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What Bitcoin shows us about how money works

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Re: What Bitcoin shows us about how money works

#51

Post by keithnoizu »

grandalf wrote: post #24
blowski wrote: post #10

Earlier quoted context omitted.

We quite often get firm evidence, and the evidence turns out to be wrong. But I'm a sceptic, which is why I never bought any Bitcoins for $1 in 2012.

I have no idea whether that will happen, just trying to express what I think the rational case is for investing in Bitcoin today. Goldbugs / conspiracy theorists have a line of argument where they describe all the fiat currencies that have ultimately experienced corruption and hyper-inflation. So I think it's fair to say that running a fiat currency successfully for more than 500 years is something that is unpreceden…

You're assuming BTC will appreciate in value. There is no guarantee it will eventually become worth millions of US or equivalent dollars.

Even with a fixed qty; uncovered exploits, technological breakthroughs, change in crypto trends (aka a move to another platform), or change in society could halt an increase of value.

Technically the same is true of gold. Even with out a massive change in qty, something as simple as a better gold like alloy for jewelry, an alternative for electronics, or a sudden cultural aversion to gold ownership could reduce the value.

Re: What Bitcoin shows us about how money works

#52

Post by jganetsk »

andrewla wrote: post #14
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…

> That intrinsic value is that the US government accepts it as payment for taxes That can be argued to be an abstract utility for the US Dollar, but it is not an argument for the value (or "intrinsic value", whatever that means) of the US dollar in that the value of it is what determines the tax obligation. That is, if I own taxes on a non-USD transaction (say capital gains for BTC sales), the amount of those taxes i…

The idea that taxes create a demand for currency (and hence the value) is explored at depth in Modern Monetary Theory: http://neweconomicperspectives.org/2011/07/mmp-blog-8-taxes-...

Re: What Bitcoin shows us about how money works

#53

Post by jganetsk »

meri_dian wrote: post #49
panarky wrote: post #27

Earlier quoted context omitted.

Here's a way to think about it using simple identities. 1) Nominal GDP = Money Spent 2) Nominal GDP = Price Level * Real GDP 3) Money Spent = Money Supply * Velocity Therefore 4) Price Level * Real GDP = Money Supply * Velocity So if supply doubles but velocity halves while real GDP remains constant, then there's no effect on prices. Economists call this "pushing on a string". The Federal Reserve increases the money…

So if the Fed was somehow able to increase money supply by getting money into the hands of the average consumer rather than wealthy individual and institutional bond holders, monetary policy would be more effective?

Monetary policy is just not that effective, overall. The Fed is not putting money into anyone's hands. It's just making bank balance sheets replace higher-interest paying asserts (Treasury bonds) with lower-interest paying assets (bank reserves) in the hopes that more lending will happen. But it won't. Fiscal policy is necessary. http://neweconomicperspectives.org/2012/01/mmp-blog-31-funct...

Re: What Bitcoin shows us about how money works

#54

Post by maxfurman »

AstralStorm wrote: post #25
wintom wrote: post #17

>"A bitcoin is a number, and that number has no utility outside of its ability to be accepted by someone else. Unlike gold, the the minimum value of a bitcoin is zero— its value if everyone stops believing it works. This is one reason why a bitcoin is a risky way to hold assets." I think people forget that there is a lot of value to a censorship resistant currency. Before Bitcoin was worth hundreds or thousands of do…

Bitcoin wallet can be seized and the transactions are traceable and public, so a sufficiently determined actor can figure out who has it and how much. Then enforce their cut with violence.

I would quibble with this, depending on how we define "seized". My understanding is that your coins cannot be transferred unless the transaction is signed by your private key. So, authorities could seize the computer that has the private key on it, or, as you say, use violence against a known individual, but they have no way in-network to take your wallet. Compare this with the central banking system where governments can and do force banks to freeze or hand over their customers' assets.

Re: What Bitcoin shows us about how money works

#55

Post by pwagland »

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:…

I think that you'll find the author meant that if the number of dollars doubled, with all else held the same, that the currency would go down by roughly half.

M0 doubling over ten years is not surprising if the underlying wealth that it measures also doubled, and doubling in ten years is on the right order of magnitude.

