> Bukele said the country is partnering with digital wallet company, Strike, to build modern financial infrastructure using bitcoin technology.
Wow, this seems like an incredibly shitty situation for the people of El Salvador. It looks like some lobbyists got hired by a wallet company stacked with angel investors willing to pour money into the idea of being integrated into the government at such a low level. I wouldn't be surprised if they also announced that all transactions will be forced to go through a wrapper or other type of layer, maybe even justified with the classic "think of the coal" argument...
Their work is open source and they are using standard Bitcoin protocols. Zap is their wallet https://zaphq.io
Strike is a payment app that uses Bitcoin Lightning network internally to settle payments between financial institutions. It's useful for sending fiat currency denominated remittances instantly and without fees. https://strike.me
When they released Strike in El Salvador, it was an instant success. The president himself contacted Jack.
According to the article, someone donated "six-figure" amounts of Bitcoin to the town each year on the condition that they learn how to use Bitcoin:
> Beneficiaries of the digital currency had to learn how to use the Bitcoin itself, creating a Bitcoin economy.
If you give a relatively poor town the option to take free money as long as they learn how to use Bitcoin, of course they're going to learn how to use Bitcoin.
The real test is whether Bitcoin makes sense in an otherwise functioning economy where people aren't given free Bitcoin and they have the option to use a credit card that comes with a lot of consumer protections and zero (or even negative) fees.
Why does the Strike app use LN or crypto at all? I just can't wrap my head around this.
They're a custodial wallet for your fiat currency, right? You deposit fiat with them. You withdraw fiat from them. You move it between accounts on their service. They, or a designed entity must hold that fiat on deposit on behalf of users.
When you 'send' that money (according to Jack Maller), they buy BTC for you, send it over the LN network, then convert it into a stablecoins. Which ends up, notionally, in one of the Strike custodial accounts.
So this Rube Goldberg machine of crypto is used for internal account transfers within Strike? Am I missing something? They're a centralized, trusted custodian (and a registered money services business). Why are they sending money from a Strike-owned account to another Strike-owned account this way?
Could they not simply record a debit on one account and a credit on another account in any kind of traditional store? One they clearly already have?
Why wouldn't they have one account for each country, a small slush fund and/or debt facility to cover near-term transfers, then just record how much of the pot is attributed to each user account - and if money has to move across borders, send a wire from time to time.
Is this really just the most complicated intra-company account transfer of all time?
It's worth watching the announcement from the Bitcoin conference (the link has been posted several times on this page).
The creator of Strike is a true believer. You can model this in religious terms if that helps.
He believes, intellectually and emotionally, that Bitcoin is better than fiat. That it's sound money, uncensorable, uninflatable, distributed, and that adopting it will make the world a better place.
From that perspective, the collapse of the fiat system is an inevitability. Something like Strike is an onramp; realizing the BTC as fiat on both sides is just a transitional technology, until the market cap of Bitcoin is sufficient to smooth out volatility and allow it to function as a unit of account.
It continues to baffle me that such a substantial fraction of HN users show less understanding of Bitcoin than my average nontechnical friend. I don't mean agreeing with it, to be clear; I'm of at least two minds on the subject myself.
But it doesn't seem to be going away, and at some point understanding how the cult thinks is going to come in handy. I'm not a Mormon but I do know enough about their history and theology to carry on a conversation.
It takes too long, it has significant fees, it can be censored and, as far as I know, requires a bank account, something 70% of the population in El Salvador don't have.
Strike is a fiat custodial wallet. They can also be censored in exactly the same way which is part of my confusion around the offering. In fact, it's not available in New York or Hawaii.
Further, Wise offers their multi-currency account, including in El Salvador (https://wise.com/us/multi-currency-account/) and allows you to store any of 56 currencies without conversion and offers banking details in 9 jurisdictions. It's kind of perfect for remittances because you can have your US parties ACH to your US routing and account number, and it appears in the multi-currency account, free, and very fast. Or $7.50 to receive a wire, instantly.
[edit] I'm not knocking crypto here, I'm trying to understand what they've built and why. I don't know why they're using crypto here at all. I'm seriously confused about their technical payments architecture. They seem to only use LN to move money, and between two of their own custodial accounts at that.
For what it's worth I've listened to over an hour of podcasts with Jack Mallers.
I am not well versed about the Strike wallet specifically, but I believe that it is a fiat wallet from the perspective of the sender and a lightning wallet from the perspective of the receiver.
Ok but why. They have a custodial wallet on both sides, the sender sends dollars, the receiver gets dollars. Why not just use addition and subtraction instead of LN? I can't think of a reason they would do this except to shoehorn LN into the app or avoid regulations in some way. Is there something I'm missing?
They use bitcoin exchanges around the world that are connected through Bitcoin Lightning network. Your dollars are exchanged to bitcoin at your local exchange, transferred via Lightning Network to an exchange in El Salvador, exchanged to dollars, and the dollars are then available at a local bank or ATM (or just kept in the app to pay someone else). Strike itself doesn't provide the liquidity, they use available local exchanges.
If you pay someone in the same country with the same currency, then it works probably like Paypal. You can't do that between countries, because the actual dollars have to be in the local bank.
ACH is roughly free - it costs about $0.0033 to the depository institution in bulk (citation available on request) - which makes sense as Strike also allows you to deposit via ACH in the US.
Their fees are likely dominated by risk, compliance and regulatory.
Obviously Strike's service isn't costless to operate so they're subsidizing their operations via investment.
> The real test is whether Bitcoin makes sense in an otherwise functioning economy where people aren't given free Bitcoin and they have the option to use a credit card that comes with a lot of consumer protections and zero (or even negative) fees.
Why don't they have this option today? These people are unbanked and it's good that someone is offering a service. It's pretty customary to have an upfront incentive to acquire the customer. I got a $10 Uber credit when I signed up and even a few hundred dollar bonus when I opened my brokerage account. But I guess I'm not from a "relatively poor town" so its not manipulation.
Apparently there is a blockchain based hearth stone clone.
Someone listed a card for 3.6 ETH two years ago [0]. In USD: $324 at $90 per ETH. Of course today the price of ETH has risen but the value of the card did not. It's not worth $10k. It's still worth $324 assuming the initial price was correct to begin with. The real price therefore is 0.12 ETH and those 0.12 ETH would be the salary of the creator of the NFT if you were a "freelancer" i.e. your income denominated in ETH goes down over time. Your best bet isn't to keep making NFTs. It's to make them as early as possible, get as many ETH as possible and then just sit on them and never do anything again.
Why the horror when someone asks how a free service is making their money, and how much? The quantification matters because we want to know if, in the future once they've spent all their VC money and have to make payroll themselves, it represents a better deal or not.
As for cash, the “cut” that is taken is via inflation. Governments print money increasing the total supply of currency and decreasing the purchasing power of your cash. It’s also called currency debasement and has a history almost as old as currency itself.
When that article was written the transaction fees were around $1.50-$2.00 USD which is already a lot for meals and snacks. Now that the average transaction fees are anywhere from $7 - $60 I doubt people are buying much with bitcoin's dialup throughput.
Strike is using lightning where the fees are barely a few satoshis (much smaller than cents) most of the time. This isn't the Bitcoin of 2015, there has been lots of new development, lightning is here and is being used with growing adoption (1ml.com), there are other changes coming to improve the base layer itself (taproot, eltoo, etc).
My understanding is that you start by doing an actual BTC transaction of, say X USD, for which you pay the fee, and then you can "spend" up to X-fee USD in the lightning network. People who receive payment from you can opt for getting a BTC transaction from your stash or use it to do other payments.
The base idea is that it uses the BTC network as a dispute settlement fallback. "It works but is expensive, let's just exchange through the lightning network".
You can see Lightning as being a network that exchanges "BTC IOU". If the network decides for some reasons to be hostile to you and refuses to broadcast the transactions where you receive money, you still have a signed token that proves you have the BTC IOU and that are acceptable by the BTC network (for the cost of a fee)
So it's like withdrawing money from the bank as cash to use. I get that, but after I promise the money to bunch of people how does the system prevent me from double spending or just redepositing my money to my account?
Its like a giant bar tab. You have this liquidity pool with the network participants do all their transactions and go back to the chain when when they decide to settle.
To open a LN channel you need an on-chain transaction. Same for closing a channel. Currently a Bitcoin transaction is around 7 USD. So you need 14 USD to participate, assuming the transaction cost does not change. 14 USD is more than a daily income for the average citizen, most will be below 10 USD.
The thing is, Strike doesn't open LN channels for people. In fact, they only use LN to move money between custodial accounts they themselves are beneficial owners of. I can't for the life of me figure out why they'd use LN - or crypto at all - for this and not just an entry in the centralized database they already have tracking balances. Avoid regulation, maybe? But like why?
I've listened to an hour long Maller podcast and I simply don't get it.
Generally the answer is regulation. So I suspect that is quite likely the answer here. Although since they are an MSB in at least the US they answer could just as easily be crypto fever.
For a centralized entity settlement and clearing aren’t hard. You have a money pile and a debt facility in both countries, then you wire money to net settle once in a while.
Channel factories will be able to open and close many channels at once, so if you open 100 channels in a single transaction, well then you can divide the onchain cost by 100.
Channel factories only work as long as all participants of the factory want their Bitcoin inside the LN. As soon as any party wants their Bitcoin in their Bitcoin wallet, the factory needs to close all channels. This makes is unusable in the real world as people can and will not commit their whole networth into static channels that need settlement of 100 or so unknown parties until they can send it anywhere else.
All of this also completely ignores the LN routing problem which is conveniently left out of the LN whitepaper as it is actually unsolvable at large scale unless you have very few supernodes coordinating everything. In the real world those are commonly known as "banks".
You can splice out bitcoin from a channel without closing the channel. The channel balance can go almost all outwards (some is kept to be able to pay transaction fees). In the channel factory scenario, one participant can receive bitcoin on chain without closing the whole factory. However, they will have to pay the transaction fee which could be prohibitively expensive.
