In terms of monetary policy it's pretty clear that you don't just want it to be predictable. One function of money is to be able to reference a stable amount of value in a contact (i.e. how much a person is paid). Just because a monetary policy is predictable doesn't mean it is stable, if the price changes more rapidly than prices are set or contacts are made it can't be used for that. Currently bitcoin is useless for setting prices. The only places where prices are determined in bitcoin are places that are extremely inefficient (i.e. ransomware).
A fixed inflation rate of 50% each year is very predictable, but useless for money.
I believe to be stable Bitcoin market cap should go much higher than it is now. It needs to be at the point where it's hard for someone even with a lot of money to manipulate it. It should be at the level where governments are afraid to seriously tamper with it because it can cause global recession.
My long term bet is that it will get there at some point. It might be in 5 years, 10 years or more, but we will get there. We are in a bubble now, but that's just market/human nature and I don't see any way to avoid it. This bubble will pop. There might be more bubbles to come, but what doesn't kill it makes it stronger.
To me it always seemed strange to use currency as "unit of value". Because it is not a unit of value, currency prices go up and down just like everything else (look at Zimbabwe).
Why don't we use a real unit of value, based on the consumer index for example. Certain goods could be "x consumer points", averaged out.
Contracts could be made more stable, because it would actually express purchasing power, and not based on some potentially fluctuating currency/asset/whatever.
Edit: Also, it would make things more clear for contracts running over 30 years for example, what that number will be worth at the end of the contract.
Consumer price indexes change. The price of almost everything changes, even in the same time period the price of different goods and services vary depending on where you are and how much of it you are buying at once.
Brazil has such great variation in CPI that they need to calculate it for all their major cities.
Even if we purposefully chose something had it's supply held almost perfectly constant we see heavy price drift. (land is a great example, most countries don't see significant land gain or loss)
Its hard to see the value of bitcoin from the point of view of a decently well off westerner which most of us are here. We have access to currencies that are relatively stable even with inflation and access to banking which allows us to store our money securely and gives us access to investments around the world. We can also swap money for other currencies, with some fees, but its still doable.
Now imagine you dont have access to a bank, you only get paid in cash and your currency is constantly inflating and you have no investment options to counteract that inflation. If someone is supporting you that lives somewhere else they have to pay fees on top of and takes days for the transfer to arrive.
Then you have bitcoin which can accessed with a simple smartphone and can be sent anywhere in the world for a few dollars and takes around an hour. And you aren't constantly losing money holding onto it since its not constantly inflating. This is why people pay 100% premiums for bitcoins in countries whose currencies go to crap and why its hard for us to see why this is useful when we hold USD and Euros
I can definitely see the utility in a censorship-resistant digital medium to store wealth. To me, this latter use case has a lot of potential to serve the unbanked (as well as the banked).
Some use cases I can think off the top of my head:
(1) You are from Syria and need to flee war and escape into Europe – however bank transfers into Europe are almost impossible if you are a common Syrian. Bitcoin allows you to take your wealth with you, in your brain, as you escape across the border, by just memorising your twelve word private key.
(2) You are from Venezuela or Zimbabwe – The government has issued capital controls and is devaluing currency by the day. You transfer your wealth into Bitcoin in order to offset capital erosion due to hyper-inflation. When the situation stabilises, you transfer your Bitcoin back into fiat.
(3) You are Saudi billionaire Al-Waleed bin Talal. The government freezes all your assets in a political coup. If you have a portion of your wealth in Bitcoin, you could protect them from government expropriation and anonymously transfer them to associates or family members abroad.
(4) You are whistleblower Julian Assance and have been cut off from the financial system as a way to censor your speech. Bitcoin allows you to have an unbreakable digital "Swiss bank account" that the authorities are not able to reach.
This reminds me of Peter Thiel's recent words about Bitcoin: "it's like a reserve form of money, it's like gold, and it's just a store of value. You don't need to use it to make payments."
I mean I get that the laws bitcoin evades quotes here are "unjust". They are still the law, however. Some states have unjust laws, and middle eastern muslim states, well the democracies there make dictatorships elsewhere look good ...
Mostly you're complaining that the moral system popular in the US doesn't just apply everywhere. Fact is it doesn't, and imposing it (which is what bitcoin does), is considered not moral.
