

Why Banks are Declaring War on Bitcoin - mmaunder
http://markmaunder.com/2013/12/05/banks-declaring-war-on-bitcoin/

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sz4kerto
"What if debt becomes a very bad idea because saving becomes a very good idea,
because whatever money you have becomes worth more as time passes."

"What if investing becomes a very bad idea because saving becomes a very good
idea, because whatever money you have becomes worth more as time passes."

~~~
userulluipeste
Investment means (among many things) taking risks for various reasons, which
includes creating an income-flow. This reasoning remains valid regardless of
currency's nature.

Also, the same can be said about saving. Why would one save money in an
inflationary currency if the money will loose value? I agree that a lot of
people out there don't save, yet there are people who do. How come?

~~~
sentenza
A currency that on average increases its value over time means creating an
income flow without any risk. So all other investment options have to be that
much more attractive to offset their attached risk.

There will always be some investments that are worth it and there will always
be some reasons to save instead of spend, but the interesting things happen in
between these two extremes. The inflation-to-deflation point is special
because once there is deflation, it is not sufficient any more for a business
venture to make money to be attractive.

If the currency under consideration has wide spread adoption, deflation means
a system-wide slowdown in investment (_averaged_).

~~~
dpatru
> If the currency under consideration has wide spread adoption, deflation
> means a system-wide slowdown in investment (_averaged_).

The computer industry is deflationary. All you have to do to be able to buy
more computing power is wait. Yet, somehow, investment in computers keeps
happening.

Just because money is increasing in value, doesn't mean that demand for money
goes away. Just the opposite in fact. A money that increases in value is more
valuable and thus more in demand.

Since the only (legitimate) way to get money is to earn it by labor or
investment, it seems that either labor or investment or both will increase as
money becomes more valuable.

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gklitt
This article seems to glorify the idea of people keeping money out of the
banking system to avoid banks making money off interest spreads. But our
economy actually relies on capital being available through banks. How would
people having all their wealth in bitcoin be any different than people keeping
cash under the mattress -- and why wouldn't there be the same negative
economic consequences?

~~~
dpatru
> This article seems to glorify the idea of people keeping money out of the
> banking system to avoid banks making money off interest spreads.

The problem with banks is not that they make money off of interest spreads.
The problem is that banks are an integral part of the fiat money system that
allows the creation of new money too easily. (Banks create money by lending
out money held in demand deposits. For example, if I deposit $10 in my
checking account and the banks lends out $5 of it, then I still have my full
$10 to spend while the borrower has $5 of new money. This is called fractional
reserve banking.)

Bitcoin, because it is fixed in quantity, cannot be used in a fractional
reserve system.

> But our economy actually relies on capital being available through banks.

Our economy relies on investment which can be defined as resources directed
towards creating value in the future rather than in the present. By
aggregating the resources of many individual savers and making them available
as business loans, banks facilitate investment. They could continue to do this
with bitcoin.

> How would people having all their wealth in bitcoin be any different than
> people keeping cash under the mattress ...?

Banks are better than mattresses because they are more secure and they make
transactions easier. You can't wire money from your mattress or write a check
against a mattress account.

Bitcoin is more like a bank account than a mattress in this regard.

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maxerickson
If person A gives a bank 10 bitcoin, the public ledger reflects that. The bank
can then lend 5 bitcoin to person B. The ledger will reflect this. Person A
can peek at the ledger and notice that the bank has 5 less bitcoin, but they
might (I mean I think they will) act like they still have 10 bitcoin. So
person A and person B will be acting like they have 15 bitcoin.

Banks aren't conjuring actual money to supply the $5, they are relying on
people not all trying to spend their money at the same time. This still works
with bitcoin (it just happens to be the case that it is easier to peek at what
the bank is doing).

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pdkl95
Wow. Spinning a "Tulip mania"-style market bubble into a magic new economic
reality that makes debt unnecessary is really quite impressive.

I get it - a currency that is explicitly separate from the traditional
{government,bank} control would be a very nice thing. It's even true that debt
has been badly abused as a tool to increase the wealth gap.

These being true do not make /all/ uses of debt a bad thing, and it certainly
doesn't protect a deflationary currency from its inevitable economic
stagnation. In fact, the article's own argument admits this in inverse: to
purposefully discourage taking on debt is the same thing as discouraging
/investment/, as they are opposite sides of the same transaction.

