Bitcoin (like gold since the gold standard ended) is just a "check" on Fiat currencies and can act as insulation from central banks that issue too much money too quickly.
Fiats will continue to exist alongside bitcoin/cryptos, they'll just eventually have to "compete" a bit more (i.e., not be printed so readily by gov'ts) or else they'll become significantly less relevant.
With $1.9 trillion freshly printed for 'covid relief' and another $4 trillion on the way in the form of
'infrastructure', fiat will likely face more competition by the end of the year
Bitcoin (like gold since the gold standard ended) is just a "check" on Fiat currencies and can act as insulation from central banks that issue too much money too quickly.
Fiats will continue to exist alongside bitcoin/cryptos, they'll just eventually have to "compete" a bit more (i.e., not be printed so readily by gov'ts) or else they'll become significantly less relevant.
Bitcoin is like a decentralized banking system with no controls at all against a systemic bank run. No FDIC or Fed.
It has been small enough that a single Billionaire could bail it out when it got into trouble.
Once you hit the point where it'd take > $10B's to bail out Bitcoin it is going to unwind eventually in a bank run/panic.
This time is not different, and those who fail to understand the past are doomed to repeat it.
And its driven at this point by greed and "number go up".
And the reason why people like it is that they put $10 USD fiat in one day and draw out $100 USD fiat some time down the road, and its that ability to extract fiat from it that it is tied to. It isn't any kind of alternative. Everyone watches how much it climbs in USD denominated terms. Nobody remembers "1 BTC = 1 BTC" even as a joke any more.
Bitcoin is also extremely easy for the vast majority of the population to quit. You don't need it to buy groceries, you don't need it to pay your mortgage or your taxes. When the supply of $USD in the system goes to zero and the price collapses from a large enough height, there will not be any floor to it.
It seems to me you've not thought through the game theory of banning cryptocurrency very much.
There's an immediate competitive advantage (in the form of increased business activity & tax revenue) to the first country to adopt clear, consistent rules regards CCs and their use. If a few big countries try to ban it, that competitive advantage becomes even stronger for any country willing to buck the trend.
For one thing I said there are good reasons to completely ban cryptocurrencies. For another I didn't even say there aren't any good reasons against it.
Your reasoning is faulty, because you underestimate the ability of countries to cooperate. The US could probably even enact a virtually global ban on its own. Yes, some countries could try and resist, or some companies (and criminal organizations, of course) but they would be instantly limited to a much smaller market.
The only thing nations would have to do is make the interface between the Bitcoin economy and the rest of the economy illegal and too cumbersome. Bitcoin wouldn't die, but it would crash hard.
>you underestimate the ability of countries to cooperate
you,handwaiving all 190+ nation states will go along with AND have incentive to do what the all powerful US says...
OKAY, buddy...
Also, and please be honest with yourself, would you like to live in where the US unilaterally decides what private property rights should exist and not? I sure as heck hope you don't want that future.
The US does this all the time with its monetary sanctions. That's why sanctions against Iran and Russia are quite a big deal for these countries. Even nations that don't really want to take part in those measures are affected because their national banks have to do business in the US or with US banks and businesses.
IMHO, M2 (also called "Broad Money") is a more pure indicator of money creation. Specifically the combination of M2 and M2 velocity.
Board money supply grew ~30%+ in 2020. The reason we probably didn't see more inflation is because M2 Velocity was down ~30%. If we see velocity start to pick up with M2 increasing, expect consumer price inflation.
Good link. It's rare that macro/monetary comes together with a good clear writing style. What she's doing is harder than it looks. Saved.
That said, as someone who studied economics circa 2005... I think confidence in monetary theories is in long term decline.
Money supply affects X. X causes Y. But... "money supply" is hard to define. Hence M1/M2 categories and other complexities. X & Y are also hard to define. Money supply sometimes causes Y without affecting X. Hence Alden's need to distinguish between private from corporate wealth or debt. Hence her list of non-monetary deflationary causes... each one of which may be more impactful than money supply... even if we could be confident in our understanding of money supply.
We're kind of at a place where there is no useful theory. There are some very broad, almost universal theories. Print enough money and inflation will happen eventually. But, these tell us almost nothing about the margins. At the margin, we don't even know how to quantify money printing, money supply... or even inflation.
I'm not saying we shouldn't listen to economists, just that we need to realize the shades of uncertainty at play. Alden seems to have her points of interest in all the right places. Inflation is not one thing, and that's relevant. Central bankers actually matter. Lots of "outside factors" affect inflation directly, without acting on the money market directly.
Last, speaking of definitions, there's a difference between what she is trying to do (macroeconomic theory for the purpose of asset speculation) and "academic" macro. Here definition of inflation doesn't need to correspond to actual inflation in prices that people pay for stuff. It just needs to correspond to investable asset inflation.
M2 money supply also includes M1 money supply. The reason we don’t see the same step function increase in M2 supply is that this chart is really just showing that some components of the money supply are now classified as M1 instead of just M2.
The HN editorialized headline is basically false. Look to M2 to understand what’s going on here, as stated in the above comment.
