Reply
 
Thread Tools Display Modes
  #51  
Old 07-13-2017, 05:37 AM
Ramira's Avatar
Ramira Ramira is offline
Member
 
Join Date: Jan 2003
Posts: 3,740
Quote:
Originally Posted by GreenWyvern View Post
Sure, it's not illegal, but that's not the same thing at all. Try to pay your taxes or a traffic fine with bitcoins and see what happens.
The same thing as what happens when I have a foreign currency, it is converted or must be converted. This has not anything to do with your strange and incoherent statement.
  #52  
Old 07-13-2017, 05:40 AM
jz78817 jz78817 is offline
Guest
 
Join Date: Aug 2010
Location: Under Oveur & over Unger
Posts: 11,758
Quote:
Originally Posted by Lord Feldon View Post
Al Capone went to prison for lying about his income, not for failing to pay taxes.
what's the difference?
  #53  
Old 07-13-2017, 05:58 AM
Ramira's Avatar
Ramira Ramira is offline
Member
 
Join Date: Jan 2003
Posts: 3,740
Quote:
Originally Posted by jz78817 View Post
what's the difference?
The deception versus the idea of 'inability'

all of this is however a completely naive and pointless diversion - there is the ample historical record of the parallel currencies in the usage, the idea that the acceptance for the payment of the taxes is the necessary condition for an operational currency is not supported by the actual demonstrable history of currencies.
  #54  
Old 07-13-2017, 06:34 AM
Little Nemo Little Nemo is offline
Charter Member
 
Join Date: Dec 1999
Location: Western New York
Posts: 79,884
Quote:
Originally Posted by Mosier View Post
Don't you think it's a little unfair to compare bitcoin to the most stable national currency in the history of the world, instead of the typical or "average" national currency? It's like trying to compare the Best Picture of 1960 to whatever movie happens to come out first in 2018. Of course the historical best example of one is going to beat the first ever attempt of the other.
No, I don't think it's unfair. If you're making the choice between dollars and bitcoins, then the fact that dollars are better is the reason you choose dollars. If bitcoins don't work as well as dollars and dollars are available, why choose bitcoins?

To use your movie analogy, this is like deciding you want to go to the movies tonight and you're deciding which movie to go see. If you think one of the movies is better than the others, pick that movie. You don't argue it's unfair to the other movies that they're being compared to the best movie rather than to a typical movie. You just pick the best choice that's available.

Unless you're taking your kids. Then you have to pick Despicable Me 3.
  #55  
Old 07-13-2017, 06:54 AM
Little Nemo Little Nemo is offline
Charter Member
 
Join Date: Dec 1999
Location: Western New York
Posts: 79,884
Quote:
Originally Posted by Hellestal View Post
Nooooooope.
Yeeeeeeeeeeeeeeeees.

To address your other points, you're seem unclear on what it means for a currency to be backed. It has nothing to do with how the currency is generated.

Bitcoins are generated by a mathematical process. Sudoku puzzles are solved by a mathematical process. There's no objective reason why a mining a bitcoin has any more value than solving a sudoku puzzle.

There's no real asset behind a bitcoin. It's the equivalent of owning a fantasy football team. If the guys in your fantasy football league all decide they don't want to play fantasy football anymore, how much is your team worth?

You can argue that there's no real asset behind a real football team also. After all, people might decide to stop watching football and then how much value would there be in owning the New England Patriots? You might as well own a soccer team.

But that's a false comparison. People do watch football and there's no evidence that they're going to all stop doing so. So the New England Patriots are a real asset. Their ongoing worth has been established. Even if Robert Kraft woke up tomorrow and decided he no longer cared about football, he knows there are other people who do care and would be happy to pay him for the assets he no longer cares about.
  #56  
Old 07-13-2017, 08:28 AM
DPRK DPRK is offline
Guest
 
Join Date: May 2016
Posts: 2,662
The specific idea behind Bitcoin, according to its author, is merely that coins are randomly generated at a certain rate and that there is no control over the money supply by central banks or cartels. (Arguments can be made that it is clumsily implemented and/or has failed to achieve these design goals; for instance, for lack of better research at the time he decided to distribute the initial coins by "mining", which immediately led to the formation of mining cartels.)

So from that point of view the stated endgame for an ideal bitcoin-like currency would be something like a foreign currency except the value would be stable because it would be mathematically impossible for a national bank to devalue it (like some idealized gold bricks perhaps?). It might be interesting to debate whether this makes any economic sense.

Of course there are other forms of digital money, tokens, ledgers, etc too for various purposes.
  #57  
Old 07-13-2017, 12:13 PM
Hellestal Hellestal is online now
Charter Member
 
Join Date: Aug 2002
Location: Storyland
Posts: 1,993
Quote:
Originally Posted by Little Nemo View Post
you're seem unclear on what it means for a currency to be backed. It has nothing to do with how the currency is generated.
You are now trying to tell an astronomer that the moon is made of cheese.

Quote:
Originally Posted by Little Nemo View Post
Bitcoins are generated by a mathematical process. Sudoku puzzles are solved by a mathematical process. There's no objective reason why a mining a bitcoin has any more value than solving a sudoku puzzle.
Different kinds of math can be used for different things.

The math used for sudoku is not the same as the math used for Bitcoin.

The math used for Bitcoin is designed for the protection of Bitcoin ownership.

The differences between the two types of math are objective differences.

These objective differences in math provide objective reasons for their difference in value.

The differences between these mathematical processes would be easily distinguishable by anyone with a math education beyond the middle school level. (Not that a middle schooler could understand the encryption, but they could recognize that the kinds of maths are different.)

You do not seem to understand this.

I will adjust my own posting style accordingly.
Quote:
Originally Posted by Little Nemo View Post
There's no real asset behind a bitcoin.
There is no "real asset" behind a US dollar either.

This has been explained before in this thread.

When your criticism encompasses both together, you demonstrate that you understand neither.

You should understand something before you try to criticize it.

Quote:
Originally Posted by Little Nemo View Post
It's the equivalent of owning a fantasy football team. If the guys in your fantasy football league all decide they don't want to play fantasy football anymore, how much is your team worth?

You can argue that there's no real asset behind a real football team also. After all, people might decide to stop watching football and then how much value would there be in owning the New England Patriots? You might as well own a soccer team.

But that's a false comparison.
You are making an assertion here.

Now here is the problem.

(Again.)

You need the evidence for your assertion to distinguish the relevant cases in an objective manner.

Does your following "argument" distinguish the cases?
Quote:
Originally Posted by Little Nemo View Post
People do watch football and there's no evidence that they're going to all stop doing so. So the New England Patriots are a real asset. Their ongoing worth has been established. Even if Robert Kraft woke up tomorrow and decided he no longer cared about football, he knows there are other people who do care and would be happy to pay him for the assets he no longer cares about.
Now let us do a simple replacement:
Quote:
People do [trade Bitcoin] and there's no evidence [yet] that they're going to all stop doing so. So [Bitcoins] are a real asset. Their ongoing worth has been established. Even if [a Bitcoin owner] woke up tomorrow and decided he no longer cared about [owning Bitcoin], he knows there are other people who do care and would be happy to pay him for the assets he no longer cares about.
Every sentence still applies.

Not at the same confidence level into the future, but every replaced sentence remains true for the present

You claim two things are the same as each other and they end up being objectively different in painfully obvious ways.

You claim that two things are different, but your argument for what is supposed to make them different ends up applying to both things equivalently.




You might not be personally embarrassed by your posts here. You might not even understand the fundamental issues that I'm raising.

Nevertheless, I am becoming vicariously embarrassed on your behalf.
  #58  
Old 07-13-2017, 12:39 PM
Lemur866's Avatar
Lemur866 Lemur866 is offline
Charter Member
 
Join Date: Jul 2000
Location: The Middle of Puget Sound
Posts: 22,343
Quote:
Originally Posted by jz78817 View Post
what's the difference?
All the people you hear about, like Wesley Snipes, who go to jail over their taxes?

They don't go to jail because they owe the government a jillion dollars and don't pay. Lots of people owe the government jillions of dollars, and they don't go to jail. You only go to jail when you try to defraud the government. Filing a fake tax return that hides your income is a crime. Owing the money and not paying it is not a crime.

Yes, the IRS can seize your assets if you owe money and don't pay it. If you owe a million dollars and have a million dollars in the bank, the IRS will get a judge to order the bank to take the million dollars and hand it over to the IRS. But if you owe a million dollars and have zero assets, you're not going to go to jail, you're just going to owe the IRS a million dollars plus interest, and they're going to try to seize any future assets you may get your hands on. And if you owe a million dollars, and tell the IRS that you have no assets, but you secretly have a million dollars in the bank, that's when you go to jail when they find out.
  #59  
Old 07-13-2017, 01:07 PM
GreenWyvern's Avatar
GreenWyvern GreenWyvern is offline
Guest
 
Join Date: Jan 2008
Location: Cape Town
Posts: 1,202
Suppose a group of people decides to trade among themselves using cowrie shells. They set up a cowrie shell exchange which exchanges dollars for cowries and vice versa. They agree that they will accept cowrie shells for goods, and they speculate in cowrie shells (by buying them with dollars). The number of shells is limited, but anyone who wants to spend time wandering along the sea shore trying to find cowrie shells is welcome to do so, and to use any shells they find.

