Cryptocurrencies and the economy

[Dr. Keith]

It won't be long before somebody decides that the corona virus is a good analogy for bitcoin.

When an item has little use but high value I think of tulips. What do you think of?

 

[Belz...]

"Debasement" sounds like a made-up problem anyway. The issue isn't with printing money but stagnant wages and stupid tax laws.

 

[Tippit]

It seems like the cure is worse than the disease.

Everything wrong with fiat currencies is even more wrong with cryptocurrencies.

You mean, everything wrong with fiat currencies is even more wrong with inflationary cryptocurrencies. Deflationary crypto, like bitcoin, attempts to restore an honest, static measure of value, which, it clearly has, when measured against its price in fiat Federal Reserve Notes.

 

[Belz...]

You mean, everything wrong with fiat currencies is even more wrong with inflationary cryptocurrencies.

Deflationary economies are far worse than inflationary ones. Inflation encourages spending; deflation encourages hoarding.

But you still haven't managed to support the rest of your claims, so I don't expect you to support this one.

 

[Meadmaker]

You mean, everything wrong with fiat currencies is even more wrong with inflationary cryptocurrencies. Deflationary crypto, like bitcoin, attempts to restore an honest, static measure of value, which, it clearly has, when measured against its price in fiat Federal Reserve Notes.

The problem I see is that it's only deflationary as long as everyone agrees to only use bitcoin.

Suppose someone creates Bitcoin II? Now you have exactly the same problem, unless everyone shuns the use of Bitcoin II, but keeps using Bitcoin.

(And we can call Bitcoin II Dogecoin, or Ethereum.....or.....what next?)

Bitcoin is deflationary, but crypto-currency in general is inflationary. Indeed, it's hyperinflationary. Everyone has the option of printing new money and it will be used or not used based on the whims of the users. A change in psychology could turn fortunes to dust, or dust to fortunes.

 

[Tippit]

The problem I see is that it's only deflationary as long as everyone agrees to only use bitcoin.

Suppose someone creates Bitcoin II? Now you have exactly the same problem, unless everyone shuns the use of Bitcoin II, but keeps using Bitcoin.

This has already essentially happened, in a fork called Bitcoin Cash (BCH) hawked by Roger Ver. I'm not keen on the precise technical differences, but I assume that it is still deflationary. I don't know how much the "supply" of this competing crypto has affected the demand for Bitcoin, but I am pretty sure it has.

(And we can call Bitcoin II Dogecoin, or Ethereum.....or.....what next?)

Bitcoin is deflationary, but crypto-currency in general is inflationary. Indeed, it's hyperinflationary. Everyone has the option of printing new money and it will be used or not used based on the whims of the users. A change in psychology could turn fortunes to dust, or dust to fortunes.

The network effect, and costs of switching will probably ensure that Bitcoin remains on top, at least into the intermediate future, for the same reason that while it wasn't a monumental feat to introduce a competitor for Microsoft Windows back in the days when it was a worse than sub-par operating system, it wasn't economically feasible to compete with MSFT.

I think when the "dust" settles, most of the crypto pretenders (or ◊◊◊◊◊◊◊◊◊, if you will) will go to zero, and a few with specialized uses will consolidate the market. Alternatively, "de-fi" will become a thing, and companies will increasingly turn to issuing digital tokens to generate revenue and raise capital.

 

[Meadmaker]

This has already essentially happened, in a fork called Bitcoin Cash (BCH) hawked by Roger Ver. I'm not keen on the precise technical differences, but I assume that it is still deflationary. I don't know how much the "supply" of this competing crypto has affected the demand for Bitcoin, but I am pretty sure it has.



The network effect, and costs of switching will probably ensure that Bitcoin remains on top, at least into the intermediate future, for the same reason that while it wasn't a monumental feat to introduce a competitor for Microsoft Windows back in the days when it was a worse than sub-par operating system, it wasn't economically feasible to compete with MSFT.