I agree, because I used bitcoin in 2015 and it actually worked well instead of being crippled to a few transactions per second for the whole network.
How are they getting their balance on to the bitcoin chain? How much does that cost? Once they are in control of their money and actually have it on the real chain and not some wallet app maker's sub-chain they still have to eat more giant transaction fees.
This approach will only work for people using this app, which defeats the whole purpose.
No, CyberDildonics is right - and asking the pertinent question. Strike doesn't denominate customer deposits in any kind of crypto. They're a traditional custodial wallet for fiat deposits, and a registered money services business. They appear to be using the lightning network to move money between Strike's own accounts.
They seem to use their own lightning nodes - that they don't allow third parties onto - to move money between their own accounts, rather than amending the centralized database of who owns how many dollars directly. However, it's all closed and internal, and I simply do not get why they would do this.
Doesn’t the Lightning Network scale to millions of transactions per second, which is what El Salvador will be using? Fees are miniscule on LN, as well.
You think the average person does less than one financial transaction per day? O_o
I mean, sure, not everyone is out getting a coffee every morning, but that strikes me as roughly an order of magnitude below reality.
Let’s say, shopping three times a week, with 5 transactions per shopping trip; that’s already an average of 2 transactions a day, but worse, since it’s clustered in small time intervals.
How do possibly get 0-1 transactions per day per person?
That’s.. a society where people don’t use money. It’s not a thing.
Over the last three months, I've made on average slightly more than two transactions per week, most of which is due to buying food every 3 or 4 days. Everything else is a rounding error.
Now I won't claim my consumption pattern is typical, but it certainly shows that 0-1 transaction per day is possible. (What are the five shops you visit three times a week?)
Working from home during the pandemic, I’ve been making 4.3 transactions per week.
If I was still commuting, I’d add at least 5 a week for lunches, might add another 5 a week for train station Brötchen and cookie. If the restaurants were back to normal, might add two more per week for evening meals.
I think I prefer my new normal of the bulk shopping being a once a week collection, so that probably won’t go back to my old habit of whatever/wherever, but even then the local doesn’t have everything I want, so there will be a few additional transactions with grocery stores.
(My commute costs will likely be a once-per-year expense, so a rounding error for transactions per week).
That would mean people aren't actually using bitcoin, they are using this wallet's centralized lightning network balance.
If they want to actually send money to someone using bitcoin, they will have to get their balance on to the main chain, which means that they will have to take it off this wallet and then incur the transaction fees for getting to
the bitcoin chain.
Then they will have to take the hit of the transaction fees again to get their actual bitcoin balance somewhere else. This is what happens when you use a purposely crippled cryptocurrency like bitcoin.
They could use litecoin, monero or bitcoin cash directly and not have any 'wallet app' that keeps their balance. Then they would be in control of their own money.
> If they want to actually send money to someone using bitcoin, they will have to get their balance on to the main chain
Strike payment recipients can withdraw their USD balance as BTC to any Lightning-enabled wallet (or any other wallet, for that matter) [1]:
How to purchase bitcoin with Strike
1. Open a Lightning wallet or Bitcoin wallet of your choice. (If
you do not already have one, see our recommendations below)
2. Generate a receive address or invoice for the amount of btc you
wish to purchase.
3. Scan with Strike and hit send. Done! You have just converted USD
from Strike to btc in your wallet.
I don't think so, if I have inbound capacity on my lightning node (hooked to my full node, so not centralized), they can just send money to me as long as the routes through the network have enough capacity.
The fees do fluctuate, thus layer 2 solutions. A few days ago I moved some bitcoin and two transaction fees were equivalent of USD 0.78 and 0.72. For finality in a few minutes, I thought it was reasonable.
It depends on what country you live in. A few transactions like these every day would amount to $20-30 per month. Whereas you could use cash and pay no fees.
That's why I said a few transactions every day on average, as in 2 or 3, which seems a conservative estimate.
> Somebody still has to spend time and money managing all that cash.
I don't know how you manage your cash, I manage it myself, and I certainly don't know anyone who pays $20 a month to have their cash "managed". Especially in a third-world country, it seems unimaginable.
> That's why I said a few transactions every day on average, as in 2 or 3, which seems a conservative estimate.
Lightning network has virtually no fees. You were replying to someone who managed to get a "real" Bitcoin blockchain transaction through for less than a dollar.
> I certainly don't know anyone who pays $20 a month to have their cash "managed"
I was thinking of the people managing cash registers.
If fees are less than 1/10th of a cent, it means they make less than $1 for every 1000 transactions. So how many transactions are they processing? In 2019, ~5000 transactions per month [1], so the entire lightning network was generating less than $5 per month in revenue. Something doesn't add up.
It's up to the nodes how much they want to charge, which is a competitive thing. They might as well charge 1000x more, that's just the figure the market arrived at.
So, why do they charge so little? Running Lightning could be done for other reasons than just collecting fees, similar to why you might run a full Bitcoin node, even though it only costs you money: You are invested in the network as a whole.
It's also worth noting that Lightning is not actually that well-adopted yet, it's more of a solution "in principle". Just because some place accepts Bitcoin doesn't mean you can use Lightning. In that case, you can usually just use Dash, Bitcoin Cash or Litecoin, which all have very low fees. Hence, the pressure to actually adopt Lightning isn't that high - yet.
Yes, it's probably heavily subsidised so I expect fees to grow substantially if it becomes more popular. And the thing is the small fee is not the only fee that there is to pay. Apparently in order to open a "channel" the user needs to pay one BTC confirmation fee and another one to close it, but bitcoin enthusiasts somehow never mention this detail.
> Yes, it's probably heavily subsidised so I expect fees to grow substantially if it becomes more popular.
Transactions on the lightning network aren't scarce like space on a new block, so there's no reason for increased demand to substantially increase prices.
> Apparently in order to open a "channel" the user needs to pay one BTC confirmation fee and another one to close it, but bitcoin enthusiasts somehow never mention this detail.
That isn't true. You can open channels larger or smaller than 1BTC and the Bitcoin aren't really "paid", but rather "staked".
Transaction fees are 5 cents in the last couple days. The mempool is empty (see https://mempool.space/). If you are paying more, then that's an issue with the exchange or wallet that you are using.
No they aren't, you are misunderstanding that link. It gives an 'estimate' of 1 satoshi per byte. The actual current block is 12 satoshis per byte. Transactions are not a single byte of course. This is why the average transaction fee is $7 right now and was $60 a few weeks ago.
Maybe you should actually check the blocks. If your transaction pays fee 5 cents it would easily get included in the mined blocks. Often immediately.
As I mentioned, if people are using wallets or exchanges that set the fee higher, that's their fault. They are stupidly overpaying and that's why average is high.
Since mempool is currently empty, the blocks include transactions with 1 sat/vB. For average transaction with 140vB that would be 140 sats, which is currently ~0.05 USD.
Yeah but imagine if you bought a beer for $4 and then next week the beer was actually worth $8 and the next it was worth $7 and then a few months later the beer was worth $50. The whole point of fiat is that it is stable and so you aren't fucking yourself by exchanging it for consumables.
It isn't true that something is necessarily worth what one pays for it. This assumption provides for a nice way to model economic transactions but it isn't always true. For instance, life saving heart surgery has a definite cost and it is worth far more to the recipient in some cases than what they pay for it. In the other direction I don't think that the cost of government services is worth what I pay for them since I think the U.S. government squanders far too much money on national defense.
Why does it matter how many dollars the beer is worth? It is worth the same number of bitcoins yesterday, today, and tomorrow. That's the only stability that is relevant.
> Why does it matter how many dollars the beer is worth?
Because you can buy beer for dollars, so if your local beer costs 50$ in BTC it makes sense to sell BTC for USD and order beer. And if your beer suddenly costs 0.001$ in BTC it makes sense to sell it off to someone in USD and refuse selling in BTC.
> It is worth the same number of bitcoins yesterday, today, and tomorrow. That's the only stability that is relevant.
This is the most idiotic argument ever, if this was true it would be irrelevant if a currency depreciates/appreciates.
This goes both ways. Why buy a beer for $5 if Bitcoin is going up? You should just buy Bitcoin instead. Why buy $5 beer if instead you can buy index funds?
Who's doing that? People can choose to hold whatever assets they want in whatever proportions they think are best (assuming they are not shut out of the fiat banking system, and live in a stable developed country).
That’s fine as long as my job is willing to pay me in a constant amount of bitcoin and everything else I need to buy can be bought with bitcoin. If my salary is still in dollars, then what I can purchase for a day’s wages will vary hugely.
> That’s fine as long as my job is willing to pay me in a constant amount of bitcoin and everything else I need to buy can be bought with bitcoin.
It also requires the goods and services you buy to be traded in dollars. If stores buy food, gas, etc. wholesale in dollars, for example, and sells it to you for bitcoin, there's going to be a problem.
Presumably, in El Salvador, salaries would be denominated in BTC. That's the only thing that'd make any sense. (And, barring external regulatory force, it's very likely to be what a free job market where employees mostly spend BTC would move to doing.)
I don't see why they would be denominated in BTC, given that BTC will be legal tender alongside USD, and USD is a much more stable currency.
Making it a legal currency won't even force anyone to accept it. As far as I understand, it will simply mean that the government will accept payments in BTC.
Seeing how not being able to print more money when you need it worked out for the government of e.g. Greece, I would be surprised if El Savlador chooses BTC for paying its debts.
Imports and exports are not priced in BTC though, in the same way that there aren't really imports or exports priced in gold.
Given the massive volatility of BTC it presents a massive opportunity for arbitrage that mostly has downsides for consumers who want stable supplies of goods.
How would that come about? Serious question. I do not see how price controls like that could possible work, unless El Salvador closes its borders to all trade.
This kind of fiat stability is very challenging for small and poor countries. In fact, El Salvador doesn't _have_ its own currency for this reason -- they switched to the US dollar decades ago!
