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Central bank cryptocurrencies

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Re: Central bank cryptocurrencies

#31

Post by gtrubetskoy »

"(preventing double-spending without the use of a trusted authority requires transaction validators (miners) to employ large amounts of computing power to complete "proof-of-work" computations); there is only probabilistic finality of settlement; and all transactions are public. These features are not suitable for many financial market applications."

The words "only probabilistic finality" makes it sound uncertain, whereas in reality the uncertainty of a bitcoin transaction is insignificant compared to the uncertainty of a trusted entity, which they advocate.

In other words, they still don't understand it.

Re: Central bank cryptocurrencies

#32

Post by rmah »

gtrubetskoy wrote: post #31

"(preventing double-spending without the use of a trusted authority requires transaction validators (miners) to employ large amounts of computing power to complete "proof-of-work" computations); there is only probabilistic finality of settlement; and all transactions are public. These features are not suitable for many financial market applications." The words "only probabilistic finality" makes it sound uncertain, w…

They understand it just fine and you simply wrong. Proof of work validation IS probabilistic and central agency validation is not probabilistic. But it does require trust in that central agency. You may not trust that central agency, but that doesn't change the facts.

Re: Central bank cryptocurrencies

#33

Post by gtrubetskoy »

rmah wrote: post #32
gtrubetskoy wrote: post #31

"(preventing double-spending without the use of a trusted authority requires transaction validators (miners) to employ large amounts of computing power to complete "proof-of-work" computations); there is only probabilistic finality of settlement; and all transactions are public. These features are not suitable for many financial market applications." The words "only probabilistic finality" makes it sound uncertain, w…

They understand it just fine and you simply wrong. Proof of work validation IS probabilistic and central agency validation is not probabilistic. But it does require trust in that central agency. You may not trust that central agency, but that doesn't change the facts.

But I could argue that central agency validation _is_ probabilistic, because there is a probability that the central agency can collapse, be overtaken, go rouge, etc.

And that that actually might be more probable than the blockchain 51% attack or split or whatever.

I don't know what the actual math here is, I think that the essential difference is that in case of proof-of-work such a probability is computable relatively easily, while we don't know how to measure the trustworthy-ness of a third party reliably (it depends on laws, military strength, level of corruption, etc, lots of variables)

Re: Central bank cryptocurrencies

#34

Post by runeks »

rmah wrote: post #32
gtrubetskoy wrote: post #31

"(preventing double-spending without the use of a trusted authority requires transaction validators (miners) to employ large amounts of computing power to complete "proof-of-work" computations); there is only probabilistic finality of settlement; and all transactions are public. These features are not suitable for many financial market applications." The words "only probabilistic finality" makes it sound uncertain, w…

They understand it just fine and you simply wrong. Proof of work validation IS probabilistic and central agency validation is not probabilistic. But it does require trust in that central agency. You may not trust that central agency, but that doesn't change the facts.

Using your definition, all cryptography is also probabilistic. It's technically correct, ie. there's a risk that someone guesses your AES key, but it's practically irrelevant because the probabilities involved are so small (and key sizes can be adjusted to make guessing as improbable to succeed as we want).

Re: Central bank cryptocurrencies

#35

Post by ttoinou »

notahacker wrote: post #25
narrator wrote: post #13

Earlier quoted context omitted.

Nobel prize winner F.A Hayek wrote a great defense of deflationary currency and a rebuttal to Keynes back when he was debating Keynes in the 30s[1]. He also predicted Bitcoin with his book "The Denationalization of Money" written in the 1970s[2]. [1] https://mises.org/library/hayek-paradox-saving [2] https://mises.org/library/denationalisation-money-argument-r...

Hayek didn't really adequately defend a deflationary currency at all. Hayek was attacking a related, but different underconsumptionist argument that consumption was more important than investment. The argument against [sustained] deflation is that investment will be reduced along with consumption . In order for investment to take place, it is necessary [though not sufficient] for the investor to expect to earn a mone…

If you keep the same deflationary money over the years, you are making a profit. So what's "good" is not a money which supply grows or shrinks, but a money with which people can make good predictions and plans accordingly.

Plus, burying your money is withdrawing it from the money supply, maybe it has effects like "giving it to everybody" ? (added the risk that you can dig the money and put it back into circulation)

Re: Central bank cryptocurrencies

#36

Post by runeks »

meri_dian wrote: post #5

Very interesting. I'm intrigued by Fedcoin and how it incorporates the possibility of monetary policy into the cryptocurrency framework. The rigidity and hard ceiling on liquidity of Bitcoin is a major weakness of the currency (I know that Bitcoin enthusiasts see it as a strength) but if technology like Fedcoin can overcome that weakness I'm more bullish about cryptocurrency becoming part of the monetary scheme.