I think when the "dust" settles, most of the crypto pretenders (or ◊◊◊◊◊◊◊◊◊, if you will) will go to zero, and a few with specialized uses will consolidate the market.

I'm confident of the "going to zero" part. I'm just not sure I understand why that won't happen to all of them, including bitcoin.

I decided to look at google news for "cryptocurrency" today. It seems Dogecoin is up 12,000% since January, and that a brand new crypto callled "chia" might make hard drives more expensive. I can't see any good coming of this.

 

[Tippit]

Just to expand on the trend towards digital tokenization, I like to eat fast food fairly often, maybe twice a week. My favorites are Chipotle and Chick-Fil-A. I have credit with them in the form of gift cards that I buy from my local grocery store (Publix) for a 6% reward. I can then scan or enter the cards into my smartphone app and then use them to pay for meals (what can I say, I'm cheap!)

If they were to issue their own cryptocurrency for use with their apps, at a discount, i would probably buy them. If the supply were static and the coins transferrable, even better. As it is now, since the gift cards and menu prices are denominated in dollars, there is no protection against inflation. Chipotle simply raises its menu prices as its costs increase due to a debased dollar. But if they issued their own deflationary (or at least disinflationary) coin, and then offered a menu with prices denominated in those coins, I might be tempted to hold a balance in them. Maybe even a bigger balance than what I currently hold in gift cards.

You can see how this might become a trend.

 

[Meadmaker]

Just to expand on the trend towards digital tokenization, I like to eat fast food fairly often, maybe twice a week. My favorites are Chipotle and Chick-Fil-A. I have credit with them in the form of gift cards that I buy from my local grocery store (Publix) for a 6% reward. I can then scan or enter the cards into my smartphone app and then use them to pay for meals (what can I say, I'm cheap!)

If they were to issue their own cryptocurrency for use with their apps, at a discount, i would probably buy them. If the supply were static and the coins transferrable, even better. As it is now, since the gift cards and menu prices are denominated in dollars, there is no protection against inflation. Chipotle simply raises its menu prices as its costs increase due to a debased dollar. But if they issued their own deflationary (or at least disinflationary) coin, and then offered a menu with prices denominated in those coins, I might be tempted to hold a balance in them. Maybe even a bigger balance than what I currently hold in gift cards.

You can see how this might become a trend.

Sure.

Can you see how, if it did, we would basically have recreated a barter economy?

The example I was thinking of (before you posted the above) would be Meadcoin. I'll make my own cryptocurrency, and let people mine it. There will never be more than 1,000 of them (although you can have fractional meadcoins). Furthermore, I promise that if you give me one Meadcoin, I will give you a bottle of mead.

Now I have a cryptocurrency, but with a value that is guaranteed. It will always be worth at least one bottle of mead. So, someone might start trading one of their meadcoins for enough of your chipotlecoins to purchase a burrito bowl. Depending on the exchange rate, someone might realize they can mine meadcoins for cheaper than the equivalent number of chipotlecoins, so instead of mining chipotlecoins, they mine meadcoins, and trade them for chipotlecoins.

 

[TurkeysGhost]

Just to expand on the trend towards digital tokenization, I like to eat fast food fairly often, maybe twice a week. My favorites are Chipotle and Chick-Fil-A. I have credit with them in the form of gift cards that I buy from my local grocery store (Publix) for a 6% reward. I can then scan or enter the cards into my smartphone app and then use them to pay for meals (what can I say, I'm cheap!)

If they were to issue their own cryptocurrency for use with their apps, at a discount, i would probably buy them. If the supply were static and the coins transferrable, even better. As it is now, since the gift cards and menu prices are denominated in dollars, there is no protection against inflation. Chipotle simply raises its menu prices as its costs increase due to a debased dollar. But if they issued their own deflationary (or at least disinflationary) coin, and then offered a menu with prices denominated in those coins, I might be tempted to hold a balance in them. Maybe even a bigger balance than what I currently hold in gift cards.

