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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

#81

Post by nefreat »

atmosx wrote: post #45
Aqueous wrote: post #21

I'm a liberal, a Keynesian, but my interest in BitCoin is completely non-ideological. And I resent being painted with an ideological brush by Krugman because I can see the elegance in BitCoin, and I can see the possibility that one day, in spite of my ideological beliefs that unregulated markets are susceptible to bubbles and destructive volatility, BitCoin or something like it might still be able to function as a st…

You seem pretty accustomed to economics. Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency? Then again, it's not a design a flaw - as I once thought - it's a clear choice: Why would anyone would want to own a non-deflationary asset? :-) So actually, in my view, BTC as a currency is already failed. No one will be eager to buy online (…

> You seem pretty accustomed to economics. Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency?

This is identical to arguing: Why would anyone buy computers when they are getting cheaper every year. At some point you make a choice where your preference for owning a computer is greater than your preference to save money.

> So actually, in my view, BTC as a currency is already failed. No one will be eager to buy online (perform an actual exchange) when he can buy the same items using USD, because BTC will possibly have a higher value tomorrow. While the USD almost certainly will not.

Gold is deflationary. When gold was the primary currency for the world commerce was very vibrant. Gold not being currency is a fairly recent development. People currently purchase things online with bitcoins when they could use dollars but choose to use bitcoins. I think it's very early to write off bitcoins as a failed currency.

Re: Bitcoin and positive vs. normative economics

#82

Post by kybernetikos »

I'm glad this article makes the distinction between positive and normative economics.

I have no problem with paying taxes and obeying almost all laws in a democratic country, and I am persuaded that inflation in sensible times and amounts is a good thing for the world. The paranoia and anti-society feelings that run so high in the bitcoin community actually put me off it. (Although I also dislike the fact that the Credit Card companies have the power to extract rent from nearly all transactions in the economy too - the fact that the price is the same regardless of whether the merchant is paying a fee or not means that cash transactions are subsidising credit cards).

But I don't think bitcoin has much chance of becoming a state currency, and I think it would go horribly if it did, so most of that anti-state rhetoric is irrelevant.

However, up until now, neither the government, nor the banks nor the credit card companies have provided me with an easy, cheap and safe way to make tiny transactions with my friends (and untrusted acquaintances) across the world.

Bitcoin is currently useful. I can take a picture of a QR code with my phone or fill in a simple form on a web page and safely transfer tiny sums of money with no or minimal fee reasonably quickly anywhere in the world. That is wonderful and creates a floor on the value of bitcoin, until better options are available.

Anyone who really doesn't want to see bitcoin succeeed (and that goes for Stross and Krugman) should make it a priority to work on making sure that dollars and pounds and euro balances are just as convenient, cheap and safe as bitcoin balances.

Re: Bitcoin and positive vs. normative economics

#83

Post by natrius »

ubernostrum wrote: post #36
natrius wrote: post #27

Earlier quoted context omitted.

He claims that the ability to pay taxes in dollars and the Federal Reserve's willingness to buy up dollars to maintain their value places a floor on the value of the dollar. I disagree. In a crisis of confidence in the dollar, both factors would fail.

In a crisis significant and widespread enough to crash the dollar or any other government-backed currency you'd like to pick on, it seems likely that there would also be significant disruption to electrical and communication networks, which does not suggest BitCoin is a great thing to hold for that situation. (a similar point is often raised against gold, in that a post-economic-apocalypse world would not immediately…

I'm not talking about a hypothetical doomsday scenario. Bitcoin is the crisis.

The idea that holding Bitcoin is a better idea than holding dollars is spreading. The more it spreads, the higher the value of Bitcoin will be, and the lower the value of the dollar will be. Eventually, we will hit a tipping point. That's the crisis. That's the hyperinflation.

Re: Bitcoin and positive vs. normative economics

#84

Post by hendzen »

seiji wrote: post #47
hendzen wrote: post #35

Earlier quoted context omitted.

Actually, for your first point, you have to compare the carbon footprint of bitcoin to the carbon footprint of the alternative. What is the carbon footprint of all the different transaction processing systems run by Mastercard, Visa, Amex, etc? What about if you add in the cost of the massive mainframes that handle ACH transfers? The cost of printing millions of archaic paper checks? I'm not saying bitcoin replaces a…

The other systems aren't based around grinding CPUs at 100% power utilization for days/weeks/months doing worthless busy work. Unless your power comes from a zero-carbon-footprint renewable resource, it's pretty ugly.

High hardware utilization is a good thing for efficiency because that enables ASICs to be produced that are growing increasingly more efficient.

Right now one of the main metrics people use when evaluating the profitability mining hardware is Ghash/Watt, so the market is naturally incentivizing low OpEx and therefore less power usage (per transaction processed not the nominal amount of power used).

Also, it's actually more efficient to have a smaller number of machines running at full utilization 24x7 than the typical massive datacenter that averages around 20-30% utilization [0]. That's because modern servers consume nearly as much power at 20-30% utilization as they do at 100%.

[0] - http://bnrg.eecs.berkeley.edu/~randy/Courses/CS294.F09/whare... (page 55)

Re: Bitcoin and positive vs. normative economics

#85

Post by maxerickson »

natrius wrote: post #51
mapgrep wrote: post #33

Earlier quoted context omitted.