However, cowrie shells are not legal tender in the country, cannot be used for paying taxes or for any government transaction, and are not accepted by most shops and businesses.

How is this different from bitcoin, except that bitcoins are mathematical rather than physical objects?
  #60  
Old 07-13-2017, 01:59 PM
Ramira's Avatar
Ramira Ramira is offline
Member
 
Join Date: Jan 2003
Posts: 3,740
Quote:
Originally Posted by GreenWyvern View Post
S...

However, cowrie shells are not legal tender in the country, cannot be used for paying taxes or for any government transaction, and are not accepted by most shops and businesses.

How is this different from bitcoin, except that bitcoins are mathematical rather than physical objects?
The traceability of the block chain and the non physicality are very different.

Your hang up on the legal tender is a developped country obsession. the history of developing countries having the de facto parallel currencies (as in the Mark, the Dollar) that are dominant even to the legal tender is the ample refutation that this aspect is very relevant. the same for the idea that the ability to pay the taxes to the home government is also a key condition.

the factors of the stability in the relative value to the other means of exchange and other means of the storage of value, the historiy of the reliability and the liquidity, these are the quite demonstrably important factors for a successful currency.
  #61  
Old 07-13-2017, 02:34 PM
GreenWyvern's Avatar
GreenWyvern GreenWyvern is offline
Guest
 
Join Date: Jan 2008
Location: Cape Town
Posts: 1,202
Quote:
Originally Posted by Ramira View Post
The traceability of the block chain and the non physicality are very different.
If you don't understand what is meant by an analogy, look it up.

Quote:
Originally Posted by Ramira View Post
Your hang up on the legal tender is a developped country obsession.
No, it simply means that a cryptocurrency can never replace a national currency. Also note that the value of a bitcoin depends on its current exchange rate with legal tender, nothing else.

Quote:
Originally Posted by Ramira View Post
the factors of the stability in the relative value to the other means of exchange and other means of the storage of value, the historiy of the reliability and the liquidity, these are the quite demonstrably important factors for a successful currency.
The bitcoin exchange rate is extremely unstable, so by your own argument bitcoin is an unsuccessful currency.
  #62  
Old 07-13-2017, 05:16 PM
Ramira's Avatar
Ramira Ramira is offline
Member
 
Join Date: Jan 2003
Posts: 3,740
Quote:
Originally Posted by GreenWyvern View Post
If you don't understand what is meant by an analogy, look it up.
The misplaced snideness fails - the analogy to the cowry fails as the bit coin is fundamentally different in embedding as a fundamental aspect of its existence the entire history of transaction.

Or yes, you made a superficial analogy that brought not any added understanding but to illustrate the lack of understanding.

Quote:
No, it simply means that a cryptocurrency can never replace a national currency
That is generally compltely false and continues your lack of understanding of the economics of currencies and false presumptions.

We have seen in real economic history non official currencies effectively replace legal currency in basically all transactions in economies.

so the bald assertion a cryptocurrency can never replace a nation currency is simply false on the historical facts. Alternative currencies have replaced national currencies without being formal legal tender.

It is an open question if a crypto currency can accrue the key features that would allow this over time.

Quote:
Also note that the value of a bitcoin depends on its current exchange rate with legal tender, nothing else.
The statement is... so poor in its understanding it is not even rising to being wrong, it is a banality.

The value of the bitcoin depends on the reletive demand, which is not insightful at all. The relative relationship to the other currencies and the other stores of the value, this is not something unique to bit coins and to observe this is pure banality (and/or pure misunderstanding).

the important feature is the fixed and the immutable supply relative to the varying demand, not that this is in relation to the other currencies (which again is a banality that is true trivially of all currencies that are not in a closed system).

Quote:
The bitcoin exchange rate is extremely unstable, so by your own argument bitcoin is an unsuccessful currency.
That seems indeed likely that it is not in any way able to be a widely successful general currency, but has not one thing to do with my comments.

By the funny triumphal declaration "by your own argument" you seem to have the completely mistaken belief that if one is criticizing your incorrect understandings on currencies, that it is from the idea of supporting the bit coin as a successful currency (or even as a good idea). Both of those are completely absent from my statements.
  #63  
Old 07-13-2017, 05:27 PM
Little Nemo Little Nemo is offline
Charter Member
 
Join Date: Dec 1999
Location: Western New York
Posts: 79,884
Quote:
Originally Posted by Hellestal View Post
Different kinds of math can be used for different things.

The math used for sudoku is not the same as the math used for Bitcoin.

The math used for Bitcoin is designed for the protection of Bitcoin ownership.

The differences between the two types of math are objective differences.

These objective differences in math provide objective reasons for their difference in value.

The differences between these mathematical processes would be easily distinguishable by anyone with a math education beyond the middle school level. (Not that a middle schooler could understand the encryption, but they could recognize that the kinds of maths are different.)

You do not seem to understand this.
I think the fact that I called it nonsense proves I understand it. It's not an issue of what kind of math is being used, so the argument you keep making is pointless. No kind of math can instill value in a currency.

Quote:
Originally Posted by Hellestal View Post
There is no "real asset" behind a US dollar either.

This has been explained before in this thread.

When your criticism encompasses both together, you demonstrate that you understand neither.

You should understand something before you try to criticize it.
Again, I think my criticism makes it obvious I do understand it. There are real assets behind United States currency. The United States is a big country. It has land and resources. It has a population of over three hundred million people. It has armed forces and nuclear weapons. Those are all real assets. And they're a list of things bitcoins do not have behind them.

Quote:
Originally Posted by Hellestal View Post
People do [trade Bitcoin] and there's no evidence [yet] that they're going to all stop doing so. So [Bitcoins] are a real asset. Their ongoing worth has been established. Even if [a Bitcoin owner] woke up tomorrow and decided he no longer cared about [owning Bitcoin], he knows there are other people who do care and would be happy to pay him for the assets he no longer cares about.

Every sentence still applies.
No, it doesn't. Bitcoins were invented eight years ago, which means they have no extended history of holding their value. As I pointed out above, they have no real assets to back them up. They fluctuate wildly in value. These are objective facts that show how unproven their ongoing value is. As I mentioned above, bitcoins are the equivalent of tulips. Sure, speculation can drive their price up for a while. But ultimately fundamental economic reality will reassert itself and people will realize that a bitcoin has less actual real value than a tulip bulb has.

Quote:
Originally Posted by Hellestal View Post
You might not be personally embarrassed by your posts here. You might not even understand the fundamental issues that I'm raising.

Nevertheless, I am becoming vicariously embarrassed on your behalf.
I notice that as your arguments get weaker, you raise the level of personal attacks.

Last edited by Little Nemo; 07-13-2017 at 05:29 PM.
  #64  
Old 07-13-2017, 05:48 PM
Little Nemo Little Nemo is offline
Charter Member
 
Join Date: Dec 1999
Location: Western New York
Posts: 79,884
Quote:
Originally Posted by GreenWyvern View Post
Suppose a group of people decides to trade among themselves using cowrie shells. They set up a cowrie shell exchange which exchanges dollars for cowries and vice versa. They agree that they will accept cowrie shells for goods, and they speculate in cowrie shells (by buying them with dollars). The number of shells is limited, but anyone who wants to spend time wandering along the sea shore trying to find cowrie shells is welcome to do so, and to use any shells they find.

However, cowrie shells are not legal tender in the country, cannot be used for paying taxes or for any government transaction, and are not accepted by most shops and businesses.

How is this different from bitcoin, except that bitcoins are mathematical rather than physical objects?
How many dollars does the cowrie collective have in its reserve? Do they have enough to pay out if everyone decided to convert their cowries to dollars?

Suppose I own a restaurant and I really love cowrie shells. So I announce that anyone can buy a meal in my restaurant for a dozen cowrie shells. I've created a demand for cowrie shells. You can walk along the beach and collect twelve shells and exchange them for a meal. Or you can get a guitar and play songs on the beach and ask people to give you cowrie shells in exchange for the entertainment. You then take the cowrie shells you receive each day and exchange them for meals at my restaurant (assuming you're entertaining enough). So a cowrie shell based economy can exist and work. It just requires that some people have cowrie shells that they're willing to exchange for other goods and some people have other good that they're willing to exchange for cowrie shells.

But the linchpin of the cowrie shell economy is my restaurant. Cowrie shells may be passed around through dozen of hands before somebody gets hungry and decides to trade them in for a meal at my place. But that's their ultimate destination. If I close my restaurant and retire, then the cowrie economy is going to collapse. It might not be immediate. People might still pass cowrie shells around for a while but pretty quickly everyone is going to realize there's no point to it. If you're playing your guitar and somebody throws some cowrie shells in your basket, it's going to be no different than if they threw in some bottlecaps or a handful of sand. You're going to be hungry at the end of the day and you don't have anything that anyone is going to give you food for.

