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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

#41

Post by trothamel »

fonosip wrote: post #20

Gold has base value derived from its industrial, ornamental uses. But its trading value is much larger. Similarly Bitcoin has a base value in the cost of mining 1 BTC. Right now it is around $800 or so. Because of the competition in mining, asic chips development, and More's law. The cost of mining 1 BTC is going up exponentially.

While I think it's true that BTC won't fall below the cost of mining 1 BTC, that's not really saying anything.

If BTC falls below the cost of mining people will stop mining and the network will adjust to the reduced difficulty, making the cost of mining drop.

A problem is that if too few people mine, the network becomes easy to compromise. That's a problem that bitcoin has, and other currencies (and things like gold and silver) do not.

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

#42

Post by blahbl4hblahtoo »

nawitus wrote: post #22
gojomo wrote: post #10

This analysis is true to a point, but overlooks that the 'decentralized cloud bank' innovation now allows a whole bunch of other technologies to be applied into an important economic domain without the old gatekeepers and limitations. Those other technologies are a bit more familiar to people: • global always-on connectivity • encryption constructs • easy discovery/formation of communities-of-interest • open source c…

Bitcoin to money is what app store is for mobile software, or the web is to newspapers etc. It's decentralization of power. There's no gatekeepers to prevent new innovative payment services. You need $100 to create a new payment service, not millions. You don't need to ask anyone permission to do what you want. In practise, individuals will now have the power that only large corporations used to.

every time i have read a statement like this in the past it has been followed at some point by a crushing, total and complete, reversal that shows that the exact opposite effect was produced from the anticipated outcome.

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

#43

Post by nawitus »

nhaehnle wrote: post #32
nawitus wrote: post #28

Earlier quoted context omitted.

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.

>Lone developers created and released applications all the time.

The context was applications for mobile phones.

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

#44

Post by Estragon »

rlpb wrote: post #34
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. C…

I stopped following bitcoin about 18 months ago so it's possible my information is out of date, but I think your assertion is only true in the sense that today's client does no mining.

It is miners which run these scripts, and when I was following bitcoin it was miners who decided which script features they would allow. There were some significant mining pools which allowed nonstandard script features.

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

#45

Post by fragsworth »

joe_the_user wrote: post #38
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…

> Uh, the problem is that this is not a one-time succeed or fail thing.

I think you're misunderstanding the risk here. If the mining network reaches a point that it is no longer secure, because the market cap and trade volume is not high enough to support a large computational network, then a single widely publicized 51% attack can cause a near-complete loss of faith in the system.

The damage to cryptocurrencies after such an event is probably irreparable.

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

#46

Post by johndevor »

declan wrote: post #40
johndevor wrote: post #7

Earlier quoted context omitted.

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,…

I meant to say that Bitcoin - or something like it - will emerge to facilitate online transactions of the black market kind. Rightly so that Bitcoin doesn't inherently gain value from the black market, but I do believe the black market will use something to do online transactions (as shown by the Silk Road and others). Thus far, that currency has been Bitcoin.

Gold and silver have industrial uses today. That may change tomorrow (albeit highly unlikely).

Bitcoin is the currency of cyber criminals today (hence giving it value today). That also may change tomorrow.

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

#47

Post by panarky »

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…

> their parents operated in a world based on centralized authority subject to rent-seeking corruption

Krugman is surely correct that it's silly to waste resources digging gold out of the ground only to re-bury it in a bank's vault.

And if Bitcoin was just another currency, it would be equally silly to waste compute resources mining it.

But if crypto-currencies could disrupt even a small part of the centralized, rent-seeking, mafia-economy, then the cost of mining dwindles to insignificance.

It's not about intrinsic value. It's about changing how people transmit value over distance and time. It's about freeing that process from the gatekeepers who control it and extract rents from the labor of others.

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

#48

Post by johndevor »

nawitus wrote: post #27
johndevor wrote: post #7

Earlier quoted context omitted.

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.

I don't believe bitcoin has a floor value in the same sense as gold or silver. A currency doesn't need to have a floor value just because currencies traditionally had. Besides, modern currencies are fiat money without a true "floor" value.

I'll rephrase my argument: given the vast demand for some people to do illicit transactions on the internet, an online currency (or more than one) will emerge to fill that need. So, given that, I think Bitcoin (or something like it) does realistically have a floor value, given its current front-runner stance. That may change, of course, if people choose a different currency, but that currency will be similar to Bitcoin in most, if not all, fundamental ways.

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

#49

Post by Estragon »

jostmey wrote: post #21

Krugman has said over and over again that bitcoin is bubble. He is right. But Krugman has failed to understand a crucial aspect about bitcoin - it is truly an international currency. Here is why this is so important. Krugman argues that someday news about bitcoin will come out that is so bad it will scare people away from bitcoin. This will certainly happen, as it has happened already. But bad news is localized. Just…

A key foundation of a modern nation's power over its citizens is the ability to arbitrarily create and destroy the national currency, to legitimately demand that taxes be paid in that currency, and to thus be able to use it to purchase arbitrary goods and services. It seems quite likely that major national governments will band together to ban transfers between bitcoin and their national currencies once they realize what a threat a wholesale shift to bitcoin would pose to their power to tax and spend.

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

#50

Post by wlievens »

fonosip wrote: post #20

Gold has base value derived from its industrial, ornamental uses. But its trading value is much larger. Similarly Bitcoin has a base value in the cost of mining 1 BTC. Right now it is around $800 or so. Because of the competition in mining, asic chips development, and More's law. The cost of mining 1 BTC is going up exponentially.

Cost does not equal value. One could rather say the cost of mining bitcoins is analogous to... the cost of mining gold, not the industrial value it represents.
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