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Bitcoin solved a major technical problem, but not an economic one

krugman.blogs.nytimes.com

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Re: Bitcoin solved a major technical problem, but not an economic one

#31

Post by hexis »

tvladeck wrote: post #12
salient wrote: post #3

I wouldn't go to Krugman for technology insights. This is the same guy who basically said the Internet has no future, and now he's repeating it for Bitcoin.

He came around on the Internet (and admitted his mistake), and now believes there will be large productivity gains from Big Data. http://krugman.blogs.nytimes.com/2013/08/18/the-dynamo-and-b... Edit: I realize I'm not addressing your larger point. He still may not be the guy to go to. But that being said I think his opinions are more nuanced. Edit 2: Another post by him on the value of ICT: http://krugman.blogs.nytim…

No doubt that when bitcoin's success is obvious, he will also admit his mistake and go on to make another uninformed prediction.

Re: Bitcoin solved a major technical problem, but not an economic one

#32

Post by nhaehnle »

nawitus wrote: post #28
stephenbez wrote: post #24

Earlier quoted context omitted.

I'd disagree that Bitcoin is to money what the app store is for mobile software. If you are talking about the Apple App Store, they are the gatekeepers to what software you can load.

I agree that it's not a perfect analogy. App stores (I'm talking in general, not referring to Apple's store) are still centralized and act as gatekeepers, but the "gatekeeping level" is in another level to what it used to be. Before app stores it was practically impossible to for a lone developer to create an application and release it.

You do realize that software development existed before app stores, right? Lone developers created and released applications all the time. App stores are about convenience, and so they are not like your other examples, which are about decentralization. They just don't fit.

Re: Bitcoin solved a major technical problem, but not an economic one

#33

Post by Artifex »

apw wrote: post #25

Bitcoin is far more than "just" a solution to the Byzantine Generals problem. Inside every Bitcoin transaction is a small program that contains no loops. If that program when executed returns true, the transaction is valid. The simplest, most boring kind of transaction--but the one that most people assume " is Bitcoin"--is a transfer from address P to address Q. Where things get more interesting is in using those lit…

| A whole generation of kids is going to grow up soon routinely using small Bitcoin escrows to hedge everyday scenarios.

Could you explain this in more detail? Or perhaps provide a specific example? I've heard people talk about DACs and such (which I also don't really understand very well). At the risk of sounding stupid, I honestly don't understand what kind of scenario this would prove useful (or at least simple enough to warrant its use over traditional methods).

Re: Bitcoin solved a major technical problem, but not an economic one

#34

Post by rlpb »

apw wrote: post #25

Bitcoin is far more than "just" a solution to the Byzantine Generals problem. Inside every Bitcoin transaction is a small program that contains no loops. If that program when executed returns true, the transaction is valid. The simplest, most boring kind of transaction--but the one that most people assume " is Bitcoin"--is a transfer from address P to address Q. Where things get more interesting is in using those lit…

> Inside every Bitcoin transaction is a small program that contains no loops. If that program when executed returns true, the transaction is valid.

I've read elsewhere that the official client no longer processes any such scripts except for ones that are whitelisted. That reduces the current protocol to a single feature set, instead of the promise of future extension without requiring further agreement from miners.

Can anybody verify this? Does today's client still process arbitrary scripts?

Re: Bitcoin solved a major technical problem, but not an economic one

#35

Post by nhaehnle »

doctorpangloss wrote: post #13

I think transaction-fee-free money transfer is a pretty radical economic problem Bitcoin solves. Unless we think banks taking 3% of all Internet transactions is a good thing.

The problem with that thinking is that Bitcoin is not transaction-fee-free. Transactions are subsidized by block rewards, but already today, your transactions might get stalled if you don't pay fees. And this is only going to get worse.

Taking a 3% cut of transactions (or even more in some of the walled garden ecosystems) is obviously too much for a service of irreversible transactions. We'll see whether (a) reversible transactions and the related insurance problems can be solved more cheaply than today's credit cards and friends, and (b) whether irreversible electronic transactions will be accepted by people given the sorry state of computer security.

