I see this point of view a lot on Hacker News because it's dominated by people living in places like the US. Let me add a little perspective on how Bitcoin is used in lower- and middle-income countries from my personal experience.
If you live in a country with a highly functional banking system and
no kleptocracy, Bitcoin is probably a bit puzzling unless you have
family in Cuba. But it’s not puzzling at all for those of us who live
somewhere in the middle of the broad spectrum between Switzerland and
Somalia, because most places have a little kleptocracy. Argentina
is a stable democracy, far from being “a failed state,”† but if you
want to send US$500 abroad via non-Bitcoin means it’s basically
impossible, and the only broadly available savings vehicle is real
estate (“ahorrar en ladrillos”), which of course grossly inflates
real-estate prices, with a substantial part of the capital city
occupied by empty apartments someone bought “as an investment”.
Historically, Argentines have saved by buying dollars, but that’s
limited to US$200 a month now, and then only if you have a
non-under-the-table job (about a third of total employment is under
the table):
Something like 300,000 people out of a country of 40 million are legally permitted to buy dollars.
You can see that in September 02019 when this measure was imposed the
price of a dollar was AR$63.50; now it’s AR$305. So whatever savings
you had in pesos in 02019 have lost 79% of their value to peso
devaluation. In fact, whatever savings you had in pesos a week ago have lost 4%.
I’ve been using Bitcoin to get paid for several years at this
point where I live here in Argentina.
It’s currently 14 years after Bitcoin’s invention, and some
people think it’s regressing instead of progressing. Well, 14 years after
the internet’s invention was 01983; not only couldn’t you get so much
as a weather report online, much less IRC, but many of the early
interesting experiments like NLS at SRI had shut down, and more and
more places were disabling guest access to their hosts—you couldn’t
run so much as a game of ADVENT without getting a username. And a
password. Things were seriously regressing. The only people you
could talk to on the internet were other people who really bought into
the subculture.
In 02001 a lot of Argentines had saved dollars in their
dollar-denominated, "government insured" bank accounts.
This did not preserve their savings
through the financial crisis that year; the cash-strapped government
limited withdrawals to a trickle, then converted dollar deposits to
pesos at a one-to-one rate, then released the exchange-rate peg, at
which point peso went overnight from being worth US$1 to being worth
US$0.25 before settling at about US$0.31 for the next few years. The
US did something similar in 01933. There was no recourse for this scam.
You might think alternatives to banks like credit unions
would protect their customers better, since the customers are the owners,
but Credicoop depositors
suffered the same two-thirds confiscation of savings as depositors in
for-profit banks. And they pay the same 3% tax on bank transactions
including checks. That’s more than a fast Bitcoin transaction fee of
US$15 for transactions over US$500.
But we’re not a failed state. There are no gangs of bandits roving
the streets in Argentine cities (though there are some pretty bad
slums where you’ll get robbed if you wander in without knowing
anybody). Courts, free public hospitals, and roads continue to
function, though there are more potholes than a couple years ago. Argentine
infant mortality is 10 per 1000 live births, down from almost 20 in
the late 01990s and the same as the late 01980s in the US; life
expectancy at birth is 77 years, worse than Switzerland’s 84, but the
same as China and Hungary, and better than Saudi or Mexico. (Somalia
is 54.)
Most of the world is worse off than Argentina, although not
necessarily in such a statistically transparent fashion. About one
fourth of the people in the world are unbanked, 51% here in Argentina,
70% in El Salvador;
even advanced countries like Russia, Hungary, and Uruguay have roughly
a quarter of the population unbanked:
And if your family lives in a country like Iran or Venezuela subject
to US sanctions, and you live in the US? Good luck sending them an
ACH, instant or otherwise!‡ It’s well known that Bitcoin is very
popular in Venezuela, which kind of is a failed state, so one of the
Venezuelan governments is trying to tax Bitcoin remittances at 15%.
Bitcoin handles a few billion dollars per year in such
remittances.
A few billion dollars a year might seem like a trivial amount of money to someone
in a rich country, but in poor countries, it’s enough to keep several
million people alive.
Even in the US, it’s common for the police to confiscate large amounts
of paper currency just because they can (“civil forfeiture”); US bank
accounts are probably fine for US$100K but probably somewhat risky for
US$10M if the bank thinks you don’t seem like the kind of person who
ought to have it. US$10M in US$100 bills fits in a box you can wheel
around on a dolly, but Bitcoin is a lot more practical. (And of course
US$10M in dollar bills loses about US$200k per year to inflation.)
Transaction fees are usually high enough that you wouldn’t want to use Bitcoin
to pay for a can of Red Bull or even a restaurant dinner. But it’s
extremely practical as an alternative to Western Union or US$100 bills
or gold; even when transaction fees are high, they're low compared to the
black-market spread.
