In my view, money is a technology, and people will choose to use money that "works" if they can. A technology can be designed to suit particular purposes, and without claiming to be an economist, I think the major government money systems as US and EU are designed to provide a medium of exchange, temporary store of value, and tool of economic policy.
What I see as the main promise of US money is that it will be roughly the same tomorrow as today, to the point where thinking about the value of things in dollars is useful.
I think it is safe to consider that promise has not been kept.
If you price items in BTC, those items continue to get cheaper; if you price them in USD, they get more expensive.
Do you realize that you are looking at only one side of the equation you are implying? 1 USD is also always 1 USD. A tautology is also a tautology.
> If you price items in BTC, those items continue to get cheaper
Which is not stability.
Now look at the absolute value of that change over time and you‘ll notice a difference between USD and BTC.
In that framework, it really is just equal to issuance, disregarding even the velocity of money.
That seems to me like the real crux. The acceptance of fiat is enforced, ultimately with physical force; this ensures that it's used.
With crypto, it's a social contract: I accept your bitcoin, because I think others will accept it when I try to spend it myself.
Currencies in some countries are required to be accepted by creditors, but transactions are pretty much unregulated.
I don't know what jurisdiction you're in, but if you happen to have any USD lying around, you'll see a note that says 'This note is legal tender for all debts, public and private'—this refers to legal tender laws which, in the US at least, means that if you refuse to accept USD for a transaction within the United States, then the debt is legally unenforceable. I don't see how that squares with what you've said above, but if I've misunderstood you (or there are different rules where you live), please correct me.
Namely, consider a huge exchange like Binance, which could technically run off with everyone's money.
I bet it won't though, precisely because it's SO BIG, and so many people have invested, such that if Joe Binance decided to run off with everything -- he might not be in trouble with law enforcement per se, but a LOT of others might come knocking at his door.
Broadly, I think this factor is what a lot of people miss, namely that it is at least possible that we're at the point where crypto is enforceable with "violence" or "threat of harm," even if said harm isn't from government per se.
This creates an incentive for Joe Binance to play fair (or at least, fair enough that he doesn't wreck trust).
If you hand out your currency to a third party (Joe Binance or someone else), then it can "easily be stolen", regardless of what currency your are talking about: using dollars instead of BTC changes nothing here.
No such back-stop exists for a third party stealing your bitcoins.
In this case, we are not talking about a bank, but about an exchange which exists outside of US jurisdiction. In this case, it does not matter if you handed USD or BTC to this third-party (outside US jurisdiction): if they decide to take your stuff, there is little actual recourse you have and FDIC won't cover it.
On the other hand, if you are dealing with an exchange within US jurisdiction (e.g. Coinbase), I don't see how BTC theft would be treated any differently from USD theft: if they take your assets, they can be brought to a court to have that fixed and return your assets (be it USD or BTC or whatever).
TL;DR: What matters is if you keep your assets (USD or BTC) with an appropriately-regulated institution (e.g. a bank within a jurisdiction you trust) or not (e.g. in an unregulated exchange outside your jurisdiction), and not so much the type of assets you have (or that were stolen/taken from you).
... but worth noting: I'm not talking about recovery (which is a matter of law that could take weeks or years). I mean replacement: making the victim whole with new cash while the law addresses the theft itself. I am unaware of any process or institution in the Bitcoin space that can do that.
That brings up a really interesting notion, no? Couldn't be done with bitcoin, but one might imagine one of these more centralized alt-currencies doing something like that. Somebody gets openly and obviously screwed on Binance and Joe Binance reviews/audits, and says, yep, and issues them some Binance coins*
*I know Binance does have it's own coin (coins?), I have no idea if it's technically possible with it/them, this is purely hypothetical.
(and perhaps even further than that, my earlier point is, "Joe Binance" is in so deep at this point that there's now likely enough of an incentive for parties who aren't "legal" to threaten him with violence or harm if he does something wrong.)
Recovery can take weeks, months, years, or be impossible (if the cash was burned, or the BTC routed to an account with a lost private key). While all that is going on, FDIC insurance on USD means (in the case of a rifle US bank) the Fed steps in and issues new cash to make the victim whole.
There is neither a mechanism for printing "emergency Bitcoin" nor a "victim's reserve" operated by a trusted third-party to do something similar if a Binance (for hypothetical example) goes rogue.