Last edited by Little Nemo; 07-13-2017 at 05:50 PM.
  #65  
Old 07-13-2017, 06:09 PM
Lemur866's Avatar
Lemur866 Lemur866 is offline
Charter Member
 
Join Date: Jul 2000
Location: The Middle of Puget Sound
Posts: 22,343
Can we agree that money is a funny concept, and several things about it that seem like common sense facts are just opinions?

Could a cryptocurrency like Bitcoin someday become the de facto method for doing many or most transactions?

Sure, it could happen. But it doesn't seem likely to happen. Bitcoin itself is much more successful than anyone could have predicted, but it also has some features that seem like built-in booby traps that will limit it's use. The blockchain for instance, if you use Bitcoin you have to maintain a record of every Bitcoin transaction that has ever occurred. That's going to get more and more cumbersome. And of course the limit of 21 million bitcoins, which means that if Bitcoin becomes commonly used it will be horribly deflationary. That deflation means hoarding, which leads to more scarcity, which leads to more deflation. Of course Bitcoins are arbitrarily divisible, so you can buy a hamburger for 200 nanobitcoins. But it becomes like trying to conduct transactions in gold, when there's only a limited supply of gold in the world, eventually the price for a gram of gold has to be astronomical to cover all the needed transactions.

But that's not so much of a problem unless Bitcoin actually becomes a commonly used money. And it's only a problem for this particular implementation of a cryptocurrency, we could imagine another implementation that doesn't have this feature. The opposite problem of inflation then rears it's head. The point is, we want to keep the supply of money roughly equal to the demand for the money. When we're using lumps of gold and silver as money increased demand means you crank up the gold mines. The supply isn't quite fixed, and supply and demand reach some sort of equilibrium. But then you have disasters like the flood of gold and silver into Europe after the conquest of the New World. Or the constant outflow of precious metals from Europe to China and India as superior foreign goods crush domestic production.

Anyway, the well known problems with gold and silver money eventually resulted in the abandonment of even the pretense of backing paper money by precious metals.

So it seems to me that cryptocurrencies will run into the same problems, the inability to match the money supply to the money demand means either dramatic deflation or inflation. And the problem with replacing one failed cryptocurrency with another better designed one is that if Bitcoin fails then the demand for any other such cryptocurrency will be near zero. Since there are essentially unlimited such currencies, the marginal value of any particular new currency has to be zero.
  #66  
Old 07-13-2017, 06:16 PM
Lemur866's Avatar
Lemur866 Lemur866 is offline
Charter Member
 
Join Date: Jul 2000
Location: The Middle of Puget Sound
Posts: 22,343
Quote:
Originally Posted by Little Nemo View Post
If you're playing your guitar and somebody throws some cowrie shells in your basket, it's going to be no different than if they threw in some bottlecaps or a handful of sand. You're going to be hungry at the end of the day and you don't have anything that anyone is going to give you food for.
Right, but back in the day when cowrie shells really were used as money, it wasn't just one eccentric guy who created the demand. It was lots and lots of people. Cowrie shells were used to create jewelry, just like gold and silver, and so decorative value of the shells created the market for cowrie shells as a good, which lead to them being treated as a key good, which made them used as money.

Bitcoins aren't being kept in demand by one eccentric restaurateur, they're being kept in demand by a motley assortment of eccentric nerds/anarchists/criminals. So of course it can only be used as money because those eccentric people accept it as money, and if they stop being so eccentric for five minutes the whole thing fizzles. When is it going to fizzle? Tomorrow? Ten years from now? Who knows. Just saying, don't take your retirement money and buy Bitcoins. Because Bitcoins really do work as money today, but might not tomorrow. Same thing with US dollars or Euros, only a lot more so.
  #67  
Old 07-13-2017, 06:17 PM
DrDeth DrDeth is offline
Charter Member
 
Join Date: Mar 2001
Location: San Jose
Posts: 39,034
Quote:
Originally Posted by t-bonham@scc.net View Post
Lower for you the customer, maybe, but not for the business:


Cash is definitely not 'free' to a business. Some of the costs may be less than bad checks or fraudulent credit cards, but there are costs.
Altho all this is true and I have pointed some of them out myself, BitCoin is not all the easy to bank either.
  #68  
Old 07-13-2017, 06:20 PM
XT's Avatar
XT XT is offline
Agnatheist
Charter Member
 
Join Date: Apr 2003
Location: The Great South West
Posts: 34,430
Quote:
Originally Posted by Lemur866
Bitcoins aren't being kept in demand by one eccentric restaurateur, they're being kept in demand by a motley assortment of eccentric nerds/anarchists/criminals.
According to what I linked to earlier a large percentage are being kept by Chinese who are trying to get their money out of China or by the CCP who is trying to manipulate the currency for their own reasons. Neither of these groups would constitute 'eccentric nerds/anarchists/criminals' (well...ok, I think most of the CCP could be classified as criminals).
  #69  
Old 07-13-2017, 06:21 PM
DrDeth DrDeth is offline
Charter Member
 
Join Date: Mar 2001
Location: San Jose
Posts: 39,034
Quote:
Originally Posted by Nava View Post
You can't go to prison in yours for not paying due taxes? Al Capone's lawyers would be surprised to hear that.
No, he went to jail for tax fraud, for not reporting income.

They cant send you to jail for not paying. Well, maybe, if you transfer your funds out in a fraudulent way to away having them seized.

The can seize your bank acct, your car, and even your house... in some cases.
  #70  
Old 07-13-2017, 06:24 PM
Buck Godot's Avatar
Buck Godot Buck Godot is online now
Guest
 
Join Date: Mar 2010
Location: MD outside DC
Posts: 5,403
Quote:
Originally Posted by Hellestal View Post

In my own experience, this is how we normally talk about fiat currencies. What are they backed by? We generally say the trustworthiness of their governments. Not the demand for the currency among the public. Naturally, that demand is also necessary for the currency to have value, but when we talk about what "backs" fiat currency, we're always talking about the stability of the institution that issued it. Maybe I'm wrong about how people speak about fiat currency backing. If there are any exceptions to that in the popular press, I'd be happy to see them. But I'd personally be inclined to say that what backs the US dollar is the stability of the US government, and I don't think I'm the only one in this thread saying similar things.

Actually I think the primary thing that backs up the US currency is the fact that the US has a big army, a vast economy, power of taxation and rule of law all of which take an interest in making sure that the currency stays afloat. If the dollar starts hyper-inflating serious actions can and will be taken by the US government to prevent it. The same can't be said for Bit coins. If for one reason or another they lose their allure, their value will go poof in an instant, with nothing and no one able to do anything about it.

As far as them being backed up by mathematics, I could just as easily declare my toe nail clippings to be currency securely backed up by biology. They would be in limited supply that can be authenticated with DNA testing. However that doesn't actually make me the richest man in the world.
  #71  
Old 07-13-2017, 06:29 PM
Lemur866's Avatar
Lemur866 Lemur866 is offline
Charter Member
 
Join Date: Jul 2000
Location: The Middle of Puget Sound
Posts: 22,343
Yes, but we have plenty of examples of governments that supposedly had an interest in keeping their currency stable nevertheless created hyperinflation. And that's because it's often just easier to create new money rather than try to collect taxes.

Currently the US and Europe and Japan are managing to avoid inflation. But that doesn't mean that's a law of nature, it just means governments are making an effort to not cause inflation. That could change if we, you know, elect criminally incompetent idiots to run our country.
  #72  
Old 07-13-2017, 07:02 PM
jayjay jayjay is online now
Guest
 
Join Date: Nov 2000
Location: Central Pennsylvania
Posts: 37,035
Quote:
Originally Posted by Lemur866 View Post
Currently the US and Europe and Japan are managing to avoid inflation. But that doesn't mean that's a law of nature, it just means governments are making an effort to not cause inflation. That could change if we, you know, elect criminally incompetent idiots to run our country.
Oops!
  #73  
Old 07-13-2017, 07:19 PM
Chronos's Avatar
Chronos Chronos is online now
Charter Member
Moderator
 
Join Date: Jan 2000
Location: The Land of Cleves
Posts: 81,355
The US dollar is backed by the same thing as any other currency: The fact that there is a large number of people and organizations who have a large amount of trust in it. These people and organizations have so much trust in the dollar that they've made it known that they will accept dollars, in particular amounts, in exchange for particular goods and services. Now, it's nice that one such organization expressing faith in the dollar is very large and powerful, but that's neither necessary nor sufficient.

Bitcoin also has a fairly large set of people who trust it, but the set isn't nearly as large, nor the trust as great, as for the US dollar. So the bitcoin isn't as good a currency as the US dollar. At least, right now: It's possible that trust in the dollar could decrease, or that trust in bitcoin could increase. But it's also possible that it'll go the other way around.
  #74  
Old 07-13-2017, 07:55 PM
Atamasama's Avatar
Atamasama Atamasama is online now
Member
 
Join Date: Sep 2009
Posts: 2,817
Quote:
Originally Posted by DrDeth View Post
No, he went to jail for tax fraud, for not reporting income.

