ELI5 how bitcoin works anyone? I'm curious but not willing to deep dive atm.
What Bitcoin shows us about how money works
71–80 of 90 posts
Re: What Bitcoin shows us about how money works
#72Lol. Although many good and seemingly well-reasoned arguments, the author forgot that you can only place a value on something if it is traded for something else. (eg BTC to USD, or chickens to potatoes). It is the ratio that gives the value and also depends on what side of the trade you're on. "A sudden random jolt downward in bitcoin price prompts many people to try to sell it and worsen the situation," This sentenc…
Well said. I was also struck by the author's core argument- that Bitcoin will never be stable because nobody can manipulate its value. Seems to me the opposite is true; the fact that nobody can directly manipulate supply will provide the type of stability our current fiat currency sorely lacks.
Did you forget the discussion of Bretton Woods? When you can't alter supply, it might be temporarily stable, but you have catastrophic shocks. Calm before the storm, and all that.
Re: What Bitcoin shows us about how money works
#73Good 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 not…
Because debt is fueled by interest, and Bitcoin is deflationary by design. So there's no interest to give loans in Bitcoin.
Re: What Bitcoin shows us about how money works
#74Earlier quoted context omitted.
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 a…
Those are all valid points. I don't disagree at all. My comment was meant to present the hypothetical case where Bitcoin's governance model turns out to have better longevity than the USD governance model.
Re: What Bitcoin shows us about how money works
#75> 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:…
> suddenly double Implying ceteris paribus -- all else held constant. Historical observations are generally not controlled experiments, as we only have one path through time.
> ceteris paribus
OK, so walk us through it. What are the mechanics that transmit the money supply increase to wages and prices?
If the money supply instantly doubled by magically changing Treasury bonds and collateralized mortgages into cash, what would happen?
Cash balances would go up for banks, brokerages and wealthy investors but cash balances would stay the same for most people who don't own these securities.
Would that cause an instant doubling of wages and prices throughout the economy? Or would banks, brokerages and wealthy investors just hold on to their new, bigger balances?
This isn't really about timing, since even if the money supply instantly doubled, you'd probably see velocity instantly cut nearly in half.
Re: What Bitcoin shows us about how money works
#76Earlier quoted context omitted.
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.
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Re: What Bitcoin shows us about how money works
#77> Demand for dollars is (like anything) organic and capricious, but the supply is directly controlled by the Fed.
This is actually wrong. Money really consists of 2 things: 1) Government debt 2) Private bank credit
The Fed only controls the amount of bank reserves, which is a function of: 1) Policy (federal funds rate target, reserve requirements) 2) Demand for reserves from private banks
The fed cannot create or destroy money, because money as we know is either a balance in a bank account, coins, or notes. The fed's operations are always either neutral towards bank account balances, or swap physical currency (coins or notes) for bank account balances.
The government creates money by spending it into existence, and destroys money by collecting revenue. Private banks create money by lending it out, and destroy money when loans are paid off.
Re: What Bitcoin shows us about how money works
#78Earlier quoted context omitted.
> suddenly double Implying ceteris paribus -- all else held constant. Historical observations are generally not controlled experiments, as we only have one path through time.
> ceteris paribus OK, so walk us through it. What are the mechanics that transmit the money supply increase to wages and prices? If the money supply instantly doubled by magically changing Treasury bonds and collateralized mortgages into cash, what would happen? Cash balances would go up for banks, brokerages and wealthy investors but cash balances would stay the same for most people who don't own these securities. W…
If you were to magically split every dollar into two dollar bills, prices would almost immediately double to compensate. That implies that the dollar is now half as valuable.
Re: What Bitcoin shows us about how money works
#79Earlier quoted context omitted.
> ceteris paribus OK, so walk us through it. What are the mechanics that transmit the money supply increase to wages and prices? If the money supply instantly doubled by magically changing Treasury bonds and collateralized mortgages into cash, what would happen? Cash balances would go up for banks, brokerages and wealthy investors but cash balances would stay the same for most people who don't own these securities. W…
If you were to magically split every dollar into two dollar bills, prices would almost immediately double to compensate. That implies that the dollar is now half as valuable.
Not immediately at all.
Re: What Bitcoin shows us about how money works
#80"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.
The gold standard wasn't infinitely divisible.