millions of soldiers does. Stability begins on the production side, not the monetary one; after a huge drought you’ll see prices skyrocket irrespective of the currency.

Call it "FUD" if you want but in this case Fear, Uncertainty, and Doubt are all very much justified.

Listing other problems with Bitcoin isn’t a good argument to disprove a proposed problem with Bitcoin.

This is a great way of arguing, you've now listed three things bad with BitCoin. Wait, which side are you arguing?

If you wanted to add more things to your list, try "the majority of people buy it because they hope someone else will buy it for more in the future."

Would it be helpful if we clarified that all three of those assertions are true at the same time?

Except that…none of those are incorrect?

Care to argue your point rather than just continuously layering on the snark?

Tell how stable it is to the Venezuelans or the Zimbabweans or the Russians.

And Usd isn't doing too well in the last 2 years.

Stable does not mean unchanging. People don’t understand that modest inflation in a currency is actually a good thing because it’s a natural incentive to spend, and velocity of money is a critical aspect of economic growth and health. Moving off of the gold standard launched the world into a period of unprecedented growth.

Obviously too much of any good thing is bad, and this applies to inflation as well. But the idea that you’re supposed to hold fiat for long periods of time is absurd and I’m tired of Bitcoin maxis who don’t actually understand money or economics parroting that line.

You’re not supposed to hold fiat. You do something productive: you consume with it, you invest in productive assets, or your lend it (to someone who will do one of the two former actions).

Bitcoin doesn’t compete with fiat. It competes with every other investment asset.

>People don’t understand that modest inflation in a currency is actually a good thing because it’s a natural incentive to spend, and velocity of money is a critical aspect of economic growth and health.

I looked up hyperinflation in MMOs and honestly the hyperinflation is by design. The fundamental problem is that veterans should not prevent new players from earning money. If the supply was fixed then veterans would acquire the majority of the currency. By letting monsters and NPC vendors print money you are stealing from the rich players robin hood style. It's impossible to solve without just outright taking the money that NPCs printed from wealthy players.

I've seen other approaches that just try to limit the supply of ingame currency and tie it to some random cryptocurrency or just plain old dollars and that is such an overengineered solution that doesn't even address the robin hood problem, which isn't a bug, stealing wealth from old players is 100% intentional.

Pretty sure the USD is more stable than bitcoin over the last two years.

Bitcoin will stabilize in time, when it's big enough to absorb short time supply and demand shocks. It will eventually follow the value of all economic activity through its network. The more economic activity, the less volatility in aggregate.

There's a huge cost in "stabilizing" a fiat currency, in terms of debt and inflation.

A deflationary coin cannot stabilize without destabilizing the economy that trades in it. https://benoitessiambre.com/specter.html

Nobel Prize winner F.A Hayek, who also famously predicted the denationalization of money in the 1970s[1], provided the excellent counterargument to this in the debate with the proto-Keynesians back in the 30s concerning stable supply money vs. inflationary money:

https://mises.org/library/hayek-paradox-saving

Hayek was later interviewed in the 70s and said he was mystified when Keynes was promoted to godhood upon his death. He claimed the debate had not yet finished.

[1] https://en.wikipedia.org/wiki/The_Denationalization_of_Money

There's a reason the experts sided with Keynes as you mention (or others like Milton Friedman). Flaws were found in Hayek's reasoning that made his models simply fail to add up.

The linked article doesn't address the effects of deflationary currency at all, it describes the notion of including capital in the description of economies.

It criticizes the statement by Keynes that savings leads to depression due to underconsumption and thus there must be regularly monetary stimulus, meaning expansion of government borrowing and hence, the money supply. Hayek was a proponent of the gold standard and fixed money supply at this time and the Keynesians promoted fiat money and a flexible money supply and monetary policy.

I'm not familiar with Hayek, so you may need to fill in gaps where I may have them, but the argument in the article (as I understand) specifically establishes the context where savings are presumed invested into capital. How I understand deflationary currency is that investments are not incentivized, and would therefore not lead to the situation as described in the article.

