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.

#221

Post by acslater00 » Thu, Jun 02, 2011, 5:40 PM UTC

sigil wrote: post #217

acslater00 wrote: post #207

Earlier quoted context omitted.

Actually money supply should ideally match total demand for money. Real economic output is not super relevant.

Milton Friedman disagrees and measures inflation relative to output in his book on monetary phenomena [1]. Since you're an economist (right?) I'd be interested in why you think he's got the wrong measure. [1] http://books.google.com/books?id=ZNAhXe2pz1cC&lpg=PA196&...

I'm not disagreeing with Milton Friedman at all.

Read the sentence "Prices might even fall gradually as higher incomes led people to want to hold a large fraction of their wealth in the form of money." Inflation is a Money Supply / Money Demand phenomenon. In the long term, Money Demand tracks real output, but in the short term (such as the recession we're currently in) you can see major swings in demand that counteract what would normally be a quite inflationary money printing exercise.

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

#222

Post by achompas » Thu, Jun 02, 2011, 5:40 PM UTC

sigil wrote: post #201

achompas wrote: post #154

Earlier quoted context omitted.

Whatever the mechanism, fiat currencies are subject to inflation through the pressure of an ever-increasing money supply. As they should be, given that populations increase. Anyway, even if Bitcoins go underground, they'd have to be priced such that they'd be cheaper than other money laundering channels. Due to their finite supply, though, money laundering through Bitcoins will get very expensive. So their utility re…

> As they should be, given that populations increase. Is the U.S. Population increasing like this? [1] That's what the U.S. monetary supply looks like. More correctly, fiat money supply should ideally match total economic output, not population. But the GDP graph also doesn't look anything like that monetary supply graph. Given this, the BitCoin phenomenon is understandable: savers are looking for a currency that's n…

But the GDP graph also doesn't look anything like that monetary supply graph.

Huh? [0]

[0] http://www.google.com/publicdata?ds=wb-wdi&met_y=ny_gdp_...

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

#223

Post by achompas » Thu, Jun 02, 2011, 5:45 PM UTC

hazlitt wrote: post #188

achompas wrote: post #180

Earlier quoted context omitted.

That's kind of odd to say-- couldn't you say the same thing about doing cash-only transactions? Yeah, I added that modifier after thinking some more. People are really interested in bitcoins as a "private" currency, and cash would accomplish the same thing. Large cash transactions raise flags, though. Still, bitcoins are a bad alternative to popular currency for a number of reasons Adam mentions. An e-currency withou…

Money supply need not be infinite. Prices will adjust as demand for the unit arises. Essentially, you are doing the same as "creating" more units, without eroding peoples real savings. The entire system could thrive on one bitcoin.

Money supply needs to be a flow, instead of a stock, so that it can adapt efficiently to supply and demand and change with population and economic output.

The entire system could thrive on one bitcoin.

No, it couldn't. One bitcoin could not sustain a currency market, and a one-bitcoin market would value that bitcoin at highly variable prices.

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

#224

Post by beefman » Thu, Jun 02, 2011, 5:46 PM UTC

acslater00 wrote: post #148

Hi, I'm Adam, I wrote this answer on Quora. Against my better judgement, I'm going to wade in here and make a couple of clarifying points. 1 - Scam. I regret using the word "scam" in my answer, because I think it overshadows the broader point I was making about Bitcoin's severe structural design flaws. After watching the community react to this debate, I'm pretty confident that the average bitcoin supporter is not in…

Hi Adam, I'm Carl Lumma. I usually upvote your posts on Quora but I didn't upvote this one because of "scam" and also because you gave more reasons than necessary. "Built-in deflation" is alone the reason bitcoin cannot work as a currency (at least, not without a prevailing currency to act as a 'heat sink'). This can be remedied of course by the practice of holding bitcoins on deposit in exchange for demand receipts, which can then be printed and sold without restricting the withdrawal of deposits. And I suspect that, with continued popularity, institutions will start doing this.

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

#225

Post by cheez » Thu, Jun 02, 2011, 5:49 PM UTC

weavejester wrote: post #195

cheez wrote: post #135

Earlier quoted context omitted.

> There is absolutely nothing preventing people from taking the open-source code and creating an alternative "Bittoken" currency which changes problematic design elements such as the minting/issuance model. Yes there is. The protocol is not documented at all. That's one of the reason I'm a little hesitant to touch it.

What's wrong with the protocol documentation on the wiki? https://en.bitcoin.it/wiki/Protocol_specification

Try implementing that!

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

#226

Post by gammarator » Thu, Jun 02, 2011, 5:49 PM UTC

weavejester wrote: post #173

hugh3 wrote: post #112

Earlier quoted context omitted.

Bitcoin looks exactly like a pyramid scheme from a money-transfer point of view. Money gets shifted from gullible suckers to the folks who invent the scheme, until one day you run out of people willing to sign on for the scheme, at which point everything collapses and the late adopters are left holding the bag. It's kinda sad. I think when it happens I'll make like edw519 and self-publish a book "The Best Of Hugh3" i…

You don't appear to understand how Bitcoin works. Money does not shift from new investors to the creators of Bitcoin. I'm not quite sure what confusion of ideas lead you to believe this.