You can see how this might become a trend.

What benefit does this give Chipotle. They still gotta pay their bills in regular US currency, so they likely will immediately convert their crypto funbucks back into real money. Seems like it would introduce a lot of waste for nothing.

 

[Tippit]

Sure.

Can you see how, if it did, we would basically have recreated a barter economy?

No, because the fundamental barter problem of the double coincidence of wants is still solved. While a proprietary Chipotle coin isn't legal tender, or useful for paying US Federal Income Taxes, I may still want it because a) it may appreciate vs. the USD due to relative scarcity, b) it represents a credit against future food, and c) others may want it for the above reasons.

The example I was thinking of (before you posted the above) would be Meadcoin. I'll make my own cryptocurrency, and let people mine it. There will never be more than 1,000 of them (although you can have fractional meadcoins). Furthermore, I promise that if you give me one Meadcoin, I will give you a bottle of mead.

Now I have a cryptocurrency, but with a value that is guaranteed. It will always be worth at least one bottle of mead. So, someone might start trading one of their meadcoins for enough of your chipotlecoins to purchase a burrito bowl. Depending on the exchange rate, someone might realize they can mine meadcoins for cheaper than the equivalent number of chipotlecoins, so instead of mining chipotlecoins, they mine meadcoins, and trade them for chipotlecoins.

The problem is that your coin, much like Chipotle's, is still ultimately an instrument of credit. With all due respect, virtually no one will value your promise of mead, but lots of people value Chipotle's promise of future food. Therefore, your meadcoins will always sell at a relative discount, if at all.

Remember, the premise behind many cryptos, is that sovereign fiat currencies are highly problematic, and service the interests of our super-rich banker overlords. Therefore, even if in some cases the barter problem of double coincidence does arise, the risk for some is still preferable to saving in Federal Reserve monopoly money.

 

[Dr. Keith]

What benefit does this give Chipotle.

They get Tippit to invest in their ChipotleCoin and then start to add new items to their menu that cost slightly more ChipotleCoin than the old items. Over time they slowly keep up with inflation in the real world by turning over their menu, but they got some "huge" upfront investment that they don't really need from anyone who is bitter about missing out on BTC.

Did you hear that the new variegated varieties of bitcoin are worth even more?

 

[Tippit]

What benefit does this give Chipotle. They still gotta pay their bills in regular US currency, so they likely will immediately convert their crypto funbucks back into real money. Seems like it would introduce a lot of waste for nothing.

If their token was inflationary, it would benefit them the same way the US government benefits from expropriating savers and workers by devaluing the US dollar - the profits of seigniorage. If it were merely disinflationary or even deflationary, the benefit would be that they get to extend credit, and it could appreciate significantly depending on their future demand. They would benefit for the same reason that Satoshi Nakamoto is a billionaire (or would be, if he ever sold his stack).

 

[Meadmaker]

The problem is that your coin, much like Chipotle's, is still ultimately an instrument of credit.

Unlike Bitcoin, which is ultimately an entry in a log book.

With all due respect, virtually no one will value your promise of mead, but lots of people value Chipotle's promise of future food.

Last time I checked, there were plenty of alcoholic beverages being sold.

But the mead is just the beginning. It's a start. At least someone can get something of value using meadcoin. The first bitcoin transaction was 300 bitcoin in exchange for a pizza. Talk about deflation. Today, those 300 bitcoin would buy somewhere over a million pizzas, all of them with extra cheese.....assuming the pizza maker will take bitcoin. So, we start out with something that will buy a bottle of mead, but after that, it's just currency. Since it always at least has the value of a bottle of mead, then they can exchange it for something else that is tradeable for a bottle of mead. That's how currency works. Over time, though, it becomes like bitcoin, where it just has value because people think it has value. I can even manipulate the currency by cutting the price of my mead. Now, I say you get two bottles of mead for one meadcoin. That could make meadcoin more valuable, and what they don't know is that of all the 1000 possible meadcoins that can ever be minted, I held 500 of them back for myself.