Investment is naturally incentivized because the only reason capital is created is to lower the cost of production. If you build a factory, or invest in a machine to make things and it costs the same to manufacture those things in the factory or with the machine as it would to manufacture them by hand, why did you even build the factory in the first place? The inputs used to construct the factory would be better used for other things and thus the business loss from building a useless factory or unnecessary piece of equipment is the economically efficient because it is a misuse of labor and material inputs.

We are not talking about deflationary money either. We are talking about stable money supply, which is what Bitcoin is.

A couple things. Your first statement appears to be circular, it doesn't answer the question of why an entity would want to invest their money on an uncertain venture when it would just be worth more doing nothing with it. Secondly, I'm not sure what the rest of the first paragraph is in aid of, it seems like you're stating that capital is useful which I don't think was ever in question.

Sure, the article never mentioned anything about deflationary currency, but you were responding to a comment that a deflationary currency would have issues that you seemed to respond in opposition to. If you don't have a stance on deflationary currency, what is your argument for or against?

On that note, I believe that bitcoin fits the definition of a deflationary currency, and having looked up 'stable' money supply haven't found a consensus on what that means. Could you explain how you define that?

> it doesn't answer the question of why an entity would want to invest their money on an uncertain venture when it would just be worth more doing nothing with it.

Simple, because the investment would return more than the natural rate of deflation alone would.

On its face that would appear to be a bald assertion. Investments inherently contain risk which would dissuade potential investors if they have a stable source of growth. Investments would have to have very high upside to be worth a stable but lower rate of deflation. Secondly, I'm not sure how you can be certain that investment returns, without regard for risks, could be higher than the deflation rate.

> Investments inherently contain risk which would dissuade potential investors if they have a stable source of growth.

Stable sources of growth have existed for decades but somehow most investors aren't just going all in on those. That's because investors care more about good risk-adjusted returns than lame guaranteed returns.

>Investments would have to have very high upside to be worth a stable but lower rate of deflation.

Investments with risk-adjusted nominal returns above 0% are worth it if the currency is deflationary: even if the investment only has a nominal 1%/year return and the currency deflates at 2%/year, that's a 3%/year real return. So it's still better than just holding the currency, even though the nominal return is lower than the deflation rate.

> Secondly, I'm not sure how you can be certain that investment returns, without regard for risks, could be higher than the deflation rate.

Returns on most investments aren't certain in an inflationary environment either, so I'm not sure what's your point.

To your third point, investments in an inflationary environment are necessary because otherwise people would _lose_ money by doing nothing with it. It's better to risk for some return, than lose it by doing nothing. That's what separates it from an deflationary environment in that people gain more money by doing nothing with it. They don't need to incur risk to gain more.

This leads to your first 2 points, where people might still want to invest to get a potential higher return than the base deflation rate, investments would drop compared to an inflationary environment. In the inflationary environment investments are necessary to prevent the loss of value, whereas it isn't in a deflationary one.

There is no Nobel Prize in economics.

There is a group that hijacked the name for their own prize, whom the Nobel committee has no contact with. They are, of course, economists, so any merit in their prize is only as much as economists' at large.

The which is, let us say, disputed.

That argument isn't true. Deflationary currency can destabilize governments, not the economy. Econonomies fail because they're run by incompetent governments, who spend more than they can afford.

Bitcoin is not guaranteed to be deflationary. It's deflationary when the economy is growing. It's inflationary when the economy is shrinking. Deflation will slow down economy, and inflation will accelerate economy. It's a stable self-correcting system, which would correct itself to match the average economic growth globally.

Bitcoin is guaranteed to be deflationary as long as there’s a finite limit – if nothing else, lost keys would reduce the total over time.

More importantly, the people hawking it _really_ want it to be deflationary because that effectively makes them landed gentry getting richer without any effort on their part. After a decade of that being integral to the sales pitch I would be extremely surprised to see any major holder support breaking the deflationary model.

