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Bitcoin and positive vs. normative economics

krugman.blogs.nytimes.com

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Re: Bitcoin and positive vs. normative economics

#461

Post by saalweachter »

natrius wrote: post #420
saalweachter wrote: post #410

Earlier quoted context omitted.

Zero transaction fees? The bitcoin network costs something like $3.5 million per day to run, and optimistically handles tens of millions in transactions. That's a transaction fee of 10%. You just don't notice it because they pay the miners by printing money. I'll be really interested to see what happens when they stop that and start relying on up front transaction fees to fund the network.

This is an excellent point. I'm curious to see how that pans out. My guess is that since Bitcoin transaction fees are supposed to be set by the market, they'll stay competitive. If mining is unprofitable at the rates credit cards are offering, fewer people will mine, which makes mining cost less energy, leaving more profit. Eventually an equilibrium will be reached.

The mining network shedding capacity is a bad thing for Bitcoin.

If 90% of the network is powered down to reduce transaction fees, that gives someone the opportunity to buy up 20% of it on the cheap and corrupt the network. Bitcoin has to use as many resources as possible to stay secure.

Re: Bitcoin and positive vs. normative economics

#462

Post by dcc1 »

kordless wrote: post #288
dcc1 wrote: post #153

Earlier quoted context omitted.

Newer mining equipment doesnt use as much electricity. Power is a variable but not an important one.

Regardless, power is used to run the equipment. There's a correlation here.

Our whole economy relies on energy, which ultimately comes from the sun, theres a correlation, doesnt mean its important as you are trying to imply

Re: Bitcoin and positive vs. normative economics

#463

Post by wpietri »

baddox wrote: post #395
XorNot wrote: post #384

Earlier quoted context omitted.

Such as? Australia has mandatory voting as do other countries. We don't have problems with it.

If I were Australian, I would have a problem with it, because I am what you might call a principled abstainer. But apart from personal issues regarding perceived rights violations, there are several obvious advantages and disadvantages, similar to any aspect of election design. I'm not saying compulsory voting is game-breaking, but merely that it's a compromise that one could argue is not desirable.

When I lived in Ecuador long ago, voting was mandatory. The people with your views ran a spirited campaign with posters that said "VOTA NULO", vote null. I'm not sure exactly how it worked there, but in some places there's an explicit "vote for nobody" choice, and those choices are counted and reported: http://es.wikipedia.org/wiki/Voto_nulo

Re: Bitcoin and positive vs. normative economics

#464

Post by wpietri »

Rhapso wrote: post #457
d23 wrote: post #455

Earlier quoted context omitted.

I hire politicians for the exact reason that I cannot possibly become informed and make intelligent decisions on all of the issues that affect me.

And you expect them to be able to?

I expect them and their staffs to do it, yes. Some do it better than others.

Re: Bitcoin and positive vs. normative economics

#465

Post by nickbauman »

cabalamat wrote: post #458
nickbauman wrote: post #360

Earlier quoted context omitted.

Exactly this! Bitcoin is much more interesting as way of representing CREDIT, not MONEY. Credit is much older and much better way of representing of how humans make contracts with each other. Money is a sideline invention we did to make it possible to pay soldiers for fighting. (Soldiers are inherently bad credit risks because they kill and die for a living).

> CREDIT, not MONEY What's the difference?

None, of course; except perception.

People perceive money to be something of intrinsic value (Or that it _should_ be that. Krugman's complaint about arguing normative versus positive is at play here, for sure). People perceive credit as merely a record of a debt.

The gold-standard freaks seem to not understand this non-difference. A large subset of folks who ideologically back Bitcoin also indulge in this fantasy.

Re: Bitcoin and positive vs. normative economics

#466

Post by wpietri »

icambron wrote: post #340
mortenjorck wrote: post #295

Earlier quoted context omitted.

I appreciate your putting the distinction between Krugman's arguments into greater relief – I believe I have conflated them somewhat in talking about second order effects. For the time being, let's ignore those and concentrate on the primary purpose of Bitcoin's infrastructure, to facilitate decentralized value transactions between arbitrary parties. It is the infrastructure's fitness for this purpose that I see as g…

Krugman actually takes that on directly in the article: > I have had and am continuing to have a dialogue with smart technologists who are very high on BitCoin — but when I try to get them to explain to me why BitCoin is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange. Even if I buy this (which I don’t, entirely), it doesn’t solve my problem. And…

Interesting!

It seems to me that the shared fiction of the dollar is based on the shared fiction of America. The fiction of America creates a real American government that has a strong interest in maintaining the fiction of the dollar.

From what I can tell, Bitcoin does have a similar pair of shared fictions, the idea and the currency. But I'm not seeing the thing that America has between the two fictions: a powerful organization with a strong interest in keeping the money useful as money.

Re: Bitcoin and positive vs. normative economics

#467

Post by pdonis »

notahacker wrote: post #273
pdonis wrote: post #254

Earlier quoted context omitted.

