I can see someone explaining to their grandmother about having to move her BTC to offline cold storage and storing her private keys securely or she could lose her life's savings in an instant with no recourse
Multisig solutions are available for increased security and reliability. Services like Casa and Unchained Capital will even hold a single key from your set, allowing you to recover your funds if one of your keys is lost, however they can never move your funds on their own because they never possess a quorum.
So you can have a wallet that requires 2 signatures to move funds, where you control 2 signing devices (mobile app + hardware wallet) and the third-party holds the 3rd key. Normally you manage all transfers without involvement of the third party, but if one of your keys becomes inaccessible they can help you sweep your funds to a new set of keys.
Additional resiliency and security is gained by increasing the quorum to 3-of-5. You control a mobile app plus 3 hardware signing devices, which are ideally distributed geographically. This increases reliability in case something happens at your primary site (like your house) and increases security by requiring an attacker to physically visit multiple locations. The 5th key is held by the recovery service.
Shamir’s Secret Sharing is a general solution for splitting secrets. Bitcoin multisig is superior for for its specific applications though. The biggest reasons are:
1. There is never one single key with full control. This is a huge vulnerability with SSS.
2. More flexibility, by allowing differing k-of-n subsets in combination with timelocks and other Bitcoin script features.
That someone probably will have learned how to help grandma on complex digital processes last time goverment services, communications and commerce moved online.
I agree it won't be pain-free, but hardly the first time such conversion would happen
Who the hell has time to figure out all this stuff?
I personally think the day the digital US dollar is developed and can be stored in your IPhone. If I can take my locally stored digital dollar and then send it via imessage or whatsapp, then the game is truly over for Bitcoin.
It's closer to each individual bank having their own digital currency, all of which are worth 1 USD each. The digital US dollars at my bank are not directly exchangable with the digital US dollars at your bank. You need to settle up with an ACH transaction, which takes at least a day to transact as it has to run in a central batch job. In addition, only US domestic institutions can use this mechanism to transfer US dollars between themselves -- international institutions need to use the SWIFT system, which is multiple days for a transaction. Contrast with credit card payment and settlement, which acts closer to a digital system but can't be used as a store of value (and has punitive fees for attempting to do so). The US dollar acts like a cash system with some digital features rather than a digital system.
> The digital US dollars at my bank are not directly exchangable with the digital US dollars at your bank. You need to settle up with an ACH transaction, which takes at least a day to transact as it has to run in a central batch job.
FedNow will reduce that latency from days to minutes. US is slow in that game, but RTP is widely deployed in UK, France, etc.
For international transactions, one can use SWIFT (days) or TransferWise (minutes) or Western Union (under one hour).
I want my digital cash to work like regular cash. I need to pay the lawn guy, send an iMessage. I wanna buy lunch, swipe my phone and pay with the money in my phone. I don't need the charge going through my bank or some intermediary.
I want freedom to use my digital money the way I want without someone holding my account hostage, if I do something wrong. Additionally, I have no problem losing my money, if I send the money to the wrong person or lose my phone.
That's good usability-wise, but it still has the problem of central banks being able to create money (diluting your wealth for their benefit) and also being able to cancel you, or someone you want to pay, out of the system. It's a horribly powerful way to control people.
FedNow is a digital cash system. It's not there yet, and it's still not international. As for Western Union et al, it's a bit like claiming the US has a digital cash system because Venmo exists -- it's someone else taking on the risk the funds won't settle in order to provide a better user experience. So the US is approaching a digital cash system, but it's not there.
The bank does hold a fraction of your deposits, as our banking in the US is fractional reserve banking. This has been the case for quite some time, and isn't really the same thing as digital currency, even if we transact digitally.
From my understanding, they hold most of that in reserve accounts with the Federal Reserve. But yeah, someone at some point holds some cash. But of the total US money supply (in 2018), physical currency makes up about 11% of the total value[0].
Edit: Downvoted, and I'm guessing it's the source? This is legitimate fact though. Here's the fed's own announcement.
> In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.
Where does the Fed get the money to be a lender of last resort - by printing the money and generating inflation? If so, then how does this inflation impact the purchasing power of these last resort dollars?