They cant send you to jail for not paying. Well, maybe, if you transfer your funds out in a fraudulent way to away having them seized.

The can seize your bank acct, your car, and even your house... in some cases.
This is a pretty important distinction. Al Capone certainly could have paid the taxes he owed because he was filthy rich. He ran a vast criminal empire after all.

But he couldn't report his income because his income was illegal. If he was honest about his income then he'd be confessing to the crimes that brought that income. And lying about the income was itself a crime. That's how they finally got him. His lawyer tried to argue that being forced to explain the source of his income was a 5th Amendment violation (protection against self-incrimination) but the courts disagreed. He tried to pay what he owed as part of a plea deal but the very act of offering the money was used as evidence that he'd previously evaded payment.

So in the end, it wasn't the failure to pay his debt or unwillingness to pay that put him in prison (he was both able and willing to pay) but the fact that he had previously evaded paying when he was supposed to. That's the difference between going to prison for a debt, and going to prison for fraud and/or tax evasion.
  #75  
Old 07-13-2017, 08:21 PM
LSLGuy LSLGuy is offline
Charter Member
 
Join Date: Sep 2003
Location: Southeast Florida USA
Posts: 21,035
Quote:
Originally Posted by DPRK View Post
The specific idea behind Bitcoin, according to its author, is merely that coins are randomly generated at a certain rate and that there is no control over the money supply by central banks or cartels. (Arguments can be made that it is clumsily implemented and/or has failed to achieve these design goals; for instance, for lack of better research at the time he decided to distribute the initial coins by "mining", which immediately led to the formation of mining cartels.)

So from that point of view the stated endgame for an ideal bitcoin-like currency would be something like a foreign currency except the value would be stable because it would be mathematically impossible for a national bank to devalue it (like some idealized gold bricks perhaps?). It might be interesting to debate whether this makes any economic sense.

Of course there are other forms of digital money, tokens, ledgers, etc too for various purposes.
Bolding mine.

That's a nice explanation of an economically illiterate idea. Obviously Mr. "Nakamoto" never took Econ 101. Or failed to listen in class

The "value" of a currency unit is what it buys. in other words take the total output of the relevant economy's goods and services and divide it by the number of currency units. That's how much one unit is worth. If the real economy doubles in size, the currency deflates by a factor of 2.

In order to have a stable value over time, the number of currency units must grow or shrink in lock-steps with the actual volume of goods and services produced. Modulo their shifting relative importance as e.g. more people want iPhones more than they want buggy whips.

To be sure, over time many governments for reasons fair, foul, and clueless, have failed to manage currency in lockstep. Resulting in deflation, inflation, or even hyper inflation. But the problem is in the reasons fair, foul, or cluelessness, and can't be corrected by permanently fixing the number of currency units.

We left the gold standard precisely because the total supply and distribution of reserve gold could not change at the rate required to keep up with the rapidly changing world economy.

Last edited by LSLGuy; 07-13-2017 at 08:23 PM.
  #76  
Old 07-13-2017, 08:31 PM
LSLGuy LSLGuy is offline
Charter Member
 
Join Date: Sep 2003
Location: Southeast Florida USA
Posts: 21,035
A lot of people are using the term "backing" as in "backing the currency" in conflicting and sloppy ways. Its unsurprising you're all talking past one another.

It might be worth setting that cliché word aside and instead talk about what attributes are helpful as to counter-counterfeiting, traceability / anonymity, long life, stable value, convertibility, wide acceptance, transaction costs, resistance to criminal manipulation, resistance to governmental manipulation, resilience under speculative attack, and a host of other desiderata of any currency from cowries to dollars to Bitcoin to quatloos.

Subsuming all those things under "backing" using your personal weighting of importance of each of those is unlikely to persuade anyone whose personal weighting of those factors is different.

Or so it seems to me.
  #77  
Old 07-13-2017, 09:36 PM
Hellestal Hellestal is online now
Charter Member
 
Join Date: Aug 2002
Location: Storyland
Posts: 1,993
Quote:
Originally Posted by Little Nemo View Post
I think the fact that I called it nonsense proves I understand it.
Anyone can shout NONSENSE, for good reason or for bad.

You could be calling something nonsense for bad reasons, instead of good.

I understand that you, personally, believe that your reasons are good.

But calling something nonsense does not "prove" anything.

Do you understand that there is a difference between calling something nonsense, and actually providing decent arguments that it is nonsense? Do you understand that someone can personally believe that they are providing decent arguments, while everyone else thinks their logic is less than solid?

Quote:
Originally Posted by Little Nemo View Post
It's not an issue of what kind of math is being used, so the argument you keep making is pointless. No kind of math can instill value in a currency.
And yet Bitcoins are valuable.

Objectively, we can see that they are valuable.

People trade Bitcoins for other items they deem valuable, and they do this every day.

The question, then, becomes WHY Bitcoins are valuable.

The mathematics is part of the reason -- a necessary condition -- for their value.

It is not the only reason.

But I never said it was the only reason.

Quote:
Originally Posted by Little Nemo View Post
Those are all real assets.
And is it your belief that access to useful computer code is somehow not a "real asset"?

Do you realize that companies in the US pay good valuable dollars to programmers in order to create good code?

Do not realize that customers in the US are willing to pay good money in order to have access to programs that suit their needs?

If good computer code, which businesses are willing to pay to create and customers are willing to pay to buy, is not an example of "real assets", then what exactly is it? Should companies list code that they own as a "liability" instead of as an "asset" on their balance sheet, or what?

Quote:
Originally Posted by Little Nemo View Post
No, it doesn't. Bitcoins were invented eight years ago, which means they have no extended history of holding their value.
You are now quibbling about the definition of "extended history".

But eight years and running is actually a pretty good track record.

In fact, I would even go so far as to say that eight years has proven quite decisively the value of crypto-currency in general, if not Bitcoin in particular.

I am willing to bet cold hard cash, of the governmental variety, that on any timeframe you specify, at least one cryptocurrency will have a market capitalization in excess of one million USD. I am willing to donate to the charity of your choice on this, or a personal bet, if you'd prefer.

I am also willing to give you favorable odds on this, so that more is at stake on my end than on your end.
Quote:
Originally Posted by Little Nemo View Post
As I pointed out above, they have no real assets to back them up. They fluctuate wildly in value. These are objective facts that show how unproven their ongoing value is.
Absolutely nobody in this thread is arguing that the "ongoing value" of Bitcoin has been proven.

The issue is that for the last eight years, they have had quite a bit of value. Recently, a ridiculous amount.

The question of the thread (one of the questions of the thread) is WHY they have this value.
Quote:
Originally Posted by Little Nemo View Post
As I mentioned above, bitcoins are the equivalent of tulips.
Tulips make no particular sense as a store of value.

However, crypto-currency does make a certain bit of sense as a store of value, at least for anyone who has faith in the mathematical security of the algorithms.
Quote:
Originally Posted by Little Nemo View Post
Sure, speculation can drive their price up for a while. But ultimately fundamental economic reality will reassert itself and people will realize that a bitcoin has less actual real value than a tulip bulb has.
As I said above, I'm willing to bet on any timeframe you'd prefer.
Quote:
Originally Posted by Little Nemo View Post
I notice that as your arguments get weaker, you raise the level of personal attacks.
If you believe my post consisted of personal attacks, you are free to report it. This is GQ, after all.




Quote:
Originally Posted by Buck Godot View Post
As far as them being backed up by mathematics, I could just as easily declare my toe nail clippings to be currency securely backed up by biology. They would be in limited supply that can be authenticated with DNA testing. However that doesn't actually make me the richest man in the world.
I think you might've missed my other post in this thread where I discussed an exactly analogous case.




Quote:
Originally Posted by LSLGuy View Post
Subsuming all those things under "backing" using your personal weighting of importance of each of those is unlikely to persuade anyone whose personal weighting of those factors is different.
I'm not sure that's quite correct.

This discussion is happening on multiple levels. On the deeper level, I think some people have already been persuaded by other people's definitions of backing, at least to the extent that they think those other viewpoints are reasonable. On the shallower level, that hasn't happened and will continue not to happen, but I don't think the conversation as a whole should be judged by the narrowest understanding.

Last edited by Hellestal; 07-13-2017 at 09:38 PM.
  #78  
Old 07-14-2017, 12:39 AM
Francis Vaughan Francis Vaughan is offline
Guest
 
Join Date: Sep 2009
Location: Adelaide, Australia
Posts: 4,964
Some understanding of the history of money would not go astray here.

Money has not been the thing we understand now for its entire history. It has gone through a number of major changes, many of them brought about by economic collapse and disaster. Also, money as we know it has attributes that allow an economy to operate and grow.

In his book "Money, whence it came and where it went." John Kenneth Galbraith opens with the question of what money is. He has a simple, if obtuse, answer. It exactly what you think it is. No more and no less.

