The biggest promise of crypto is that it is immune to government censorship / control. It can free us from the hidden taxation of inflation, and government coercion.
I for one don't want government to be able to regulate / control / trace transactions.
No, the biggest promise of crypto is that you don't need to trust a third party (wether, govt., bank or your neighbour) to verify a transaction between two parties as valid and that somebody didn't just give you counterfeit digital coins (i.e it solves the double spending problem). That's pretty much it.
Everything else in a crypto economy is built on top of that as an analogous structure to regular physical currency/digital currency verified by a third party (i.e fiat) economy.
Not needing a third party to verify the authenticity of digital transactions does not automatically make you immune to regulation.
In very specific situations (i.e failed states undergoing civil war), if you lose the trust in your entire govt. you can now reliably still trade digital currency without it necessarily being backed by a third party, however everyone you are transacting with must buy into three things:
1) This new digital currency is now the dominant currency.
2) Everyone trades goods and services based off of this new currency
3) People outside your country respect that everyone inside the country values this at some specific value and honours trade in that currency.
It is extremely unlikely you can convince anybody outside a country of (3) without some intervening international body, so the "crypto economy" replacing currency to fight an authoritarian regime is practically never going to happen.
With regards to the article. Ultimately, if you trust your government to in general protect you, this is a good thing. If you don't trust your govt. to do so, this framework is a bad thing.
> 1) This new digital currency is now the dominant currency. 2) Everyone trades goods and services based off of this new currency 3) People outside your country respect that everyone inside the country values this at some specific value and honours trade in that currency.
All you have to do is convince your recipient that there is at least one other person who would trade the crypto for something else valuable. Then you can send it to your recipient and they can convert it into whatever they want. You don't have to convince them that everyone finds it valuable.
I was making those statements in the context of those conditions being necessary for a failed state's currency to be replaced by a cryptoeconomic currency.
But to answer your specific point, even if you could convince someone else that they could trade it for something else valuable, you have to keep going up the chain or it is purely bilateral and no longer a currency but a barter good.
> they can convert it into whatever they want. They can't convert to to whatever they want, unless the other people also engaged in this economy value the currency and are willing to trade goods and services for it, hence (2)
This is governed by which specific cryptocurrency's monetary policy you're talking about. For example ethereum's supply is decided by a committee with people from different groups [1], while bitcoin's is basically fixed incremental supply that's built into the protocol (as of writing this comment).
Apart of course for Stablecoins (e.g. Tether) where they can print as much as they want, whenever they want. And as long as the exchanges go along with it, their value per coin stays the same.
The biggest of all of these (tether) has a daily transaction volume often higher than BTC itself, has never had an outside audit, has admitted to not being 1:1 backed and is currently under investigation by the NYAG.
They've also expanded supply by ~$12 billion this year.
The supply is controlled solely by a group of random, un-elected, un-accountable to anyone, GitHub contributors. If the Bitcoin Dev Team wanted, they could up the number of coins. Arbitrarily. Without recourse. What are you going to do, fork it?
Further, the massive, overwhelming breakage due to the user-hostile nature of cryptocurrencies has led to staggering deflation. 20% is gone already [1].
Finally, the worst part is that the Bitcoin wealth distribution is worse than any banana republic; 0.00088% of addresses control 17.5% of all coins. 4.11% of addresses control 96.53% of coins. [2] Unless you're a whale, you're fighting for scraps today, and the next generation of market participants will be basically serfs. Deflation and breakage exaggerate this problem.
The Bitcoin Dev Team could certainly write code that gave them 100 million coins, but it will be difficult to convince the miners, exchanges, payment processors, wallet developers and the rest of the community to run it.
And this is also what's happening now in Bitcoin Cash, where the developers of ABC (up until now the client almost everyone used) wants to assign themselves 8% of the rewards from a mined block. And the the rest of the community are rejecting it heavily.
It's not impossible to change Bitcoin's supply, but there's zero chance the Bitcoin developers would get away with it. They can make whatever changes to the protocol they wish, but they can't force anyone to adopt those changes.
And yes, a lot of Bitcoin has been carelessly lost, but these are mostly old cases before Bitcoin had any exchange value. You've probably read about people throwing away hard drives with 1000s of mined bitcoins that ended up being worth millions a few years later. Hindsight is 20-20.
It should also be pointed out that a sizable chunk of Bitcoin is essentially frozen in Satoshi's wallets. Whether to count them into the supply is debatable. Same for Hal Finney.
Bitcoin's inflation rate is currently about 3.4% per year, which is a bit on the high side though still better than many national currencies. In a century or so that will have decreased down to nearly zero, which is still only neutral and not at all deflationary.
It's massively deflationary due to its user-hostile nature, irreversibility and lack of appeals authority. This leaves it prone to many kinds of loss (and fraud). An analyst suggests 1500 coins are lost per day, and so less than 14MM will ever be in circulation [1]. Currently, only (144 * 6.25 = 900) coins are mined per day, and 1500 are lost. Ergo, it's deflationary and will become more so over time as the block reward drops.
I also disagree that 3.4% is a "better" inflation than many national currencies. It's lower, sure, but I am reluctant to draw a value judgement as inflation has a specific and important role in the economy. I don't know enough to tell you authoritatively that 3.4% is "too high" and "worse" than the classical 2% US target.
Did you actually read the article you cited? It's pretty obvious that the authors (among others) feel that the 1,500 BTC/day loss rate claimed by this one fringe analyst is a massive exaggeration based loosely on outdated statistics. Sure, lots of bitcoins were lost in the beginning, when they weren't worth much. Most of the reports are from people who had bitcoins early on and only recently realized that they should have kept better care of them. The wallet UIs and best practices have been steadily improving, and with prices where they are right now there is no good reason for anyone to "lose" their bitcoins any more than they would accidentally "lose" a $100 bill (which is similarly irreversible).