If you are talking about decentralized tokens/coins (BTC), then... yes, you can't arbitrarily seize or print new ones (but that resistance to arbitrary manipulation is generally considered a feature, not a bug).
And, again, in this case (sending money/assets to Binance, or even to a US-based exchange like Coinbase), FDIC would be irrelevant and not be triggered, even if you use USD (I assume it only applies to money kept in banks and not necessarily to money kept in other type of non-bank brokers or exchanges).
> I bet it won't though, precisely because it's SO BIG
Quoth the Wikipedia:
Mt. Gox was a bitcoin exchange based in Shibuya, Tokyo, Japan.[1] Launched in July 2010, by 2013 and into 2014 it was handling over 70% of all bitcoin (BTC) transactions worldwide, as the largest bitcoin intermediary and the world's leading bitcoin exchange.[2][3][4][5]
I’m hardly an expert but it seems fair to say that Bitcoin’s financial system is considerably smaller and probably more fragile than, say, the US dollar’s financial system, though there’s still some activity.
Money is valuable because it can be exchanged and everyone has 1) accepted that you can exchange it 2) is using it for this exchange.
What bitcoin is is captured in its name: bit coin == digital money. It’s not complicated. Also, breaking news: most money (like 90%+) today only exist in electronic form (in that sense the dollar is a digital currency with a paper form and so on)
People hate bitcoin because they don’t understand what it is and perceive it as being somewhat of a threat. It’s not. The ultimate success or failure of bitcoin will depend on how many people use it and what it’s used for.
Also, as a side note, the blockchain idea is revolutionary. Distributed consensus in a zero trust environment? yup. Has this been done before at this scale?
Bitcoin and Crypto in general are filled with thieves and scam artists. Just because some ethical people can navigate that minefield at relatively low dollar transactions - that doesn't mean many people or businesses want to stake their livelihoods on it not failing.
I dislike Bitcoin because (a) it's causing quite a bit of environmental damage and (b) it has revolutionized kidnapping and ransomware.
This is supposed to be a fair trade-off for letting people circumvent e.g. onerous drug laws. I'm not convinced it's worth it.
you know what’s the preferred currency for crime? the USD.
If you look at how something, a tool, is used and declare it bad I’m not sure you’re seeing the big picture.
A hammer can be used in construction or to bash someone’s brains out. Nobody ever mentions banning hammers because someone used one in a f’ed up way.
for the environmental damage part: in a free market you cannot really control what people are doing with energy. You use the energy, you pay the bill. End of story. If the profit you’re making from the activity is greater that the money you are putting in people will do that activity.
A hammer is no better suited for killing people than thousands of other common household (or natural!) objects. Bitcoin is uniquely suited for ransoms of all types.
Guns are perhaps a better analogy than hammers here. Not a perfect analogy, but a better one.
> for the environmental damage part: in a free market you cannot really control what people are doing with energy. You use the energy, you pay the bill. End of story. If the profit you’re making from the activity is greater that the money you are putting in people will do that activity.
That's not a rebuttal, it's a description of the problem.
Bitcoin has already failed as money. Even most coiners admit that nowadays.
> Distributed consensus in a zero trust environment?
The whole cryptocurrency environment still relies on plenty of trust (exchanges, programmers, apis...). It's just less regulated, and this is why it is full of scams (https://www.rekt.news/).
Exchanges are needed only in the world where you need to transform bitcoins into other currencies.
Relying on programmers, api, etc: if you want to go down that rabbit hole, you can literally take the code and verify it yourself. It’s out in the open and it’s backed by cryptographically sound primitives.
Bitcoin has failed as money? Most coiners? Where is this coming from? Do you have anything to support these assertions?
Ah yes. Because I don't have to trust anyone that the order from BitcoinAmazon will arrive. Or that the house I bought on BitcoinZillo will actually be mine. Or...
For the transaction to actually take place it means that it needs to be appended to the blockchain, and whether it is appended or not is not up to you. Instead you have to rely entirely on others for that to occur. This is the very definition of trust.
there is nothing preventing you from running your own node or miner.
also, you are overextending the meaning of trust. Do you trust air when you’re breathing? Do you trust traffic lights? Do you trust you’re going to eliminate excess water through pee?
The point is that if you have a series of established rules and a way to verify that they are actually applied as designed, it does not really matter who applies them.
One miner cannot become a bad actor and invent its own rules.