>Hyperinflation would make it impossible for the Federal Reserve to buy up enough dollars to stabilize the value of the currency Even if this is true, where is the evidence that we're in imminent danger of hyperinflation? Despite mounting public debt, U.S. inflation has remained incredibly low since the start of the financial crisis four years ago, as has the interest rate that must be paid by the government to issue…

We weren't in imminent danger of hyperinflation. I think mass adoption of Bitcoin will cause hyperinflation. If every merchant you patronize today accepted Bitcoin, would you rather have Bitcoin in your bank account or dollars? I'd rather have Bitcoin. They're easier to transfer, they can't be counterfeited, and their supply can't be manipulated. If every merchant accepts Bitcoin and every consumer agrees with my log…

The bitcoin supply can't be trivially manipulated.

It's still vulnerable to computational attacks (no matter how impractical they may be) and miner collusion.

Re: Bitcoin and positive vs. normative economics

#86

Post by etjossem »

Three cheers to the mod who changed the title from "Bitcoin is Evil", even though that's what NYT wants to call it. The author spends most of the piece explicitly telling us that he will not be making a morality judgement about the currency.

One quote in the article caught my eye:

> BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions.

Fun thought exercise: replace "BitCoin" with "cash." Businesses across the country choose to have a cash-only policy (or destroy receipts, avoid use of electronic records, and so on) to avoid paying taxes and having their transactions monitored. That's not to say this is wise or ethical behavior, but it certainly happens, even without cryptocurrency. So why do critics describe BTC as a libertarian threat and in-person cash transfers as normal?

Re: Bitcoin and positive vs. normative economics

#87

Post by mapgrep »

randyrand wrote: post #71
mapgrep wrote: post #14

Earlier quoted context omitted.

On the contrary, I'd rather listen to an economist who is upfront about his political viewpoints and transparent about how he tries to keep them from influencing what he here terms the "positive economics" -- i.e. the practical economic impact -- of Bitcoin or any other problem. As opposed to economists who conceal their political viewpoints to cover the fact that their supposedly scientific economic conclusions are…

You act like those are the only options. What about a moderate economist that actually considers both sides before creating an opinion?

Why do you assume you have to be moderate to consider both sides? Doesn't it seem like once you objectively consider both sides often enough you begin to develop informed opinions that could make it hard to remain a moderate? But that doesn't mean you stop considering both sides.

(Also, this implication that moderates tend to be more reasonable is erroneous. Oftentimes the correct answer starts out as marginal aka "extreme" until it is slowly validated moves the whole discourse and moderate is redefined to where one extreme used to be. And oftentimes people are moderates out of ignorance; when you begin examining any given issue and have little knowledge it is natural to stake out a "on the one hand, on the other hand" position until you learn more. Then you cease to be a reasonable moderate, at precisely the moment your knowledge becomes formidable. But I am rambling and need to go outside now :)

Re: Bitcoin and positive vs. normative economics

#88

Post by pavelrub »

smtddr wrote: post #9

>>BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions. So basically it brings an ability to the middle-class that normally only the top 1% have. We know wealthy people use tax loopholes(and a few of them, laundering) and... why do…

The fact that wealthy people use tax loopholes is a bad thing. Making in possible for everybody to use tax loopholes is a really horrible idea.

Re: Bitcoin and positive vs. normative economics

#89

Post by chipsy »

jamroom wrote: post #48
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…

But does Bitcoin really have a floor related to the energy put into the mining? Since the energy cost is paid for by the miners, do other players in Bitcoin "respect" that floor? I don't see that - there's nothing keeping a Bitcoin from going all the way to zero - regardless of the energy consumed in it's production, and Krugman argues that gold (and the feds) have a bottom that is greater than zero. My understanding…

I think Bitcoin does have a soft floor because that cost would form the natural price target for a miner trying to trade, but the cost is avoidable by switching to proof of stake as done in PeerCoin and Nxt. The crypto problems solved in Bitcoin don't have the intrinsic utility of a precious metal; you could make a better argument for something like PrimeCoin, which attacks a major computation problem, having this kind of utility.

So as I see it Bitcoin is already obsolete; there are new coins that achieve the transaction capabilities for cheaper - they can be used in more potential applications, thus they're more interesting speculative instruments.

The specific benefit of proof of work mining comes in insuring more people have a chance to enter during initial distribution, but it still massively favors the early entrants and especially the people who have the hardware environment to mine efficiently.

Re: Bitcoin and positive vs. normative economics

#90

Post by bdcravens »

hendzen wrote: post #35
bdcravens wrote: post #6

1) Bitcoin mining has a pretty horrible carbon footprint. ("but so does ..." doesn't eradicate this argument) 2) similar to the author's point that advocates can't tell the difference between "store" and "medium" of value, I can't tell you the number of arguments I've gotten in with people who equate a "store of value" to be the same thing as the "increase in value" 3) It's a 1% wet dream. Make money, potentially hid…

Actually, for your first point, you have to compare the carbon footprint of bitcoin to the carbon footprint of the alternative. What is the carbon footprint of all the different transaction processing systems run by Mastercard, Visa, Amex, etc? What about if you add in the cost of the massive mainframes that handle ACH transfers? The cost of printing millions of archaic paper checks? I'm not saying bitcoin replaces a…

I'd argue that value / footprint (edit: had this backward) generated is higher for legacy systems than Bitcoin. (Unless you can totally eliminate CPU and GPU mining)
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