
Bitcoin ‘Ought to Be Outlawed,’ Nobel Prize Winner Stiglitz Says - jacquesm
https://www.bloomberg.com/news/articles/2017-11-29/bitcoin-ought-to-be-outlawed-nobel-prize-winner-stiglitz-says-jal10hxd
======
mediaman
Bitcoin seems like it's custom designed to create bubbles, rather than be a
useful currency. It is limited to 21 million units, which means that it cannot
support a growing Bitcoin-based economy without rapidly appreciating in value
versus other currencies, and depreciating the price of assets.

One of the core purposes of currency is to provide a relatively stable store
of value as a medium of exchange. Rapid inflation or deflation is very
undesirable. Currency is not supposed to be a get-rich-quick scheme. It's the
oil of commerce. But, bizarrely, it's fundamentally architected into Bitcoin
that it will fail at that, preferring instead to promote a rush to scarcity
that grabs headlines but provides little utility as currency.

Having said that, a cryptocurrency that does its job -- that is, has the
features of an actual currency, such as being a stable store of value, by
expanding the money supply in proportion to the amount of economic activity it
supports -- seems like a very valuable concept. Do any of them do that? I
looked at Ethereum, and its design doesn't seem better in this respect.

~~~
psyc
I count six times you used the word "currency". Yes, some people thought it
would be that, but it isn't. It's Bitcoin. "Digital gold" isn't a perfect
description, but it's close. Thus, you're flogging a straw horse.

It is not limited to 21M "units", and it never was. It's arbitrarily divisible
into whatever units you like. Again, since it is not a national currency, it
doesn't matter. It isn't "deflation" when the price of gold goes up.

I guess some people can't let go of the idea that Bitcoin is "supposed" to be
like a dollar-denominated debit card.

~~~
aitrean
Actually it is limited to units. You can still divide a Bitcoin into satoshis,
and these satoshis are limited in their printing. He used 21 million units of
Bitcoin, but since you want to get technical, it's actually
21,000,000,000,000,000 satoshi. I don't know what possible source gave you the
idea that divisibility == unlimited, but sadly, it's wrong.

Also, please take your "digital gold" meme and use it on r/Bitcoin. Not only
does Bitcoin's price contain the speculative valuation of a million people who
call it a currency (regardless of your particular vision) but that vision also
has a million flaws. It's rather funny, when someone points out its flaws as
"digital gold" then the Bitcoin troglodites come out and call it a currency.
When you point out its flaws as a currency, they correct you that it is, in
fact, digital gold. When in fact, it's just a technology medium for
transmitting value without the economic mechanisms to be a currency, nor the
historical/economic/political/social mechanisms to be a 'digital gold'.

~~~
ilyagr
What are there flaws in the Bitcoin as digital gold analogy? I don't follow
r/Bitcoin and would appreciate a summary.

From my limited level of understanding, it seems that the only differences are
that you know that Bitcoin has no inherent value at all (gold has some since
it can be used to make jewelery and gold-plated audio connectors, among other
things) and you know exactly how much Bitcoin can ever be mined.

~~~
qplex
It's marketing.

Instead of explaining what Bitcoin actually is you compare it to something
very simple that everybody knows and derive "digital gold" ...

~~~
timthelion
Gold is also marketing. No one is going yaya over other, similarly rare
elements [1]. Tantalum is significantly less common then gold, for example,
and doesn't tarnish! And yet gold is 320x more expensive than tantalum [2]
[3]!

[1]
[https://en.wikipedia.org/wiki/Abundance_of_the_chemical_elem...](https://en.wikipedia.org/wiki/Abundance_of_the_chemical_elements#/media/File:Elements_abundance-
bars.svg)

[2] [https://www.metalary.com/tantalum-
price/](https://www.metalary.com/tantalum-price/) [3]
[https://www.bullionbypost.co.uk/gold-
price/today/kilograms/u...](https://www.bullionbypost.co.uk/gold-
price/today/kilograms/usd/)

------
wjn0
I don't really see how "it doesn't serve any socially useful function" yields
the statement "it should be outlawed." The former applies to many, many things
that are still legal. Disappointing to hear such weak reasoning from someone
who is lauded as one of the greatest minds of our time. I can't watch the
video, so perhaps that particular statement lacks some context.

