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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

#61

Post by thecrash »

nullc wrote: post #28
skybrian wrote: post #14

Earlier quoted context omitted.

I guess you could say that goldsmiths pretending they have more gold than they really do is kinda similar to cryptocurrency exchanges doing the same.

However-- for Bitcoin and essentially no other valuable asset before it, it's perfectly reasonable for an exchange to continuously prove that every bitcoin in your account is uniquely backed by coins that they control. No major exchange bothers to do it right now because the market doesn't demand it and any exchange that did would hurt themselves by causing their customers to care about the risk of insolvency. If you…

I understand that the exchange can prove control of a certain amount of bitcoin, but how can they prove the amount of credit they have extended? By definition the credit is uncoupled from any blockchain, right?

If I can't verify how much credit they've extended, then even knowing how much assets they have, I can't tell how leveraged they really are.

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

#62

Post by ivalm »

sedeki wrote: post #54
ivalm wrote: post #46

Earlier quoted context omitted.

You seemed to suggest in GP that one problem with fiat is that it may become deflationary (ie prices for goods in fiat will go down). I pointed out that Bitcoin is by construction deflationary, prices (in bitcoin) for goods go down as long as bitcoin occupies at least a fixed fraction of total exchange tokens. Simple example, if bitcoin is the only exchange token in circulation then bitcoin will become more valuable…

> then bitcoin will become more valuable as a function of time simply because the amount of "stuff" increases. > The reason deflation is bad is because it discourages investment. I agree that economies are naturally deflationary because people don't stop working. So what? I think printing money is bad (as opposed to the concept of "inflation" which is an effect) is bad, because it distorts market mechanisms that occu…

If you are discouraged from investing (deflationary exchange token) then this leads to suboptimal capital allocation (since money will be used neither for investment nor loans)

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

#63

Post by stillbourne »

kd5bjo wrote: post #9

All of the author’s core questions can be answered just as well for coins and notes as they can for bitcoin— Every greenback has a unique serial number, after all. There must be a central registry of them somewhere. Money as understood by economists is not physical currency (coins, notes, etc), but an emergent property of the institutional use of IOUs of various kinds, like debts and fractional reserves. These also e…

Your description of money shows that you still treat it as an elementary system of debits and credits from a global ledger instead of an algebra of transactional commerce.

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

#64

Post by jraedisch »

kd5bjo wrote: post #58
deweller wrote: post #57

Earlier quoted context omitted.

Every greenback may be registered. But physical currency is only a small amount of the actual circulating money supply. Due to fractional reserve banking, banks lend money they don't have. Banks are only required to have 10% of the money they loan on reserve.

You loan currency to a bank in the form of deposits, they keep some of that on premises due to the reserve requirement and loan out the rest to their other customers. In exchange for letting the bank use your money, you get insurance and a tiny interest payment. Other than it being too young and inconsequential for people to bother, what property does bitcoin have that works against this scheme? Banks have worked thi…

Bitcoin is much like cash in that you can choose to opt out of making your money available for fractional reserve.

Why with cash many don't do that, beats me. According to Keynes, people should withdraw their cash when there is no interest to be gained ("liquidity trap"). In practice, people don't, and that makes Bitcoiners crazy: good marketing makes (especially badly informed) people act uneconomically, since they think they are saving, while they are actually investing in an indifferent manner.

Other important aspects of Bitcoin are, that it makes the money supply transparent, and everybody can validate transactions. This is not as simple with cash or gold.

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

#65

Post by kd5bjo »

jraedisch wrote: post #64
kd5bjo wrote: post #58

Earlier quoted context omitted.

You loan currency to a bank in the form of deposits, they keep some of that on premises due to the reserve requirement and loan out the rest to their other customers. In exchange for letting the bank use your money, you get insurance and a tiny interest payment. Other than it being too young and inconsequential for people to bother, what property does bitcoin have that works against this scheme? Banks have worked thi…

Bitcoin is much like cash in that you can choose to opt out of making your money available for fractional reserve. Why with cash many don't do that, beats me. According to Keynes, people should withdraw their cash when there is no interest to be gained ("liquidity trap"). In practice, people don't, and that makes Bitcoiners crazy: good marketing makes (especially badly informed) people act uneconomically, since they…

> Why with cash many don't do that, beats me.

The banks provide a service that has some intrinsic value: They protect your cash better than you can, and store it in a place that is physically separate from your home.

Home thefts occur with a higher frequency than bank thefts, and someone who's known to keep large quantities of cash in there home becomes a bigger target. If your money is stored in a bank, you're more exposed to a banking system collapse but insured against ordinary theivery. If your home is destroyed, then your money is still safe; if your bank goes bust you still have your home (or at least the things inside it).

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

#66

Post by jraedisch »

kd5bjo wrote: post #65
jraedisch wrote: post #64

Earlier quoted context omitted.