Any artificially-induced inflation of the money supply is economically destructive, promoting malinvestment and waste. Some inflation in the beginning is inevitable, of course—you have to start from somewhere—but it's a very good thing that Bitcoin will have an supply inflation rate on par with, or lower than, most national currencies before it becomes prevalent enough to significantly influence pricing in the investment markets.
Inflation does have an important role in the economy. When it happens naturally it tells investors that we are in desperate need of more capital investment, and it basically doesn't matter what kind of ROI can be expected as long as it's at least somewhat positive. The issue is that this same investment behavior readily leads to diverting resources from more productive investments to less productive ones when the economy should be deflationary (indicating a positive average expected ROI) but the money supply is manipulated to make it look like there is a shortage of capital.
The article I linked you to is from a very pro-Bitcoin source lol. The actual research note was linked from it here: [1]
> Any artificially-induced inflation of the money supply is economically destructive, promoting malinvestment and waste.
I'd love to see your sources there, because I don't agree. Inflation plays important roles like pushing for allocation of capital. Inflation only matters if you hold dollar bills under your mattress. Once you invest it in anything, including real estate or a savings account, the effect is decimated, or reduced below zero.
> Inflation does have an important role in the economy. When it happens naturally it tells investors that we are in desperate need of more capital investment.
What is "natural inflation" in Bitcoin? Does it naturally sprout more coins in steady state? Or are you suggesting velocity of money in a currency unable to respond to externalities should suffice?
> It is extremely unlikely you can convince anybody outside a country of (3) without some intervening international body, so the "crypto economy" replacing currency to fight an authoritarian regime is practically never going to happen.
Could anti-authoritarian outsiders use (3) to effectively support anti-authoritarian insiders?
The "people" in (3) refers less to the working class than it does to people in power that control and contribute to large percentages (>0.5%) of a country's GDP/wealth (unless nearly all of the working class within a country recognizes it).
Not sure why this question is being downvoted, but possibly. However this is fraught with various complications and is a discussion around failed state govts.' regime enforcement, internal citizenries' access to external organizations and various other ways in which other economic actors interact with these, a very complex separate discussion on its own and it requires one too many assumptions for me to be comfortable providing any intelligent opinion on without starting from a common base of assumptions.
> for one don't want government to be able to regulate / control / trace transactions.
This comes up every single time with cryptocurrencies.
Generally speaking: yes, you do. Most of the regulations surrounding financial transactions are there to protect you, and other market participants.
I wish crypto people had the chance to spend one day in a bank, working on regulatory issues. The vast majority of them are all about either protecting the clients, or the market, or society in general.
Edit: to expand a bit, most of that regulation is there to ensure that a bank doesn't screw you, or to enforce transparency for you, or to ensure that illicit money doesn't enter the system (which is also in your interest), etc.
> Most of the regulations surrounding financial transactions are there to protect you.
Sorry but that’s not true at all. I have worked _more_ than a day on a bank environment and I can say that most regulations are weaponized by the US against their perceived enemies. Banks are dead scared of doing business with normal people from ostracized countries or activities and will not think twice before locking and banning normal people’s accounts to not provoke the ire of the US and aligned powers.
Screw your bank regulations, they are close to useless, besides maybe FDIC insurance.
A few years ago I bought a computer on eBay, paid with direct bank transfer, to the same bank by coincidence. When I didn't get my PC, and eBay told me to fuck off, I asked the bank to reverse the transaction and/or to provide me with the true person's details (it looks like ebay seller gave me the correct bank account number, but fake name). The bank told me to file a police report. I did. Sent a copy to the bank. The bank told me to fuck off.
If you extract a fee in exchange for protecting me from fraudulent behavior that is only possible in the first place because your institution has failed to keep pace with modern security practices, are you really helping me?
If what I want is transparency, is doing additional paperwork to create a (hopefully accurate) second source of truth for what happened really a better alternative than just letting me see it right there in the ledger?
Suppose you maintain the ability of my government to freeze my assets in cases where it decides that I'm an enemy. Is the protection I receive from its enemies adequately offset by the corrupting factor that this power will have on my government?
You maintain a system where the cumulative interest on a house purchase is often several times the cost of the house. Do you think that this amplifying factor on class stratification is going to lead to a society that's stable enough for me to plan to retire?
Whatever problems bankers solve for society, they solve them because otherwise we'll notice how superfluous the bankers are. I'm not saying that we should abandon our current system just yet, but I am quite happy that in cryptocurrency it finally has something to compete with.
Could you elaborate a bit more on this? I see your edit where you highlight that the bank doesn't screw you and you have more transparency, but to my knowledge the nature of a decentralized cryptocurrency should have that same effect.
If it's completely decentralized, that might be the case. However, as far as I understand it, one usually trades crypto on exchanges, so you're back to trusting one counterparty.
With regards to getting screwed, the history of exchanges getting "hacked" and all the crypto disappearing should speak for itself, and with regards to transparency, just look at Tether as an example of how you can avoid it.
Sure, it happens with banks, too. I still have no clue how Wirecard managed to do what they did, without getting caught, in face of credidble reports of malfeasance. But in general, it has become much, much harder to wrong others, or to be reckless. And that is because of the regulation everyone keeps decrying, as if somehow they were the subject of it.
That's a completely different matter. The operation of exchanges doesn't have anything to do with the operation of a cryptocurrency. You need exchanges only for trading, not for using a cryptocurrency.
My strong stance stems from two decades of being on the pointy end of that regulation. The government audits I was involved with were all by extremely capable people; top-notch investigators.
regulation (in the UK at least) means that in many cases, if someone steals money from my bank account, I get it back. Compare that with what's happened to many cryptocurrency exchanges where they have losses (e.g. quadriga) and the consumers who used them are largely out of the money.
If the bank overcharges me, I have some form of redress (e.g. the PPI scandal).
It's not perfect by any means, but for many consumers it's likely better than a world where, once the money's gone, it's gone.
On the other hand, at least in the US, we don't have much protection when banks themselves take money from our accounts. E.g. back in 2009, banks made $37 billion from overdraft fees [1], thanks to shady practices like reordering transactions to maximize overdrafts. There was a class action suit about it, but it was a token victory, with very little money going back to the victims.
