The Quora post that killed Bitcoins. Please discuss if his arguments are valid. • Hacker News Board

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#41

Post by nl » Thu, Jun 02, 2011, 12:16 PM UTC

dedward wrote: post #35

nl wrote: post #8

His arguments are valid to some extent. They may not be fatal though. Taking each one in turn: 1) Seeding Initial Wealth This isn't really a problem. It's not very fair , but I don't think he argues that is actually a problem. 2) Built in Deflation This is a big, big problem. It seems the creators of Bitcoin have a philosophical disagreement with conventional economic theories that state that increases in money suppl…

#1) This happens historically with many curencies. Making things more attractive to early adopters (but nto TOO attractive) gives this momontum to take off. #2) Deflation is bad with real currencies because real currencies are tied to real economies and key things like food bein grown, healthcare, etc - and they are run on debt. In deflation, things get cheaper. Money buys more. But people only need so many cards, so…

I think agree with everything you said, except that you didn't spell out the negative impacts deflation has.

If people stop spending (which is what deflation implies - as people keep their money to hold onto its increasing value) then the economy slows, and growth stops or becomes negative.

If we look at the Bitcoin economy, the same thing could happen. There are ways around that (eg, an increasing exchange rate that could occur naturally), but it is a valid problem.

deflation would only be a problem if people start denominating debts in bitcoins - isn't this the idea of any currency?

(Edit: BTW, I didn't downvote you - I think your points are valid, and I hate how people just downvote things rather than discuss them)

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#42

Post by dedward » Thu, Jun 02, 2011, 12:16 PM UTC

geen7ea wrote: post #25

faski99 wrote: post #15

Earlier quoted context omitted.

"God knows how the computer industry makes money when if i hold my $$$ just a little longer, i can buy an even better machine" Not really. Because if you expect the value of your cash to rise, you would probably hold onto your cash. The liquidity of the system would drop as people hoard their cash (what happened during the Great Depression), depressing an economy. "bank run" He's talking about the need to inject cash…

I think you are missing his point about the computer industry. If you wait, you can buy a better computer for the same amount of money as you would originally have. Alternatively, you could buy the same computer for less money. This is the equivalent of your money going up in value (as in you have more buying power). His argument is that if we use the author's logic, people would want to wait to get a new computer in…

It's not flawed,it's just to narrow in scope.

Deflation, when things are worth less over time, means producers have to sell MORE to make payroll, pay their bills, pay their debts - which haven't changed in value. It's great for people flush with cash - and horrible for anyone in debt.

The computer industry has planned obsolescence. None of them are buying 10 years worth of parts for today's computers at projected market rates, because that would be a pile of stuff they'd ahve to eventaully sell at a loss.

It's not so simple as simple analogies....

BTC is designed to be, in the true sense of the word, a trustworthy way to move value from point A to point B -and there is avery strong network effect required to make it work (or any similar currency). At a point where I know I can go somewhere, locally, and exchange my bitcoin for local currency (and some posted market rates) - I will probably start accepting using it for a few things.

The concept has merit.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#43

Post by sbierwagen » Thu, Jun 02, 2011, 12:19 PM UTC

anonymoushn wrote: post #36

jacques_chester wrote: post #32

Earlier quoted context omitted.

Since that idiot last poo-pooed tulips I've made an absolutely massive return. My retirement is assured! I'm thinking about buying shares in the South Sea Company next.

It is worrying to me that the public exchanges have so few bids and offers most of the time, and that it is extremely common for people to deal in these things privately to avoid moving the price.

Your first point is real and valid. Mtgox is neat, but has quite low volume compared to pretty much any other forex in the world.

The second point is specious. How, precisely, do you propose to outlaw private deals, without using universal surveillance, or trained psychics?

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#44

Post by knowtheory » Thu, Jun 02, 2011, 12:20 PM UTC

tomjen3 wrote: post #21

ap22213 wrote: post #14

I would love to see a currency like this work, and I would be interested in using one, but the major issue for bitcoin, for me, is that deflation is built into its core. Inflation is a good thing. Inflation encourages holders of capital to use it to invest in other things. That is, inflation encourages productivity. The inflation has to be relatively low, of course. Probably low enough to allow someone to retire with…

An inflationist currency is great if you are deep in debt or like cheap consumer credit. Deflation (or really constant value) means that those who save, build things and invest wisely will benefit. And no, I am not going to starve today, so that I can get marginally more bread a year from now.

> And no, I am not going to starve today, so that I can get marginally more bread a year from now.

