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What the Crypto Crowd Doesn’t Understand About Economics

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Re: What the Crypto Crowd Doesn’t Understand About Economics

#51

Post by tfehring »

martin1975 wrote: post #40
tfehring wrote: post #32

I still don't see how you get to a cryptocurrency that's broadly useful as a currency without enough price stability for it to be a unit of account in some sense. Tesla may have accepted BTC for payment, and it might do so again, but is it really going to commit to pricing its next model at (say) 1 BTC and just let the dollar-denominated price swing wildly? Probably not - its competitors price in dollars, so if BTC g…

Doing a stablecoin to replace something like the USD is an extremely difficult problem. Reserve.org is one company which understands the gravity of the issue and is committed to producing a stablecoin for anyone, worthy enough to replace the USD.

At a glance it looks like that's materially the same mechanism that was used by IRON [0], which blew up last week after they had to mint too many of the stabilizing tokens to try to retain the USD peg. Am I missing something?

[0] https://docs.iron.finance

Re: What the Crypto Crowd Doesn’t Understand About Economics

#52

Post by smt88 »

djbebs wrote: post #39
koheripbal wrote: post #29

The fact that having a deflationary money supply is bad, is even debated in cryptocurrency forums is the clearest indication that they have no idea how economics works. ...also, the point of a currency is to act as a STABLE unit of exchange, not some speculative moon-shot. Once these money supply and stability issues are ironed out, and once the scalability problem is solved, I think we might really have something.

Bitcoin is not inherently deflationary. And the inflationary consensus in mainstream economics is not one born out of reason, evidence or good faith. The truth is, inflationary monetary policy is mainstream because of political reasons, not economic ones.

The inflationary consensus is a practical issue and common sense.

If an asset is deflationary, I have an incentive to hold onto it as long as possible. Spending it is costly.

If an asset is inflationary, it's costly to hold it.

If everyone receives an inflationary asset by default for goods/services and everyone wants to trade it for something else, we have an extremely liquid asset that can be exchanged for other things -- currency.

Re: What the Crypto Crowd Doesn’t Understand About Economics

#53

Post by djbebs »

dasudasu wrote: post #48
djbebs wrote: post #39

Earlier quoted context omitted.

Bitcoin is not inherently deflationary. And the inflationary consensus in mainstream economics is not one born out of reason, evidence or good faith. The truth is, inflationary monetary policy is mainstream because of political reasons, not economic ones.

It is, after all bitcoins are eventually mined, because some private keys get irretrievably lost and those coins can therefore never be recovered.

2 things:

- bitcoin tends towards 21 million mined bitcoin, but just like mathematical limits that means that it will continue mining some bitcoin essentially forever (progressively smaller and smaller amounts).

- people forgetting or losing their keys doesn't make bitcoin deflationary anymore than it makes the USD deflationary. Furthermore that is not something inherent to bitcoin, but simply a practical result.

Re: What the Crypto Crowd Doesn’t Understand About Economics

#54

Post by asjdflakjsdf »

tfehring wrote: post #32

I still don't see how you get to a cryptocurrency that's broadly useful as a currency without enough price stability for it to be a unit of account in some sense. Tesla may have accepted BTC for payment, and it might do so again, but is it really going to commit to pricing its next model at (say) 1 BTC and just let the dollar-denominated price swing wildly? Probably not - its competitors price in dollars, so if BTC g…

I would think that early adaptors would look to take X% of their profits through crypto. If they can afford to continue operating even if they lose X, then it is an attractive opportunity, given the fact that it can rise in value so much (likely to be partly driven by their adoption if they are big and important enough). Eventually, a coin will inevitably become the default, and balance out. So, I personally don't see the instability factor as an issue right now.

Re: What the Crypto Crowd Doesn’t Understand About Economics

#55

Post by jcranmer »

mech422 wrote: post #43
jcranmer wrote: post #37

Earlier quoted context omitted.

> P.S. - And where do they keep getting this 'fiat is going away' bull from? I honestly don't know anyone in crypto that thinks this? Yes, I see crap on youtube pumping stuff like this - is that now what the bar is? "I saw it on youtube" ? I've seen several comments here on Hacker News that has this WTF-level of cryptoboosterism. Certainly anyone who seriously argues "but you forgot to account for the energy cost of…

>>Certainly anyone who seriously argues "but you forgot to account for the energy cost of nuclear carriers in propping up fiat currency" I honestly don't think I've seen anything like that here - but once the crypto threads get too long I stop reading cuz all the cranks come out. But even if we stipulate that as true, is it fair to paint the whole crypto community with that brush? I see cranks in everything from canc…

Just one cite I can give recently:

https://news.ycombinator.com/item?id=27179397

> I find it frustrating that crypto-currencies are judged by their energy usage, meanwhile traditional fiat currencies are secured by massive banking industries, governments, and militaries. The total energy required to maintain a secure and stable fiat currency is likely orders of magnitude greater than that of Bitcoin today.