~~~
1337biz
But isn't that level of ideological punditry what Stiglitz's is today all
about?

~~~
kelvin0
Is he like the Ann Coulter of Economics/Finance? Genuine question.

~~~
1337biz
I don't even hold it against him. He probably just realized that he can have a
much more entertaining life (more speeches, more books sold, etc) by being
more provocative and telling the New Yorker readers how wholesome their views
are. I would myself certainly prefer that over a life spend between teaching
Undergrads another decade the same models and fumble with statistics long
enough to write another paper that explains the world.

------
harry8
Stiglitz is in favour the government printing money as a solution to many
economic problems. What he must be concerned about is that if bitcoin is the
medium of exchange, that lever no longer exists. Monteary inflation controlled
by public servants or politicians is no longer a thing in management of an
economy.

I'm making no comment about whether he's right, or whether bitcoin is good,
bad or indifferent. This is what needs to be considered about Stiglitz's
position and it's worth discussing, with him as well as other economists.

~~~
mythrwy
A very good point. A decentralized "free" currency provides many advantages
but it does offer to threaten the levers of monetary policy. Some of which (in
theory anyway) keep things stable.

------
electic
Some of the smartest people I know work on Wall St. and when the topic comes
up of cryptocurrencies the conversation turns to outright borderline anger and
instant dismissal. They simply don't believe it can have any useful value as a
store of value or be used for exchanging goods or services.

I have seen this reaction twice before. First, I see it when we talk about
politics. People on the other side just can't believe it when facts are
presented that refute their belief.

The second, is when the internet came about. Talking to people in different
industries about how it could be used to revolutionize video, news, and just
about everything often resulted in a reaction of dismissal.

Wall St. is a deeply ingrained industry and Bitcoin, Ethereum, etc are already
sucking a big chunk of transactions from NYSE and everyone on Wall St looses.
So it is a natural reaction to dismiss it.

~~~
mediaman
Actually, big banks are interested in blockchain technology, because having a
distributed ledger of stock ownership would help cut out exchanges and
brokers, and facilitate international trade.

The broker divisions of big banks are probably afraid of it, or dismissive,
but trade execution and asset management divisions are investing in the
concept.

My (probably unpopular) bet: blockchain will revolutionize much of finance,
but Bitcoin specifically will crash and eventually be ignored.

~~~
Frogolocalypse
Separating bitcoin from blockchain is separating it from its incentive
structure, which is the very thing that makes it a disruptive invention. It's
almost like they're trying to unmake the invention.

~~~
leereeves
Nothing wrong with using the blockchain without paying billions to the people
who bought Bitcoin early.

~~~
Frogolocalypse
None of that belief has anything to do with bitcoin and nakamoto consensus.

~~~
leereeves
Indeed. Big banks using blockchain technology as a distributed ledger of stock
ownership might have nothing to do with bitcoin.

~~~
Frogolocalypse
Blockchain without the distributed consensus structure and independent
incentivized miners is just an inefficient redundant database.

------
kybernetikos
Charles Stross recently said it should be outlawed based on the environmental
impact of Proof Of Work. [http://www.antipope.org/charlie/blog-
static/2017/11/unforsee...](http://www.antipope.org/charlie/blog-
static/2017/11/unforseen-consequences-and-tha.html)

~~~
colordrops
We should ban video games and porn too then. The amount of electricity going
into powering all the consoles and computers around then world toward a
useless endeavour is immense.

~~~
labster
Please explain how video games and porn don't serve a useful purpose. I'm
thinking it's possible that porn contributes to a lower birth rate, which
would more than offset the amount of power consumed to produce and transmit
pornography.

[https://www.psychologytoday.com/blog/all-about-
sex/200904/do...](https://www.psychologytoday.com/blog/all-about-
sex/200904/does-pornography-cause-social-harm)