If you want to allow this, why bother complaining about a 10% tax rate for the ultra rich ? Or highly illegal drug (e.g. GHB, and other rape drugs) ? You can't have one without the other, and ...
If I get paid in cash, how do I upload my cash via my mobile phone to buy bitcoin? Or would users need a bank still?
Bitcoin (used as a proxy for the block gain/cryptocoin in general) does not remove the need for banks or financial governance. It is simply a new mechanism through which a bank could be built; but governments can (and should/will) pass laws regulating it.
Its true there is still some need for someone to have access to a bank or someone to physically bring in bitcoin to a country. But with services such as localbitcoins where you can find people near you to trade cash for bitcoin and bitcoin ATMs(not usually run by banks) you can get pretty far without a bank.
Ok, so who operates localbitcoins? How do we know they’re not just funneling us to a set of local agents that have really high prices?
The replacement of “centralized trust” is not “trust anyone”. But I’m still not convinced any decentralized trust systems available today can deal with the governance problem: Who gets to make the rules, and why them?
We’ve just replaced the relatively-transparent Federal Reserve with a group of shady mining company CEOs controlling core whose main cash flow is likely laundering drug money (we don’t know for sure though because they don’t ask questions). I don’t think that’s an improvement for transparency.
"relatively-transparent Federal Reserve" - thats crap. All bitcoin are open to see and track and all the code is open source and you can start mining if you want to, albeit at a loss. The federal reserve is the opposite of transparent.
also, if you dont like te way bitcoin is being run then just fork it, bitcoin cash did just that because groups couldnt agree on if they wanted small blocks or large blocks.
That exactly is my point. You list usage cases - but nobody is USING it.
Unless there is a meteoric increase in real world usage (i.e. non speculative) to match the valuations the whole crypto world is going to have a very ugly surprise.
You know what's a sure sign of a bubble? When people not even remotely in that world start asking me about this bitcoin thing - they heard it only goes up and it's easy money. Zero notion as to what it is beyond that. How's that for price discovery?
Because the government can very easily seize your etf? They could even physically confiscate the gold rendering your note useless.
This equivalent is logistically impossible with bitcoin and the more nodes the stronger it becomes to resisting censorship. They would literally have to buy every single bitcoin (probably at tremendous price increase) and throw away the private key. Even leaving just 1 satoshi would render this plan completely useless. And because around %15 or so of the bitcoins have been lost to los USB drives or forgotten passwords, etc that a government would never know how many are still in legit wallets. Plus satoshi has a million..
> How many people want to buy gold but don't want to have third party trust with an organization that holds gold or have to hold it themselves.
How is this different with Bitcoin?
Edit: by which i mean, either you work out what do do with the key, or you trust an exchange/online wallet provider to do it for you.
They still have better control over Bitcoin transactions than say Monero (from a fraud point of view). So maybe if it comes to that, they will keep Bitcoin but not cryptos with higher privacy.
Agreed. They've already built tools to track people through Bitcoin, why would they try to shut it down? Especially when a lot of people still assume bitcoin's 100% anonymous and use it for criminal activity, making them easy to catch?
Are there any places that publish data about what cryptocurrencies darknet markets are using? I'm interested in the overall trends, but not enough to do my own research.
> Bitcoin allows you to make transactions online when Visa does not.
but conveniently leave out the people that care about that the most. Most criminals can not safely engage with banking systems or money transfer services. Bitcoin functions roughly as both of those. darknet markets are what originally gave bitcoin value, and they are the reason it won't go to zero (unless another cryptocurrency eclipses it)
You live in a first world economy with banking facilities available to you. some people in your country will be unable to access these same banking facilities and many millions more in other countries are in the same position, bitcoin lets them have a similar level of control of their money and lets them use online services that would be otherwise difficult to obtain.
Re: darknetmarkets, many have moved on to other more privacy focussed coins, but they were a valuable use case for bitcoin.
Bitcoin won't always appreciate. Best case scenario is that it is currently in price discovery and after price discovery ends (no more insane run ups or crashes) that it should vary in a similar way to gold. Be careful to not over expose yourself to that variation.
I feel like the author missed the biggest problem. There is a huge dis-incentive to use bitcoin as a medium of exchange because it is inherently _deflationary_. If I know bitcoins will continue to increase in value because math, why on earth would I ever exchange them for something that doesn't?
