His description of Bitcoin is technically incorrect. As described in the original Bitcoin paper, workers are not necessarily "miners" and may be funded by transaction fees. Bitcoin isn't susceptible to hoarding because, unlike gold, it has no intrinsic value. An alternative explanation for the rise in value: the Bitcoin ecosystem is under heavy development. The value of Bitcoins is possibly soaring in anticipation of…
The monetary value of gold is in excess of its intrinsic value — exactly like Bitcoin. It's only a question of degree. And "shiny things" as a motivation for mining explains gold and Bitcoins.
Krugman on BitCoin
111–120 of 306 posts
Re: Krugman on BitCoin
#112Earlier quoted context omitted.
Not to mention, as bitcoins are inevitably lost here and there (a deleted wallet.dat here, a hoarder there, a transaction wired to a mistyped address that doesn't exist) the supply of bitcoins will actually shrink.
Wow, that's an excellent point. That doesn't happen easily with gold. People retrieve gold from ships sunk hundreds of years ago. Actually, is there an efficient way that physical gold or other precious metals can be intentionally destroyed or put beyond use? Has anyone tried to use this technique to corner a market? What would happen if Hugo Chávez actually got his hands on 211 tons of actual gold and announced he h…
Re: Krugman on BitCoin
#113Earlier quoted context omitted.
Collecting a currency wouldn't be a problem if there was some type of Bitcoin bank. These people who are hoarding the currency could put their Bitcoins in the bank for a promised interest rate, and in the mean time the bank could loan out the money to borrowers for new investments, thus growing the economy. I'm also not sure how much Krugman has looked at the price of Bitcoin. Every time I've looked at the price it c…
I think you need to read more about bitcoin. First, having a centralized bitcoin bank defeats the purpose of a peer-to-peer system entirely. Your identity is no longer anonymous. Second, providing interest to those that hold their bit coins in this bank must provide some facility for the bank to be able to give out bit-coins they didn't previously have (fractional reserve banking). Due to the mining nature of bit-coi…
Now, I'm not saying anyone should actually try to do these things. In fact I agree that Krugman is missing the whole point of bitcoins to the point where he doesn't even bring up it's semi-anonymous nature. I simply wanted to counter his argument that commodity currency wouldn't allow the economy to grow, but as I said earlier bitcoin isn't a regular commodity. It is a currency whithout intrinsic value.
Re: Krugman on BitCoin
#114"What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. And that’s not at all what is happening in Bitcoin." Spot friggin' on, Mr. Krugman. Bitcoin's supply limiting design has added a psychological dimension that encourages collecting. Perhaps when Bitcoin reaches supply maturity the value will stabilize but for now its…
Re: Krugman on BitCoin
#115Earlier quoted context omitted.
I think you need to read more about bitcoin. First, having a centralized bitcoin bank defeats the purpose of a peer-to-peer system entirely. Your identity is no longer anonymous. Second, providing interest to those that hold their bit coins in this bank must provide some facility for the bank to be able to give out bit-coins they didn't previously have (fractional reserve banking). Due to the mining nature of bit-coi…
I'm well aware of how bitcoin works, and for starters bitcoin isn't completely anonymous. It's semi-anonymous. Secondly, a bank doesn't have to practice fractional reserve banking, they can practice Full-reserve banking. In this case the deposit to the bank is really a loan to the bank, with the bank promising an interest rate on the loan. On your point of interest rate, interest rate can't be truly guaranteed in any…
??? A bank makes money by taking deposits (giving interest) and then lending them out (collecting a higher interest). The reserve percentage is that amount that remains unlent.
Full reserve = no loans = no profits = no bank.
Edit: Yes, you can practice full-reserve with a negative interest rate, which is effectively a safe-deposit box does (they charge a fee for the box).
That is the tl;dr of the wiki link.
Re: Krugman on BitCoin
#116What I find far more interesting about BTC is its decentralized and (mostly) anonymous nature, rather than arguments about fixed money supply.
I expect the actual appeal is that the value is these attributes in common with the fact that it is virtualized -- i.e. the value resides in data rather than in a physical object such as dollar bills or gold. With data, you don't have something tangible that you have to smuggle across a border in person, you just store it safe somewhere and retrieve it over a secure computer connection wherever you need it.
Or alternatively, you could use bitcoins to purchase something else virtual anonymously. (If you use it to purchase something physical, than there is an audit trail attached to the transference of the physical goods that defeats some if not all of the value of the anonymity.)
Perhaps this makes bitcoins especially useful for some scenarios, but overall I haven't yet seen any use cases that lead me to believe that this is a breakthrough of any particular kind.
Re: Krugman on BitCoin
#117Earlier quoted context omitted.
"The answer is yes (with qualifiers). Many late adopters are late adopters because they are holding out for a cheaper price for those goods. From personal experience, I've done this very thing (waiting for prices to come down on a TV before I bought it). I put that money into something with a higher return for the time being." But you could have kept waiting and prices would have kept falling. Eventually you spent yo…
People who want TVs (or who want to replace their current TVs) will buy one eventually . But if you’re in the TV-manufacturing business, there’s a big difference between a world in which the average TV gets replaced every three years and a world in which it gets replaced every four years.
Re: Krugman on BitCoin
#118tl;dr: The soaring value of bitcoin forces those holding currency to hoard it. The Bitcoin economy has, in effect, experienced massive deflation.
He also touches on a great point: What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. This is where I think Bitcoin fails as a currency. While some people invest in currencies, the point of currencies is to allow goods and services to flow through the economy. Currency is and should not be primarily an investment vehi…
What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich.
By that logic the best money will be hot potatoes.
Re: Krugman on BitCoin
#119Earlier quoted context omitted.
How is it any better when prices keep going up? Imagine you're, gasp , a saver, and one day you decide to buy that hamburger, but now you need five or ten times the money to make the purchase as you did, when you stashed it away twenty years ago.
Inflation encourages the savers to put their money to work (by investing in the stock market, for example) so that the amount of money that they have increases in proportion to the growth of the overall economy. This is a benefit.
I could easily make the case that saving goes up! Why? Well if I took my goldbucks and lent them to you at 1% interest we would both be happy. My total return would be something like 3% per year (2% deflation + 1% interest) non-risk adjusted. You would be happy because there are plenty of people that are willing to lend money to you. Because you have access to lending capital, you hire more decreasing unemployment. You can try to make the case that you wouldn't hire because there would be no demand for your goods, but in practice there are A. Other countries, and B. A precedent that people do continue to buy, even during deflationary pressures.
The reason people buy computers and cars despite the fact that they are becoming better and cheaper as time goes on is that they expect that cars and computers are going to continue to get better and cheaper as time goes on. They know that they will face the same "save or spend" decision 2 year later, and they really do need a computer and a car.
The problem with inflation is that "encouraging spending" practically only happens to the poor or middle lower class. I can afford to research gold, silver, lithium, cesium, grain futures, bitcoins, etc. and protect my assets from long term depreciation, but they can't. So you end up with a class of people that have a negative net worth, that is totally unprepared for long term retirement.
* I know that money velocity starts to make a difference, but it is in effect the same as printing more money.