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Ecuador Turning to Virtual Currency

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Re: Ecuador Turning to Virtual Currency

#11

Post by EduardoBautista »

evbogue wrote: post #9

Perhaps a smarter idea for Ecuador is to take all of the USD they're circulating and convert it into an existing and proven cryptocurrency. While becoming the best place in the world for a unhindered exchange of USD --> BTC, they'd also not have to worry about all of the problems of building and administering a centralized virtual currency from scratch.

Imagine you buy a house worth 100k one day in bitcoin. The next day, bitcoin increases its value 25%. That same house is now worth 75k, but you still owe 100k plus interest.

This is one of the biggest flaws in bitcoin that people just can't seem to understand (or just don't _want_ to understand). You can't have a good loaning system with an unstable currency.

Edit: I posted a better explanation below:

"You take out a 100k mortgage in USD. Over the next year, the USD suffers suffers from extreme deflation (increases in value). It is now worth twice what is was worth last year. As a consequence, wages begin to go down. Now let's say you were earning 50k a year while paying down a 100k mortgage (not assuming a downpayment, this is for simplification). Next year, you are now being payed 25k but still owe that 100k mortgage. And the house is now worth 50k."

Re: Ecuador Turning to Virtual Currency

#12

Post by dualogy »

billyhoffman wrote: post #2

Given Ecuador's financial situation, this seems like a plan to print money to pay bills, and make that "virtual" money to saving on printing :-)

That would be incredibly shortsighted. Assuming it's not the case, it's still a reasonable move: they need to pay their national debts in American dollars. There's no need for countless dollar notes to be circulating throughout the country every day for intra-national commerce, anything else that would be inflated at most below US QE levels would do the same trick and release those USD notes from that task, hopefully sooner or later trickle them back to the national treasury in order to send them back to where they originated. Plans of mice and men, but they gotta give it a try. No country can afford to depend on the US national currency for too much in the long run.

Re: Ecuador Turning to Virtual Currency

#13

Post by CodeMage »

EduardoBautista wrote: post #11
evbogue wrote: post #9

Perhaps a smarter idea for Ecuador is to take all of the USD they're circulating and convert it into an existing and proven cryptocurrency. While becoming the best place in the world for a unhindered exchange of USD --> BTC, they'd also not have to worry about all of the problems of building and administering a centralized virtual currency from scratch.

Imagine you buy a house worth 100k one day in bitcoin. The next day, bitcoin increases its value 25%. That same house is now worth 75k, but you still owe 100k plus interest. This is one of the biggest flaws in bitcoin that people just can't seem to understand (or just don't _want_ to understand). You can't have a good loaning system with an unstable currency. Edit: I posted a better explanation below: "You take out a…

I don't understand. Did you buy a house in BTC or in USD? If you bought it in USD, then the value of it in USD hasn't changed. If you bought it in BTC, then your debt is in BTC. What am I missing?

Re: Ecuador Turning to Virtual Currency

#14

Post by jordigh »

EduardoBautista wrote: post #11
evbogue wrote: post #9

Perhaps a smarter idea for Ecuador is to take all of the USD they're circulating and convert it into an existing and proven cryptocurrency. While becoming the best place in the world for a unhindered exchange of USD --> BTC, they'd also not have to worry about all of the problems of building and administering a centralized virtual currency from scratch.

Imagine you buy a house worth 100k one day in bitcoin. The next day, bitcoin increases its value 25%. That same house is now worth 75k, but you still owe 100k plus interest. This is one of the biggest flaws in bitcoin that people just can't seem to understand (or just don't _want_ to understand). You can't have a good loaning system with an unstable currency. Edit: I posted a better explanation below: "You take out a…

If it's the only currency in Ecuador, the price of a house in Ecuador in bitcoins doesn't have to match the fluctuations of BTCUSD. If Ecuador also tightly controls exchange with foreign currencies (which they likely already control, just not tightly?), then they can make the value of bitcoins within Ecuador as stable as any other currency.

As for how they would acquire bitcoins in the first place, all they have to do is mine enough for most citizens to access them and then distribute them. Or fork off a new blockchain with a different cryptocurrency that can only be mined by the central government (say, because it requires private keys to mine that only the government controls).

Re: Ecuador Turning to Virtual Currency

#15

Post by EduardoBautista »

CodeMage wrote: post #13
EduardoBautista wrote: post #11

Earlier quoted context omitted.

Imagine you buy a house worth 100k one day in bitcoin. The next day, bitcoin increases its value 25%. That same house is now worth 75k, but you still owe 100k plus interest. This is one of the biggest flaws in bitcoin that people just can't seem to understand (or just don't _want_ to understand). You can't have a good loaning system with an unstable currency. Edit: I posted a better explanation below: "You take out a…

I don't understand. Did you buy a house in BTC or in USD? If you bought it in USD, then the value of it in USD hasn't changed. If you bought it in BTC, then your debt is in BTC. What am I missing?

