
You don't understand money – and it's a good thing for Bitcoin - cfievet
https://beta.sapien.network/post/z8dAvLCzGywheZFtgLCjcu3hhuv9WrAi5
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kd5bjo
All of the author’s core questions can be answered just as well for coins and
notes as they can for bitcoin— Every greenback has a unique serial number,
after all. There must be a central registry of them somewhere.

Money as understood by economists is not physical currency (coins, notes,
etc), but an emergent property of the institutional use of IOUs of various
kinds, like debts and fractional reserves. These also exist in the bitcoin
world, and have already caused problems— How long did MtGox operate without
reserves? Does Bitfinex actually have the reserves it claims to? If Bitcoin
were immune from the problems of fiat currency, these questions wouldn’t even
make sense to ask.

~~~
knocte
> These also exist in the bitcoin world, and have already caused problems— How
> long did MtGox operate without reserves?

Exchanges are not part of the bitcoin world, they are bridges to it.

Longer version of the above remark: what bitcoin is truly about is financial
sovereignty, or, to put it in more layman's terms, lack of counterparty risk.
The bitcoins held in a bitcoin exchange are mismanaged funds, you should never
leave your cryptofunds in the exchange: "not your keys, not your coins".

PS: These days, you can even find "bridges", i.e. exchanges, that don't have
even this problem anymore, e.g. HodlHodl exchange, which doesn't hold
customer's funds, so it's impossible to achieve a fractional reserve
malpractice.

~~~
kd5bjo
I’m less concerned with philosophy and how people “should” be managing their
assets than I am observing what people actually choose to do. The exchanges
exist, their actions affect the value of bitcoin, and the value of bitcoin
affects them. Therefore, any analysis of the bitcoin ecosystem must take them
into account in one way or another.

Similarly, there’s no fundamental barrier to promising to pay someone bitcoins
later that you don’t currently possess. That’s the seed of a credit-based
economy, and also the piece of the fiat system that makes things so
complicated. It is disingenuous to make a comparison that includes this
complexity on one side but not the other without giving justification.

~~~
knocte
It's no longer "philosophy" but education and awareness. The longer bitcoin
exists, the more custodial exchanges get hacked and consequentially the better
knowledgeable bitcoin users we will have.

You cannot bring points against bitcoin which actually happen more in
centralization-backed entities than in decentralized scenarios.

~~~
kd5bjo
There are plenty of examples of bank runs and other crises pre-regulation and
pre-fiat currency, dating all the way back to the 1600s— that’s about as
decentralized as you can get. If you want to argue that there’s something
fundamentally different this time around, that’s fine, but I’d appreciate
evidence rather than assertions.

In fact, the least problematic time in terms of bank runs appears to be the
years of the highly-centralized Bretton-Woods system post-WW2 (1).

It’s also not like holding bitcoins yourself is entirely risk-free. You can
accidentally expose your private key and have your money stolen or you can
lose your private key and have it locked away forever. Either scenario means
you no longer get to use your money, and any defense against one makes the
other more likely; it’s a difficult balance to ask people to get right.

(1)
[https://en.m.wikipedia.org/wiki/Bretton_Woods_system](https://en.m.wikipedia.org/wiki/Bretton_Woods_system)

~~~
knocte
Giving me an example of decentralisation set in the 1600s? Dude... The best
way to finish this convo is the way Satoshi replied once: "If you don't
believe it or don't get it, I don't have the time to try to convince you,
sorry"

------
Tomte
> Take the questions we mentioned above, and apply them to Bitcoin:

Sure, you can easily answer cherry-picked questions about Bitcoin.

But the important thing is: nobody in his day-to-day life needs to know these
answers about real money, nor have they ever wondered about it.

I can buy groceries just fine with my Euros, without wondering how exactly it
has been created. Just as I wouldn't tailor my own paragliding chute, because
otherwise companies could rip me off. I just trust in sensible regulations,
paraglider-making experts and, finally, the social fabric of society.

~~~
joe_the_user
> "I can buy groceries just fine with my Euros, without wondering how exactly
> it has been created."

If literally all you know about money is that it is a token that lets you buy
stuff at the grocery store, here is trwhat you don't know - _how long is that
situation going to hold up._

> "Just as I wouldn't tailor my own paragliding chute, because otherwise
> companies could rip me off."

I wouldn't try to sew a normal parachute let alone a paragliding chute. But
one thing I know about safety-critical pieces of nylon or related things is
that wear and tear is visible. A moderate rip, hole, tear in material, an
engine that coughs, a tire that's deformed, all this stuff is a clue that
there are problems ahead.

