What Bitcoin shows us about how money works • Hacker News Board

Re: What Bitcoin shows us about how money works

#31

Post by patrickg_zill » Mon, Dec 18, 2017, 6:43 PM UTC

panarky wrote: post #9

> It’s pretty easy to understand that if the government were to suddenly double the number of dollars in circulation, the value of a dollar would go down by approximately half. Just because it's easy to understand doesn't mean it's correct. For example, the US money supply more than doubled in the last 10 years, yet the value of a dollar has not halved. M0 quadrupled in 10 years: https://imgur.com/a/L9mDx M1 tripled:…

Q: do you believe the govt-published inflation stats are accurate? Or is inflation under-reported by the US government?

Re: What Bitcoin shows us about how money works

#32

Post by RobertoG » Mon, Dec 18, 2017, 6:43 PM UTC

osrec wrote: post #18

danield9tqh wrote: post #12

> Even if demand for the dollar plummeted, the Fed could in principle keep burning money until a dollar is scarce enough to be worth the “right” amount This seems like the crux of the argument of the difference between the dollar and Bitcoin in the author's view. To me though this statement doesn't make sense and is very misleading, and someone please correct me if I'm wrong. The Fed CANNOT just keep burning dollars…

"Burning dollars" can be done in other ways. For example, the powers that be can issue less debt going forward, which would shrink the money supply.

Or higher taxes, effectively retiring money from the economy.

Re: What Bitcoin shows us about how money works

#33

Post by danield9tqh » Mon, Dec 18, 2017, 6:44 PM UTC

osrec wrote: post #18

danield9tqh wrote: post #12

> Even if demand for the dollar plummeted, the Fed could in principle keep burning money until a dollar is scarce enough to be worth the “right” amount This seems like the crux of the argument of the difference between the dollar and Bitcoin in the author's view. To me though this statement doesn't make sense and is very misleading, and someone please correct me if I'm wrong. The Fed CANNOT just keep burning dollars…

"Burning dollars" can be done in other ways. For example, the powers that be can issue less debt going forward, which would shrink the money supply.

This makes sense to me, that's something I hadn't thought of so thanks for sharing.

But I still don't see how it differentiates BTC from USD. Because issuing any debt in the first place would inflate the value. So then when you stop issuing debt, the value would get deflated to what it would have been originally. I think this is how the Fed tries to control deflation as well. They print more money, not to distribute it but just so that they can hold it and burn it when they need to control inflation. Either way, both of these scenarios seems like a wash to me. You're just making money so that you can destroy it later.

The only argument I can see here is the idea of having 'wiggle room' within the money supply. In essence a way to control the irrational volatility of the market. If everyone is screaming sell sell sell!, the Fed has a limited amount of room to destroy some money and calm people down before panic takes over. BTC doesn't have that. But even this seems to me like a much weaker 'check' than the author suggests.

Re: What Bitcoin shows us about how money works

#34

Post by darawk » Mon, Dec 18, 2017, 6:44 PM UTC

singlow wrote: post #23

darawk wrote: post #6

Overall I like the article, but a few points of disagreement: 1. The US dollar has intrinsic value. That intrinsic value is that the US government accepts it as payment for taxes. Regardless of what currency you conduct your business in, the USG accepts its cut only in dollars. That creates intrinsic demand for dollars, and links that intrinsic demand directly to the US GDP. 2. Bitcoin also has intrinsic value. That…

The problem I have with your criticism is that the word intrinsic has too many definitions to be useful for communication. Even within economics it means very different things when applied to companies vs. stocks vs. options. In this context, not a specific technical use, my best understanding of intrinsic would be the value of something apart from any external forces or interest (extrinsic value). The intrinsic valu…

Ya, you're right. I wish there was a word that meant the thing i'm trying to articulate. Intrinsic is closest, but you're right, it's imperfect. I think intrinsic is actually more appropriate for btc than for usd, though, since Bitcoin's use for transaction fees is actually intrinsic to its nature.

Re: What Bitcoin shows us about how money works

#35

Post by zxy_xyz » Mon, Dec 18, 2017, 6:48 PM UTC

ELI5 how bitcoin works anyone? I'm curious but not willing to deep dive atm.

Re: What Bitcoin shows us about how money works

#36

Post by patrickg_zill » Mon, Dec 18, 2017, 6:49 PM UTC

darawk wrote: post #6

Overall I like the article, but a few points of disagreement: 1. The US dollar has intrinsic value. That intrinsic value is that the US government accepts it as payment for taxes. Regardless of what currency you conduct your business in, the USG accepts its cut only in dollars. That creates intrinsic demand for dollars, and links that intrinsic demand directly to the US GDP. 2. Bitcoin also has intrinsic value. That…

I would add that USD currently must be used to purchase oil, so the petrodollar demand should be added to the pay-your-taxes demand. Some might argue the petrodollar side is more powerful than the pay-your-taxes side.

Re: What Bitcoin shows us about how money works

#37

Post by danield9tqh » Mon, Dec 18, 2017, 6:51 PM UTC

MR4D wrote: post #22

Good article. Two things were not addressed though, which I think have a bigger impact than the things he mentions: 1 - scalability (e.g. transactions per second) of the bitcoin block chain is abysmally low. So low in fact, that today’s society would crumble on it as it currently exists; 2 - credit markets are not addressed. How do you loan money in a bitcoin world? Our society is built upon credit transactions, from…

Debt can absolutely be issued with Bitcoin. What's to stop someone from saying, here I'll give you 1 BTC today if you give it back to me tomorrow? The reason you've probably heard that debt cannot be issued in Bitcoin is because debt cannot be issued in a 'safe' way. In other words if I give someone 1 BTC today, I can't be sure that they will give it back to me tomorrow. But that's just the nature of debt and has nothing to do with Bitcoin.

Re: What Bitcoin shows us about how money works

#38

Post by keithnoizu » Mon, Dec 18, 2017, 6:52 PM UTC

MR4D wrote: post #22

Good article. Two things were not addressed though, which I think have a bigger impact than the things he mentions: 1 - scalability (e.g. transactions per second) of the bitcoin block chain is abysmally low. So low in fact, that today’s society would crumble on it as it currently exists; 2 - credit markets are not addressed. How do you loan money in a bitcoin world? Our society is built upon credit transactions, from…

For what it's worth, Fractional Reserve banking could still work fine with bitcoin. You'd simply need a pool of coins and restrictions on full withdrawals and how the coins are stored (aka end users don't know the specific coins they have been loaned, just that on request the holder will transfer coins up to their balance to a third party.

Re: What Bitcoin shows us about how money works

#39

Post by UncleEntity » Mon, Dec 18, 2017, 6:53 PM UTC

> Essentially, the gold standard commits a fallacy by assuming that the value of money comes from the commodity that backs it.

Talk about a strawman, nobody believes that. Gold (or any form of money) derives its value from being a commonly accepted medium of exchange.

Re: What Bitcoin shows us about how money works

#40

Post by jonnycomputer » Mon, Dec 18, 2017, 6:55 PM UTC

and not a single mention of taxes in the article as a source of demand for a currency. Roughly, the US collects about $3.3 trillion in tax every year, and the US states another $700 billion.