Is it worse to peg your economy to a decentralized cryptocurrency, or a fiat currency controlled by a large powerful near-neighbor who only occasionally even remembers you exist? (and sure as hell will not modify their fiscal policy with the needs of your economy).
Having a backup official decentralized currency doesn't seem ridiculous to me. Maybe I'd use Eth or something that can scale better, but the point is the same.
> Is it worse to peg your economy to a decentralized cryptocurrency, or a fiat currency controlled by a large powerful near-neighbor who only occasionally even remembers you exist?
A currency needs stability. Speculation needs volatility.
Speculation only works when there's a stable currency to dump your value into when the the security your trading is going in the wrong direction.
> couldn’t have become currency under the definition you’ve presented here.
gold and silver were bad currencies back then, when people had no real alternative. People clipped coins, and debase the currency. People horded them when times were tough, and prevented lending and circulation, causing issues with the economy regarding liquidity.
> you're being dishonest by only mentioning the most controversial one.
No. Your argument is "Yeah, we know it's terrible... so you can't hold it against us." Nevermind the fact that coinbase started to support Tether.
I think what's most interesting to me (and should be to you as a pro-crypto advocate) is that underlying backing in tether appears to be highly volatile, yet it's not represented in the price. Also what should be shocking is hodlers don't care about this either.
Nobody cared about Bernie Madoff as long as their accounts and the market kept going up. As soon as people tried to take their money out, however....
How is that my argument, I haven't even supplied an argument? Don't read between the lines, there was nothing there. I pointed out that you purposefully took the most controversial one. There are several others, see a siblingreply for examples if you really didn't know there were any others.
I wouldn't call me a pro-crypto advocate, just as I wouldn't call you an anti-crypto advocate. I like to keep track of what's happening in the crypto space but I'm not advocating pro or against it.
My opinion on Tether is that there should be a lot more transparency regarding their backed funds and personally I wouldn't touch it with a ten foot pole.
I don't know what the absolute best alternative is or how you would define the absolute best, I just know that there are several alternatives. The grandparent knows this as well, hence my post. [0] https://coinmarketcap.com/view/stablecoin/
You argue it is stable by arguing you never need to convert it to fiat. If your economy is running 100% on Bitcoin it doesn't matter what the exchange rate to USD our any other currency is. (Note I'm not actually arguing this is the case in El Salvador, just pointing out that there is a theoretical argument that could be made.)
That is only true if the entire global economy is running 100% on bitcoin. The second you need to trade with another economy (like any nation needs to in order to import/export goods), you are bitten by the same issue.
The US is El Salvador's largest trading partner - so Bitcoin's price relative to the USD does matter.
>That is only true if the entire global economy is running 100% on bitcoin.
100% on bitcoin means no services, no goods, an economy where nothing but bitcoin exists. As soon as I need to drink water the price of water and the income of the operator of the well will go down over time because of the fixed supply and the hoarding of currency.
I think there's probably some middle ground here. Like say the national economy is 100% on Bitcoin and then as long as they have a balanced trade with other countries (i.e. no long term trade deficit/surplus) they can deal with those obligations in fiat currency. But I'm just guessing here.
No currency ever has been 100% stable. The exchange rate is how we perceive it in the modern economy, but fluctuation in commodity prices was the indicator of an stable, or not, currency when the gold standard was in place. That will be the indicator if bitcoin, or any other currency, achieve 100% use, which in itself is impossible.
But there is no guarantee to stability, bitcoin doesn’t provide it any more than the usd backed by millions of soldiers does. Stability begins on the production side, not the monetary one; after a huge drought you’ll see prices skyrocket irrespective of the currency.
Stable does not mean unchanging. People don’t understand that modest inflation in a currency is actually a good thing because it’s a natural incentive to spend, and velocity of money is a critical aspect of economic growth and health. Moving off of the gold standard launched the world into a period of unprecedented growth.
Obviously too much of any good thing is bad, and this applies to inflation as well. But the idea that you’re supposed to hold fiat for long periods of time is absurd and I’m tired of Bitcoin maxis who don’t actually understand money or economics parroting that line.
You’re not supposed to hold fiat. You do something productive: you consume with it, you invest in productive assets, or your lend it (to someone who will do one of the two former actions).
Bitcoin doesn’t compete with fiat. It competes with every other investment asset.
>People don’t understand that modest inflation in a currency is actually a good thing because it’s a natural incentive to spend, and velocity of money is a critical aspect of economic growth and health.
I looked up hyperinflation in MMOs and honestly the hyperinflation is by design. The fundamental problem is that veterans should not prevent new players from earning money. If the supply was fixed then veterans would acquire the majority of the currency. By letting monsters and NPC vendors print money you are stealing from the rich players robin hood style. It's impossible to solve without just outright taking the money that NPCs printed from wealthy players.
I've seen other approaches that just try to limit the supply of ingame currency and tie it to some random cryptocurrency or just plain old dollars and that is such an overengineered solution that doesn't even address the robin hood problem, which isn't a bug, stealing wealth from old players is 100% intentional.
Bitcoin will stabilize in time, when it's big enough to absorb short time supply and demand shocks. It will eventually follow the value of all economic activity through its network. The more economic activity, the less volatility in aggregate.
There's a huge cost in "stabilizing" a fiat currency, in terms of debt and inflation.
Nobel Prize winner F.A Hayek, who also famously predicted the denationalization of money in the 1970s[1], provided the excellent counterargument to this in the debate with the proto-Keynesians back in the 30s concerning stable supply money vs. inflationary money:
Hayek was later interviewed in the 70s and said he was mystified when Keynes was promoted to godhood upon his death. He claimed the debate had not yet finished.
There's a reason the experts sided with Keynes as you mention (or others like Milton Friedman). Flaws were found in Hayek's reasoning that made his models simply fail to add up.
The linked article doesn't address the effects of deflationary currency at all, it describes the notion of including capital in the description of economies.
It criticizes the statement by Keynes that savings leads to depression due to underconsumption and thus there must be regularly monetary stimulus, meaning expansion of government borrowing and hence, the money supply. Hayek was a proponent of the gold standard and fixed money supply at this time and the Keynesians promoted fiat money and a flexible money supply and monetary policy.
I'm not familiar with Hayek, so you may need to fill in gaps where I may have them, but the argument in the article (as I understand) specifically establishes the context where savings are presumed invested into capital. How I understand deflationary currency is that investments are not incentivized, and would therefore not lead to the situation as described in the article.
Investment is naturally incentivized because the only reason capital is created is to lower the cost of production. If you build a factory, or invest in a machine to make things and it costs the same to manufacture those things in the factory or with the machine as it would to manufacture them by hand, why did you even build the factory in the first place? The inputs used to construct the factory would be better used for other things and thus the business loss from building a useless factory or unnecessary piece of equipment is the economically efficient because it is a misuse of labor and material inputs.
We are not talking about deflationary money either. We are talking about stable money supply, which is what Bitcoin is.
A couple things. Your first statement appears to be circular, it doesn't answer the question of why an entity would want to invest their money on an uncertain venture when it would just be worth more doing nothing with it. Secondly, I'm not sure what the rest of the first paragraph is in aid of, it seems like you're stating that capital is useful which I don't think was ever in question.
Sure, the article never mentioned anything about deflationary currency, but you were responding to a comment that a deflationary currency would have issues that you seemed to respond in opposition to. If you don't have a stance on deflationary currency, what is your argument for or against?
On that note, I believe that bitcoin fits the definition of a deflationary currency, and having looked up 'stable' money supply haven't found a consensus on what that means. Could you explain how you define that?
> it doesn't answer the question of why an entity would want to invest their money on an uncertain venture when it would just be worth more doing nothing with it.
Simple, because the investment would return more than the natural rate of deflation alone would.
On its face that would appear to be a bald assertion. Investments inherently contain risk which would dissuade potential investors if they have a stable source of growth. Investments would have to have very high upside to be worth a stable but lower rate of deflation. Secondly, I'm not sure how you can be certain that investment returns, without regard for risks, could be higher than the deflation rate.
> Investments inherently contain risk which would dissuade potential investors if they have a stable source of growth.
Stable sources of growth have existed for decades but somehow most investors aren't just going all in on those. That's because investors care more about good risk-adjusted returns than lame guaranteed returns.
>Investments would have to have very high upside to be worth a stable but lower rate of deflation.
Investments with risk-adjusted nominal returns above 0% are worth it if the currency is deflationary: even if the investment only has a nominal 1%/year return and the currency deflates at 2%/year, that's a 3%/year real return. So it's still better than just holding the currency, even though the nominal return is lower than the deflation rate.
> Secondly, I'm not sure how you can be certain that investment returns, without regard for risks, could be higher than the deflation rate.
Returns on most investments aren't certain in an inflationary environment either, so I'm not sure what's your point.
To your third point, investments in an inflationary environment are necessary because otherwise people would _lose_ money by doing nothing with it. It's better to risk for some return, than lose it by doing nothing. That's what separates it from an deflationary environment in that people gain more money by doing nothing with it. They don't need to incur risk to gain more.
This leads to your first 2 points, where people might still want to invest to get a potential higher return than the base deflation rate, investments would drop compared to an inflationary environment. In the inflationary environment investments are necessary to prevent the loss of value, whereas it isn't in a deflationary one.
There is a group that hijacked the name for their own prize, whom the Nobel committee has no contact with. They are, of course, economists, so any merit in their prize is only as much as economists' at large.
That argument isn't true. Deflationary currency can destabilize governments, not the economy. Econonomies fail because they're run by incompetent governments, who spend more than they can afford.
Bitcoin is not guaranteed to be deflationary. It's deflationary when the economy is growing. It's inflationary when the economy is shrinking. Deflation will slow down economy, and inflation will accelerate economy. It's a stable self-correcting system, which would correct itself to match the average economic growth globally.
Bitcoin is guaranteed to be deflationary as long as there’s a finite limit – if nothing else, lost keys would reduce the total over time.