I thought bitcoin was going to take a huge hit when Steam, the gaming service, stopped taking them. It was one more real world business that wouldn't deal with them. It occurs to me, do porn sites take bitcoin? (Asking for a friend.) It would anonymize payments, at least moreso than a credit card, wouldn't it? I need to buy some bitcoin and set up an Ashely Madison account. (Are those people still in business? I just remember them from the big data hack. Better yet, I need to set up a porn site that only takes credit cards and meadcoin. I need to generate some reason to trade in my currency.

 

[psionl0]

When an item has little use but high value I think of tulips. What do you think of?

Why would you compare a craze that lasted less than 1 year with something that just keeps getting stronger and stronger (no signs of abating after 12 years). has spawned hundreds of imitators and encourages technological development to address the technical short comings?

If you have read the original bitcoin thread instead of this clone then you would know all of the other arguments against that particular analogy. I guess that one of the advantages of cloning a thread is that you can copy all of the decade old arguments from the original thread as though they never existed.

 

[Tippit]

Unlike Bitcoin, which is ultimately an entry in a log book.



Last time I checked, there were plenty of alcoholic beverages being sold.

It isn’t about whether beverages are being sold, but whether you have the credibility to redeem your tokens. Redeemable tokens are an instrument of credit.

But the mead is just the beginning. It's a start. At least someone can get something of value using meadcoin. The first bitcoin transaction was 300 bitcoin in exchange for a pizza. Talk about deflation. Today, those 300 bitcoin would buy somewhere over a million pizzas, all of them with extra cheese.....assuming the pizza maker will take bitcoin.

A million pizzas is definitely something of value, even if it isn’t directly redeemable, and your token would still represent an instrument of credit. Bitcoin, much like Federal Reserve Notes, represents no promise to pay anything. Yet, it is not a fiat currency, because no decrees forcing you to use it have been issued.

I am told that I can use my Federal Reserve Notes to buy gold, and so it doesn’t matter that they aren’t redeemable by the US Treasury in gold (or silver). Of course, that doesn’t prevent the bankers creating them out of thin air from plundering my country into oblivion.

I thought bitcoin was going to take a huge hit when Steam, the gaming service, stopped taking them. It was one more real world business that wouldn't deal with them. It occurs to me, do porn sites take bitcoin? (Asking for a friend.) It would anonymize payments, at least moreso than a credit card, wouldn't it? I need to buy some bitcoin and set up an Ashely Madison account. (Are those people still in business? I just remember them from the big data hack. Better yet, I need to set up a porn site that only takes credit cards and meadcoin. I need to generate some reason to trade in my currency.

There are really good reasons to “trade in your currency”, as it is currently being destroyed, along with any premise that honest labor or entrepreneurial value counts for anything in the US anymore. That’s been replaced with unlimited corporate welfare for zombie banks and corporations, social welfare and stimmy checks to placate the ignorant and angry woke mob for another month, stratospheric stock and bond valuations which require assuming ever-more risk to speculate on, and financial repression in the form of ultra-low interest rates, crushing the elderly and anyone on fixed income.

As for bitcoin anonymity, it doesn’t really exist. The blockchain is an open book. If your identity can be associated with one transaction, it can be related to all transactions for the same wallet. In fact, I posted a link to the biggest bitcoin forensics firm that the IRS contracts with years ago in either the first or second iteration of this thread. I would have to search for it as I’ve forgotten the name. You would have to use Monero or something similar for crypto-anonymity.


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[Belz...]

Bitcoin, much like Federal Reserve Notes, represents no promise to pay anything. Yet, it is not a fiat currency, because no decrees forcing you to use it have been issued.

