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[dupe] Finland's Central Bank Praises Bitcoin (icowatchlist.com)
63 points by cryptomatics 10 months ago | hide | past | web | favorite | 53 comments

I'm an author of the underlying paper:


This article is very misleading in several ways:

(1) we do not work for the Finnish Central Bank in any way nor does the content of the paper reflect any views of the Finnish Central Bank (so far as I'm aware), the paper was merely included in their working paper series

(2) the main content of the paper is to contrast the economic model of bitcoin that of a monopolist service provider, from the abstract:

"A simplified economic model that captures the system's properties answers these questions. Transaction fees and infrastructure level are determined in an equilibrium of a congestion queueing game derived from the system's limited throughput. The system eliminates dead-weight loss from monopoly, but introduces other inefficiencies and requires congestion to raise revenue and fund infrastructure. We explore the future potential of such systems and provide design suggestions."

Please note that this is not an official position by the Bank of Finland! It's a paper by Columbia University researchers published in the bank's "research discussion" journal. Indeed, the cover page explicitly notes:

> The opinions expressed in this paper are those of the authors and do not necessarily reflect the views of the Bank of Finland.

@admins, can we have the title properly attribute the source?

A lot of people assume Bitcoin is just a bubble but there is a lot to say about the technology behind it and its inevitable use.

Is it inevitable? I'd love it if I can pay for things by just scanning a QR code, but the number of merchants accepting Bitcoin feels like it's going down, even though Stripe has made it trivial to support.

I would very much like to see everyone move away from speculation and into actual use, but it's not looking good...

It is a very narrow-minded view to think that "customers paying merchants" is the only use case of Bitcoin... There is a lot more growth and potential in other areas: remittances, store of value, B2B payments, informal person-to-person transactions, paying foreign remote employees, collecting donations internationally, etc. It is all these areas that people are not seeing and thinking about when evaluating Bitcoin. Paying the proverbial cup of coffee in Bitcoin is probably the least interesting use case for Bitcoin.

And why would you think that Bitcoin's use is not looking good? The transaction rate, the best indicator of actual use, is sharply increasing: https://blockchain.info/charts/n-transactions?timespan=all&d... (this indicator is not typically impacted by mere speculators: buying coins and leaving them on an exchange does not create a transaction)

> remmitances, paying remote employees, collecting donations

Blockchain seems like overkill here. Hardest parts are converting cash into bits and back on both ends, transmitting bits from one account to another is easy with, say, a MySQL db

> store of value

volatility makes bitcoin an interesting speculative investment. But without any backing or federal insurance, seems like a poor store of value compared to a bank account (though many currencies no longer have backing...)

> b2b, peer to peer payments

Again, solutions to these (ie. Venmo, Square Cash, Facebook Cash for p2p) do not require blockchain. How does blockchain tech help in these use cases?

> Hardest parts are converting cash

There is a powerful network effect taking place: the more people accept Bitcoin, the smaller the need to convert to cash, causing Bitcoin's convenience to increase bit by bit, causing more people to use it, etc. That is what we have been seeing over the last 7 years. And Bitcoin ATMs are becoming the most convenient way to convert to cash. They are popping up around the world at an impressive rate: https://coinatmradar.com/charts/#growth

> poor store of value compared to a bank account

On the contrary, savings accounts are a terrible store of value as they lose value over time: a 1% interest rate is eaten by a 3% inflation rate.

> powerful network effect taking place is this actually happening, or is this wishful thinking?

> bitcoin ATMs cool concept, unclear when there will be enough of these outside of USA to make a dent in the remittance market

> savings accounts are terrible agreed, losing 2% annually sucks. however, BTC literally dropped 14.88% today 0_0 unclear if it will continue to grow or drop, only volatility seems inevitable

>Again, solutions to these (ie. Venmo, Square Cash, Facebook Cash for p2p) do not require blockchain. How does blockchain tech help in these use cases?

Bitcoin is the only decentralized one. I don't think it means everyone needs to use it, but I think the role it fills is a very important one.

I feel like this criticism is like criticizing torrents or personal NAS media devices when fileplanet.com and dropbox already exist, or criticizing email when Facebook Messenger exists.

> role it fills is a very important one what role does it fill?

> criticizing torrents p2p file sharing fills a real need: quickly download large files for free, even when no single entity wants to pony up enough free bandwidth to make this happen

> criticizing email when fb messenger exists email is useful too. it is more formal and already part of the protocol of business communication. fb messenger is great for casual chats with friends, with a heavier focus on GIFs, games, etc. they fulfill different, but real, needs

None of those will ever fly if the currency isn't used to buy actually desirable end-consumer goods in some market. Why would those foreign remote employees accept Bitcoin if they can't spend it? Ditto for all the other transactions you cited.