More importantly, the people hawking it _really_ want it to be deflationary because that effectively makes them landed gentry getting richer without any effort on their part. After a decade of that being integral to the sales pitch I would be extremely surprised to see any major holder support breaking the deflationary model.
No currency is guaranteed to be deflationary. You may guarantee that the currency supply will behave in a certain way (although even that is debatable), buy you cannot guarantee that the price level in terms of such a currency will continuously fall.
The fixed currency supply guarantees it: unless the economy is shrinking at the same rate, each BTC becomes more valuable over time and that’d cause purchase prices for goods to trend lower.
This has been a key part of the sales pitch for a decade: buy now and it’ll be worth more later, guaranteed, but that’s not good for an economy since it heavily incentivizes holding onto anything you aren’t forced to spend. Since Bitcoin has no innate demand, that’s an especially dangerous cycle since almost everyone has alternatives.
So the only way bitcoin isn't deflationary is if demand for it continually goes down over time until it's irrelevant. If demand either goes up or stays the same, it will behave deflationary (wallets getting lost). This doesn't seem to be a good performance pattern for a currency.
You're right a fixed supply isn't enough to guarantee it, you still need productivity growth and technological progress, something we've had for a long time. Given enough growth a 50% crash is nothing.
There isn't monetary deflation in bitcoin (expect for lost coins).
As a global reserve currency, bitcoin would act as an "index fund of everything". Economy is expected to grow, but it's not guaranteed. Which means that there's always a non-zero risk associated to it. There's more risk on short time scales, and less risk on long time scales.
There will be if it's successful - 90% of the bitcoins ever mined have already been mined, for bitcoin to be useful at a long term world wide level it needs to store enough value even as the size of the world economy grows - if it can't them it will become a limit on economic growth much as gold became in the last century.
So because the number of bitcoin is fixed to remain relevant bitcoin will need to continually deflate (ie increase in value) so that there's enough to represent the size of the economy
>More importantly, the people hawking it _really_ want it to be deflationary because that effectively makes them landed gentry getting richer without any effort on their part.
Yeah it is basically people getting screwed by increased wealth inequality and then as a response they don't think of a way to build a system without losers, instead they join a system where the old dynamic makes them the winners. The only difference is that you start from a clean slate from 2008 onwards.
It would seem so, yes. But I disagree with the GP’s premise: claiming economies rise and fall based on monetary policy alone is like claiming the Roman empire fell because they debased their currency. It’s a contributory factor, but certainly not the only one.
We’d need to assess the merit of anarcho-capitalism vs collectivist democracy to understand whether disempowering governments would in fact decrease economic stability.
Yes there is a hole in the article. He didn't mention that Germany lost WW1. Every other nation suffered the same problems but they could get away from them without hyperinflation, Germany couldn't because increasing the monetary supply does not repair an economy.
If one were to completely oversimplify everything the roman empire fell into the "war + debasement" bucket though but it also had a lot of other problems. They were actively fighting a war which meant they couldn't control the influx of barbarian refugees (huns drove them out) at their border. They then committed a grave mistake. They deported all barbarians and killed those who stayed. Some barbarians gathered near the border and formed a big army which then proceeded to plunder Rome. The problems didn't start with money, they got worse because of money.
Governments that overspend or misallocate capital are a burden to the economy. With sound money, a badly managed country can go bankrupt because they can't print more money. It isn't the fault of the money, while this is the usual argument. It's just the nature of honest money.
So, it results in destabilizing governments that are overspending, but stabilizing those that are not.
You don't see the side-effects of destabilizing a government as potentially disastrous for an economy? Governments and economies can have many different forms, but there are clear cases where destabilizing one will destabilize the other and ultimately lead to mass suffering for a period of time. Imagine what would happen if a government in a place like the Middle East or parts of Africa collapsed. History has shown that a new government often doesn't rise up from the ashes without lots of tears and bloodshed. What do you think happens to people's standards of living? How much of their time and money do you think it will take just to get back what they used to have?
Allowing corrupt governments continue to steal the wealth of their citizens through printing money isn't a great alternative. At the end of the day people will use the money that works best for them if they have a choice.
>Allowing corrupt governments continue to steal the wealth of their citizens through printing money isn't a great alternative.
How many times does this get repeated? No money is being printed right now. No MMT is happening. No helicopter money is happening. Barely any Keynesian fiscal stimulus is happening (the US has stimulus checks but the EU doesn't and it's suffering for it) and the fiscal stimulus that is happening is financed via debt. No money is being printed right now.
The majority of money that the Fed creates is primarily issued via debt. The part that isn't is used to buy assets that are being put on a balance sheet and the sale of the assets will often remove more money from the economy than it added. QE does nothing but fill bank reserves so that banks lend out more money.
Yeah, and that's the problem. All the debt is basically money that is stolen from people's savings in the form of inflation.
"Financed with debt" that is never going to be paid back. You have to think who is doing the actual financing here, and why they aren't getting interest on their financing.
The world is much bigger than the US and Eurozone, maybe try travelling a bit once covid dies down.
Citizens of Turkey, Lebanon, Nigeria, Ethiopia, Zimbabwe, Argentina, Venezuela, Iran, Belarus, for example, all have their savings being stolen through inflation to greater or lesser extents.
Of course, but adopting another currency doesn't make a dysfunctional government any more functional. It's like fixing a wobbly table while your house is on fire... probably not the most pressing problem under the circumstances.
Technically it collapsed the moment land was forcibly repossessed because from that day on Zimbabwe could no longer feed itself. The government merely managed to survive longer than it should.
Bitcoin can’t scale to handle anywhere close to that much volume, and the deflationary model makes stability harder to maintain since it discourages routine usage.
Maybe Lightning will scale that well but it hasn’t been demonstrated yet. More importantly, that’ll push a lot of the properties people believe to be true to the banks in all but name most people would actually use.
> Wow, this seems like an incredibly shitty situation for the people of El Salvador.
Indeed it is. The government just mandated that everyone in the country is obligated to use a startup's app, more or less. This has to be one of the most egregious examples of regulatory capture I've seen in a long time.
"Legal tender" means that people are legally obligated to accept this as payment. Maybe the law will be broad enough that the buyer can set the terms of how the Bitcoin is delivered, but given how prominently this Strike app and their founder are participating in the launch, I suspect it will mostly just drive users to this startup.
Forcing everyone to accept Bitcoin, maybe through a specific startup company's app depending on how this is rolled out, is a weird juxtaposition to the libertarian ideals of many Bitcoiners.
How do you as a Lighting Network developer propose that the citizens of El Salvador secure their Lighting Network Channels so they don't get drained of their funds? LN channels require each party to observe the channel for malicious transactions so they can forcefully close the channel if one occurs. Can the average user handle this or are intermediaries needed?
As someone who readily admits to not fully knowing what legal tender entails, I have a question for the optimists:
As I understand it, legal tender status forces creditors to accept bitcoin as debt repayment. Given the volatility of bitcoin, wouldn't this impact risk assessment of loans? Being obligated to accept a high volatility asset as a repayment sounds like a nightmare for creditors. Wouldn't interest rates rise in order to cover this added uncertainty?
Loans and bills would be denominated in the original currency. Bitcoin would only be used for transferring money. It would be converted back to the original currency upon receipt.
If the cryptocurrency infrastructure and exchanges become fast enough, the exchange rate of the cryptocurrency doesn't matter. Users would buy, transfer, and the recipient would sell the cryptocurrency at the other end in however long the technology allows.
This puts cryptocurrency in a weird spot as an investment because the exchange rate doesn't matter as much.
If PayPal announced that transactions on the PayPal network would be denominated in a finite amount of PayPalCoins, everyone would roll their eyes. Call it a cryptocurrency and add some blockchain technology, though, and for some reason it's an investment that's going to the moon.
Accepting it as legal tender doesn't mean it is what the loans are denominated in. Nobody sane would denominate loans in BitCoin. (There are loans denominated in BitCoin. The obvious syllogism applies.)
Yes of course, I'm still assuming USD denominated loans. However repayments may be done in BTC still, unless I'm misunderstanding what legal tender actually is. Even if I, as a creditor, convert my payments from BTC to USD as soon as I can there will be a volatility, right? I wouldn't dare to predict the impact scale but certainly enough to warrant consideration?
But if I have a loan for a value that corresponds to about 1 bitcoin and $53, then doesn't legal tender mean I have to accept 1 bitcoin and $53 in exchange for it? The fact that tomorrow the value will be 1 bitcoin and $196 seems irrelevant.
And this is significant: debtors could repay their debts when bitcoins look like they will decrease in value with respect to the currency of denomination with an intent to harm the debt owner.
In the 19th century, there were dual currency systems with fluctuating exchange rates. I don't know anything about why they failed, just that they failed...
A loan can be denominated in a currency other than what you directly pay for it with. That just means somebody is automatically converting it for you. Financially, it's exactly the same as using your Visa to buy something in a foreign currency; you're paying in Euros for a loan denominated in dollars, and you'll pay it off in dollars.
The loan can't be denominated in multiple currencies at once, as you seem to be thinking of, because that would make the loan amount undefined unless the two currencies were directly pegged to each other.
You can have a loan of 100 dollars. Or you can have a loan of .01 BitCoin. You can pay either off in dollars or BitCoin. How much a given pile of currency will pay off depends on exchange rates. But that doesn't affect the loan itself.
I somewhat sarcastically said nobody would denominate a loan in BitCoin, but not sarcastically at all, nobody would ever denominate a loan in "either this much of one currency or this much of another" because that is seriously a no-win situation for the entity loaning money. Obviously the loanee would pay it off in whatever is cheaper.
If course they do. It's called a dual currency deposit. Suffice it to say that a bank would never accept these, but they can easily convince customers to do it since the published interest is much higher than a regular deposit.
they would be forced to accept it, however they would likely instantly convert it to a more stable currency at the time of payment through some processor.
there will likely be a small fee to them for the conversion of Bitcoin to say, USD, but I imagine it would be similar to accepting credit cards for payment? and so it would be worked into the prices.