If you use a money with an issuance scheme that doesn't derive from pure costs (useless things like hashing), the underlying incentives of that money will seed its own destruction.
What happens if you have a coin based on "useful work" and you "solve" the problem you were hoping to solve. Now a lot of "miners" leave the network, presumably because they were only there to help solve that particular problem. Now you have a weak system, and a system subject to 51% attacks by adversarial miners, and therefore not a good money/coin.
I don't see how HN commenters (in large part) don't get this. It's the Single-responsibility Principle, just in a different context.
There's plenty of usefull work that we won't run out of.
SAT solving is the prime candidate, because we have A LOT of NP hard problems in our day to day lives.
Weather simulations are another one, drug research is another one.
For the latter I'd argue that if we're at a point where we've erredicated all disease, we've also transcended as a society to a point where money has become obsolete.
I understand that the desire for a Proof of Work to be useful is strong and that's what is the appeal for these kinds of things. You should know that everyone would be totally onboard if there were a way to keep critical cryptocoin properties AND make the computation useful. The naysayers here don't dislike folding or any other useful computations. They just have experience with the cryptocoin design elements.
There's some subtleties to how a cryptocoin works that aren't obvious and they're absolutely critical to making it work. Bitcoin can have competing chains of blocks that eventually get orphaned. And it's because there's this race condition while block solutions are propagated across the network. Eventually, after enough blocks the network agrees on which chain wins. But imagine if you could know how the next block would start - what its inputs would be. You could start solving that block now.
A penalty mechanism is possible that disincentives such behavior and makes it impractical. Filecoin has such a system. But a powerful enough mining pool (China has 65% of mining power) can also do this for Bitcoin.
Yeah, just last night I was curious about any blockchain approaches that might be out there that try and do something more useful and found people trying to use SAT solving as the base. This paper in particular seemed pretty interesting and I do hope we get to a place where we can at least be working on NP hard problems while transacting on a blockchain: https://dl.acm.org/doi/abs/10.1145/3297280.3297319
If you use a money with an issuance scheme that doesn't derive from pure costs (useless things like hashing), the underlying incentives of that money will seed its own destruction.
What happens if you have a coin based on "useful work" and you "solve" the problem you were hoping to solve. Now a lot of "miners" leave the network, presumably because they were only there to help solve that particular problem. Now you have a weak system, and a system subject to 51% attacks by adversarial miners, and therefore not a good money/coin.
I don't see how HN commenters (in large part) don't get this. It's the Single-responsibility Principle, just in a different context.
Considering the number of supercomputers that have been constructed since the days of ENIAC, I don't think we'll be running out of scientific computing problems any time soon. And if we somehow do manage to run out of computing problems, then I guess we've already succeeded.
If the network has been designed for this in the first place – why shouldn't you be able to?
With Gridcoin you can participate in a number of eligible BOINC projects [1] and get rewards for computing on any of them. The network can add or remove projects.
I'm wondering why you think supercomputers are actually built for. Besides that, the type of computational problems that are submitted to and that BOINC helps solving are different to those that a supercomputer solves. The former (known as High Throughput Computing, HTC) is concerned mainly -- as the name suggests -- with throughput, while the latter (High Performance Computing, HPC) with speed/latency.
There is a reason why Cloud providers do not yet have "real" HPC offerings (i.e., performance-wise), even though with all the marketing they do to appear otherwise..
"First of all, Bitcoin and Visa are fundamentally different systems. Bitcoin is a complete, self-contained monetary settlement system; Visa transactions are non-final credit transactions that rely on external underlying settlement rails. Visa relies on ACH, Fedwire, SWIFT, the global correspondent banking system, the Federal Reserve and, of course, the military and diplomatic strength of the U.S. government to ensure all of the above are working smoothly.
Any energy comparison must take the above into account – including the externalities from the extraction of oil, which implicitly backs the dollar. As those who make this comparison inevitably fail to mention, the dollar’s ubiquity is partly due to a covert arrangement whereby the U.S. provides military support to countries like Saudi Arabia that agree to sell oil exclusively for dollars. It’s worth noting that the grossly oversized U.S. military, whose presence worldwide is necessary to backstop the international dollar system, is the largest single consumer of oil worldwide."
Obviously there's more infrastructure behind USD transactions than just Visa. But that doesn't change much about my initial comparison — Fedwire energy costs are low and amortize across many transactions, as is true of the rest of the infrastructure you list.
And if you want to start talking about the Fed and US imperial power, then we have to start talking about the bitcoin hype industry which exists to pump the value of various cryptocurriencies. Cruises, conferences, etc, etc. Besides, it's not as if we could get rid of US imperialism or oil extraction by switching from USD to BTC. You're just naming tangentially-related institutions with high externalities, not actual costs of USD transactions.
This is a deliberate obfuscation on the massive inefficiency in Bitcoin's transaction infrastructure. We don't need to talk about geopolitical power to talk about Bitcoin's transparent wastefulness.
Fiats will continue to exist alongside bitcoin/cryptos, they'll just eventually have to "compete" a bit more (i.e., not be printed so readily by gov'ts) or else they'll become significantly less relevant.