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Adam Smith Hates Bitcoin

krugman.blogs.nytimes.com

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Re: Adam Smith Hates Bitcoin

#11

Post by teraflop »

slg wrote: post #6
lucasrp wrote: post #3

Krugman obviously don't know what he is talking about. The resources he is talking about are used to process the transactions between bitcoin owners. The mining is just a side effect. How did a nobel prize winner made a so basic mistake on a topic that has been covered before by him so many times? Bet one Btc that he did that on purpose.

In theory, yes you are correct. But you can't tell me all the computer resources that are spent on mining are required to process transactions. There are a whole lot of wasted cycles, electricity, and other resources.

The resources are required to process transactions securely in a distributed network. You could do the same thing much more efficiently by putting all your trust in a central authority; it's called a bank. But that's not solving the same problem.

Re: Adam Smith Hates Bitcoin

#12

Post by Sambdala »

jshen wrote: post #2

I think his previous statements are also significant. "[bitcoin] has fluctuated sharply, but overall it has soared. So buying into [bitcoin] has, at least so far, been a good investment. But does that make the experiment a success? Um, no. 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…

Regardless of what happens going forward, Bitcoin has been a huge success by basically any metric that would have been put together >2 years ago.

I don't think a lot of people who haven't been following the topic since the project was first put together really get how much larger and mainstream Bitcoin has become in such a short time with (relatively) so few hiccups compared to what seemed realistically possible when the experiment began.

Also, I think there are a lot of companies that are now considered integral to world economics who, if they had publicly and transparently traded from inception, would have fluctuated just as much in their beginning years.

Re: Adam Smith Hates Bitcoin

#13

Post by msellout »

lucasrp wrote: post #3

Krugman obviously don't know what he is talking about. The resources he is talking about are used to process the transactions between bitcoin owners. The mining is just a side effect. How did a nobel prize winner made a so basic mistake on a topic that has been covered before by him so many times? Bet one Btc that he did that on purpose.

Not so obvious. The critique is also of the fact that the resources to process a bitcoin transaction are intensive. Yes, I know this is part of the elegance of bitcoin. Elegance by one measure is cumbersome by another.

Re: Adam Smith Hates Bitcoin

#14

Post by slg »

teraflop wrote: post #11
slg wrote: post #6

Earlier quoted context omitted.

In theory, yes you are correct. But you can't tell me all the computer resources that are spent on mining are required to process transactions. There are a whole lot of wasted cycles, electricity, and other resources.

The resources are required to process transactions securely in a distributed network. You could do the same thing much more efficiently by putting all your trust in a central authority; it's called a bank. But that's not solving the same problem.

Ok, let me rephrase my prior point. If I have my PC mining and then disconnect it, does the Bitcoin network suffer in any noticeable way? If there is no noticeable benefit from my single PC then the resources being used by that PC aren't contributing to anything of value.

Yes, resources are required, but the amount of resources used far and away exceeds the amount of resources required.

Re: Adam Smith Hates Bitcoin

#15

Post by think33 »

jshen wrote: post #2

I think his previous statements are also significant. "[bitcoin] has fluctuated sharply, but overall it has soared. So buying into [bitcoin] has, at least so far, been a good investment. But does that make the experiment a success? Um, no. 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…

Your quote is relevant, but it's a shame he doesn't address the implied claim that bitcoin doesn't "facilitate transactions". And while it is relatively small in that use now, he really needs to make a compelling argument to why it won't work that way in the future.

Further, it's worth pointing out that Krugman endorses a monetary system that makes people poor, via inflating the money supply by printing funds to underwrite policies that benefit, primarily, politicians.

A currency whose supply is fixed, or whose inflation rate is constant and predictable (like bitcoin) is better for facilitating transactions.

When you have a variable (and often high these days- in the US money supply is up over %50 in recent years) rate of inflation, it wrecks havoc with prices and other signals causing malinvestment and worsening the economy.

Something that Krugman, to my knowledge, has never answered for.

---

Since I am not allowed to reply to the person below me:

It's quite silly to to say that a limited supply of a currency is bad for it. There is little incentive to hang onto bitcoins. A simple example will prove this to you: The amount of computer you can get for a given amount of money improves dramatically every three years. You could just hold onto your money and buy a much better computer. Thus, relative to computers, the dollar is deflationary.... yet people still buy computers.

This is the kind of argument Krugman gives because he wants to excuse the inflation that has destroyed the dollar, and the economy.... but it is nonsensical. People still buy computers.

Re: Adam Smith Hates Bitcoin

#16

Post by bradleyland »

lucasrp wrote: post #3

Krugman obviously don't know what he is talking about. The resources he is talking about are used to process the transactions between bitcoin owners. The mining is just a side effect. How did a nobel prize winner made a so basic mistake on a topic that has been covered before by him so many times? Bet one Btc that he did that on purpose.

Can you explain this in more detail for those of us who don't fully understand how bitcoins come in to existence, because it sounds like one of those things that violate some laws of thermodynamics, like the "hydrogen generator" that you strap to your car to increase fuel economy.

I ask because I know I've heard about people building huge computers with lots of expensive video cards for the purpose of mining bitcoins. Why would so much computing power be required to perform a simple task like processing transactions? Isn't there additional work necessitated by the intentional complexity of the mechanics of bitcoin mining?

I don't know very much about how bitcoins are mined, so I'm speaking from ignorance here, but I'm hoping you can see why the layman observer would need more of an explanation than "Because, of course!"

Re: Adam Smith Hates Bitcoin

#18

Post by penny500 »

Sambdala wrote: post #12
jshen wrote: post #2

I think his previous statements are also significant. "[bitcoin] has fluctuated sharply, but overall it has soared. So buying into [bitcoin] has, at least so far, been a good investment. But does that make the experiment a success? Um, no. 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…

Regardless of what happens going forward, Bitcoin has been a huge success by basically any metric that would have been put together >2 years ago. I don't think a lot of people who haven't been following the topic since the project was first put together really get how much larger and mainstream Bitcoin has become in such a short time with (relatively) so few hiccups compared to what seemed realistically possible when…

It's certainly not being used as a currency, its original intention. It's being used by speculators to get rich. Sure you might find a few examples of buyers and sellers using bitcoin currency, but you'll find a lot more speculators buying and selling bitcoins to profit from the spreads.

Re: Adam Smith Hates Bitcoin

#19

Post by penny500 »

Glyptodon wrote: post #17

I suppose he actually compared the costs of mining with the costs of minting paper money? Because that sure seems to missing...

How much does it cost to change bits of data on a computer? That's what happens with quantitative easing. Bernanke isn't calling up the printing presses to print $2 trillion in paper currency.

Re: Adam Smith Hates Bitcoin

#20

Post by penny500 »

stfu wrote: post #8
lucasrp wrote: post #3

Krugman obviously don't know what he is talking about. The resources he is talking about are used to process the transactions between bitcoin owners. The mining is just a side effect. How did a nobel prize winner made a so basic mistake on a topic that has been covered before by him so many times? Bet one Btc that he did that on purpose.

Whatever Kurgman says, it is good to keep in mind that he is an economist turned partisan-politics hack. Whatever he looks at, he looks at it from his lens of ideological reasoning. His ideology clearly aligns with the status quo of economic policy, promoting quantitative easing and keeping up the artificial smokescreen of the superiority of the US dollar. Therefore any competing ideas (e.g. gold, bitcoin) need to be…

Krugman isn't being a political partisan hack here. Every mainstream economist from the Republican and Democratic administrations agree that a currency backed similarly to gold (as opposed to a central bank) is not a good idea.
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