This isn't inherent in the definition of legal tender, for example large denomination paper notes (100/200/500 euro) are often rejected for fraud risk despite being legal tender, and the latter two ceased printing because legal vendors so rarely accepted them meant that illegal activity was a high proportion of their use.
The keyword is “debt repayment”. You don’t owe a vendor money until you purchase a product. They are fully within their rights to refuse to sell you a product for any reason, including how you wish to pay for it. On the other hand, a bank cannot refuse a loan repayment because it is made in 500 euro bills.
Yes, I'd assume that creditors preferring USD would convert but that seems like a non trivial overhead for many creditors. The time between receiving payment and actually converting BTC to USD will surely result in a non-negligible balance difference?
Even though the market hasn't really reacted to this news (which I suspect is due to the fact that it's proposed/didn't happen yet), this is one of the most bullish news in a very long time in my opinion (even more bullish than companies buying into it). I suspect this will start the domino effect of countries slowly, but surely adopting BTC.
It'll probably be the smaller countries first where they don't have great currencies to begin with, so they'll always have to use a foreign one, either USD or an alternative. With USD, they are at the mercy of USG and will get pushed around by them. With Bitcoin, the network itself is kept safe with all the energy and mathematical properties, but the price is very volatile at the moment, though volatility will decrease with increasing market caps.
This will be a very interesting experiment to watch.
The smaller countries who don't want to be beholden to either the US or China's fiscal policy. We seem to be building up a second cold war, and I imagine for many countries being able to back your economy with a currency that isn't controlled by either of the two major players is tempting. China may well end up regretting discouraging its miners from holding the majority stake, given the Sino power that could project. This is all very heavily speculative, though, I'm just spitballing an interesting potential chain of events
I think if Bitcoin price turns around and keeps increasing (big if), we are going to see a large scale game theory at play. The countries that have opted in will be in a much better place so that would create a race to get in.
The next 5-10 years will be very interesting times to live through, especially after record USD printing.
El Salvador already gave up that monetary control by using USD, many other countries also have currencies that are worthless and/or rapidly becoming worthless.
it's very interesting indeed. i think it becomes inevitable once the next country gets on board. the dominos will be cool to watch - like states decriminalizing marihuana. bop bop hodl.
That's typical volatility, imo, a reaction would have been 10+% in either direction and it was well known throughout the day well before the actual announcement itself.
Or maybe the value of this news is just deemed as <10%? That's a completely arbitrary number which is ultimately only based on the number of fingers humans tend to have.
Why is no one pointing out that, in order to receive bitcoins on the Lightning Network (LN), you need to lock bitcoins in a payment channel?
So, if a consumer wants to send bitcoins to a merchant, either the consumer needs to lock up bitcoins in a payment channel which can only send bitcoins to that given merchant, or the consumer needs to lock up bitcoins in a payment channel to an intermediate gateway, and the merchant needs to lock up the amount of bitcoins it wants to receive in a payment channel between it and the gateway.
So if 1000 consumers want to send 0.001 BTC to merchant A, via a gateway, then 1 BTC needs to be locked in a payment channel between the gateway and merchant before this can happen. This means that LN needs 2 BTC to send 1 BTC when using a single gateway.
So, first of all, the gateway needs to know how many bitcoins the merchant will receive in the future, and secondly the gateway needs to borrow this amount of bitcoins in the market and lock it up in a payment channel between it and the merchant. In the end I think the capital cost of this will be too high.
I think it makes more sense to use a decentralized, credit-based system such as GNU Taler (think “decentralized BTC debit card”). Merchants are then free to choose which gateways (“exchanges” in GNU Taler speak) to trust, and a payment app can work with any Taler gateway, making the system decentralized in the same way as email.
> Why is no one pointing out that, in order to receive bitcoins on the Lightning Network (LN), you need to lock bitcoins in a payment channel?
Because it is false. To receive bitcoins on the LN you need to have a node. Other parties can open a channel with you to send you money.
> lock up bitcoins in a payment channel which can only send bitcoins to that given merchant
This is again false. The consumer can pay anyone on LN. The nodes you call "gateways" are just regular nodes, some with more funding than others. You can choose to run a regular node and keep it online and use it to route payments for other, or you can use a light wallet that opens a private channel and uses channel hints to route payments through his private channel to the network.
Bitcoins "locked" in a channel are not locked at all, You can send them to whoever you can route to on LN, or get it back to a regular on-chain wallet. And nowadays a well connected node reaches every other node.
> the gateway needs to know how many bitcoins the merchant will receive
No, the gateway needs to manage cash flow like every other money-transacting entity. There just needs to be enough capacity, like you need enough cash in a cash register. You do not need to know in advance the sum.
And you can replenish and empty channels with one on-chain tx, so no need to close and re-open channels.
> the gateway needs to borrow this amount of bitcoins in the market and lock it up in a payment channel between it and the merchant.
You got it wrong.
First, gateways (that are just regular nodes, some running on raspberri pis) are already online, and with funding (https://1ml.com/). Those are already denominated in btc, so price do not affects funding capability.
Second, replace "gateway" with "the LN network". A gateway has some funding and locks it up in some channel to the LN network (meaning some other nodes)
Third, those bitcoins are not really locked for anything, but let's keep using this word.
So the "gateway" can be anyone with some bitcoins he might want to spend on LN (or not).
Is it really "locking" when putting bitcoins on LN actually make them easily spendable with very little fees?
Imo, all of those are outdated claims. For consumers, it's easy to open outbound channels (e.g. to well connected nodes). For merchants, it's becoming easier as well. Remember that it's a network, merchants can have outbound channels and "pay themselves" to get back inbound liquidity (can also be automated).
You're not limited to one "gateway" either.
If liquidity is a problem on LN right now, you're already dealing with bigger amounts that can happen on-chain.
I'm not saying it's perfect, but I find LN to be elegant as a payment system for Bitcoin.
> Is it really "locking" when putting bitcoins on LN actually make them easily spendable with very little fees?
Merchants don’t want to spend, they want to receive. Why should a merchant have to lock e.g. $100k worth of bitcoins at the beginning of the month (in a payment channel connected to a gateway) just in order to receive that amount from consumers during that month?
No other payment system in the world requires this.
Well if a merchant doesn't want to spend or lock anything, it doesn't have to. Consumers and gateways can open channels to the merchant and that's enough for them to pay the merchant.
In the case of a merchant that doesn't want to participate much in the network, gateways have interest in opening to him to allow consumers to pay the merchant for a fee.
> Well if a merchant doesn't want to spend or lock anything, it doesn't have to.
If the merchant wants to receive funds via the gateway then funds need to be locked in a payment channel between the gateway and the merchant.
This is in addition to the funds locked in multiple payment channels between consumers and the gateway.
Consider a super simple LN setup, consisting of (a) one thousand consumers, each with 0.001 BTC to spend, (b) a single gateway and (c) a single merchant. The consumers are connected to the gateway, the gateway is connected to the merchant. In order for the one thousand consumers to each send 0.001 BTC to the merchant there needs to exist a payment channel between the gateway and merchant with 1 BTC in it (assigned to the gateway), and every time 0.001 BTC is sent from the consumer to the merchant, 0.001 BTC moves from a consumer to the gateway (in one payment channel) and from gateway to merchant (in a separate payment channel).
My concern here is that this is (1) expensive, and (2) inflexible. Expensive because the gateway needs to borrow 1 BTC to sit in a payment channel between it and the merchant, and inflexible because if another consumer connects to the gateway then the merchant cannot receive additional funds because it would require increasing the capacity of the channel between the gateway and merchant.
You have a wrong understanding of how LN works. You are conflating inbound and outbound liquidity. To receive 1 btc a merchant does not have to open a 1 btc channel. Another node has to open a channel with him. He can buy 1 btc of incoming liquidity for a few cents. Some nodes offer incoming liquidity for free (it costs them almost nothing to keep their btc in a channel for a while).
And your super simple setup is completely isolated from the rest of the economic world. It wouldn't even work with cash because every merchant would need to manage a cash reserve in every store, manage transfers of cash back and forth, and the associated risk. It would be expensive and inflexible.
> If the merchant wants to receive funds via the gateway then funds need to be locked in a payment channel between the gateway and the merchant.
If I keep the scenario where the merchant doesn't want to lock anything in the LN, then the gateway can do it, and charge a fee for transacting through it. It's the gateway's choice to open such a channel or not. The "expensive" part is compensated by the fee which is chosen by the gateway operator.
If the merchant chooses to "lock" a bit to participate in LN, it's easier to rebalance his channels once 1000 people depleted the channel, eliminating the "inflexible". Besides, after all the fees saved by not using the Bitcoin blockchain for 1000 transactions, one can open a new channel to deal with that as well.
And again, nothing is ever "locked" in the LN, at any moment anyone (e.g. the merchant) can send everything back to on-chain or even to exchanges that use LN. There is no reason to believe that on-chain is less "locked". As such, it's not expensive nor inflexible, or in any case, less than Bitcoin itself.
Of course it would be easier if there was nothing to think about, but centralized solutions all have their set of problems as well, and that's another debate. In the mean time, LN works well at its scale and push back like yours feels like a "perfect is the enemy of good" kind of situation.
> Why is no one pointing out that, in order to receive bitcoins on the Lightning Network (LN), you need to lock bitcoins in a payment channel?
I think lightning needs economy of scales in order to minimize the bitcoins "locked" perception, because once you can pay lots of your needs with lightning then those bitcoins are not "locked" anymore.
Though that's assuming consumers run lightning nodes too, which need to be online 24/7, and have routing connections, which is unrealistic for average users.
My guess is that average consumers will use some kind of (semi-)custodial lightning wallet
> I think lightning needs economy of scales in order to minimize the bitcoins "locked" perception, because once you can pay lots of your needs with lightning then those bitcoins are not "locked" anymore.
