It's arguable that fiat power for each state similarly reflects preferences of banks, merchants and users. However, some of us doubt that money policy typically favors users.
With government fiat, forking isn't really possible, without a revolution, no matter how unhappy users are. But with Bitcoin etc, that is possible.
It's a common misconception that miners drive Bitcoin policy. In my opinion, miners are parasitic. When I first started using Bitcoin, there were virtually no professional miners. Users did all of the mining, locally. So difficulty was very low. Now, with so many professional miners, difficulty is very high. However, blocks get solved in 10 minutes on average, just as they did in the beginning.
Anyway, it's true that Bitcoin is a fiat currency. But governments aren't in control, and that's a good thing.
Contrary to all the noise, Bitcoin does not need commercial miners. They are parasites. Allowing them to dominate mining was a serious bug. It's users who should be mining.
This will seem pointlessly ideological to most people, but I'm struck by the fact that the bitcoin blockchain is held up as 'proof of work.' There's no work involved besides that to understand the system initially and any code contributions made to the source tree. The actual calculation is carried out by machine. So mining is basically a game for capitalists to invest in industrial hash table production. People who learn about it later and comprehend it in full but don't have any large sums of capital to invest in mining equipment or as a speculative investment don't really derive much benefit from it.
Don't get the idea that I consider it a bad thing because of this - its mere existence speaks to the fact that we've run out of accessible natural frontiers where the curious might stumble upon a fortune, and so we are forced to invent them.
What would be the downside?
This is supposed to be a distributed system.
The Tor Network, for example, has mechanisms for excluding bad participants. There's the bad exit flag, for relays that snoop traffic. Relays that harvest onion hostnames get banned. So do relays that attempt traffic analysis.
There's even a policy of discouraging new relays in commonly-used AS. There's no exclusion mechanism. But I don't see why there couldn't be, if there were too much concentration.
Edit: See https://trac.torproject.org/projects/tor/wiki/doc/ReportingB...
But even then, I prefer it, because with enough interest, it can always be forked. And that's much easier than changing governmental monitary policy. That is clearly dominated by the wealthy.
But it's not your one vote that makes any difference, It's how many votes you can influence. And that's all about privilege and money. Campaign funding. Lobbying.
You clearly have no idea how money is "created" or how the Federal Reserve works.
In order to be bailed out, which is a necessity, they even need contacts as high up as the president.
And even that is ignoring the long history of the government making specific laws specifically to benefit or destroy a single bank.
Nope, no government role here at all. This division simply results in privatizing the profits, nationalizing the losses in trade for having politicians name the owners.
it is if you want to be a reserve bank of course, which is why anyone wants to have a bank in the first place.
Not true. Literally by design actually. This is a common misconception about Central Banks and it's one the US system makes worse by being explicitly public but functioning extraordinarily similarly to a private company.
This particular structure was actually a compromise between various other possible implementations.
But seriously, it's not a private bank. Repeating that just makes you looking like you get your information from websites that put their titles in all-caps and have dodgy grammar.
Gold is still the closest thing to a true non-fiat money but even gold has a value based on a consensus and any monetary form of gold will typically come as some kind of coinage for convenience and quick assessment. You can't eat gold.
Money is a social construct.
You could argue that crypto currency promises a form of fiat that is more transparent, auditable, accurate, and open in general but IMHO that remains to be seen in practice. The shitshow that is most exchanges and the majority of flimsy ICOs is not encouraging. All economic systems have corruption and dumb sheep like speculation but this is ridiculous.
The truth is that the everyday user gets full control over the law of their currency simply by running a full node. Your node will reject any transactions that do not comply with the rules of your node.
The soveirgnty of bitcoin comes from knowing that the devs can't force an update upon you or the network, if you do not consent you can always reject the change.
This is exactly their point. This applies to everyone and all organizational entities.
Think some underestimate firstmover advantage and end-user inertia.
This is a common misconception about bitcoin. Every single node on the network validates every single block, not just miners.
Being able to fake blocks isn't significantly more useful than being able to double spend. I don't see why that would be the tipping point.
The reason you don't see these attacks is that they are difficult and very expensive and they would ruin the value of the coin so you can't even profit off it.
You still have freedom to pick the rules to a small degree though - you choose which blockchain to use. Don't like bitcoin? Try bitcoin cash/ethereum/ethereum classic/litecoin/dogecoin/Monero/siacoin/decred/etc etc.
A common misconception is that miners can pick the rules, but they can't. They can only choose to enforce additional rules (which is powerful), they can't ever violate the original rules.
No man is an island, unless he wants to completely devalue his bitcoin.
It is really no different than the government fining you for disobedience.
There are philosophical theoretical arguments against this, not pragmatic ones.
Bitcoin was made with the idea that a 51% attack would be unlikely and unfeasible; as long as that holds, I'm not sure what value your comparison has. You might as well make a comparison to any other possible disaster. ("A solar flare is a form of state governance that will destroy the value of your coins...")