This doesn't negate your point, but I would just argue that we pay a heavy price for our heavily regulated financial system, between bank fees, card processing fees, foreign transaction fees, trading fees, etc.
In theory, you are right. In practise, govs are basically big robbery machines which are more interested in their own property and influence than me as a citizen (and as a human being in general).
For example it can be VERY tricky in most countries to move all your wealth crossborderly without any intervention or tax (even you if have paid all taxes from your profits) from the gov. That's because even the most capitalistic countries don't truly respect private property concept and consider individual's property as their own.
Crypto partially solves this. You can move equivalent of billions of USD through the border in a minute for negligible cost. However, it won't worth much if you still will be imprisoned for that. So, basically, potential anonymity and privacy researches in crypto as well as non-regulation are good things.
Because even democratic countries show themselves as pretty barbarian ones, when there is something against their interests (Julian Assange is a good fresh example).
LOL, when I meet some people working for banks they usually complain about all the regulatory compliance they have to do and how pointless it is. Doesn't seem to me like working at a bank helps to see how necessary all that is.
A lot of people complain about having to maintain secure passwords and other IT security measures, too, but that doesn't invalidate the measures.
I'm first to agree that the regulatory burden on banks has gone too far, but all too often, people not seeing the point behind compliance frequently do so for the reasons as above (they don't understand it), and jump to conclusions.
If your friends substantiated why they believe so, please do follow up.
I disagree. So much crime and corruption is uncovered through tracing financial transactions.. A world where a few mega power brokers who are untraceable, unaccountable, and untouchable by "the people" sounds super dystopian to me.
Right now, what's happening is a few mega power brokers are traceable, unaccountable, and untouchable by the people. Pretending that crypto somehow creates or enables crime when its sitting right under our noses (as our governments refuse to do anything about it), is frankly ridiculous.
My point was that the existing system (the banks) aren't trying to solve the problem so it's almost completely ineffective.
And the argument is that there comes a point when the drawbacks of trying to stop it becomes larger than the benefits we gain, and we should therefore do something else that gives us more benefits.
You might argue that we're not there yet, which is fine, but others will argue that it's time to try something else.
By doing "nothing", we gain other things such as financial privacy for everyone and making digital payments available for everyone. These are not insignificant things and if they're more valuable than the inefficient anti-laundering attempts then doing "nothing" would indeed be better.
Also we wouldn't truly be doing "nothing", we would only give up one traceability component and we can still chase crime in other ways, like requiring documents of where you got the money to buy this mansion.
Traditional sources only try to stop it from happening if the scale is small enough.
Basically traditional sources just incentivize organized crime that's less accountable to the justice system until they piss off the wrong people. Look at Deutsche bank.
Isn't it better to at least try and stop it instead of throwing in the towel? Can we agree that if something is bad, someone trying to stop it is better than not trying to stop it at all?
The idea that 'power players' can avoid prosecution by using cryptocurrency is absolutely untrue.
Once you grow that large, you get a lot of attention and suddenly it is economical to track you down, even if you are using 'untraceable' currency like Monero.
When you are a 'small' player, buying or selling small quantities of cannabis, it isn't worth the time to trace your transactions. The Justice Department is targeting everything, not just big-time criminals.
This seems like a prelude to a burdensome requirement for platforms to make it easier to execute warrants for crimes using cryptocurrency, which will sweep up everyone.
There are promising alternatives to energy intensive proof-of-work crypto algorithms. Specifically proof-of-stake (Ethereum, etc)[0], and ledger-backed services[1].
There have been better coins, better protocols for years now, but the most popular cryptocurrency still remains to be bitcoin. Bitcoin alone has a terrible energy footprint.
The environmental damage caused by all this nonsense is not worth it at all.
>It can free us from the hidden taxation of inflation
It doesn't free you from inflation, it simply abdicates control over inflation. Sometimes that works out well for who already have money and the value of the currency rises. Sometimes it works to the disadvantage of the people with money and the value of the currency decreases. Either way, stability and predictability of the value of a currency are much more important for the long term healthy of an economy and those are areas in which the worlds biggest fiat currencies generally come out ahead of cryptocurrencies.
> Either way, stability and predictability of the value of a currency are much more important for the long term
I think Bitcoin has the long-term edge here, as the issuance rate is 99.9% predictable and known (unless the community decides to change it, which seems unlikely) and the price volatility would decrease massively if adoption increased.
Bitcoin has a chicken and egg problem. You claim it will have that stability once its adoption has increased but its lack of price stability is a major hindrance to people adopting it as a store of value. Right now, pick any window of time from 24 hours to a century. I am much more confident that any of us could predict the value of USD, EUR, or GBP than Bitcoin. That is a big problem and it more important than any "but the inflation" arguments.
> When “doing crime”, I’m really not interested in committing the transaction to a permanent public ledger.
As the recipient of the funds you need everyone else to agree that the funds are actually under your control. That requires a public ledger associating unspent funds with access credentials. The payer needs the same thing so that the recipient will accept the payment. ("Permanent" goes without saying; even if old transactions can be pruned from the database there is nothing to prevent someone from keeping a copy of the full history.)
What you want to avoid is having your real-world identity associated with the funds, which is where privacy-focused coins like Monero come in.
Even if you handle payments offline with briefcases full of unmarked bills you're still leaving a trace an investigator could follow, possibly even more easily than they could follow a trail of transactions through a suitably resilient cryptocurrency.
Doing crimes involves making many risky actions which the criminal isnt really into. It might just be that making the crime using cryptocurrency might be seen less risky as doing it with some other tool.
> The biggest promise of crypto is that it is immune to government censorship / control. It can free us from the hidden taxation of inflation, and government coercion.
I don't buy it. Exchanges are centralized, and they will respond to court orders. Some networks can be centralized and are vulnerable to majority attacks.