I often like to take things to a logical extreme. Since the Fed can simply print all this money into existence, is there a limit to their ability to print? I mean couldn't they simply print their way out of any economic crisis or would this result in another Weimar republic situation? -- genuine question.
Printing money does not always cause inflation. The purpose of the Fed is to keep the dollar's value stable. If demand for the dollar rises, the Fed has to print money to avoid deflation.
The common mantra "When a measure becomes a target, it ceases to be a measure." applies here too, but many HN peeps seem to think it doesn't for some reason.
If you remove the constant adjustments to the CPI you get a _much_ higher rate of inflation than governments will admit.
One year ago the dollar was deflating, so this is cherrypicking data. If inflation was above 4% for multiple years then that would be a problem, but a month or two is not anything to be worried about.
I'm also not sure why you think adjustments to the CPI should not be allowed. Individual goods get cheaper or more expensive relative to other goods, and consumers change their behavior. It would be asinine to have the government subsidize certain goods (via economic policy) such that all consumers purchase the same basket today as they were in 1990!
I don’t particularly want my dollars to “hold value”.
I want currency to be useful as currency; I want my investments to hold value. The two things serve different functions, and I don't want investments compromised to be useful as currency or vice versa.
> I don’t particularly want my dollars to “hold value”
Sure, but would you really rather your dollars "lose value" as in they can purchase less and less goods and services over time? How does that benefit you personally?
> Sure, but would you really rather your dollars "lose value" as in they can purchase less and less goods and services over time?
Yes. Mostly, because of systemic effects on the broader economy I need to have functioning to earn a living, but also because of more direct personal benefits.
> How does that benefit you personally?
Because other than a small share in cash and the bank for liquidity, my assets aren’t dollar denominated, but my debts — which, while smaller than my total assets, are much larger than my dollar-denominated assets — are almost entirely dollar-denominated.
I agree that it's nice if you have assets, but I believe for most people we can't have nearly as many assets and or connections as the wealthy.
And for young people, they're basically priced out of assets by this system. _This_ literally is the reason owning a home is next to impossible for millennials and gen-zs.
Further, this encourages a debt based society that may encourage growth in the short run (debt giveth first), but then when the debts are due it holds the economy back. Typically this looks like the 2008 crash and is coined the `business cycle` by modern economists.
> when the debts are due it holds the economy back.
This is just wrong. The only debt that holds the economy back is debt that didn't actually generate growth. If you borrow to start a business, you are stimulating the economy with growth, through debt. If you rack up credit debt at the bar every weekend, you're going to cause yourself problems.
The topic is just more nuanced than you're implying. Debt is very good for the economy overall, as long as you're not overdoing it or taking on frivolous debts that don't let you grow.
Student loans seem relevant here. I take out 50k of student loans. The degree I earn empowers me to make 50k/year. After 2 years that debt has been turned into profit, and that's only for me personally, ignoring the value my education will bring to my employer, the community, and the economy at large.
Another example of good debt can be a car. I purchase a 20k car, with credit, which allows me to make 70k instead of 50k, in the next town over. After a year, that debt has paid itself off and is now earning for me, despite the fact that the value of the car instantly dropped 20+% as soon as I purchased it.
The idea that debt holds the economy back is terribly misinformed and over simplified. It's literally how we grow, and how the US has become the economic powerhouse it is. The most wealthy nation in the history of the world (what we do with the money is a different topic).
Most people have nonfinancial assets (e.g., durable items of personal property.)
> _This_ literally is the reason owning a home is next to impossible for millennials and gen-zs.
No, its not, because its been true (and inflation higher) for preceding generations, so it can’t possible explain why Millenials and beyond have it worse than Gen X who had it worse than Boomers. Tax and spending policy shifts (Reagan's being the biggest single one nationally, but there have been several subsequent national ones, and CA Prop 13 and its — mostly much weaker — copycats play a role, too) are a much bigger factor
> Typically this looks like the 2008 crash
The 2008 crash wasn't a regularly occurring event. (And as bad as it was, wasn't nearly as bad in and of itself as it is widely perceived; it gets magnified because — again for reasons that trace directly back to fiscal policy choices — the expansion after the brief and shallow 2001 recession was, up to that point, pretty much the most hollow expansion in modern US history, with, IIRC, every income quintile but the top doing worse, and even the top being mostly flat except for the top couple percent.)