Now first up, currency isn't the same as money. A currency is simply one of many ways of representing money. We already have a great number of currencies in the world. Most of them are used as units of money. We talk of electronic money. The vast majority of everyday money is already electronic. Completely independent of any discussion of crypotcurrencies there is serious work towards moving to a cashless society in modern society. Right now I could probably go for weeks without ever touching a banknote or coin. Heck there are coffee places that only takes cards. They have no facility for cash at all, as it slows them down.

There is some talk about adopting blockchain technology to effect security in transactions involving existing conventional currencies. So Bitcoin and their ilk don't have anything special going on here either.

Bitcoin is designed so that there is a limited number possible. This is a feature of Bitcoin's design, it need not be intrinsic to cryptocurrencies. But it underlines the difference between Bitcoin and a government backed currency. Dollars, Euros, Yen, etc come into existence by the action of governments. They can also (in principle) vanish out of existence. (Printing money is a sideline, almost the entire wealth of money in existence is electronic, printed and minted money is in the noise.) Control of the amount of money in existence is critical to maintaining its utility. If we had a cowrie shell economy and someone discovered a huge mound of cowrie shells on a secluded beach, the economy would collapse.

So Bitcoin has away of controlling the amount of money, and provides a reward for generating currency. The value of a Bitcoin is currently mostly tied to the investment needed to create a new one. Which is the core problem with it. Once it is not possible to mine any more, what happens to the Bitcoin value? There will be vast numbers of computer facilities that in principle are now supposed to make money by providing services to the Bitcoin economy. But right now the economy is built on the ability of miners to create new money. The exchange rate for US dollars reflects the cost of making a new Bitcoin. So if I wish to purchase one, I am essentially paying for compute power. When mining becomes exhausted, or it becomes essentially impossible to compute new ones, the economy of mining will cease. Now it becomes essentially impossible to directly place a dollar value on a Bitcoin. You can come up with a secondary value - how much compute is needed to validate a transaction, and thus if you take a percentage of the transaction value, you can get a loose proxy for its value. But this depends upon the activity of the Bitcoin economy. To work it needs to have an active economy. And that economy has to be able to work with no internal industry driving it in the manner that mining currently does.

Which brings us to the overwhelming difference between Bitcoin and ordinary money. Money as we use it today enables the economy. It isn't just the unit of conversion of goods and services, the structure of money allows the economy to grow. And of course it does this via financial services. I can make money with money. Banks lend money, and the ability to borrow underpins the ability of the economy to work. This brings us to fractional reserve banking. This is how most money comes into existence. Control of this is the key point of how governments "back" their currency. Each currency has some central clearing mechanism that moves the real money about between banks. And the banks that subscribe to this are heavily regulated to ensure that confidence in the system is maintained. Ultimately this confidence is rooted in the most basic of assurances. No matter what, even if every client of a bank demands that they get their money today, the bank will be able to do so. Even if this means the backing government has to step in. It is this assurance that creates stability in the economy and allows it to function.

Bitcoin has no such backing. There is no reason anyone could not establish a lending bank for Bitcoin. No reason they could not indulge in fractional reserve banking. But absolutely no mechanism to ensure that if there is a run on the bank that there will be any money in there. This is the money of a couple of hundred years ago.

When Bitcoin first came out there was a FAQ section on their Website. In it the question of a run on Bitcoin happening and what would happen was discussed. They answer was simple. By then the Bitcoin economy would be so important that it would be "to big to fail" and the US government would find it politically impossible not to bail a failing bank out. Needless to say this page is now long gone.

But the underlying question of the difference between Bitcoin and a government backed currency is clear. The central banks in countries all around the world have a deal with their governments, a deal that has underpinned the stability of modern economies. The governments guarantee the banks, and in return the banks agree to abide by a range of regulations that control how they operate. In particular these regulations impose a minimum fractional reserve that a bank must hold, and impose rules on the range of investments (ie loans) that a bank may undertake. For instance highly leveraged speculation on the stock market is often frowned upon. The Fannie May and Freddy Mac failures in the US underpinned the difference in banks here. They were not as regulated, and they did fail. The government did bail them out, even though it did not actually have to. But post bailout those banks no longer have the freedom to operate as they did.

Economies need unregulated riskier banks. But if you bank with them you understand that you are taking a risk that may see you loose the lot. If you are a start-up company or need fast money to cover cashflow you will be talking to these banks for loans. Similarly, if you have a lot of money, and want to get a better return on it, and are willing to take the risks, you invest in these banks.

IMHO there is scant chance Bitcoin will ever underpin an economy of such vibrancy that failure of a bank will attract a bailout from any government. Most likely, post mine-out the Bitcon economy will collapse. It may struggle on, probably with a greatly diminished exchange rate for a while. If there are failures, or more large scale frauds, nobody will care except those that lost their Bitcoins.
  #79  
Old 07-14-2017, 02:27 AM
GreenWyvern's Avatar
GreenWyvern GreenWyvern is offline
Guest
 
Join Date: Jan 2008
Location: Cape Town
Posts: 1,202
Nobody has yet mentioned that the Japanese Government has now recognized Bitcoin as legal tender - with severe Government regulations.

Bitcoin dealers must apply for a license costing about $300,000.
They must additionally deposit about $100,000 in contingency funds to a government account.
They must prove that they have a sufficient IT infrastructure.
They must have an approved training program for employees.

All customers must provide Government-approved identity documents.
There is a process in place for verification of physical addresses of customers.
Customers must provide full personal information, including profession and reason for Bitcoin transactions.

Dealers must keep records of all customers.
Dealers must keep records of all transactions.
These records must be available to the Japanese Government.

Bitcoin holdings are subject to capital gains tax.

Subject to these restrictions, Bitcoin transactions with registered dealers are now legal tender in Japan.

The Japanese Government is closely monitoring the situation, and may modify these regulations as necessary.
  #80  
Old 07-14-2017, 03:06 AM
Francis Vaughan Francis Vaughan is offline
Guest
 
Join Date: Sep 2009
Location: Adelaide, Australia
Posts: 4,964
Sounds more like they are treating Bitcoins as a traded commodity. Which is fine. If I am a Japanese citizen am I legally required to accept Bitcoin as payment instead of Yen? Does the government accept Bitcoin as payment of taxes? If not, it isn't legal tender.
  #81  
Old 07-14-2017, 04:05 AM
GreenWyvern's Avatar
GreenWyvern GreenWyvern is offline
Guest
 
Join Date: Jan 2008
Location: Cape Town
Posts: 1,202
Quote:
Originally Posted by Francis Vaughan View Post
Sounds more like they are treating Bitcoins as a traded commodity. Which is fine. If I am a Japanese citizen am I legally required to accept Bitcoin as payment instead of Yen? Does the government accept Bitcoin as payment of taxes? If not, it isn't legal tender.
It's difficult to get clear and definite information, but as far as I can make out the Japanese Government will accept payment of taxes in Bitcoin via authorized dealers. Obviously nobody is required to accept Bitcoin instead of Yen. It's just an option.

So I suppose you could say it's quasi-legal tender.
  #82  
Old 07-14-2017, 04:11 AM
jz78817 jz78817 is offline
Guest
 
Join Date: Aug 2010
Location: Under Oveur & over Unger
Posts: 11,758
Quote:
Originally Posted by GreenWyvern View Post
It's difficult to get clear and definite information, but as far as I can make out the Japanese Government will accept payment of taxes in Bitcoin via authorized dealers. Obviously nobody is required to accept Bitcoin instead of Yen. It's just an option.

So I suppose you could say it's quasi-legal tender.
which means the dealers/exchanges convert it to yen with which they pay the government.
  #83  
Old 07-14-2017, 04:22 AM
Francis Vaughan Francis Vaughan is offline
Guest
 
Join Date: Sep 2009
Location: Adelaide, Australia
Posts: 4,964
Quote:
Originally Posted by GreenWyvern View Post
It's difficult to get clear and definite information, but as far as I can make out the Japanese Government will accept payment of taxes in Bitcoin via authorized dealers.
Sounds as if they are happy for those dealers to pay them in Yen. The trick would be about to who takes the hit on exchange rate variations. I very much doubt you will find any government provide a statement of monies owing that is cast in more than one currency. When a government agrees that your debts to them are a fixed number of Bitcoins, then it is legal tender. I would imaging you go to a dealer with your Bitcoin and tell them how many Yen you need, and to pay the government. It won't be the government that is short if the exchange rate drops.

Currently it seems that the government will let you turn your Bitcoin into Yen via any of their authorized dealers (ie those with all the tracking and the $300,000 + $100,000 to spare) and then will let you use that money to pay them; with the slight allowance that the dealer might be able to transfer the money directly - which of course the government will love as it sheets home the provenance of the money. No messy bags full of untraceable cash.

