I'll admit that the WSJ here is not as laughably bad as some quotations from their infamous op-eds had led me to believe. Maybe I was too harsh with them. They seem to do the balance thing, or more correctly here, the common sense and economics thing, at least passably well. Either way, there are some real pieces of work here, misconceptions about economics that were dispelled before, again and again. You're going to have a laugh, I promise.
Of course, let's start about some inflammatory comments about Mr. Leftwing Strawman, as per usual: did you know that hyperinflation is inevitable because ZIMBABWE!?
"I'll use a visual aid," says Mr. Andresen. "He opens his wallet and presents me with a gift: a 10-trillion-dollar bill once issued by the government of Zimbabwe."
Deflation is good, because SAVING! (Here the Calvinist roots of old-school good Flemish capitalism start showing again, with careless disregard to any theory of supply-demand equilibrium. How do I miss Schumpeter/Marx...)
"If prices are falling, he says, it does encourage people to save instead of spend, because the currency will be worth more later. It encourages people to lend instead of borrow. [and that's a good thing]" (Yeah, because as we know, in a given economy at a given time there can be more lending than borrowing. Or that saving > spending doesn't mean a contraction in the economy, by the magic of Austerian Economics. You people...)
A classic: fiat currency is a FAITH! Heathens!
"Federal Reserve Bank of Dallas President Richard Fisher calls the U.S. dollar a 'faith-based currency.'"
(Not pictured: other things based in "faith", like civil oversight over the military, the Constitution, the enforcement of laws, the concept of credit itself, the currently overpriced exchange value of gold... basically anything that isn't enforced by AK-47's, except of course those enforced by the promise of AK-47's)
"[...] what about a digital currency programmed to maintain stable prices, avoiding mischief by central bankers as well as the possibility of deflation? He says the engineer in him likes the simplicity of Bitcoin's fixed money supply."
Yeah, great engineering dude, let's disregard things like, you know, minimal acceptable performance for simplicity ;) You know, Unix was simple, but at least it didn't crash every five minutes. And the Apple II was simple, and it even had color!
I wanted to actually learn something from your post but it reads like a madman wrote it.
I own exactly zero bitcoins, but following the market since 2011 has proven that it is getting easier to use and more prevalent. People will be putting down bitcoin as a serious entity even after PayPal is accepting them.
Have you atudied economics? The OP reads like someone who has and is utterly incredulous at the statements being made by Bitcoin's proponents. In fairness, the gentleman interviewed in this article insisted it was all an experiment. But the WSJ editorial board has a long time habit of being very non-mainstream and almost Austrian with its economic views, so this interview was likely intended to play into a political narrative.
Here is a summary of what he is trying to say:
1. Bringing up hyperinflation in Zimbabwe is a common tactic of right-wing/Austrian economists to warn of the evils of government control over fiscal spending and currency, and that our current course of monetary expansion means that we in the US too are on the same path.
This ignores of course that (a) Zimbabwe had a civil war at the time and the government confiscated or destoyed most private productive capacity; (b) we are in a liquidity trap currently, which in short means that money is nearly free to borrow at 0% interest. Companies are sitting on piles of cash or continuing to unwind their debt from the 2008 crisis, therefore we have not enough people spending. Printing money has had no discernible impact on inflation over the past 5 years. In fact, we could use a bit right now - to encourage spending!
2. The thought that "encouraging saving is good" therefore fixed currency and deflation is good.
An economy is a closed system - if some are saving, others have to spend to keep the music going. If we all stop spending, we get into a depression, where people lose their jobs, and the economy isn't working to its potential - all because the currency is rising in value.
In short, it is arguable the point of an economic system is to make and consume goods and services, not sit and watch your bank balance grow due to the psychological whims of the market.
3. A currency based in faith is not a dangerous thing - basing currency on gold is mostly a form of superstition. and it has real drawbacks (see #2).
Lots of things in the world are based on faith in institutions or theorems. Bitcoin is too - faith in the algorithm, that it works and won't be compromised. Also (blind) faith that a fixed amount of Bitcoin will not lead to destabilization.
