The solution is the same as for cash, and is already happening - people will create financial derivatives, and people will have accounts with financial institutions rather than directly holding Bitcoin themselves. So just like how the existence of cash doesn't stop banks from having a value proposition, similarly the existence of cryptocurrencies won't either.
This is the drug business hardest problem, getting the drugs into the country is easier than getting earnings out.
"Also bitcoin is issued by the consensus algorithm at will. And nobody else can create bitcoin."
Once policy makers understand crypto-contracts and cryptocurrencies for what they are they'll either regulate them to the point of where libertarians rue the day they were invented or they'll ban possession with jail-time as a punishment for knowingly holding them.
This isn't a novel insight. It's what I've said for the past seven years. It didn't stop me from buying Bitcoin in 2011 because I could see the medium term upside, but if anyone seriously thinks that these will become the backbone of our economy in their present form is delusional. Governments are not going to allow such a shift in power.
I've never understood this deification of governments, as if people are their subjects. Governments are created by the people to further their interests. Government power is not a public end on to itself, and the polity is suspicious of and to a large extant restrains government power.
I don't agree that ending the financial surveillance state means the end of law enforcement. The surveillance state is a relatively new phenomenon, and I believe it has only one destination: extreme concentration of power, erosion of private property rights, and enablement of tyranny. There are many more means of gathering evidence of crimes besides warrantless surveillance.
Anti-counterfeiting schemes only solve the inflation problem, but not the deflation problem.
If you have a deflation problem in a cash based economy you just print more cash (or lower the central bank's interest rate and let the commercial banks lend out more cash, with the central bank acting as the lender of last resort as a guarantee).
If you have a deflationary problem with most cryptocurrencies, well ... too fucking bad.
Hayek argued that the market would effectively govern such an economy and prevent both inflation and deflation. I don't know whether he was right; possibly we'll find out by experiment.
Eventually they will. You’ll have assets in billions of denominations, and you’ll be able to pay for coffee with a bunch of fractions of pennies and the markets will clear and consolidate value for you.
The future is not Bitcoin replacing the dollar. The future is the idea of a dollar replacing the dollar.
For all the other discussion topics, this is one of the most interesting aspects of crypto-economics for me. We can bake in different economic models and see how they work without it being easy to manipulate them later.
It's sort of disappointing that most platforms I've seen are either going for a basic deflationary model (token emissions dwindle and stop) or a fairly flat inflationary one (every block produces 25 new MeatloafCoins forever).
There's a lot of research that could be done into "how much do we have to expand the token supply to correlate with increases in actual economic activity and attrition while keeping token values flat against real-world goods". Not by actually pegging the value with a backing fund or guaranteed redemption, but rather by a self-regulating algorithm.
There's an interesting rabbit hole there: Can we get a proxy value for "actual economic activity" by crunching the blockchain, or will we need externl information feeds? Can it be made resilient enough to reject trying to game the system?
And then, there's the matter of "does anyone want to botstrap a truly stable currency?" Would you get many early participants if you say "it's explicitly designed to discourage speculative HODL behaviour?"
Value has changed a lot, but that was expected too. There are stable broad trends. Seeing the stability is just a matter of seeing timescales.
I guess I don’t share your definition of chaos. Chaos means you can’t predict anything reliably. You can predict many things about Bitcoin.
Taken to the extreme, your comment seems to come from a “anything that’s not a US treasury bond is total chaos” viewpoint. But I know that’s not what you intended... perhaps you can clarify?
Exchange rates between them. Middlemen to pay to perform exchanges before you can actually use the currency to buy something. That doesn't immediately sound worse to you?
Once these currencies hit their natural scale we will see some stabilize.
The whole premise "exchanges as identity gatekeepers" is in contradiction with the promise of stable world wide cryptocurrencies that ar just as good as fiat. When that happens, nobody needs exchanges and money laundering becomes a fundamental feature of the financial system.
Also, if blockchains prove to be a valuable technology then jurisdictions that ban them will be at a competitive disadvantage.
I make the same argument about self driving cars: yes they could be banned, but SOME government will allow them and then global media will make that difference stark.
You can't hurt the rentiers, e.g. large American banks, and expect them to not get compensation or destroy you in turn. They are the law. To think that it matters that the technology is better (and it's debatable that it really is) is ludicrous.
Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence
It wasn't always like this.
It probably was bound to happen after extending the vote to all persons.
Regarding "if you are paying any income tax on income that you haven't yet spent, you're not doing it right"
I'm doubtful of this - if you live off capital, and you have no dividend paying stocks or bonds, isn't that unnecessarily risky? It seems like some assumptions are likely to be made, where you pre-plan your income according to your expected expenses, as opposed to selling shares of stock whenever you need money. Also, dividends or interest payments inherently provide a barometer of whether you're living beyond your means, assuming you're wealthy enough to live off of them.
