Interesting graph. Of course it's saying a lot more about fiat currency than about bitcoin. The graph would look about the same with almost any commodity, stock, real estate, ... and so on and so forth. It would look the same (exponential shape) for any state, and crucially, it would look the same even if you went back centuries or even millenia.
The only real conclusion to draw from this is that governments have always spent more than they claim to spend, and they've always made up the difference by cheating with your money. The ancient Faraos did this, the Roman Senate and Emperors, the Athenean democracy did it, the Communists (Russians and Chinese) did it, and modern democracies do it. They've all been doing it this way, and for multiple millenia.
TLDR: Don't store wealth in fiat currency (or gold currency). Almost anything else performs better. This should not be news to anyone, but surprisingly few people seem to have realized this.
Well, yeah, that is kinda the point of inflation, to stop people from storing their value in money and instead use it and invest as to not loose value. If we had permanent deflation nobody would invest because the most reliable way to not loose value is to simply keep money and not invest it.
Show me the coin used for paying the tax.” They brought him a denarius, and he asked them, “Whose image is this? And whose inscription?” -- Matt 22:19-20
It's more than spending more than they claim to spend. Governments could arrange for the value of their fiat currency to be stable or go up a bit but people borrow lots of it to buy houses and if the value goes up they have a job paying and the economy tanks. It's much easier to print some more and let it depreciate a bit.
The way I understand money is to treat it as a technology. A technology is designed and operated to serve a purpose. The money of countries like the US and Europe is intended to serve as a medium of exchange, a temporary store of value, and a tool of government tax and monetary policy. I think it's expected that people will hold onto a minimum amount of money, and store the bulk of their wealth somewhere else. Most people don't have substantial wealth in the first place.
Bitcoin is intended to serve another purpose: To demonstrate the behavior of a money system that is not controlled by a government.
As with any technology, people use money if it's useful to them. If a country has a poorly managed money system, then people start to use the money of some other country, or barter. If bitcoin has a chance of supplanting government money, it will happen when bitcoin works better for the people using it. I suppose this could happen sooner in countries that have really bad money, or if the use of government money becomes prohibitive because of transaction fees.
I strongly disagree that it is a temporary store of value. People are much more likely to store wealth in fiat rather than gold. We are also quite happy to denominate long term debts in fiat currency.
In my view, people are more likely to store wealth in stocks and real estate. (This could be disproven by comparing the overall market value of those things). At the same time, we denominate long term debts in dollars because we have expectations (with risks) about the long term value of the dollar. Those expectations are baked into the interest rate.
And most people don't have any wealth to speak of.
very valid analysis, but how do you identify "countries that have really bad money" ? it doesn't happen overnight so which countries are going to face monetary issues in next 5-10 years, hard to tell? and unfortunately general public doesn't proactively monitor(and it is too complicated for public to understand because for some reason most of the primary schools don't educate about personal finance and monetary system) so most people realize after crisis had already taken place (mainstream news is their only validation).
The reason hackernews is great is because it has some audience which wants to discuss and debate how things work. This is a very unique and good form of education, only internet made it possible.
But for large part of society they don't understand technology. Technology or science should be simple to understand, humans developed language- that is also a technology to me(do we really need a science degree to understand those things). For some reason large population thinks of tech people or scientists in general as nerds or geeks and that it is not cool to them. I think the flaw is in outdated primary education and the way we define education. And the portraying of science people as nerds or confused people on TV further exaggerates this.
We can't blame governments per say, for a democracy to work properly everyone has to participate, and part of the newer generation will eventually become the future government. In order to participate, you have to understand how things work. If people are not taught how to think critically early on and they're either caught up in making a living or watching and following bunch of trendy celebrities on twitter and tv, it is not going to happen.
That's a very good point. A technology can get screwed up. Maybe that's a good reason for identifying it as a technology, so that people don't think it grows on trees, and are more inclined to keep an eye on it. One indicator might just be a flight from a bad money system to a good one. I once met a person who ran a factory in Brazil during a period of hyper inflation, and he kept his money in US dollars.
A bigger fear is that the most robust currencies get screwed up, i.e., what might be loosely defined as a global financial system. If that were to happen, then the benefits of "good" money could simply vanish, i.e., prosperity.