What signs tell you when there's problem in the relationship between your
tokens and the grocery store? That's where a bit more understanding of money
is useful. And, as the OP say, that understanding is difficult, actually
(edit: tbh, that's literally the only worthwhile point in an otherwise
terrible article).

~~~
ivalm
> how long is that situation going to hold up.

But you don't actually need to know the internals in order to know how long it
will hold up.

You can black box update your probability of fiat currency holding up every
month that fiat currency doesn't crash (let's define it as "lose 50% of its
value"). In fact, by this metric it's pretty clear that fiat currency
probability of holding up is much better then that of most (and all major)
cryptos.

If anything, a lot of what ML/data science/quantitative finance has shown us
is that hand constructed explanations made by experts typically have bad
predictive power and statistical estimates typically have ok predictive power.
For things related to money I would trust data over any expert mechanistic
explanation.

~~~
joe_the_user
Well,

No one can know with certainty whether a given object or situation is going to
hold up. Life isn't guaranteed.

Sure, you can tell yourself "X has worked so-far, that makes it continuing to
work quite likely". But X is "driving your car without adding gas or oil",
that it worked for a while hardly makes it more likely.

And, of course, you can't claim predictive power for a sequence of individual
experiences. And if you apply regression to a Ponzi scheme, it will seem like
a great idea.

~~~
ivalm
Your argument would only work if cryptos performed at least as well as fiat.
The fact is all major cryptos have been far more volatile than fiat. In your
car example, it might be that fiat is driving a car without adding gas or oil;
but by that comparison crypto is driving a car that is actively on fire.

~~~
joe_the_user
Why do you think my argument has anything to do with Crypto currency?

I make no mention of it and I am simply replying to "black box is a fine way
to understand things" arguments. My point, my only point, a point removed from
crypto entirely, is that one need specifics and not mere trends, to understand
anything.

------
netsharc
What a terrible crypto-shilling (is that a new currency?) article. Can I have
my time back? Since time is money, I'll take 30 euros please.

One thing that crypto-idiots don't understand is that whatever currency it is,
it's not worth anything if no one wants to exchange it with food (or clothes
or shelter). If in the upcoming Mad Max future that farmer only takes tea
leaves, everyone will be running around trying to find tea leaves.

------
recursivecaveat
> Don't you care to know where your food, your electronics or your clothes are
> coming from, who made them and how?

This is a pretty strange choice of examples, considering how little most
people know about the manufacturing of any of those things. Besides, if
bitcoin were to ever reach the masses, we'd start banking in it (because banks
and useful and necessary), so M0-M3 doesn't go away. As soon as someone is
holding fractional reserves, "how many bitcoins exist" is as relevant as "how
many paper dollar bills exist".

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unnouinceput
My take from the article is that Bitcoin, as cryptocurrency, is a mechanism
that can be used to replace fiat money. It will never be because of exactly
the reason the article says: there will be a maximum of 21 millions Bitcoin
and that's all. And since the current mechanism behind fiat money is inflation
(usually you want to have a slow inflation, not a fast Venezuelan one) is what
drives people to spend them and create economy - this will never be applied to
Bitcoin ever. Hence you get deflation in case of Bitcoin, which drives people
to amass them instead of spending and you get in the end the current purpose
of Bitcoin -> art like investment.

The only way to make them a currency is, keeping them limited to 21M, is to
create some sort of "bleeding" mechanism where you force the owners to spend
them (spend or lose) - which will never be implemented.

------
nabla9
While this article don't cover everything, it acknowledges the complexity and
that money is many things. Starting from coins and going towards things called
'money like'. And the author seems to know that not all bank lending is part
of fractional reserve system.

Related to bitcoin one of the most critical and important aspects of fiat
money from central banks is the liquidity. Liquidity means that money is
available in price that does not fluctuate too much from day to day or month
to month. Central banks are lenders of the last resort. Money should be boring
and predictable, not exiting like Bitcoin. One of the definitions of money is
'most liquid asset'. If cryptocurrency can't do that, it can't replace money
in daily business.

------
dpc_pw
Money is simple. Credit is complicated. And if Bitcoin is going to succeed
lending Bitcoin will be normal and lead to similar behavior as in the gold
standard.

~~~
beefield
This. I have never heard a remotely sensible discussion from crypto folks
around following points:

1\. If fractional reserve banking is bad, what or who is going to stop the
appearance of that in bitcoin world? You need to understand that literally
only thing you need for that is a bunch of people trusting so much one
organization that they are willing to use the IOU from that as payment method.
(Cough, tether, cough)

2\. If fractional reserve banking is good or even okay, first thing you need
to accept is that the bitcoin guarantee of fixed monetary supply does not
exist. Second, completely unanswered issue is that why the heck bitcoin would
be any better from fiat as the base of a fractional reserve banking system.