What do you base this assumption on? Once there’s a gateway between a consumer and a merchant, then sending e.g. 0.001 BTC from the consumer to the merchant happens by the consumer sending it to the gateway in one payment channel, and the gateway sending the same amount to the merchant in a separate payment channel. It’s atomic, so the funds are guaranteed to arrive, but it requires locking the amount that the merchant expects to receive in a payment channel between it and the gateway. This is how the LN protocol works.
But LN is more productive in an interconnected economy
Let me take your own example to the extreme case and let's assume every entity in the world has a channel opened to only one gateway.
e e e
\ | /
gateway
/ | \
e e e
With this topology, only this gateway has its bitcoin "locked" but earn fees routing, everybody else is free to move their bitcoin to whoever they want, as long as the gateway has enough bitcoins "locked" with the receiver. But keep in mind that the gateway can move x100 the volume of bitcoins they have locked, because money moves back and forth
I think a more decentralized topology, where most entities are gateways too, will have less bitcoins "locked", but I don't know by how much, 30% less?, 70%?, 95%?, I'm not sure, but I think it's probably better than last scenario.
Nevertheless, no matter how good the LN gets, its inevitable that some bitcoins will indeed get locked, when any gateway spends all of its bitcoins then everybody else connected to that gateway cannot route payments through it, and unless they intend to pay directly to the "bankrupted" gateway, those bitcoins are indeed locked.
I think no matter the scenario, LN reduces the need to transact onchain, and the better interconnected the economy is with the LN, more effective it is at doing so. So I think a better metric to follow is the #-of-onchain-bytes that were saved thanks to the LN
Another thing to point out is that we are talking about the LN that is deployed today, we haven't taken into account future improvements that might come, like multiparty channels.
I think the serious technical problems that the LN really has today, is that it's not that robust for gateways, I've heard it has DoS weaknesses, and privacy issues, and I'm not sure how solvable some of them are if the topology becomes centralized with just a few gateways
From a quick reading (just spent a minute after seeing this article) lightning claims support for secure forwarding. So there might be an economic way for a payment app to operate the channel.
Yes, the very basis of LN is secure forwarding between payment channels.
Alice wants to send 1 BTC to Bob. Alice is connected — via a payment channel — to Mallory, and Mallory is connected to Bob. To do this Alice can send 1 BTC to Mallory, and then Mallory can send 1 BTC to Bob. This requires 1 BTC to be locked in both payment channels. The only thing LN guarantees is that the transfer is atomic, such that Mallory cannot refuse to forward the 1 BTC (received from Alice) to Bob.
El Salvador is looking to introduce legislation that will make it the world’s first sovereign nation to adopt bitcoin as legal tender, alongside the U.S. dollar.
In a video broadcast to Bitcoin 2021 President Nayib Bukele announced El Salvador’s partnership with digital wallet company, Strike, to build the country’s modern financial infrastructure using bitcoin technology.
Legal tender, properly defined, means that someone you're in debt to must accept it as means of payment to discharge the debt. Afaik Japanese lenders can still insist on Yen, and almost invariably do
I suspect this will be the same (in practice if not in theory). You can pay people in Bitcoin, or if they don't actually want Bitcoin the president's buddy is hyping an app that will let them get USD instead when you send your satoshis...
It looks like Japan did not, in fact, declare Bitcoin to be legal tender ("a form of money that courts of law are required to recognize as satisfactory payment for any monetary debt"). Rather, it imposed a regulatory regime on Bitcoin exchanges.
It's pain in the ass and quite extra bit of fees to send money from US to El Salvador. Even when the currency is the same. So using Bitcoin is presumably much better in this situation. 23% of El Salvador's GDP is from remittances, so this is a large use case.
They want to limit their reliance on the US dollar. Also, 22% of their GDP is remittances, and remittance fees can be up to 50%.
From the bill:
- Central banks are increasingly taking actions that may cause harm to the economic stability of El Salvador
- That in order to mitigate the negative impact from central banks, it becomes necessary to authorize circulation of a digital currency with a supply that cannot be controlled by any central bank and is only altered in accord with objective and calculable criteria
In practice, what potion of people store and manage their own wallet on their own hardware? Isn’t that usage pattern extremely rare? If so, what’s the difference between having a bank account and a Coinbase (or other exchange) account?
Table stakes for discussing monetary policy is knowing the defintion of things like M2 and understanding it has nothing to do with "printing" assets as M2 primarily measures deposit accounts which are created by bank lending and destroyed by either the repayment of loans or households shifting their portfolio away from demand accounts and towards longer term financial sector liabilities such as commercial paper or mortgage bonds. The shape of this curve does not reflect policy choices by the government but rather is controlled by household portfolio balance choices.
Actually, it makes an enormous difference. The supply of money that is created by banks can be increased and decreased through Fed operations. That means when inflation becomes a threat, the Fed can reduce the money supply, thereby reducing the money in circulation and reducing inflation risks.
Seriously, this is one of the Fed's primary tasks, to control inflation through monetary policy. It's sad how many people on HN fail to understand this.
“In late February and early March of 2020, the Fed cut its policy interest rate dramatically to help ease credit conditions during the COVID-19 crisis. The resulting acceleration in the supply of M1 can be understood largely as banks accommodating an increase in people's demand for money.”
This is “real” money that banks needed access to for their customers in unprecedented amounts. The problem is that it was created out of nothing.
It's two charts stitched together. You can't really read anything into it. Yes, the chart is useless for periods spanning over Feb 2020 to Jun 2020 and it should make you suspicious but not because because of the actual information being presented, rather you should be suspicious because messing with the charts makes it difficult to see what is being hidden.
My car's "check engine" light has been on for a while now, but it still runs with no serious repercussions, guess I can ignore it. You see how that logic would be flawed?
The loose monetary policy might cause higher than desired inflation and the Fed might lose control of it. But we said that in 2008 and it didn't happen. We might be wrong again.
I only skimmed through, but it looks astronomically light on details with lots of Pathos tying it all together. If I was a journalist in that audience I'd be terrified.
I was in the audience and was rolling my eyes at the theatrics. Maybe his emotions were genuine but I felt I was seeing an attempt at clear emotional manipulation. That being said a country (even a very small one like El Salvador) choosing to accept BTC as legal tender is a huge step forward for its utility as a currency and made me optimistic again about a crypto future that’s not just focused on “number go up” and cult-like herd mentality.
If bitcoin does become legal tender in El Salvador, does that mean when a US person spending/exchanging it there (or any where in the world) would not be subject to capital gains tax on the spend/exchange? Currently the IRS states that because bitcoin does not have legal tender status in any jurisdiction, it is not a foreign currency. It is only considered a virtual currency and subject to capital gains reporting and tax. But what would happen if bitcoin becomes in both categories at the same time: a virtual currency and a legal tender foreign currency?
Though not mentioned in the article, the President of El Salvadore apparently also mentioned that the country plans to hold Bitcoin as a reserve asset.
The law hasn’t taken effect yet. Apparently it will go to a vote in parliament next week. I’m honestly not sure but would suspect they haven’t bought yet but will soon have the legal ability too.
If creditors were obligated to accept Bitcoin, does that mean that to be a creditor, you must maintain a Bitcoin address/wallet? Or could you still just say, "Sorry, you still have to pay in USD because we don't have a Bitcoin wallet"?
It's concerning that the government has partnered with one particular startup company with a specific Bitcoin app for this. Depending on how the laws are written, essentially forcing people to use a specific startup's app to transact in the country could be the most egregious example of regulatory capture we've seen in recent history.
Lightning developer here. Note that Strike is only one implementation of lightning (it's also open source, and an open standard). It's not even the most popular.
If this is actually implemented, there will be a lot of payment gateways which will take the BTC and give you today's USD equivalent immediately (minus processing fees). Pretty much the same situation as paying by foreign card.
If you make it clean beforehand what the repayment terms are you should be fine - at least in a US-style law way (this is why you can say “no $100s” or “you can’t pay in pennies”.
One you’ve a debt and you didn’t specify you may be required to accept payment (though if the debt is denominated in dollars the BTC is perhaps not as clear - does it have to be enough at the time of payment, settlement, etc?).
This is what bitcoin - and the world - through non-authoritarian controlled currency, needs.
BTC is a currency. People who treat as such - by simply accepting it or spending it - drive it's growth, and more importantly its acceptance. People who treat it as purely an investment stagnate its growth.
Any changes to BTC require broad consensus of all participants (nodes/miners/users/exchanges/etc).
No one can unilaterally make changes, when they try they end up with forks like Bitcoin Cash. Just take a look at a change like taproot which almost everyone agrees is a great change, the rollout has been very conservatively done despite not being controversial at all.
The flip side of that is Bitcoin is very hard to change which frustrates many of the people who go buy altcoins, but that's a feature, not a bug.
What do you mean they don't have control of the network? The bitcoin network is by definition the network that runs the bitcoin software developed by the bitcoin dev team.
no, the devs can't unilaterally make decisions on how the network works. There are decentralized nodes (very low-barrier to entry) that run the code; the nodes must actually run that code, and devs have no control over it. Then there are miners, not quite as decentralized because the barriers to entry are much higher here; they have to mine on that chain, which is also a way of "running" it. So the devs have to interact with two decentralized, in effect anarchist (in the political sense) networks that have to all consent to their changes. This is why changes are very rare (no push updates every other day like any other forsaken software!), and when they happen, they come with huge debates in the networks (check the blocksize wars).
Yes, of course. But the fact that bitcoin governance makes it very difficult to introduce changes means that all the relevant decisions were made during the design phase by the original developers, and that everybody who came later had no influence on these decisions. Whereas a currency that is managed through democratic institutions allows the community that uses it to have control over crucial aspects of the currency, whereby being more democratic and less authoritarian.
True, the basic lines were set in the original development, that is true. Yet, they continue to be followed by this swarm, which is continuous consent; they could all stop and do something else, but every attempt at that has created largely unsuccessful forks.
And... do you really believe currency management decisions on the level of the US Federal Reserve or the European Central Bank are in any realistic sense democratic? I'm not being snippy, I'm really puzzled by that statement.