Now. Does that help? These arguments lead to exasperation because they seem to happen over and over across decades in slightly different forms.
I really don't get why people who call themselves 'mainstream' economists can't see or choose not to acknowledge the issues the Austrians bring up. It strikes me as quite odd. Not everything the Austrian school preaches is correct, but they do have some valid points that I would expect most smart people to understand.
To bring up just a few big ones:
Printing money and low interest rate policy of the Fed influences many things other than the simplistic lower interest rate=more spending=more growth formula commonly preached.
1) it hurts people with savings. A good example is all the retirees who have saved their whole life and now can't survive on the 1% returns their savings are generating. The Fed is supposedly helping people and business who want to borrow and can do so at low interest rates.. but that does not trickle back to pensioners who should be earning more on their capital if they were not competing with the Fed.
2) monetary expansion stimulates the economy unequally across industries and geographic regions. In the models of the academic economic departments, monetary expansion may apply equally to an economy as a whole.. In the real world short run it is a transfer of wealth from one group (wage earners, people who hold cash or low yield bonds) to another group (banks, government contractors, rich people with lots of land and stocks). Some people benefit from low interest rates and new money, but many people are hurt by those same policies.
There are quite a few other issues that Austrians seems to be correct on, but these seem to be two of the most obvious to me.
Related to (1), there is the moral hazard of bailing out the extreme risk takers and profligate borrowers, but punishing the careful savers. It just encourages future financial gambling (Greenspan/Bernanke put) and Too Big To Fail mentality.
There is also the loss of true interest rate signals for making investment decisions, and consequent mal-investment caused by 'desperately seeking yield'. Economies progress by creative destruction, not protecting sunk costs in old industries and pandering to vested interests. Just look at Apple - biggest corporate cash pile in history, biggest bond issue in history - something is seriously wrong with interest rate signals (over and above the repatriation issue).
The problem of the boom was over-borrowing to consume. The solution for the recession is saving to invest i.e. create lending for building of productive capacity. Printing money to lend to consumers to buy imports does not make the economy any better, especially when you don't give it to the consumers with tax reductions (or wage increases from the corporate cash pile), but give it to the banks and let them inflate financial assets instead - that doesn't even achieve the dumb thing you were trying to do in the first place!
I was following you up to the last paragraph. the issue is that bonds and cash are effectively equivalent now due to low interest and inflation. So we are suck in a liquidity preference trap. Stocks are showing some signs of inflation, but bonds surely are not - everyone is holding US treasuries or cash!
Printing money without associated fiscal stimulus does not help things so long as people expect inflation to remain low. So QE3 is arguably better than nothing but probably will be as ineffective as thr previous attempts. OTOH Japan now is the only country where they are deliberately trying to promote inflation, so it will be interesting to observe if they can pull it off and drag themselves out of deflation.
That all sounds very silly. There is nothing complex about interest or how controlling it can effect an economy. The interest rate is just a knob you can turn to adjust inflation and employment. It's science!
I think you have a point on these two observations, though I would question (or flip) the specific groups helped/hindered by actvist government policy.
The challenge is the broader policy implications of reversing course. For example, if the intent of the economy is to encourage activity and growth, then wealth transfer should be away from savers to spenders in a liquidity trap, for example (through increased inflationary expectations).
"An economy is a closed system" that's not quite true.
The economy is a balance between things that create value and those that destroy it. In a healthy economy more value is created than destroyed so as long as the 'savings' is close to the amount of new wealth created there is no problem. The problem is when people try to store more value than than the genuine amount of new wealth created. Often it's as simple as a bubble created by over-investment followed by a crash back to actual value. However, the special case of people 'investing' in cash cash does strange things which are directly harmful even without a crash.
You're right. I was referring to exchange transactions, to simplify. Ie. you need a buyer and a seller (or an investor and an entrepreneur). It's not closed in the strict sense, because there is growth.
Our current situation is similar to your final sentence - that of heavy liquidity preference - there are a lot of sellers and too few buyers, and investors who are mostly storing wealth in cash or liquid assets.