> I for one don't want government to be able to regulate / control / trace transactions.
If they can regulate it, they will. So crypto isn't the magic money that can skip governmental influence, and that problem will be cryto's own problem.
Inflation is a feature of macroeconomics, not a bug. Our economy truly would collapse without inflation, it's how you end up being Japan in the 90's. Luckily the people running the Fed are much smarter than you.
This is pseudoscientific crap. America had some long periods of deflation prior to the creation of the Fed (e.g. 1870s/1880s) and still experienced higher rates of growth than it does now.
There's basically no empirical evidence that central banking leads to higher economic growth or greater stability, just some simplified pseudo-mathematical models that ignore a bunch of factors.
I just want everyone to know that the vast majority of economists(99%+) believe that inflation is an integral part of our economy. You can disagree with all of them, but everyone should know that the experts disagree with you.
Counter-points, since it's worth sharing the whole picture.
(1) The ability for the government to censor transactions to terrorists, rogue states and oppressive governments is a good thing. Evidenced not least by the fact Bitcoin was likely created by an international narcotics and arms trafficking racist bond villain who at one point tried to keep Rhodesian farmland in the hands of the whites and nearly started a cocaine plantation in Somalia [0, 3]
(2a) Inflation isn't some magical evil conspiracy, money is an intentionally lossy store of value. Inflation incentivizes investment and allocation of capital towards the most productive enterprises. This is intentional. Inflation doesn't affect people who own assets, including real estate and equities, so long as wages keep pace with inflation. They have.
(2b) Deflation is bad, as it decreases the velocity of money and economic productivity. Why would you spend money today when it would be worth more tomorrow? Hundreds of BTC are lost every few days due to the user-hostile nature of cryptocurrencies.
(2c) Deflation also concentrates wealth with existing holders, hurting the next generation of market participants, and entrenching the current BTC wealth distribution. This is worse than any banana republic. Unless you're one of the whales, you're a peasant fighting scraps, and your kids will practically be serfs.
(3) I want my currency to be subject to "government coercion" when the courts say so. If you don't trust your government or the courts, the "coercion" of the government is literally the least of your problems.
(4) I for one do want the government to be able too regulate, control and trace transactions. Which is something they can easily and explicitly do with a shared public ledger.
(5a) Massive waste, each proof-of-waste BTC transaction produces 100g of e-waste and consumes as much electricity as it takes to drive a Tesla from SF to NY. [1] All to operate a network that you could replace with a single DynamoDB table and likely one man on a stationary bike powering it.
(5b) At market rates for electricity alone a crypto transaction costs about $80, which is socialized across the block reward. When this stops, people will have to pay the whole cost of a transaction, which in turn they will not do, which will shut down miners, which will kill the security aspects of the network.
The more I think about inflation, the more I disagree with its basic premise. Inflation is the main cause of the "grow or die" mentality and the many sustainability issues that come with it. You can not afford to have a steady business that isn't growing, because inflation will slowly eat away your margins until you are operating at a loss. Especially since the reported inflation (under 5% in most developed countries) is far from the actual value seen by most businesses (between salary increases, rent increases, supply increases). It takes less than 15 years for a non growing healthy business to go bankrupt.
Inflation is also the main cause of quality decline seen in absolutely everything. When you can not raise prices as fast as your costs are increasing, the only viable option is to lower quality. This inevitably happens every where and is pretty much an accepted fact of life. It's not that companies want to give you a crappier product or service, it's that they have to.
I'm a huge skeptic of all crypto currencies in their current forms, but the deflationary part was one of the ideas that I really liked (not that any government would ever go for a deflationary policy)
> When you can not raise prices as fast as your costs are increasing, the only viable option is to lower quality.
If you can't raise prices as fast as your costs are rising, it's a signal the market prefers reduced quality to higher prices for your product.
Deflation certainly isn't going to help you there, especially since it means consumers will expect you to actually drop your prices, with some even deferring purchases whilst waiting, and you'll struggle to borrow money when lenders reason that [i] you'll make less revenue next year and [ii] they don't need to risk lending money for it to be worth more than last year; they can just bury it in the ground...
Further to your point, deflation means you drop your prices separate to what your customers "want." Rather, customers are willing to pay less day over day as they require an incentive to spend their money over its risk-free return under their mattresses.
>Inflation is neutral as it raises all prices equally.
This is not true if the inflation is a result of currency creation, as in that case the inflation first affects the things purchased by those receiving the newly created money.
Inflation by definition is a result of supply/demand disequilibrium, in another words to much many is chasing to few goods. I agree that root problem is optimization, this is evident in natural living systems too. Furthermore, in general world is growing, there always will be error between actual world growth and expected one.
If all your costs are inflating, why wouldn't you also be inflating your prices in line?
This seems to be what happens in restaurants or groceries or other things where we go "wow, you used to get a coke for fifty cents!"
A business that can't pass that cost on seems to have more fundamental "loss of relative demand compared to the past" issues that would squeeze it dry even without inflation. In that world, your costs would be static but customers would be willing to pay less over time, so you'd die.
The cost to produce goods rises much more rapidly than what you can actually sell your product for. People would simply stop buying if you increased prices 12-13% every year (which is what is typical for me in the restaurant industry in Mexico)
New entries usually start with a lower quality product by default, so you usually have to keep prices and drop quality if you don't want to be priced out (or move into a far more upscale and finicky market).
My company (not an owner) is a services based company with yearly agreements. We bake in price increases annually with inflation.
If you are not a business running on fixed agreements, you have the right to increase your prices whenever to accommodate your costs. If your idea is that consumers will just go somewhere cheaper, then it works upstream too - you have the option to source your products / goods from somewhere cheaper as well.
If there is no cheaper alternative for you, then there must be no cheaper alternative for your consumers, unless you aren't operating your business in an efficient manner. In which case the market will either force you to, or you will lose your business.
> (1) The ability for the government to censor transactions to terrorists, rogue states and oppressive governments is a good thing.