The US Federal Reserve and the European Central Bank are democratic institutions inasmuch as they have a public mandate and are subject to public scrutiny and control. I'm not aware that anyone disputes these facts.
Well you could create your own fork. If the masses decide it's good, there will be adoption and value aswell. Try to declare an island sovereign territory to see what happens. Because bitcoin is mainly built in imagination-land for now. That's why bitcoin tech has given birth to a lot of different protocols and cryptocurrencies with wildly different implementations. Because it was open source from the beginning.
Communities having control over crucial aspects of the government that governs them is not the rule at all.
KYC and AML for the purpose of money laundering exists throughout the world. Which regulation is specifically attempting to kill bitcoin if you don't mind me asking?
The US government has clearly stated bitcoin is not a currency. But they are still passing regulations saying all transfers of cryptocurrency value over $10k USD equiv have to be reported (as if it was a currency). This kind of obvious double-think has only one purpose.
Remember, the payment processors and paypal all decided to cut off wikileaks and ban people who try to paypal money to them as punishment for exposing US war crimes.
Control of the currency is control of the populace. It's why crypto, is so wonderful, and everyone needs to accept it.
US gov stance on cryptocurrency, when described this way, is clear to me. “We will only accept X. We will monitor the use of Y as a means of value exchange among the citizenry, since we still want everyone to participate in X market and pay taxes in it[0].”
But this only applies to businesses, and if you had a business relating to crypto you would at least i was reporting much less in dollar value other’s in my circle as-well. This regulation does nothing in slowing let alone killing bitcoin nor crypto.
Hello , Bitcoin is great
The payment system mentioned in the Fine Article is built on top of Bitcoin, using Lightning Network.
There's nothing stopping them from putting various consumer protections and rewards programs on top of that, and plenty of motive to do so.
It's definitely a wait-and-see sort of thing, but I don't see as to how betting against it is the obvious move.
Well, it this is really true and going to happen, I am glad.
In 2014 I was writing a book on Bitcoin, which I never finished. In the various interviews I did with influential people at the time (Yanis Varoufakis, Rick Falkvinge, Chris Dixon, etc), when offering my view, I used to say that the tipping point would have been a country adopting Bitcoin as currency, and guessing it was going to happen by 2020.
I was wrong, but not by much. And believing so in 2014 wasn't that common.
It'll be interesting to see how it plays out. I expect a catastrophe, but anything could happen. I suspect Bukele will have more influence on the outcome than Mallers or the users.
A single BTC transaction (on-chain) costs $5.56 in fees today. Minimum wage in El Salvador is around $300/month. How will anyone in-country afford this? Even the lightning network requires periodic on-chain transactions.
So I guess this is a litmus test for cryptoanarchists: condemn the use of state coercion to mandate the use of Bitcoin or cheer the financial gains Bitcoin holders stand to make?
The first thing that will happen is that everyone phones up El Salvador and asks if they really want to be cut off from the entire rest of the world's financial system.
Americans can skip reporting or paying taxes on small transactions under $200 in foreign currencies.
Appears Strike (Zap wallet) recognized user base consists largely of U.S. based drug dealers, so by lobbying El Salvador into doing this they'll shield U.S. drug dealers from prosecution for tax fraud.
It'd theoretically benefit other Americans doing small transactions in BTC, but really only drug dealers do such small transactions in BTC, everyone else uses it as a reserve for speculation.
I'm sure the people of El Salvador won't mind having 20% of their wealth wiped out every time Elon Musk tweets something that changes his mind in some way.
Certainly if I was selling something I'd denominate it in something relative stable and then change Bitcoin asking price to match the exchange rate to that stable currency. Since the currency there is the USD... Yeah, I'd still be pricing my goods and services in USD.
Deflation is not something desireable in macroeconomics. It incentivizes hoarding cash instead of spending it on productive things (hiring people, capital investments to improve productivity, etc).
Slow and steady inflation is a stated goal for most governments and central banks.
If that "productive thing" isn't productive enough to yield better than an asset that just sits there in a cold storage, I would argue it wasn't all that productive and/or efficient to begin with.
People will always spend for things they need, they'll also spend it for things they want, but the current fiat system is forcing to spend it just for the sake of spending it forcing over/pointless consumerism on everyone.
Yes, it allows you to buy more for the same amount of money, increasingly as time goes on. This is why it results in economic slowdowns, because people are more hesitant to spend money when it may be worth more later.
In fact we see this in a small scale in the tech sector all the time: products get more powerful or cheaper or both, meaning people who might want to upgrade often agonize over waiting to spend their money to a point where it will obtain more per unit of value.
Or with Crypto, consider the HODL mentality. BTC would have made a lot more progress towards use as a medium of exchange if an enormous number of people weren't simply buying it on the hope of future value, or speculate by continuously selling the peak and buying the dip. There's even the cautionary tales in the crypto community against actually using any if it to cash out for purchases, such as the person who paid for a Pizza with enough bitcoin to be worth over $100,000,000 today. The message is "Never use it, always HODL" Of course there's always the anecdotal person here an HN who will chime in with, That's not true, I just bought X with it!". Which is fine, but an extreme outlier.
It will never deliver on it's goals when that, and investment speculation, are the two dominant use cases. Bitcoin is trapped in a cul-de-sac right now, and absent some unexpected event, mainstream everyday use of crypto by average people-- if that comes to pass-- will bypass BTC by as it circles around that cul-de-sac.
… then your boss says sales are down and your salary is being cut. “Don’t worry, your purchasing power hasn’t changed!”
… then you need to go to each creditor and try to renegotiate your balance so you’re not overpaying at the current value rather than what it was when you bought your house or car.
… meanwhile the economy slowly grinds to a halt as people and businesses hesitate to get loans for the same reason. That’s when the layoffs start ramping up, which does not improve the state of the economy.
This used to happen periodically and it was ruinous — it’s why systems like the Federal Reserve were created and almost all serious economists target consistent low inflation levels since that has the opposite effect of incentivizing economic activity.
You didnt mention the role of capital, which is stored savings. Dig in to the role and benefits of stored monetary reserves, how bitcoin does this and cant be inflated, and you might get pissed off when you realize savers have a great escape mechanism from the huge government bailouts of failing industries (airlines, cruise ship lines).
If you can get out of debt, you may see the benefit of bitcoin as a store of value. If you are in debt slavery, you of course want easy money to make your debts easier to pay.
Do you want everyone to go back to the farms as laborers? Our food abundance is produced mechanically. Automation and technology brings deflation, which allows me and my children to not toil in the fields.
It appears some here believe in the labor theory of value. For me, if I cant do better than the machine, then I am not adding value and need to do something else.
Automation doest not bring deflation. It brings a higher standard of living where people have more money so they can buy more things. Prices still increase though-- inflation. The key is to have wage increases, and therefore quality of life, increase at a rate that at least slightly exceeds inflation so that people continuously have increasing amounts of money to improve quality of life.
This is why wage stagnation or when wages do not keep pace with inflation it's bad.
Nah. When things are cheap, people will go shopping. When things are expensive, people will save. It's a naturally self-correcting mechanism.
Every deviation from the expected deflation would be an opportunity for arbitrage. Also, the deflation isn't guaranteed, so it carries a risk, which disincentivizes hoarding.
Slow and steady inflation in the US has resulted in economic growth leading to some of the highest quality of life increases in the last century. A poor person today nonetheless has a higher quality if life than a poor person 100 years ago.
And if you need to spend it from day to day it's both inconvenient and often worth a fair bit less than the day before. It's increased float price vs. USD over the years may make it a reasonable investment for those with a tolerance for high risk. Not so much for a population where the median annual income is about $4,000 and the average person is probably living close enough to the bottom of Maslow's hierarchy that they can't just sit back and HODL when BTC prices go into hibernation for a year.
If there's a place in the world that would currently be a good test bed for a country to make BTC legal tender, it's not El Salvador. Its population simply isn't in a position take much of a risk moving from hard currency like the USD to a volatile asset class.
I'd even take ~99.99% daily drops (which is a great opportunity to harvest some capital losses btw) if it means I'll get 300% YoY and needless to say that has paid off very well so far.
From the time you posted this, bitcoin's price has fallen more than nine percent. That's not a currency I'd ever want, regardless of its price one year from now.
The Fed doesn't print money, and the fact that so many people on HN repeat that falsehood is just sad. The Fed expands the money supply through the banking system, and they also decrease the money supply the same way. It is entirely different from printing money.
Sounds like one is exhibiting features of a currency and the other isn't.
I don't think you're supposed to store your wealth in cash if you want to preserve it (diversified equity holding are a popular investment too in case you find cryptocurrencies too volatile).
I wonder how many of world’s economy screw-ups would have gone if USA wasn’t able to shove their currency down everybody’s throat. And which ones would have stayed?
What’s the relevance of such central currency today? Especially a currency that’s the fiat currency of just one nation and that’s not even like Euro!
I wonder why a country would choose Bitcoin as legal tender when better, faster, more environmentally friendly cryptos exist (ones which can feasibly be used to transact money in real-time, for instance).
When you consider a country-wide currency or global reserve currency status, things like security/trust are the most important properties.
You can then use other layers for much faster and cheaper transactions while keeping the base layer as is (as lightning network on BTC and zk-rollups on ETH are doing, or even centralized layers like Paypal/Visa, etc).
Bitcoin is the strongest cryptocurrency in terms of security, decentralization and liquidity. Which also means that bitcoin will keep its value better than other cryptocurrencies.
They are planning to use Bitcoin Lightning Network which is environmentally friendly and offers instant and almost feeless payments.
Mostly adoption purposes. Bitcoin, for better or worse, is now a globally recognized asset (if not official recognized). Sure they could adopt a coin like Ripple or Doge, but that would almost certainly permanently sabotage the market for both respective coins. While I agree that this is a bad idea, basing it on a larger currency does have some considerable economic benefits.
