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You don't understand money – and it's a good thing for Bitcoin

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Re: You don't understand money – and it's a good thing for Bitcoin

#31

Post by weego »

JohnJamesRambo wrote: post #19
knocte wrote: post #16

Earlier quoted context omitted.

Or a Venezuelan.

Or German Marks when they were worthless after WWI and bundled in huge stacks. I feel like people in “developed” countries think “this couldn’t happen to me” when time has shown us time and time again it certainly can and you will be powerless to the whims of your government. Our original poster feels the same false safety in his or her Euros. They have developed amnesia to the lessons of the recent past. Bitcoin can…

So we've been ravaged by ww3 and our money is useless. How exactly do I still have Internet access and who is running all this infrastructure to allow me to trade crypto with someone?

And why are cryptocurrencies, which are also a limited resource that can't be diluted, immune to inflation?

Re: You don't understand money – and it's a good thing for Bitcoin

#32

Post by skybrian »

chamawa wrote: post #2

Anyone have book or article recommendations on how money works?

You might try the credit-based explanation by the Bank of England [1] (linked to in the above article).

I think the tricky bit is that when a bank makes a loan, it creates money, but usually in other banks. The loan-making process creates money "out of nowhere" by increasing a bank balance, but since the borrower got the loan for a reason, they will usually withdraw it and pay other people, increasing bank deposits somewhere else.

The bank needs funds to cover the withdrawal, so from their point of view, it doesn't look like free money to them. They need funding to make loans and they only make money on the spread in interest rates.

But there is new money in other banks as a result of them making the loan.

(A technical point: even without funding, the bank has a new asset - the loan itself. They could sell that to raise funds. Banks can "originate" loans they don't keep.)

The end result is that a new loan exists and there is also new money, somewhere. Whichever banks have more deposits will be able to afford to make (or buy) more loans.

[1] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

Re: You don't understand money – and it's a good thing for Bitcoin

#33

Post by jussij »

joe_the_user wrote: post #21
Tomte wrote: post #8

> Take the questions we mentioned above, and apply them to Bitcoin: Sure, you can easily answer cherry-picked questions about Bitcoin. But the important thing is: nobody in his day-to-day life needs to know these answers about real money, nor have they ever wondered about it. I can buy groceries just fine with my Euros, without wondering how exactly it has been created. Just as I wouldn't tailor my own paragliding ch…

> "I can buy groceries just fine with my Euros, without wondering how exactly it has been created." If literally all you know about money is that it is a token that lets you buy stuff at the grocery store, here is trwhat you don't know - how long is that situation going to hold up. > "Just as I wouldn't tailor my own paragliding chute, because otherwise companies could rip me off." I wouldn't try to sew a normal para…

> here what you don't know - how long is that situation going to hold up.

And how exactly does Bitcoin help to answer that question?

Just looking at roller coaster ride that is the Bitcoin to USD exchange rate suggests it is an extremely volatile currency.

I would suggest that the last thing you would want in a currency system is extreme volatility.

Re: You don't understand money – and it's a good thing for Bitcoin

#34

Post by nabla9 »

While this article don't cover everything, it acknowledges the complexity and that money is many things. Starting from coins and going towards things called 'money like'. And the author seems to know that not all bank lending is part of fractional reserve system.

Related to bitcoin one of the most critical and important aspects of fiat money from central banks is the liquidity. Liquidity means that money is available in price that does not fluctuate too much from day to day or month to month. Central banks are lenders of the last resort. Money should be boring and predictable, not exiting like Bitcoin. One of the definitions of money is 'most liquid asset'. If cryptocurrency can't do that, it can't replace money in daily business.

Re: You don't understand money – and it's a good thing for Bitcoin

#35

Post by beefield »

dpc_pw wrote: post #6

Money is simple. Credit is complicated. And if Bitcoin is going to succeed lending Bitcoin will be normal and lead to similar behavior as in the gold standard.

This. I have never heard a remotely sensible discussion from crypto folks around following points:

1. If fractional reserve banking is bad, what or who is going to stop the appearance of that in bitcoin world? You need to understand that literally only thing you need for that is a bunch of people trusting so much one organization that they are willing to use the IOU from that as payment method. (Cough, tether, cough)

2. If fractional reserve banking is good or even okay, first thing you need to accept is that the bitcoin guarantee of fixed monetary supply does not exist. Second, completely unanswered issue is that why the heck bitcoin would be any better from fiat as the base of a fractional reserve banking system.