This assumes you agree with the government on what constitutes a terrorist, a rogue state, or an oppressive government. Currently peaceful protesters in the US are being labeled terrorists because they are protesting the government.
The assumption behind your premise is ultimately that you trust the government to "do the right thing" and I do not, so why would I want to give them more power over me?
> The assumption behind your premise is ultimately that you trust the government to "do the right thing" and I do not, so why would I want to give them more power over me?
My assumption is that if the government is untrustworthy I have much bigger problems, like the fact they can jail and torture and kill me arbitrarily and without recourse. There's no amount of math that'll help me in prison, or when I'm dead. If you can't trust the government, the only thing that'll help is replacing that government. And when you do, you won't need crypto.
I think we disagree on this one. Yes, there would be a much larger problem, but that doesn't mean you should make it easier for them to have more power.
Let's take right now in the US for instance. I don't trust the US government, but I'm not so scared that I'm regularly fearing for my life. I guess it's possible I could wake up in Guantanamo tomorrow but that seems unlikely. That said, I am not interested in giving them any more power over me, and in fact interested in them having less.
So as much as I would love for a real "fix" to the US government, which you describe as replacing it, that seems slightly extreme and unlikely at the moment. So the most realistic course of action is fighting them on their unnecessary grabs for power and surveillance over the populace while I still feel safe to do so.
Just because there are bigger problems doesn't mean you should ignore the smaller problems, especially when those are much easier to address.
> The ability for the government to censor transactions to terrorists, rogue states and oppressive governments is a good thing.
Disagree, due to the fact that the government being able to censor transactions of the government's choosing means that the government is able to censor transactions of the government's choosing. That's not a good thing.
> I want my currency to be subject to "government coercion" when the courts say so.
I would agree with this if and only if the protections of the law were equally applied, and all people had equal access to due process. Presently, both of those things are entirely untrue in most large, developed countries, despite being aspirational/stated goals.
The legal system can and does entirely fail people on a regular basis, and should not have the ultimate veto power over every type of private property, as has been the case historically.
> I for one do want the government to be able too regulate, control and trace transactions.
Many of us feel that freedom of association and freedom of trade with those associations are inherent natural rights, and such regulation or control over them is an illegitimate infringement upon them, regardless of however many democratically-elected representatives say they're not.
Ultimately the state's authority to do such things ("regulate, control") is based on the application of violence, or the threat of same. Violence cannot solve math problems, ergo, cryptocurrencies are a fundamental threat to the authority and existence of the state.
Honestly, I'm completely surprised that they've allowed them to get as big as they have without banning them outright.
Seriously, you're underestimating a motivated government's ability to use violence to either prevent transactions (by taking some of the multisig parties out) or to coerce a transaction (by applying multiple hoses to multiple people).
Say they capture your family. Would you not make a transaction to save your family? If you didn't they'd just take you out. Heck, a motivated government might just take you out after anyways! See how your "coins" are no longer your biggest problem under an authoritarian regime?
In the face of the KGB, you wouldn't be saying "but your violence can't solve this math problem" for very long. Not without that tongue. How many fingernails does a man need anyways? Trust me, that math problem's getting solved. With hoses. Real fast.
This is one of those conceptual exercises that falls right over.
It seems that you and I are talking at cross purposes. Modern technology makes new circumstances where it can be made impossible for a single person, or even all of the people in one or more major jurisdictions, to be able to effect a transaction, acting alone or in concert.
Hardware security systems also permit such things, in more limited circumstances.
The state's capacity for violence is finite, and is scoped by their legal and physical jurisdictions. There is no state, as yet, that can wield unlimited violence throughout the same scope as the uncensored internet.
One man, can tell the KGB, to extract fingernails until the money moves or is no longer capable of moving.
> There is no state, as yet, that can wield unlimited violence throughout the same scope as the uncensored internet.
So a sufficiently motivated state censors the internet. EZPZ. Half the world's already doing it.
Your problem isn't the money, your problem is a tyrannical government. It can and will do whatever it takes, and by virtue of being a large group of people vs. you and your, well, fingernails, no amount of math is going to resolve this situation in your favor. The only thing you can actually do to improve your situation is topple the government. And once you do that, you don't need crypto, do you?
It's a fantasy to think that authoritarian governments actually succeed at this. Every one of them ends up with an underground market despite tremendous repression. Even literal prisons have one. At best, such governments have flare-ups of the condition where they murder in great numbers for a time to send everyone into terror, but in time they tire of it and calm down. The market pops right back up like a weed.
The analogy you should be looking at is the printing press, because it broadened the scope of such markets; what a person of higher literacy communicates is illegible to the lower. And such is true of a system of account that renders a larger scope of transactions illegible. The possession of great wealth itself is a concept that assumes a top-down vision of value; the phenomenon of being robbed for cryptocurrency is mostly reflective of the new being imitative of the old. But if they're all tokens, and anyone can make them - well, then, that means we increasingly don't have a man at the top. If the scrip you pay your police doesn't buy them anything at the market, they aren't going to be very motivated to take out fingernails for you.
(1) Are you sure you want Iranian, Russian, Venezuelan, and other 192 governments all be able to censor your transactions?
Or maybe you only meant a single benevolent government to have this power? In that case I propose the Polish government to censor world transactions (simply because I am a Pole and a patriot). I trust you don't mind!
Counter-proposal. Each country or trading bloc issues its own currency. Then, they use it internally, for domestic transactions. If they want to trade externally with other countries, they use a ledger system to record debts payable to each other domestically at an exchange rate determined by a multi-trillion dollar global exchange system, of supply and demand, based on how far 1 unit of currency will get you in one country vs another.
We can call it: "exactly what we do right now"
The only reason the US is able to sanction other countries is the scale of their economy. They influenced Europe to cut trading relationships with Iran, not through the US dollar, but through exerting political influence. The Europeans would rather trade with America than Iran, and America said they got to pick only one, so they complied.