Not sure why, but bitcoin has already been in use in a local surf town for a couple of years now, so maybe it's the only widely known crypto in El Salvador outside the crypto community [1]
America extorts other nations by virtue of the $US being the world's dominant reserve currency. The federal reserve can print money unimpeded, with foreigners bearing the brunt of inflation. The math is simple.
Foreigners only bare the brunt of the inflation if they own USD denominated debt or other fixed income assets.
Americans suffer if the dollar inflates because imports get more expensive and rates demanded on USD debt purchased by foreigners will go up, making the loans more expensive in America.
It wouldn't be surprising if the US government were to take actions against governments that were moving away from the dollar, whether as legal tender, as foreign reserves, or for other purposes like pricing oil, but it doesn't seem likely that the USG knew about this move a month in advance. Are you suggesting that the Salvadorean president is attempting to retaliate for the report by dedollarizing?
Hmm, are you suggesting that the US could overthrow their government, either by invasion as in Panama or by funding a terrorist campaign as in Nicaragua, and that Bitcoin would be more secure than suitcases of dollar bills against such actions? Surely not that the US would dramatically devalue its own currency in order to drain El Salvador's reserves? Or are you thinking that dollar-denominated reserves held in overseas banks would be easier for the US to seize, and Bitcoin avoids the need to hold the reserves overseas?
It seems to me more likely that the figures in the article amply explain the move:
> roughly 70% of people do not have bank accounts or credit cards. Remittances, or the money sent home by migrants, account for more than 20% of El Salvador's gross domestic product. Incumbent services can charge 10% or more in fees for those international transfers, which can sometimes take days to arrive and that sometimes require a physical pick-up.
I mean, living in Latin America, I'm well aware that the US has a long history of invading and overthrowing Latin American governments, I'm just not sure how Bitcoin reserves would protect against that.
It's Sanctions. The USA can put sanctions on anyone as they've done with Russia, Iran, Venezuela. All banks that trade with the USA must comply, and those people/places are locked out of the global financial system.
There's no effort of an invasion or coup involved. It's easy for the USA to do this to pressure people they don't like and that's why so many of these countries are moving away from USD.
Oh, I see. So reserves held in overseas banks might suddenly become inaccessible, even if not actually seized, and Bitcoin (unlike, say, the euro or yen) offers a way to reduce this risk?
Kind of: Bitcoin doesn’t allow transactions without knowing the key but that isn’t true for exchanges and the public ledger makes it easy to block transactions using that address. If everyone subject to US jurisdiction or treaty agreements blocks transactions traceable back to tainted addresses, the value plummets.
So far no such attack on Bitcoin's fungibility has materialized; it's plausible that the outcome would be that Bitcoin would become useless to everyone subject to US jurisdiction or treaty agreements. So it seems unlikely to happen without a major war, because that plausible outcome would result in enormous capital losses for many people who are influential in the US. Another plausible result is countries withdrawing from treaty agreements with the US, even if they don't care that much about Bitcoin as such.
You’re leaving out the possibility which matches what we’ve seen historically: the major players decide that the money from criminals and rogue states isn’t enough to give up on legitimate business and just block those specific transactions. Someone can have a ton of Bitcoin and simply choose not to accept transactions from the smaller set of addresses on a watchlist.
Oh, that's not a possibility. The part you don't understand is that in Bitcoin you can't tell which transactions are people giving money to themselves and which ones are actually giving money to other people. So if Coinbase wanted to block transactions from, say, medical marijuana dispensaries ("criminals") they couldn't just block transactions directly from the dispensaries' known addresses; they'd have to block transactions that drew coins indirectly from the dispensaries as well. That would mean that your transactions could get blocked by Coinbase even if you weren't a dispensary, but because you had sold services to a dispensary in the past, or to someone who had sold services to a dispensary.
To avoid this risk, you'd have to somehow get access to Coinbase's blacklist of dispensary addresses—maybe they'd publish it—and blacklist them yourself. Pretty quickly you'd find you couldn't accept coins from anyone who used a mixer or any offshore exchanges, because all of them would receive tainted dispensary coins sooner or later. You'd probably find that a lot of the Bitcoin you thought you already had was tainted, too, or would become tainted later as new addresses were added to the blacklist.
(Also, presumably any published address would become tainted pretty quickly; anyone could buy some tainted millibitcoins and send them to it, and people in the tainted economy would have an incentive to get as many Bitcoin owners as possible on their side of the fence. So everybody who accepts donations by publishing a Bitcoin address would get their donations tainted: camgirls, libgen, sci-hub mirrors, Electrum server operators.)
So basically this kind of attack on fungibility would destroy most of the value of Bitcoin for anyone who was participating in the attack. "Simply choose not to accept transactions from the smaller set of addresses" isn't a coherent alternative.
Not only do I understand it, that was my point which you missed: from the perspective of the people in the regulatory system, that’s a feature — putting Iran on the blacklist and go after everyone who works with them is a feature, not a bug, and Bitcoin makes that so much easier than the traditional banking system that it’ll have a stronger deterrent effect because it not makes it easier to block now but also provides full retroactive punishment for anyone identified later. Normally you’d only catch people with what they had recently done, not a full immutable ledger of every transaction they ever made.
I suspect this is also why there’s no concerted campaign against it: Bitcoin just hasn’t been a barrier to prosecution.
Even if there was some blacklist that all exchanges abided by, you can still use something like Ren Project to put your Bitcoin on Ethereum as renBTC, exchange it to USDC (or any other cryptocurrency) using a decentralized exchange, and withdraw it.
This process is completely decentralized, and AFAIK you can't trace the move from BTC to renBTC.
Remember that these are all public records which the authorities can monitor. If a blacklisted address transfers to another exchange, it’s not like the subsequent activity disappears from view - it just means that they look at the transaction chain on Ethereum, and add another money laundering charge to the tally.
… which doesn’t do any business with any entity participating in that financial regulation system
… whose customers either don’t intend to ever do so or have lowered their price to reflect those restrictions
Again, note that I’m not saying it’s impossible to work around the edges of the system but it will have real costs which many people aren’t interested in dealing with or will want to be aggressively compensated for.
The article explains that El Salvador, like Ecuador, is fully dollarized at present. Here in Argentina only the real estate market is dollarized. However, not dollarizing your domestic economy doesn't mean you can hold your central bank's reserves in your own currency; not even the US can do that.
To be clear, Jack Mallers works on Strike, which uses the lightning network. Settlement is final on receipt, which is limited by network latency (and db commit time).
The cost is that it's possible for your direct counterparty to attempt to cheat: you've been trading signed bitcoin transactions all this time, and they could try to use an old one. For this reason there's a lockout period for any unilateral onchain settlement (typically 1 - 14 days), and if they attempt to cheat you have that time to penalize them (they gave you a key to do this when you agreed the balance in the lightning network was updated). This penalty can be outsourced, too.
That already happens every single day (credit card chargebacks), and is not very easy to do in BTC. I'd have to look into how it works in the lightning network.
Interesting, but not sure it matters. There exist _many_ markets where chargebacks are possible, it's not that big of a deal. It's worked around or priced in and life goes on.
We already have these problems in the normal stock exchange -- they're called "whales". In order for whales to capture the best value to _them_, they trade carefully and slowly so as not to shock the market.
The problem is all transaction on bitcoin are public. Satoshi even moving his coins to begin trading would cause a massive freakout. Coinbase even had to disclose this risk in their IPO filing.
That would really depend on what Satoshi would do exactly with his/hers holding. It would probably cause volatility, but imo not larger volatility compared to what we are already used to.
> President Nayib Bukele announced El Salvador's partnership with digital wallet company, Strike, to build the country's modern financial infrastructure using bitcoin technology.
Moments later, president Bukele was deposed in a violent military coup. The CIA denied involvement.
Many other cryptocurrencies are so much better than Bitcoin. Off the top of my head: Monero, Litecoin and maybe Ada (Cardano) sound like better alternatives.
A good heuristic is "if someone extols the virtues of Bitcoin (instead of crypto in general), then they don't understand much about the virtues of Bitcoin or any other cryptocurrency."
Bitcoin has problems. Its a known fact. But apparently everything in this weird crypto world is about trade offs.
Every time you hear someone saying Nano is better than bitcoin because transactions are free the same person never mentions the problem with spam in their network.
Everyone who advocates for Ethereum for being a more complex and Turing complete network never mentions that the same complexities invite bugs and vulnerabilities and the chain was actually hacked once. Or that the developer can decide to literally rewind the chain again. Or that the PoS model is a centralizing force that is trying to replicate the current financial system.
Just check the number of people mentioning bitcoin fees without ever touching on the subject of current ETH gas cost.
Everyone advocating for Monero for its better privacy never mentions the challenges of auditing the monetary policies of their chain.
Everything is a trade off but for some reason people are very good at pointing the good parts of their solutions without never disclosing what was lost to achieve that feature and at the same time they are very good to point flaws in the Bitcoin protocol and network.
Because the guy who is behind this thinks that other cryptos are just an experiment that couldn't work, but bitcoin is the holy grail and just appears to be slow/expensive.
As if wasting energy on speculation and get-rich-quick schemes wasn't enough, now an entire country is made dependent on crypto? That's a terrible precedent.
I understand that countries want to get away from foreign influences on their monetary system, but decentralised currency isn't going to solve that problem. One tweet by Elon Musk can send the price of their "currency" flying high or plummet to the ground.
If crypto currency has any real value that isn't based on schemes and speculation, at least pick something less wasteful for the environment as a currency. A proof of stake currency would work just as well in a system where the government decides on the coin.
I'm sure the guys that convinced the government to use their system made a boatload of crypto cash by buying in early and riding the price as this system is unleashed upon the country.
Wow, this seems like an incredibly shitty situation for the people of El Salvador. It looks like some lobbyists got hired by a wallet company stacked with angel investors willing to pour money into the idea of being integrated into the government at such a low level. I wouldn't be surprised if they also announced that all transactions will be forced to go through a wrapper or other type of layer, maybe even justified with the classic "think of the coal" argument...