I'm sure this is just me "declaring war" on the idea, though... go right on
believing that the passion for tulips will last forever, and that housing
prices _never_ go down.

~~~
XorNot
If you're eliminating debt, say goodbye to every small business which deals
with seasonal spending cycles, or ecer wants to expand beyond being a small
business...

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jheimark
However you feel about BitCoin, some of the assertions in this article are
pretty insane. A new currency doesn't magically erase our need for debt, and
debt isn't always a bad thing.

~~~
csmuk
I think it's a little more complicated than that.

Basically bitcoin removes the bank's ability to derive profit from debt and
that's why they're pissed off.

Debt is never a good thing. All it does is facilitate currency flow rather
than solve any problems. Inevitably a whole industry appears on the back of
that facilitation (banking, finance, insurance etc).

~~~
pdkl95
"never"?

When a particularly nasty seasonal-storm hits town, and somebody wins "ripped
off half your roof" lottery, is everybody supposed to have cash on-hand to fix
it? Or do they just get to sleep in the rain while raising cash?

Debt is necessary in a lot of places, because humans, unfortunately, generally
lack the ability to predict the future.

~~~
csmuk
Yes never.

Look at Thailand. You sleep in the rain or turn the remains of your house into
a shelter whilst raising the cash. Not only that, people donate some of their
cash to the less fortunate.

Only conspicuous consumption (greed) and hoarding of financial assets (by
class) restricts our ability to resolve these problems. Simple kindness and
social empathy goes a long way.

And yes I am a rampant socialist.

~~~
writtles
What about micro loans? [http://www.kiva.org/about](http://www.kiva.org/about)

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KJasper
Deflation is exactly why Bitcoin is flawed. Why would I buy something today if
it's cheaper tomorrow? When people stop spending our current system grinds to
a halt...

~~~
userulluipeste
"Why would I buy something today if it's cheaper tomorrow?"

Because you have needs, and some of these needs can not wait and needs to be
satisfied now. Some of your needs may be ignored for a while though, and
you'll be reluctant to spend on satisfying them. Yet, you'll decide to spend
eventually (if you ever really wanted to buy whatever satisfies the postponed
needs). That's because we have only that much time in our life (I doubt
hoarding in itself is that rewarding on our personal level).

Also, the deflationary money may not be the only thing that accumulates value.
A piece of land in a developing place may start accumulating value more
rapidly than the money does. Won't you decide to buy if the item bought looks
like a better investment compared to just holding money?

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apw
It's not clear to me why this author, and many others, seem start with the
assumption that Bitcoin has become the only currency in a country (or the
world), then proceed to list all the bad things that would occur.

It seems much more useful, and realistic, to list all the bad things (or good
things) that will occur should Bitcoin become, say, 1% of the world's money
supply.

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scotty79
Debt and deposits could easily accomodate deflationary currency. As long as
deflation rate is predictable. When bitcoin becomes main money of the world
its deflation will be associated with growth of world ecomomy which should be
predictable enough.

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hartator
Deflation isn't built in bitcoin.

It's the opposit in fact, inflation is built in bitcoin. Very slow inflation
indeed that may lead to the increase in value of one bitcoin if more and more
people do bitcoins but the number of bitcoins always go up.

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eurleif
No. The number of Bitcoins in existence is capped at 21 million.

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hartator
In 100 years...

Don't underestimate the zombie acopalysme that is coming.

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eurleif
The growth decays geometrically:
[https://en.bitcoin.it/wiki/Controlled_supply](https://en.bitcoin.it/wiki/Controlled_supply).
18 million BTC in circulation will be reached in 2020.

Deflation doesn't necessarily mean the currency supply doesn't grow at all,
but that it grows more slowly than demand for the currency.

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knowitall
While I like Bitcoin, I doubt it will lead to an Utopian future. It doesn't
change the basic economic problem ("there isn't enough to go around") or human
nature. It's just an utility that makes some things more efficient.

~~~
userulluipeste
"It's just an utility that makes some things more efficient."

Well, this in itself looks like a small thing if we're to ignore that an
important part of our society's system is deficient. </pun>

~~~
knowitall
I didn't mean it to deride Bitcoin - I like Bitcoin. I just don't think it
will lead to an Utopia were we are all just friends and forever without debt.