No currency is guaranteed to be deflationary. You may guarantee that the currency supply will behave in a certain way (although even that is debatable), buy you cannot guarantee that the price level in terms of such a currency will continuously fall.

The fixed currency supply guarantees it: unless the economy is shrinking at the same rate, each BTC becomes more valuable over time and that’d cause purchase prices for goods to trend lower.

This has been a key part of the sales pitch for a decade: buy now and it’ll be worth more later, guaranteed, but that’s not good for an economy since it heavily incentivizes holding onto anything you aren’t forced to spend. Since Bitcoin has no innate demand, that’s an especially dangerous cycle since almost everyone has alternatives.

> The fixed currency supply guarantees it

No, it doesn't. Bitcoin can lose 50% of its value in a matter of hours, as recent experience shows, despite being in a limited supply.

So the only way bitcoin isn't deflationary is if demand for it continually goes down over time until it's irrelevant. If demand either goes up or stays the same, it will behave deflationary (wallets getting lost). This doesn't seem to be a good performance pattern for a currency.

You're right a fixed supply isn't enough to guarantee it, you still need productivity growth and technological progress, something we've had for a long time. Given enough growth a 50% crash is nothing.

There isn't monetary deflation in bitcoin (expect for lost coins).

As a global reserve currency, bitcoin would act as an "index fund of everything". Economy is expected to grow, but it's not guaranteed. Which means that there's always a non-zero risk associated to it. There's more risk on short time scales, and less risk on long time scales.

There will be if it's successful - 90% of the bitcoins ever mined have already been mined, for bitcoin to be useful at a long term world wide level it needs to store enough value even as the size of the world economy grows - if it can't them it will become a limit on economic growth much as gold became in the last century.

So because the number of bitcoin is fixed to remain relevant bitcoin will need to continually deflate (ie increase in value) so that there's enough to represent the size of the economy

>More importantly, the people hawking it _really_ want it to be deflationary because that effectively makes them landed gentry getting richer without any effort on their part.

Yeah it is basically people getting screwed by increased wealth inequality and then as a response they don't think of a way to build a system without losers, instead they join a system where the old dynamic makes them the winners. The only difference is that you start from a clean slate from 2008 onwards.

> as a response they don't think of a way to build a system without losers

Which system is that?

Does making governments less stable really not make economies less stable?

It would seem so, yes. But I disagree with the GP’s premise: claiming economies rise and fall based on monetary policy alone is like claiming the Roman empire fell because they debased their currency. It’s a contributory factor, but certainly not the only one.

We’d need to assess the merit of anarcho-capitalism vs collectivist democracy to understand whether disempowering governments would in fact decrease economic stability.

Yes there is a hole in the article. He didn't mention that Germany lost WW1. Every other nation suffered the same problems but they could get away from them without hyperinflation, Germany couldn't because increasing the monetary supply does not repair an economy.

If one were to completely oversimplify everything the roman empire fell into the "war + debasement" bucket though but it also had a lot of other problems. They were actively fighting a war which meant they couldn't control the influx of barbarian refugees (huns drove them out) at their border. They then committed a grave mistake. They deported all barbarians and killed those who stayed. Some barbarians gathered near the border and formed a big army which then proceeded to plunder Rome. The problems didn't start with money, they got worse because of money.

Governments that overspend or misallocate capital are a burden to the economy. With sound money, a badly managed country can go bankrupt because they can't print more money. It isn't the fault of the money, while this is the usual argument. It's just the nature of honest money.

So, it results in destabilizing governments that are overspending, but stabilizing those that are not.

You don't see the side-effects of destabilizing a government as potentially disastrous for an economy? Governments and economies can have many different forms, but there are clear cases where destabilizing one will destabilize the other and ultimately lead to mass suffering for a period of time. Imagine what would happen if a government in a place like the Middle East or parts of Africa collapsed. History has shown that a new government often doesn't rise up from the ashes without lots of tears and bloodshed. What do you think happens to people's standards of living? How much of their time and money do you think it will take just to get back what they used to have?