Of course, there are also other factors at play, so it would be unlikely to map exactly to the inverse of supply, but as a good rough first order approximation, it works OK.

Re: What Bitcoin shows us about how money works

#56

Post by meri_dian »

jganetsk wrote: post #53
meri_dian wrote: post #49

Earlier quoted context omitted.

So if the Fed was somehow able to increase money supply by getting money into the hands of the average consumer rather than wealthy individual and institutional bond holders, monetary policy would be more effective?

Monetary policy is just not that effective, overall. The Fed is not putting money into anyone's hands. It's just making bank balance sheets replace higher-interest paying asserts (Treasury bonds) with lower-interest paying assets (bank reserves) in the hopes that more lending will happen. But it won't. Fiscal policy is necessary. http://neweconomicperspectives.org/2012/01/mmp-blog-31-funct...

But that's not an answer to my question. I'm asking if - regardless of how policy is being executed now - money were distributed throughout the economy, would that accomplish the goals of monetary policy more effectively than the way it is traditionally carried out?

Re: What Bitcoin shows us about how money works

#57

Post by Agebor »

I agree with the conclusion about bitcoin, but it's very ignorant to just dismiss all current and future cryptocurrencies and assume it's not possible to replace fiat currency.

Research is currently ongoing in stable coins like https://makerdao.com/ In the following decades we will just begin to understand what it means to have decentralised and programmable value. Perhaps we won't use ANY currency in the future and the value of everything will be dynamic and personalised. Say, someone with low tolerance for risk will see more stable prices but slightly higher. Expressed in currency "minutes of watching TV".

Anything really is possible.

Re: What Bitcoin shows us about how money works

#58

Post by UncleEntity »

jganetsk wrote: post #50
stevedekorte wrote: post #46

"What about the gold standard? Well, it didn’t really work." Saying the gold standard didn't work after central banks printed far more than their gold reserves (i.e. effectively went off the gold standard) is like saying vaccinations don't work after people stop getting vaccinated and start getting sick again. It would be more correct to say that parties responsible for maintaining the gold standard (the central bank…

The gold standard doesn't work because it's deflationary. The Eurozone effectively functions as a gold standard. And now we are re-learning why the gold standard is bad when we look at the impact austerity has had on the Greek financial crisis.

There's nothing inherently bad about deflation, the US economy was basically deflationary for the whole of the 19th century and did just fine.

I would explain how the opposite is not true but people a lot more knowledgeable on the subject have written volumes.

Re: What Bitcoin shows us about how money works

#59

Post by FabHK »

meri_dian wrote: post #49
panarky wrote: post #27

Earlier quoted context omitted.

Here's a way to think about it using simple identities. 1) Nominal GDP = Money Spent 2) Nominal GDP = Price Level * Real GDP 3) Money Spent = Money Supply * Velocity Therefore 4) Price Level * Real GDP = Money Supply * Velocity So if supply doubles but velocity halves while real GDP remains constant, then there's no effect on prices. Economists call this "pushing on a string". The Federal Reserve increases the money…

So if the Fed was somehow able to increase money supply by getting money into the hands of the average consumer rather than wealthy individual and institutional bond holders, monetary policy would be more effective?

> getting money into the hands of the average consumer

That's basically fiscal policy, and was not implemented much after the initial Obama stimulus (or not at all in Europe, really, due to all the austerity rhetoric by very serious people).

Re: What Bitcoin shows us about how money works

#60

Post by UncleEntity »

grandalf wrote: post #24
blowski wrote: post #10

Earlier quoted context omitted.

We quite often get firm evidence, and the evidence turns out to be wrong. But I'm a sceptic, which is why I never bought any Bitcoins for $1 in 2012.

I have no idea whether that will happen, just trying to express what I think the rational case is for investing in Bitcoin today. Goldbugs / conspiracy theorists have a line of argument where they describe all the fiat currencies that have ultimately experienced corruption and hyper-inflation. So I think it's fair to say that running a fiat currency successfully for more than 500 years is something that is unpreceden…

> So I think it's fair to say that running a fiat currency successfully for more than 500 years is something that is unprecedented in the history of the world.

That's actually an indisputable fact.

The Chinese managed it for a hundred years or so back in the day, we're on year 46 since The Nixon Shock.

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