Not exactly end of Bitcoin danger, is it?
That already has happened which is why people forked. You can live in denial of that fact if you wish but a minority "lost" the "vote" and forked Bitcoin.
The BTH/SegWit2X fiasco shows Bitcoin isn't "more" decentralized than an oligopoly, an oligarchy, or a plutocracy.
> Bitcoin was made with the idea that a 51% attack would be unlikely and unfeasible; as long as that holds, I'm not sure what value your comparison has. You might as well make a comparison to any other possible disaster. ("A solar flare is a form of state governance that will destroy the value of your coins...")
The fact pro-bitcoin people swear up and down that isn't the case doesn't change the fact that they are effectively the Bitcoin state and that 2-3 of them + a number of smaller people can effectively "vote" to pass "laws" that are enforced against your BTC regardless of your wishes.
Simply because they don't outright steal your BTC doesn't change the fact you have to comply to retain the value of your BTC.
Sure a government might do that, but they could point a gun to every full node owners head and tell them to stop it just like China did. It would also be much cheaper.
Step 2: use this power to force enough transactions to make yourself rich enough to keep 51% power indefinitely
Step 3: profit
There used to be 100+ years ago such as gold and silver coins where if you were able to remove them from Country A to Country B, then Country A could no longer enforce such financial penalties against you. This is what many of the cryptocoins _wanted_ to be.
It needs to be a hard currency that leaves you immune to monetary policy and fines unless you are physically within the jurisdiction of the country.
That statements not a given. If it were so, people would not use credit cards.
In the scenario where you believe bitcoin will be worth $100,000 and you have $7,000 or 2BTC, you decide to buy a computer for $3,500. If the remainder of your value is in dollars, you will have $3,500 in value. If the remainder of your value is in bitcoin, you will have $100,000.
The depreciating asset you've invested in here is the macbook, not bitcoins.
I have a 1.4 bitcoin T-shirt. I don't regret it one bit.
Is that you?
Gold is hoarded and traded much like bitcoin, from what I've seen.
Au is indeed useful, but not so much as nearly indicated by its current pricing. There's a _long_ history of human predilection for gold-as-a-magical-substance versus gold-as-an-industrially-useful-element.
Not exclusively, but for the large part.
If you look at historical English prices, prior to the 19th century, the penny was 1/240 a pound, and the farthing ("four-thing" -- one fourth a penny) was 1/960 a pound. Call it 1/1000th.
A labourer's wage might be 20 pound/yr. It's more useful to think of the farthing as roughly equivalent, at least in work-time, to a dollar, and 20 pound as $20,000.
A pound, then, was a lot of money. And even it was (in English currency) silver. Gold were guineas: 1 pound 10 shilling.
It could even be expanded to include inflationary currency in a country where hyperinflation is occurring. People will hold on to USD or some other currency as an investment because it'll be worth significantly more tomorrow than whatever currency the supermarket down the street accepts.
I do think there are some aspects of bitcoin that limit its use as a medium of exchange (transaction times, current lack of stability), but I don't think its the deflationary part.
This doesn't really feel the same. You might use USD to store value because you know that it's value isn't going to fluctuate like crazy from month to month or year to year. So if you can afford to feed yourself today, you can still feed yourself tomorrow. You're still spending your money.
No one I know with Bitcoin spends it, with the exception of a novelty purchase of beer. And why would you, in 4 years the value of bitcoin increased over 10 fold. You'd be stupid to ever spend it while this trend continues.
Noted, and I tend to agree with you on that point.
> You'd be stupid to ever spend it while this trend continues.
For sake of argument, assuming you know this trend will continue you'd be stupid to not put all of your money into it. At which point, you'll ultimately need to spend it to get things you need (whether you're spending it on purchasing other currencies, or spending on the actual goods). Unfortunately, we don't know the trend will continue or if it'll reverse or if it'll level off.
My bet is that it hasn't caught on as a medium of exchange simply because that's not really a major pain point. Cryptocurrency's competition as payment isn't $USD; it's Visa, Mastercard, Discover, Stripe, Square, and other payment processors. People bitch about these companies, but they usually bitch about them from a concentration-of-power-and-fees standpoint (which Bitcoin doesn't actually solve, once you consider the costs of the commercial Bitcoin exchanges), not a convenience one. When it comes to convenience, whipping out a wallet-sized piece of plastic or your cell phone is a lot better than waiting 12 minutes for a transaction to settle on the blockchain.
It died off because _some people_ tried to turn it into a real thing for micro transactions, etc.
Certainly made it hard for me to take it seriously as a semi-layman at the time.
> So that made you less likely to trust the code/governance?
Well... yeah! What's your point? That projects deserve trust based on their branding? I'm not convinced until there's peer approval, especially not if it's piggybacking on something "trendy".
