I believe that the deflationary nature of cryptocurrencies is the real problem in replacing money. Also the fact that a trail is left behind transactions is unlike it is with cash. This property is cool for the government, but the users may not want to have it.
On question that bugs me, but don't have enough knowledge bout Bitcoin: are the transactions public? (I believe they are). So anybody could map the wealth of the members of the bitcoin network? If it were used instead of cash my money movements could me monitored by anyone, eg. my employer?
Deflationary is not a bad thing at all - though I realize that most of mainstream economics thinks it is.
A few thoughts on that:
- Real wages rise when the currency deflates (good for working class, think about the effect of wealth inequality)
- Debt becomes a problem (bad for indebted, such as government)
The main official reason why deflation would be a bad thing is that it discourages spending. I think it discourages non-necessary spending. People will still eat, they just wait a few months more to buy their TV. However, they can buy more TVs now or other things because they have more disposable income.
I don't think forcing people to spend is in any way a good thing, neither economically nor ecologically.
But enough of this, I want a non-inflationary currency to save in. If there are enough of me, that's sufficient to make something "have a value".
Re the public transactions, I assume that sooner or later it can be tracked to a high probability. However, I also think this is the case with other non-cash transactions, so while it's not relatively better than fiat in that sense, it's still not worse either. For me that's ok since I'm not in the money laundering or tax evasion business.
I agree with the traditional view about deflation. It is bad, especially for the workers, who have almost no money to save, thus they do not get any of the benefits, but they take the most burden, as they must spend almost all of their income on survival. On the other hand others with more income have their savings growing in value, thus not spending, making consumption fall, which renders workers unneeded, etc...
about public transactions I beleive this is a real privacy problem. The government can track my spendings every day (well, not cash, but eletronic transactions which are the bulk of my money movements) even now (when a judge has signed a permit for them). The problem is if anyone can do that. I have given up some privacy to the government, but not to the random guy.
Now my question is: is this concern of mine about public traceability existing with bitcoin technology, or not? (only the technical aspects please. the philosophical side is out of scope here)
So I am no expert in this field but I think the traceability by the random guy is not necessarily a problem because:
- until an amount in your possession has been spent, you can avoid that anyone knows who the corresponding BTC belong to (= you) by just using a new address when receiving the coins. Public knowledge about "having possessed coins" is only after a transaction and only if the random guy new that at least one of the last sources belonged to you.
- when you send BTC somewhere, nobody knows if these still belong to you if all outgoing amounts are sent to new addresses.
- There are "mixing services" that intend to "mix" amounts of several addresses, so traceability can be mitigated but IMO people have mixed feelings about them.
- There might be legal issues in case traceability becomes much better. E.g., coins might be blacklisted because they were gained illegally. Since you can trace those coins, it could be legally possible (though technically challenging) to "forbid" these coins and accuse of money laundering whoever accepted them anyway.
- There are other coins that are more concerned with this, I think monero (See sibling comment) is the most popular. You can always check what the dark market accepts to see what's good for you :)
- Finally, one mitigation is to keep only small amounts in many addresses, so all your counterparties only know a subbranch of your "transaction DAG" ("directed acyclic graph").
My own take is that all this means that nobody can ever track with certainty how much you have, only your "turnover". This holds as long as your counterparties (e.g., exchanges or employer) are not compromised and sufficiently well intended.
Oh and regarding deflation (I know, you didn't ask for this):
If prices deflate 5%, a worker can buy 5% more of his salary, making him effectively richer (ceteris paribus). There is no need for savings, future income is sufficient.
Secondary effects like unemployment are likely to occur but still you'd need to show that 5% of deflation cause 5% workers dismissed so that the net effect is the same. If only 3% of the workforce are dismissed, the poorer got effectively richer.
Tech products have been deflating constantly, yet no one stopped buying them (to the contrary, they got cheap enough so that a lot of people were able to buy them, think smartphones).
So you might not agree with me on a general rule but bear in mind deflation has positive effects. All innovation causes deflation.
I think I can answer your question, because I asked an identical one on bitcoin.stackexchange.com about a year back.
The transactions are public because that's the only way account balances can be tracked in this system. There's no 'amount' associated with an account id at any point in time, as there is for a banking database. In Blockchain, all the money an account has to spend is the net of the transactions made to and from that account. In traditional banking, even if you deleted the transaction history, it would work, because the account balances would be correct. This incentives people to fudge the history and the final balance via fraudulent transactions. Blockchain prevents that, since it never stores the balance, and old transactions are set in stone.
As to your second point, yes, mapping the wealth is possible. But so is obscuring the account holder's ID. To get your money, you just need a private key, a little string of characters, to verify that account. Also, account creation is incredibly easy (literally just a function call returning a 256-bit hash). So, no one knows who is who on the network. Some transactions may go from a person to themselves, others may go from a person to another for services rendered. It's basically impossible to tell once the transaction volume grows large enough.
On question that bugs me, but don't have enough knowledge bout Bitcoin: are the transactions public? (I believe they are). So anybody could map the wealth of the members of the bitcoin network? If it were used instead of cash my money movements could me monitored by anyone, eg. my employer?