Again, here Bitcoin is a commodity, not a currency.
  #84  
Old 07-14-2017, 07:42 AM
LSLGuy LSLGuy is offline
Charter Member
 
Join Date: Sep 2003
Location: Southeast Florida USA
Posts: 21,035
Quote:
Originally Posted by Hellestal View Post
...
I'm not sure that's quite correct.

This discussion is happening on multiple levels. On the deeper level, I think some people have already been persuaded by other people's definitions of backing, at least to the extent that they think those other viewpoints are reasonable. On the shallower level, that hasn't happened and will continue not to happen, but I don't think the conversation as a whole should be judged by the narrowest understanding.
Overall I agree with your POV on Bitcoin as it's been fleshed out over your several posts.

Yet right now the big tit-for-tat marring the thread is the two of you essentially arguing over competing versions of the word "backing". Rather than unpacking the bundle into the various components that give rise to the idea in society that money is somehow "backed" and therefore safe (enough) to take and give in exchange for real goods and services. As well as safe (enough) to hold over some span of time between the taking and the giving.

IOW ... IMO what most folks mean by "backing" is the nebulous something(s) that makes them believe the currency/money is safe (enough) to use. There are a lot of necessary conditions and no single sufficient condition. Attempting to defend a single most-necessary condition is IMO a fool's errand.


Quote:
Originally Posted by Francis Vaughan View Post
Some understanding of the history of money would not go astray here.
...
If there are failures, or more large scale frauds, nobody will care except those that lost their Bitcoins.
A beautiful post. Thank you. Had it appeared earlier in the thread there'd be more light and less heat.

Which also demonstrates that Bitcoin and the rest of their ilk are ultimately misnamed. It's a cryptomoney, not a cryptocurrency. Which mis-naming invites all sorts of failures to communicate and failures to understand.

Admittedly one of the goals of Bitcoin specifically was to retain the anonymity of ordinary paper cash & metal coinage. They weren't necessarily trying to create a money, only a currency. But it was economically and historically illiterate of "Nakamoto" to think he could create a currency that wasn't also a money.

Last edited by LSLGuy; 07-14-2017 at 07:46 AM.
  #85  
Old 07-14-2017, 08:17 AM
HMS Irruncible HMS Irruncible is online now
Guest
 
Join Date: Nov 2004
Posts: 7,712
Quote:
Originally Posted by Little Nemo View Post
That is absolute nonsense.

If bitcoins collapse in value, what am I supposed to do? File a lawsuit against pure mathematics? Put a lien on its assets? March outside the mathematics embassy and call for a boycott of mathematical goods? Threaten to break mathematic's knees?
What are you supposed to do if the dollars in your mattress collapse in value? Protest on the steps of the US Treasury to demand an equivalent quantity of gold? Nixon ended that in 1971.
  #86  
Old 07-14-2017, 08:49 AM
Martini Enfield Martini Enfield is offline
Guest
 
Join Date: Mar 2006
Location: Australia
Posts: 10,407
One of the big issues with cryptocurrencies is they're only accessible to a fairly small percentage of the population.

Be honest: Would your parents* know how to get Bitcoin without looking it up on the internet?

Let's be fair here: Even small children are aware of the concept of "money" and if you asked a bunch of five year olds where money came from, the answers will probably be variations on "Mummy or daddy's wallet" or "A secret tree where it grows" or "Iron Man". The point is, they know that money is a physical thing which comes from somewhere and can be exchanged for toys and lollies and iced creams.

Not only are cryptocurrencies hard to obtain for the average punter, they're even harder to spend. Sure, there's the odd hipster cafe or pizza place that accepts them, but it's not like you can take them to your local Big Chain Supermarket and use them to buy food, or pay your power bill with them, or use it for your rent or mortgage... you get the idea.

To the average person in the street, Bitcoin is for nerds, people buying drugs and other highly illegal shit off the Dark Net, and something to do with ransomware demands.

What would be interesting would be to see what happened in the government of a fairly small country like Nauru or East Timor decided to make a cryptocurrency their national currency. Ultimately, money is worth what it's worth because the government says it is and everyone believes them - so what if the government said money is worth whatever the computer algorithm says it is?

The idealist in me would like to think it'd be an interesting experiment but the realist in me thinks the situation would end up more like somewhere such as Venezuela or the Soviet Union.



*Not yours, Mr or Ms "My parents are computer scientists at Cambridge" SDMB poster
  #87  
Old 07-14-2017, 09:06 AM
HMS Irruncible HMS Irruncible is online now
Guest
 
Join Date: Nov 2004
Posts: 7,712
Good and interesting post, but I have to take issue with this part:

Quote:
Originally Posted by Francis Vaughan View Post
The value of a Bitcoin is currently mostly tied to the investment needed to create a new one. Which is the core problem with it. Once it is not possible to mine any more, what happens to the Bitcoin value? There will be vast numbers of computer facilities that in principle are now supposed to make money by providing services to the Bitcoin economy. But right now the economy is built on the ability of miners to create new money. The exchange rate for US dollars reflects the cost of making a new Bitcoin. So if I wish to purchase one, I am essentially paying for compute power.
I think you have a misunderstanding here. The mining reward is determined algorithmically and is paid directly to the miner in bitcoin. The miner expects their marginal profit to be driven by anticipated market price minus marginal cost of mining. The value of the coin itself is based on its expected utility as a store of value.

The cost of production does contribute to a "floor" on value in that miners won't work unless the projected coin value is less than their outlay in computing power. The coin I hold right now represents much more in dollars than the power required to produce it. Conversely if everyone stopped using bitcoin, I wouldn't be able to retrieve an equivalent value of computing power. So as you can see, bitcoin's value is tied much more to demand as a store of value than the actual cost of producing it.

Quote:
When mining becomes exhausted, or it becomes essentially impossible to compute new ones, the economy of mining will cease. Now it becomes essentially impossible to directly place a dollar value on a Bitcoin. You can come up with a secondary value - how much compute is needed to validate a transaction [...]
As I explained above, value of bitcoin is only indirectly related to its convertability to compute power. When mining becomes prohibitive, bitcoin value will be driven entirely by its utility as a means of exchange and a store of value. When Japan legitimized use of bitcoin, the price quadrupled... not because of any change in computing power, but because more people wanted the utility of bitcoin (and some speculation, to be fair).

To draw analogy to a real commodity... the economy of gold doesn't rise and fall based on how much it will cost to mine new gold. Nor so much whether people want to use it as raw material in real products. Its price fluctuations are due to its exchange rate with other stores of value, because gold itself is seen as a store of value. Should we ever be unable to mine new gold, people will continue to use it in this way, and its price should increase due to scarcity.
  #88  
Old 07-14-2017, 09:16 AM
jz78817 jz78817 is offline
Guest
 
Join Date: Aug 2010
Location: Under Oveur & over Unger
Posts: 11,758
Quote:
Originally Posted by HMS Irruncible View Post
What are you supposed to do if the dollars in your mattress collapse in value? Protest on the steps of the US Treasury to demand an equivalent quantity of gold? Nixon ended that in 1971.
that's just it. the USD is the major "reserve" currency held the world around. If the USD collapses in value, the world is already in bad shape and Bitcoin (or any other cryptocurrency) is not going to do anyone any good.

if the value of Bitcoin collapses, only a handful of nerds will care.

Quote:
As I explained above, value of bitcoin is only indirectly related to its convertability to compute power. When mining becomes prohibitive, bitcoin value will be driven entirely by its utility as a means of exchange and a store of value.
which means- since BTCs are finite in number- it's "deflationary" which is not necessarily a good thing in a modern economy.

Quote:
because gold itself is seen as a store of value. Should we ever be unable to mine new gold, people will continue to use it in this way, and its price should increase due to scarcity.
this is what I don't get about people who argue gold standard vs. "fiat currency." What is gold's inherent value? What is it useful for? Why is its stated value any less of a fiction than "fiat" money?

Last edited by jz78817; 07-14-2017 at 09:21 AM.
  #89  
Old 07-14-2017, 09:18 AM
Hellestal Hellestal is online now
Charter Member
 
Join Date: Aug 2002
Location: Storyland
Posts: 1,993
Quote:
Originally Posted by LSLGuy View Post
Yet right now the big tit-for-tat marring the thread is the two of you essentially arguing over competing versions of the word "backing".
Yet I didn't personally mention "backing" at all in my last post, except with you tagged at the end. It's difficult to tat something with no more tit.

No, that's not it. What is causing the discomfiture of people who might prefer to scroll down, than to wade through, is the more fundamental notion of why things have value in the first place. That is the locus of the very, very bad arguments in this thread, and it is those bad arguments that I have focused exclusively on, not any particular definition of "backing". Quite to the contrary, I have fully accepted other people's different notions of backing, as long as those notions managed the minimum requirement of being self consistent.

That has, unfortunately, not always been the case. Even basic self-consistency has been too high a hurdle.