0) Bitcoins were easiest to mine at the beginning => the creators & early adopters have a large number of bitcoins

1) New investors demanding a finite supply of bitcoins are increasing the exchange rate of bitcoins/dollar.

2) Early holders of large volumes of bitcoins can therefore cash in their bitcoins for a great deal of real money from new investors desiring to enter the market.

ergo, money shifts from new investors to the creators. (If the creators are smart enough to cash out. Which it seems they are, as Satoshi has disappeared. http://en.wikipedia.org/wiki/Satoshi_Nakamoto)

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

#227

Post by smokeyj » Thu, Jun 02, 2011, 5:50 PM UTC

Daniel_Newby wrote: post #197

smokeyj wrote: post #140

Earlier quoted context omitted.

> Deflation for a primary store of value in an economy is definitely a bad thing How can having your assets increase in value be harmful? Traders already account for many stock variables, why would deflation be any different? > and think about what that would mean - the bank pays you to borrow money from it. Oh no, not that :P > "when something goes wrong, it will die" Sort of like hyper inflation? > they don't under…

"How can having your assets increase in value be harmful?" Ponder the implications of bread jumping to an effective price of $25 a loaf. That can and has happened in deflationary collapses, as the reserve fraction jumps toward 100% (due to credit panic).

By assets increasing in value I was referring to currency, not the cost of commodities.

In your story, I would attribute the $25 a loaf bread to the credit panic, not the resultant of a consumers increase in purchasing power -- such as the expected deflation in BitCoins.

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

#228

Post by sorbus » Thu, Jun 02, 2011, 5:50 PM UTC

weavejester wrote: post #173

hugh3 wrote: post #112

Earlier quoted context omitted.

Bitcoin looks exactly like a pyramid scheme from a money-transfer point of view. Money gets shifted from gullible suckers to the folks who invent the scheme, until one day you run out of people willing to sign on for the scheme, at which point everything collapses and the late adopters are left holding the bag. It's kinda sad. I think when it happens I'll make like edw519 and self-publish a book "The Best Of Hugh3" i…

You don't appear to understand how Bitcoin works. Money does not shift from new investors to the creators of Bitcoin. I'm not quite sure what confusion of ideas lead you to believe this.

> Money does not shift from new investors to the creators of Bitcoin. I'm not quite sure what confusion of ideas lead you to believe this.

Please explain how new investors obtain bitcoins, if not from the original members of the system (some of the early users have 1% of the total bitcoins, I recall hearing). Yes, there's mining, but that's not an effective way to transform money into bitcoins - I mean, say that I wanted 1000 bitcoins. Building an expensive new computer to mine and waiting for them to magically appear is not how I would go about it.

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

#229

Post by scott_s » Thu, Jun 02, 2011, 5:56 PM UTC

barrkel wrote: post #208

smokeyj wrote: post #141

Earlier quoted context omitted.

>> Can't the same be said for people who bought Apple or Google stocks early on? > Ownership of a stock is a claim on the net value and future profit of the company. Ownership of currency is a claim on the net value and future profit of the currency. How does this address OP?

In principle, you're right, currency is just traded like anything else; but the fundamentals are different. A company is (presumably) engaged in profitable production (the future profit, i.e. it does something) and is composed of various capital assets (the net value, i.e. it has something). A currency has neither attributes; its claim on future production and assets is only valid in so far as people have confidence…

I've found your economic explanations a breath of fresh air in this thread. Thanks.

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

#230

Post by smokeyj » Thu, Jun 02, 2011, 6:01 PM UTC

barrkel wrote: post #215

smokeyj wrote: post #140

Earlier quoted context omitted.

> Deflation for a primary store of value in an economy is definitely a bad thing How can having your assets increase in value be harmful? Traders already account for many stock variables, why would deflation be any different? > and think about what that would mean - the bank pays you to borrow money from it. Oh no, not that :P > "when something goes wrong, it will die" Sort of like hyper inflation? > they don't under…

Suppose you need capital to commence on some enterprise. You'd like to borrow against and/or sell a share of future income. How can you convince a bank[1] to give you money, if the bank's money is already producing a healthy return just sitting in the bank's vault? In an inflationary scenario, money is declining in value. People with a lot of it are actively looking for ways to put it to work, otherwise they'll end u…

> How can you convince a bank[1] to give you money, if the bank's money is already producing a healthy return just sitting in the bank's vault?

Why do people invest in stocks when they can play it safe in a bond market? They have a different appetite for risk.

I do see your point, a constantly inflating money supply encourages people to invest. The flip side to that is, are the investments worth it? Inflation is an artificial incentive to invest, which some believe is the cause of bubbles. Remember all those stupid investments in the dot-com bubble? Some believe it's because money was too cheap.