IMO the correct threshold is "earns more than needed over some longish period of time", which is another way of saying "has income that isn't spent". If you use that definition, everyone who spends all of their income gets that treatment, because their unspent income is zero and the tax on that is zero.
Very rich is to be able to do that for both themselves and a staff.
Also: you should broaden your economic knowledge ... it's cute that you think unspent income isn't taxed. Directly taxed ... perhaps not. Now what happens if you want to do anything with that money (different from spending it). Tens of different taxes suddenly apply.
The idea is you are going to invest / save the money and earn interest, get dividends or profit from the stock price itself.
The old system used a virtual profit of 4% a year, and over this 30% tax needs to be paid. That's 1,2% over the amount above EUR 25.000 (per person, so 50.000 if you're together with someone)
Mind you do not have to pay tax over the real profits, and also pay if you loose.
So if you make 8% a year, you are only taxed as if you've made 4% , but if you lost 8% you're still taxed for 4%
They are changing it to a way the rate reflects the real interest rate better, and many people want the real profits to be taxed.
I personally don't, because if you're just a bit good with ETF's you're easy beat the 4%
They don't separate income vs capital gain ?
In the case of profit tax, you only pay tax once over the real profit. (And can deduct loses)
So in case you have 100.000 at the start of the year, you pay
900 tax. (1,2% of 75.000)
Now if you make 100% profit and start the next year with 200.000, you'll pay 2.100 tax.
Let's say you stop here and keep this amount for 4 years on a 0% interest account, you have to pay 2.100 every year.
So a total of 9.300 tax
If there would be profit tax of 30% you would pay 30.000 once. (30% on the 100.000 profit)
So if you're an active succesful investor, the Dutch system mostly is way better.
But now people are complaining it is not fair, because a savings account doesn't return 4%.
Being an investor myself I fear we will get profit tax in the future.
And there is tax on your valuable possessions on the first of January, exceeding 25.000 a person, so 50.000 if you're together, ex. your first home and substantial ownership of a company. First home is tax free. Subtantial company ownership is taxed differently.
Valuable possessions include art and cars kept only as investment (gray area), cash (exceeding a certain limit), crypto currencies, second home(s), stocks, bonds, savings.. but not the things you use in your household, such as the family car(s)..
so if you've bought a second home, it is also taxed, so not unspent , but if you put more than 25.000 on a current account with 0% interest rate, you still have to pay tax as if you have made 4% (the system changed, this is to keep it simple for non Dutch readers).
In that case it at least feels like unspent income tax.
Anyway, if you're in the position you need to pay this tax, you usually have nothing to complain about financially..
This is because you could get a mortgage for up to 125% of the price of the house bought and the interest on this loan could be fully deducted from income tax.
And to worsen things, you were not obliged to pay back on a monthly basis, but after 30 years you cannot deduct interest anymore the bank can ask for their money back (in practice it is mostly no problem if you can still pay the interest)
Now you can 'only' get a loan upto 100% of the price and need to at least save up for the extra costs (bank, notary, taxes)
And you have to pay back a monthly amount to be allowed to deduct the interest paid from income tax.
But saving up very large amounts, which is common in many other countries, still is not done by most people...
From an actual real world level, it’s unfair that the stock market is used to decide how good the economy is when 84% of the stock market is controlled by the top 10% richest segment of the population. It’s unfair that corporations get massive tax breaks provided by local municipalities for short term political wins in the establishment of jobs that they will summarily destroy if another town comes in wit better incentives 5 or 10 years down the line living that town in ruin when they leave. It’s unfair that companies are allowed to offshore their headquarters and pay no income tax at all to their countries of origin. It’s unfair that these giant companies can control and manipulate our political system with money.
The point is it’s irrelevant how you define rich, we have real unfair realities that we can look at and address. Coming up with an arbitrary definition of rich is a distraction rooted in no reality.
This is a very naive statement, with a heavy helping of dog whistling libertarian utopian memes and philosophical navel gazing.
But the stock market swings in response to economic reports like unemployment rate. The government doesn't report unemployment based on stock prices.
What do you think it's market cap will be? What number of people will willingly use an illegal good with harsh punishments?
So yes, bitcoin will still exist. But it will be kind of meaningless if it gets declared illegal, at the fringes of society.
Still pretty popular, no?
Plus adoption of fiat currency has huge network effects. Cryptocurrency could easily be made illegal with the surveillance tech in place today. Your password is only as strong as your resolve with a gun in your mouth.