I never get this argument. A trade always has 2 parties.
Maybe you want to get rid of your dollars first, but the guy selling you the pizza doesn't. He wants bitcoins.
As far as I see in practice, it's the seller that decides the means of payment, not the buyer. Can you pay with dollar bills, euro bills, visa, paypal, bitcoins,..? That's not up to the buyer, but the seller.
So the question (but maybe I'm missing something) is not "why would I buy something in Bitcoins?", but it seems to be "Why would I not sell my product or service for Bitoins?".
The seller and the buyer have to agree on means of payment. So your question is really, "why would I not sell my product ONLY for bitcoin." And the answer is because you'd lose almost all your sales.
If Amazon offers bitcoin I just won't use it. If they only offer bitcoin I'll use Jet or Walmart.com.
Maybe you don't have or want a bank account. Maybe you don't want to handle the cash in your register. Maybe you don't want to pay the VISA fees. Maybe you don't want to pay the exchange fees. Maybe you want to accept huge amounts of money from accros the globe (I know Boeing selling airplaines to European airlines involves perfect timing of bank business hours and multiple phonecalls with multiple banks)
Most large business transactions (eg cargo shipments from one country to another) involve intermediary banks and letters of credit (https://en.m.wikipedia.org/wiki/Letter_of_credit). Both parties usually don’t need overlapping business hours to move goods or money around.
But I do know of this one case where a 787 was bought. When the plane is ready, people from the airline (project manager, pilot, etc) go there. If all is fine, the payment is made, and the plane can be taken home with their own pilot. The airspace regulation back home also needs to approve the airplane is ok to fly.
The person that I know told me the transaction looks like some James Bond movie where banks are called and laptops are used to verify. And it was timed so the bank in Europe was still open, and first transfer was to NY.
If you wait for 40 years to buy a new console, instead of getting an Atari 2400 you can get an PS4! Don't get that Atari! Wait to enjoy your life when you're old or dead in the ground!
I keep hearing this, and it doesn't get any more intelligible. Saying that bitcoin is inherently deflationary is as absurd as saying that the price of bitcoin can only go up, because those two statements are exactly the same.
Bitcoin, in the steady state, will go up or down as demand requires and as credit markets adjust to account for the future value of money.
Certainly bitcoin is immune (mostly) to central bank manipulation for better or for worse - I think that’s a given. But any currency can enter deflationary regimes, as witnessed by central bankers’ desire to intervene during recessions. It’s not clear that the properties of bitcoin make it any more or less vulnerable to this.
As an aside I’d say the factual evidence of the efficacy of central banking is controversial; many would put as much blame for historic and recent recessions on central banks as would credit them for the recovery. Certainly bitcoin by its philosophy and design is pretty skeptical about central bankers and their motivations.
That’s a big “if” to hang “inherently” on. Bitcoin has no credit market yet; until that exists we don’t really have “money” in the sense that a Keynesian or monetarist would use. Once it does, if it does, then demand for specie will coincide with demand for credit, which will be priced independently but whose pricing data will feed into valuations of the underlying. At that point all bets are off - demand is not a simple thing when we talk about demand for money right now as opposed to demand right now for money in a year. The supply of credit is unconstrained except by the risk preferences of creditors, especially in the absence of a substitute for a risk-free rate of return.
Silly question perhaps, but does Bitcoin have a finite supply after all? I understand that mathematically they'll run out of hashes starting with zeros or whatever, but if they fork it once every X years, is that considered finite?
Bitcoin isn't even inherently deflationary. Inflation and deflation (as the words are commonly used) are set by supply and demand. The whole point of central banks is to control supply to steady the price.
It's only deflationary when demand rises. Demand could fall because of a shrinking bitcoin economy or because the velocity of bitcoin increases.
> If I know bitcoins will continue to increase in value because math, why on earth would I ever exchange them for something that doesn't?
You wouldn't, until the marginal utility of an item or service outweighs the future value of those bitcoins.
That's like asking, why would anyone ever buy a new laptop? Just wait until next year, the models will be faster and cheaper. It's true, it will always be better to buy a laptop next year. However at some point it becomes more valuable to consume the laptop now than to continue waiting. In the aggregate when considering the varying time preferences of consumers, new laptops are sold all the time.
A fixed inflation rate of 50% each year is very predictable, but useless for money.