So, Bitcoin doesn’t have to be a cypherpunk utopia to be a big
improvement on the status quo ante. For those of you living in
stable countries where your worries are things like “instant and
extremely low-fee ACHs” and “decentralized utopia”, this may be very
confusing, but try to remember that most of the world lives in places
with much more pressing concerns, concerns that Bitcoin helps a lot
with. And you may live there too, soon—the loyal subjects of Kaiser
Wilhelm in 01913 certainly didn’t expect that in 15 years they’d be in
the middle of a hyperinflation episode that remains legendary a
century later.
I think that, by providing workarounds to the people who need them,
cryptocurrencies probably not only ameliorate the most immediate and
pressing concerns of poor parts of the population like Venezuelan
immigrants and MS-13 victims, but probably also adjust the power
balance in a more liberal and democratic direction. This will improve
the chance of those concerns being ameliorated by public policy over
the next decades as well. But it’s hard to tell what will really
happen.
Of course, when saving money or making a living becomes illegal, I guess
they count as "buying illegal shit". But that doesn't make them bad.
The potential disaster scenario is that, by making most
taxation impossible, cryptocurrencies destroy the modern welfare state
without providing anything to replace it. So the public hospitals
close, the enormous police force starts to support itself by
extracting tribute, and the infrastructure decays. Pretty similar to
what’s happened in the US over the last 50 years, in fact, only more
so.
However, at this point I think the modern welfare state is already
doing a good enough job of destroying itself without any significant
help from cryptocurrencies—as evidence, I can point to Maduro, Macri,
Bolsonaro, Trump, and Brexit, and metonymically to the social changes
they betoken. So at this point I’m more worried about cushioning the
collapse than preventing it.
____
† We’ve remained democratic since 01983, electing presidents from
three different political parties (UCR, PJ, and PRO), and there’s no
serious insurgency. It’s the economy and government policy that
are ruinously unstable, to a point that seems satirical to anyone
accustomed to the US, but is lamentably common worldwide. Rich people
sometimes say they don’t know of legitimate uses of Bitcoin outside of
“failed states”.
> I see this point of view a lot on Hacker News because it's dominated by people living in places like the US.
Totally. And it's not just about "stable countries".
People in Cyprus (except the russians, who were warned a few days before and had the time to move their funds) saw the money on their bank account used to do bank bail-ins. Probably a test to see how the population would react when the same would happen EU wise (as bank bail-ins are now, by law, mandatory in the EU for failing banks).
People in Spain were incentivized by the banks to put their savings into products yelding x% then the banks defaulted on the principal. That one's even more vicious than the Cyprus case.
The FED and ECB printed trillions for years and year... But we're to believe that saving confiscated through inflations are due to only to supply chain issue and to the war that started in Ukraine. Yeah. Sell me a bridge too please.
So far people in Spain and Cyprus who had put their money in BTC are still winning. Those who got their money confiscated by bail in and by bank-sold shady investments not so much.
Every time I see the "Bitcoin for remittance" logic, the first question I ask is: what is the use case or demand for Bitcoin at the third world where you are sending your money? Why should anyone want that except for speculation? Clearly, Bitcoin is not being accepted at the mom-and-pop shop in Bangladesh (they don't even take credit card), so what are the people supposed to do with the Bitcoin once they receive it?
The answer that I have experienced is that it is being sold to the poorly informed local speculator, who have banked their hopes and dreams of getting rich someday to buying Bitcoin. In that way, Bitcoin is actually stripping wealth from the global poor and draining it back to the wealthy ones.
Well, as I explained, savings is a demand for Bitcoin that isn't the same thing as "hopes and dreams of getting rich someday". Just having an asset that doesn't reliably evaporate like the peso or the bolivar is a pretty big win already, even if you aren't going to get rich.
Another important use case that I didn't mention is leaving the country to live somewhere better. Suppose you've saved up money in, to use examples I know something about, Argentina or Venezuela, and you've managed to do it in a form that doesn't evaporate due to inflation: US$100 bills, emeralds, gold, real estate. Now you want to move to Spain, Uruguay, or Mexico. Getting those savings safely out of the country with you is going to be very challenging indeed; Argentine customs has dogs that are trained to sniff out dollar bills, for example. (And of course in the case of real estate it's impossible.)
Again, maybe this is an example of "buying illegal shit": you aren't supposed to be able to escape these places with your life savings, because otherwise how can kleptocracy keep klepting? But obviously (at least to me) being able to take your savings with you makes the world a better place, even if it's illegal.
