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Fiat is Effective: fiat for the crypto crowd [pdf]

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Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#31

Post by mbrock »

thisisit wrote: post #10

On page 4/5 this presentation says: >this might not be true of a sufficiently credible Tether-like stablecoin whose value is pegged to a fiat currency, but there the crypto is piggybacking on the effectiveness of the fiat. I was intrigued by this Tether thing and ended up on the site: https://tether.to/ It says: > Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always…

You, and everyone else, ought to be very skeptical.

A peg like Tether isn't any kind of guarantee. It's so easy to imagine the insolvency of such a firm through government action, fraud, bank seizures, or a juicy combination of all three.

https://hackernoon.com/the-curious-tale-of-tethers-6b0031eea...

Having the private keys that controls a Tether token is not at all like owning a US dollar. That's why their legal policy states:

Once you have Tethers, you can trade them, keep them, or use them to pay persons that will accept your Tethers. However, Tethers are not money and are not monetary instruments. They are also not stored value or currency. There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money.

I don't think a centralized and fragile thing like Tether deserves to be called a stablecoin. We should reserve that concept for a decentralized and resilient collateralized token issuance system...

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#32

Post by nadam »

pjc50 wrote: post #28
nadam wrote: post #25

Earlier quoted context omitted.

"This sentence sounds like preaching." Yes, you are right, I was wondering whether to edit that sentence to sound less confident. :) I have no evidence, and I am not an expert on this. I just think that if a currency is a utility currency, actually used by merchants and everyday users globally across a wide range of industries, countries and people, it has a huge market cap (it is the dominant currency of the world):…

The expansion and contraction of the real economy causes a change in the demand for money , resulting in changes in the price level. This is usually summarised in the equation "MV=PQ"; see the economics literature for more detail on this. (This is independent of what the money actually is, and was a big problem with price fluctuations under the gold standard)

Let's say we have a huge global cryptocurrency, that the whole world uses. If I understand well, when the economy expands, you can buy more BigMac for one unit, when the economy shrinks, you can buy less BigMac for one unit. What I am wondering now is whether is it something that needs to be avoided at all, (or can it be avoided in the long term at all).

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#33

Post by AronTrask »

onion-soup wrote: post #23
subroutine wrote: post #18

Earlier quoted context omitted.

What is a "unit of human work", and how much is it worth? Why are people paid differently for the same work?

>What is a "unit of human work" Money, obviously? > Why are people paid differently for the same work? Do you want me to do a crash course on history of economics in a HN comment?

I think the issue is that there's nothing obvious about the labour theory of value:

https://en.wikipedia.org/wiki/Criticisms_of_the_labour_theor...

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#34

Post by subroutine »

pjc50 wrote: post #11
jph wrote: post #4

Summary of key points: • The case against fiat is an ethical case, much more than an effectiveness case. Crytpo advocates often misunderstand this. * The primary reason fiat succeeds is it offers price stability. But stability is often purchased at the expense of workers and the unemployed. * The management of fiat provides state actors with incredibly powerful, ultimately discretionary, tools which significantly aff…

"Fiat money and associated banking systems are the technology that enables the finance of war on scales that would have been unimaginable a few centuries ago" This quote appears in the summary but isn't really supported by argument within the article, and is quite a big claim!

What of countries that go full crypto, then later have a war levied against them; this suggests these governments would not have effective economic means to defend themselves.

Its almost like it assumes if citicens of a state switch to crypto their government would/could not tax them

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#35

Post by KGIII »

zodiac wrote: post #20
littlestymaar wrote: post #8

Earlier quoted context omitted.

> I agree with the author on the part of currency needing to be stable, and cryptocurrencies in their current state are not stable. […] It takes time, effort, and entropy to gain the momentum needed to be stable, crypto is still in its early-adoption-phase. The problem is : if you want a stable currency you need a money supply that grow as much as `inflation + growth + the slowdown of the money flow`, if you don't ha…

There are project like MakerDAO that indeed use smart contracts (plus fiat price oracles and some other things) to implement monetary policy without any "pilot".

I think one of the problems is that there are now, what, a few thousand cryptocurrencies? The optics of the multitudes of ICOs? Those aren't good. No, no they are not.

A part of me wonders if this popularity boom might actually be the reason it dies out. How many hacks, thefts, and scams have there been? Sure, those happen with real money but real money isn't the one needing to work on its optics. We already accept real currency.

This one is anonymous, this one is for burgers in Russia, this one is tied to fiat currency, this one is for an online file system... The list goes on. I'm not sure that diversity in choice is a net benefit with this, at least not in the long term.

Someone important is going to lose some money and it's not that hard for a government to make it illegal. Depending on your jurisdiction, it's just a stroke of the pen.

If I did want to invest, or use, I'd barely have an idea of where to start and I'm pretty technically literate. Hell, I even mined some BTC when it was new. Now, there are so many varieties. Maybe too many choices. There are even sites to let you easily make new ones.