None of that changes under Bitcoin or any other currency, crypto or otherwise, in no small part because reporting requirements don't go away. Laws don't go away. Political influence doesn't go away. International relations don't go away.
Do you really think that with cryptocurrency America would be unable to materially sanction Iran? Are you sure? The US Army is a pretty good army.
Ok, but how does that help them? Unless they're buying digital goods, all of their spending will be concentrated domestically. Without international trade (as nobody will do business with them for the aforementioned reasons) -- it's not like DHL is going to airdrop in their Amazon Prime purchases. Their welfare does not improve through "irreversibility" (in quotes, because a hose is all it takes to reverse any crypto transaction). In general, irreversibility hurts their welfare through breakage. Their transactions aren't guaranteed if the internet is censored, which in Iran, it is.
The government already has total control over the domestic economy, and can coerce you through violence. What have you gained other than a dramatically less energy efficient economy?
> Inflation incentivises investment and allocation of capital towards the most productive enterprises
This would be true with deflation, assuming returns from investing outpace the returns from doing nothing.
Inflation incentivises investing for returns that do better than the loss from inflation. It would incentivise investments that have a negative return, so long as that return is greater than the inflation rate.
> Why would you spend money today when it would be worth more tomorrow
Because owning a good today is worth more to you than having the same good in the future. Eg it’s better to have the iPhone 11 today than it is tomorrow, as you have it for an extra day.
Additionally there’s many things you can’t put off into the future like paying for food, water etc.
Obviously the energy waste and general inefficiencies of bitcoin / current crypto implementations are valid points, but I have some thoughts on some other points here:
> The ability for the government to censor transactions to terrorists, rogue states and oppressive governments is a good thing.
While that statement is true, I think it's important to keep in mind the context of how current "terrorists, rogue states and oppressive governments" are using fiat currencies. Governments do currently have the ability to censor those transactions, yet they are still operating.
> Inflation doesn't affect people who own assets, including real estate and equities, so long as wages keep pace with inflation. They have.
I don't know how valid the statement of "they have" is here. At least in the United States, real wages have not [0]. Besides, to my knowledge there is no rule in cryptocurrencies that says inflation does not or can not exist, so I don't think this is a counterpoint to the benefits of cryptocurrencies.
> I want my currency to be subject to "government coercion" when the courts say so.
This is a personal desire of yours.
> I for one do want the government to be able too regulate, control and trace transactions.
While this is also a personal desire of yours, I think I will also reference my first point of how governments are not doing a very good job of this today with fiat currencies.
Overall I think its obvious there are downsides to the current use and implementations of cryptocurrencies, but I think the value of them not being tied to any central agency is the key ideal and make them worthwhile.
Regarding 5a - Calculating energy spent per tx is misleading, as the energy spent to secure the btc network also benefits those merely holding the coin.
I disagree, as the marginal benefit to existing holders asymptotically approaches zero after a few blocks are processed, and can be safely disregarded.
The hidden taxation of inflation is a feature. It creates an incentive for people to invest, instead of, like dragons, uselessly sitting on a pile of money.
Yes, that's the idea: the price of sitting on a dragon's hoard of cash that's not doing anything is that its value decreases over time, so you are incentivized to actually do something with it.
Your economics are weird. Making a stupid analogy doesn't help it. There are no dragons, just individual people making decisions about how much to save and for what purpose, and when to spend it, based on their individual circumstances.
Holding on to savings is neither positive nor negative, and should be a personal decision based on individual's circumstances (that's where the most detailed information are available about what's good for the individual), not something forced/influenced from the top by blunt whole market manipulation via forced depreciation of value of money, by some committee.
All you've achieved by forced depreciation is forcing people to make needless risks, just to keep value of their savings, while they're trying to save up for something (like starting a business, or buying a flat, or safety of mind). Whole class of brokers, and traders, and lenders, who pray on this situation benefit, of course.
At an inflation rate of 2% per annum, if your wages keep pace with in inflation as they historically have, it's not stealing anything from anyone. You take the money as you receive it, and you invest it. It's a forcing function.
You can invest it in something as simple as a savings account if you believe that's the right approach. Even in a savings account it's collateralizing loans. The only place your actual cash is at real risk from inflation is under your mattress. That's the point.
> …if your wages keep pace with in inflation as they historically have…
If we're speaking historically, under inflation the prices of consumer goods have tended to rise faster than wages. Under deflation the opposite has been true. Of course lately we have massive improvements in technology to thank for boosting productivity in almost every field, which somewhat masks the negative effects of the inflation. If it weren't for that there probably wouldn't be much of an economy left by this point.
Cash has no utility on its own. It's just a placeholder. Take some out of circulation and the purchasing power of the remaining cash will automatically adjust to match the value of everything available for trade. Stuffing cash in your mattress hurts no one. Inexpertly dumping it into the market to avoid inflation, on the other hand, might well bring down the average rate of return.
The natural rate of inflation or deflation is a key economic indicator which reflects the expected average rate of return. Only ventures with expected returns above this rate (the deflation rate) are economically productive. Messing with the money supply distorts this signal and, though excess inflation, encourages investment in less ventures which divert resources away from the more productive ones. Of course artificial deflation is no better; the ideal is not forced deflation but rather a currency whose supply is not subject to manipulation.
> If we're speaking historically, under inflation the prices of consumer goods have tended to rise faster than wages.
Inflation is defined in terms of the price of consumer goods, and in the US, wages have kept pace with inflation.
> Of course lately we have massive improvements in technology to thank for boosting productivity in almost every field, which somewhat masks the negative effects of the inflation. If it weren't for that there probably wouldn't be much of an economy left by this point.
That's a non sequitur, as inflation is actively managed with a goal target rate. Had it started to drift, the rates that govern inflation would have been adjusted.
> Of course artificial deflation is no better; the ideal is not forced deflation but rather a currency whose supply is not subject to manipulation.
This does not follow either as the currency supply needs to be able to respond to external factors, such as increases or decreases in population. In an increasing population, a currency with no new coins is deflationary. In a decreasing population, it is inflationary.
