
Fiat is Effective: fiat for the crypto crowd [pdf] - rgbrgb
http://www.interfluidity.com/uploads/2017/10/Fiat-Is-Effective-Minitalk-light-edit-to-share.pdf
======
DennisP
Some of these arguments assume a single fixed-supply cryptocurrency, instead
of the ecosystem of cryptocurrencies we actually have, which is more like
Hayek's proposal for competing privately-issued currencies. He thought it
would be stable without the need for active management.

As a _payment system_ I think cryptocurrency is vastly better; the more I use
my hardware wallet, the more I'm horrified by legacy systems that work by
giving vendors the ability to withdraw as much as they want. It's a
fundamentally insecure system, made sort of workable by layers of hacky
mitigations.

In theory, fiat payment could use a hardware wallet that gives vendors the
ability to withdraw only as much as specified in a signed transaction. I doubt
that'll happen unless crypto is successful enough to drag fiat providers
kicking and screaming; in the meantime we could use fiat-backed tokens on a
blockchain if governments didn't make that near-impossible with AML/KYC laws.

Reversibility could also be implemented in a token smart contract, if the
market really does value that enough to put a central admin in control. So far
that doesn't appear to be the case, but maybe just because that market segment
hasn't been reached yet.

~~~
jbrun
We had privately created money in Europe for centuries. It was a disaster.

~~~
rphlx
I would strongly disagree with that characterization. The bank note system -
the major form of private money - worked reasonably well for centuries in
Europe, evolving into the check clearing systems that virtually every first-
world nation has today.

~~~
jbrun
That was much later on. I am talking about basically end of Roman Empire to
1600.

------
subroutine
In the words of Patrick McKenzie's tweet linking to this pdf‏, "Hey look,
someone took the time to explain to cryptocurrency enthusiasts why the rest of
us perceive money as working".

For those singing the praises of cryptocurrency I pose this question:

Say the United States decides to allow decentralized cryptocurrencies to
become the dominant medium of exchange in the US; say it even gets rid of the
$USD. What problem do you think this would solve? (assuming the US gov desires
to continue all other operations in exactly the same manner as it does
currently).

~~~
moduspol
Well, whether or not it's a problem depends on who you're asking, but:

Remember in the first Captain America movie when his first role in the
military was on a tour raising money for the war? That was actually a thing at
that point in time. You had to actually convince people to invest or give
money to fund a war. The USD was tied to gold in the real world and they
couldn't just create more.

Nowadays, we don't have that. A President _might_ have to ask Congress for
funding, possibly. And even then, that money might simply be borrowed (adding
systemic risk) or printed (devaluing the rest of our money). As a result, the
amount of public support required for waging a war (or any huge expenditure)
is much lower.

That's a good thing if the people in power are correct despite popular
opinion. That's not always the case, though.

~~~
subroutine
Seems like a horribly inefficient national defense strategy. A country is on
the brink of having a war levied against them by a belligerent, and plead for
funds... some are scared for their life and donate their entire savings,
others give nothing because they think/know their neighbors will.

Anyway, this is not a primary reason for having fiat money, but it is a
reason.

~~~
moduspol
Yep. I certainly wouldn't want to go to war asking for donations if the other
side can use a pen to put half the value of his country's money toward
fighting me.

It's definitely a benefit--it just also has the potential to be abused.

------
jph
Summary of key points:

• The case against fiat is an ethical case, much more than an effectiveness
case. Crytpo advocates often misunderstand this.

* The primary reason fiat succeeds is it offers price stability. But stability is often purchased at the expense of workers and the unemployed.

* The management of fiat provides state actors with incredibly powerful, ultimately discretionary, tools which significantly affect who wins and who loses and how equal or unequal a society is.

(Edit 1: Based on the presentation's concluding "summary" slides. Edit 2:
Removed the point about war as less germane.)

~~~
pjc50
"Fiat money and associated banking systems are the technology that enables the
finance of war on scales that would have been unimaginable a few centuries
ago"

This quote appears in the summary but isn't really supported by argument
within the article, and is quite a big claim!

~~~
subroutine
What of countries that go full crypto, then later have a war levied against
them; this suggests these governments would not have effective economic means
to defend themselves.