The difference between the US and Zimbabwe is that if the US had a civil war and inflation ruined the currency, it would send the world into the second dark ages. Civil wars cant happen in the US? thats good to know, but i wont take your (implied) word for it.
What about if China suddenly asked for something in exchange for the tons of american paper currency they have accumulated? It is unlikely anytime soon, but they will only take it as long as it has value. So the more you inflate, the more you have to send to China to maintain the American lifestyle.
Our economy is becoming less rugged over time. A large shock becomes more and more likely to significantly disrupt our system. There is no redundancy or backup operations. Our cpu core's are all at 120% load.
<sarc>Also, its a good thing that stuff like population pressure and infectious diseases are a thing of the past (two of histories best methods for shocking a political/economic systems). You know, because the global population is under control and our climate is capable of withstanding everything we throw at it with complete aplomb. </sarc>
However when everything is going well, Keynesianism works well. I will give it that.
China moving away from US currency implies they don't want to trade with us - unlikely. But if they did do this, they'd sell the currency on the global market, the cost of the dollar would go down, and US exports would likely boom due to increased competitiveness. In other words, it remains in China's interests to keep their US reserves. And in everyone's interest -- as far as the numbers show, the safest asset on earth (as crazy as it sounds) is US government debt.
An economy is a closed system - if some are saving, others have to spend to keep the music going. If we all stop spending, we get into a depression, where people lose their jobs, and the economy isn't working to its potential - all because the currency is rising in value.
Consistently low unemployment, improving productivity, constantly increasing real value of wages, corporations struggling to earn a profit. A Currency that doesn't constantly lose value seems like a not-so-terrible proposition. God forbid, people end up having savings to live from.
Some would say "left-wing" is actually a euphemism for evil. What you read into "*-wing" is in the eye of the beholder.
All I said was these views were non-mainstream, though there are interst groups working to change that such as the WSJ and certain entrepreneurs or business leaders and think tanks. Not that the views are evil.
Please point me to some left wing Austrian-school economists to refute the association.
What? The burden of proof is on you. What examples of non mainstream economics are you citing with the WSJ? Links to actual articles that prove your point, please.
I am not quite sure how one proves an observation on a board like Hacker News. All I can do is provide a few links as examples that clearly won't be enough to prove anything, just illustrate that I am not deliberately making things up.
Also keep in mind that most WSJ articles are behind a paywall.
To be clear, my view is: The WSJ editorial board (not their news dept, which is exemplary) has backed a number of somewhat dubious economic ideas for nearly a century, between their own editorials and op-ed contributors with ideas far from the mainstream whose ideas have lacked empirical support, but are popular among certain interest groups. This also goes for scientific ideas with political implications, such as global warming (which i'll not discuss here).
I am not claiming that they're "wrong" in doing this - people clearly have a right to promote what they believe in - just that I think the many of the ideas themselves are wrong, and damaging to the economy overall but also the middle class. though that is a different and much longer conversation.
Topics include:
Support for "expansionary austerity" - ie. if governments spend less the economy will recover because of "confidence".
Support for hard money (despite evidence that a gold standard was and would continue to be very deflationary and that current policies haven't been inflationary at all)
"An economy is a closed system - if some are saving, others have to spend to keep the music going."
You mean they have to spend more than they can afford? Otherwise, what exactly do you mean by they have to spend? Obviously they have to buy a house, a car, a phone, a computer, electricity, etc. I would think most people save what is left over if you like.
You seriously have to be kidding about the non mainstream stuff. When have they advocated for a gold standard? Several prominent mainstream economists write for their op-eds, including Nobel laureates. I can't recall one Austrian.
> (Not pictured: other things based in "faith", like civil oversight over the military, the Constitution, the enforcement of laws, the concept of credit itself, the currently overpriced exchange value of gold... basically anything that isn't enforced by AK-47's, except of course those enforced by the promise of AK-47's)
You know, you failed to specifically pick out the most relevant thing that is also based on faith: bitcoin.
Like any currency, its value in exchange for anything else is dependent on faith that people will accept in the future.
I liked the anecdote about the delays in wire transfers for renting a house overseas whereas with Bitcoin "the whole world is your market". I'm going go out on a limb and suggest there's a bigger proportion of the world willing to accept rental deposits in dollars than Bitcoins...