I do agree though it's a shame it got subverted from the ultra low value p2p tipping platform it was becoming. Feels like it's just litecoin left as credible alternative in that area.
That's a wildly inaccurate statement. A fixed exchange rate, such as that imposed on the Chinese Yuan is a complete refutation of your claim.
Go find someone who's willing to take whatever you're trying to use instead, why should other people have to take your form of payment against their will?
I think the march of bitcoin is actually a better example of how AI is taking over the world. People in AI are fascinated by AGI - but the bitcoin ecosystem is actually a real world example of how AI will take over the world.
Specifically, the march of AI won't happen at 'edge' nodes, it won't be incremental, it won't happen by replacing humans with machines. The march of AI will start at the core, at a rethink of the fundamental infrastructure that powers an industry making it more amenable to machines and 'hostile' to most humans.
People underestimate the amount of resources required to articulate monetary policy by a central bank. Bitcoin can already do that much better than maybe 70% of the worlds central banks. India, China and US can think about banning/regulating bitcoin. But there are countries in Africa who can already do better by simply leapfrogging to bitcoin and ditching their national currencies.
Bitcoin is here to stay. And it cant be stopped.
I doubt this would do any good for them.
* Their currency would be totally exposed to 3rd parties.
* They would loose the control over the rates, which are an important tool to attract investments, if are stable and controlled well.
* AFAIK some Chinese private companies control large part of the mining network. Basically the central bank would be in private, and foreign hands.
* The slow transactions would make it totally infeasable for use in everyday life, especially as people there have limited access to necessary technologies (stable network connections all round the countries, stable electric power everywhere), so daily transactions of the ordinary people would either fall back to barters, or use some fiat paper money, eg. USDs.
I totally don't get how could you reach tis conclusion, your whole post is a SV bubble wishful thinking with some trendy bullshit, eg. software eating the FED, fed is replaced by code. Bitcoin does better than centralbanks. If some currency looses 30% of its value a single day, that is not a sign of health, and this happended the very week with bitcoin. Actually Bitcoin does its job worse than an african dictatorship's currency, if its job is being a fiat currency, which is useful for the people in daily life.
I doubt its job is that, so it may do its job well, but for this task it is unsuitable.
My post wasnt just about Bitcoin specifically, but around the entire blockchain ecosystem.
> But there are countries in Africa who can already do better by simply leapfrogging to bitcoin and ditching their national currencies.
Also: The concern about infeasability in everyday life is network based and not a shortcoming of bitcoin. So it's not dependent on the coin you are using.
All other points seem to be inherent to public blockchains, so it is quite the leap of faith to believe they are fixed in any public blockchain cryptocurrency.
Bitcoin only has totally clear monetary policy because it's increase of the money supply is entirely predetermined: It is created at an ever decreasing rate approaching a limit.
The result of this certainty in monetary policy is a currency that is naturally deflationary (literally by definition). This makes Bitcoin perfect as digital gold but shit as a functional unit of currency. You don't want to spend an asset that will naturally appreciate in value, discouraging using it.
You could have a cryptocurrency that generally trends at the same inflation rate as regular currencies: 2-3% annual and use that to pay the miners (or just give everyone a wealth endowment through giving any current owners a 1% increase in their current wallets and use the other 1-3% for the miners) and you would have a currency that could stay price stable with out Fiat currencies instead of always increasing in price like BTC has (at least over a sufficient moving average to reduce the volatility from speculation).
In your example, HDD space is purely a good to be consumed though and not a currency (or an investment beyond an actual capital investment because it does work for data storage). Thus, if you need to store data, you will buy storage simply because you need it then. But you can't sell that storage in the future for a positive return, so the incentive I'm talking about doesn't really exist in the example you used.
Money is a means of allocating production. If it is just stored under a mattress, it isn't being useful and production is being wasted. We capture the negative effects of that waste with inflation.
Deflationn is basically a death spiral for an economy, as everyone consumes only essentials because everything will be cheaper tomorrow; lots of production is wasted because it can't be saved easily for tomorrow, people are laid off, companies go out of business, it sucks. Wars have even been started over silver and gold's deflationary tendencies (e.g. See the opium wars).
Don't confuse inflation with hyperinflation, the latter of which just destroys trust in the currency and makes it useless to save at all, causing runs on all production and starving investment. A bit of inflation is all that is needed to put money's use into a positive state without flipping in the other direction.
Whereas inflation at least basically forces the wealthy to invest in real assets or else slowly transfer the value of the cash towards debtors.
Yes, we agree on that. However, I think we need to also acknowledge that 1) a large proportion of wage earners have very few, or negative net assets, so deflation actually hurts them and 2) even though deflation helps savers, the biggest savers in the economy are actually the rich. Deflation helps savers, but the people with 80%+ of nominal assets are the already-wealthy.
In fact, the most common form of household wealth is a house, where you own a real asset and owe a nominal debt.