I'd love to make personal finance and some basic economics be part of K-12 education. I'll bet college would suddenly get cheaper. ;-)
By any reasonable definition, Bitcoin is a fiat currency. Unlike commodities like gold or silver, it has no inherent value whatsoever, and no applications for industrial use or jewellery.
Bitcoin is a fiat currency because it only has value while some group of humans collectively agree to pretend that is has value. The same as dollars or yen.
> By any reasonable definition, Bitcoin is a fiat currency.
Sure, if you entirely change the definition of fiat currency.
A fiat currency gets its value by being declared by government as legal tender, and then required by law to be accepted in a jurisdiction.
Bitcoin might share the "no intrinsic value" property of fiat, but that does not make it fiat. It's pretty much the opposite of fiat in every other respect.
Even for gold, the majority of its market value is not from industrial use -- it's from speculation driven by scarcity (pretty much exactly like Bitcoin.) This applies to gold jewelry too -- the scarcity of gold gives it its market value.
> Sure, if you entirely change the definition of fiat currency.
It's worth noting that the definition of "fiat" in economics depends on which economist you ask. From Famous Myths of "Fiat Money", Dror Goldberg (2005):
> Monetary economics has an ideal construct of its own. It is what economists call "fiat money." This is an object that has no intrinsic value and is not convertible into anything. An implicit assumption in the definition is that no one is forced to use such money and that the money has no other legal status such as legal tender. Acceptance of such money is entirely discretionary and based exclusively on the expectation that others would accept it too, even though no one else is forced to accept it (Wallace 1980).
> Interestingly, monetary economists do not claim that their "fiat money" concept is fictional. On the contrary, they identify it with the modem money we use in reality. Legal scholars and laypersons call the money we actually use by the same name since "fiat" refers to its status as legal tender. Monetary economists usually ignore this status.
I personally prefer the definition you use, because it fits nicely with the non-monetary definition of "fiat", but it seems arguments over what constitutes fiat often devolve into arguments of semantics given the term's ambiguous history.
which makes it interesting as to why Ripples get "so much" value as a currency that has so many "coins". From Coinmarketcap[1], the circulating supply of ripples is 38,531,538,922 while bitcoin is limited to 21,000,000.
The other interesting thing is that Ripples "distribute" its coin as opposed to letting miners mine them.
I know nothing about economics so I would be interested to know why people put much value on Ripples. (disclaimer: I myself invested 6000 ripples just because they are currently cheap compared to the market cap they have.)
Ripple is not decentralized at all. They've zero intention to
bring decentralization, all they're trying to do is give banks a technology that can speed up remittances. Why do you need blockchain for that specially if you will be using banks anyways? Why can't banks speed up remittances on their own.
Just do some basic search on the guy who created it, stellar lumens, mt gox, 70% tokens held by a few company individuals(although they say it is locked etc)
not suggesting that they are not credible or anything but I think their technology shouldn't excite people that much. And may be rather than public funding this bank's side project, perhaps banks can use some of their profits to develop this on their own or with Ripple or at least may be it should be funded by large investors who have large stakes in banks. Just ponder upon, why should you fund this experiment/technology?
> because they are currently cheap compared to the market cap they have
This sentence doesn't even begin to make sense...
The absolute value of any of these tokens is completely irrelevant. Same as it is for a US$ or CAD. You can define your own "decadollar", worth $10, get everyone to switch, and it would make absolutely no difference to the economy.
Why people put money in certain things is always a discussion, well the financial markets are better representative of people's opinion. Right now it is couple of billions in market cap. I agree with you and I'm very skeptical. But they at least seem to be doing something. What about 100s of other cryptocoins, just look at their github repos - nothing at all and they're worth hundres of millions(atleast as of now).
No. Dollars have an intrinsic value as long as the IRS and the police exist, because you have to settle your dues with them come April 15, and they only accept USD.
Also, you need dollars if you will ever have any kind of dealings with the American Judicial system.
The key difference, though, is that fiat currency is easily debased because whoever controls it can print more, while Bitcoin does not have a single owner and can only change if the majority of miners agree to do so.
How would the users blacklist the miners using the newer inflationary protocol? Is it even possible? By design, the longest blockchain wins, and that would be the one with the inflation if the majority of miners agreed.
The longest blockchain which follows the rules. If a chain does not follow the rules, it will be ignored by the nodes, even if it's the longest one. To change the rules, you have to update all nodes, not just the miners.