How much money do you have in dollars? I have an emergency fund — 6 months of expenses. Everything else is in other assets that store value after inflation (e.g. stocks, bonds, housing).
> How does that benefit you personally?
A little bit of inflation means more economic growth in the long run. That benefits me because services and goods will get cheaper and/or better.
Not much, in fact I try to remain leveraged via debts to hedge against inflation.
But my salary is measured in dollars. I fought hard to get the salary I have today, but I must continue to ratchet up as my employment deal looks worse every year.
I believe the Cantillion effect is largely why the average peasant's wages have not kept up with asset prices.
Inflation means wealthy (with assets) get wealthier.
> A little bit of inflation means more economic growth in the long run.
When you play tricks with the CPI it does look that way. It's easy to say there's growth when revenues grow beyond a poor measure of inflation.
Inflation discourages savings and thus makes money look easy. As such, it actually encourages bad investment. Further, the business cycle that Kaynsians say are just a natural part of a large economy are really caused by over leveraged banking credit bursts.
If half of the dollars in circulation are just debts owed between banks, then that bubble bursts, it's no surprise that asset prices would fall--there's literally fewer dollars in circulation.
It's no big deal for those involved in fed policy making as they are usually the first to see it coming (and or instigate it with higher interest rates) and generally move their positions back to dollars just prior to a credit bubble burst.
But for those of us that leverage ourselves to hedge against inflation (buying a house), we get caught with a heavy loan on an asset that's no longer worth as much as the loan on it.
One should be open to viewpoints external to those provided by the people in charge of and profiting from the system.
Your salary is measured in dollars, but inflation affects your salary as well. When companies charge more for products, where do you think (some of) that extra money goes?
The rest of your comment has some interesting hypotheses (Cantillon effect, inflation encouraging bad investment) but in practice, you have to make measurements to see whether those effects actually happen. I haven't seen any empirical evidence for the Cantillon effect, and empirically we have evidence that a small amount of inflation does not decrease output (and can increase output in some cases).
> The Fed's goal is to maintain inflation at 2% for reasons more complicated than I'll discuss here.
It would be amazing if you could make the effort to explain the complicated reasons why the Fed's inflationary policy is a good thing. I have yet to hear a sound argument why sound money is worse for the people, than an inflationary currency. I can see how it would benefit the government to hide the true cost of taxation via inflation, but why does it ever benefit the individual to have their wealth diluted by the process of inflation, even if it is "only" by about 2% per year?
I can't do this topic justice from memory, but you seem to be genuinely interested, so I'll say what I can.
It seems related to the petrodollar system. This is where the world uses USD for energy (OPEC only sells oil for dollars). This forces countries who need oil to acquire dollars. However, there's a problem with that: a limited supply of dollars. How do we fix that problem? Use a fiat currency (not backed by something tangible) that allows us to print more money as necessary. How much more should we print? The target is 2% inflation, so that much is what the experts in this topic think.
This petrodollar system does a lot more than just force us to have inflation. The subject from here becomes more and more complicated, because monetary systems are highly complicated. There's a lot going on in the US fiscal policy, and the impacts vary from very good to very bad, depending on your perspective. It's in fact so complicated that I can imagine for every perspective there are good parts and bad parts of our monetary system.
There's a lot of talk in this thread and on the internet in general, especially around cryptocurrencies, that is massively oversimplified and doesn't pay any mind to the fact that, like any other field, there are many very intelligent people working to solve very difficult problems. If a monetary policy can be summed up in one sentence, it's probably not a good policy.
Well, you make it sound like there's a limited number of dollar notes and the bank will refuse your deposit/loan if they don't have enough notes lying around to make the fractional requirements.
In reality, they will accept your deposit/loan (as long as it makes business sense) with no regard for how many notes they have lying around. If that puts them over the edge of the fractional requirements, they'll just go to the Fed/Treasury, who will swing their wand and write in additional (digital) reserves for the bank.
> they'll just go to the Fed/Treasury, who will swing their wand and write in additional (digital) reserves for the bank.
Pretty sure that's true for larger institutions and lending between themselves, but not for your everyday accounts. They must go to fed member banks themselves to ask for the loans.
