Bitcoin and positive vs. normative economics • Hacker News Board

Re: Bitcoin and positive vs. normative economics

#251

Post by ReidZB » Sat, Dec 28, 2013, 11:12 PM UTC

jellicle wrote: post #236

ReidZB wrote: post #214

Earlier quoted context omitted.

Such a scheme has a huge flaw: it allows extortion/coercion. Suppose I am a mob boss and I wish to become (insert position here). I send my goons to inform you that voting for me is a wise decision because I can offer you protection from the vicious thugs in the area. It would be a shame if the vicious thugs burned your house down, wouldn't it? So, you'd be forced to reveal your bitvote address to me under threat of…

It's not a huge flaw, since our current voting system (in any country you care to name) allows exactly that, and your scenario is not observed in the wild, since it is illegal.

The typical US voting system allows coercion? When I voted, I went into a publicly visible booth, recorded my vote, pressed submit, and went about my business. I suppose I could have been forced to take a picture with a cellphone, but I could have just selected the option they wanted, taken the picture, and then swapped back to the candidate I wanted. Is there something I'm missing here? Any way you slice it, even if the current system allows coercion, if we're talking about cryptographic voting systems, we might as well use ones that don't suffer the same issue.

> your scenario is not observed in the wild, since it is illegal.

I don't mean to be snide, but I've witnessed a great deal of illegal things, so "since it is illegal" is not that convincing.

Even if you discount the threat of violence because of the possibility of police intervention (e.g. you report being threatened), consider the notion of vote buying: a rich person just says they'll pay you lots of money to vote for them. This isn't necessarily something people would want to report, given the possibility of financial benefit, especially if the person is down on their luck.

At any rate, if electoral fraud is something that is "not observed in the wild", people sure do make a big fuss over it (see http://en.wikipedia.org/wiki/Electoral_fraud for some references).

Re: Bitcoin and positive vs. normative economics

#252

Post by jjindev » Sat, Dec 28, 2013, 11:14 PM UTC

mortenjorck wrote: post #31

Krugman is to Bitcoin as Ebert was to video games. The central failure of Krugman's understanding of cryptocurrencies is in the value of mining. It's not simply throwing energy away into solving useless math problems; it's spending energy to create infrastructure. That infrastructure is the part that does have intrinsic value, that can be used for something else in the same way gold can be made into useful things. Lo…

All currencies rely on belief (like those flats in Monty Python). It is possible that gold could lose global belief, but unlikely, given the long history of belief. The US dollar too could lose faith, but again, a pretty good history of trust. Bitcoin? I think belief and trust battle novelty a bit. Will enough people believe, in 20 years, to power the computations necessary at that point? Or will a more novel and exciting currency emerge?

Re: Bitcoin and positive vs. normative economics

#253

Post by etjossem » Sat, Dec 28, 2013, 11:15 PM UTC

gnaritas wrote: post #233

etjossem wrote: post #174

Earlier quoted context omitted.

I'm not a libertarian. I am using the correct terms that apply to those policies. I don't think of the phrase "welfare state" as pejorative, nor was it originally intended to be so. A combination of redistributionist tax code and generous healthcare/education/benefits are working out really well for Scandinavia right now, and in my opinion we could learn quite a bit from what we're seeing in those countries. In my ex…

> I don't think of the phrase "welfare state" as pejorative But since many others do, then it is. It is not the speaker which decides whether insult was intended, but the listener.

I'm sorry if I offended you in some way. "Welfare state" is a widely accepted academic term, and I was using it in that context. I could just as easily have said "states with very progressive tax systems that offer substantial benefits to all citizens, rather than only those who pay." It would have gone over better with those of us who feel strongly about a US transfer payment system ("welfare"), but it didn't really roll off the tongue.

Can we talk about the merits of the policy now?

Re: Bitcoin and positive vs. normative economics

#254

Post by pdonis » Sat, Dec 28, 2013, 11:15 PM UTC

notahacker wrote: post #237

pdonis wrote: post #57

Earlier quoted context omitted.

