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Interestingly the economist misses the traditional definition of Fiat: a currency whose value is determined by the Fiat of a state. Whether or not Bitcoin exhibits similar trends as currency that isn't backed by the state is immaterial to the ethical appeal (to some) of a medium of exchange where participation is voluntary and consensual.

"Code is governance" -- the article does support the idea of cryptocurrency as fiat money because the laws, in this case, are the code. The developers and miners, no matter their good intentions, do hold power over the currency that everyday investors do not have. No matter how egalitarian the distributed ledger set up looks on paper, we'd be remiss to think the power structures behind cryptocurrencies are so radically different from the fiat currencies developed in the past and used at present. With time, especially if the cryptocurrency bubble pops, we'll be sure to see those structures made more explicit than they seem now.

Yes, that's the distinction. With Bitcoin, a codebase prevails if it attracts enough miners, merchants and users. Those parties in aggregate have "fiat power".

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.

So you're telling me that government money, where everyone gets a say in policy through republican institutions, is worse than a system where the most wealthy users get more control of the currency. Um, okay. I guess the oligarchy is more explicit in the cryptocurrency.

If you really think you have a say in monetary policy, I suggest you read Barofsky's Bailout.

You have a say in it in principle. In contrast, you have in principle no say what others do with their private property. That's the difference, and it's an important one.

It's interesting how so many people want government to be run like a business while hating it most when it runs like a business. Business is opaque, secretive, with no oversight and loyalty only to the bottom line. Well run government institutions are none of these things.

You can't control what miners do, sure. But you can fork code that changes the game for them.

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.

I mined a little in the early days, but it kept my CPU pinned into the red and frankly all the people online patting themselves on the back on the size of their mining operation were offputting. I'm interested in cryptocurrencies because of their potential to liberate the mass of people from financial bullying by governments and corporations, not as a speculative vehicle to easy riches.

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.

It's not about need. If it is profitable to mine, professional miners will exist. You can't create an incentive structure and then call it a "bug" when somebody optimizes for it.

So you can create a disincentive for non-user mining.

What would be the downside?

This is supposed to be a distributed system.

What kind of discouragement do you have in mind?

One could limit share of hash power. Perhaps by IP address. Or through blockchain links to previously-solved blocks.

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...

Although I still see it as a difference, I think it's good to remember you DO have a say in 'private property' .... there's nothing magical or natural about private property. Private property is whatever society/the government says it is.

It’s not really government money though, is it? It’s bank money.

I don't think that it's necessarily the wealthiest users. There could be a fork with lots of interest, no particularly wealthy users, and no non-user miners. One could probably impose the "no non-user miners" rule in code.

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.

Just download a mining program and run it on your computer. Voilà, you now have "a say" that is exactly equivalent to your say in the policy of republican institutions.

Don't be silly, that's like saying that incorporating a one-person business automatically puts you on-par with the lobbying power of major industries.

No, it's as silly as suggesting that a single voter has any say what so ever in the policies of republican institutions.

1 vote for a poor person = 1 vote for a rich person (ideally). In mining, the more mining power you have, the more "say" you have. One stays constant, the other scales. Don't you think that is an important distinction?

In a way it's a pretty naive view. The rich person will have more influence over other people that will give him effectively more than 1 vote.

OP's point is the big mining rig will have more influence than the numpty rig one boots up on their laptop.

Sure, each has one vote.

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.

So you're saying, cryptocurrency and fiat currency are the same, because you don't have a meaningful say in either one, unless you have a lot of money. Yes. True.

>where everyone gets a say in policy through republican institutions

You clearly have no idea how money is "created" or how the Federal Reserve works.

In the specific case of the united states, the money is controlled by the Federal Reserve which is a private bank.

Most private banks aren't established by an act of Congress and run by people appointed by the President and approved by the Senate.

No, but in order to get access to the Fed, the bank link systems and so on and so forth, they need to get government approval.

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.

> the Federal Reserve which is a private bank

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.

Your assertion depends on what you mean by "government". There are groups of people who are in control. The ability to fork peacefully is not unique to Bitcoin--see the governments of the UK, Canada, and Australia. And given high enough stakes, there's no reason to believe that the interested parties in the Bitcoin blockchain would not resort to violence to protect their interests from forkers who would impact their profits.

Forking is totally possible for states. Different factions are constantly vying for power and many revolutions are quiet shifts that occur behind the scenes. This is very true in complex democratic republics but is even still true in monarchies and dictatorships. Monarchs have power by consent of a whole hierarchy of people and they are subject to overthrow or silent sidelining.