The nature of the inconsistency has been pretty much constant in the given arguments, appearing in one of two ways: first, the argument that X has no particularly value, therefore Y should also have no particular value. The problem is that all of the many manifold differences between X and Y are comprehensively ignored. (Bitcoin vs sudoku puzzles is the most egregious example of this but there are others.) The second path of bad argument: Y and Z are manifestly different, therefore it makes sense that Z has value and Y does not have value. Except that the reasons given for Y and Z to be different are either pre-defined to make them different, or when they are made properly general, it's clear that the general notion encompasses both Y and Z equally. (The most ridiculous example here being the football owner analogy, in which literally every sentence remained correct after a replacement to Bitcoin was done. Y and Z were equally valid, according to the actual argument given, but as soon as that was pointed out it was ignored.)

Now, you can personally appreciate the meta-argument I'm making right now in this post. You are blessed with full literacy in English. You just don't care, which is why the thread has been "marred" in your view.




Maybe I personally have a skewed perspective on this myself, but I nevertheless believe that this is important.

I'm something of a collector of economic fallacies. I see a lot of them, I sift through them, I categorize them. Fallacies about "value" are particularly interesting because they are so very fundamental to everything else. And that is what the tit-for-tat is actually about. Not: what is backing, but rather, what is value? What does it mean for something to be valuable? What does it mean for something to be reasonably valuable? And maybe you don't believe it, but the discussion is actually getting close to the kernel of this problem. That is what the whole "real assets" thing is all about, which is why so much of my last post focused on it. Some assets are real, you say? Okay then, what makes them real? I have starkly simplified my posts for the specific reason of focusing on those very fundamental questions, partly because higher-level discussion was clearly pointless but also because those fundamental questions interest me.

Given the track record of this thread, I should not reasonably expect a consistent answer to those questions.

But I might just see an answer that I haven't seen before.




You're interested in the other aspects of this conversation, like the difference between crypto-currency and crypto-money. That's a very important thing to discuss. In fact, I've been down that path before. I was personally saying on this board in 2011 that Bitcoin seemed to work more like a virtual gold than it did a genuine currency. (I misunderstood some technical things at the time, but still, a decent thread.)

But I can dig up that thread if you want to see what I mean about collecting fallacies: people were making some of the same errors six years ago that other people are making today. Misunderstandings about money tend to follow patterns, and I tend to study those patterns. What I've landed on here is something that, for the moment, seems different from what I've ever seen before. Part of that might merely be how spectacularly defective the "logic" has been, but another part of it seems to be how a poster might approach the question of what makes an asset "real" vs... something else.

Is the code owned by a company a "real asset"? If it's not a "real asset", then what exactly makes it not qualify? Why do people pay for it if it's not "real"? That's where I want this to go. I just have to put the steps on the logical path much closer together, in this particular case, than most of us are accustomed to handling.
  #90  
Old 07-14-2017, 09:40 AM
GreenWyvern's Avatar
GreenWyvern GreenWyvern is offline
Guest
 
Join Date: Jan 2008
Location: Cape Town
Posts: 1,202
Quote:
Originally Posted by HMS Irruncible View Post
When Japan legitimized use of bitcoin, the price quadrupled...
Just so you know...

Bitcoin falls to near one-month low with $12 billion wiped off value since record high 30 days ago (Wed 12 July)

The bitcoin price hit a near one-month low on Wednesday of $2,272.32.
Bitcoin's market capitalization is off around $12.2 billion since it's all-time high of $3,025.47 on June 11.


On May 12 Bitcoin was trading at $1677.

So May 12 - Jun 11: up 80%
Jun 11 - July 12: down 25%

On Nov 25, 2013 it was $979
On Aug 24, 2014 it was $224

This kind of volatility makes it great for speculators who want to gamble, but not so great for a reliable currency.
  #91  
Old 07-14-2017, 10:11 AM
HMS Irruncible HMS Irruncible is online now
Guest
 
Join Date: Nov 2004
Posts: 7,712
Quote:
Originally Posted by GreenWyvern View Post
Just so you know...

Bitcoin falls to near one-month low with $12 billion wiped off value since record high 30 days ago (Wed 12 July)

The bitcoin price hit a near one-month low on Wednesday of $2,272.32.
Bitcoin's market capitalization is off around $12.2 billion since it's all-time high of $3,025.47 on June 11.
Thank you for demonstrating my point that computing power isn't the major determinant of bitcoin price. As the market value is whipsawing around, it's nothing to do with the cost of mining a new coin.

It's perfectly fine to argue "I find it too volatile to be reliable". That's an individual judgment based on your personal risk tolerance. I can't critique someone's personal risk tolerance... only their risk assessment (in areas where I'm familiar). But Bitcoin is at a market cap of $38 billion. Clearly a large number of people are comfortable with the risk.
  #92  
Old 07-14-2017, 10:27 AM
HMS Irruncible HMS Irruncible is online now
Guest
 
Join Date: Nov 2004
Posts: 7,712
Quote:
Originally Posted by jz78817 View Post
that's just it. the USD is the major "reserve" currency held the world around. If the USD collapses in value, the world is already in bad shape and Bitcoin (or any other cryptocurrency) is not going to do anyone any good.
My argument isn't that crypto is better or worse than dollars. I'm just pointing out that the value of dollars depends on items of faith that Bitcoin doesn't.

Quote:
this is what I don't get about people who argue gold standard vs. "fiat currency." What is gold's inherent value? What is it useful for? Why is its stated value any less of a fiction than "fiat" money?
That's a different argument. I'm not a gold bug, so I won't argue strongly for it. But gold does have lots of industrial and scientific use, and it's a scarce metal, so there are real supply/demand dynamics that partly drive its value. However I believe most of its price is from its utility as a currency risk hedge. Not a very compelling strategy if all your savings are in dollars, but maybe a pretty good idea if your nest egg was in Venezuelan bolivars.
  #93  
Old 07-14-2017, 10:37 AM
LSLGuy LSLGuy is offline
Charter Member
 
Join Date: Sep 2003
Location: Southeast Florida USA
Posts: 21,035
Quote:
Originally Posted by Hellestal View Post
Yet I didn't personally mention "backing" at all in my last post, except with you tagged at the end. It's difficult to tat something with no more tit.
...
I just have to put the steps on the logical path much closer together, in this particular case, than most of us are accustomed to handling.
Thank you for the time and effort on a fine post.

You saw rightly that I had lost interest in the current state of the tit-for-tatting and so my last comment directed at you was obsolete by a couple posts; it was a rehashing of yesterday afternoon's battles. I apologize; that was sloppy of me.


I think you're spot-on with the thought that "what is value and how can we recognize it?" is the center of much of economics in general and the study of money in particular. And that confusion (more like unexamined assumptions from childhood) on this point is certainly the root of most of the various ill-founded contentions of the various posters.


IMO you were right in 2011 that Bitcoin was/is (mostly) a virtual gold. Or a Francis and HMS Irruncible said recently, it behaves more like a virtual commodity than a virtual currency/money. The end of Bitcoin mining will be a watershed event. But not in the apocalyptic sense Francis proposed. It will definitely be the beginning of a new phase in Bitcoin's history. A phase marked perhaps by ongoing growing real demand with no countervailing increase in supply. IOW, a monopolist speculator's ultimate wet dream. Hence the anticipatory buying even now well in advance of the event.


Just as we see with actual commodities, great bubbles and slumps can happen for reasons either fully logical or utterly irrational. Most often a mix of both.

The humor IMO is in the gold bugs who say a bull run in gold isn't an irrational rise in the "value" of gold, but rather a rational drop in the "value" of e.g. dollars or yen. ISTM the original Bitcoinistas were/are cut from the same cloth. Most current Bitcoin holders (distinct from transactional users) are ordinary financial speculators, albeit those willing to work in unusual assets, not just e.g. NYSE common stock. They're chasing trading gains, not following an ideology.

Last edited by LSLGuy; 07-14-2017 at 10:41 AM.
  #94  
Old 07-14-2017, 10:48 AM
jz78817 jz78817 is offline
Guest
 
Join Date: Aug 2010
Location: Under Oveur & over Unger
Posts: 11,758
Quote:
Originally Posted by HMS Irruncible View Post
My argument isn't that crypto is better or worse than dollars. I'm just pointing out that the value of dollars depends on items of faith that Bitcoin doesn't.
well, USD is technically "backed" by the US economy, no? That can be quantified via various measures e.g. GDP. There's always uncertainty but I don't see that as requiring a ton of "faith."
  #95  
Old 07-14-2017, 11:11 AM
Francis Vaughan Francis Vaughan is offline
Guest
 
Join Date: Sep 2009
Location: Adelaide, Australia
Posts: 4,964
Quote:
Originally Posted by HMS Irruncible View Post
The cost of production does contribute to a "floor" on value in that miners won't work unless the projected coin value is less than their outlay in computing power.
No, I agree with you here. I was really trying to say that the conversion value of Bitcoin is going to be within some reasonable range of the cost of creation. Obviously, while Bitcoins are being regularly minted one would expect the cost of production to represent a pretty solid floor. If it costs (say) $1000 in compute and power to mine a Bitcoin, one would not expect Bitcoins to trade for $100 or $10,000. Any premium over the cost of creation represents the speculative value some see in it. One would expect this ratio to be much the same no matter what the creation cost was, as it depends upon current sentiment and expectations. Thus Bitcoin value is creation cost * market sentiment ratio. When Bitcoins cease to be mined, this ceases to work.