And I'm talking about dealing drugs, not about smoking a joint which is socially acceptable in many places.
"The United Nations Office on Drugs and Crime's World Drug Report 2005 estimates the size of the global illicit drug market at US$321.6 billion in 2003 alone. With a world GDP of US$36 trillion in the same year, the illegal drug trade may be estimated as nearly 1% of total global trade."
The European Parliament and the Chinese government can be hostile to the ideology of the internet without renouncing the technology. Ideology is downstream of economic realities.
And can you also see that if a person starts trying to apply that solution broadly to systems of control throughout their life that this becomes a kind of ideology?
If bitcoin works as a massively scaled decentralized currency: States or Federal government would prevent it from being used to pay taxes - which effectively prevents it's use for commerce
If it doesn't work: It's a waste of money
The thing is, I don't know if its possible to understand how important regulation is to the financial system until you work inside the financial system. Its kind of hard to explain, especially because the system has had so many big failures and abuses. But basically, it seems like one of those systems where if you dont notice it, then it means its working. Like sewer or water or electricity. It takes a lot of behind the scenes work for that to be a smooth experience for the user.
For example, using blockchain based contracts, we are able to empower consumers and enterprises to store data on foreign machines, without needing to know much about those machines besides their IP address. Using the blockchain's native currency, we can ensure that all payments are guaranteed, that no unfair chargebacks can happen, and further that the storage providers on our network cannot make money unless they actually keep the files for the duration of the contract.
No fraud, no chargebacks, no payment for unfulfilled services, with lawyers or courts or claims processes required. We can protect our users much more easily and cheaply than traditional services or marketplaces, and this is made possible through a blockchain.
> For example [...] Using the blockchain's native currency, we can ensure that all payments are guaranteed, that no unfair chargebacks can happen
How do you do that while still ensuring that fair chargebacks do happen, without bringing in trusted third parties?
If there's no dispute, buyer and seller agree and they have a nice cheap transfer just between themselves, without paying a percentage to the third party.
If buyer and seller disagree, then you bring in the third party, who makes a decision and takes a percentage.
I don't think there's any way to have fair chargebacks without bringing in third parties at all, but you can at least restrict their role to the transactions where they're actually needed. (This means they'll charge more for those transactions, but that's arguably more fair than charging buyers who've used reputable sellers, and/or sellers who've treated their customers well.)
This is false. It would only be true if said strangers were very skilled programmers having the time and know-how to audit smart contracts.
In practice, cryptocurrencies rely on users trusting the operators and intermediaries and ultimately the state to prevent or at least strongly punish fraud.
(It just occurred to me that we probably need independent rating services that do these checks for popular contracts. That could have warned people away from Parity's multisig wallet.)
In practice, crypto rely so heavily on centralised intermediaries of dubious quality that at one point 70% of BTC trades went through MtGox, a closed-source platform with well-documented problems with security, payment processors and regulators even before it lost 7% of all Bitcoins.
Since then we've seen more exchanges, but again the largest exchange - Bitfinex - is a project with a history of hacks and auditors walking away, before we even start getting into the "is Tether fraud on a massive scale" debate. If "more large exchanges, more small exchanges" were the solution to the dodgy exchange problem, that wouldn't be the case. It's almost like the distribution of trust isn't remotely close to an adequate substitute for a legal system for the average person
That's true about govt issued currency too.
From articles I've read about Tether, I've become extremely doubtful that the cryptocurrency community has any understanding of what audits really are, and suspect they are completely off in cargo (or other) cult land when it comes to validating "trust".
The more "independent rating services" we have, the more we need rating services for the rating services. I feel like the popularity of cryptocurrencies is a harbinger of the financial system unraveling much more than in 2008, and people cheering it on won't benefit like they expect.
From my perspective, the blockchain significantly reduces consumer protection.
If I buy a product online, to be shipped to my house, how does the blockchain provide consumer protection? It doesn't. If the seller absconds with my money, and fails to ship the product or ships a counterfeit product, then there's absolutely nothing that I can do about it. With a credit card, I can report that fraud to the credit card bureau, who will reverse the transaction by default, then investigate and require the merchant to provide proof that the transaction was authorized and legitimate. I can take a photo of an obviously counterfeit product and send that to the credit card company as evidence of the fraud. Or if the product never arrived, it's on the merchant to prove that they shipped something to my address, and they'll need to provide a tracking number. As a consumer, this is a significant protection for me, and it's a significant fraud deterrent.
Merchants who are bad actors and engage in fraud will be cut off from the network. Furthermore, buyers who are bad actors and issue an unreasonable number of chargebacks will also be cut off. There is no similar oversight of blockchains.