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.

Ethereum's upcoming Proof of Stake mechanism is supposed to put more power into the hands of investors compared to miners.

That doesn't really help. Early adopters get huge sums of ETH compared to those who join after the price rises. The distribution of coins is massively unequal.

In the short term, yes. Not in the long run as early investors sell their coins.

This is a big misunderstanding of bitcoin, and if you believe it I can understand why you might think bitcoin is not special.

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.

Without massive investments in ASIC's you have effectively zero influence. Until you have 51% of the hash power you can't make any changes as you simply get ignored unless you follow the exact same rules as the majority.

> Until you have 51% of the hash power you can't make any changes as you simply get ignored unless you follow the exact same rules as the majority

This is exactly their point. This applies to everyone and all organizational entities.

Well, "whoever is in power makes the rules" applies to everyone and all organizational entities, too. In this case, we're talking hash power, but same thing, isn't it?

A huge amount of hashpower was behind the desire for bitcoin cash, and that didn't work out.

Think some underestimate firstmover advantage and end-user inertia.

Actually, even with 51% of hashpower, you cannot force all the other nodes to forward or propagate your invalid blocks if you decide to start changing the rules.

This is a common misconception about bitcoin. Every single node on the network validates every single block, not just miners.

Thank you. I see this argument pop up on HN all the time and can't understand why it's so common. You'd think if a 51% attack were such a threat to Bitcoin it would have at least been attempted by now, after so many years.

Why do you think that?

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.

That is precisely my point

The point is not that you can set rules, it's that you can prevent other people from changing the rules without your consent, even if they are the majority.

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.

Wouldn't you be creating your own fork? A fork of one where peers would then reject every message from you?

No man is an island, unless he wants to completely devalue his bitcoin.

They wouldn’t reject messages from you so long as they are valid on their nodes.

Right and thus consensus exists. And that consensus consolidates to a single set of rules (and any major deviations result in forks).

A 51% plutocracy is still a form of state governance that qualifies as fiat money and effectively can destroy the value of your coins if you resist.

It is really no different than the government fining you for disobedience.

There are philosophical theoretical arguments against this, not pragmatic ones.

A 51% attack means a lot of bad things can happen to bitcoin. Its value would probably crash if an individual got 51% of the power just because it is no longer truly decentralized, even if they don't abuse that power.

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 top four pools have ~55% of the total hashing power. They could orchestrate a 51% attack with a conference call. As we've seen with the BTH/SegWit2X fiasco, Bitcoin is anything but democratic or decentralised. A cartel is every bit as dangerous as a monopoly.

And what exactly do you think a 51% attack can do? I'll tell you what: censor transactions and make double-spends.

Not exactly end of Bitcoin danger, is it?

If someone had unrestricted ability to double-spend, getting around any attempted countermeasures, they would be able to turn every exchange into a money printing machine. It's hard for me to see how it wouldn't be the end of Bitcoin.

> A 51% attack means a lot of bad things can happen to bitcoin. Its value would probably crash if an individual got 51% of the power just because it is no longer truly decentralized, even if they don't abuse that power.

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.

What does bitcoin cash have to do with a 51% attack? Forks are a different type of thing than 51% attacks.

Why would someone destroy all the value of their money and all the money power to mine just to troll?

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 1: purchase, borrow, or steal enough hash power to reach 51% for a short while

Step 2: use this power to force enough transactions to make yourself rich enough to keep 51% power indefinitely

Step 3: profit

51% hash power lets you doublespend coins. It does not let you steal from wallets or change the block reward rules.

Which is sufficient to allow you to do what I suggested. Spend coin once on paying for everything, and again on yourself to keep all the money to spend again later.

So you become like a government, able to print more currency at will?

According to this definition, is there any possible form of widely-used money that isn’t fiat money?

> According to this definition, is there any possible form of widely-used money that isn’t fiat money?

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.

Is Bitcoin actually a medium of exchange? It seems to be functioning more as an investment to be hoarded rather than spent.

Right, the same people telling you it's going to $100K are the ones saying this is a digital currency that should be spent. Well, I sure ain't about to spend $100K to buy 2 MacBook Pros.

Even if you think Bitcoin is going to $highNumber, then using Bitcoin to make purchases isn't any more painful than using dollars: the dollars could have been spent on purchasing more bitcoin instead of the other purchase.

