
Bitcoin: A flawed currency with a useful application for the Eurozone (2014) - gws
http://yanisvaroufakis.eu/2014/02/15/bitcoin-a-flawed-currency-blueprint-with-a-potentially-useful-application-for-the-eurozone/
======
thomasfoster96
For those who don't know, the author is now Greece's Finance Minister.

~~~
celticninja
And was previously employed to monitor the economy of EVE.

~~~
kbody
Yannis Varoufakis consulted Valve regarding micro-transactions, but had
nothing to do with EVE online.

EVE Online's economist was Dr. Eyjólfur Guðmundsson
[https://twitter.com/ccp_dreyjog](https://twitter.com/ccp_dreyjog) and really
did wonders with the economy, you should watch some of his presentations on
the state of EVE online's economy. He was doing several pieces for their EVE
FanFest.

~~~
celticninja
I sot corrected, thank you. I will watch some of the presentations.

~~~
jessaustin
Since two hours have not yet passed, you could delete the original, mistaken,
comment.

~~~
celticninja
It would ruin the discussion though. And mistakes are fine if you learn from
them a d I learned something here today.

I'm not afraid of making or admitting to my mistakes. I'm afraid of not
learning from them.

~~~
jessaustin
Kudos; that's an admirable attitude. In cases like this specific one, in which
the original comment contained exactly one false proposition, and the
immediate contradicting reply is easy to understand on its own, I have decided
(and have seen others also decide) to just delete it so that no one is
confused. (Like possibly 'Havoc in the sibling comment.) If there were
something wrong with deletion then HN wouldn't have it. YMMV!

------
1053r
While I can't say with certainty whether mild and predictable deflation is bad
for the economy, I don't think that these standard arguments that are used are
sufficiently persuasive.

1) It is clear that a deflationary spiral, defined as possessing the
characteristics of being unexpected, not written into contracts or loans, and
relatively severe (double digits) while accelerating is bad. The great
depression makes this clear. We can also see it in the current Greek
situation. However, runaway inflation is equally bad, as we can see from post
WW1 Germany, and modern day Venezuela and Argentina. Is it the fact that the
change in the buying power of money is large and unexpected, or is it the sign
of the inflation percentage that is bad?

2) Under the current debt based money system, the negative effects of
inflation fall primarily on the poor. The wealthy purchase government bonds,
which protect them inflation. They also have bank accounts, or finance debt
either directly or indirectly. This means that instead of inflation falling on
the populace evenly, it falls doubly on the poor.

3) Under a constant money supply system that eschews debt, the rich must seek
out investment that actually increases productivity, rather than doing
parasitic zero-sum investments (such as bond purchases and loan giving) that
merely transfer value from one person to another. This would tend to grow the
economy faster.

4) Under a constant money supply (like Bitcoin in a few years), wages and
prices would tend fall by however much the economy was growing (2% - 3% a
year), but the raises that people give out for seniority would tend to
overwhelm the wage issues.

~~~
oleganza
Great depression was caused not by deflation, but by previously unleashed
inflation (as in "inflated money supply"). Collapse of the bubble is a logical
consequence of any bubble. Alternative - ever-increasing inflation was
experimented in Weimar Germany, Zimbabwe and few other places. Hard money
(Bitcoin or physical scarce collectibles) prevents people from inflating money
supply, thus preventing global bubbles and thus preventing subsequent
depressions.

Of course, local stock-specific bubbles can still exist, but they are always
subject for arbitrage and voluntary exits. Global money bubble is more
destructive because use of a certain money is enforced by laws and therefore
people cannot easily exit or switch to alternative.

~~~
JamesBarney
If deflation didn't cause unemployment and the great depression, why did the
collapse of the bubble lead to unemployment and the great depression?

Hard money prevents the Fed from changing the inflation rate but it doesn't
prevent random and severe changes in inflation and deflation.

From 2010 to 2013 bitcoin had a deflation rate of 96%. Which is insane any
normal economy would turn Mad Max if it had that type of deflation. If I had
received a loan for my house for 100k in 2010 I would have had to repay $1.5
BILLION in 2013.

