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Adam Smith Hates Bitcoin

krugman.blogs.nytimes.com

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Re: Adam Smith Hates Bitcoin

#31

Post by pbreit »

think33 wrote: post #15
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 unde…

Uh, Krugman's whole point is that the capped supply is inherently deflationary so the incentive is to hang on to bitcoins, ie, not the best attribute of a currency.

Re: Adam Smith Hates Bitcoin

#32

Post by fennecfoxen »

think33 wrote: post #9
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 his defense, it was Krugman who identified in 2003, that we really needed to have a housing bubble, and advocated that we create one, because it would stimulate the economy. And he was right- it did! Until it popped. At the end of the day, Krugman is more a spokesperson for liberal politics than an economist. The liberals want to believe that unlimited spending is not bad, and so they put forth this narrative that…

So you've gone and pointed out that the dollar is worth about 2% of what it used to be.

Sure. A currency's real value is always moving relative to the underlying goods and services produced and exchanged in the economy - if it's not inflating, it's deflating, and it's never really standing still.

The key is a low volatility in that interest rate itself. The dollar's historical average inflation rate, since such records were kept, has been 3.35%-ish, and that rate has gotten much less volatile over time (e.g. 1920 saw monthly rates as high as +23% and 1921 saw rates as low as -15.8%). But since about 1980, it's been pretty level all around.

Bitcoin's value has experienced more volatility during the course of one day as the US dollar had in a whole year DURING THE GREAT CRASH OF 1929 AND LAUNCH OF THE GREAT DEPRESSION.

Maybe some day Bitcoin will come to be the same bastion of stability that the US dollar has been and more. That day is not today.

--

Postscript. If Bitcoin is a currency, its rise in value is deflationary. Deflation can be kind of bad sometimes. If you think back to your high school history courses when they were talking about the days that "bimetallism" was a thing during the Panic of 1893, it was because ordinary peoples' gold-backed-dollar-denominated debts and mortgages were becoming more expensive to pay off. "You shall not crucify mankind upon a cross of gold!"

--

TLDR: Price stability or STFU

Re: Adam Smith Hates Bitcoin

#33

Post by maaku »

jedberg wrote: post #25
bbbhn wrote: post #4

Krugman doesn't understand Bitcoin. The computing power expended on mining is used to secure the Bitcoin network. There are many, many costs associated with securing the integrity of established financial networks too.

> The computing power expended on mining is used to secure the Bitcoin network. Could you expand on this? I'm not sure I understand it. Thanks.

Miners choose transactions which obey the network rules. They then "vote" on which transactions to commit by exerting computational power. To subvert this collective decision making process would require a computation power at least equal to the bitcoin network (bigger than any supercomputer). Therefore any such attack would be absurdly expensive, and we can consider confirmed bitcoin transactions to be secure.

Re: Adam Smith Hates Bitcoin

#34

Post by maaku »

penny500 wrote: post #19
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.

How much does that program represent an economic rent dragging down the rest of the economy?

Re: Adam Smith Hates Bitcoin

#35

Post by andyakb »

guylhem wrote: post #29

Maybe, just maybe, it's not Adam Smith who hates bitcoin like this misleading title suggest, but Krugman. The guy may have a nobel prize, but his strong leftist views seems to be clouding his judgement. Never before in history was there anthing like bitcoin. It's not a commodity like gold - is is pure fiat money, fully based on trust. Hoarding gold or silver or any metal or rare thing was a bad idea because of the al…

You dont refute his point at all. There is something inherent to bitcoin that may hamper a "country to convert a great part of this dead stock into active and productive stock;" the fact that you need to take an insane amount of computing power and electricity to "create" new bitcoin. He could hate something that did not exist in his lifetime because he hated the principles that are fundamental to the process.

Re: Adam Smith Hates Bitcoin

#36

Post by dragonwriter »

maaku wrote: post #33
jedberg wrote: post #25

Earlier quoted context omitted.

> The computing power expended on mining is used to secure the Bitcoin network. Could you expand on this? I'm not sure I understand it. Thanks.

Miners choose transactions which obey the network rules. They then "vote" on which transactions to commit by exerting computational power. To subvert this collective decision making process would require a computation power at least equal to the bitcoin network (bigger than any supercomputer). Therefore any such attack would be absurdly expensive, and we can consider confirmed bitcoin transactions to be secure.

> To subvert this collective decision making process would require a computation power at least equal to the bitcoin network (bigger than any supercomputer). Therefore any such attack would be absurdly expensive, and we can consider confirmed bitcoin transactions to be secure.

There are plenty of organizations that, if they wished to mess with bitcoin, could easily afford more computing power than the bitcoin network (yes, even though that is "bigger than any supercomputer".)

Included in these organizations are ones (such as the US government) that have been accused by some of bitcoins proponents of being actively attacking bitcoin.

So why should we consider confirmed transactions to be secure?

Re: Adam Smith Hates Bitcoin

#37

Post by smokeyj »

penny500 wrote: post #20
stfu wrote: post #8

Earlier quoted context omitted.

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.

Central planners like central banking? Get out.

Re: Adam Smith Hates Bitcoin

#38

Post by penny500 »

kirian wrote: post #26
penny500 wrote: post #19

Earlier quoted context omitted.

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.

Central banks and central bankers don't work for free. How much is spent on normal banking infrastructure, cash security vans, fraud protection etc.

That's not how quantitative easing works. Quantitative easing doesn't fire up the printing presses. Bernanke can add $2 trillion into the system within 15 minutes, and no paper money is printed or manpower expensed aside from a few clicks on a computer mouse. Once you secure your financial system network, adding currency adds virtually no costs relative to the amount of currency you put into that system. You've already secured the network.

It's akin to Facebook's security system. It works the same regardless if it's 100 million users or 1 billion users.

Re: Adam Smith Hates Bitcoin

#39

Post by wmf »

jedberg wrote: post #25
bbbhn wrote: post #4

Krugman doesn't understand Bitcoin. The computing power expended on mining is used to secure the Bitcoin network. There are many, many costs associated with securing the integrity of established financial networks too.

> The computing power expended on mining is used to secure the Bitcoin network. Could you expand on this? I'm not sure I understand it. Thanks.

Ultimately I think mining protects against sybil attacks and thus helps everyone agree on a single transaction history. Without mining, it would be fairly easy to create multiple alternate histories and it would be hard to tell which one to believe.

(If you don't care about sybils, you can use Ripple which requires no mining.)

Re: Adam Smith Hates Bitcoin

#40

Post by epscylonb »

bbbhn wrote: post #4

Krugman doesn't understand Bitcoin. The computing power expended on mining is used to secure the Bitcoin network. There are many, many costs associated with securing the integrity of established financial networks too.

I hate the term "securing the network".

Mining prevents double spends, that's all it does.

It doesn't prevent your bitcoins being stolen or make you whole afterwards, it's not analogous to a security guard standing outside a vault, or the government guaranteeing your deposits.

I'm mildly optimistic about about crypto currencies in the long term (10 years or more), but energy usage is the weak point of bitcoin, I wrote about this here http://www.reddit.com/r/Bitcoin/comments/195k4o/the_case_for...

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