Its almost like it assumes if citicens of a state switch to crypto their
government would/could not tax them

~~~
lucozade
> this suggests these governments would not have effective economic means to
> defend themselves

They'll just re-introduce a fiat currency like they did all the other times
that this was a problem. Assuming they want to survive.

Historically, communities that favoured philosophical consistency over self
preservation tended to become, well, historical.

------
rothbardrand
These arguments against bitcoin have been the same since 2010. They seem to
ignore the point of bitcoin (it is impossible to counterfeit, unlike fiat
which is counterfeited as a matter of course by the central bank to pay the
federal government so it can buy bombs).... and all the features of bitcoin
which are increased privacy, better control over your funds, better security,
etc.

At any rate, the past 7 years has shown the market accepting bitcoin and the
price being driven up.

People don't want to accept this fact so they call it a bubble. It bubbles a
bit, sure, and there will be a bitcoin bubble-- but we're not there yet.

Bitcoin is the internet of money. This isn't just a slogan. Bitcoin is a
platform that provides many improvements to the existing system.

But as a technology platform it is going thru the technology adoption life
cycle, so was more and more people hold some, the price goes up. It will be
"volatile" until it's fully distributed.

So "speculating" is not bad-- it's how bitcoin gets its wide distribution.
Over time as applications are built on top of the platform, the utility will
come more into play.

This is ok. This is the early years. Bitcoin isn't meant to replace the entire
system right out of the gate.

~~~
strgrd
Bitcoin isn't _the_ internet of money, it is _an_ internet _for_ money. With
this distinction in mind, it would be foolish to think that the first
cryptocurrency would be the last. It took many implementations and iterations
of wide area networks to arrive at the Internet Protocol we have today.

While Bitcoin doesn't share the same set of problems as fiat currency, it has
its own burdens, and has proven completely ineffective as a functional money
system outside of speculation and fraud. The novelty of Bitcoin is supposedly
its 'immutable ledger', a phrase used so frequently in defending Bitcoin, that
it has become divorced from its meaning, and divorced from the reality that
solutions to distributed logging existed long before Bitcoin, and many more
solutions to this problem will be developed with no regard to the blockchain.

Bitcoin itself will never replace anything -- cryptocurrencies will remain
monolithic in purpose and function for a very long time. The underlying ideas
to the Bitcoin protocol will be iterated on, and we'll see these ideas
implemented in distributed software, but to incessantly hype Bitcoin as _the_
singular platform for cryptocurrency is to live in a bubble.

pls buy litecoin

~~~
jondubois
Yes, it seems that human attention has become the ultimate luxury commodity. I
think that a cryptocurrency derives a significant portion of its value from
the mere fact that that a lot of people know about its existence.

A lot of celebrities these days make huge sums of money in spite of being
untalented. Being famous is valuable in itself.

People (especially rich people) want to be loved and/or respected. The "why"
doesn't actually matter. If you own a lot of something which a lot of people
know about, then you will be respected.

The blockchain is public. Everybody can see it. It's the ultimate instrument
of vanity. In the future you'll be able to show off your wealth without the
stigma associated with actually showing it off. People will be able to look
you up on a popular blockchain and know that you are an influential
individual.

It solves a big problem that rich people have. They want to appear humble but
at the same time they want other people to know that they are rich.

~~~
nosuchthing
Yes, and we can see the Oligarchical squatters who acquired large stakes in
Bitcoin.

    
    
      In economics, the Gini coefficient is the standard measure 
      of how inequitable a society is. This is tricky to 
      determine for Bitcoin, as it's not quiet a "society" in 
      the Gini sense, one person may have multiple addresses and 
      many addresses have been used only once or a few times. 
      (The commonly-cited figure of 0.88 is based on one small 
      exchange in 2011.) However, a Citigroup analysis from 
      early 2014 notes: "47 individuals hold about 30 percent, 
      another 900 a further 20 percent, the next 10,000 about 
      25% and another million about 20%"; and distribution 
      "looks much like the distribution of wealth in North Korea 
      and makes China's and even the US' wealth distribution 
      look like that of a workers' paradise
    
      Dorit Ron and Adi Shamir found in a 2012 study that only 
      22% of then-existing Bitcoins were in circulation at all, 
      there were a total of 75 active users or businesses with 
      any kind of volume, one (unidentified) user owned a 
      quarter of all Bitcoins in existence, and one large owner 
      was trying to hide their pile by moving it around in 
      thousands of smaller transactions. (Shamir is one of the 
      most renowned cryptographers in the world and the "S" in 
      "RSA encryption")"
    

[1] via
[https://news.ycombinator.com/user?id=davidgerard](https://news.ycombinator.com/user?id=davidgerard)

------
urza
So the argument basically comes down to that crypto is too volatile and not
usable as unit of account?

1\. Crypto is still in its initial stage, where capital is flowing into it.
Once it is there, it will be less volatile. You can already see this in
Bitcoin[1], where relative volatility is dropping every year.

2\. There are projects coming that will enable decentralized trustless peg of
fiat currencies into blockchians[2][3]. So you will have usd/eur in
blockchians. Similar like Thether, but without central issuer. This will be
very convenient for pricing (unit of account), but with all the benefits of
blockchains.

And as author admits fiat is terrible as "store of value" \- so with this
combination - fiat pegs in blockchain for accounting and native crypto as
store of value (keep bitcoin for your grandchildern instead of dolar that
looses 95% value over century), it might be the best combination of both
worlds.

1: [http://woobull.com/bitcoin-volatility-will-match-major-
fiat-...](http://woobull.com/bitcoin-volatility-will-match-major-fiat-
currencies-by-2019/)

2: [http://cryptopeg.org/](http://cryptopeg.org/)

3:
[http://www.getbasecoin.com/basecoin_whitepaper_0_99.pdf](http://www.getbasecoin.com/basecoin_whitepaper_0_99.pdf)

~~~
jbrun
No, that is not at all the argument. The argument is that you cannot have an
economy run on a deflationary currency, which bitcoin is. An effective economy
requires a bit of inflation and the ability to issue new money when necessary
for socio-political reasons. Crypto currencies are a cult, though the
underlying tech is interesting.

~~~
quincunx
While I understand the desire to have 2% inflation across the economy,
wouldn't the individual parties prefer to hold their cash in a deflationary
currency?

Put differently and going fast forward; how can you have a mildly inflating
currency (eg. EUR) when there's a deflationary currency (eg. BTC) as a viable
alternative around?

Would you propose we prohibit crypto currencies? (What would you propose?)

~~~
jbrun
Crypto currencies can exist for those who want them, I don't see any reason to
block them beyond ponzi scheme and marketing issues - similar to stock issues.
So probably they need some regulation to not defraud unwitting people.

Bitcoin is not an alternative to Euros. That is the whole point. If you
switched all euros to bitcoins and asked people to trade those, the economy
would collapse as no one would want to trade their bitcoins because
mathematically, they increase in value due to the limited issuance of them.
Without modest inflation, the economy cannot grow as no one would spend money
for investment purposes.

------
pjc50
Nice summary. The author has correctly observed that so much of the finance
industry is really about clearing and settlement, and that what circulates are
_claims on_ money.

This is present in the crypto world too. When you wire money to an exchange
and use it to buy cryptocurrency, it doesn't immediately turn into a crypto
transaction - you get a _claim on_ that cryptocurrency. Sometimes exchanges
are unable to meet those claims or issue claim-like tokens ("Tether").

Also correctly notes that "inflation" worries are more to do with how your
future asset and liability flows match up, which have very little to do with
supply of the currency itself (apart from extreme Zimbabwe moments). Hard
Money == Price instability.

~~~
neilwilson
Zimbabwe had little to do with supply of currency, and more to do with supply
of stuff.

They forgot that our economies rely upon the magic of the pin factory.
Unsurprisingly if you take land from a specialist farmer and give it to a load
of people who have no such specialism, then you get a collapse in production.

The result of that is obvious unless you ramp up taxes to colossal levels to
kill the excess money circulation.

~~~
roenxi
Are you suggesting that a government, having regulated against specific
capable farmer running farms, should raise taxes to colossal levels if they
observe food shortages?

I suspect you want to rephrase your comment. That argument seems to have a
non-sequitur in it.

~~~
lucozade
I don't believe the GP is advocating it.

I believe he's implying that you'll get hyperinflation unless you do something
draconian to take all the money out of the system.

This may well solve the hyperinflation at the expense of not having any
(legal) economy left.

------
bjarneh
> Fiat currencies are not “backed by nothing”. They are backed by the labor
> and assets of all the humans who have obligations to pay in fiat

So when we "print" more money, we print more labour?

~~~
ahakki
No, but if there is an increase in productivity and you don’t print money
there will be deflation.

~~~
ttoinou
Is deflation an awful situation ?

~~~
sek
It is believed to be the primary reason for the great depression.

[https://en.wikipedia.org/wiki/Causes_of_the_Great_Depression](https://en.wikipedia.org/wiki/Causes_of_the_Great_Depression)

Deflation or Hyperinflation on the other side is nothing compared to the
crises we have today.

They are both a path for disaster, this is the primary fear of economists.

Good explanation: [https://www.quora.com/Why-is-2-the-ideal-inflation-
rate](https://www.quora.com/Why-is-2-the-ideal-inflation-rate)

~~~
ttoinou
I hoped for a logic rationale, not an interpretation of an historic fact :(

~~~
mcguire
Let's suppose that today, a dollar will buy you a loaf of bread. Tommorrow,
though, you have a very strong expectation that a dollar will buy you two
loaves of bread, and it seems likely that next week a dollar will buy you a
Lamborghini Countach.

What do you do?

1) Spend the least amount of money today that you can to continue living and
put the rest under your mattress?

2) Anything else.

Being rational, you choose one. Now magnify this by _every other rational
actor in the area affected by deflation._

You can no longer buy bread because the grocer decided not to spend his money
on new stocks. You no longer have a job because your employer would rather
have your wages than your work. The widget factory expansion gets canceled
because no one will loan the company money to pay for it.

------
thisisit
On page 4/5 this presentation says: >this might not be true of a sufficiently
credible Tether-like stablecoin whose value is pegged to a fiat currency, but
there the crypto is piggybacking on the effectiveness of the fiat.

I was intrigued by this Tether thing and ended up on the site:
[https://tether.to/](https://tether.to/)

It says:

> Every tether is always backed 1-to-1, by traditional currency held in our
> reserves. So 1 USD₮ is always equivalent to 1 USD.

> Our reserve holdings are published daily and subject to frequent
> professional audits. All tethers in circulation always match our reserves.

A nitpick I have on the site design is that nowadays sites don't put sitemap
in the footer. So I have to difficult time finding the balance page:
[https://wallet.tether.to/transparency](https://wallet.tether.to/transparency)

Can someone help me make sense of this? I thought the numbers are there for
the claimed 1-to-1 USD reserve but that doesn't seem to be the case. The value
there is from the assets issued on blockchain and not the USD balance on
company's book.

Secondly, I might be wrong but can't seem to find who is conducting the audit.
Is it one of the big 4 or some home office? If it is a small time office I
will be even more skeptical of this whole thing.

~~~
mbrock
You, and everyone else, _ought_ to be _very_ skeptical.

A peg like Tether isn't any kind of guarantee. It's so easy to imagine the
insolvency of such a firm through government action, fraud, bank seizures, or
a juicy combination of all three.

[https://hackernoon.com/the-curious-tale-of-
tethers-6b0031eea...](https://hackernoon.com/the-curious-tale-of-
tethers-6b0031eead87)

Having the private keys that controls a Tether token is not at all like owning
a US dollar. That's why their legal policy states:

 _Once you have Tethers, you can trade them, keep them, or use them to pay
persons that will accept your Tethers. However, Tethers are not money and are
not monetary instruments. They are also not stored value or currency. There is
no contractual right or other right or legal claim against us to redeem or
exchange your Tethers for money. We do not guarantee any right of redemption
or exchange of Tethers by us for money._

I don't think a centralized and fragile thing like Tether deserves to be
called a stablecoin. We should reserve that concept for a decentralized and
resilient collateralized token issuance system...

------
soniman
Bitcoin is now at the peak of the hype cycle. A lot of the 23 year old traders
don't know anything but a bull market. When it inevitably goes through a bear
market, like every other asset, when there is $50 billion of sellers higher
ready to sell on every uptick, what brings bitcoin back? Stocks very rarely
come back from 70-80% declines, unless the stock is Amazon or similar. All the
hodlers are going to turn into baghodlers if they don't sell pretty soon.

~~~
sp4ke
1- Bitcoin is not stock so comparing with stock has no weight in your argument

2- It has already been on a very long bear market (2013-2015) where everyone
said pretty much the same thing (fad, tulip, the experiment failed .... ). So
yeah the new holders will go through rough times but your argument that it
reached the peak of the hype cycle has no logical facts to support it since
you could have said the same in the peak of 2013.

If anyone knew when the peak is(was or will) would not be here commenting on
HN or talking about it but rather selling this knowledge ... and this holds
true for any investment.