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#36

Post by [deleted] »

iosDrone wrote: post #30
jph wrote: post #4

Summary of key points: • The case against fiat is an ethical case, much more than an effectiveness case. Crytpo advocates often misunderstand this. * The primary reason fiat succeeds is it offers price stability. But stability is often purchased at the expense of workers and the unemployed. * The management of fiat provides state actors with incredibly powerful, ultimately discretionary, tools which significantly aff…

I don't think this is a good summary of the article at all. It's mostly about why fiat currency is so entrenched, and why a lot of the things that cryptocurrencies advocates cite as weaknesses are actually strengths.

[deleted]

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#37

Post by paulgb »

urza wrote: post #19

So the argument basically comes down to that crypto is too volatile and not usable as unit of account? 1. Crypto is still in its initial stage, where capital is flowing into it. Once it is there, it will be less volatile. You can already see this in Bitcoin[1], where relative volatility is dropping every year. 2. There are projects coming that will enable decentralized trustless peg of fiat currencies into blockchian…

I don't think that's an accurate summary. The author's own summary (last three slides) doesn't mention volatility.

Volatility isn't the problem so much as a symptom of the problem, which is a lack of central control. Crypto enthusiasts like the lack of centralization on supposed ethical grounds, but the author draws a separation between ethical considerations and considerations of effectiveness. The author makes the point that fiat is effective.

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#38

Post by unlmtd1 »

I see a lot of misunderstandings here.

First off, a dollar/franc/krone/baht is a quantity of money, that is gold - previously silver (pre-19th c. Gold rushes).

This means that a bank whose banknotes trade below their face value is considered insolvent by the markets. So why do all those currencies still circulate!? Because of fiat - said otherwise declaration (by ie a state) of a monopoly on emitting fiduciary media (banknotes).

Now some may say "But sometimes those banknotes rise in value vis-a-vis gold!" ... Sure! But they never rise beyond their face value!

Please, for the love of rationality, read some real lessons on economics. (L.W.Mises, H.H.Hoppe, M.Rothbard).

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#39

Post by thisisit »

urza wrote: post #19

So the argument basically comes down to that crypto is too volatile and not usable as unit of account? 1. Crypto is still in its initial stage, where capital is flowing into it. Once it is there, it will be less volatile. You can already see this in Bitcoin[1], where relative volatility is dropping every year. 2. There are projects coming that will enable decentralized trustless peg of fiat currencies into blockchian…

> You can already see this in Bitcoin[1], where relative volatility is dropping every year.

Curious - Is that really due to bitcoin stabilizing or is it because of the deflationary nature of bitcoin? I mean if bitcoin does have some promise, then holding is better than trying to trade in and out of it.

I also went through the quoted link on volatility: http://woobull.com/bitcoin-volatility-will-match-major-fiat-...

One of the things holding cryptocurrencies back is that there is lot of misinformation. Specially in form of articles written without understanding financial fundamentals. It excites the crowd but the takeaways are mostly nonsense. This article is also along the same lines.

There is no concept called "peak volatility" as highlighted in the conclusion. There is only volatility.

Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. (from: http://www.investopedia.com/terms/v/volatility.asp)

There is average volatility which is a measure of volatility across a >particular periodAnd that makes the 2nd graph even more confusing. What is the average volatility is being talked about here? Is it the rolling average of the average of data points or something else? This is so confusing.

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#40

Post by CryptoPunk »

urza wrote: post #19

So the argument basically comes down to that crypto is too volatile and not usable as unit of account? 1. Crypto is still in its initial stage, where capital is flowing into it. Once it is there, it will be less volatile. You can already see this in Bitcoin[1], where relative volatility is dropping every year. 2. There are projects coming that will enable decentralized trustless peg of fiat currencies into blockchian…

I'm a big advocate of cryptocurrency but am unconvinced that stable value coins can work. The Sai was recently released:

https://blog.makerdao.com/2017/06/05/introducing-sai/

and BitUSD has been out for years:

https://bitshares.org/technology/price-stable-cryptocurrenci...

but neither have a significant amount of value riding on them and I personally wouldn't trust them with significant value.

The problem with any stable value coin is that its stability depends on the underlying cryptocurrency collateral. As long as the value of cryptocurrencies is significantly more volatile than that of fiat, I wouldn't trust a stable value coin's ability to remain solvent and maintain its peg.

I would rather bear the greater volatility of holding the underlying cryptocurrency, and get to enjoy the upside potential, than hold a stable value coin that has no potential to appreciate and a greater than zero probability of going to zero.

When cryptocurrencies get stable enough to make good collateral for stable value coins, they will be stable enough to use directly as a low-risk store of value.

The one wildcard in my estimation is decentralized options and futures markets. By creating a market for volatility hedging, it might make it possible for parties to 'buy' the requisite stability for a price.

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