That is not a very distinctive difference. Note that it's also not that easy, at least in the developed world, for a Reserve Bank to change the issuance because it has to make sure that the inflation is under control to ensure financial stability, plus there are many other checks and balances in place including legal & regulatory policy, input from economists / researchers, ...
The interesting part of the Bitcoin experiment is that so far it has had a very large inflation. This has been decreasing, and the critical part of the experiment will determine if a deflationary currency will work or not. My guess is that it might be in danger of collapse as miners will not want to mine it due to lack of incentive, meanwhile users would not want to transact since most will be hoarding it. Which is when the issuance rate might need to be fixed just to keep the miners rewards going...at least, it's one of the scenarios to consider...
Why should we have any more faith in the miners? They have a self interest to divert the wealth stored in Bitcoin to themselves, which doesn’t align with my interests as a coin holder.
> By any reasonable definition, Bitcoin is a fiat currency.
Clearly not by the only widely-used and -understood definition. Which reasonable definitions are you proposing? The key feature of fiat currency is that its usage as money is legally established by a government. That is clearly not the case with Bitcoin, unless you want to play semantic tricks and call the Bitcoin community or a set of algorithms a “government,” but that is very clearly not how the vast majority of people uses the term.
The poor follow the rich, buying what they buy, wanting what they want. The rich look to the richer similarly. At the top however there is no one to look to except for the gods.
Just as flowers demonstrate more value than a toaster precisely because it shows a willingness to convert all value into prostration, so does a golden tower.
Gold is valuable because it is rare and pretty and most importantly useless. (industrial applications are minor and also only a modern application) flowers to toasters are gold to oil. Gold is pure concentrated and destroyed value. It is giving up of true value in the survival sense for spiritual or emotional value. Super expensive clothes or bags are similar and even take it to the next level in that they decay via fashion trend. It is even more destruction of value.
Diamonds similarly are more concentrated representations of value despite their market price being a sham. They serve an important purpose in signalling to find a person or thing that can give a person affirmations of value.
Bitcoin and other digital currencies can concentrate to an infinite degree but lack aesthetic qualities. It doesn't impress women and doesn't impress our current gods because it isn't visible and can't be used as a status symbol to strangers. ("Traditionally" the "strangers" that can affirm value are women and gods. )
Bitcoin is accessed via knowledge of a key and it traditionally hasn't been a status symbol. (Unless it was knowledge of culture) However there is currently a paradigm shift from "traditional" values that are human/social/god based to newer values that revolve around knowledge, technology and non-human specific interestingness.
Bitcoins growth initially was due to the futurist/cypherpunk movement. Other phases of growth include "early adopters" or "technologists". A recent large push has come from financial types who don't want to miss out and have traditionally used market signals to follow value without needing to understand underlying reasons.
The biggest push will need to come from all the value locked up in traditional storage but to do that a paradigm shift needs to happen where gold becomes valueless. I don't know if Bitcoin can do this yet. Perhaps when smart contracts start taking over the world and blurs the line between digital and non-digital. Forks however seem to muddy the signalling potential though. The mass of people who understand what a "vintage" Bitcoin needs to be big and btc doesn't have the uniqeness of collectibles like art or antiques.
In the end it's important to distinguish between symbols of value which often require destruction of value in their creation and actual value which serves some secular need. Symbols are built entirely on faith. Strangely, this can last much longer than "real" value. Salt and grain used to be real value but aren't anymore due to technology but gold has lasted thousands of years.
To require something to need "real" value is to ignore the importance of humans.
thanks everyone for all the discussion in this thread. Being the author of this website, I would love to hear any suggestions - I will try to add more interesting stats in the future but keep it lean at the same time. Also I hope people read FAQ section on the website, I had tried to touch upon very common questions but in a different way so that it can make people think rather than running to conclusions quickly.
You could I guess but it's really better to just use a credit card. Your CC company rewards you for using it while a Bitcoin transaction is the opposite - it costs you money to spend BTC. If you want anonymity, use cash. If not, use a credit card.
Do you really believe that the CC rewards are free?!? You, the customer, ultimately pay for them. Purchase by CC costs the merchants money (how much is it nowadays, around 2-3%?), the merchants pass that price increase on to customers (regardless whether they pay by cash or credit card nonetheless).
