from Hacker News

Bitcoin vs. Ben Bernanke

by dpanah on 5/5/13, 12:12 PM with 88 comments

• by lolcraft on 5/5/13, 2:03 PM

  I'll admit that the WSJ here is not as laughably bad as some quotations from their infamous op-eds had led me to believe. Maybe I was too harsh with them. They seem to do the balance thing, or more correctly here, the common sense and economics thing, at least passably well. Either way, there are some real pieces of work here, misconceptions about economics that were dispelled before, again and again. You're going to have a laugh, I promise.

  Of course, let's start about some inflammatory comments about Mr. Leftwing Strawman, as per usual: did you know that hyperinflation is inevitable because ZIMBABWE!?

  "I'll use a visual aid," says Mr. Andresen. "He opens his wallet and presents me with a gift: a 10-trillion-dollar bill once issued by the government of Zimbabwe."

  Deflation is good, because SAVING! (Here the Calvinist roots of old-school good Flemish capitalism start showing again, with careless disregard to any theory of supply-demand equilibrium. How do I miss Schumpeter/Marx...)

  "If prices are falling, he says, it does encourage people to save instead of spend, because the currency will be worth more later. It encourages people to lend instead of borrow. [and that's a good thing]" (Yeah, because as we know, in a given economy at a given time there can be more lending than borrowing. Or that saving > spending doesn't mean a contraction in the economy, by the magic of Austerian Economics. You people...)

  A classic: fiat currency is a FAITH! Heathens!

  "Federal Reserve Bank of Dallas President Richard Fisher calls the U.S. dollar a 'faith-based currency.'"

  (Not pictured: other things based in "faith", like civil oversight over the military, the Constitution, the enforcement of laws, the concept of credit itself, the currently overpriced exchange value of gold... basically anything that isn't enforced by AK-47's, except of course those enforced by the promise of AK-47's)

  "[...] what about a digital currency programmed to maintain stable prices, avoiding mischief by central bankers as well as the possibility of deflation? He says the engineer in him likes the simplicity of Bitcoin's fixed money supply."

  Yeah, great engineering dude, let's disregard things like, you know, minimal acceptable performance for simplicity ;) You know, Unix was simple, but at least it didn't crash every five minutes. And the Apple II was simple, and it even had color!

  Had many laughs. Would read again.

• by PaperclipTaken on 5/5/13, 4:51 PM

  There are a few challenges facing Bitcoin, and I think that in the long run Bitcoin will not be the chosen digital currency of the world.

  The first problem is that there is a highly predictable and (at the moment) constant supply of bitcoins, which means that the value of the coin will adjust like a commodity as more or less people start to use it. It's like Gold or Oil in the sense that when people want it, it's worth a lot, and when people don't want it, it's not as expensive. That chains the value to the demand, meaning that any time you use bitcoin as a store-of-value, you are putting yourself at the complete mercy of the market.

  Many advocates believe that as the number of people using bitcoin grows the price will stabilize, but I think that using bitcoin as a store-of-value is going to end up like using the gold standard, especially because some early adopters have tens of thousands to even a million (Satoshi is believed to have a million) bitcoins, and any of them could decide to 'cash out', which would dramatically change the supply and potentially affect the whole market.

  Another problem is that the currency is highly traceable, and while you can do things to obfuscate your spending habits there are lots of techniques involving statistical analysis that shed doubt on the effectiveness of obfuscation. You can take this back to the "I have nothing to hide" argument, but there are plenty of powerful parties that will be more interested in a currency that can't be traced (imagine big business or big finance), and an untraceable currency would certainly be more attractive.

  But to me the biggest current problem with bitcoin is the uncertainty. There are many conflicting schools of thought in economics each with their own reasons why bitcoin is good or bad. But beyond the basics, macroeconomics often involves a lot of voodoo, and for any new paradigm there will be major schools of thought that will believe the new paradigm is bad or unstable in some way. There is no real way to fight this except to accept that we ultimately have no idea how new economic paradigms will affect our world, and that some of the naysayers may be correct and thus caution should be used.