And that's actually one of its flaws, as it works against its stability. If an actual country were to decide to use it in parallel with its official currency, that might go a long way.

 

[Meadmaker]

It isn’t about whether beverages are being sold, but whether you have the credibility to redeem your tokens. Redeemable tokens are an instrument of credit.



A million pizzas is definitely something of value, even if it isn’t directly redeemable, and your token would still represent an instrument of credit. Bitcoin, much like Federal Reserve Notes, represents no promise to pay anything. Yet, it is not a fiat currency, because no decrees forcing you to use it have been issued.

I am told that I can use my Federal Reserve Notes to buy gold, and so it doesn’t matter that they aren’t redeemable by the US Treasury in gold (or silver). Of course, that doesn’t prevent the bankers creating them out of thin air from plundering my country into oblivion.

I look around my house, and my neighbor's houses and apartments, and in the stores, and if this be oblivion, it's not so bad.

Unfortunately, you do have a point. This sort of thing really is happening and I do think we have built an economic house of cards which will collapse. However, it collapsed 12 years ago, and it was terribly inconvenient and a lot of people who thought they had lots of wealth discovered they didn't, and that was rather unpleasant.

And it will be again. But after shuffling around a whole bunch of stuff, we'll come out of it just like we did then. I must admit that I look at my future, and see that a comfortable lifestyle depends on my life's savings, and I suspect that I won't have that comfortable lifestyle, for all the reasons you note, and yet I don't think we will see food riots or waves of homelessness. This fiat currency stuff is a lot of smoke and mirrors, but it seems to be working.

I just don't see where bitcoin makes things better. I think it has even less connection to reality than the fiat currencies you decry.

 

[Dr. Keith]

Why would you compare a craze that lasted less than 1 year with something that just keeps getting stronger and stronger (no signs of abating after 12 years). has spawned hundreds of imitators and encourages technological development to address the technical short comings?

Sorry, I didn't realize the time factor was so important. A year, a decade, the analogy was about value. What value is added?

But, at least the tulip investors got tulips. And if you still have your Beanie Babies then you still have a toy.

When the market for bitcoin collapses what will the investors have?

 

[Tippit]

I look around my house, and my neighbor's houses and apartments, and in the stores, and if this be oblivion, it's not so bad.

Well, as long as you're doing well in your mansion, that's all that matters.

Unfortunately, you do have a point. This sort of thing really is happening and I do think we have built an economic house of cards which will collapse. However, it collapsed 12 years ago, and it was terribly inconvenient and a lot of people who thought they had lots of wealth discovered they didn't, and that was rather unpleasant.

Recognizing that there are serious problems isn't the hard part. The hard part is understanding the root cause of the problems, so as to properly understand the solutions. As Lenin said about the debasement of money, not one man in a million is able to diagnose it. And here we are.

And it will be again. But after shuffling around a whole bunch of stuff, we'll come out of it just like we did then. I must admit that I look at my future, and see that a comfortable lifestyle depends on my life's savings, and I suspect that I won't have that comfortable lifestyle, for all the reasons you note, and yet I don't think we will see food riots or waves of homelessness. This fiat currency stuff is a lot of smoke and mirrors, but it seems to be working.

Normalcy bias is a thing. The assumption that we will come out of it just fine may eventually turn out to be just an assumption, and then things will be different. I'm a multimillionaire. Fiat currency is working great for me, because of the nominal prices of the various assets in my portfolio. None of those assets is going to matter much, except for the farmland, the stored food, and my rifles, in an economic collapse. All the money in the world won't matter if your house is burning down in a cultural revolution.

Money has to work for everyone, and if it isn't, then it isn't working.

I just don't see where bitcoin makes things better. I think it has even less connection to reality than the fiat currencies you decry.

I never claimed that bitcoin makes things better. Bitcoin is a cryptographically scarce digital asset, which is making the people who had the foresight to invest in it great fortunes. It's a canary in the coal mine, at this point.