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 fi…

People won't accept Bitcoin for actual goods and services if they don't believe it will hold its value. Or more precisely, they will require you to pay x% more in Bitcoin (at current exchange rates) where x is a premium to account for the expected loss in value over the period they expect to hold the Bitcoins, plus a margin for risk. If that premium happens to be higher than the cost of transacting in an alternative…

People won't accept Bitcoin for actual goods and services if they don't believe it will hold its value.

The same applies to any type of money. Google "hyperinflation".

Also, how much of an effect this is depends on how long people expect to hold money in between transactions; see below.

they will require you to pay x% more in Bitcoin (at current exchange rates) where x is a premium to account for the expected loss in value over the period they expect to hold the Bitcoins, plus a margin for risk.

People do the same thing with dollars and other currencies based on the rate of inflation they expect, i.e., the rate at which they expect dollars to lose their value.

Also note that qualifier: "over the period they expect to hold the Bitcoins". In other words, people need enough cash to cover current expenses for some period of time; but that amount can be pretty small compared to their total wealth, and it gets smaller as technology advances and economies evolve. People used to get paid quarterly, so they needed enough cash for a full quarter's expenses. Then the payment cycle became monthly, and now many people get paid biweekly or even weekly, so they need to hold less cash to cover expenses. (More precisely, they need to hold less as a fraction of their total wealth.)

I'd see "governments have a huge incentive to outlaw it" as a pretty major inherent inferiority

It's "inherent" only in the sense that we're not likely to get rid of governments any time soon. Is that a problem with Bitcoin, or a problem with governments?

Re: Bitcoin and positive vs. normative economics

#468

Post by EGreg »

XorNot wrote: post #372
EGreg wrote: post #130

I am an on again off again fan of Krugman in some respects. In this case he has managed to clarify the discussion, which is good! The truth is that bitcoins derive most of their value from being a great medium of exchange and enabling things (smart contracts are ahead) that otherwise wouldn't be possible. Things like making no recourse payments online for the first time ever. Bank of America did an analysis on the va…

If you couldn't turn Bitcoins into USD, would you accept them as payment for something? That's your floor price. It's 0.

Yes, if I can trade them for something else I need. Cashing out is a hassle anyway.

It's true that dollars are more liquid. Does that mean you wouldn't accept a ton of free stuff if you couldny trade it for dollars but only other services?

Re: Bitcoin and positive vs. normative economics

#469

Post by wpietri »

icambron wrote: post #340
mortenjorck wrote: post #295

Earlier quoted context omitted.

I appreciate your putting the distinction between Krugman's arguments into greater relief – I believe I have conflated them somewhat in talking about second order effects. For the time being, let's ignore those and concentrate on the primary purpose of Bitcoin's infrastructure, to facilitate decentralized value transactions between arbitrary parties. It is the infrastructure's fitness for this purpose that I see as g…

Krugman actually takes that on directly in the article: > I have had and am continuing to have a dialogue with smart technologists who are very high on BitCoin — but when I try to get them to explain to me why BitCoin is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange. Even if I buy this (which I don’t, entirely), it doesn’t solve my problem. And…

Regarding your last bit, I'd guess his notion of "successful currency" is observational. There have been a lot of currencies, so it's pretty easy to look at the ones that have lasted versus the ones that haven't.

Being a store of value is a goal if you want people to hold a currency. For example, when I was an exchange student in Ecuador long ago, the Ecuadorian sucre was not seen as a good store of value. Better-off people would, as much as possible, not hold sucres; they'd buy dollars. Poorer or less connected people couldn't do that as easily, so they just got screwed. Eventually, the currency collapsed entirely and now they just use the dollar: http://en.wikipedia.org/wiki/Ecuadorian_sucre

I don't think BitCoin can survive purely as a medium of exchange. There's the obvious reason: why pay two sets of transaction costs when you can pay just one? But I think the bigger problem is that there's a period when someone is holding BitCoins. If those are a stable store of value, then you're ok with that. But if not, you're in the land of currency risk, and the only people who like currency risk are currency traders; everybody else hates it.

Re: Bitcoin and positive vs. normative economics

#470

Post by EGreg »

brownbat wrote: post #329
rokhayakebe wrote: post #272

Earlier quoted context omitted.

It is amazing how one word "COIN" added to this word has shaped everyone's thinking. Would we treat it the same if the guys behind it named it "Bitcard" or "Bitpoint?" That one word is what set apparently most people to speak of it, and treat it as money. BC is nothing like Money. BC is a card trading game where the players make the cards, the difficulty to make cards increases , and the value of the cards is decided…

> It is amazing how one word "COIN" added to this word has shaped everyone's thinking. Yeah, Bit-distributed-public-ledger doesn't have the same ring, but I feel like there are a million problems that can be solved with this technology that are barely being explored. Namecoin is one example, a distributed DNS system, but it feels like that's just scratching the surface of problems that require allocating sparse contr…

Why is namecoin even useful?
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