If my credit card is stolen and used by a thief, then that's no problem for me. All of the fraudulent transactions are reversed, and the only real inconvenience is waiting for the replacement card to arrive. That's another important consumer protection: my money can't be stolen. With blockchain technology, thieves can steal anyone's money in an irreversible way if they get access to it.
Chargebacks are one of the most valuable and most important consumer protection capabilities of the traditional banking system. Removing chargebacks significantly reduces consumer protection.
Blockchain-based payment systems that do not involve a trusted central party will have worse consumer protection, not better. The only circumstance in which they'll be better is if the entire transaction, and delivery of goods and services, can be validated by a smart contract. That will only be possible for a small number of real-world transactions. It will not apply to the majority of day-to-day commerce.
I am not claiming that the blockchain has no redeeming qualities. It has a bunch of valuable characteristics and benefits that I'm not mentioning here. However, consumer protection is not one of them.
Blockchains are most powerful when dealing with purely digital transactions, such as data hosting, information trading, prediction markets, digital currency exchange, non-fungible tokens, digital gambling, micropayments for digital services (like CDNs, viewing web articles, etc.).
In the case of Paypal, they will side with the buyer in most disputes, which puts you at a big disadvantage as a merchant. You're basically relying on the majority to be honest, and take into account that small scale fraud is not going to be a major risk to your business.
There's also the disaster that is buying digital goods with Paypal, where the seller has virtually no comeback in the case of fraud, and is one of the means people use to empty hacked accounts, since it leaves no physical trail. The seller of the digital service almost always takes the hit. This is the real biggest use-case for Bitcoin, as cryptography can be used to prove the sale of the digital goods.
You've explained how transferring all this risk to the customer is great for the merchant, but how is it great for the customer?
The difference with a third-party escrow is that they should not have a bias towards either the buyer or the seller. The traditional markets are clearly biased towards the buyers because they don't want to lose buyers from their platforms. They don't want to lose sellers either, but the risk is smaller, because it's more difficult for a seller to switch to using another platform, and a certain amount of fraud is kind of expected from sellers.
The use of one or more independent escrows can prevent the marketplace from unilaterally taking money from the seller and refunding the buyer without performing their due diligence (which PayPal frequently do not)
Obviously, there would need to be adequate proof that the nodes then review, but once that is given, what's the problem.
Furthermore, the fraudulent vendor would be investigated for fraud and facing a fine or jailtime.
This could be a dapp on the blockchain.
I don't see why this can't be done by a team of trained lawyers and judges that review these fraudulent transactions.
I wish we had such attitude towards different challenges that our societies are facing.
Secondly, the answer is to take the great plank out of our conventional economy's eye before examining the mote in the eye of cryptocurrency. Real estate is a large vehicle for money laundering, and it goes on largely unexamined until it becomes a state actor problem in the news. Elizabeth Holmes probably thinks, correctly, she is a piker when it comes to white collar crime. Cleaning up the world of conventional money would leave less room and incentive for crimes using cryptocurrency.
The effort to eradicate it results in terrible laws that necessitates the institution of a surveillance state that requires you to report how much money you have and everything you do with it.
Those convicted under anti-money-laundering laws are often only found guilty of flouting one of these privacy-violating reporting requirements, rather than actually illegally obtaining money.
This is an important distinction. The state does not need to prove you obtained money from an illegal enterprise to convict you under anti-money-laundering laws. So technically, no money laundering needs to be proven to have been committed, for someone to be imprisoned for violating these laws. The scope of such laws is therefore enormous, and goes far beyond the traditional limits of due process.
If the concern is people obtaining money from illegal enterprises, then the solution is to shut down those enterprises and convict people for running them.
But it's hard to fight real crime, so we sacrifice the basic liberties of the entire population, by making it a crime for anyone to conduct a transaction above a certain size without reporting it to a financial surveillance agency.
Naturally, with such an expansive idea of what constitutes crime, and what liberties the government is entitled to restrict to stop it, any technology that enhances privacy will be viewed as dangerous, whether that be encrypted communication, cash, or cryptocurrency.
But the problem is not these technologies. The problem is with laws like those created under the umbrella of stopping money laundering, which accept as a priori that people have no right to conceal from others the origins of their money.
The solution is to let the current crude crypto currencies run wild burning all who touch them creating a hatred in the population towards the whole concept. So much more subtle than just making them illegal.
that's how things were quite recently (before the ~19th century)
Even during the period of largely unregulated private banking that reached its peak in the 19th century, the private banks largely just issued paper money that was denominated in coins that were issued by governments.
It took a while for the idea of paper money to catch on, but once fully accepted the modern state became possible.