That only works if a majority of your assets or earnings are in bitcoins (e.g. you have to convert them in order to live), or if bitcoins are exchangeable for necessities. If the article's author is correct (and he is imo) and it's more sensible to look at Bitcoin as a commodity, not a currency, then i think your assertion is a red herring.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#45

Post by Duff » Thu, Jun 02, 2011, 12:22 PM UTC

lorax wrote: post #20

Talk about an overly dramatic headline, the "post that killed Bitcoins"? but the submitter isn't even sure if the arguments are valid? (And has hacker news turned into bitcoin news? it seems like there are several bitcoin links a day)

It's a PR campaign.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#46

Post by nl » Thu, Jun 02, 2011, 12:22 PM UTC

anonymoushn wrote: post #33

ap22213 wrote: post #14

I would love to see a currency like this work, and I would be interested in using one, but the major issue for bitcoin, for me, is that deflation is built into its core. Inflation is a good thing. Inflation encourages holders of capital to use it to invest in other things. That is, inflation encourages productivity. The inflation has to be relatively low, of course. Probably low enough to allow someone to retire with…

I don't understand. If a man can earn an expected 3% interest (in real terms) by buying a certain investment, is he less likely to buy it in a deflationary environment than in an inflationary environment?

In that case ("in real terms") there is no difference. That's not the problem.

The real problem is if someone is more or less likely to buy something in currency denominated terms if it is a deflationary or inflationary environment.

If people don't spend then you tend to end up in a low (or negative) growth environment, which can lead to high unemployment and a falling standard of living.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#47

Post by rglover » Thu, Jun 02, 2011, 12:25 PM UTC

The problem that Bitcoins will have in gaining traction is inherent in this post. Experienced economists and financial experts will stomp it into the ground. Granted, this post made a lot of strong points, however, it was a bit of a witch hunt at the same time. To call Bitcoins a scam outright is the sign of a person who may not have tried putting money into the system to see how it actually works. As with anything new that might present problems, I guess you'll just need to practice caution. Bitcoin isn't dead because of this, though.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#48

Post by zwischenzug » Thu, Jun 02, 2011, 12:25 PM UTC

wintersFright wrote: post #3

As an zeroHedge reading, armchair economist i think there are a lot of flaws in that guys argument "Bitcoin does not have a central bank capable of printing and lending bitcoins" >>I rather think thats the point. Lending is inflationary. "Built in Deflation" >> God knows how the computer industry makes money when if i hold my $$$ just a little longer, i can buy an even better machine. "For Bitcoin to work as a curren…

Totally agree. His arguments struck me as complete nonsense with a superficial veneer of plausibility to the economics outsider.

The best flaw in the bitcoin model (I've not studied it too thoroughly) is acceptance testing. You give me a bitcoin: how do I know to accept it as payment? This may not be a problem if suitable proxies are made (like with credit cards).

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#49

Post by cturner » Thu, Jun 02, 2011, 12:26 PM UTC

Trollish headline.

One fair non-structural criticism, a weak, temporary criticism and two things billed as criticisms that aren't.

1) Early adopters. I couldn't find a point here. I think he's saying that it's unfair that some people get in early. But in the current system, it's unfair that government (through tax law and control of force) mandates that you use a form of money that doesn't function well as a store of value. Bitcoin wins here - it has a bootstrap disadvantage, and I'd expect that to diffuse.

2) Deflation. There's a creed in mainstream economics that deflation is bad, repeated here. "if your money is getting predictably more valuable, why would you want to spend it?" It's just false. Would you buy a computer today if you can buy a more powerful one by waiting until tomorrow? People do. Mainstreamers like the leaves-on-the-fire effect of inflation and also like to overlook the fact that stimlus impairs cyclic corrections and detracts from the role of money as a store of value.

3) Convertability. It's valid to criticise the use of bitcoins on this basis, but it's not a systemic problem. If we had a period of high inflation, it's reasonable to expect people would trust finite-supply bitcoins over an unending supply of newly-minted, inflating notes.

4) "When Something Goes Wrong, It Will Die." I found the logic here non-sequiter. Bitcoin will be tested but from what we know about it at the moment, it looks solid.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#50

Post by njs12345 » Thu, Jun 02, 2011, 12:27 PM UTC

ap22213 wrote: post #31

tomjen3 wrote: post #21

Earlier quoted context omitted.

An inflationist currency is great if you are deep in debt or like cheap consumer credit. Deflation (or really constant value) means that those who save, build things and invest wisely will benefit. And no, I am not going to starve today, so that I can get marginally more bread a year from now.

I don't know. Maybe. It seems like it would just create aristocracy. If I inherit a large sum of money, I have incentive to ensure that my large sum of money increases (or at least doesn't decrease) in value in the easiest, least risky way possible. If my wealth was in bitcoin, I wouldn't have to do much, except ensure that more people join bitcoin and that the bitcoin didn't disappear. Otherwise, I would just play w…

Of course, most forms of wealth people have aren't inflationary anyway - the very wealthy tend to have little in terms of actual liquid currency and more stock and property. It has been argued (http://en.wikipedia.org/wiki/Inflation_tax) that inflation can be thought of as a regressive tax for this reason.