Money supply needs to be able to respond to externalities.
> Inflation is defined in terms of the price of consumer goods …
There is more than one definition of inflation. Price inflation, the definition you cite, is defined in terms of the prices of consumer goods. This conflates a number of different factors, for example money supply, demand for various kinds of consumer goods, improvements in production efficiency, and direct demand for currency, and for that reason is basically useless for economic analysis, especially if the supply is not held constant. Supply inflation considers only changes in the money supply. You can safely assume that anywhere I use the term "inflation" I am not referring to the useless measure of price inflation but rather to supply inflation.
> … as inflation is actively managed with a goal target rate …
Irrelevant, as the goal is set in terms of consumer prices (see above) and it is the changes in the money supply, not consumer prices, that cause the problems. They're controlling the wrong metric. Consumer prices should have been allowed to fall in response to efficiency improvements. That would have benefited everyone. Wages would fall too, but slower than prices, so purchasing power would increase. Instead they pushed prices to increase to meet their price inflation target, leaving wages to trail behind.
> … the currency supply needs to be able to respond to external factors, such as increases or decreases in population …
It does not. Only the value of the currency needs to adjust to accommodate external factors, and it does so automatically without any change in the supply. Adjustments might be required if the value changes so much as to make the currency awkward to deal with—for example, if price deflation led to typical USD prices being only a few cents we would need new coins with finer resolution—but that is not a major issue for any fiat currency or cryptocurrency where the divisions into units are basically arbitrary. The same applies for price inflation, of course, as we can observe with various countries phasing out smaller coins and bills. It can be an issue for commodity currencies where e.g. the amount of gold needed to buy a meal is simply too small an amount to reasonably store or exchange in the form of a solid coin. (A 1/10 ounce gold coin the size of a dime is worth over $100.)
The real yield for USD Treasury is currently negative across all maturities, this means that your cash has a negative real return in a savings account at a bank. [1]
> if your wages keep pace with in inflation as they historically have, it's not stealing anything from anyone.
Are you forgetting the progressive income tax? It will take a larger portion of your income even though your inflation-adjusted income is still the same.
Tax policy is considered fiscal policy, separate from monetary policy.
Those rates can always be adjusted, and are regularly. For instance, the top marginal tax rate in the US for much of the 1900s was over 90%. It's now, what, 37%? So much for inflation taking away your gains :)
However, progressive tax rates mean as much for the viability of an inflationary currency as they do for a deflationary currency like a hypothetical BTC. That is therefore outside the scope of this conversation.
Consumers spend almost every dollar as soon as they get it. The ones hoarding capital are the banks. The fed can never seem to get interest rates low enough to get the banks to loan to businesses. So why do big banks get to keep the money the fed prints instead of the government, thereby lowering taxes and increasing consumer spending? Because then banks wouldn't get unlimited cheap capital and wouldnt be able to continue the leveraged buyout of American industry. Entrepreneurs would control the economy like they used to instead of financiers, and we cant have that now can we?
Banks are not allowed to hoard capital, and financially speaking, keeping cash in reserve means they're not making money from it.
Indeed, the regulations require the opposite of what you suggest: banks are are required to maintain a certain level of capital reserves to avoid collapse even though they would prefer to spend all of it on investments or making loans.
> The ones hoarding capital are the banks...get to keep the money the fed prints instead of the government
Banks lend more dollars than they borrow from the Fed (or depositors). They don't 'get to keep' money they borrow from the Fed, they repay it at the base interest rate.
They spend it before the inflationary effect occurs, so yes, it is a transfer of wealth from holders of dollars to banks.
The hoarding obviously isn't in cash, just look at their financial reports to know what they do with the money, and it largely isn't lending to businesses for expanding production. Since deregulation, much of the new money has gone to buying stocks. Not exactly helping the economy. As long as the stock market appreciates faster than the prime rate, it makes sense to borrow money from the fed to buy stocks. Especially if the fed is buying stocks too, keeping the market in perpetual inflation driven growth.
Hmm... a large contingent of people on HN claim blockchain is 100% worthless and no better than a centralized database. Then why is the Department of Justice saying:
> At the outset, it bears emphasizing that distributed ledger technology, upon which all cryptocurrencies build, raises breathtaking possibilities for human flourishing. These possibilities are rightly being explored around the globe, from within academia and industry, and from within government — including our own.
So what is it - our government is full of confused people, or HN is?
It is only politically correct to recognize blockchain / DLT potential when you need to bash cryptocurrencies.
Meanwhile, the reverse is true: decentralized cryptocurrencies like Bitcoin or Monero have potential to change the World. While "enterprise blockchain technology" is just pure BS - the needlessly over-distributed and over-complicated database that is inherently centrally controlled.
I mean, when it comes to the potential of a given technology, I think I know who I'll generally trust between HN consensus and the United States Department of Justice.
I haven't read the full report yet, but do they point out any examples?
I think the main contention of many of us on HN is that blockchain as a technology (as opposed to Bitcoin as a store of value) is proposed for a lot of things, but examples that wouldn't be better served by a database are basically non-existent.
> examples that wouldn't be better served by a database are basically non-existent.
If you say so, then here's a question for you.
Using only non-blockchain databases, can you build an exchange that is..
1) Owned by no one, or owned by a community to which anyone can join.
2) Unstoppable. Can't be shutdown even if you cold murder the entire team.
3) Can't be regulated (will never do KYC/AML).
4) Permission-less: anyone can trade and/or provide the liquidity.
5) Open-source with indisputable proof that it *always* runs *exactly* and *only* the code it shows on GitHub.
In other words, can you build Uniswap [1] with MySQL?
24/7 global market with exposure to almost every asset class including new ones with billions of notional USD in liquidity and where people actually are, is that not good enough?
I’m specifically referring to non-custodial decentralized exchanges and automated market maker systems like Uniswap, trading tokenized versions of things.