As to the monopoly on coinage that’s just wrong. Best example
Many private firms would assay gold and strike it into coins. Even though there were many problems with questionable and underweight coins, they circulated because the usability was still far higher than having to manually weigh and test loose gold, and government coinage was scarce, especially on the West coast.
It's interesting that many of the private issues were boldly badged by the name of the issuer. I wonder if the goal there was to establish themselves as trusted third party in other people's transactions. You can't trust this stranger's loose gold, but you can trust it once we've weighed and stamped it.
Sure any one individual could end up on the sharp end of the pointy stick of state, but overall most people lived their lives almost completely free of government because the state lacked the funds needed to do much beyond fight wars.
It is unclear to me if control of currency had anything to do with it, but looking at the power that feudal governments had over serfs (as an example) it difficult to see how your argument stacks up.
Far from being free, a serf's entire life was dictated by the demands of the government. The size of the family unit was dictated by the amount of labor a serf household owed the lord, and that could be as high as six days of labor per week (hence the size of the family unit was dictated: the if the serf could provide children to do the labor that counted as one person-day).
Another example, English villeins (peasants) in the early middle ages owed their lord (ie, the government) 117 days work per year. Thats a little more than the 10% you claim.
Certainly being a serf was not ideal, but most serfs had very little interaction with government. They paid a small amount of tax and beyond that they were left alone by government.
The definition is perfectly government: "In its classic definition.. feudalism describes a set of reciprocal legal and military obligations among the warrior nobility revolving around the three key concepts of lords, vassals and fiefs." (https://en.wikipedia.org/wiki/Feudalism)
The feudal system filled exactly the role government fills today. It did it differently, but the local lord was just as much a part of government as a state or local government is in the US today (indeed more-so, since they had legal power over life and death).
I find it easier to imagine cryptocurrency providing public goods in areas of hyperinflation or other massive macroeconomic malfeasance. The article is right that governments have lots of tools to suppress it--raiding exchanges, sting operations--but it is unlike bullion in the sense that you can't hide your entire bullion stash with encryption. The outcome of that cat and mouse game is highly contingent on local conditions.
In other worlds fiat currency issued by governments will continue to the extent of the legal sanctity they provide to any transaction. The rest is crypto.
So far so good.
>However, it also provides benefits in the form of public goods.
>It generates and sustains core functions of the broader state and economy such as tools to capture tax revenues, prevent money laundering and terrorism financing, capacity to control the money supply, protect consumers and investors, and ensure market integrity and even (a degree of) financial stability.
Tools to capture tax revenue, prevent money laundering, and prevent terrorist financing? I thought tax evasion and money laundering were some of the services they offered! Protect consumers and investors? Secure financial stability? What?? Did everybody forget about 2008 already? A small elite set of people KNOWINGLY wrecked the world economy, calculatedly corrupted our political, regulatory, and academic bodies to ensure no responsibility ever come to them, let alone demands of repayment, flipped the incentives around to become fabulously rich and rewarded for driving their companies into the ground and ruining their clients, got paid to lie and deceive, to give lectures and papers and audits saying everything was a-OK, to lie to clients about the junk they were peddling, to take regulatory roles and stand aside... If you want to see it this way, doubtless millions of excess deaths are attributable to their actions. Make no mistake, if they could get away with it they would murder your entire family in cold blood for a hundred bucks.
The current financial/banking scheme can very well go fuck itself. It's difficult to do worse than this; it's a broken in almost every way, except in securing power and vast wealth to a select group of people. Note, I'm not saying blockchain will surely bring about anything better.
Do you seriously think that one wouldn't be able to construct fraudulent financial instruments on top of cryptocurrencies just like you can with the regular financial system?
If you think that there is a difference in this regard I recommend you investigate how these financial instruments were actually constructed.
I could go and found a bitcoin bank in which anyone can open an account. The catch? The bank runs a single wallet to back all accounts. The only promise made by the bank is that if you deposit X bitcoins, you'll get X bitcoins back when you request to withdraw them. I'll also allow you instant transfers between the accounts. They are off the blockchain, managed only in the bank's database, so these transactions can be arbitrarily fast.
If the wallet accumulates enough bitcoins so that it exceeds the normal volume of deposits and withdrawals, I'll take the rest and put them to work. Maybe buy shares in companies or so. I'll keep the earnings of these investments. If I make a loss, I'll have to recover the loss somehow. That's the risk I take.
At that point, I'd have created virtual bitcoins in the market. And who would be stopping me?
In some future crypto-based world, exchanges can be fully audited on a blockchain. Using technologies like Plasma you can even have a cryptographic guarantee that you'll be able to get your money back out, even though the exchange itself runs on a fast central database. The sort of crypto bank you're describing would have a hard time competing with that.