What's the point of a store of value if ultimately it cannot be exchanged for something else? One can also turn this point around: what requires the store of value to be the same thing as the medium of exchange? The store of value must be convertible into the medium of exchange, but that doesn't mean they have to be the same thing. Yet Krugman blithely assumes that they must be: "To be successful, money must be both…

If Bitcoin isn't a relatively stable store of value then there is no sane reason to use it purely for exchange. If you're able to send dollars to Coinbase or MtGox and the end user is able to receive dollars from Coinbase or MtGox, chances are you can cut out the middleman and the liquidity risk by sending them direct, at similar or lower transaction costs. The equation looks a bit different if you're holding non-tri…

You're ignoring transactions where Bitcoin is exchanged for actual goods or services, or for non-monetary financial instruments like stocks. In such transactions Bitcoin doesn't have to be a store of value; it only has to be a medium of exchange. The same applies to traditional forms of money, which was my point.

It's true that there aren't many ways to exchange Bitcoin for actual goods or services or non-monetary financial instruments right now, but that's not due to any inherent inferiority of Bitcoin: it's due to the fact that governments and central banks have a huge incentive to either outlaw exchanges of Bitcoin for goods, services, or financial instruments like stocks, or at least impose artificial costs on such transactions that are high enough to discourage most people from making them. In other words, Bitcoin is not competing on a level playing field with other forms of money.

Re: Bitcoin and positive vs. normative economics

#255

Post by bjornsing » Sat, Dec 28, 2013, 11:17 PM UTC

Even if he's slightly off I still think Krugman is right in identifying Bitcoin's main weakness: it's the world's "hardest" currency ever - much "harder" than gold - and that will make it very volatile, which in turn will make it difficult to use as a store of value or (independent) medium of exchange.

What I mean by "hard" in this context is that its supply is constrained. If you look a fiat currency it can (and is) produced in whatever volume necessary by the central bank, in order to avoid a fall in prices. Gold has a similar (but distributed) mechanism: when the gold price goes up people mine more gold, increasing the money supply.

Note that that property of gold works even if it's the primary medium of exchange: if there is too much deflation then an ounce of gold will buy you more goods and services, making it more worthwhile to mine it - which in turn increases the money supply and acts as a counterforce to price deflation.

But this is obviously a flaw in the design of Bitcoin, not in crypto currencies generally. It should be possible to create one with potentially infinite supply, but where the cost of mining a coin remains relatively stable over time. Such a crypto currency would be usable as a store of value and as a (primary) medium of exchange.

I'd love to see that "infinite supply crypto coin", but unfortunately I'm much less optimistic that it would become as popular as Bitcoin. It wouldn't be usable as an investment/speculation vehicle, and that's probably the main use of Bitcoin right now.

Re: Bitcoin and positive vs. normative economics

#256

Post by aaren » Sat, Dec 28, 2013, 11:18 PM UTC

ansible wrote: post #135

mortenjorck wrote: post #31

Krugman is to Bitcoin as Ebert was to video games. The central failure of Krugman's understanding of cryptocurrencies is in the value of mining. It's not simply throwing energy away into solving useless math problems; it's spending energy to create infrastructure. That infrastructure is the part that does have intrinsic value, that can be used for something else in the same way gold can be made into useful things. Lo…

It's not simply throwing energy away into solving useless math problems; it's spending energy to create infrastructure. I don't see how it is not the case that mining Bitcoins is throwing away energy. If someone had made a crypto currency based on, say, protein folding [1], I could get behind that. We could just create a crypto currency where we just hand out 100 units to every person. That certainly wouldn't require…

I don't see how it is not the case that mining Bitcoins is throwing away energy.

The 'work' is actually the verification of transactions on the blockchain - the reward from mining is just an incentive to do this (mining & verification are tied up in the same process).

The energy expended in mining is necessary to validate transactions in the network.

You might be able to make it more energy efficient but you can't remove the energy expenditure.