Under inflation, your house value grows at inflation while your debt remains constant, so this even benefits the saver. Under deflation the opposite happens.
> Are we going to act on theories that match the data or does not match the data?
You need more data. The developed world has been on the gold standard since the late 19th century through to the 1970s. During that time the US has seen:
- the Robber Baron age and the Long Depression (where the rich got much richer)
- the roaring 20s, when wealth was more distributed
- the subsequent crash and the Great Depression, where the entire world was in misery (but inequality was very high)
- WW2 and the post-war era, which saw large decreases in wealth inequality
Seems a bit silly to say that 'the gold standard was responsible for lowering wealth inequality', given the huge swings back and forth in inequality while we were on the gold standard over 100+ years.
It'd probably be surprising to know how many businesses have been killed by intentionally or inadvertently releasing information about an upcoming product.
Do you think people were queuing to buy the iPhone 7 once Apple announced the September event? No, because there's a new model and old models would become cheaper
Let's say you need to store an extra 1Tb per year, for the next 5 years. Do you think it's better to buy 5 1TB HDs now or one every year? (disregarding backups/raid/etc, this is an economics question, not a storage question)
The answer is obvious
Think about it: for every dollar you earn, the government can print its own one dollar to basically halve your earnings. Why would anyone want such a thing. With bitcoin, you don't need to invest in stocks/real estate and other inflation resistant things to beat inflation. You can hold your earnings in it and you are already beating inflation.
Even just minor deflation is disastrous for economies because if there is 3% deflation, you could get 100% of what was generally typical GDP growth for developed countries without spending any money to produce anything. This encourages everyone to be risk averse towards spending money on anything at all.
Thus, monetary policy over the past century has settled on a steady but small amount of inflation as the ideal policy for balancing economic growth and unemployment.
A currency being inflationary shouldn't really affect spending because lots of different investments already exist, so you can make money holding them instead of the dollar. The dollar being inflationary (or shouldn't, for rational actors) incentivizes trading it for something else, but not necessarily increase spending in unnecessary, depreciating, products.
That's true, but someone has to end up holding the nominal assets.
Like yes, a saver can trade all their fiat currency for real assets by buying a house or stocks, but then the person who sold them those stocks would get hit by inflation. At the end of the day, if the 'real assets' in the economy are worth say $10 trillion and there is $1 trillion of currency in circulation, then whoever is holding those dollars will pay for the inflation.
Btw, the most common nominally-denominated asset is debt. Savers who hold debt (Treasuries, mortgages, etc.) get hit the most by inflation.
What are some real world examples of this?
The Great Depression in the U.S. as well.
There's a possible counterexample with the Long Depression in the U.S:
Here, prices fell slowly: 1-2%/year, caused by sharply rising productivity. The period was also called the Gilded Age, and it was a mixed bag economically. On one hand, the structure of American society dramatically changed through massive technological advance, consumer goods became abundant, and businesses who adopted those techniques became fabulously wealthy. OTOH, many small farmers went bankrupt and were forced to sell off their land to service debts they couldn't pay with money that was now more valuable than when they took out the debt. Ditto lower-class laborers, who were squeezed into tenements with dozens of families living together as their wages remained stagnant for a generation but their employers became fabulously wealthy and bought up much of the prime real estate.
The Long Depression is largely forgotten today (unless you're an economic history geek), but it was a prime impetus for the monetarist school of thought. The whole idea that the government needs to continually print money to catch up with rising productivity and availability of goods is largely based on the experience of the U.S. in the Long Depression, when they didn't print money.
Also, there's a good amount of evidence that our current period of history resembles the Long Depression a lot more than either the Great Depression or 1970s stagflation, and will play out in similar ways. I'd personally put us around the mid-1890s in terms of historical parallels.
This triggered massive hoarding of currency, despite harsh legal measures that tried to outlaw it. Everyone had an incentive to hoard the old, higher silver coins while shunning the new debased coins being issued . 'Bad money drives out good' .
Eventually, the majority of the Roman economy became demonetized, and people had to resort to barter again. Welcome to the feudal ages.
* Note that there is a confusion of terminology here -- things look inflationary if you are counting the number of coins it takes to buy something, but highly deflationary if you measure the amount of silver to buy the same item, as silver was sucked out of the economy and then hoarded.
From a certain perspective, both factors actually came together to destroy the late Roman monetary system -- the real 'store of value', silver, was removed from the system and hoarded because it was deflationary. And hyper-inflation in the fiat currency simultaneously made the coins totally worthless and therefore unsuitable for doing transactions.
Could you elaborate how you think bitcoin monetary policy is better than 70% of world's central banks? To me, one of the most important tasks of monetary policy is to have a stable value of a currency (not against other currencies but against stuff people actually buy). And with that measure, I have difficulties identifying one single central banks that is worse than bitcoin within the last few years. (Maybe Zimbabwe or Venezuela?) But 70%? No way.