~~~
dpc_pw
1\. There's nothing to stop fractional reserve banking. Bitcoin is just a more
convenient bearer instrument (more portable, divisible, verifiable than gold),
so if you don't trust a bank, it would be easier to opt out.

2\. Personally I think fractional reserve banking is at very least
problematic, because it leads to competitive advantage, but also eventual
systemic collapse. (More about it:
[https://twitter.com/dpc_pw/status/1195932699141103618](https://twitter.com/dpc_pw/status/1195932699141103618))

------
proc0
As a filthy casual observation, it doesn't seem like the risk of crypto is
going away. If money is the abstraction of value, then it seems more intuitive
that you will entrust your assets to a group of humans in a direct way (laws,
army, etc) rather than an indirect way, by having all your value in crypto
that is supported by an infrastructure still controlled by the government
and/or companies.

Until there exists a truly decentralized and robust worldwide network,
anything built on the current Internet is indirectly owned by a centralized
entity of some kind (if not directly).

------
chamawa
Anyone have book or article recommendations on how money works?

~~~
DavidPiper
I haven't read it but I've been recommended Debt: The First 5,000 Years by
David Graeber numerous times.

~~~
miguelmota
It’s a highly verbose book but worth a read. Graeber makes some solid points
such as money didn’t evolve from bartering but instead evolved from debt

------
einpoklum
Two issues with this article:

1\. Obscurantism: Yes, money is complicated and most people don't know much
about how it's created and what it even means, exactly. However, the leap from
there to the claim that you _can't_ know, or that _nobody_ knows simply has no
basis.

2\. The BitCoin angle: While it is a good thing that you can easily (sort of)
understand how BitCoin is created and how much there is, the article ignores
the _implications_ of these facts about BitCoin. There can never be a
democratic decision to inflate or deflate BitCoin; and - most BitCoin is
already in existence and owned (the majority probably by a pretty small group
of people), making it a sort of a pyramid scheme, as late-comers to the
BitCoin game will be fighting over the scraps.

------
dagenix
> crypto-currencies are simple and transparent.

beg pardon?

~~~
JauntyHatAngle
I'm not saying you're wrong, but can you please state why this is a statement
you find wrong?

There are so many levels to crypto, and my head is a bit too much in the
crypto world that I can see a ton of reasons why this statement is correct. I
can also see why it can be considered incorrect. What are the parts you take
issue with?

------
r32a_
Bitcoin is a multi faceted beast like nothing else. It is a cross between
computer science/cryptography, governance/game theory and economics.

In my opinion the economics of bitcoin is the core, which is kept in balance
and managed with game theory and decentralised governance and it is created
with computer science and cryptography.

In order to truly understand what Bitcoin is then you need to fully grasp all
these 3 facets. Most people don't, they read the headlines or look at bitcoin
from one of the facets and write it off.

~~~
not2b
It is a clever hack, but it can never work as money. The money supply needs to
roughly match the size of the economy. If there is too much of it, you have
inflation. If there is too little of it, you have deflation, which in many
ways is worse. With Bitcoin you have too little of it, because the total
amount is limited, and that limit is smaller than economic growth is. That's
why Bitcoin's price as compared to major currencies has soared. But people who
used Bitcoin years ago to buy pizza feel really stupid because if they had
held on to it, they would be much wealthier today. When it works that way, it
isn't money. It's a mathematically interesting investment vehicle, perhaps.

------
not2b
This article couldn't be more wrong-headed. The author seems to think that a
fixed amount of money, or a money limited by the amount of some arbitrary
commodity (like gold) is a good thing. But the gold standard was a disaster,
and caused the American economy to explode every 15 to 20 years, complete with
bank collapses and widespread hunger, or rampant inflation when a new gold
rush occurred. A Bitcoin-based economy would have massive deflation, which
would mean that nothing you could spend Bitcoin on, and keep, would be worth
as much as just holding your Bitcoin, so people would be reluctant to invest
in anything.

Central banks manage the money supply to be reasonably stable. Yes, bank loans
create money, and the central banks regulate this process so neither inflation
nor unemployment can get out of hand. This process offends libertarians who
seem to think that a completely free system could work better, but it can't:
you need a mechanism to keep the money supply roughly proportional to the size
of an economy, and blockchain can't do that.

~~~
joe_the_user
Yeah, the only thing the gets right is that few people have much awareness of
theories of money.

But the thing with theories of money is that there isn't that much agreement
among economists, bankers or government official on them. How much does it
matter that the US government doesn't technically own/control the Federal
Reserve? Opinions are divided. How bad is budget deficit? How bad is printing
money? How exactly does one interpret fractional reserve banking? Opinions are
again divided (that doesn't prevent periodic "everyone is ignorant on how
money blah, blah..." article).

------
chews
These ideas aren't permitted because...

"Sapien Logo Sapien is not yet available in your location."