Every asset class is 99% speculation, including national currencies. Weird when people look at crypto by this other fictional higher standard that no other asset class would achieve while dismissing speculation as a lesser non-use case, not saying you did but predicting someone else was about to.
If you use tokenized versions of things, don't most of the 5 benefits listed previously break down?
If you have an entity selling some tokens representing GOOG on some blockchain, then this entity can (will) be regulated, is a central point of failure, and so on. This problem of interfacing a blockchain with the real world seems like a common theme that's swept under the rug, and I've never seen a convincing answer. What am I missing?
oracles. people are using APIs to get pricing data of real world access, and create entire nodes of networks that have to agree, in the blockchain space they call these oracles. for tokenized assets this just makes them synthetics, indeed one of the biggest services you can use for creating and trading synthetics is called "Synthetix"
a centralized asset backed model is only one possibility and that does have the central point of failure.
it is extremely lucrative to build these API and API networks right now as an 'oracle provider', and decently lucrative to be a highly available oracle.
In the crypto space, both the oracle provider is tokenized with the tokens being typically used to get access to the API network (friction is reduced in some models by only charging/bonding the nodes that want to join the network, instead of consumers) ie $LINK, $BAND, $TRB, $DIA, and the derivatives provider would be tokenized as well ie. $SNX, alongside all the tokens you want to create and trade, or just trade
I guess it's not using just one oracle, otherwise you still have a single point of failure, right? So N oracles are used? What happens if 1 out of N is malicious? k out of N?
How do you check that the N oracles are not actually run by the same person behind the scenes? How do you make sure that it's not economically profitable for an entity to run these N oracles and send bogus data, even if only once?
At my startup (https://assembl.net) we use blockchain timestamping to provide an immutable timestamp of a researcher's data. This allows them to probably show they were the first to discover a certain idea, or work on a specific problem, without trusting a central party.
You're welcome to try it out at https://app.assembl.net. You'll see the blockchain involvement is quite minimal (no private keys, no cryptocurrency, etc.). The core feature, which is decentralized timestamping, necessitates a blockchain.
Do you have an idea of how to do this without a blockchain? I'm all ears.
Most people on HN have no idea what they're talking about. So I'll give you an idea: DLT (distributed ledger technology) is good for one reason: it's a consensus mechanism. You have a distributed architecture and you want different machines to agree on the same state, even when some of them are compromised. This is not just sexy for handling money (cryptocurrencies) but this is a long-standing problem in computer science. Consensus that doesn't care about compromise exist and is used all over the place in database replication (RAFT).
Despite the hate on HN it should be obvious that cryptocurrencies aren't 100% worthless. For that there must be no valuable use case, but even the same people will also say there are illegal use cases, defeating their own point.
(If you still want a legal use case then I suggest how WikiLeaks could still accept donations in Bitcoin when all other payment processors and banks blocked them.)
The head of that government, an obese 74 year old with COVID, just declared himself to be "a perfect physical specimen" and "extremely young", so I think there's a decent case for the former.
More seriously, if you've just spent the last year working on a policy document, you probably are not inclined to say "by the way, this is all nonsense, really"; makes _you_ look bad. This wouldn't be the first time a civil servant has praised something which turned out to be silly.
TL;DR An overview of how cryptocurrency works, how it is used for illicit purposes, many case studies of said purposes, and a reminder that ongoing enforcement will continue to broaden.
Governments don't care about the crime banks encourage and enable, as long as it's large enough. The US has failed to enforce incredible amounts of money laundering through traditional currencies. Whether that failure is the result of incompetence or something more sinister is the question.
Outside of a cultural movement toward more anarchist, distributed power systems, I can't see anything good coming from the state dipping its heels into more data streams like this. It's largely obvious that the US government, for the foreseeable future, is largely dissonant from what's actually good for its public. Drugs are a fairly powerful anecdote illustrating that end: opiate producers (like most capitalist businesses) aren't punished for causing a nation-wide epidemic, while users of proportionally less harmful drugs like LSD, MDMA, or Marijuana are punished quite harshly.
> In most circumstances, the Department does not
liquidate seized or forfeited AECs (Anonymity Enhanced Cryptocurrencies), as doing so allows them to re-enter the stream of commerce for potential future criminal use.
Moon Cannon for Monero!
> Some AECs, however, offer features, such as public view keys, that potentially can facilitate the fulfillment of AML/CFT obligations, depending upon the implementation of such features.
No government enforcement will matter for cryptocurrency as long as confidential transactions schemes aren't broken.
https://eprint.iacr.org/2015/1098.pdf
Of course it does because everything that even remotely touches the non-shadow economy, starting a business, investing in publicly traded firms, interacting with everything that isn't crypto, paying taxes or anything that touches the rest of the world is subject to governance. You can invent a hundred new crypto technologies, if you want to actually do something useful with crypto other than betting on crypto exchanges or buying heroin online you'll need to have some sort of legal recognition.
Ring signatures are cool tech, but it's important to point out ring signature plausible deniability promises only work _in the absence of outside (off chain) information_.
When coupled with outside information (Cooperation with exchanges and other large holders, timing attacks of IP addresses, etc). The plausible deniability you get from ring signatures can be much lower in practice
“The United States has been enormously successful blocking terrorists, rogue regimes, and their supporters from funding their activity using traditional currencies,”
Have they though? How much money has been proven to be laundered through the traditional banking systems, with the support of the banks. This argument against crypto currencies is equivalent to the pedo arguments about cryptography. It's simply BS.
The market cap of all crypto currencies combined is insignificant compared to the cap of fiat currencies used in illicit activities. There is little to no threat from crypto that we don't already have with fiat. The "threat" is a red herring.
They talk about the legitimate use cases and various narratives of cryptocurrency proponents, some narratives of skeptics, as well as its actual potential and use and research by non-enforcement government agencies.
The DOJ is an enforcement agency and will naturally talk more about how to disrupt evolving criminal enterprises.
This document goes into depth on how various threats and illegal activities are modeling and disrupted.
I for one don't want government to be able to regulate / control / trace transactions.