Allowing corrupt governments continue to steal the wealth of their citizens through printing money isn't a great alternative. At the end of the day people will use the money that works best for them if they have a choice.

>Allowing corrupt governments continue to steal the wealth of their citizens through printing money isn't a great alternative.

How many times does this get repeated? No money is being printed right now. No MMT is happening. No helicopter money is happening. Barely any Keynesian fiscal stimulus is happening (the US has stimulus checks but the EU doesn't and it's suffering for it) and the fiscal stimulus that is happening is financed via debt. No money is being printed right now.

The majority of money that the Fed creates is primarily issued via debt. The part that isn't is used to buy assets that are being put on a balance sheet and the sale of the assets will often remove more money from the economy than it added. QE does nothing but fill bank reserves so that banks lend out more money.

Yeah, and that's the problem. All the debt is basically money that is stolen from people's savings in the form of inflation.

"Financed with debt" that is never going to be paid back. You have to think who is doing the actual financing here, and why they aren't getting interest on their financing.

The world is much bigger than the US and Eurozone, maybe try travelling a bit once covid dies down.

Citizens of Turkey, Lebanon, Nigeria, Ethiopia, Zimbabwe, Argentina, Venezuela, Iran, Belarus, for example, all have their savings being stolen through inflation to greater or lesser extents.

Of course, but adopting another currency doesn't make a dysfunctional government any more functional. It's like fixing a wobbly table while your house is on fire... probably not the most pressing problem under the circumstances.

> Imagine what would happen if a government in a place like the Middle East or parts of Africa collapsed.

The Zimbabweans that lost all of their savings to hyperinflation were literally counting the days until Mugabe's government collapsed.

Technically it collapsed the moment land was forcibly repossessed because from that day on Zimbabwe could no longer feed itself. The government merely managed to survive longer than it should.

Indeed. http://imgur.com/a/VdQdD

Nice article. Pretty much matches what I have figured out myself but you gave it a new perspective that I hadn't thought of.

Bitcoin can’t scale to handle anywhere close to that much volume, and the deflationary model makes stability harder to maintain since it discourages routine usage.

They are using lightning, which is designed to do so. It if was just bitcoin then yes, they would have serious issues, but it isn't.

Maybe Lightning will scale that well but it hasn’t been demonstrated yet. More importantly, that’ll push a lot of the properties people believe to be true to the banks in all but name most people would actually use.

I am Jack's complete lack of surprise when the next unrest hits El Salvador, due to US fuckery.

> Wow, this seems like an incredibly shitty situation for the people of El Salvador.

Indeed it is. The government just mandated that everyone in the country is obligated to use a startup's app, more or less. This has to be one of the most egregious examples of regulatory capture I've seen in a long time.

"Legal tender" means that people are legally obligated to accept this as payment. Maybe the law will be broad enough that the buyer can set the terms of how the Bitcoin is delivered, but given how prominently this Strike app and their founder are participating in the launch, I suspect it will mostly just drive users to this startup.

Forcing everyone to accept Bitcoin, maybe through a specific startup company's app depending on how this is rolled out, is a weird juxtaposition to the libertarian ideals of many Bitcoiners.

Lightning developer here.

I have no idea what their legal definition would be, but lightning is an open standard, and Strike is but one implementation.

How do you as a Lighting Network developer propose that the citizens of El Salvador secure their Lighting Network Channels so they don't get drained of their funds? LN channels require each party to observe the channel for malicious transactions so they can forcefully close the channel if one occurs. Can the average user handle this or are intermediaries needed?

Lightning isn’t an app - it’s an open protocol supported by dozens of programs. This one app you’re talking about also supports it.

Pay taxes in real money, get benefits in Disney Dollars.