(Note that bitcoin also fundamentally lacks a mechanism for price stability, not that anyone actually owning bitcoin would that want.)
And Africa ditching national currencies for bitcoin? How do you propose that an illiterate farmer in rural nambia is going to use bitcoin? Even if you figure that out, do you think that the african governments - crappy as they may be - are that stupid that they don't figure out that instead of paying the seignorage to bunch of bitcoin nerds who currently own the currency, they can make their own fork and pocket the seignorage themselves?
Bitcoin has no future as an usable, official currency anywhere. That should be obvious.
This may be technically true, but probably won't happen anyhow. There's a reason that those currencies are terrible, and that reason is that a person or people in power benefit from the seigniorage that is the cause of the currency inflation.
None of the BTC startups, even the remittance ones, want to touch that market with a ten foot pole (Despite their slide decks shouting from the rooftops about banking the unbanked.)
Maybe it's because BTC doesn't actually solve any of their problems.
It would be trivial for them to shut down exchanges. Without that, it would hard, and expensive, to convert to fiat.
Legit businesses would not accept Bitcoin. The only uses would be black market, and I doubt they would continue using bitcoin on the darknet markets. Without the ability to easily convert to the currency of the country you live in, Bitcoin would have little to no value.
I hope those bitcoin guys won't get guns to actually execute people who are not buying.
They already leapfrogged them a decade ago with m-pesa.
Why AI takeover is always considered against humans? Why can't it co-exist with humans?
there's high potential for people gaining freedom from the west's monetary system. but i'm very pessimistic about us getting this right and not loose "control" to state and corporate powers exactly like we did with the internet.
Fiat means "by decree" or "by authority". Fiat money is money that is decreed into existence by some authority, that is, the government. This is done through legal tender laws.
Bitcoin is not created by the enactment of some law by some authority. Fiat does not mean "by consensus", or "by mathematics". Saying code is decree, and therefor fiat, is sloppy thinking.
Bitcoin may have much in common with fiat, but that does not mean that it is fiat. It is, by definition, not fiat.
What gives Bitcoin value is not government decree, but its utility . And that is somewhat paradoxical, because the more people hoard it the less utility it has. And the more its used to buy and sell goods, the more utility it has, and the more value it has.
It's -- you know -- an element of literary style.
If you don't believe it just check out the cases that were brought to light. You will find that they are very obvious and not super secret. You will find that someone in a similar position but different company/government actually profits from this "discovery". And you will find that not all cases get punished, just this one case. (think 2008 here, where they literally jailed a single banker and that was it)
Hidden in plain sight, ignored by people who want or need you to succeed. That's how this game works.
An example would be Lebanon. Everyone except US citizens gets pretty good banking privacy protections. Due to US pressure, Lebanon carved out an exception to those protections, just for US citizens. There aren't exceptions for any other countries, as far as I know.
As they are high net worth families, getting citizenship in a new country won't be difficult.
> In 2015, he was denied a visa to reenter the United States by the U.S. Embassy in Barbados, which claimed that he had not sufficiently proven ties outside of the United States that would motivate him to leave at the end of his visit, causing fears he might become an illegal immigrant. Later in the same year his visa was approved by the U.S. Embassy in Tokyo, and he visited the United States in June 2016 to speak at a conference in Denver, Colorado.
Its a fun thought experiment for sure but ultimately if you're at the level of wealth that running from the taxman gets you huge gains, either you have other problems (like being some sort of druglord) or you have enough money to also just pay taxes
But it seems that a lot of people disagree. Either you and I are massively underestimating the benefits of tax avoidance, or these people have some sort of knee-jerk reaction to the very concept of taxation that makes them try to avoid taxes even if it involves a lot of hassle. The latter would not be surprising for a diehard libertarian.
Other countries are much the same, only usually a bit less money. Canada, for example, will fast track you to LTR, and a path not naturalization, for just depositing $30,000 CAN.
Yeah, if you've got money, like the OP said, then you're going to be able to live pretty much anywhere you want. They use more polite legal language, but you can buy citizenship pretty easily. It's not even all that expensive, depending on where you want to live.
Also, it seems like a bad idea to stash much of your wealth in a system is so vulnerable to theft. All it takes is for someone to have a momentary lapse in security or put a decimal in the wrong place or some other human error and then all that wealth is gone forever.
....and what prompted the conversation : ) ?
The problem is that crypto can be good for a % of your illegal money, since it's relatively unproven. Any exchange that doesn't share the info will be taken down ala BTC-E (my bet is that IRS /FBI has their client list and transaction history already) so it's very very hard to spend /cash out.
If it gets our hand, of course then govts we'll declare war on cryptocurrencies
I find the opposite: people who don't "get" Bitcoin tend to not know what makes money actually money, and don't know how the current monetary system works (eg. still believe dollars are backed by gold).
I'm super excited about the crypto currency space but I firmly believe we're in the "Diamond Rio" phase of a new technology and not yet to the "iPhone" and "Android" phases.