But it's definitely not "stripping wealth from the global poor and draining it back to the wealthy ones". The "heavily regulated", "government insured", "government managed" world banking system is what does that.
Maybe fleeing the country like this sounds like an extremely marginal, unimportant use case to you, but if so, that's probably because you don't know anybody from Cuba, Ecuador, or Venezuela. Not only are significant percentages of those countries' populations already living abroad, but even larger percentages of the people living there today depend on family members living abroad.
I don't know anything about Bangladesh. I've never been there and I don't know anyone from there very well. Maybe the situation is different there and Bangladeshi people only invest in Bitcoin because they think they'll get rich. What are your experiences there?
Are you concerned about the falling ratio of Bitcoin to USD? Or is the hope that this storm removes a lot of the scam artists/ponzi schemes and the ratio stabilizes in a way?
Edit to add: it seems like the relative ratio doesn't matter much for the scenarios you describe because it is much better than the swings in local currency compared to USD.
Bitcoin has in fact lost more value than the Argentine peso (or any other fiat currency) over the last year, and this is its largest fall ever (it has fallen over 70% twice before, but I think this is the first time it's ever fallen 73%), and this is a big concern for its use as a savings vehicle, though only a minor inconvenience for its use for international remittances.
Also, because the US$ has itself lost about 10% of its value over that last year, the fall is even worse in real terms than in nominal terms, closer to 75%.
Over other periods of time, like the last two years or the last six months, this is not the case (that is, the peso has done worse than Bitcoin over those periods), and certainly anyone with savings in Bitcoin is hoping that a year from now it is at or near its current value, or even above it, rather than having fallen another 70% to US$4500. But it could. There is no guarantee, and my observation of periods of past Bitcoin volatility does not make me optimistic that scam artists will go away as a result.
There is no prospect that the peso will have equal or higher value a year from now; both the general dynamics of central-bank-controlled fiat currencies and the specific pathologies of Argentina militate strongly against it. The long-run expected value of the peso is zero — it's not a question of whether it will inflate over time, just how fast. Plausibly ruining the peso's usefulness as a unit of long-term account or a vehicle for savings is a worthwhile tradeoff for improving its usefulness as a medium of exchange; that opinion certainly has widespread acceptance among economists.
So clearly anyone who invests their savings in pesos will inherit the wind; it's possible that whoever invests their savings in Bitcoin will as well.
If these people followed the savings logic they would have bought and sold RAI. Why would anyone want to put their savings in an extremely volatile cryptocurrency?
If you live in a country with a highly functional banking system and no kleptocracy, Bitcoin is probably a bit puzzling unless you have family in Cuba. But it’s not puzzling at all for those of us who live somewhere in the middle of the broad spectrum between Switzerland and Somalia, because most places have a little kleptocracy. Argentina is a stable democracy, far from being “a failed state,”† but if you want to send US$500 abroad via non-Bitcoin means it’s basically impossible, and the only broadly available savings vehicle is real estate (“ahorrar en ladrillos”), which of course grossly inflates real-estate prices, with a substantial part of the capital city occupied by empty apartments someone bought “as an investment”. Historically, Argentines have saved by buying dollars, but that’s limited to US$200 a month now, and then only if you have a non-under-the-table job (about a third of total employment is under the table):
<https://www.ambito.com/finanzas/dolares/cronologia-del-cepo-...>
Something like 300,000 people out of a country of 40 million are legally permitted to buy dollars.
You can see that in September 02019 when this measure was imposed the price of a dollar was AR$63.50; now it’s AR$305. So whatever savings you had in pesos in 02019 have lost 79% of their value to peso devaluation. In fact, whatever savings you had in pesos a week ago have lost 4%.
I’ve been using Bitcoin to get paid for several years at this point where I live here in Argentina. It’s currently 14 years after Bitcoin’s invention, and some people think it’s regressing instead of progressing. Well, 14 years after the internet’s invention was 01983; not only couldn’t you get so much as a weather report online, much less IRC, but many of the early interesting experiments like NLS at SRI had shut down, and more and more places were disabling guest access to their hosts—you couldn’t run so much as a game of ADVENT without getting a username. And a password. Things were seriously regressing. The only people you could talk to on the internet were other people who really bought into the subculture.
In 02001 a lot of Argentines had saved dollars in their dollar-denominated, "government insured" bank accounts. This did not preserve their savings through the financial crisis that year; the cash-strapped government limited withdrawals to a trickle, then converted dollar deposits to pesos at a one-to-one rate, then released the exchange-rate peg, at which point peso went overnight from being worth US$1 to being worth US$0.25 before settling at about US$0.31 for the next few years. The US did something similar in 01933. There was no recourse for this scam.