I originally had the quote as a strawman rendition (an exaggeration of the but-you-forgot-to-account-for-X arguments) of the enthusiasts trying to explain away Bitcoin's rapacious energy consumption, and like a week later, I actually saw someone try to specifically cite the energy cost of carriers.

Since then, virtually every thread on Bitcoin's energy consumption has had some people come out of the woodwork with that kind of defense, and I don't really have the mood to do the searching to establish just how common those views are.

Re: What the Crypto Crowd Doesn’t Understand About Economics

#56

Post by Syzygies »

B4CKlash wrote: post #2

Is there a workaround for this paywall?

I recently switched to the Brave browser, and had no issues reading the article.

It would nevertheless be wonderful if HN readers could manage whitelists or blacklists related to paywalls, so by choice we could never see posts for content we can't read. Publishers shouldn't get the publicity for articles they won't share.

Re: What the Crypto Crowd Doesn’t Understand About Economics

#58

Post by nradov »

JumpCrisscross wrote: post #34
koheripbal wrote: post #29

The fact that having a deflationary money supply is bad, is even debated in cryptocurrency forums is the clearest indication that they have no idea how economics works. ...also, the point of a currency is to act as a STABLE unit of exchange, not some speculative moon-shot. Once these money supply and stability issues are ironed out, and once the scalability problem is solved, I think we might really have something.

> the point of a currency is to act as a STABLE unit of exchange Very few informed observers seriously expect crypto to become a general-use currency. That's a role it detached from years ago, first in practice and then in rhetoric. The closest analog to what crypto seems to want to become in our financial markets is in risk-free assets. Universal collateral. This used to be gold. Now it's Treasuries and Bunds. None…

The closest analog to what crypto seems to want to become in our financial markets is cash hidden in a briefcase. The value is primarily in evading currency controls for smuggling wealth out of China and other authoritarian states.

Re: What the Crypto Crowd Doesn’t Understand About Economics

#59

Post by mech422 »

jcranmer wrote: post #55
mech422 wrote: post #43

Earlier quoted context omitted.

>>Certainly anyone who seriously argues "but you forgot to account for the energy cost of nuclear carriers in propping up fiat currency" I honestly don't think I've seen anything like that here - but once the crypto threads get too long I stop reading cuz all the cranks come out. But even if we stipulate that as true, is it fair to paint the whole crypto community with that brush? I see cranks in everything from canc…

Just one cite I can give recently: https://news.ycombinator.com/item?id=27179397 > I find it frustrating that crypto-currencies are judged by their energy usage, meanwhile traditional fiat currencies are secured by massive banking industries, governments, and militaries. The total energy required to maintain a secure and stable fiat currency is likely orders of magnitude greater than that of Bitcoin today. I original…

Fair enough...

But the other side of the coin is miners trying to reduce the energy consumption and use green sources. Again, everyone just wants to point at a vocal minority and call it good.

edit: I should probably point out the trend to move away from PoW to 'Staking' (PoS) solutions that are more energy efficient. The crypto community isn't ignoring energy usage issues.

Re: What the Crypto Crowd Doesn’t Understand About Economics

#60

Post by Syzygies »

I'm an author cited by the original bitcoin paper. I considered becoming an economist rather than a mathematician.

Cryptocurrencies are a carbon-load environmental crime. Figuring a way around this is the major unsolved problem in the field. Are you a vegetarian in the crypto-crowd? You'd be doing the planet a favor to start eating meat and abandoning cryptocurrencies.

National currencies used to be backed by gold; now they're backed by the nation's resolve to support the currency. Cryptocurrencies are not Ponzi schemes; they can stabilize, while Ponzi schemes collapse. Cryptocurrencies however are backed entirely by convention. One could argue that nations are conventions, but they are bound together by a constellation of motives beyond their currency. Cryptocurrencies are isolated conventions. That is their appeal and their vulnerability.

We are a cripplingly conventional species. Our ability to organize allowed us to scale past the Neanderthals. However, many of us don't trust convention enough to trust cryptocurrencies.

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