I don't need to pay my cup of coffee in bitcoins, but Bitcoin is very useful for plenty of other use cases.
For example my brother in France owns some bitcoins. One day he sent me, who live in the US, some bitcoins. I was able to spend them instantly (~10 minutes) on NewEgg to buy computer hardware. None of us had to convert to/from fiat. The fees were small and the transfer was incredibly fast compared to a regular bank wire.
You still need actual money to pay taxes and that's all a state needs to ensure it can provision the public purpose.
I'm sure that has enough truth in it. But you can characterize bankers in a similarly negative way --
particularly in light of recent economic engineering. But we all buy in to the concept of money (excuse the pun).
Sure, but they tend to know a lot about currency.
As something that is nearly universally traded for local fiat, gold is far more of a currency than most countries’ currencies. Only a handful of countries have currencies that are more universally accepted.
Many people don't know that central bankers literally, not figuratively, mean CREATE money out of nothing.
As long as you can separate "money" from its representation, there is nothing particularly problematic about some people being able to create money, at least some of the time. In fact it is necessary to provide money with liquidity as the economy grows and money is needed for more and more things (liquidity problems have triggered or worsened economic crises several times in history, especially when countries were trying to base their money on weights of metals).
1. The dollar itself was created two centuries before the US left the gold standard. "Created" being the operative word. Created by Congress because America needed its own national currency.
2. Anyone who dug some gold up in their backyard was creating money when we were on the gold standard.
3. In 1862 paper money became legal tender in the USA without any guaranteed convertibility to any metal; that remained the situation until 1879. I.e. the government simply created money.
4. On January 31, 1934, the US dollar was devalued from $20.67 per gold ounce to $34. In other words money was created by an act of Congress.
Or to sum all that up for you: at a minimum Congress has always had the power to create money. All the metallic standards ever conceived of have been arbitrarily decided and governments have always had the ability to change the standard at will to create more money.
Before 1971 dollars were backed by Gold, now they are backed by US Tbills (and some real-estate since 2008).
It's not that different.
Gold and US TBills are both valuable assets.
What the OP meant by creating money out of nothing was fiat currency, which we do have now.
If you decide to use a commodity also as money, that's fundamentally different, and econ textbooks can confirm this for you.
T-Bills are backed by fiat currency, not by a commodity.
The Fed, and also the banks through fractional reserve banking, genuinely do create "money out of nothing."
Check out A Monetary History of the US by Milton Friedman and Anna Schwarz. Here you will find a Nobel Prize winning econonist who wanted to dramatically reign in, or even end, the Fed and get rid of fractional reserve banking.
TBills just bonds. They are 'backed' by the US Governments credibility to pay back the loan.
USD is generally backed by an asset - fractional reserving not withstanding.
No, this is not true.
Central banks do 'create' money, but they trade it on the market for real assets.
The Fed creates dollars and exchanges them for an equal amount of US Tbills (bought at market rates). $1 created = $1 in Tbills on their balance sheet.
They're not just creating money and keeping it, or giving it away.
The practice of 'fractional lending' by retail/commercial banks amplifies this, but as far as central banks go - every dollar they 'create' is essentially backed by an asset that they keep on the books for that dollar.
The idea is to manage how much currency is in circulation at any given time, so that inflation (and employment) hover at certain target.
If politicians were 'printing money' to pay national debts, or buy stuff or whatever - that would be straight forward dilution.
What the Fed does is not dilution, and it's not a bad thing, it's a good thing.
Same for ECB.
At the summit of the tree the assets are just 'other assets'. An accounting fiction.
The state can purchase whatever is for sale in the token it controls. And it can make sure there are things available for sale by imposing a liability on you in that token you cannot avoid.
The value then depends upon how much stuff the state extracts for the public purpose in return for its token. And the belief in the coercive power that gives that process weight.
1) The private sector is experiencing falling savings.
2) The government is likely on the precipice of expanding its dis-saving in the form of greater deficits.
Not to state the obvious, but all else equal, if the Fed started shedding assets at $30 billion a month (or $360 billion a year), it would exhaust the entire stock of private savings. This doesn’t allow for larger government deficits. Given the current savings level, it is mathematically impossible for the Fed to shed assets at $50 billion/month. By 2019, as we are farther out from peak net savings rates set in 2015, it is likely the stock of private savings is smaller still, and hence the ability for the Fed to shed assets at a rate of $50 billion/month is utterly impossible. Net savings have fallen in the last 2 years from a peak of just over $700 billion to the current $355 billion. Will savings halve again in the next two years? If so, there is no mathematical way in the world the Fed can shed assets at the rate it outlined yesterday."