~~~
colordrops
I don't actually think they should be banned. I'm making a facetious analogy
to prove a point. Bitcoin is at least as useful as video games and porn.

~~~
labster
Ugh, sorry. In the Age of the Great Orange One, it's almost impossible to tell
joking from earnestness.

------
dvt
I've said this before on HN, but let me reiterate it here: Bitcoin is very
easily compared to BitTorrent. Everyone's falling all over themselves, much
like people did in the early 2000s. People thought that BitTorrent was going
to "change the world" \-- and sure, it helped catalyze the inevitable media
distribution revolution of the past decade (Netflix, Hulu, Amazon, iTunes,
Spotify), but where is _BitTorrent_ now? That's right: it's mostly used to
download stuff illegally.

Similarly, BTC and ETH provide no immediate value when compared to fiat
currencies. Their main functional (that is, non-philosophical) upside, like
TOR, for example, is to do illegal shit. Sure, there are various incidental
benefits (like privacy), but this is a misdirection: businesses have been able
to hide fiat currencies in off-shore accounts for decades.

~~~
joshvm
One of the big pros of BitTorrent is that it allows you to download huge files
over an extended period of time on a slow connection. Back in the day when
torrents were starting to take over things like Limwire/Kazaa, this was a big
deal. This was also in the days before video hosting (i.e. YouTube and,
frankly, PornHub) and cloud storage were a mainstream thing.

Also, due to peering, torrents tended to allow you to max your connection
compared to shady direct-download websites which required premium membership
(e.g. Rapidshare).

BitTorrent is still a viable solution for big files and slow connections. Some
scientific datasets are available via torrent for this reason.

Media distribution has certainly helped kill off torrents (I say kill off,
they're still widely used, damped perhaps?), but another part of it is faster
connection speeds, no bandwidth caps in many places and the availability of
cheap file hosting (e.g. via Mega).

~~~
thomastjeffery
> I say kill off, they're still widely used, damped perhaps?

I would say "delegitemized".

Media companies have worked hard to convince the general public that data can
be "owned", and that "piracy" is literal "theft", meaning that pirated content
creates some loss they can claim as damages, thereby filling the fifth part of
the legal definition for fraud.

The media oligopoly wants to provide encrypted data (DRM), which isn't static
(changing keys), and therefore won't scale on bittorrent.

> but another part of it is faster connection speeds, no bandwidth caps in
> many places and the availability of cheap file hosting (e.g. via Mega).

That is certainly a major part of it. That, and the association bittorrent has
with piracy are why most people don't think to use bittorrent to distribute
static content.

------
pithic
Economics as a discipline is fraught with normalcy bias. Macroeconomics
assumes a government. Taxes are assumed. Deficits are a given. Central banks,
fiat legal tender, and fractional reserve banking -- none of these existed 150
years ago, yet they are as foundational to modern economics as mass is to
physics.

~~~
Frogolocalypse
That's why bitcoin is such a disruptive invention. It solves what was
previously the unsolvable Byzantine Generals Problem. Before that invention, a
cryptographically secure decentralized store of value was not possible. Now it
is. That's why it is such a disruption.

------
Varcht
I found this [1] a more compelling argument, probably not from the future but
pretty much nailed the 2017 valuation 4 years ago.

[1]
[https://www.reddit.com/r/Bitcoin/comments/1lfobc/i_am_a_time...](https://www.reddit.com/r/Bitcoin/comments/1lfobc/i_am_a_timetraveler_from_the_future_here_to_beg/)

------
colordrops
The ignorance displayed by very smart people with regards to cryptocurrencies
is fascinating.

~~~
kasey_junk
Can you outline those ignorances in some sort of testable way? Or is this just
a long way of saying “I disagree”?

~~~
21
An obvious form of ignorance is saying "bitcoin has no value", (maybe with the
"intrinsic" word thrown in there), despite the manifest fact of a market
price, and of a huge run up. Value is like beauty, in the eye of the beholder,
and dismissing bitcoin, or CounterStrike skins, or World of Warcraft assets as
valueless is ignorant.