Then from 2013 to 2014 it had an inflation rate 353%. If inflation leads to
bubbles and we all used bitcoin this inflation would led to the mother of all
bubbles.

------
mike_hock
This proposal has nothing to do with Bitcoin, though. This FT-coin is a
currency (parallel to the Euro) issued by a central authority, just as any
other fiat currency.

This is completely different from Bitcoin, whose value arises from the cost of
mining (hardware purchase, power, maintenance, and time spent), and people's
willingness to exchange that for other currencies and/or goods.

~~~
caf
_whose value arises from the cost of mining (hardware purchase, power,
maintenance, and time spent)_

This is not true, and represents a fundamental misunderstanding.

The value of bitcoin arises _solely_ from the demand for it. The cost of
mining is driven by the value of bitcoin, not the other way around - if demand
for bitcoin were to collapse, the price would drop, and all rational miners
whose current operating costs exceed the new price would stop mining. This
would result in the next blocks being mined very slowly, and would eventually
result in the mining difficulty dropping, bringing the cost of mining back
into line with the market price.

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dataker
Along with, [http://yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-
dangero...](http://yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-dangerous-
fantasy-of-apolitical-money/)

I'd ask him one question: how is the idea of regulated, political and
centralized money working out for you?

~~~
chimeracoder
> I'd ask him one question: how is the idea of regulated, political and
> centralized money working out for you?

That's kind of a straw man, because the Euro is all of the burdens of a
centralized fiat currency while lacking almost all of the benefits (or at
least the ones most relevant to Greece's current situation).

Having a unified monetary policy among countries with incredibly fragmented
and disparate fiscal policies is a recipe for disaster. Even in the US, fiscal
policies are relatively unified at the federal level and states are prohibited
from backing their own debt the way nation-states (like the US federal
government and Eurozone countries) can.

And on that note, look at the USD. It's the strongest fiat currency in the
world and the preferred medium of exchange worldwide, even despite all of the
outstanding issues with the US economy and the state of the US national debt.
Clearly a centralized, fiat currency can be powerful if you don't set it up
for failure from day one (as the Euro was).

~~~
cbd1984
> even despite all of the outstanding issues with the US economy

There's a difference between a temporary setback and problems with the
fundamentals. This is the case in the private sector and it is the case with
sovereign entities, and the people who keep buying US Bonds obviously
understand this.

> and the state of the US national debt.

Debt is only a problem if you can't service it. This is doubly true with
sovereign debt, where servicing debt provides people a safe place to invest
their money.

None of what I said is controversial among people who understand economies.
The fact people whine and moan about the USA's debt is a function of how easy
it is to score cheap political points by taking advantage of the ignorant.

~~~
chimeracoder
> Debt is only a problem if you can't service it. This is doubly true with
> sovereign debt, where servicing debt provides people a safe place to invest
> their money.

> None of what I said is controversial among people who understand economies.

I have a degree in economics, so yes, I understand how sovereign debt works.
The point is that even if the market never loses faith in the US's ability to
pay back its existing debt, if it stops being the most trustworthy source of
newly-issued debt, the US loses a great deal of power.

~~~
calibraxis
Interesting notion, the global bully with the big weapons owing you (a nation)
a "debt". Which is made by you giving them your money in exchange for IOUs.
And you keep rolling it over. Sounds more like tribute.

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jackgavigan
This is actually nothing to do with Bitcoin - it's about using blockchain
technology to issue what is effectively government debt in crypto-currency
form - i.e. what Overstock have done.

~~~
fragsworth
But if it's government-issued, why not use a centralized server manage the
ledger? Since the government is going to be capable of producing as much
currency as it wants, at will, there's no reason to have a blockchain.

~~~
jackgavigan
A blockchain could be a lot quicker and cheaper to set up and get running than
a centralised system.

~~~
dpc_pw
It's way easier to have a centralized system than decentralized one. Bitcoin
in it' current form can handle around 7 transactions per seconds, and scaling
it upwards is costly. 7 transcations per seconds is laughably small number.
Your smartphone using LTE connection could serve 7 transcations per seconds as
trusted centralized server.

~~~
thescriptkiddie
I'm not sure where you're getting the 7 TPS number. Satoshidice alone is
responsible for more than that. It's trivial for anyone to send hundreds of
transactions per second if you're willing to pay the miner fees.

~~~
dpc_pw
"Today the Bitcoin network is restricted to a sustained rate of 7 tps due to
the bitcoin protocol restricting block sizes to 1MB. "

[https://en.bitcoin.it/wiki/Scalability](https://en.bitcoin.it/wiki/Scalability)

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madez
He agrees that there are a lot of goods and services that are getting cheaper.
But then he says that they only are getting cheaper because the buyer spends
more time informing himself and not just because time passes by. This is
wrong. There are widespread deflationary effects in current economies.

~~~
mcguire
There are widespread deflationary effects in _some segments_ of current
economies.

------
plasmid0h
This post is from February 2014 !

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666_howitzer
Bitcoin is disinflationary, not deflationary currency.

~~~
salibhai
What's the difference exactly?

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thescriptkiddie
Bitcoin are not destroyed except by accident, it's just that the creation of
new bitcoins will eventually taper off to zero. Deflation will only occur if
demand continues to rise, which is likely but not guaranteed.

------
pinaceae
as if greece was a-ok when it had the drachma. exposes the underlying problem
that the greek economy in itself is pretty useless, hence all the drama right
now is focused on financial shenanigans.

the EU expansion to the east broke greece's neck. a well educated, motivated
workforce entered the EU, but smartly like Poland did not join the Euro.
Amazing growth in Poland throughout the crisis of the last 7-8 years,
catastrophe in Greece.

See comments from Lithuania's prime minister and others who are getting fed up
with Greece.

Interestingely enough this fits Samuel P. Huntington's predictions of the
Clash of Cultures. He had Greece as part of the orthodox area, separated from
catholic/protestant Europe which spanned from UK to Poland. He got a lot of
shit for his theories at the time, was quite prescient in hindsight.

------
yc1010
Yet another "deflation is bad hence bitcoin is bad" post, except due to the
rate of mining Bitcoin has been highly inflationary if anything.

See this graph
[http://i.imgur.com/vRsIMvt.png](http://i.imgur.com/vRsIMvt.png)

edit: Oh I see now who the author is :D well euros or bitcoins the way Greece
is going inlation or deflation will be the least of their worries....

~~~
nabla9
Inflation without specifier means rise in the price level. If you mean
monetary inflation, call it monetary inflation.

Bitcoin is deflationary (as negative inflation) in the first sense and this is
the deflation yanisv is talking about.

~~~
sp332
Bitcoin has not in fact been deflationary, according to the graph. Maybe it
will be in the future.

~~~
imaginenore
You're confusing monetary deflation with price (value) deflation.

Yes, BTC is monetarily inflating, but

1) It's all baked in. We know exactly how much BTC is generated and will be
generated and when it will stop.

2) The demand for BTC is growing, so we don't see the price collapsing
exponentially.

~~~
zanny
The problem with bitcoin is inevitably the monetary base starts contracting
irreversibly whenever coin generation is eclipsed by lost wallets.

It is actually a great place to store value, buy BTC, and over time there is
just less BTC so BTC becomes more valuable.

Its not good for a daily currency to run an economy on. Something like
dogecoin would do that better, albeit even doge is kinda doing it wrong
because they just linearly increase the monetary base by 5 billion a year
forever.

~~~
imaginenore
How is that a problem? Somebody loses his wallet, my money is worth a bit
more. That's awesome.

------
HugoDaniel
And now for something completely different: dracmacoin !! :O

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Havoc
I'd be a little worried if my countries finance minister starts posting about
bitcoin...

Nothing against BT...but sheesh.

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pjc50
Should be marked (2014), Yanis Varoufakis is a little busy at the moment to be
blogging about bitcoin.