By that logic then it makes even more sense to use the credit card over both cash and <whatever>coin. If the transaction price is getting bundled into the overall price of the article I'm buying, why would I pay in cash and lose credit cart protections and loyalty points? Or even worse, why would I pay in bitcoin and lose the same as above and incur a transaction fee myself?
Which they don't and also it's illegal. You can charge less for cash, but no one does that. (Except your one or two examples out of the thousands of stores)
It's not illegal, but it is against Visa and Mastercard's rules, to levy a fee or surcharge to use a credit card. What IS illegal is to prohibit merchants from offering a discount to induce customers to pay by cash or check, which is why merchants that do so don't end up having their Visa and Mastercard contracts cancelled.
We were just discussing this earlier with some friends. Don't bitcoin transactions take a large amount of time? A block takes 10 minutes to mine, and there is no guarantee your transaction will be picked up by the currently mined block (or the one after), because there is a limit on the number of transactions that can fit in a block. Are there solutions to this?
Ethereum's blocktime is way shorter: 10 seconds. You usually want multiple blocks to be finalized, from 3 to 6 to be sure you are on the longer chain.
The proposed blockchain solution for this are state channels where payments are then instant. Using state channels you can build a multi-hop network solution called Raiden (Ethereum) and Lightning Network (Bitcoin).
By that standard, when you use a bog standard Visa card you're not actually paying with dollars[1], you're paying with the artificial virtual currency your bank provides that is pegged to the dollar at 1:1, and merely funding your account with dollars.
No, you are paying with whatever currency the counter-party accepts. What backs the debit/credit card does not matter as long as the issuer thinks you have the assets to cover the loan they are making. If I have a card linked by my brokerage account I am not paying for dinner with shares of AMZN, I am paying in dollars and at some point will be required to convert some asset into dollars to cover the loan.
But this is a pretty inconsequential semantic difference. You could just as easily say that you’re selling dollars and the grocery store is paying you in bread.
No, it is a very significant difference and is not just semantics. The transaction is clearing in dollars and those dollars are moving from buyer to seller. There is no other currency involved in the transaction. The fact that dollars are constant and the seller could be exchanging bread, milk, cars, or bars of gold for the dollars tells you what the medium of exchange is here.
Once the transaction has cleared the seller can convert the dollars into euros, yen, ruble, pesos, or bitcoin and it has nothing to do with the actual transaction.
I think that currency volatility won't be a problem in the future. Everything will be online and prices of items will update in real time to reflect supply and demand relative to any digital currency of your choice.
It will be like in the old days when people used to haggle over the price of everything.
> I think that currency volatility won't be a problem in the future .... It will be like in the old days when people used to haggle over the price of everything.
Don't worry, there will be algorithms that play the market by buying and stockpiling goods when their prices are low and sell them when their prices are high, smoothing out the supply/demand and taking a small margin in exchange for bearing that risk.
Then there will be services that virtualize that, with price insurance and the like.
Then there will be services that let you put in an order that will only buy something if its price goes below a certain level.
Then there will be services that let you put in a time-scale over which you want to buy something and make sure you get the best price while still getting the item within that time (including shipping price and time, of course).
Then there will be services that estimate all this for you.
I'm still waiting for someone to write the dystopian novel where you choose an "advertising agency" and they surveil you, automatically ordering everything you need/want based on your income, taste, preferences, etc.
there's a lot of talk about stablecoins. I think it is a great idea but what we define as "stable" is fiat currency. The whole idea of creating this website is to make people think if fiat is really stable?
So, if we think about what is best way to create stablecoins. We should look at it from first principles, i.e. stable relative to what?(probably we want it to be stable relative to everyday commodities we consume I would guess) and how do we make sure people don't use to speculate its moves? I don't have an answer but I think it is a tough one at least for me.
You mean like in major inflation or other humanitarian crises when people would get their wage and rush to the shop immediately to buy food for next week? Because god knows what their money will be worth after half a day? Wonderful future to look forward to.
The only real conclusion to draw from this is that governments have always spent more than they claim to spend, and they've always made up the difference by cheating with your money. The ancient Faraos did this, the Roman Senate and Emperors, the Athenean democracy did it, the Communists (Russians and Chinese) did it, and modern democracies do it. They've all been doing it this way, and for multiple millenia.
TLDR: Don't store wealth in fiat currency (or gold currency). Almost anything else performs better. This should not be news to anyone, but surprisingly few people seem to have realized this.