Consumers will use it because they already use banks without 100% reserves such as Bank of America, HSBC, any current bank in the banking system...
- New cryptocurrencies (possibly built on smart contract platforms) could replicate some features of the banking system
- Some loans could be based on deposits instead of new money creation (i.e. the naive view of how banks work)
- Easier creation of equity instruments based on crypto tokens could substitute for debt financing
One thing that fascinates me about all this is the ease of experimenting with new ideas. I don't know where we'll end up, but I'm optimistic that this messy process will end up advancing civilization.
In the scenario that you outlined, its probable that the reserve would much higher than the current 1-3%, which would lead to risk being more directly held by the bank making the loans and the depositors of that bank. And the argument goes that this might lead to more skin in the game and probably less reckless behaviour. Also, in such a system interest rates would be set by the market, based on the amounts of savings in the economy and the demand for loans.
I don't see how a Bitcoin bank as outlined above can be regulated to have a reserve requirement either. Arguably, this offers even less protection than a traditional bank, due to the inability of the public sphere to regulate it. And still, as long as a Bitcoin bank is perceived as sufficiently trustworthy based on past behavior, people would use it.
Next, I don't share your view that interest rates being set by the market is a good thing. Economies were far more fragile and volatile back when they were backed by bullion. The vast majority of people who have income from labor comparable to their net worth prefer that their net worth not fluctuate so much that they may not consistently maintain their standard of living, and this is helped by a steady interest rate. A rational agent prefers this unless their net worth greatly eclipses their ability to obtain wealth from other forms of capital.
> I don't see how a Bitcoin bank as outlined above can be regulated to have a reserve requirement either. Arguably, this offers even less protection than a traditional bank, due to the inability of the public sphere to regulate it. And still, as long as a Bitcoin bank is perceived as sufficiently trustworthy based on past behavior, people would use it.
The reserve requirement is something set through the political process so is independent of the properties of the money, so that can go either way both in a fiat or cryptocurrency system. The difference with cryptocurrencies is that you don't have as much need to store them in a bank. One reason to loan them to the bank is to get some kind of return on the money. In this situation reckless behaviour might be driven out faster, just like in the hedgefund industry.
> Next, I don't share your view that interest rates being set by the market is a good thing. Economies were far more fragile and volatile back when they were backed by bullion. The vast majority of people who have income from labor comparable to their net worth prefer that their net worth not fluctuate so much that they may not consistently maintain their standard of living, and this is helped by a steady interest rate. A rational agent prefers this unless their net worth greatly eclipses their ability to obtain wealth from other forms of capital.
Since I get most of my income from labour, I can tell you that I would prefer to have a slight deflation in prices every year and maintain my purchasing power, without having to go through all kind of hoops and loops to invest my money in bonds, stocks and other risky things.
As to old economies being backed by bullion, I tend to agree there. Bullion can be a poor monetary base due to its lack of divisibility. But there were probably more things that lead to fragile economies than the fact that money was backed by bullion.
Of course, there are problems with limited money supply systems. How would governments finance wars? You would have to finance things through taxation which is very unpopular.
And why would there be more pressure to adjust risky behaviour? Because people would take their money out of banks that exhibit that behaviour, which would re-inforce behaviour that has the right ratio of risk/return. This does not happen now because banks don't need almost any deposits to make profit.
This risk adjustment already happens in financial sectors that have skin in the game. For example, if a hedge fund looses money, sooner or later people will take their money out of it.
Have you seen what many ICOs are like?
In order to preserve the integrity of the blockchain the following actions must be taken...
Steinbeck's famous quip about Americans, "socialism never took hold in America because the poor see themselves not as an exploited proletariat, but as temporarily embarrassed millionaires," can be adapted for Canadians as something along the lines of, "libertarianism isn't plausible in Canada because the middle class see themselves not as minor property millionaires, but as a nation of deputy ministers and professors on sabbatical."
As a non-cryptocurrency holder, and non-libertarian, some critics take a a tone that I think prevents meaningful debate and discussion.
The strength of cryptocurrencies is that they facilitate capital flight, so regardless of their localized legality, so long as this use case is viable, they will have both liquidity and value. Arguments that they cannot exist if they do not provide an intrinsic mode of enforcement with appeals to "crime," are relative to jurisdiction.
Nobody would care if Putin, Mugabe, Maduro, or many other leaders complained something was being used for crime against their states. We'd probably even advocate it.
The argument of, "build something that facilitates the existing distribution of privileges among current coalitions or we will round you up for prison," is what many might call "on the wrong side of history."
"...those public goods^ which, through hundreds of years of government, business, and democratic processes, we’ve agreed are priorities and values our finance and currency systems should reflect."