~~~
soniman
You're right, I have no idea when the top is going to be. My point is that
bear markets have a very different feel and can be emotionally devastating if
you're in the middle of one and bitcoin has not been through that and made it
to the other side. Are the bitcoin boys ready for that? Because it's coming,
sooner or later.

~~~
namelost
The exact sequence of events you are describing happened between 2013-2016
when Bitcoin fell from a hype induced >$1000 to (at its lowest) $200, and
didn't rise above $1000 until this year.

It clearly did not kill Bitcoin, and Bitcoin won't die if the same thing
happens again.

~~~
DennisP
And before that, it hit a high of $31 and crashed to $2, and slowly recovered
to $13 over the next year.

Ethereum crashed from $21 to $7 last year after the DAO theft. A couple months
ago it went from $420 to $130.

------
KasianFranks
This debate is dividing most of the technology space. It's a good sign, for
the crypto guys. VCs, angels are experiencing their very own Uber moment.

------
dzonga
If you read/watch Debt the First 5000 years. A lot of this makes sense. The
first form of money was credit. Which is Fiat.

------
littlestymaar
For anyone interested in understanding what money is, and the downside of
commodity money without a central bank, Allyn Young wrote this[1] in 1924[2].
It talks about the gold standard, bi-metalism and decentralized banking that
was taking place in the US in the XIXth century.

[1] [https://fr.scribd.com/document/251483136/The-Mystery-of-
Mone...](https://fr.scribd.com/document/251483136/The-Mystery-of-Money-by-
Allyn-Young) [2] it's just 11 years after the creation of the Fed. He had a
good understanding of what is a financial system without a central bank.

~~~
ahakki
I can’t read the whole story without paying money. Is there a link to a free
version?

~~~
littlestymaar
Oh really ? I just googled it up quickly and found this link.

I uploaded a PDF containing the full version here
[https://framadrop.org/r/Awpt0Pvlax#17V8BZqBeYZgyzW5F0WOXwDop...](https://framadrop.org/r/Awpt0Pvlax#17V8BZqBeYZgyzW5F0WOXwDopjMO9mvuACgHZRR84WU=)
(will only live for 60 days though).

------
once_inc
The author uses a slide to say:

> fiat currencies issued by strong stable states capable of taxing their
> citizens, with banking systems effective at encouraging widespread
> borrowing, with large, diversified domestic economies (and so the capacity
> to do with fewer imports if necessary) that borrow in their own currency,
> and do not have sizable debts in foreign currency aren't weak.

This speaks to me as if the author has a modicum of trust in the current
banking industry, saying: "I trust that we can still solve the problems we've
created." Call me a skeptic, but I don't. That is the fundamental problem that
cryptocurrencies were created to solve; trustless money.

I agree with the author on the part of currency needing to be stable, and
cryptocurrencies in their current state are not stable. However, as more and
more value is attributed to cryptocurrencies, and more and more people adopt
it, those fluctuations will even out. I feel comparing crypto's stability with
most fiat money is like comparing the gait of a toddler with that of a grown
man. It takes time, effort, and entropy to gain the momentum needed to be
stable, crypto is still in its early-adoption-phase.

> Fiat currencies are no more “created from thin air” than...

Fractional Reserve Banking would like a word.

~~~
littlestymaar
> I agree with the author on the part of currency needing to be stable, and
> cryptocurrencies in their current state are not stable. […] It takes time,
> effort, and entropy to gain the momentum needed to be stable, crypto is
> still in its early-adoption-phase.

The problem is : if you want a stable currency you need a money supply that
grow as much as `inflation + growth + the slowdown of the money flow`, if you
don't have that your economy collapses. All of this is changing over time,
then you need to adjust the supply of money dynamically. And unless someone
finds a way to do this automatically, you'll need a _pilot_ in charge of this.
This is currently the job of the director of the central bank, it can also be
the president of the country, the parliament, or anyone but you need someone
(or some cleverly designed distributed mechanism that doesn't exist yet). If
you don't address this, cryptocurrencies aren't better than gold money, which
historically proved inefficient in an industrialized society.

~~~
zodiac
There are project like MakerDAO that indeed use smart contracts (plus fiat
price oracles and some other things) to implement monetary policy without any
"pilot".

~~~
KGIII
I think one of the problems is that there are now, what, a few thousand
cryptocurrencies? The optics of the multitudes of ICOs? Those aren't good. No,
no they are not.

A part of me wonders if this popularity boom might actually be the reason it
dies out. How many hacks, thefts, and scams have there been? Sure, those
happen with real money but real money isn't the one needing to work on its
optics. We already accept real currency.

This one is anonymous, this one is for burgers in Russia, this one is tied to
fiat currency, this one is for an online file system... The list goes on. I'm
not sure that diversity in choice is a net benefit with this, at least not in
the long term.

Someone important is going to lose some money and it's not that hard for a
government to make it illegal. Depending on your jurisdiction, it's just a
stroke of the pen.

If I did want to invest, or use, I'd barely have an idea of where to start and
I'm pretty technically literate. Hell, I even mined some BTC when it was new.
Now, there are so many varieties. Maybe too many choices. There are even sites
to let you easily make new ones.

~~~
mbrock
Maybe it's like the internet. There used to be a lot of different websites,
and a lot of them were scams. Now there's just a handful of websites, so it's
easier for people to understand what to do... And of course there's still a
long tail of weird niche sites with new experiments.

The UN recognizes 180 different currencies, by the way. That's 180 different
units of accounts, but the amount of forms of money is much larger, and then
you have to consider the derivative forms of money, and the various credit
systems. It's already an immense, staggering, crazy cornucopia.

I don't think it's realistic that world governments will just eradicate
cryptocurrency through legislation. Banking, insurance, finance, the internet
itself, all of those things were really chaotic in the beginning, but
businesspeople recognized them as useful and transformative, so states didn't
want to ban them, even though they were dangerous.

The IMF director is already saying that cryptocurrency will be massively
disruptive and that they expect to play a part in regulating the ecosystem and
that it's conceivable that the IMF would issue their own cryptocurrency.

[https://www.cnbc.com/2017/10/13/bitcoin-get-serious-about-
di...](https://www.cnbc.com/2017/10/13/bitcoin-get-serious-about-digital-
currency-imf-christine-lagarde-says.html)

That makes me think it's really unlikely to just go away.

~~~
KGIII
Your first paragraph, kind of. For many people, the net is just a few social
media and streaming sites. The net has much of its wealth consolidated in just
a few companies.

We shall see.

------
nadam
Re price stability: A cryptocurrency adopted on a mainstream level (at tens of
trillions of dollars market cap) for means of everyday payment would be very
stable, more stable than any fiat today.

Re effectiveness: Bitcoin itself is not really fast, scalable and transaction
fees are not that small anymore, but something like Dash for example can be
much more effective than Fiat even at a large scale. (I mean small latency,
small transaction fees, high throughput.) Should scalability become a really
big issue, I am sure it will be solved by some projects. (There are already
projects working on extreme high throughput like EOS.)

~~~
littlestymaar
> Re price stability: A cryptocurrency adopted on a mainstream level (at tens
> of trillions of dollars market cap) for means of everyday payment would be
> very stable, more stable than any fiat today.

This sentence sounds like preaching. Do you have any evidence of this ?

IMO this is really unlikely because you can't dynamically adapt the supply of
money. See my other comment in this thread[1].

[1]
[https://news.ycombinator.com/item?id=15481953](https://news.ycombinator.com/item?id=15481953)

~~~
nadam
"This sentence sounds like preaching." Yes, you are right, I was wondering
whether to edit that sentence to sound less confident. :) I have no evidence,
and I am not an expert on this. I just think that if a currency is a utility
currency, actually used by merchants and everyday users globally across a wide
range of industries, countries and people, it has a huge market cap (it is the
dominant currency of the world): I just don't see what could cause big
fluctuations in its 'price'. (When you start to be the dominant currency
'price' becomes an interesting concept, because the 'relative to what?' aspect
starts to be very significant.)

~~~
pjc50
The expansion and contraction of the real economy causes a change in the
demand for _money_ , resulting in changes in the price level. This is usually
summarised in the equation "MV=PQ"; see the economics literature for more
detail on this.

(This is independent of what the money actually is, and was a big problem with
price fluctuations under the gold standard)

~~~
nadam
Let's say we have a huge global cryptocurrency, that the whole world uses. If
I understand well, when the economy expands, you can buy more BigMac for one
unit, when the economy shrinks, you can buy less BigMac for one unit. What I
am wondering now is whether is it something that needs to be avoided at all,
(or can it be avoided in the long term at all).

~~~
littlestymaar
For bigmac it's not a big deal, but for investment it is. Imagine your company
have 10 millions in cash, you could invest on a new machine to produce more
(or better quality, or cheaper). But if you knew that the machine was going to
cost you only 9 millions in 3 months. Will you buy it now even though you know
it's only going to make you earn 300k in 3 months ? Of course not, you'll wait
those 3 months. This is the problem with deflation, nobody wants to invest and
people delay or reduce consumption. this really harms the economy.

~~~
paulgb
The Capitol Hill Babysitting Co-op is sometimes cited as an example of this.
[https://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-
op](https://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op)

~~~
littlestymaar
Never heard of that, thank you !

------
xiphias
There's one huge problem with fiat currencies that Bitcoin improves on:

Trusted Third Parties Are Security Holes

[http://nakamotoinstitute.org/trusted-third-
parties/](http://nakamotoinstitute.org/trusted-third-parties/)

------
S410520
IS it not deflationary?

2015: Block reward: 25 btc * 6 blocks per hour * 24 hrs* ~250 euro = 900.000
euro worth of daily mined supply

2017: 12.5 btc * 6 blocks * 24 * ~2000 euro = 3.6 Million

~~~
Laforet
Indeed, prior to 2015 it had double digit inflation, thought this has declined
to just under 3% per year and will continue to fall.

Morever, some estimates suggest up to 1/3 of all BTC are unspendable (lost
keys, malformed txns, minute dust UTXOs, etc) so the deflationary spiral could
have already been under way.

------
neilwilson
Steve has missed the main point.

The value of a currency is determined by the effort required to obtain it.

~~~
paulgb
That's not its value, just an upper bound on its value.

If you disagree, boy do I have some currency to sell you. I worked very hard
on it, I swear! :)

~~~
neilwilson
And the lower bound is the tax I have to pay in it.

I need 100 of your currency, here's a small caraway seed for it.

Now shall we negotiate?

------
onion-soup
> unit of value

Nope, it's a unit of human work. Value is a subjective measure.

~~~
subroutine
What is a "unit of human work", and how much is it worth?

Why are people paid differently for the same work?

~~~
onion-soup
>What is a "unit of human work"

Money, obviously?

> Why are people paid differently for the same work?

Do you want me to do a crash course on history of economics in a HN comment?

~~~
subroutine
I was hoping you would say that. Do you not realize the circular logic you're
using to define "money"?

Q. What is money?

A. It's a unit of human work.

Q. What is a unit of human work?

A. Money.

If you cannot provide a concrete definition of either 'money' or 'a unit of
human work', I have no idea how valuable 1 of your 'moneys' are.

Let's call your money 'CRYPTOS'. One may assume 'a unit of human work' is like
a person doing some defined task for 1 hour; and the value of 1 CRYPTO is
established as number of CRYPTOS (1) you would be willing to give someone for
doing that task for 1 hour. Naturally, for this to work, there would also need
to be someone willing to perform this task for exactly 1 CRYPTO per hour; and
nobody willing to do it for less. Is that basically what you are talking about
when you say 'money' is 'a unit of human work'?

Above you scoff at the idea of money representing a unit of 'value', and say
that value is subjective. So let me again point out the obvious - people paid
different amounts of money for the same work. If you pay people different
amounts for the same 1 hour of human work, then a unit of human work isn't
always worth same number of CRYPTOS. So explain to me precisely how you are
defining 'a unit of human work' and how it equals X amount of 'money', without
introducing some subjective concept of value or worth.

------
monort
Even the most stable currencies of developed world can be influenced by a
black swan. For example, see Swiss Franc or British Pound. If some
cryptocurrency is adopted for mainstream use (big if), it won't have this
risk, inherent to a centrally controlled currency.

~~~
pjc50
This kind of exchange risk is nothing to do with central control, but to do
with which economy the currency is associated with?

~~~
monort
The Black Swans I'm talking about are about failed attempts to control the
exchange rate by central bank. Fiat currencies are stable until they aren't.

[https://en.wikipedia.org/wiki/Black_Wednesday](https://en.wikipedia.org/wiki/Black_Wednesday)

[https://en.wikipedia.org/wiki/Swiss_franc#End_of_capping](https://en.wikipedia.org/wiki/Swiss_franc#End_of_capping)

~~~
yxhuvud
Attaching the value of a fiat currency to something is very unstable in the
long run. This is independent of if what it is attached to, be it gold or
another fiat currency. Imbalances will simply pile up over time and doom it to
fail. This can be exemplified by your examples, but also by the currencies
going off the gold standard during the Great Depression.