Re: Bitcoin and positive vs. normative economics

#257

Post by thaumasiotes » Sat, Dec 28, 2013, 11:20 PM UTC

mrb wrote: post #245

It boggles my mind that Krugman continues to fail to see the point. I am not the only one who has noticed his blindness [4]. Or is he deliberately avoiding discussing certain aspects of Bitcoin (notably as a payment processing platform)? "Underpinning the value of gold is that if all else fails you can use it to make pretty things." This is a very weak and in fact invalid argument. I can't believe Krugman is quoting…

Your numbers are badly off. Jewelry is the use referred to when Krugman says "you can use it to make pretty things". (Gold in industrial use is generally invisible).

Gold isn't used in jewelry because it's expensive. It's used because it's pretty, it's soft and workable, and it doesn't tarnish. And it's gentler to your skin; my sister's ears are too sensitive to wear cheap nickel earrings.

Now, I agree with you that the statement you quote from Krugman is invalid. But there's no reason to go around interpreting him as saying something wildly different than what he said. Gold bars are a store of value. Jewelry is not.

Re: Bitcoin and positive vs. normative economics

#258

Post by icambron » Sat, Dec 28, 2013, 11:20 PM UTC

mortenjorck wrote: post #31

Krugman is to Bitcoin as Ebert was to video games. The central failure of Krugman's understanding of cryptocurrencies is in the value of mining. It's not simply throwing energy away into solving useless math problems; it's spending energy to create infrastructure. That infrastructure is the part that does have intrinsic value, that can be used for something else in the same way gold can be made into useful things. Lo…

The positive part of Krugman's argument that discusses floors is saying that external forces have ensured that dollars and gold are useful even in the event that people stop wanting them as a value store. Your infrastructure argument seems to say that, all of that spent electricity has second order effects that make it a net positive for society. Not sure I agree, but fine. But that does not provide a floor of Bitcoin, because infrastructure being useful for other things does not make Bitcoin more useful. If BTC starts collapsing, perhaps all that infrastructure will go on to do great things for society, but how does that help Bitcoin?

So either you're misunderstanding Krugman's argument or I'm misunderstanding yours. I think you're confusing his normative and positive arguments (which are entirely separate!). You have used an argument against his normative argument ("Bitcoin is evil because it's wasteful.") but then used it to challenge his positive argument ("Bitcoin won't work out because it has no value floor."). That a crypto currency might end up helping society does not make it a good value store. Why would it?

Re: Bitcoin and positive vs. normative economics

#259

Post by CamperBob2 » Sat, Dec 28, 2013, 11:22 PM UTC

salient wrote: post #169

I've never agreed much with Krugman's theories, but at least he understands a thing or two about economy. However, what I've always found him to be always clueless about is - technology. You have a better chance finding a more insightful tech article from a random tech blogger than from Krugman. He always misses the point. Without exception. I don't know even why he keeps doing this to himself. He just ends up embarr…

However, what I've always found him to be always clueless about is - technology. You have a better chance finding a more insightful tech article from a random tech blogger than from Krugman. He always misses the point. Without exception. I don't know even why he keeps doing this to himself. He just ends up embarrassing himself.

Yes, a textbook example of the Dunning-Krugman effect. He doesn't know what he doesn't know, and he's OK with that, because hey, Nobel Prize.

Re: Bitcoin and positive vs. normative economics

#260

Post by api » Sat, Dec 28, 2013, 11:23 PM UTC

paul wrote: post #159

I'm most bullish on bitcoin when I read articles such as this one, and most skeptical when I read the thoughts of the bitcoin believers. It's truly the most interesting technological development in years, if only because it reveals how little anyone really understands money or economics. Here's another interesting (though imperfect) way of thinking about bitcoin: it's a decentralized corporation, where bitcoins are o…

I'm not sure Bitcoin is money, at least not in the traditional sense. As I said on another thread: one of the reasons I think Bitcoin is probably a fundamental innovation is that nobody quite seems to know what it is, including me.

Nearly all Bitcoin's critics criticize it for being a poor replacement for cash, or for gold, or for some other traditional monetary unit. Automobiles are poor carriages too, and engines are poor horses.

I sympathize with some leftist critiques of deflationary currencies and libertarianism, but since I'm not sure Bitcoin is a currency I am not sure they are applicable. It is true that many bitcoiners have a libertarian/anarchist ideology, but I am not sure that matters much. A thing is what it is. Bitcoin is... whatever it is.