Transaction rate is all down to speculation.

Payment systems already work fine with minimal cost. Store of value: yes you cannot overissue but the speculation tide could go out removing the store of value. Gold was/is volatile.

«Transaction rate is all down to speculation.»

Did you read what I wrote? "this indicator is not typically impacted by mere speculators: buying coins and leaving them on an exchange does not create a transaction"

«Payment systems already work fine»

It took me 7 days to move $300k from one bank account to another, because of closures on weekends & ACH limits. This is not "working well". With Bitcoin I can move $100k+ in ~10 minutes.

I have had many instances of credit card payments being declined while travelling internationally due to false positives from anti-fraud systems. This is not "working well".

In 2013 I couldn't even pay my rent using my bank's electronic payment system, even though my landlord and I had the same bank, because of arbitrary policy limit of $2k/mo for personal payments. This is not "working well".

I have had paypal steal ~2% through forex fees for a transfer to my family overseas. This is not "working well".

I have had fraudulent merchants stealing my CC info and created a bunch of hassle that took me time to sort out. This is not "working well".

And so on. Bitcoin may not be perfect, but it solves all these scenarios incredibly well.

And when your computer gets popped and you lose everything is that working well?

Cash is even more vulnerable to theft than cryptos. Yet I don't see you criticizing cash.

Regardless, the problem of cryptocurrency theft has been largely solved by hardware wallets and multisig wallets: there hasn't been a single documented case of bitcoins stolen from such a device. Also phone wallets, as long as running on a stock iPhone or Nexus/Pixel with recent security updates, are decently secure. And you can back up the seed of hw & phone wallets, so there is no risk of losing the coins if the device gets destroyed/misplaced.

>It took me 7 days to move $300k from one bank account to another, because of closures on weekends & ACH limits. This is not "working well". With Bitcoin I can move $100k+ in ~10 minutes.

You can move the bitcoin equivalent of $100k+ in 10 minutes. It'll take you longer than a week to convert to cash (not to mention the cost you'll be paying in fees). Plus you still have to deal with all the regulatory checks (unless you think you can get away with laundering money)

«It'll take you longer»

Incorrect. I trade at Gemini where I can sell BTC and wire the USD in less than 24 hours to a bank account.

> I have had many instances of credit card payments being declined while travelling internationally due to false positives from anti-fraud systems. This is not "working well".

I'd argue the opposite: this is working well.

Imagine travelling overseas, you go to pay for a coffee only to discover you've had all your cryptocurrency stolen. Who you gonna call?

You can't possibly be arguing that these false positives (which are causing major hassles: losing hours to find a way to get cash in a foreign country to pay with it) are "working well".

Cryptocurrency theft has been solved: https://news.ycombinator.com/item?id=15229869

You read right, that is what I'm arguing. Okay, so not the false positives themselves, but that there are systems in place to detect / prevent / insure against loss.

Cryptocurrency theft has been solved by hardware wallets?

What happens when you lose your hardware wallet? Now you have to restore from backups, if you have them, but they're in cold storage 4000 miles away.

«systems in place to detect / prevent / insure against loss»

Yes the systems are nice. In theory. But when they cause more problems than they solve, that's not "working well". Bitcoin's systems to prevent loss are hardware wallets, and multisig addresses (eg. requiring 2-of-3 wallets/persons/automated systems to approve a transaction).

«Now you have to restore from backups»

The backup is simply a list of 12 words. Write it somewhere safe. Split the list. Memorize it. Hide it. Store it via steganography in an image in your email account. Whatever. It's easy to hide and have it accessible 24/7.

> But when they cause more problems than they solve

I'm willing to bet traditional payment card anti-fraud and consumer protection systems are solving more problems than they cause.

So you have been inconvenienced by them on occasion. That says nothing for the frequency these systems work as intended.

> The backup is simply a list of 12 words.

I wasn't aware of that, thanks for clarifying.

Bitcoin is a value store. It likely won't ever be widely used to purchase a cup of coffee.

Other cryptocurrencies (eg. Litecoin) will pop up to fill this niche.

In this future, why isn't the cryptocurrency that's used to buy a cup of coffee also used as a store of value?

For the same reason you don't buy coffee with a treasury bond. Bitcoin at the moment is just not a good debit card/pocket money for a number of reasons.