And that’s why the fed ensures we have a mildly inflationary currency. If it deflated spending would drop, cutting the velocity of money, and cutting out economic growth.

"If it deflated spending would drop"

That statements not a given. If it were so, people would not use credit cards.

That’s interesting, I’ve never thought about credit cards as a sort of deflationary virtual currency.

You're discounting the technology sector and nearly the entire 19th century.

Those two positions are obviously congruent.

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.

> I have a 1.4 bitcoin T-shirt.

Is that you?


Those two groups may have overlap, but they’re not identical groups.

So, it's gold? I don't know if I've ever seen someone buy a Starbucks with a Kruggerand.

Gold is hoarded and traded much like bitcoin, from what I've seen.

The device you're using to read this comment couldn't function without gold. It's an incredibly useful element. Investment and speculation might have inflated the value of gold, but industrial demand sets a price floor.

Si is also incredibly useful but requires industrial processing to turn into something useful from an industrial standpoint.

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.

Gold has rarely been used in retail transactions. Generally that's been limited to silver, copper, bronze, or even iron coins, or other materials.

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.

Sure, some people treat it as an investment that can be hoarded, but that doesn't change the fact that it can be exchanged. Your narrow definition of medium of exchange sort of excludes any deflationary currency that someone may hold on to as an investment.

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.

By that logic any tradable thing can be a 'medium of exchange'. Sure, people will hold a stable currency when their own is sinking, but deliberately designing a currency for deflation is stupid.

I understand your point, but I'm not sure I agree that being deflationary or being primarily used as an investment precludes it from being used as a medium of exchange.

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.

Well in a sense it's quite freudian: you gotta feel the (unrealised value of the) bitcoin leaving you for it to be universally recognised as "having value"

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.

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.

> 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.

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.

Except on drugs which is essentially the entire monetary velocity of bitcoin.

A medium of exchange is usually an asset that can be exchanged for any other asset. It's not that bitcoin can't be a medium of exchange, it just isn't one yet.

I wonder if part of this is due to dust. My understanding is that at these prices you don't really want to split a coin for a $.25. As a result it's poor for micro payments and daily macro payments alike.

Dogecoin was created explicitly to have a low value suitable for micropayments & tipping. It hasn't really worked out much better for Dogecoin...interest in it seems to have waned a long time ago.

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.

Dogecoin is for fun. Much block-chain. Wow.

It died off because _some people_ tried to turn it into a real thing for micro transactions, etc.

I think dogecoin failed to go anywhere at least partly because it was a literal memecoin.

Certainly made it hard for me to take it seriously as a semi-layman at the time.

Interestingly that would seem to further the author's point a bit. You didn't think dogecoin was legitimate because it was named after a meme. So that made you less likely to trust the code/governance?

> […] it was named after a meme.

> 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.

And there are huge energy costs in performing a transaction... 197 KWh @ $0.10 per KWh = nearly $20 of electricity for 1 transaction.

It's not very useful as a medium of exchange right now since it requires 197 KWh of energy to confirm a single transaction!


Is it true that the number of Bitcoins in existence is limited?

I don't think the point eluded the author, at all. The article pretty clearly talks about financial innovation throughout history and then how it got coopted by states. The author seems pretty familiar with the history of finance and economics, actually.

A state doesn't really have control over the value of its currency. It may control how much of it exists in circulation. Likewise, the Bitcoin software tightly controls how much Bitcoin is in circulation. Both limits are done by fiat. Whether the institution doing the fiat is what you personally would recognize as a "state" seems to be a pretty arbitrary distinction. "States" are not the end-all be-all of institutions with power over individuals.

A state controls the money supply by granting itself a monopoly on money production (i.e. it outlaws the production of "counterfeit" money). Bitcoin uses a different strategy — while anyone is allowed to make bitcoins, the increasing production costs ensure there will only be a limited supply. At leasts that's my understanding of how bitcoin works. At any rate, none of this has anything to do with being fiat money. Fiat money means that the money is backed by "trust", i.e. people accept it as currency because they trust that others will also accept it.

"A state doesn't really have control over the value of its currency."

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.

Will it still be voluntary and consensual if the day comes where stores post signs: "Payment accepted in bitcoin only"?

In the US anyway, that would be illegal. Dollars must be accepted for all debts, public and private.

There's no debt if they refuse to sell you anything.

If the stores are not forced to use Bitcoin and are still allowed to accept other forms of payment but simply choose not to, then yeah, it's voluntary.

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 point of the article is that most "fiat" money doesn't really match that definition.

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