Quote:
When mining becomes prohibitive, bitcoin value will be driven entirely by its utility as a means of exchange and a store of value.
We agree here as well. My point is that right now there is an internal economic engine inside the Bitcoin economy. Mining coins is paid for in coins. Trading in coins is paid for in coins. The economy is expanding as there are more coins being mined. How Bitcoin transitions from an expanding economy where money can be made mining to a static one where money can only be made with services is not clear. Economies provide significant multiplier effects over the value of the core "engine". Whether Bitcoin has enough utility outside its own microcosm to survive when it loses its internal engine is another matter. Dark Web and ransoms won't cut it. IMHO it won't survive it. But that opinion is worth what you paid for it. (And I'll take that in US Dollars thanks.)
  #96  
Old 07-14-2017, 11:13 AM
Chronos's Avatar
Chronos Chronos is online now
Charter Member
Moderator
 
Join Date: Jan 2000
Location: The Land of Cleves
Posts: 81,355
Quote:
Quoth HMS Irruncible:

My argument isn't that crypto is better or worse than dollars. I'm just pointing out that the value of dollars depends on items of faith that Bitcoin doesn't.
True, but largely irrelevant, because the dollar does in fact have the needed faith.
Quote:
Quoth jz78817:

well, USD is technically "backed" by the US economy, no?
In a sense, but only because most actors in the US economy have faith in dollars. If people ceased to have that faith, then the US dollar would cease to be backed by the economy. If enough people decided that bitcoin was more trustworthy than dollars, then the dollar would collapse, even while the US economy continued to hum along. At that point, you would be able to fairly state that bitcoin was backed by the US economy.
  #97  
Old 07-14-2017, 12:15 PM
Ramira's Avatar
Ramira Ramira is offline
Member
 
Join Date: Jan 2003
Posts: 3,740
Quote:
Originally Posted by Hellestal View Post
Is the code owned by a company a "real asset"?
Not in the sense we use it in the operating world of the investment and finance. The real asset is the physical asset.


Quote:
If it's not a "real asset", then what exactly makes it not qualify?
Not being a physical thing like a building or a machine.

Unfortunately the usage of 'real asset' is often mistaken by the non professionals not used to the financial economics jargon as being the moral statement (real = good).

And in the opposite, the non-real assets seens as not being actually 'good' or genuinely valuable assets.
  #98  
Old 07-14-2017, 12:27 PM
BeepKillBeep BeepKillBeep is online now
Guest
 
Join Date: Jul 2014
Location: Canada
Posts: 2,441
So I asked the professor about the effect of quantum computing on Bitcoin. In short, and I am paraphrasing here, quantum computing can make mining a cryptocurrency, such as Bitcoin, easier. Quantum computing would likely render Bitcoin dead, as it could be used to crack the crypto. However, some people are already developing quantum-resistant (they claim immune) cryptocurrencies. Also, the kind of quantum computers needed to assault even Bitcoin simply don't exist nor are likely to exist very soon without an unexpected breakthrough.
  #99  
Old 07-14-2017, 12:47 PM
Lemur866's Avatar
Lemur866 Lemur866 is offline
Charter Member
 
Join Date: Jul 2000
Location: The Middle of Puget Sound
Posts: 22,343
Quote:
Originally Posted by Francis Vaughan View Post
No, I agree with you here. I was really trying to say that the conversion value of Bitcoin is going to be within some reasonable range of the cost of creation. Obviously, while Bitcoins are being regularly minted one would expect the cost of production to represent a pretty solid floor. If it costs (say) $1000 in compute and power to mine a Bitcoin, one would not expect Bitcoins to trade for $100 or $10,000.
I'm not sure I agree with this. It could cost $1000 to mine a new Bitcoin, and the value of that new Bitcoin could be $1, or $0. If no one wants to trade your new Bitcoin for a new hamburger, then your Bitcoin won't be worth a thing, it's just a mathematical curiosity. Sure, nobody would mine new Bitcoins if it costs $1000 and Bitcoins are trading below $1000. That doesn't mean Bitcoins can't fall below that cost. And of course Bitcoin mining gets harder and harder as each new one is mined, and it will eventually stop when all possible Bitcoins have been mined. And that makes the cost of mining a new one infinite. But when that happens, the already existing Bitcoins will not have infinite value.

I don't see how Bitcoin mining actually provides value. Sure, it's a method of creating new Bitcoins, and it's how the current stock of Bitcoins were created and assigned original ownership. But that was just a way to create a supply of Bitcoins and put them in the hands of people who would use them. If I were to design Lemurcoin, I wouldn't have the mining feature, I'd just give myself all of the original Lemurcoins, and then spend them on hamburgers. Of course I'd have a hard time finding a person willing to exchange Lemurcoins for hamburgers. But mining isn't a way for people to provide some economic service which is then paid automatically in Bitcoins. It's just a way of creating Bitcoins. If those Bitcoins have an exchange value then it's valuable to mine Bitcoins. If they don't, it isn't.

Bitcoin has a major advantage over Lemurcoin, in that people really do exist who will accept Bitcoins as payment, and there does not exist even one person who will accept Lemurcoins. That means even if you think Bitcoins are ultimately nonsense, you might very well use Bitcoins as a medium of exchange, because you know that as of today there really are people who really will accept it. You might not want to hold Bitcoins longer than it takes to complete your transaction, but even with the wild speculative swings in the value of Bitcoin you probably won't get wiped out if you used them for only an hour or so. And it's hard to imagine anything that would cause the value of Bitcoin to drop to zero in just a few days. I mean, it's easy to imagine the value of any hypothetical cryptocurrency dropping to zero, Lemurcoins just did.

But even if there are forces that will eventually drop Bitcoin to zero, it's not going to happen literally overnight, it's going to take some time. So while holding Bitcoins is very risky, transacting in Bitcoins is only slightly risky. And the main risk is not that Bitcoins will drop radically in value as you're using it, the main risk is that you don't know what you're doing and will screw up somehow and do it wrong and send your money to some guy in Nigeria and get a bag of wooden nickels instead of Bitcoins.

If the real use of Bitcoins is as a medium of exchange so you can buy and sell electronically, you can already do almost all of that much more easily with dollars. If I want to send money to some guy in Nigeria, I can send him dollars, I don't need to use Bitcoins. The only reason I might want to use Bitcoins is if I don't want a record of that transaction to exist. The problem is that the record of the transaction does exist, it's in the blockchain. The good thing is that the relationship between me, the Bitcoin transaction, and the Nigerian guy might be hard to establish.

And of course a Bitcoin bank could exist, and one famously did, MtGox. And it ceased operation in a manner similar to the early history of banks when somebody stole all the deposits and skittered away into the night.

Last edited by Lemur866; 07-14-2017 at 12:52 PM.
  #100  
Old 07-14-2017, 01:01 PM
davidm's Avatar
davidm davidm is online now
Charter Member
 
Join Date: Mar 2002
Location: Near Philadelphia PA, USA
Posts: 12,150
Quote:
Originally Posted by BeepKillBeep View Post
So I asked the professor about the effect of quantum computing on Bitcoin. In short, and I am paraphrasing here, quantum computing can make mining a cryptocurrency, such as Bitcoin, easier. Quantum computing would likely render Bitcoin dead, as it could be used to crack the crypto. However, some people are already developing quantum-resistant (they claim immune) cryptocurrencies. Also, the kind of quantum computers needed to assault even Bitcoin simply don't exist nor are likely to exist very soon without an unexpected breakthrough.
Right, but the developer(s) designed it to have an indefinite lifetime, and the fan boys seem to believe this, but quantum computing will almost certainly obsolete the current blockchain at some point.

The only possible salvation I can see is if there's a point during the evolution of quantum computing where an unbreakable quantum based coin can be created, but the current blockchain can't be hacked.

At that point, if such a point ever exists, bitcoin could be converted to the new quantcoin before obselescence. Of course that would require some sort of centralized trust and control that would be anathema to the "libertarian spirit" of the bitcoin community.
__________________
Check out my t-shirt designs in Marketplace. https://boards.straightdope.com/sdmb...php?p=21131885

Last edited by davidm; 07-14-2017 at 01:02 PM.
Reply

Bookmarks

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is Off
HTML code is Off

Forum Jump


All times are GMT -5. The time now is 06:59 PM.

Powered by vBulletin® Version 3.8.7
Copyright ©2000 - 2019, vBulletin Solutions, Inc.

Send questions for Cecil Adams to: cecil@straightdope.com

Send comments about this website to: webmaster@straightdope.com

Terms of Use / Privacy Policy

Advertise on the Straight Dope!
(Your direct line to thousands of the smartest, hippest people on the planet, plus a few total dipsticks.)

Copyright © 2018 STM Reader, LLC.

 
Copyright © 2017