I tend to side with the uneducated who think the FED prints money out of thin air because it is closer to the truth of the matter of where real economic value exists moreso than the anachronistic mechanics of FED policy three card monte. When all is said and done, the FED took on toxic assets it will not be able to unload into a weak economy. The only hope it has is to sell the assets at face value in exchange for inflated dollars or hope the economy booms beyond everyone's expectations in the next two years. Sure hope the latter happens because otherwise the FED has done nothing but defer the pain of 2007 into the catastrophe of 2020.
I'm already over simplifying, but here is a less abstract illustration: Imagine you lose your job and you need some money to get back on your feet. You borrow against a line of credit to cover living expenses. You find another job but it doesn't pay enough to cover your standard of living, so you keep the line of credit open and just make the minimum payments. You are the US economy and the line of credit is the FED right now. If the line of credit is not paid off, if you lose your job again, there will be nothing to borrow against or even make the minimum payments. The smart thing to do is pay off the credit card balance so you can use it again if you're in trouble. The problem is you can't do that unless you cut back on spending... and this is why the FED always points out that the control of the situation is not with the FED but with congress, they need to cut spending... <insert laugh track>
And I didn't even address your exact point. This is just the "non-toxic treasuries". The toxic stuff is non performing home loans. Imagine trying to sell those back to someone! Are you willing to buy them?
More info here: https://www.newyorkfed.org/markets/mbs_faq.html
A private bank. It prints a dollar and either: (1)buys a T-Bill with it through the FOMC, or (2) lends it out through the discount window (only to big banks, not to Americans directlt), or since 2008, buys "toxic assets" with it.
How many dollars are printed is decided by unelected technocrats with no public transparency, oversight or accountability.
What the Fed also does is insure the banks because they are for some ungodly reason allowed to lend out over 10x more money than they have (to increase the money supply, econ textbooks say).
There are a lot of people who have said something between 'the Fed is a welfare system for the rich that steals from the poor' to 'it should be ended,' including Bernie Sanders, Milton Friedman, Aaron Schwartz.
In fact during the Civil War Lincoln actually ignored the banks who were all betting against him. He used the a constitutional right to print money through congress and it worked.
In academia, the groupthink around the Fed is strong. Think stronger than Challenger Disaster groupthink. And they're almost all in favor of it.
Exactly what the parent said.
The fact it is used to buy TBills is irrelevant: the Fed creates money out of thin air. Period.
Having the Fed inject money into the system is a dodge, but effectively the same thing. It gets the treasury off the hook, because they can say they are "borrowing" rather than "printing" money.
It's unclear to me why this bothers people so much?
The point is it’s backed by an asset
Yes it's still backed but less than before, i.e., devalued.
1 Trillion in Assets = 1 Trillion in Currency.
1 Trillion + 1 dollar in Assets = 1 Trillion + 1 Dollar in currency.
No dilution by the Fed.
(Fractional lending notwithstanding - that's another can of worms)
But you cannot eat a dollar or play games on a dollar or drive with it. In and of itself a dollar is just a piece of paper and has an intrinsic value of say 1ct.
So adding a paper note to the economy increases the backing by 1ct and the currency by 1$. Adding an iPhone increases the assets by say 100$ (just made that up by taking 500$ cost - 400$ used materials) and leaves the currency as it is.
Hmm, now that I think of it: Are you maybe talking about accounting?
Heyzeus its extremely relevant.
HNers are having conspiracy issues with this.
* Obviously if there is going to be more money in circulation, it needs be 'created' somehow *
But that it is traded for a specific asset, which is kept on a balance sheet - and the 'reverse' can be done to pull the currency out of circulation - is * hugely relevant *.
So it's value is very much perception based. Being the world's premier currency it's pretty damn safe, but if there was a widespread loss of confidence in the U.S. for whatever reason, the wealth of the U.S. relative to other countries could crater as a result.
This is why a couple years ago when the Republicans were messing with not extending the debt ceiling was playing with fire. In my opinion it was the dumbest thing I've ever seen in modern politics, and think of the competition for that statement. I imagine that the root cause of that foolishness is that some of the Republican politicians think of a country's debt like it's a household debt, when they are nothing alike.
Depends on the stage of evolution of Bitcoin you're in.
Early Stage: two parties can still trade transactions offline but there's a risk of being double spent against (not completely trustless but not fully trusted).
Second early stage option is: A solution that attempts to prove that private keys to the bitcoin hasn't even been accessed before: https://opendime.com/
Late Stage: Assume Lightning Network connectivity. Since the payment channels in the LN prevent you from double spending coins (attempting to assign UTXO to a different party than your counter party), all you really need to do is issue a channel update and issue a preimage to a hash time locked contract HTLC
AKA, orders of magnitude less than a can of beans.
If for some reason all our computers simultaneously failed without any warning, it would obviously be chaos, but at the end of the day the banks would be in a much better position to recover than anything like Bitcoin. Banks only use computer networks because they are more efficient than the alternatives; Bitcoin requires everyone to be online and does not have any alternatives. The worst thing that would happen if all computers failed simultaneously is that the banks would lose track of everyone's accounts -- a general amnesty for debtors and a big loss for people without debts -- and in the aftermath the banks would just start from scratch using older technologies.