They can't see the simple "repetition becomes truth" driver of bitcoin price,
as in the longer the price is not zero, and the longer people talk between
themselfs about the bitcoin price, the more real the idea that bitcoin has
value becomes. This is how money is born, by a shared belief.

~~~
kasey_junk
He specifically says that Bitcoins value derives from perception.

He further says that it’s value is largely derived from its “potential for
circumvention”.

The idea that random dude on the internet can call a Nobel Laureate & one of
the most cited economists in history “ignorant” about these issues is
hilarious.

~~~
cwkoss
I think Stiglitz is coming from the position that ALL 'circumvention' is a
societal harm. He is working from a position which supports Federal govt
first, and individuals second.

Confiscating money from child pornographers is a pretty clear moral good.

Civil asset forfeiture, the confiscating the cash a poor single-mom is taking
to buy the car because "it could be drug money" is a pretty clear moral evil
to me.

Which one of those happens more often? I'd guess the later is 100-1000x more
frequent.

Bitcoin is not moral, it offers circumvention to all, for better or worse.

~~~
kasey_junk
Sure but his position isn’t “ignorant”. Quite the contrary he’s one of the
worlds experts on it.

Disagree all you want. But ignorance isn’t the issue.

~~~
cwkoss
Yeah, 'myopic' or 'out of touch' would probably have been more accurate
adjectives.

~~~
colordrops
What are "myopic" and "out of touch" but euphemisms for ignorance.

------
Exo_Tartarus
Governments should make it illegal because governments need to have control
over the money supply.

We need taxation. We need monetary policy. The Bitcoin obsessives think these
are bad things. No. They are very important and good things.

~~~
Frogolocalypse
> We need taxation. We need monetary policy.

Yes to one, no to two. Monetary inflation allows governments to tax you by
stealth. They then manipulate the inflation statistics (hedonic regression
anyone?) to make it seem that inflation is lower than it is, so that your
purchasing power is debased faster than the statistics. That's why house
prices have exploded for 40 years, and just about anything you buy costs more
by some orders of magnitude than what it should given CPI.

Bitcoin is the reckoning for that system. The government will be forced to
accept that people will not hold their token except to pay taxes. When it is
not possible to know the worth of someone, which is already painfully obvious
for the very wealthy, the only taxable system will be on the use of goods and
services in their respective governanace area.

~~~
dnautics
moreover monetary inflation absolutely kills poor people and enables rich
people to do things like leveraged investments, and drives the middle class
into investing in corporations to stay afloat for retirement (essentially a
subsidy for the wealthy).

~~~
Frogolocalypse
I think bitcoin will finally separate the good debt from the bad debt. It is
my personal belief ( as in i don't know of any formal theory ) that debt
should only be incurred for the use of building a productive asset. In a
deflationary currency, this encourages businesses to ensure that productivity
increases will have greater returns than savings. Instead, our financial
system has encouraged the acquisition of debt for fixed assets. The only thing
this has done is bid up the price of those fixed debts with debt, and handed
over the money for supporting that system to banks and their owners. In order
to stimulate growth in such a system, the only way that you can function is to
tax savings. That's what inflation is. What it forces people to do is to
invest in increasingly risky assets, because of the loss of their purchasing
power. Hence bubble after bubble after bubble. Crisis after crisis after
crisis.

Bitcoin will eventually stabilize to an ever appreciating value asset. But
what it will allow you to do is save for a house. If you have a business
proposal that encourages people to pay you for a good or service, people will
invest their savings in it and take on that risk. Banks will instead move back
to providing capital to businesses, using savings from people that are willing
to invest. Businesses will again focus on productivity increases, because
that's how you get access to capital.

I also don't think it is going to be resisted quite as much as people think it
will be. People still need to pay their taxes, and that is not going to stop.
The main thing it is going to do is prick the bubble of consumer debt, and
remove the banking middle-men from that space. That alone is a multi-trillion
dollar industry, let alone the annuities that banks own and graft from, from
those assets. Removing these people (i.e. banking debt suppliers) from
positions of power, by strangling their access to capital, is a justification
for bitcoin in its own right. Imagine a world in which banks didn't control
governments.

That's the way it is supposed to work i think. It is pure genius.

------
dolguldur
Somewhat off-topic but I like how lowly Nassim Taleb tends to think about
Nobel laureates.