Regarding your point about the lending vs borrowing:
The use of the word "encouraged" makes sense to me. If people are "encouraged" to lend vs borrow, that means they will have more desire to lend vs borrow. This has an important effect on the supply vs. demand equation. Supply of loans, ie. people willing to borrow, goes down and the demand, ie. people willing to pay money now for interest later, goes up, causing prices (interest rates) of loans to go up (down).
In other words even though every dollar lent must be a dollar loaned, people's willingness to lend affects supply and demand.
A deflationary currency doesn't encourage people to lend, it encourages them to save.
If currency is deflating at a low, constant rate (say, 2-3%, comparable to the normal rate of inflation), then the interest rate -- in real terms -- must be strictly higher than this. A 0% loan with 2% deflation the equivalent of a 2% real interest rate. But no one will ever lend money in this situation. You take on risk, but have no reward. So the rate of deflation is the minimum real interest rate of any loan in a deflationary currency.
In an inflationary currency, people will lend out money at even a negative real rate of interest and effectively lose money on an investment because the alternative is losing even more money by holding cash. If inflation is 2%, you will consider lending out money at 1% interest (if that is your only choice) because getting 99 cents back on your dollar by investing is better than getting 98 cents back on your dollar by holding cash.
Hence, an inflationary currency encourages both lending and borrowing: lenders lose less real money than holding cash, borrowers pay back less real money than they borrow. A deflationary currency encourages neither: lenders would prefer to hold cash, because it's safer and has decent returns, and borrowers have even higher real interest rates.
Inflation also triggers higher taxes, because you pay on nominal amounts not real amounts. So 2% inflation plus 2% real interest rate, you pay income tax on total 4% rate, not 2%. Same with capital gains, you buy and hold something that keeps its real value, and you end up paying capital gains when you sell it, because inflation has pushed the price up.
I don't think your maths is correct. If the currency is deflating at 2%, it is deflating regardless of whether it is the lender or the borrower holding it. If therefore this is lent at 1%, the real return is 3%, 2% by deflation, 1% through the interest rate. Hence it is more profitable to lend than hold.
Yep, thanks for the clarification, I don't disagree but just taking issue with parent's point that dollars lent = dollars loaned therefore it's impossible for policies to affect lending rate.
famously insane according to who? The founding mantra of the editorial board:
"We are united by the mantra 'free markets and free people', the principles, if you will, marked in the watershed year of 1776 by Thomas Jefferson's Declaration of Independence and Adam Smith's Wealth of Nations. So over the past century and into the next, the Journal stands for free trade and sound money; against confiscatory taxation and the ukases of kings and other collectivists; and for individual autonomy against dictators, bullies and even the tempers of momentary majorities. If these principles sound unexceptionable in theory, applying them to current issues is often unfashionable and controversial."
What is insane about advocating free markets and sound money?
Despite their professed editorial line, in practice they're much more conservative than libertarian. For example, they are strong supporters of the War on Terror, both in terms of an interventionist foreign policy and ramping up domestic security measures. They also lean towards some support for Christian and social conservatism, though that part is weaker.
More problematically from my perspective, their opinion pages are notoriously loose with facts. It's one thing to argue a position, and another to just produce propaganda. For example, here is an exceedingly unsatisfactory treatment of what the Bible says about capitalism and prosperity (an interesting and somewhat complex issue, because the Bible has many things to say about it, which this piece ignores): http://online.wsj.com/article/SB1000142405297020380650457717...
Isn't anybody else afraid of the implications of basically the equivalent of easily trackable cash? The government can easily mandate that each individual declare their wallets and track every single penny you spend and where you spent it.
It might even work, if they had a way to track all your cash. Unfortunately, unlike with Bitcoin, they don't. This is pretty much what I said in my original comment?
I don't understand all the apologism, it's pretty clear that governments can exert an unprecedented amount of control on money with Bitcoin (all your transactions are public), and no amount of burying our heads in the sand will change that.