Bitcoin is much like cash in that you can choose to opt out of making your money available for fractional reserve. Why with cash many don't do that, beats me. According to Keynes, people should withdraw their cash when there is no interest to be gained ("liquidity trap"). In practice, people don't, and that makes Bitcoiners crazy: good marketing makes (especially badly informed) people act uneconomically, since they…

> Why with cash many don't do that, beats me. The banks provide a service that has some intrinsic value: They protect your cash better than you can, and store it in a place that is physically separate from your home. Home thefts occur with a higher frequency than bank thefts, and someone who's known to keep large quantities of cash in there home becomes a bigger target. If your money is stored in a bank, you're more…

Keeping cash does not mean one has to keep it at home. You can actually leave it in a safe at the bank and just use the bank as a warehouse.

In this case you have to pay a small fee, but you decrease the amount of cash that can be used for loans, and thus make loans more expensive, leading to better rates for lenders in the future. (At least this is my understanding at the moment - still getting into the topic, so please excuse if I am oversimplifiying.)

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

#67

Post by einpoklum »

Two issues with this article:

1. Obscurantism: Yes, money is complicated and most people don't know much about how it's created and what it even means, exactly. However, the leap from there to the claim that you _can't_ know, or that _nobody_ knows simply has no basis.

2. The BitCoin angle: While it is a good thing that you can easily (sort of) understand how BitCoin is created and how much there is, the article ignores the _implications_ of these facts about BitCoin. There can never be a democratic decision to inflate or deflate BitCoin; and - most BitCoin is already in existence and owned (the majority probably by a pretty small group of people), making it a sort of a pyramid scheme, as late-comers to the BitCoin game will be fighting over the scraps.

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

#68

Post by einpoklum »

kd5bjo wrote: post #9

All of the author’s core questions can be answered just as well for coins and notes as they can for bitcoin— Every greenback has a unique serial number, after all. There must be a central registry of them somewhere. Money as understood by economists is not physical currency (coins, notes, etc), but an emergent property of the institutional use of IOUs of various kinds, like debts and fractional reserves. These also e…

> All of the author’s core questions can be answered just as well for coins and notes as they can for bitcoin— Every greenback has a unique serial number, after all.

Most money (specifically, most US dollars) are not in the form of coins or notes. See: https://www.quora.com/How-many-dollars-are-there

~1.4 Trillion USD in notes ~60 Trillion USD total

coins are certainly less than notes, but I'm not sure how much less, so let's guesstimate no more than 0.5 Trillion, and that's a stretch. So, about 97% of money is not in notes and coins.

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

#69

Post by nullc »

thecrash wrote: post #61
nullc wrote: post #28

Earlier quoted context omitted.

However-- for Bitcoin and essentially no other valuable asset before it, it's perfectly reasonable for an exchange to continuously prove that every bitcoin in your account is uniquely backed by coins that they control. No major exchange bothers to do it right now because the market doesn't demand it and any exchange that did would hurt themselves by causing their customers to care about the risk of insolvency. If you…

I understand that the exchange can prove control of a certain amount of bitcoin, but how can they prove the amount of credit they have extended? By definition the credit is uncoupled from any blockchain, right? If I can't verify how much credit they've extended, then even knowing how much assets they have, I can't tell how leveraged they really are.

> I understand that the exchange can prove control of a certain amount of bitcoin, but how can they prove the amount of credit they have extended? By definition the credit is uncoupled from any blockchain, right?

Solvency has two parts: Assets and liabilities. The 'prove control' is the assets part.

The other side of a solvency proof is that they can, without breaking anyone's privacy) show that every user's account balance adds up to the sum of Bitcoin they control.

In fact, they can prove solvency (that is, that each user has a balance and that they control at least the sum of distinct balances) without ever revealing the total amount they control or even how many accounts they have (other than a log(n)-ish lower bound). http://www.jbonneau.com/doc/DBBCB15-CCS-provisions.pdf

But forget privacy for a moment:

Imagine they were to publish a list of all accounts, all coins, signatures with all coins, and then timestamp that list with Bitcoin. Then the login JS that their site hands out (and which can be checked js pinning extensions) could at login make sure that that document checked out-- that the signatures were vaid, that the coins existed, that the totals summed up, that it was stampped in Bitcoin, and that your own balance was reflected in it. Presumably you see that that approach would essentially work. The only fanciness needed is making it communications efficient and private.

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

#70

Post by kd5bjo »

einpoklum wrote: post #68
kd5bjo wrote: post #9

All of the author’s core questions can be answered just as well for coins and notes as they can for bitcoin— Every greenback has a unique serial number, after all. There must be a central registry of them somewhere. Money as understood by economists is not physical currency (coins, notes, etc), but an emergent property of the institutional use of IOUs of various kinds, like debts and fractional reserves. These also e…

> All of the author’s core questions can be answered just as well for coins and notes as they can for bitcoin— Every greenback has a unique serial number, after all. Most money (specifically, most US dollars) are not in the form of coins or notes. See: https://www.quora.com/How-many-dollars-are-there ~1.4 Trillion USD in notes ~60 Trillion USD total coins are certainly less than notes, but I'm not sure how much less,…

This is certainly true. My point was that I see no evidence that, should bitcoin become mainstream, the situation would be any different- nothing about bitcoin prevents its use as the basis for a credit economy like notes are now and bullion coins were before them.

And it’s the credit that’s making things complicated, not the central banks.

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