While this might change, the rest of the world isn't staying put either. In EU/US now you can have almost realtime bank transfers, which was one major pain point in the past.

I'm not asking why you can't buy a cup of coffee with the store of value. I'm asking why the currency you buy a cup of coffee with can't be the store of value.

Litecoin has the same fundamental bottleneck as bitcoin, every node most must process every transaction. And, the Bitcoin network will eventually have lightning (it's in beta testing now, not just theory anymore), which will more cleanly enable things like coffee purchases.

Except Litecoin afaik has changed that when they did their fork of the Bitcoin codebase. The problem isn't as bad as you might think, compare blockchain size of Litecoin to another blockchain with similar amount of transactions / coins, the filesize of the entire blockchain is ridiculous. The other alternative is to host your wallet on a remote server that has already downloaded the whole blockchain, or use someone else's service that does the very same, Electrum comes to mind in the case of BTC.


Litecoin adopted "segwit" or "Segmented Witnesses" so the blockchain size isn't what it used to be. Some were pushing for this with Bitcoin, others were pushing another direction, hence Bitcoin Cash.

Disclaimer: I am not a complete and total expert in the crypto world, just still picking up things here and there. There's definitely way too much to digest in my free time, and I was mining some BTC for fun back in 2010...

Bitcoin has segwit too. Litecoin's blockchain is smaller because it has fewer transactions on it.

One of Litecoin's claims to fame is that it has a smaller block confirmation time. It's not some technological break-through but just the tweaking of a constant with trade-offs. Adjusting the block time down means network latency and bandwidth are a bigger deal to miners and can increase the block orphan rate, possibly resulting in a small push toward miner centralization compared to a higher block time.

Though as the Lightning Network comes to Bitcoin (and Litecoin), users will be able to make transactions without waiting for block confirmations (while still getting the same guarantees against counterparty risk and doublespends), decreasing the benefit of shorter block times.

Isn't touching your contactless card (or NFC phone) kind of like scanning the QR code? It's certainly faster - 0.3 sec I would say for the read, 5 sec for the confirmation. What is the major difference in your view, from the usability point of view, since you didn't mentioned politics in your post, just convenience?

Agreed - tapping phone at checkout is actually more convenient. I don’t see why blockchain would help to improve this checkout UX

I can't tap my phone on my phone bill or my airline's webpage to pay it.

I think it will get there eventually. Segwit adoption, lightning network support, successfully navigating the upcoming fork etc. will bring transaction fees and confirmation times down. Even if 1BTC hits $100K in a few years, the smallest fraction of a bitcoin is 0.00000001 (or $0.001).

The current bitcoin core team is optimizing for tiny blocks which means less space for transactions. They are doing this for reasons that don't hold up well if you examine them compared to other solutions (a whole nother ball of wax).

Tiny blocks means higher fees, which is a disincentive to use bitcoin as currency (it still works as a store of value). Bitcoin core is trying to solve this with a centralized layer 2 lightening network, which sort of defeats the point of a decentralized currency.

Bitcoin cash, however, is a fork that is planning on scaling on layer 1 with bigger blocks and smaller fees. I would keep an eye on how adoption goes for bitcoin cash in the next year or so. I would also watch Monero usage in actual cash transactions, as it is the most fungible.

>Monero usage in actual cash transactions

Monero is even worse than Bitcoin when it comes to scaling issues. Quite a few projects are working on strong privacy/fungability coins without the scaling problems but it's hard. Zencash is the one I'm watching.

> Monero is even worse than Bitcoin when it comes to scaling issues.

True, and fees are higher because of it, but they are working on that. I should have explained why I mentioned it. I list it mainly because it wins on fungibility, so I can see where it might follow a similar adoption pattern to bitcoin, where it becomes the darknet currency of choice, then expands outward. I think this is more likely if either the traceability of bitcoin becomes an issue, or if bitcoins with "tainted history" become harder to spend.

Not mutually exclusive, though. The technology is neat, but there's little to justify $4000 a pop tech-wise. Plus, the vast majority of people putting money on it are not buying to fund development or for its future promise, but to sell someone else for a higher a price.

There's tech in bitcoin, which is neat and will lead to interesting things, and then there's speculation in bitcoin, which is just that and will lead nowhere.

> The technology is neat, but there's little to justify $4000 a pop tech-wise

Just a globally decentralized currency that can't be devaluated by central bankers. No big deal.