But, they don't have a way to track your bitcoins. They can see how much is in each address, but they do not know whose address it is, etc.
You said the government would need to make all wallets that are not registered with some central authority illegal. That would be the same as you paying someone in cash if cash was made illegal. You would be doing something illegal in both situations. However, what is the government going to do about it if they do not know who you are?
Not to mention that making cash illegal would be a highly political issue and quite unpopular due to concerns with privacy, etc. The same would apply if the government wished to request some centrally controlled management of people's bitcoin account.
Sure, but in the bitcoin case, you'd require both parties' wallets to be unregistered. It would require a legal and an illegal network of wallets (since the government can't track the illegal ones), but whenever a transaction was made where one of the two parties was an illegal wallet, the legal party would be on the hook for it (as it would be transacting with an illegal wallet).
I would recommend to familiarize yourself with how bitcoin works on a technical level before mowing down more strawmen.
Also: Do you really think all countries of the world will agree on one central 'bitcoin address registry'? Contrary to popular belief the internet does not end at Virginia beach...
It's almost time for Mr. Andresen to get back to work. He shares some useful advice about Bitcoin: "I tell people it's still an experiment and only invest time or money you could afford to lose." If only investors could as easily follow that advice with fiat currencies.
There are a few challenges facing Bitcoin, and I think that in the long run Bitcoin will not be the chosen digital currency of the world.
The first problem is that there is a highly predictable and (at the moment) constant supply of bitcoins, which means that the value of the coin will adjust like a commodity as more or less people start to use it. It's like Gold or Oil in the sense that when people want it, it's worth a lot, and when people don't want it, it's not as expensive. That chains the value to the demand, meaning that any time you use bitcoin as a store-of-value, you are putting yourself at the complete mercy of the market.
Many advocates believe that as the number of people using bitcoin grows the price will stabilize, but I think that using bitcoin as a store-of-value is going to end up like using the gold standard, especially because some early adopters have tens of thousands to even a million (Satoshi is believed to have a million) bitcoins, and any of them could decide to 'cash out', which would dramatically change the supply and potentially affect the whole market.
Another problem is that the currency is highly traceable, and while you can do things to obfuscate your spending habits there are lots of techniques involving statistical analysis that shed doubt on the effectiveness of obfuscation. You can take this back to the "I have nothing to hide" argument, but there are plenty of powerful parties that will be more interested in a currency that can't be traced (imagine big business or big finance), and an untraceable currency would certainly be more attractive.
But to me the biggest current problem with bitcoin is the uncertainty. There are many conflicting schools of thought in economics each with their own reasons why bitcoin is good or bad. But beyond the basics, macroeconomics often involves a lot of voodoo, and for any new paradigm there will be major schools of thought that will believe the new paradigm is bad or unstable in some way. There is no real way to fight this except to accept that we ultimately have no idea how new economic paradigms will affect our world, and that some of the naysayers may be correct and thus caution should be used.
> ... you are putting yourself at the complete mercy of the market.
This is the "No one will want bitcoins because everybody's buying them" argument- I don't see much credibility in it. Also, what is an example of a commodity that isn't at the mercy of supply and demand?
> Another problem is that the currency is highly traceable ...
I agree with you that that is a major issue, and might hurt the popularity of bitcoin in the long run. Bitcoin is strange in that it separates the argument of "I don't want the government to control what I do" and "I don't want the government to know what I do". I'm not sure how this will play out long term. (yes, I know there is pseudo-anonymity, but if the tax man comes to you and asks you "how did you get the money to buy that car?" the block chain makes it possible to confirm/refute your response.)
> ... and thus caution should be used.
Yeah, I'm tired of folks who think they know with 100% certainty how the economy works. I have some good guesses that suggest to me bitcoin is going to do very well, but things could play out any number of ways and I have no clue whether my guesses are right.
Decent enough article, but whenever talking about Bitcoins I find it helpful to separate the various roles that money performs. That is, Bitcoin is an awesome medium of exchange, a risky store of value, and a horrible medium of account. Just use it for what it's good for and everything's fine.
