

Gavin Andresen on BitCoin and Virtual Currency - pointillistic
http://www.econtalk.org/archives/2011/04/andresen_on_bit.html

======
sgornick
Best comment from the show's host: "I hope some of my colleagues will find
this of interest."

A decentralized, global currency is truly a foreign concept to economists.

In the early 1990s there were many who immediately realized the potential of
this thing called the world wide web. But there were only a few who were
articulate in delivering the message: "I hope you will pay attention, THIS IS
KIND OF A BIG DEAL".

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chwahoo
Technically, I think BitCoin is extremely cool. However, I can't help but be
skeptical of many of its apparent consequences:

During the financial crisis, many on the left expressed concern about a
deflationary spiral. I don't claim any economic expertise, but the concern
seemed valid. Bitcoin, by slowly reducing the speed at which currency is
produced, effectively ensures long term deflation. Couldn't this have all
kinds of bad consequences for the economy?

I favor ideas like "campaign finance reform". I also am not a fan of various
forms of fraud, bribery, and organized crime. Of course these things all exist
now, but bitcoin would seem to make them scale much more smoothly. I don't
want government to micromanage the economy, but I also want it to be able to
create and enforce laws that help correct problems caused by extreme economic
freedom.

I also think taxes are needed. I think a bitcoin-driven economy is one that is
hard to tax because it's hard to prove that person X has, or has received,
some amount of money. Even sales tax seems difficult to collect. Is there some
form of tax that would still work?

Also, will lenders be wary of bitcoin since they have little recourse to
collect money from someone? Will something like credit cards still work? Will
investors be scared to invest in startups since it becomes harder to trace
where money is going?

I'm not trying to debate the free market with the libertarians out there. I'm
curious if someone can explain why my concerns are invalid, due to my
misunderstanding of the economic consequences of bitcoin.

~~~
Tichy
Think of the BitCoins as something like gold - gold is also a finite resource
and gets incrementally more difficult to mine, yet no deflationary spiral has
set in (afaik). You can also trade gold and cash in dark channels and evade
taxes, but you don't have to.

~~~
chwahoo
> yet no deflationary spiral has set in (afaik)

Gold isn't currently the currency (in most places), so I'm not sure what you
mean here. If you listen to the podcast, the right-leaning (but generally
fair) host makes a convincing explanation why there would be deflation under
bitcoin. Also, gold and deflation are part of a popular story for explaining
the great depression. I say all of this not to debate any of these points, but
to point out that there is a case to be made that bitcoin would deflate over
time and that it might have negative consequences.

I think bitcoin is somewhat different than gold because it is more
decentralized (in practice) than having a national currency backed by gold.
For example, it may scale more cleanly than gold and cash for corrupt uses,
since bank accounts and the sources of money can be more readily hidden. I'm
skeptical that this is a good thing.

~~~
mike_esspe
During all 19th century gold and silver were the main currency. Economy was on
the rise (industrial revolution) but there wasn't any problem with deflation
nature of gold.

~~~
chwahoo
The link below suggests that you're right---the price of gold was remarkably
steady for at least the second half of the 1800s.

<http://www.nma.org/pdf/gold/his_gold_prices.pdf>

Why would the price have been so steady? Was the supply of gold increasing at
just the right rate to keep it steady (unlikely) or was the economy so much
less efficient at the time that prices didn't tend to fluctuate as they should
(my guess). Perhaps the government played a role by owning a massive amount of
gold? I don't think any of these explanations would apply to bitcoin (or gold,
now).

Is there a better explanation? (and does it also apply to bitcoin?)

~~~
gwern
From Gregory Clark's _Farewell to Alms_:

> However, in preindustrial England, and indeed in many preindustrial
> economies, inflation rates were low by modern standards. Figure 8.7 shows
> the English inflation rate from 1200 to 2000 over successive forty-year
> intervals. Before 1914 inflation rates rarely exceeded 2 percent per year,
> even in the period known as the Price Revolution, when the influx of silver
> from the New World helped drive up prices. In a country such as England,
> which had a highly regarded currency in the preindustrial era, the crown did
> not avail itself of the inflation tax, despite the close restrictions
> Parliament placed on its other tax revenues. Only in the twentieth century
> did significant inflation appear in England. By the late twentieth century
> annual inflation averaged 4–8 percent per year. Thus there has been a
> decline, not an improvement, in the quality of monetary management in
> England since the Industrial Revolution. > > ...Thus in Roman Egypt wheat
> prices roughly doubled between the beginning of the first century AD and the
> middle of the third.[12] But that reflects an inflation rate of less than
> 0.3 percent per year.

I submit that it is unlikely that any of your explanations would operate over
most of England's post-Invasion history and also in Roman Egypt a millennium
before.

~~~
mike_esspe
I couldn't find the data right now, but if i'm not mistaken, long term there
was deflation, not inflation (though there were fluctuation due to wars and
influx of precious metals from New World).

E.g. compare 1800 with 1900 with the help of CPI:
<http://www.measuringworth.com/calculators/ppowerus/>

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erehweb
3 Bitcoins and $4 will get you a Starbucks latte - comments on Bitcoin at
[http://erehweb.wordpress.com/2011/02/26/bitcoin-madison-
hour...](http://erehweb.wordpress.com/2011/02/26/bitcoin-madison-hours-and-
musical-banks-alternative-currencies-virtual-physical-and-fictional/)

~~~
DennisP
If you sell your three bitcoins on an exchange, at the current price of 63
cents each they'll cover a grande coffee.

<https://mtgox.com/>

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eco
This is great. I emailed Roberts (and NPR's Planet Money while I was at it)
back in the beginning of March saying an episode on Bitcoin could be
fascinating. I didn't receive a reply so I figured it wouldn't happen.

Listening now.

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pointillistic
This is far from a benign endeavor. Look what feds are up to:

Fake gold and silver Ron Paul coins seized:
[http://www.msnbc.msn.com/id/21836699/ns/politics-
decision_08...](http://www.msnbc.msn.com/id/21836699/ns/politics-decision_08/)

------
sneak
Unrelated: If anyone wants to purchase Bitcoins, feel free to contact me.
(sneak@datavibe.net - PGP 5539 AD00 DE4C 42F3 AFE1 1575 0524 43F4 DF2A 55C2)

~~~
wladimir
Might be a stupid question, but what's that hexadecimal code?

~~~
dexen
EDIT

As pointed out in this thread, that's not a bitcoin address. That's just a GPG
key fingerprint. Nothing to do with bitcoin itself. Terribly sorry for the
foobar.

The original post:

 _> It's a bitcoin address, used for both sending and receiving. If you want
to trade with a person, you enter that address as receiver's address in a
transaction.

Nb., each bitcoin user can freely generate several addresses to protect
privacy; up to and including using one-off addresses (i.e., address for just
one transaction). _

~~~
wladimir
Hm, OK, last time I looked, bitcoin addresses were given in base64.

~~~
sneak
They're base58.