Re: You don't understand money – and it's a good thing for Bitcoin

#36

Post by joe_the_user »

not2b wrote: post #24

This article couldn't be more wrong-headed. The author seems to think that a fixed amount of money, or a money limited by the amount of some arbitrary commodity (like gold) is a good thing. But the gold standard was a disaster, and caused the American economy to explode every 15 to 20 years, complete with bank collapses and widespread hunger, or rampant inflation when a new gold rush occurred. A Bitcoin-based economy…

Yeah, the only thing the gets right is that few people have much awareness of theories of money.

But the thing with theories of money is that there isn't that much agreement among economists, bankers or government official on them. How much does it matter that the US government doesn't technically own/control the Federal Reserve? Opinions are divided. How bad is budget deficit? How bad is printing money? How exactly does one interpret fractional reserve banking? Opinions are again divided (that doesn't prevent periodic "everyone is ignorant on how money blah, blah..." article).

Re: You don't understand money – and it's a good thing for Bitcoin

#37

Post by sedeki »

weego wrote: post #31
JohnJamesRambo wrote: post #19

Earlier quoted context omitted.

Or German Marks when they were worthless after WWI and bundled in huge stacks. I feel like people in “developed” countries think “this couldn’t happen to me” when time has shown us time and time again it certainly can and you will be powerless to the whims of your government. Our original poster feels the same false safety in his or her Euros. They have developed amnesia to the lessons of the recent past. Bitcoin can…

So we've been ravaged by ww3 and our money is useless. How exactly do I still have Internet access and who is running all this infrastructure to allow me to trade crypto with someone? And why are cryptocurrencies, which are also a limited resource that can't be diluted, immune to inflation?

I am pretty sure deflation is the big concern with limited supply, not inflation. For exactly the reason that the supply is limited...

There are issues of Bitcoin one could argue about - but inflation is not one of them.

Give us a concrete scenario.

Re: You don't understand money – and it's a good thing for Bitcoin

#38

Post by proc0 »

As a filthy casual observation, it doesn't seem like the risk of crypto is going away. If money is the abstraction of value, then it seems more intuitive that you will entrust your assets to a group of humans in a direct way (laws, army, etc) rather than an indirect way, by having all your value in crypto that is supported by an infrastructure still controlled by the government and/or companies.

Until there exists a truly decentralized and robust worldwide network, anything built on the current Internet is indirectly owned by a centralized entity of some kind (if not directly).

Re: You don't understand money – and it's a good thing for Bitcoin

#39

Post by joe_the_user »

jussij wrote: post #33
joe_the_user wrote: post #21

Earlier quoted context omitted.

> "I can buy groceries just fine with my Euros, without wondering how exactly it has been created." If literally all you know about money is that it is a token that lets you buy stuff at the grocery store, here is trwhat you don't know - how long is that situation going to hold up. > "Just as I wouldn't tailor my own paragliding chute, because otherwise companies could rip me off." I wouldn't try to sew a normal para…

> here what you don't know - how long is that situation going to hold up. And how exactly does Bitcoin help to answer that question? Just looking at roller coaster ride that is the Bitcoin to USD exchange rate suggests it is an extremely volatile currency. I would suggest that the last thing you would want in a currency system is extreme volatility.

I agree, my reply was simply to the claim that one does not have to understand money to use it.

If anything, I would say that an understanding of money would show that it's based on a web of trust and so bitcoin indeed solves no problem of money as such and is effectively some combination of Ponzi scheme, money laundering scheme and ideology.

Re: You don't understand money – and it's a good thing for Bitcoin

#40

Post by sedeki »

School-Cotton wrote: post #26
JohnJamesRambo wrote: post #19

Earlier quoted context omitted.

Or German Marks when they were worthless after WWI and bundled in huge stacks. I feel like people in “developed” countries think “this couldn’t happen to me” when time has shown us time and time again it certainly can and you will be powerless to the whims of your government. Our original poster feels the same false safety in his or her Euros. They have developed amnesia to the lessons of the recent past. Bitcoin can…

This is a good reason to buy physical gold and bury it somewhere. I'm not convinced it's a good reason to buy Bitcoin.

Because gold is less risky due to its traditional status as money? Just curious.
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