“[Bitcoin] doesn’t serve any socially useful function.” If that's what
Stiglitz said word by word than he clearly lacks the ability to consider non-
American perspectives.

In bubble times like this everybody talks about it, that's what's annoying me
most. Everybody is eager to predict the bubble bursting. But few people put
their money where there mouth is or just be honorable enough to give more
precise predictions and later speak up if they predicted badly. They'd just
quietly ignore they said something.

(Which is why I'm personally interested in predictions markets where you could
challenge anyone to take a bet on a quantifiable outcome. But it seems they're
not ready yet and probably won't be next year either...)

------
disordinary
He's probably correct, in our current system it should be outlawed.

However our current system isn't going to be fit for purpose for much longer.
I'm hoping decentralised currencies leads to more decentralisation elsewhere,
right up to the idea that it facilitates direct democracy.

~~~
aesthethiccs
this might be what your thinking of.

[https://voteflux.org](https://voteflux.org)

~~~
disordinary
Yeah, although I was thinking of this a lot before Flux came about.

------
mnm1
Should everything that "doesn’t serve any socially useful function" be
outlawed? That seems like incredibly shallow thinking that would include
numerous activities. I know the Nobel doesn't mean much these days, but come
on. If this guy is the smartest mind in economics today, we're fucked.

------
maxharris
1\. Stiglitz is effectively calling for perpetuating the surveillance state -
one with no privacy, no strong encryption. How else can you ultimately stop
cryptocurrencies?

2\. Does Joseph Stiglitz have a right to exist, even though his social utility
is low? After all, he is quite old, has already done the work recognized in
his Nobel prize and is unlikely to be of further use to society. Utilitarians
will undoubtedly disagree with me here, but I assert that each of us has the
right to trade communicate freely with one another, and to write and maintain
whatever programs we wish to.

------
Exo_Tartarus
Have efforts been made to produce a cryptocurrency that is compatible with
monetary policy? Such that supply can increase or decrease either on command
or naturally?

~~~
ryanwaggoner
The “naturally” part is interesting...we manipulate money supply partly to hit
target inflation rate. Would there be a way to use the ongoing transactions on
a blockchain itself to calculate an inflation metric, and then naturally
increase or decrease the money supply to keep it around 2-3% or whatever?

~~~
Exo_Tartarus
That's exactly what I've been thinking. Of course the inflation target would
be arbitrary, but once agreed upon and baked into the blockchain logic it
could maintain itself based on some parameter or set of parameters

------
samatao
The average life expectancy for a fiat currency is 27 years.

------
rajacombinator
He’s right it should be. (From his perspective as a govt stooge.) And it will
be. Whether that can stop it is the question.

------
matt_wulfeck
Government can still extract money from your bitcoin wallet. It works like
this:

1\. Ask if you have bitcoin and how much. If you lie you go to jail for
perjury.

2\. Ask you for N bitcoin. If you resist you go to jail.

The entire technical advantage relies on you effectively lying to your
government. Not a good plan.

~~~
deweller
In the US, it's not usually the government that is the problem. It is the
banks (or PayPal).

Ever had your PayPal account frozen for an unknown or arbitrary reason? It
happens and it is scary and frustrating.

~~~
geggam
When you give a bank your money you become an unsecured creditor to the bank.

It really isnt your money at that point. Talk to the folks in Cyprus who had
10% taken off the top

~~~
jacquesm
> When you give a bank your money you become an unsecured creditor to the
> bank.

In quite a few places there are central bank guarantees against bank failures.
Usually with some kind of cap, 100K or thereabouts.

~~~
geggam
As a follow up here check the solvency of the FDIC... .250k per account and
the highest number of accounts it insured that it can cover was 1.5% according
to what I can find

The other 98.5% are out of luck... great guarantee

------
mtgx
Cryptocurrencies are P2P so they can't be truly stopped, just like P2P piracy
couldn't be stopped.

Centralized exchanges are about as big of a weakness as centralized public
torrent sites are, but even that could be changed if the need for
decentralized exchanges truly arises. Right now, decentralized exchanges have
a big chicken and egg problem (you need sellers to buy, and viceversa). But if
the top 10 cryptocurrency exchanges were shut down, the chicken and egg
problem would disappear.