I think your opinion on this statement colours how you think about the rest of the topic. How do you see this process, and what it produced. Are we, via Hegelian pendulum swings, Smithian invisible hands or democratically aggregated will... are we producing a better money system all the time. Incorporating good ideas. Reacting to changing needs and wants. Keeping everything relatively bug free.
Or... if you fall on the other side of this... do you see this process as a mature game, hijacked democracy, corrupted capitalism or bougie conspiracy.
I think most everything else traces back to this disagreement. If you're in the mature game camp, you do not accept that the way money works is at core determined by rational trade-offs between anonymity and governance or more mischievous dynamic.
Interestingly, this explicitly does not divide along any possible left-right spectrum. It's more of a conservative-radical divide. Your radicalism can equally be of a marxist, schumpeterian or modern variety.
^The Public Goods he lists are tax compliance, anti-money laundering^^, stability and market integrity, and consumer & investor protection.
^^Anti Money Laundering deserves it's own little rant. AML has little to do with money laundering in 2018. It is (legally) a euphemism for a broad set of controls that (if successful) will make it enforceably illegal to accept a robber's money with a positive responsibility.
Taxes are collected on spending (sales tax), on earning (income tax), on gains from investment (dividend/capital gains) on gifting and more. Governments are there to collect on those areas no matter the currency.
If anything cryptocurrencies are a hedge on state issued fiat currencies in case they crash or ones that stop transactions, that doesn't mean money isn't moving and that doesn't mean governments aren't there to collect. The IRS sees no difference in USD or BTC gains or any other currency.
Money laundering is also part of even very well controlled fiat currencies, sure they might get the small fish but large fish are money laundering in real estate, art, political campaigns (with Citizens United), offshoring hoarding, offshoring investment, banking fraud and all sorts of fronts even in fiat. Cryptocurrencies also have that aspect but every currency known to humans will have some amount of money laundering. You might argue that many benefit from this type of behavior as well including banks, real estate and more regardless of currency. If anything money laundering increases market values, up to 30% of high end real-estate even with fiat currencies or the USD is suspect to money laundering.  There are also major holes in hoarding with our current fiat currencies in findings such as the Panama Papers.  In a way, money laundering is bad but in another way money laundering legitimizes money and that money goes on to be spent, thus some collection of taxes eventually happens down the line, hoarding or discouraging investment is the real problem.
The only real issue of a cryptocurrency would be hoarding and a non fiat currency that is constantly increasing in value that would discourage spending and investment. Right now fiats have interest rates controlled so that they lose value to encourage wealth to invest to retain and advance their wealth, money sitting in fiat currencies is slowly losing value due to inflation. Investment must take place to gain through creating revenue streams and collecting interest/gains on investments. Poor people pay interest and rich people collect it, that is the compounding difference in wealth almost solely regardless of starting wealth.
Fiat currencies and cryptocurrencies all are gains and money movement that governments will collect. In a least case scenario, taxes may have to shift to more sales tax and VAT tax type of systems but governments will get their cut of the money movement no matter the currency, nothing really to worry about. The argument of too much money laundering is also moot when things like the Panama Papers and offshoring exist and are allowed, or the bulk of money laundering in real estate, art, political campaigns and more via shell companies and foreign infusions whether incoming or outgoing.
Hoarding and inequality is the major problem as it leads to stagnation and lack of investment, money laundered eventually becomes legitimate and is the money re-entering the system which isn't always bad. Right now we have a hoarding problem or in inequality problem that is worse than money laundering, the latter which legitimizes money again to be taxed somewhere down the line. Right now the M2V is at all time lows, money movement is stagnant and that is a major problem . If governments and economies make money on the movement of money we need to do better, crypto helps that problem rather than exacerbates it.
Even if there are more 'hidden' transactions in cryptocurrency there is still movement into income for income tax, spending via sales tax and transaction fees. You'll never have to worry about the government getting their cut, they will get their cut. What you should be worried about is money movement in the lower/middle class which leads to stagnation if hoarding and inequality are prevalent, which in the end harms all including the wealthy.
Look, cryptocurrency - like cryptography itself - is just math. You don't argue with math. If it makes it impossible to reliably catch money laundering, or to tax transactions, then we'll have to figure out some way to structure our society such that these things simply aren't relevant. And we know this can be done, because that's how the world functioned for most of its history.
Why? Banning cryptocurrency is definitely possible. It wouldn't be 100% effective because making things illegal is never 100% effective, but it would probably be made even more marginal than it was before it got popular.
The "benefits of the blockchain" exist exactly to exploit those weaknesses.