• by StavrosK on 5/5/13, 2:22 PM

  Isn't anybody else afraid of the implications of basically the equivalent of easily trackable cash? The government can easily mandate that each individual declare their wallets and track every single penny you spend and where you spent it.

  Sounds like a nightmare scenario to me.

• by jrochkind1 on 5/5/13, 2:18 PM

  It's almost time for Mr. Andresen to get back to work. He shares some useful advice about Bitcoin: "I tell people it's still an experiment and only invest time or money you could afford to lose." If only investors could as easily follow that advice with fiat currencies.

• by Symmetry on 5/5/13, 3:00 PM

  Decent enough article, but whenever talking about Bitcoins I find it helpful to separate the various roles that money performs. That is, Bitcoin is an awesome medium of exchange, a risky store of value, and a horrible medium of account. Just use it for what it's good for and everything's fine.

  http://en.wikipedia.org/wiki/Medium_of_exchange

  http://en.wikipedia.org/wiki/Store_of_value

  http://en.wikipedia.org/wiki/Unit_of_account

• by irickt on 5/5/13, 3:16 PM

  The biggest risk to Bitcoin is that it will become the Myspace of currencies as its many future competitors come along.

• by joelberman on 5/5/13, 1:33 PM

  Every article I read about Bitcoin has a picture of a metal bitcoin in it. I guess that is to make sure very few people get the point of what bitcoin is.

• by hexonexxon on 5/5/13, 7:26 PM

  Bitcoin transactions are visible/traceable, but doesn't mean you can match txn to identities.

  If there is one address in the middle of you paying somebody, and that address was generated either offline or through Tor, there's no way to prove you own that address unless somebody can extract the private keys from your seized hardware and match it up to the public address.

  Transactions don't prove anything, anyways. If you sell on localbitcoins or IRC, you have no idea that the anon guy who showed up to buy them with untraceable cash isn't directly 3rd party funding his Silk Rd account. If you look at the blockchain it would appear I paid into SR directly however I sold coins to some random guy I'll never see again, who's contact info I also don't have. Since I sell under my countries $10k cash transaction limit I don't need to take ID or retain contact info. Tracing that transaction proves nothing.

  I also can't recall any of the major bitcoin heists being recovered. Only one exchange (mtgox) has a history of holding transactions for ID if they appear to be stolen coins, and they've only done it twice: first time was cleared up with ID, second time they're still holding the coins (bitcoinica/linode theft). Every other bitcoin heist you've heard of through the years the trace leads to nowhere.

• by aakilfernandes on 5/5/13, 3:18 PM

  Interesting point:

  "And for those who wish to avoid both inflation and deflation, what about a digital currency programmed to maintain stable prices, avoiding mischief by central bankers as well as the possibility of deflation?"

  My gut is that this is not possible. Enforcing stable prices requires constant data about price levels, and with decentralized markets there doesn't seem to be an accurate way to get that data.

• by bayesianhorse on 5/5/13, 4:54 PM

  Can we please stop talking about Bitcoin replacing the Dollar? Bitcoin isn't suited for local transactions or for contracts on a large scale. That might change, but the value of the bitcoin protocol is in other applications.

• by em70 on 5/5/13, 5:00 PM

  I have yet to see it being pointed out that none of the encryption in use for these cryptocurrencies will necessarily remain extremely hard to break for long. A good question is: what if bitcoin or something alike does effectively gain traction and one day a math breakthrough (or a computational tech one) make the crypto weak? How much wealth will be destroyed then? Who would you turn to for help? Our system is not perfect, but taking central banks out of the loop is not a way to improve it. It would be much more useful to find ways to push down financial transaction and currency exchange costs.

• by wfunction on 5/5/13, 5:00 PM

  The terrifying part of his job is that almost all of the current Bitcoin services now use the same software, so that "any change to the core code has potentially disastrous impact. If everybody rolls out a new version and there's some problem with it, the whole Bitcoin payment network could grind to a halt."

  This is the part that has always scared me.