This simply isn't how the financial system works. The bank will only loan out amounts based on what they hold in reserve. Asking the Fed/Treasury to "swing their wand around" isn't really close to what happens. Also, the Federal Reserve and the Treasury are different entities.
They don't just "print money" for banks arbitrarily.
Printing money for banks arbitrarily is exactly what they do -- what they have to do, if they want to have any chance at meeting their target overnight rate. (Which they are.)
Demand for money comes from the market and is not very flexible, and certainly not under anyone's control. Lenders will meet the demand for money at ever increasing prices (i.e. higher overnight rates) unless money gets printed arbitrarily.
The US does not have reserve requirements; it has capital requirements. The fractional-reserve model is not a realistic description of banking in modern developed economies.
I don't have a strict definition handy, however it seems as though digital currencies would be those that are digitally based, whereas the dollar is a tangible currency first, even if it is fiat.
A digital currency would be like crypto currency, or in-game currencies or something designed to be digital. The dollar is the federal reserve currency, and not intended to be digital. It doesn't make sense to call it digital currency, when in fact it's physical currency first, and we've developed digital tools to help us use it and move it around.
> I personally think the day the digital US dollar is developed and can be stored in your IPhone. If I can take my locally stored digital dollar and then send it via imessage or whatsapp, then the game is truly over for Bitcoin
Hasn't this already happened. It's called Zelle or Venmo or CashApp or ApplePay or a million others. Heck, if you prefer Elon Musk pushed technology there's even this thing called PayPal.
And it comes with a whole series of laws that protect you in the case of hacking, fraud, etc.
I don't follow the advantage of using a government-issued (and custodially held) bitcoin wallet. Well, I understand that El Salvador wants to encourage people to use their BTC there. But other than that I don't see the value.
>Who the hell has time to figure out all this stuff?
In the early days of the internet, many things were a complete pain in the ass to do. But then services and apps were built and things became easier, same is happening in this space.
Before, even purchasing Bitcoin was extremely difficult to do, and involved a lot of research + steps - now it's trivial. Before, securing your wallet was extremely difficult, now it's easier but not ideal to those that are less tech saavy.
This is such a brilliant answer. Imposing the grandma test on early-stage ecosystems is a total naysayer move. We all know that humans are capable of doing advanced math, even though a newborn baby doesn't come even close to being able to do it.
Numbers in a retail bank's ledger are not digital dollars. They represent an obligation of the bank, and not direct ownership of dollars.
Digital dollars exist, but only banks can hold them, as they're the only ones with accounts at the central bank. The rest of us use retail bank accounts, which are the equivalent of custodial wallets in the crypto world.
This is correct in practice. But consider what I said in the context of the discussion: contrasting 'digital dollars' with cryptocurrencies.
With dollars, individuals have to choose between bank accounts, which are subject to counterparty risk, and cash, which cannot be transacted digitally.
If your holding of 'digital dollars' in a bank account is subject to counterparty risk, then there's something different about the dollars you hold and 'real' dollars issued by the central bank.
With cryptocurrency, anyone can transact the real thing. There's no counterparty risk. (Of course, there are issues with blockchain scaling, use of custodial wallets etc., which negate this to some extent.)
> With cryptocurrency, anyone can transact the real thing. There's no counterparty risk.
This only holds true if there was only one cryptocurrency in the world and everyone used self-custody. As soon as you have multiple cryptocurrencies and multiple networks and multiple wallet providers, you have counterparty risk.
Coinbase may not disappear, but others may. Similar for Bitcoin etc. etc.
So the person who transports those dollars to the bank doesn't get paid? The car that takes that person to the bank doesn't use gas? Just because you don't see the fee doesn't mean you don't pay it. It's included in the price of anything you buy.
That fee is only because we want that money settled instantly by a third party. There's no fee for a bank to bank transfer. Or heck, even writing a check. Once you get VISA involved they want a cut.
It might appear that way, but that is only because the fee is hidden.
The credit card terminal agreements signed by retailers prevent the retailer from offering differential pricing when buying via credit card or cash. Essentially, the credit card fee is embedded into the price.
This might be "good" for people who have credit cards, but it is inflationary (by roughly 2%) to people whose credit is poor and only transact by cash.
I think that using cash makes money expensive which adds some base load inflation - this will help reduces homelessness and other societal ills (such as wealth inequality).