> The rigidity and hard ceiling on liquidity of Bitcoin is a major weakness of the currency [..]

How do you arrive at a ceiling on liquidity from a ceiling on stock/supply (number of coins in existence)? Or are you referring to the limited number of transactions the Bitcoin blockchain can handle over a given time period?

As far as I can see, neither of these two limit the liquidity of Bitcoin. Transaction speed at the exchanges is not limited by the Bitcoin blockchain, since bitcoins exist as credit on each exchange (which can be redeemed into actual, on-blockchain Bitcoins through withdrawal). And I don't see how limited supply limits liquidity, since gold is highly liquid as well as strictly limited in supply.

Re: Central bank cryptocurrencies

#37

Post by paulgb »

DennisP wrote: post #30
neilwilson wrote: post #17

Earlier quoted context omitted.

Bitcoin might be rigid, but that is solved by having lots of cryptocurrencies. Which then sort of defeats the 'hard money' nonsense theories behind its construction. Similarly with Gold. Once Gold gets to a point people start hoarding elements with other atomic numbers.

Exactly, cryptocurrency isn't digital gold, it's the system of privately-issued competing currencies advocated by Hayek.

Hayek's currencies were backed by the issuer. They're more analogous to frequent flyer miles than cryptocurrencies.

Re: Central bank cryptocurrencies

#38

Post by andrewla »

runeks wrote: post #34
rmah wrote: post #32

Earlier quoted context omitted.

They understand it just fine and you simply wrong. Proof of work validation IS probabilistic and central agency validation is not probabilistic. But it does require trust in that central agency. You may not trust that central agency, but that doesn't change the facts.

Using your definition, all cryptography is also probabilistic. It's technically correct, ie. there's a risk that someone guesses your AES key, but it's practically irrelevant because the probabilities involved are so small (and key sizes can be adjusted to make guessing as improbable to succeed as we want).

This is not the aspect that is considered to be probablistic. The problem is that forks can happen by design -- blocks can be orphaned and the tree can be reorganized. So a transaction is only final so long as it is on the main chain; if the main chain switches to a forked chain that does not contain your transaction, then it is not settled; the resulting coins cannot be spent.

There are attack scenarios, but even without those it is possible for forks to occur; single-block forks are common (so-called "orphaned blocks") due to some combination of network latencies and chance. Longer forks may be possible if there are more dramatic breaks in network connectivity. The original whitepaper originally advocated waiting for six blocks before a transaction is considered "settled". That's probably high, but the guarantees are strictly probablistic; any software dealing with bitcoins has to be aware of the possibility of reorganizations.

Re: Central bank cryptocurrencies

#39

Post by andrewla »

meri_dian wrote: post #5

Very interesting. I'm intrigued by Fedcoin and how it incorporates the possibility of monetary policy into the cryptocurrency framework. The rigidity and hard ceiling on liquidity of Bitcoin is a major weakness of the currency (I know that Bitcoin enthusiasts see it as a strength) but if technology like Fedcoin can overcome that weakness I'm more bullish about cryptocurrency becoming part of the monetary scheme.

I think the idea of Fedcoin is very interesting, and this article does a good job of highlighting what it would mean in taxonomic terms.

My biggest unknown, and the problem I've seen with the idea of a centrally managed cryptocurrency (especially one with convertibility) is the creation/redemption mechanism. The proposals I've seen talk about varying the block reward, or having some sort of transaction type that can only be submitted by the central bank.

I hate to think, though, that the entirety of the security of a nation's money lies in the ability of the central bank to safeguard its private keys. Bitcoin's monetary policy is deterministic and consensus-based, so it's not really vulnerable to this.

It's all well and good to talk about CBCCs in the abstract, but the technical challenges involved are non-trivial and shouldn't be glossed over.

Re: Central bank cryptocurrencies

#40

Post by marcosdumay »

SuoDuanDao wrote: post #26
neilwilson wrote: post #18

Earlier quoted context omitted.

The banks are in debt to trillions of dollars to people who are 'in credit'. That's what 'in credit' means. It is the accounting term for a liability. Does that keep you awake at night too? For every asset there is a liability - even with cryptocurrencies. What you are missing with government 'debt' is that it creates safe private assets that keep the pension system going.

If I understand your argument, you're saying that I'm a 'creditor' to my bank when I deposit money there that they are obliged to return on demand. Fair enough, but the reason I deal with banks is that it's cheaper than protecting my assets personally. Cryptocurrency is cheaper than dealing with the banks. So if I find a dollar on the beach and pick it up, what liability has been created by my having a new asset? Are…

> So if I find a dollar on the beach and pick it up, what liability has been created by my having a new asset?

That dollar bill is a title of government debit.

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