The distinction of "legal tender" is that (1) the state expects payment in the domestic currency and (2) when there is a dispute in court, any fines or financial penalties will have to be paid in the domestic currency.
This does mean that if you enter a contract which states that some payment has to be made in a foreign currency, a court can overrule this and force the payment to be made in the domestic currency instead. That basically never happens in practice, but it is possible.
As to why governments don't forbid Bitcoin & friends: in the larger economy, they just don't matter, so why bother? Now the ICO craze has caught attention because of securities fraud, and governments have stepped in.
Going a bit off tangent, but I just want to clarify that the concern is primarily over token sales not meeting securities law requirements relating to registering a security before offering it to the public, and not securities fraud.
As it is, several token sales that have engaged in fraudulent practices have been pursued by the SEC and no one takes issue with this. Fraud laws are clearly applicable to all financial interactions, including those involving cryptocurrency, and their enforcement is a public good.
The controversy is in applying securities laws to token sales and thus placing the SEC as the centralized gatekeeper with which any party wanting to conduct a smart-contract based token sale needs to register with. Further requirements include meeting disclosure requirements designed for traditional securities which have questionable applicability to a project with no central coordinator that aims to create a protocol utility token that confers no legal claims to an underlying asset.
But the government will always be the most powerful institution, and in democracies that's a good thing! Despite all its flaws, it is the only institution that's required even in theory to represent the interests of the many instead of the few. If you're worried about personal liberty, you should be more involved in that, not less.
They wouldn't technically be government institutions, because everyone subject to their rules would be a contracting party that consented to the arrangement, but these institutions could have many of the same powers that governments have now, including the power to tax, regulate trade, and provision goods.
Anyway, a state-free world is neither plausible nor seen as desireable by the majority kf libertarians, so no point in worrying too much about it.
It's kinda hard to trust someone that's either sticking a gun to your head, or got to the position they did by having someone else do it for them.
What do you mean by this? Everything not understood should be prohibited, with exceptions provided by a centralized gatekeeper?
This goes against 500 years of Englightment Thought. It's total subservience to Big Brother, and total naivety about what that kind of centralization of power results in.
>>Libertarians are like fish who want to abolish water because it seems to impede swimming...
With the exception of a tiny minority of libertarians who are anarchists, the vast majority of libertarians do not want to abolish government. Yet opponents of libertarianism regularly attack this strawman as if it addresses libertarian arguments.
There is a time and a place for the government, but it is not in restricting voluntary interactions between consenting adults.
It's not worth trying to reason with collectivists. They see aggressive violence as justified. The only interaction to be had with them involves letting them know that's a bad idea, or violence in kind. This is the core truth of all interaction with statists, including those who support democracy; despite their insistence that it is somehow more enlightened, there is a violent threat behind every supposedly civilized "debate."
Said ruskerdax, an intellectual, before declaring all statists to be psychopaths.
For instance, there is the potential for criminals to use e-cash to do crime, just as they use physical cash.
But the flip-side of that is the cash empowers individuals and serves as a guard against encroachments of their liberty.
Cryptocurrency allowed people to donate to Wikileaks when the financial blockade was imposed on it. It's not hard to imagine a future where blockchains are far more scalable, and large numbers of people who are discriminated against by the banking system rely on it for economic integration.
Individuals and organisations on the fringes like Wikileaks are important guarantors against centralized tyranny. Without a payment system outside the control of centralized authorities they can be more easily snuffed out.
In other words, cash is an important institution, and arguably the price of criminals having an easier time getting away with crime as a result of its existence is worth paying, to avoid a future where the only financial system is the one subject to anti-money-laundering-laws, and thus subject to warrantless mass-surveillance system over all private financial transactions.
Perhaps someone on the inside of the political system their whole adult life, like the article's author, can't really empathize with this view point that we should distrust the political elite and its governing structures, but perhaps he can see the danger of not having a healthy apolitical form of finance in a future dominated by a government like China's.
As for the argument that the centralized financial system provides stability and market integrity, it's not clear that this is true.
The US had a free-ish banking system in the 19th century, but it was made more fragile than it would have been under a free market by 1. Civil War era banking regulations that required banks to hold US bonds as reserves and 2. laws against interstate branching.
The former resulted in an unstable centralized money supply that fluctuated with the volume of outstanding US bonds and the latter prevented more diversified banks from emerging that could better weather localised shocks. Canada had neither of these mandates and consequently had a far more stable banking system.
There were proposals before the Fed was created to make the US financial sector more like Canada's, but the banking cartelists won the argument, and the Federal Reserve mandates were passed to cartelize the banking sector under a centralized hierarchy.
A couple of good talks by George Selgin on pre-Fed era and the 100 year performance record of the Fed: