It's solving the problem that currency, up until now, has never had a finite supply, and that even currencies with limited supply could be forged, seized or inflated until they became worthless. Bitcoin is the first money ever, which nobody can create beyond the very predictable initial distribution programmed into the system.
Gresham's law roughly states that when two kinds of money exist, people will stash the good money, and will trade with the bad money until it becomes useless. It's been proven time over throughout history. You only need to look at the gold rush that happened during the last financial crisis.
Given that Bitcoin is the best money that has ever existed, then anyone who is paying attention is stashing it while they're trading with anything else. The next recession won't be a rush for gold.
You can't just make wild claims like that without providing a coherent argument and expect people to blindly believe you. I actually had to re-read your comment a few times to figure out if it was some kind of satire of cryptozealotry.
In your comment you state, without any source or reasoning behind your claims, that:
- Finite supply of currency is good
- Inflation is bad
- Bitcoin is "best money"
- Everything else is bad money
What about the fact that deflation means that people are incentivized to stash money instead of spending it (something you admit doing yourself)? What about the fact that it means that the rich becomes richer while doing nothing while the poor can't make money because nobody wants to spend it? Don't let greed blind you. How does society work if your main form of currency is meant to be "hodled" and people who spend it are ridiculed as suckers?
Bitcoin is currently near-useless as a currency because it's mostly an asset for speculation. How is that going to change in the value of bitcoins keeps increasing by virtue of being artificially capped?
That's what kills cryptocurrencies: you need the deflation to reward early adopters but in the end it means that your currency is effectively unusable as a currency.
As far as I know in developed societies trade hasn't been conducted using precious metals directly in quite a long time and at a scale completely different from the modern globalized economy. The closest we had was the gold standard (and other precious metal pegs) but those routinely broke in case of crisis. As far as I know the only serious economists advocating for the gold standard nowadays are the "Austrian school" which are generally seen as pretty controversial.
I'm not sure how Bitcoin relates to the gold standard exactly though. On its own it can't be debased, but on the other hand it's not tied to anything physical so what happens if a government decides to "fork" it into a new currency (which increased supply for instance) and use that to pay public workers and raise taxes? Wouldn't that effectively do the same thing as debasing the currency? After all bitcoin is effectively a pure concept. Those are interesting questions but I lack the economic knowledge to answer them.
> In your comment you state, without any source or reasoning behind your claims, that:
> - Finite supply of currency is good
> - Inflation is bad
> - Bitcoin is "best money"
> - Everything else is bad money
My arguments aren't based on feels about what one might think as "good" or "bad", but just based on the undeniable fact that people are self interested. If it's a choice between holding my assets in a currency where they won't be devalued, and holding them in another where they will lose 1% or 2% annually, which am I going to chose?
The people who care about the rich getting richer are really complaining that they aren't getting richer by the same ratio. They obviously won't if they think that the second option was a better choice.
The rich already get richer. If they have money, they will invest it into other assets which offer them various levels of return, some more risky than others. People without money are traditionally excluded from these kinds of investment, and thus, their only for saving for the future is to put money into a bank account and let it have less purchasing power than the labour they put in to earn it in the first place.
Bitcoin changes that completely. Anyone, even low-income earners, can put small amounts into Bitcoin and it will retain value in the longer term. They can completely shift their mental mode from high time preference into low time preference and begin investing in their own future. The idea that everyone needs to spend spend spend is not grounded in reality. It's necessary for governments to continue their bad policy making which only enriches the elite who print the money. High time preference is the source of inefficiencies, cutting corners and high debt.
People should save rather than spend. People should spend more wisely in ways that are an investment into their own, and their descendants future, rather than borrowing from their children's labour through debt.
I'm pretty sure nobody reading your comment is assuming people are irrational.
A currency has many purposes, but the primary characteristic of a good currency is that people expect it to have about the same value tomorrow as it did today. Unless you're in finance speculating on arbitrage, you're not putting long term investments into good currencies, because rationally you expect to spend that money again. Instead, you put investments into assets. Something that bitcoin apologists like yourself fail to dissociate is the difference between currency and asset is crucial because both have different definitions of what makes them good.
>Bitcoin changes that completely. Anyone, even low-income earners, can put small amounts into Bitcoin and it will retain value in the longer term.
This is misleading and flat out dangerous to anyone who is reading your comment and takes up your advice. The price volatility, hundreds of hacked exchanges, and amount of fraud on Bitcoin alone proves this wrong.
You can't take the day to day price variance of Bitcoin as an indicator of anything at all. It is completely unpredictable and yes, if you intend to spend your money tomorrow, it is not the right currency for you.
I'm not intending to give investment advice. People can take what they want from my comments. If you're waiting for the price to stabilize before you "invest" in Bitcoin, then I hate to tell you, but you're probably going to be paying a premium on it. The price of Bitcoin is only going to rise in the long term, and the earlier you get in, the less you'll be paying for it.
Hacked exchanges and fraud have nothing to do with Bitcoin as a store of value. It's a case of bad security and decision making. Gold will also not retain it's value for you if you leave it lying on your lawn. If you take the necessary steps to make your Bitcoin secure and fault tolerant, they can be more robust against any kind of attack than Gold or cash.
Ignoring the price volatility of an asset and the shear number of hacked/robbed institutions using it because you want it to be the most stable form of value store is confirmation bias.
> Anyone, even low-income earners, can put small amounts into Bitcoin and it will retain value in the longer term.
Will it? The one thing that Bitcoin has not been noted for is keeping a stable value. Even that's fine, as long as the value doesn't go down - nobody complains that the value isn't stable if the value keeps going up. And, Bitcoin has... um... had been doing fine on that front. Now it's not. And I don't see evidence that it will be a good store of value in the future. I hear argument, but the available evidence is not for Bitcoin being a stable store of value.
Take any point in Bitcoin's history and compare its value then to three years earlier. There is no case where it was worth more three years before. Sure, you can't predict the day to day price swings because the demand is not going to be predictable like the supply. The question is, will demand go up in the long term?
But look at it another way. 1 Bitcoin is still 1 Bitcoin even after 100 years, and still 1/20999999 of the total number of Bitcoins ever created. It's an extremely stable store of value. Stability which was previously unheard of. The problem is that you are valuing it in terms of an asset that is far more likely to fail, given its current trajectory. You can't keep printing and borrowing forever.
Saying 1 Bitcoin is 1 Bitcoin isn't sensible. 1 dogecoin is 1 dogecoin. Hey, I have a currency, chrisbucks. There will only ever be 6 chrisbucks. Want one?
And Chrisbucks are the reason why altcoins have no long-term value. If anyone can create coins then there's an infinite supply and their value will go to zero. Bitcoin is the only system which has not attempted to inflate the supply beyond the originally programmed supply. The original supply was necessary because it was the first asset of its kind.
> Everything will eventually be priced in Bitcoin.
Objection, your honor. Assumes facts not in evidence.
We get it, you've bought in to the idea that Bitcoin is the one true currency. (That's why a statement like "1 Bitcoin is still 1 Bitcoin even after 100 years" makes sense to you.) The rest of us, however, are not sold on this. We suspect that 100 years from now one Bitcoin will get you exactly nothing of value. Speaking to us from a perspective that Bitcoin is the one true currency is completely unpersuasive to us. If you want to convince us, you need to tell us something that makes sense in our viewpoint.
> Take any point in Bitcoin's history and compare its value then to three years earlier. There is no case where it was worth more three years before.
That's a decent attempt at doing what I asked for. Unfortunately, I find it less than persuasive. It's an asset that has a total history of 10 years; there's a pretty small sample size here.
The people on the outside aren't really relevant to the value and market price of Bitcoin. The price is a reflection of the activity of the market participants economic equilibrium. Non-participants can gawk at the price, but so long as there are enough participants using the system, trading and creating wealth then the system will continue to grow, and attract more participants one would assume (although this is not necessary). Eg, your opinion of a foreign currency and their monetary policy makes little difference to them and the forex price until you participate in their economy.
All true. And Bitcoin could have a real value long-term (decades), if enough people believe (and continue to believe) that it does.
The forex example is a bit off, though. If I don't believe the price of the Euro, for example, well, there's still a ton of stuff being produced in countries that use the Euro, and they trade with other countries, and that sets a price for the Euro in relation to those other countries. But how much stuff is produced in places that use Bitcoin?
Perhaps I should have said in "places" that use Bitcoin, because it doesn't have to be countries. But how much stuff is for sale only in Bitcoin? That's where Bitcoin is going to have a price as a currency. If there aren't many things with Bitcoin-only prices, then Bitcoin can still have a value, but it's value is more like gold - as an investment that's not subject to inflation. Even as that, it can have a value forever - gold's done pretty well at that, after all.
But I still think it's too soon to see if Bitcoin will do that. Gold has several millenia of being accepted; Bitcoin has 10 years. We'll see what happens in the long term.
> "Gresham's law ... Bitcoin is the best money that has ever existed"
I think Gresham's Law has been showing us the exact opposite point with cryptocurrencies as a whole - cryptocurrencies are the "bad money" with no inherent value, i.e. no use case yet other than speculation, so people have been trading them away for "good money" (fiat), leading most cryptocurrencies on a long term trend towards zero. The only thing propping up Bitcoin is its pyramid scheme design (disproportionately rewarding early adopters and requiring them to constantly seek new scheme members to counteract its deflationary nature), so the small number of people with almost all the wealth are massively incentivised to protect their wealth by investing in pro-crypto projects, pro-crypto press etc. to convince as many people as possible that it is the "the future of money", "the best money that has ever existed", etc.
This isn't even true for bitcoin; anyone can fork it, there has been at least one fork already, and the miners can easily decide to hardfork across to keep the block rewards going when they run out. It doesn't help that the miners are increasingly cartelised.
If miners attempted to hard-fork in inflation, do you think users would follow their chain?
It was already attempted on the first halving from 50BTC to 25BTC. Guess which one won?
Miners don't make the rules. They enforce them. The network of economic users decide the rules that they are willing to validate in their software client.
This fact makes bitcoin even more dangerous. Miners are only going to fork the network in a direction that benefits them, sometimes at the expense of everyone else and the network. This is called tragedy of the commons, and the block-size debacle is an example of that.
The only direction that benefits miners is the direction where they have the maximum potential for profit by selling the coins they earn through transaction fees.
This will inevitably be the network which most people are transacting on.
The actual incentives are a bit skewed currently because transaction fees are dwarfed by the block subsidy.
What you're describing as a "problem" with regular currency isn't actually a problem at all. The ability to control the money supply and scale it up or down based on economic conditions is a valuable feature.
> That destroys the point of the whole "decentralized systems" thing.
Why?
> What is it solving that isn't some sort of political science question?
- Why can't you send money between PayPal and Venmo, even though they're products owned by the same company? It's because existing money is a system that you are permitted to use, under specific restrictions applied by government. Cryptocurrencies are open protocols. One thing they solve is getting around these restrictions. One day, all of our payment apps will be interoperable, and they will be enabled by crypto.
- You do not have to worry about your money being stolen by means like Civil Asset Forfeiture, which is literally legalized highway robbery. Crypto has similar properties to cash, while not being as susceptible to physical theft.
- Inflation is controlled by algorithm, not arbitrary policy. (Depending on your economic views, you may think this is a fault. I don't, but that's me. At the very least, it enables us to see what will happen to such a currency.)
- You can remit small amounts of money instantly at low-to-no cost. This will be huge for the developing world. (Scaling is not solved, but I also don't think that bringing it up is an interesting counterargument. Computer scientists have been scaling systems for the last 60 years. We're pretty good at it, and it's happening now with the Lightning network. There is no conceptual blocker to scaling cryptocurrency. The hard problem was digital scarcity, which has been solved, which is why crypto is now a thing at all.)
- Many people in many parts of the world do not have the ability to interact with traditional finance. They do not have the means to open bank accounts or connect to the global economy. They cannot invest, they cannot lend, earn interest, etc. If they have cash, it is in the form of money under their mattress or in their pocket. They are left out.
Many of these parts of the world leapfrogged PCs entirely, and went straight to smartphones. They will make a similar leapfrog in finance, bypassing traditional banks entirely. Before Wells Fargo opens in sudan, providing farmers with loans and a way to save, they will have it on their phones in the form of crypto wallets. This will unleash unprecedented economic velocity, helping to raise the half of the world that is left out into a higher quality of life.
- Low-to-no inflation saves common people from the hidden tax. A system designed by bankers for their own profit. The Federal Reserve is literally a feedback system that makes banks richer and average people poorer, like inflating air into a balloon and watching points on the top and bottom separate. I think, actually, that the whole balloon is rising, so it could be worse. Generally, quality of life has gotten better everywhere over time. But the people on the bottom still lack power and equality in a large part due to the distance between them and the richest increasing over time, caused by this mechanism.
> You do not have to worry about your money being stolen by means like Civil Asset Forfeiture, which is literally legalized highway robbery. Crypto has similar properties to cash, while not being as susceptible to physical theft.
Sure, its slightly harder to seize crypto assets compared to a suitcase full of cash, but the US Government certainly does it all the time. Usually under colorful cases like "United States v. Approximately 85.6971800 Bitcoins". [0]
I suppose you could refuse to divulge your keys (or even destroy them), but I guarantee that would just end up with you in prison indefinitely.
Yeah, if the government wants something then it's going to get it. There's this, obviously, and you're right: https://xkcd.com/538/. I am not advocating that crypto can help you bypass the law. But at least in the instances you're talking about, I would hope there would be due process.
There is no due process for civil asset forfeiture. If your money's on your phone, maybe they'll seize your phone, but you'd still have your keys, and that would not be illegal.
Typically they just see physical cash and take it. They take it because they see it, and it's theirs immediately. This is the type of theft that crypto helps prevent.
Crypto has always kind of looked like a solution in search of a problem, IMO. What is it solving that isn't some sort of political science question?