You might think alternatives to banks like credit unions would protect their customers better, since the customers are the owners, but Credicoop depositors suffered the same two-thirds confiscation of savings as depositors in for-profit banks. And they pay the same 3% tax on bank transactions including checks. That’s more than a fast Bitcoin transaction fee of US$15 for transactions over US$500.
But we’re not a failed state. There are no gangs of bandits roving the streets in Argentine cities (though there are some pretty bad slums where you’ll get robbed if you wander in without knowing anybody). Courts, free public hospitals, and roads continue to function, though there are more potholes than a couple years ago. Argentine infant mortality is 10 per 1000 live births, down from almost 20 in the late 01990s and the same as the late 01980s in the US; life expectancy at birth is 77 years, worse than Switzerland’s 84, but the same as China and Hungary, and better than Saudi or Mexico. (Somalia is 54.)
Most of the world is worse off than Argentina, although not necessarily in such a statistically transparent fashion. About one fourth of the people in the world are unbanked, 51% here in Argentina, 70% in El Salvador; even advanced countries like Russia, Hungary, and Uruguay have roughly a quarter of the population unbanked:
<https://www.gfmag.com/global-data/economic-data/worlds-most-...>
And if your family lives in a country like Iran or Venezuela subject to US sanctions, and you live in the US? Good luck sending them an ACH, instant or otherwise!‡ It’s well known that Bitcoin is very popular in Venezuela, which kind of is a failed state, so one of the Venezuelan governments is trying to tax Bitcoin remittances at 15%.
<https://archive.fo/ZRXzS>
Bitcoin handles a few billion dollars per year in such remittances. A few billion dollars a year might seem like a trivial amount of money to someone in a rich country, but in poor countries, it’s enough to keep several million people alive.
Even in the US, it’s common for the police to confiscate large amounts of paper currency just because they can (“civil forfeiture”); US bank accounts are probably fine for US$100K but probably somewhat risky for US$10M if the bank thinks you don’t seem like the kind of person who ought to have it. US$10M in US$100 bills fits in a box you can wheel around on a dolly, but Bitcoin is a lot more practical. (And of course US$10M in dollar bills loses about US$200k per year to inflation.)
Transaction fees are usually high enough that you wouldn’t want to use Bitcoin to pay for a can of Red Bull or even a restaurant dinner. But it’s extremely practical as an alternative to Western Union or US$100 bills or gold; even when transaction fees are high, they're low compared to the black-market spread.
So, Bitcoin doesn’t have to be a cypherpunk utopia to be a big improvement on the status quo ante. For those of you living in stable countries where your worries are things like “instant and extremely low-fee ACHs” and “decentralized utopia”, this may be very confusing, but try to remember that most of the world lives in places with much more pressing concerns, concerns that Bitcoin helps a lot with. And you may live there too, soon—the loyal subjects of Kaiser Wilhelm in 01913 certainly didn’t expect that in 15 years they’d be in the middle of a hyperinflation episode that remains legendary a century later.
I think that, by providing workarounds to the people who need them, cryptocurrencies probably not only ameliorate the most immediate and pressing concerns of poor parts of the population like Venezuelan immigrants and MS-13 victims, but probably also adjust the power balance in a more liberal and democratic direction. This will improve the chance of those concerns being ameliorated by public policy over the next decades as well. But it’s hard to tell what will really happen.
Of course, when saving money or making a living becomes illegal, I guess they count as "buying illegal shit". But that doesn't make them bad.
The potential disaster scenario is that, by making most taxation impossible, cryptocurrencies destroy the modern welfare state without providing anything to replace it. So the public hospitals close, the enormous police force starts to support itself by extracting tribute, and the infrastructure decays. Pretty similar to what’s happened in the US over the last 50 years, in fact, only more so.
However, at this point I think the modern welfare state is already doing a good enough job of destroying itself without any significant help from cryptocurrencies—as evidence, I can point to Maduro, Macri, Bolsonaro, Trump, and Brexit, and metonymically to the social changes they betoken. So at this point I’m more worried about cushioning the collapse than preventing it.
____
† We’ve remained democratic since 01983, electing presidents from three different political parties (UCR, PJ, and PRO), and there’s no serious insurgency. It’s the economy and government policy that are ruinously unstable, to a point that seems satirical to anyone accustomed to the US, but is lamentably common worldwide. Rich people sometimes say they don’t know of legitimate uses of Bitcoin outside of “failed states”.
‡ Family remittances are specifically exempted from the US sanctions on Iran, but good luck finding a US bank that’s willing and able to take that risk: <https://www.wiggin.com/wp-content/uploads/2019/09/26580_advi...>
See also https://news.ycombinator.com/item?id=27448744.