Bitcoin is a political statement. And HN is a political echo chamber. No one here is going to change their mind about central banking and monetary theory. So if you think $4k/BTC is insane, that's totally reasonable. But you're also not seeing the vision and motivation that the early adopters hold - and from that perspective, $4k/BTC isn't that impressive.

I don't get why there's so much hate on the speculators. They're the (only) reason early adopters earned a reward for their risk.

Plus it's not like you have to play their game: if you think there's a bubble just cash out and buy back in when you need the coins for a transaction.

Who's hating on speculators?

Feels like everyone, my original parent commenter for instance

The aspect I like the most is BTC becoming a global currency. It's so nice wiring "money" to friends/family/businesses and not worrying about exchange rates, multiple banks taking a percentage en-route, sending limits, choosing between SWIFT, SEPA etc. or trying to track down the beneficiaries bank address. Sending BTC is so frictionless: open wallet, paste receiver's address, specify amount and hit send (transparency bonus: watch in real time as your "money" instantly starts moving through the network and gets confirmed in the receiver's wallet).

Admittedly, for now at least, you still need to on-ramp/off-ramp BTC in to fiat in a lot of cases but as bitcoin adoption increases this will become less and less of an issue (you can see the beginnings of this already with a lot of employees working for companies that have done an ICO opting to be paid in BTC/crypto-currency rather than fiat).

In order for me to actually use bitcoin in my daily life I would need to convert it to dollars to make it useful. My landlord, car loan bank, utilities, local grocery stores, gas station, and car insurance do not accept bitcoin.

Venmo or even Paypal is arugueably more easy to send money than anything. Type my checking account details and send to a friend.

Paypal has existed since 1998 but it took 10+ years for it to achieve deep, global merchant penetration and consumer acceptance.

Bitcoin needs time but I don't think it's unreasonable to imagine it will one day meet and then surpass the current ubiquity of Paypal (and similar) as a payment method (especially for cross-border purchases/transfers). It already wins on utility and transparency. It just needs wider adoption (and less volatility, which wider adoption will help with).

These aren't mutually exclusive scenarios. Anecdotally I have friends who are investing in bitcoin because they've seen the price go up so much that they want in on the action. At the same time there are legit demand reasons for the price to go up (e.g. in Venezuela I think people use BTC because their currency is so unstable).

I've been saying this for a while: I'm not a fan of Bitcoin, but some of the underlying ideas are here to stay.

The technical solution to Sybil-resistant distributed systems was insightful, and I'm sure we'll continue to make use of it, but the Bitcoin community hasn't really carried that forward.

In no particular order:

- They disabled a bunch of OP codes, which gimped their network.

- They attracted the kind of people who make toxic communities.

- They haven't really provided a usecase for the network, partly because of the first point.

- They haven't proved they can implement technical solutions, partly because of the second point.

So while the underlying idea is interesting, I have very little faith in the technical stewardship or the vision of the Bitcoin community, and thus expect another project to disrupt it before Bitcoin ever accomplishes its initial (and long since forgotten) goals.

Agreed! Trying to value Bitcoin is extremely difficult, as nothing comparable has ever preceded it, hence trying to predict future price action is extremely difficult.

One thing is for sure- it's never going to disappear and all those people saying it would go to zero deserve to eat their humble pie.

People love calling things a 'bubble'. There's been a steady stream of bubble predictions for an eternity about just about everything that's been successful. It's meaningless FUD used in place of real arguments.

Some very famous. DHH in 2010:

"Facebook has been around for seven years. It has 500 million users. If you can’t figure out how to make money off half a billion people in seven years, I’m going to go out on a limb and say you’re unlikely to ever do."


The Federal Reserve Bank of Chicago praised Bitcoin too, in 2013: https://www.chicagofed.org/digital_assets/publications/chica... Key quotes:

«Bitcoin is an elegant implementation of a digital currency, but can it truly rival or replace existing currencies?»

«it represents a remarkable conceptual and technical achievement, which may well be used by existing financial institutions (which could issue their own bitcoins) or even by governments themselves.»

«At the time of this writing, the average worth of a bitcoin over the previous six months had been a little over $100» (up 42× since then: $4,200)

«Bitcoin solves two challenges of digital money—controlling its creation and avoiding its duplication—at once.»

>“Bitcoin cannot be regulated. There is no need to regulate it because as a system it is committed to the protocol as is and the transaction fees it charges the users are determined by the users independently of the miners’ efforts.” The authors said.

Isn't this false and the reason why bitcoin cash exists?

I'd think the continuing existence of Bitcoin separate from Bitcoin Cash proves the quote.

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