------
dirtybird04
Just stop calling it cryptocurrency already. Call it cryptocommodity and
everything about it starts making sense.

------
shmerl
The guy is scared of a currency not controlled by governments. He should get
used to it instead of freaking out.

------
andirk
This guy seems to think you can possibly outlaw Bitcoin. That is funny.

------
jdauriemma
But cryptocurrencies do serve a socially useful function: the ability to send
money without a transaction fee from a third party.

~~~
justbuchanan
Without a transaction fee? It currently costs ~$5/transaction.

[https://bitcoinfees.info/](https://bitcoinfees.info/)

~~~
659087
It's incredible how often I see people who are "sure Bitcoin is going to be
worth millions", or otherwise singing it's praises, also claiming there are
"no fees".

It seems very few Bitcoin holders have ever even attempted to utilize Bitcoin.
Despite holding a decent amount myself, I think things are going to get very
messy when reality sets in and the market runs out of greater fools.

~~~
jdauriemma
> from a third party.

~~~
659087
Miners aren't a third party?

Where exactly did you think those fees went?

~~~
jdauriemma
It seems like you've already made up your mind that I'm wrong, so we'll leave
it there.

~~~
659087
If you're not wrong, please explain to me what miners are - if not a third
party that receives fees.

------
ekianjo
> Nobel Prize Winner

Why is it necessary to appeal to authority when making such claims? Because he
has nothing else to back up what he is talking about?

~~~
jacquesm
Because IRL such appeal to authority holds weight with the public. Whether it
should or not is another thing but when a Nobel Prize Winner says something
about his field people tend to pay more attention than when the corner hot dog
salesman says the same thing.

------
TheDong
Ponzi schemes are illegal and so long as bitcoin remains a vehicle entirely
for speculation, it's sorta-kinda-almost a ponzi scheme.

Quite a few ICOs and altcoins certainly were created with the intent of such a
scheme and should definitely be considered illegal.

In reality, intent matters, and since bitcoin was not created with the intent
of creating a pyramid, it seems likely it should be legal, at least by that
particular possible illegality.

~~~
asciimo
Your assertion that bitcoin is "a vehicle entirely for speculation" is false.
It provides convenient methods for transferring and storing value. Even if it
were merely a vehicle for speculation, that is not the criterion for being a
Ponzi scheme. Is gold a Ponzi scheme? ICOs are a different matter, but they
shouldn't be lumped in with bitcoin any more than a little league baseball
team should be lumped in with the New England Patriots.

~~~
kasey_junk
I’ve been asking this a lot lately. What is the canonical indicator, other
than price, that a Bitcoin bull would point to, that shows it has increased
utility this year?

~~~
21
Financial markets always price the future utility, not the present one.

A bitcoin bull could point out to bitcoin futures on professional financial
exchanges as an increased utility, as in now professional money managers can
trade bitcoin in a professional way.

~~~
kasey_junk
That is an excellent example of an indicator. Do any of those exist currently?

~~~
21
There are firm promises of them becoming available really soon now (TM).

[http://www.cmegroup.com/media-room/press-
releases/2017/10/31...](http://www.cmegroup.com/media-room/press-
releases/2017/10/31/cme_group_announceslaunchofbitcoinfutures.html)

[https://www.bloomberg.com/news/articles/2017-11-29/nasdaq-
is...](https://www.bloomberg.com/news/articles/2017-11-29/nasdaq-is-said-to-
plan-bitcoin-futures-joining-biggest-rivals)

------
keymone
The guy is obviously clueless. Obviously. He claims that bitcoin’s value is
derived from expectation of “future growth” implying that it’s not the case
with literally any other investment in any other instrument be it a currency,
a common stock, a commodity or a bond.

An “economist” that didn’t grasp the trivial notion that “inherent value” is a
myth? Nobel prize my ass.

~~~
andrewguenther
[https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect](https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect)

~~~
keymone
Well isn’t that convenient

~~~
andrewguenther
That link was directed at you...