Unfortunately though, it's the network that verifies the absence of double spends, so there's no guarantee of uniqueness.
With the no internet, and limited interbank settlement, I would still bet on the value of crypto over the fiat inflation that would be used to facilitate credit-worthiness.
It seems like this could work, hypothetically, but given the need we have for the currency of our country, it's hard for me to imagine that crypto would hold its value in the face of some kind of massive computer failure.
And if you grant the holder of that IOU the sole right to print and distribute notes representing subdivisions of that debt, you’ll find yourself back at cash!
The fiat part of the title is just FUD. With the same argument, gold bullion would be fiat because a majority of humans could decide they don’t like its shine. Silly Economist.
That's not true for Bitcoin, disregarding the various other coins. The supply is effectively capped and it is economically much more similar to gold where in the long term the price roughly equals the mining cost to fiat money where that doesn't apply.
For use as a normal currency bitcoin is probably creating too little money. For normal currency you want the value to be roughly constant not to double quite often.
Even if you accept the proposition, it's still an improvement in that if you don't like the governance (feels too "fiat" for you, or whatever), you can instantly convert to any number of other cryptocurrencies, including many that define themselves essentially in opposition to the reasoning behind the Ethereum fork.
The author kind of addresses this:
You could argue that markets are already deciding which new currencies provide sound money. And in doing so you would join the banking school of 19th-century England, or the people who loosened financial regulation in the late 1990s in America.
I don't know about 19th century English banking, but I don't see how anything in the late 90s or what followed constitutes "the market deciding what provides sound money". The Asian currency crisis maybe? But that was caused by bad "fiat" policies, especially pegs, and lack of transparency (SK banks holding assets rendered bad by the crisis in other countries, for example, and speculators exploiting this yet-to-be-widespread knowledge).
Assuming someone has built an "instant" method of exchange, and that it is always available, then I guess this is true.
But yeah, I guess if you're the last guy trying to get out of e-Bolivars you're pretty screwed.
The crypto ATM's allow you to purchase with a CC and in turn pay the store for product, all while avoiding cash. To the store this is a much safer alternative.
For the crypto anarchists watching the big banks/fed opening up about their feelings and fears about crypto, it seems like they are pushing a near billion dollar industry to find ways to accept payment outside of the beloved USD.
This allows you to spend at any store which accepts cards in general.
That said, there are stores which accepts plain Bitcoin. As one anecdata, the electronics chain webhallen.com in Sweden accepts pure Bitcoin-transactions.
In some way it is fiat, Satoshi's fiat, but that's not the same as USD. The most puzzling thing is how things like Bitcoin get priced, since it's just a number, but I haven't finished my research on it yet.
As to the USD price, I am less sure. My weak working hypothesis is that it is driven by adoption + projected future adoption. That is, how much people value it means how much they value being in on this particular ledger.
(Why are those things almost certain? Consider the scale at which Bitcoin operates; then take a look at ACH, Swift, Visa, Mastercard, etc. We are talking about orders of magnitude in difference. For all its gains over the past few years Bitcoin remains a tiny niche.)
In other words, don't view Bitcoin as money; view it as a system for transferring money and converting between different countries' money.
1. How are coins valued when the underlying company is building a product it will never be able to, or never intends to monetize (eg if Wikipedia had an ICO).
2. If another company acquires this browser company, what happens to the coins?
If the company is acquired, a number of things could happen. It's important to note that for the most part, the company doesn't control the coins. They simply publish a contract that provides for the tokens to function, but normally the administrative capacities of such a contract are limited once the sale is over. When administrative capacities do exist, they are typically controlled by one or more people controlling a particular private key. The owner of that private key will have control of the contract, so in order for a company transfer to transfer control, that private key would have to also transfer. (they'd probably want to redeploy the contract under a different key anyways since there would be no guarantee the old owner didn't still have a copy of the old key.)
Say people paid a company called Microhard $30 million in Ether during their ICO for Microhard coins. Can Ether be readily be exchanged for $30 million USD?
Assuming it can, and Microsoft acquires Microhard, and has no interest in crypto doesnt this leave a coin on the market with a name of a business that doesn’t even exist?
The trade volume of Ethereum was about $400,000,000 in the last 24 hours, so likely yes. Bitcoin and Ethereum are the two most popular cryptocurrencies.
>Assuming it can, and Microsoft acquires Microhard, and has no interest in crypto doesnt this leave a coin on the market with a name of a business that doesn’t even exist?
Yeah. That coin's value will probably drop fast given that its value was probably based on the anticipated value of it once its supporting product existed.
I think the big risk with lots of ICOs these days is even if some discerning investors pass, there are still lots of folks buying in as described in #1. And a lot of times it's really unclear what leaglly enforcable obligations actually exist wrt #2.