I actually think it's a mediocre medium of exchange, due to the fact that transactions are not immediate, but rather can take as long as an hour or more for a reasonable level of confidence in the integrity of a transaction. There are competing cryptocurrencies being developed now that are much better media of exchange since transactions are both secure and immediate.
I think Bitcoin's real promise is as a store of value. Yes, it's extremely volatile now, and people are getting used to the fact that if you lose your Bitcoins, they're gone for good. But compare Bitcoins to cash (tends to lose its value over time) and gold (expensive to store, hard to exchange). It's also incredibly easy to exchange Bitcoins for other digital currencies, like the ones I refer to above.
I think that once Bitcoin reaches a large market cap, like the size of gold, it will be much less volatile, and less risky. At that point, all the advantages above will become apparent. So Bitcoin's future may well be as a digital reserve currency.
Perhaps, but historically, once a currency gains a foothold it is usually extremely durable.
I think it's far more likely that a successful new cryptocurrency will integrate Bitcoin into its design, thereby increasing the utility of both currencies (this is what Ripple is aiming toward, for example).
Lot's of currency's have died in my lifetime, consider just what the introduction of the euro did. But also a lot of things like game near currency's like bitcoin have also gone the way of the dodo. Limiting things to just national currency's and going back say 500 years you find well over 90% of all currency's that existed back then or where introduced in the meantime have died.
Bitcoin is to a first approximation not used as a unit of account, and that I feel is its biggest failure as a currency. Roman coinage, and subsequently Carolingian livres, were used as a unit of account centuries after they stopped existing as actual coinage.
The day that Bitcoin arrives as a market force, is the day that prices are denominated in it without the implicit reference to the USD.
Yeah, I'm worried what happens if one of the big three (Apple/Amazon/Google) builds a bitcoin variant pegged to a baseline dollar price, which also has a large marketing budget.
Every article I read about Bitcoin has a picture of a metal bitcoin in it. I guess that is to make sure very few people get the point of what bitcoin is.
They need a picture of something. The articles are laid out such that there's a hole labelled "insert illustration-team piece, falling back to relevant stock-image" on them before they ever get written.
Suggest what else it could be for a Bitcoin article. Perhaps a visualization of a block-chain? A hash with a lot of zeroes in it? Satoshi walking away from his computer with a wheelbarrow of money?
Perhaps an illustration of a transaction occurring simply, directly, rapidly, and with a tiny fee compared to one requiring trips to the bank at both ends, forms to fill out, taking several days, passing through several intermediary financial organizations, and costing several expensive fees along the way. Cruft-free transactions are one of primary distinguishing characteristics of Bitcoin, right?
But then when addressing the negatives, follow that up with an illustration of the current process to obtain Bitcoins.
Bitcoin transactions are visible/traceable, but doesn't mean you can match txn to identities.
If there is one address in the middle of you paying somebody, and that address was generated either offline or through Tor, there's no way to prove you own that address unless somebody can extract the private keys from your seized hardware and match it up to the public address.
Transactions don't prove anything, anyways. If you sell on localbitcoins or IRC, you have no idea that the anon guy who showed up to buy them with untraceable cash isn't directly 3rd party funding his Silk Rd account. If you look at the blockchain it would appear I paid into SR directly however I sold coins to some random guy I'll never see again, who's contact info I also don't have. Since I sell under my countries $10k cash transaction limit I don't need to take ID or retain contact info. Tracing that transaction proves nothing.
I also can't recall any of the major bitcoin heists being recovered. Only one exchange (mtgox) has a history of holding transactions for ID if they appear to be stolen coins, and they've only done it twice: first time was cleared up with ID, second time they're still holding the coins (bitcoinica/linode theft). Every other bitcoin heist you've heard of through the years the trace leads to nowhere.
"And for those who wish to avoid both inflation and deflation, what about a digital currency programmed to maintain stable prices, avoiding mischief by central bankers as well as the possibility of deflation?"
My gut is that this is not possible. Enforcing stable prices requires constant data about price levels, and with decentralized markets there doesn't seem to be an accurate way to get that data.
Unless a large portion of the marketplace for those goods and services moves to the currency's p2p client itself, at which point it becomes trivial to integrate price levels (i.e., a "basket of goods and services") into the protocol.