The more correct answer is that your transaction has fees, which is why other miners are motivated to include it in their next block. (And also why a majority of the hashrate being centralized into a single entity with a singular will is a doomsday scenario for bitcoin.)
Of course, the concern that some particular miner might just have it out for you to a degree that outweighs this incentive, or who has some other incentive to not include your transaction, is more mitigated when there are more separate/independent miners/pools .
why would the miners discard a transaction and not another one given that the value they extract is the same?
The energy consumption and the high prices of GPU comes down to capitalism and freedom of choice. Who are you to decide on what we should spend energy on and what we should not spend energy on? If an activity yields more money that it consumes (even if it's in the form of an electrical bill) people are going to do that activity.
For those paying higher prices for electricity or GPUs it's rational to see Bitcoin as a threat.
You see it as a threat? Fine. But if you’re gonna be rational focus on all the things that impact you - don’t just listen to propaganda parroting the same things over and over again.
On a side note: at least for BTC GPUs have not been a viable option is quite a while. also, mining happens in areas with low electricity prices - so not sure either of these arguments have legs.
Well, I suppose I'm conflating correlation with causation here. Are the two correlated because a higher bitcoin price produces a higher other-cryptocurrencies price, or the other way around, or another thing which causes both of them, or maybe some mix of some of these 3?
the “lottery winner” in your case assembles a block with transactions from the transaction pool (ie you don’t just make shit up. you are taking useful transaction that people are making them and capturing them into the chain) So the winner does not decide much, except maybe what transactions to select (spoiler alert: the transactions with the highest fees are normally selected).
The consensus is in the sense that: you wanted to create a transaction and that transaction is captured and everyone in the network sees and agrees that the transact happened. The miner cannot alter your transaction. Other nodes in the network cannot arbitrarily reject it. You cannot simply claim you didn’t do it after the fact.
Why would everyone agree that the transaction happened?
once a block is mined it is propagated through the network and it’s verified by all the nodes that see it. In effect, when you get the block and you append it to your local blockchain after verification you agree that the transaction that happened in that block happened.
For nodes that only have access to my chain, they will also go with my chain. This is why being connected to multiple nodes is important.
For nodes that have access to both my chain and the rest of the world's chain, they will go with the chain that has the most work put into it, because that is the one that is clearly supported by the majority computation power. It's irrational to go with the chain that has less power, because the entities that created the chain with more power can easily overwrite the chain with less power by virtue of having more power.
Unless I happen to have more computation power than the rest of the world, the chain with more work put into it isn't going to be mine, which is why it's important that global computation power isn't consolidated into a single miner.
This basically means the entire bitcoin network depends on the entities that have the most computer power behaving correctly, am I wrong?
First you assume that the majority computation power is already colluding. This is not the case.
Let's assume it's the case. As soon as they stop adding all transactions to a block that they would've been expected to, the entire world will notice. In response, the currency will become valueless. That is, it's a public act to abuse your position as a majority power, and the very act of your abuse destroys the thing that you're trying to abuse to your profit.
It is, but with the probability of winning proportional to the "work" you put in. That is crucial.
for bitcoin there is no central authority. the reward for winning is “fixed” and claiming the said reward is dependent on a network that validates that you indeed have the work that incorporates pending transactions into the blockchain. also, “winning” happens at regular intervals of time (average 10 minutes based on difficulty), and what you’re winning is somewhat fixed (the block reward is fixed + some TX fees var).
so it’s not a lottery.
I'm not attempting to say this was a good situation, only that it has interesting implications for "what is a currency" as a question.
On ethereum, the IOU is that you’re granted a vote to shape the code of the network, and also you can are owed some structured computation cycles.
If you decide to go full nomad and never "own" anything, the tokens still work as IOUs in the eyes of the state. Try paying bus fares (public infrastructure fees) or parking tickets (fines/taxes) in bitcoin or gold.
Money is an IOU to be free from state violence in return for economic productivity and corvee labor.
> But a cash token is not mere paper, and the numbers we see in bank accounts are not mere numbers. They are accounting records of legally-enforceable promises...
That sentence strikes me as the crux. But we never find out what is being promised. The word IOU is also used a lot, but we don't find out what we are owed.
Is it access to a financial system? If so that's a flimsy argument, who's to say crypto couldn't create its own financial vortex (as the author describes it)?