~~~
chinathrow
Busy? Yes

Blogging? Yes

[http://yanisvaroufakis.eu/2015/07/03/imf-backs-ever-so-
pecul...](http://yanisvaroufakis.eu/2015/07/03/imf-backs-ever-so-peculiarly-
the-syriza-governments-debt-assessment/)

~~~
codeulike
Damn good post too.

~~~
TillE
Throughout this whole mess, Varoufakis is one of the very few who bothers to
talk about the specifics of what's being negotiated and what the consequences
are.

From everyone else, it's mostly been a lot of childish accusations, vague
threats, moralizing, and pointless rhetoric. To the extent that the vast
majority of the German public, for example, don't have the slightest clue what
the Greek government is even asking for.

~~~
atmosx
S. Keen believes he dwarfs everybody in the EU/ECB/IMF:
[http://www.debtdeflation.com/blogs/2015/02/05/talking-
about-...](http://www.debtdeflation.com/blogs/2015/02/05/talking-about-yanis-
on-the-bbc/)

After listening to statements and interviews by Lagarde, Dijsselbloom,
Juncker, Draghi and Scheuble speaking, I don't think that's a compliment. It's
easy very easy to dwarf them.

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stevedekorte
Saying deflation is the cause of a bad economy is like saying a wet head
causes rain.

Chain of causation is: money printing used to buy debt -> underpricing of debt
risk -> unsustainable debt funded malinvestment -> debt collapse -> deflation
as effective money supply shrinks

The irony is that they use fear of deflation to justify the very act that
causes the malinvestment and debt collapse.

------
rurban
Bitcoin has its biggest potential these days. E.g.
[http://www.reuters.com/article/2015/07/03/us-eurozone-
greece...](http://www.reuters.com/article/2015/07/03/us-eurozone-greece-
bitcoin-idUSKCN0PD1B420150703) However, Coinbase is not accessible for greeks.
So, I would count it as huge lost opportunity.

~~~
celticninja
To be fair it would not help Greeks now as they cannot access Euros with which
to buy BTC. It would have helped them if they could have had access 3 weeks
ago, before capital controls were enacted.

However I would be surprised if Spanish, Irish and Portuguese citizens are not
looking at the Greek situation and wondering if they need to take some action.
Coinbase, circle etc need to target these markets before they experience
capital controls.

~~~
k-mcgrady
Not sure about Spain and Portugal but I was under the impression Ireland was
in the middle of a good recovery.

~~~
toyg
They still have a noticeable 109% debt-to-GDP ratio, which means quite a bit
of debt to service. At crisis peak, their public spending was 66% of GDP (now
40%). At the first hint of recession, they will be in trouble.

You would be forgiven for thinking there are more troubled countries that
could be targeted by speculation. Italy has a 130% debt-to-GDP ratio, is still
basically in recession, and has 50% public spending to GDP. Spain is
approaching 100% debt, 44% public spending, and it looks like it's getting
worse. Then there is Portugal, Cyprus and so on. However, if Greece goes in
full default, the Euro will likely get battered and all these positions will
potentially unravel, including the Irish one.

~~~
nova
> Spain is approaching 100% debt, 44% public spending, and it looks like it's
> getting worse.

It is. Spain is scheduled to elect the local Syriza equivalent in November.

~~~
hibikir
Morally bankrupt traditional parties and over 20% unemployment would do that
to anybody.

Spain lacks a cultural framework that would make the population want market
based reforms, as there is so little trust in institutions, employers and
employees. Its labor market is not bad because it's impossible to find
productive Spaniards, but because productivity, both at the employee and the
firm level, is punished.

Podemos is coming, and it's not going to be good for the country. But the
alternatives are pretty bleak. Fortunately for Spaniards, a Greece-like
catastrophe in Spain would be the death knell of the Eurozone, so the troika
will probably bend to Podemos demands, as far as spending goes, as long as
some market reforms are done along with said spending. Spain's one way out of
this mess is growth.

~~~
kawakiole
>Spain lacks a cultural framework that would make the population want market
based reforms

I'm no expert on Spanish matters, but didn't they elect their current
government, which advocated market based reforms, right in the middle of the
crisis??