Imagine if an expanded ebay marketplace, including a wide range of goods and services, were integrated into today's Bitcoin protocol.
Unlikely, and very hard to implement, but not impossible.
Historically speaking, the free market will gravitate to a currency that has a stable price and appreciates at least a little bit over time. No one wants to hold a depreciating currency. We use that fact to drive people to spend by driving interest rates down. Hence the lack of savings and the high levels of consumer spending.
The "historically" is a bit misplaced. Historically speaking, people almost universally ended up using whichever currency was used for taxation and in use by other significant institutions for practical purposes. Inflation basically never had anything to do with that.
Rich people might have been able to use other things as a store of value though, but things can only become lasting stores of value if they start out having some initial use.
Can we please stop talking about Bitcoin replacing the Dollar? Bitcoin isn't suited for local transactions or for contracts on a large scale. That might change, but the value of the bitcoin protocol is in other applications.
I have yet to see it being pointed out that none of the encryption in use for these cryptocurrencies will necessarily remain extremely hard to break for long. A good question is: what if bitcoin or something alike does effectively gain traction and one day a math breakthrough (or a computational tech one) make the crypto weak? How much wealth will be destroyed then? Who would you turn to for help?
Our system is not perfect, but taking central banks out of the loop is not a way to improve it. It would be much more useful to find ways to push down financial transaction and currency exchange costs.
The destruction would be by the lack of trust. Since there is nothing but supply and demand considerations keeping bitcoin's value high, guess what would happen if demand were to vanish
The terrifying part of his job is that almost all of the current Bitcoin services now use the same software, so that "any change to the core code has potentially disastrous impact. If everybody rolls out a new version and there's some problem with it, the whole Bitcoin payment network could grind to a halt."
If the core bitcoin team tells miners their mining is going to be ignored if it isn't part of a specific fork because of some credible reason, the miners will follow, no matter how many of them there are.
As I understand it, the core bitcoin team (as well as all bitcoin users) can do absolutely nothing if the majority of the miners ignore their request, as long as THEY agree on a fork to work on.
that's not how bitcoin works. the blockchain (the ledger) can fork into competing chains. if your client and my client disagree about which is the live chain we can't transact. the core bitcoin team can only suggest which chain to consider the live chain. anyone who disagrees is free to use different chains.
Of course, let's start about some inflammatory comments about Mr. Leftwing Strawman, as per usual: did you know that hyperinflation is inevitable because ZIMBABWE!?
"I'll use a visual aid," says Mr. Andresen. "He opens his wallet and presents me with a gift: a 10-trillion-dollar bill once issued by the government of Zimbabwe."
Deflation is good, because SAVING! (Here the Calvinist roots of old-school good Flemish capitalism start showing again, with careless disregard to any theory of supply-demand equilibrium. How do I miss Schumpeter/Marx...)
"If prices are falling, he says, it does encourage people to save instead of spend, because the currency will be worth more later. It encourages people to lend instead of borrow. [and that's a good thing]" (Yeah, because as we know, in a given economy at a given time there can be more lending than borrowing. Or that saving > spending doesn't mean a contraction in the economy, by the magic of Austerian Economics. You people...)
A classic: fiat currency is a FAITH! Heathens!
"Federal Reserve Bank of Dallas President Richard Fisher calls the U.S. dollar a 'faith-based currency.'"
(Not pictured: other things based in "faith", like civil oversight over the military, the Constitution, the enforcement of laws, the concept of credit itself, the currently overpriced exchange value of gold... basically anything that isn't enforced by AK-47's, except of course those enforced by the promise of AK-47's)
"[...] what about a digital currency programmed to maintain stable prices, avoiding mischief by central bankers as well as the possibility of deflation? He says the engineer in him likes the simplicity of Bitcoin's fixed money supply."
Yeah, great engineering dude, let's disregard things like, you know, minimal acceptable performance for simplicity ;) You know, Unix was simple, but at least it didn't crash every five minutes. And the Apple II was simple, and it even had color!
Had many laughs. Would read again.