Re: Bitcoin solved a major technical problem, but not an economic one

#36

Post by nhaehnle »

salient wrote: post #3

I wouldn't go to Krugman for technology insights. This is the same guy who basically said the Internet has no future, and now he's repeating it for Bitcoin.

So don't go to Krugman for technology insights. Go to him for economic insights. Consider the recent discussion about "positive vs. normative economics". It's a similar point here.

There are Bitcoinistas who would like governments to abolish their own currencies and make Bitcoin the currency of the land, or perhaps adopt a Bitcoin-standard akin to a gold standard.

Those are economic policy proposals. Are they good ideas? It makes sense to listen to what economists have to say when you are trying to figure out the answer.

Re: Bitcoin solved a major technical problem, but not an economic one

#37

Post by poolpool »

johndevor wrote: post #8
gizmo686 wrote: post #6

Earlier quoted context omitted.

1) All major currencies can already be easily exchanged. The only reason they depreciate rather than appreciate is that we have decided that depreciating currencies are good for the market. 2) Bitcoin maintains a public record of every transaction. There are still ways to anonomize yourself (mixing services, proposed extensions like Zerocoin), but cash would still be my first choice.

As for your 2): why did the Silk Road explode in popularity? I think, done correctly, Bitcoin offers people on-the-couch access to anything they could want, with the level of risk largely depending on their technical expertise.

Websites to buy drugs have been around with weird e-currency like pecunix and e-buillion for so many years before bitcoin existed. The only difference between silk road and them is how little silk road did to stay low key.

Re: Bitcoin solved a major technical problem, but not an economic one

#38

Post by joe_the_user »

fragsworth wrote: post #29

The success of bitcoin, in large part, relies on faith that people will support it as a currency . If its market cap and/or trade volume isn't high enough, then a secure mining network cannot be supported, and the entire system, including all of its extra features touted by techies, will collapse. Bitcoin will succeed if enough people believe that it will succeed, and bitcoin will fail if enough people believe it wil…

Bitcoin will succeed if enough people believe that it will succeed, and bitcoin will fail if enough people believe it will fail.

Uh, the problem is that this is not a one-time succeed or fail thing. If one fine day, enough people think bitcoin will fail (or just think it no longer serves their purpose, say, it no longer has a chance of significant value increase), the consequences for many people may be very painful - even if for many previous days, most people thought bitcoin would succeed, even if some imaginary point had reached where some commentator could say "wow, looks like bitcoin has actually succeed".

Re: Bitcoin solved a major technical problem, but not an economic one

#39

Post by praptak »

nawitus wrote: post #23
praptak wrote: post #4

The scenario with a large number of people wanting to cash out already assumes Bitcoin lost as a currency, so I'd say it could be a result, not the cause of Bitcoin's failure. Bitcoin succeeds or fails on whether you can buy useful stuff with it, buying other currencies is secondary.

The scenario with people cashing out because of regulation also assumes that most bitcoin users live under a single regulatory area, which is untrue. Banning bitcoin in the United States, for example, might decrease it's value, but not destroy it, as there's the rest of the world.

Not to disagree about the main point but US could do more to harm Bitcoin than just banning it internally, especially given that China seems already hostile to Bitcoin.

Re: Bitcoin solved a major technical problem, but not an economic one

#40

Post by declan »

johndevor wrote: post #7
czbond wrote: post #2

Not true. Bitcoin did two things that I am aware of: 1) Create a universal currency which can be easily exchanged and that appreciates rather than depreciates (over the long run I mean, I am not referring to short term market fluctuations). 2) It created a mode where many underground (eg: gray or black market dealings) can take place without the need for laundering money. [Note: I don't condone, just pointing out the…

You're right. The black market gives Bitcoin a "floor" value, just like Gold or Silver. It is a very efficient means of currency for the black market, as proven by the Silk Road and others.

Gold and silver have industrial uses. Gold and silver are used in jewelry. Gold and silver have proven to be a store of value for thousands of years. Gold and silver are also, to a first approximation, truly anonymous.

Not one of those four characteristics is true for Bitcoin, so saying it's "just like" gold and silver is a bit of a stretch. This doesn't mean Bitcoin is awful, as Krugman's trollish column is titled, but just that it doesn't have the same intrinsic floor value as gold and silver.

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