If you bought it in BTC, the house is now much more expensive then when you originally bought it.

Re: Ecuador Turning to Virtual Currency

#16

Post by rubyrescue »

evbogue wrote: post #9

Perhaps a smarter idea for Ecuador is to take all of the USD they're circulating and convert it into an existing and proven cryptocurrency. While becoming the best place in the world for a unhindered exchange of USD --> BTC, they'd also not have to worry about all of the problems of building and administering a centralized virtual currency from scratch.

This is EXACTLY what argentina did before the 2001 crash, by pegging ARS to USD @ 1:1. The problem is you lose the ability to set monetary policy because you can't set interest rates nor loan money via a central bank, when you don't own the currency.

Re: Ecuador Turning to Virtual Currency

#17

Post by CodeMage »

EduardoBautista wrote: post #15
CodeMage wrote: post #13

Earlier quoted context omitted.

I don't understand. Did you buy a house in BTC or in USD? If you bought it in USD, then the value of it in USD hasn't changed. If you bought it in BTC, then your debt is in BTC. What am I missing?

If you bought it in BTC, the house is now much more expensive then when you originally bought it.

It's more expensive in USD, yes. Which is a problem if you're being paid in USD, instead of BTC. In other words: if your debt is not in the same currency as your income, that might be a problem. Is that what you're saying?

Re: Ecuador Turning to Virtual Currency

#18

Post by AJ007 »

dualogy wrote: post #12
billyhoffman wrote: post #2

Given Ecuador's financial situation, this seems like a plan to print money to pay bills, and make that "virtual" money to saving on printing :-)

That would be incredibly shortsighted. Assuming it's not the case, it's still a reasonable move: they need to pay their national debts in American dollars. There's no need for countless dollar notes to be circulating throughout the country every day for intra-national commerce, anything else that would be inflated at most below US QE levels would do the same trick and release those USD notes from that task, hopefully…

Presume someone resorting to gimmicks to manage spending in excess of revenue is shortsighted (intentionally or otherwise.) Borrowing money in a foreign currency has pros and cons but I suspect most citizens don't realize the long term consequences.

Re: Ecuador Turning to Virtual Currency

#19

Post by tinco »

EduardoBautista wrote: post #11
evbogue wrote: post #9

Perhaps a smarter idea for Ecuador is to take all of the USD they're circulating and convert it into an existing and proven cryptocurrency. While becoming the best place in the world for a unhindered exchange of USD --> BTC, they'd also not have to worry about all of the problems of building and administering a centralized virtual currency from scratch.

Imagine you buy a house worth 100k one day in bitcoin. The next day, bitcoin increases its value 25%. That same house is now worth 75k, but you still owe 100k plus interest. This is one of the biggest flaws in bitcoin that people just can't seem to understand (or just don't _want_ to understand). You can't have a good loaning system with an unstable currency. Edit: I posted a better explanation below: "You take out a…

It is suspected (and I think reasonably so) that Bitcoin volatility will decrease over time[1].

Regardless, I think with the financial tools we have developed in the past few hundred years we are very well equipped to deal with volatile assets.

Perhaps it is you who doesn't want to think longer about Bitcoin than the two seconds it takes to realize that loaning Bitcoins might be a difficult problem.

1] http://elidourado.com/blog/bitcoin-volatility/

Re: Ecuador Turning to Virtual Currency

#20

Post by EduardoBautista »

CodeMage wrote: post #13
EduardoBautista wrote: post #11

Earlier quoted context omitted.

Imagine you buy a house worth 100k one day in bitcoin. The next day, bitcoin increases its value 25%. That same house is now worth 75k, but you still owe 100k plus interest. This is one of the biggest flaws in bitcoin that people just can't seem to understand (or just don't _want_ to understand). You can't have a good loaning system with an unstable currency. Edit: I posted a better explanation below: "You take out a…

I don't understand. Did you buy a house in BTC or in USD? If you bought it in USD, then the value of it in USD hasn't changed. If you bought it in BTC, then your debt is in BTC. What am I missing?

OK, let me explain this better using USD.

You take out a 100k mortgage in USD. Over the next year, the USD suffers suffers from extreme deflation (increases in value). It is now worth twice what is was worth last year. As a consequence, wages begin to go down. Now let's say you were earning 50k a year while paying down a 100k mortgage (not assuming a downpayment, this is for simplification). Next year, you are now being payed 25k but still owe that 100k mortgage. And the house is now worth 50k.

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