Electronic money is never lost, not like those pounds, pennies, dollars, quarters. Losing money, takes out of circulation. While not much is taken out, it might be enough to create a base load of inflation - money becomes more scarce and therefore more expensive.
Low inflation leads to asset price bubbles - stock market and housing in particular. It also suppresses wage inflation. So housing becomes more expensive and wages do not keep up, making housing less affordable. A double punch.
Low inflation leads to more financial speculation as people with access to capital look to diversify away from a limited pool of assets (Bonds and cash become less desirable in low inflation regimes). Buying housing and leasing it out is a good use of capital. However, this leads real-estate investors to drive increases in rent as they chase yield and airbnb-empires also drive rental prices - as this is one way of driving yield.
High rents combined with low wage growth means that people's lives become priced for perfection and one small deviation can knock them out of equilibrium - losing their home / rental property when they lose their job.
All because governments and technology are conspiring to keep inflation low. Using cash is the person-on-the-street's only weapon to fight it.
Homelessness is a California’s complex housing shortage and governance/policy problem. The world is much bigger than issues in SF/Portland/Seattle. I am not following the strawman from utilitarian aspects of cash -> inflation -> homelessness & inquality.
Cheap money forces it to find a home that generates a 7%+ return. Cheap money reduces the number of asset classes that can guarantee (within reason) those returns to Housing and Stocks (and Crypto of course). Buying a home becomes out of reach for more people. In addition, low inflation also suppresses wage growth. As house prices increase (just look at Blackrock's purchase of residential property at 30-50% premiums) rents will also increase because professional landlords are seeking a 7% return and if the property changes hands at a 10% lift then rent-asked for that property will also rise. This leads to a situation of unaffordable housing (exaggerated by lack of new supply coming in line in places like California) in the face of low wage growth - this leads to homeless-ness. IMO.
From the interwebs: In the U.S., the money supply is influenced by supply and demand—and the actions of the Federal Reserve and commercial banks. ... More money flowing through the economy corresponds with lower interest rates, while less money available generates higher rates."
For perhaps the same reasons as you, I decline/turn-off auto-pay of any services I subscribe to. I actually cut checks every couple of weeks to pay bills.
I need a regular reminder of how I am being nickeled and dimed. My big fear is a constant drain on my account from a service that I had forgotten about or just the accumulative damage a lot of services add up to.
To be sure, our corporate overlords love the auto-pay, cashless society they have created for our convenience.
I have all of my credit cards and bank accounts set to notify (text) me whenever there is any transaction whatsoever. I find that helps with the subscription concerns, as well as confidence in catching fraud/incorrect charges quickly.
A cryptocurrency backed by the united states could certainly succeed as many people want to do business that way, but the point of bitcoin was decentralization and preventing government control of the currency.
The same people (lots and lots and lots of criminals, but you know, regular people too) who use bitcoin would probably not want a us dollar coin very much.
But the vast majority of people don't use bitcoin at all, for anything... I think a us dollar coin with FDIC protection or whatever protection it takes to make grandma feel safe that her $100k account is protected, would be wildly successful if they tried it.
> Who the hell has time to figure out all this stuff?
Nobody will have to learn this stuff, if the BTC economy develops there will be professional custodials for all levels. Eg. banks.
But the importance is that there is always the option to self-custody if you want to. With fiat you don't have that option even in theory. I think the option for self-custody is what makes BTC powerful alternative, not necessarily how widespread self-custody is going to be.
Physical cash is ridiculously cumbersome and difficult to handle in larger quantities. I wouldn't probably be able to get $10k worth of cash from my local bank, and getting something like $100k would probably require days and lots of work. However if I have millions worth of BTC at some big exchange, I can move that amount to a secure self custody in 10 minutes without a hassle.
So you agree that you were wrong to say that you don’t have the option even in theory? Convenience is a discussion point but it’s predicated on being possible – and since this happens not-infrequently (people buy cars, farm equipment, even houses with cash) it’s far from theoretical.
One other area to learn about: security – while it’s true that you can move millions on yourself own, the risks of theft or accidental loss are why most people do not avail themselves of these theoretical options since they consider the cost of banking fees to be an acceptable trade off for the security and convenience of letting a professional handle those problems.
