Bitcoin

[Kaya.gs]

I wrote a small blogpost about bitcoin.

Should Kaya accept bitcoin as a payment method?

http://kayags.blogspot.com.ar/

[C. Blue]

If that means postponing the day that it will finally be opened for the public then I vote for "no".

[hyperpape]

Sure. I recommend putting it on the todo list right after "make every other conceivable aspect of the server perfect."

[emeraldemon]

I had never heard of bitcoin before now, but it seems pretty cool actually. I like the idea of a distributed currency, although I'm still reading about the technical details.

[hyperpape]

You might be interested in: http://www.quora.com/Bitcoin/Is-the-cry ... -good-idea

Here's a followup. He suggests he wished he hadn't used the word "scam" but otherwise endorses his points: http://news.ycombinator.com/item?id=2611281

I'd say that even if calling it a scam is too much, he's right that it's designed to massively enrich early adopters if it catches on.

[emeraldemon]

Yeah, I really can't understand why they would choose a deflationary model. The wiki even links to an interview with Milton Friedman where he suggests a something like a constant 4% yearly inflation, which makes so much more sense.

I'm also not thrilled with the idea of doing arbitrary amounts of useless work to keep the system running. Computers cost real electricity to run, and creating a financial incentive to burn GPU cycles on random hashes bothers me a bit philosophically.

[Kaya.gs]

Yeah, I really can't understand why they would choose a deflationary model. The wiki even links to an interview with Milton Friedman where he suggests a something like a constant 4% yearly inflation, which makes so much more sense.

I'm also not thrilled with the idea of doing arbitrary amounts of useless work to keep the system running. Computers cost real electricity to run, and creating a financial incentive to burn GPU cycles on random hashes bothers me a bit philosophically.

Economically speaking, the latter is also a flaw in any other currency model.
Also,as i understand, the reasons why a mild inflation is mainly a tool for a centralized currency controller, which this doesnt have.
"By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens."

Economical discussions aside , the matter at hand is much more simple. How many people here already use bitcoin? and would you consider using it yourself?

[hyperpape]

Economically speaking, the latter is also a flaw in any other currency model.

A dollar bill can be printed for a cost far less than its face value. And most money isn't even printed. This is a reasonable criticism of *some* coins, including the penny, however. A bitcoin is, by design, almost always about as expensive to mine as its value (this will only fail when the value of the currency changes).

Also,as i understand, the reasons why a mild inflation is mainly a tool for a centralized currency controller, which this doesnt have.
"By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens."

Not true. One major argument for mild (2% or so) inflation is that it helps to smooth labor market rigidities, and that this is worth the costs. The other issue is that deflation is generally agreed to have much greater costs than inflation (that is what Keynes, the author of that quote, thought). The key point is predictability. Unpredictable or large inflation is very bad indeed.

Economical discussions aside , the matter at hand is much more simple. How many people here already use bitcoin? and would you consider using it yourself?

As may be obvious, I'll never use it unless I have to.

[jts]

Also,as i understand, the reasons why a mild inflation is mainly a tool for a centralized currency controller, which this doesnt have.
"By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens."

This is actually false. People hold small amounts of currency to do things like, oh I don't know, buy burritos, and they hold assets denominated in currency because they expect them to appreciate. If you're hoping for 1% real interest rate from your bank, you shouldn't really care whether the nominal rate is 1% or 5%.

The actual money supply needs to be expanding constantly to keep up with business activity. If ten million people get a raise, they may all decide to get guacamole on their burritos at lunch (luxury!) and all of a sudden the central bank needs there to be an extra $15,000,000 in circulation every single day. If the central bank neglects to print that currency, all of a sudden people will find that they can't get guacamole on their burritos (sad! ) and they'll forgo other purchases so that they can stockpile dollar bills for their daily trip to the burrito vendor. However, that ruins the cash flow of some other business, which in turn try to stockpile dollar bills so that they don't go into bankruptcy.

The short story is that it's better to expand the money supply by more than people really need, because otherwise you risk getting into a nasty situation where people are worried about running out of money (not valuable assets, just the bills) and start stockpiling them, making it even more difficult for everyone else to use the money. The risks of having too many dollar bills are much smaller than the risks of having too few.

If you are buying little bits of gold, or pocket-sized portraits of dead presidents, or "bitcoin", as a speculative investment (the way more reasonable people buy homes or businesses or stocks), then of course you would be eager for people to run out of money and start stock-piling it! That's what you were hoping for: a situation where demand outstrips supply and your investment becomes valuable. But central banks don't print currency to give nerds investment opportunities, they print them to facilitate the exchange of goods and services.

[Bill Spight]

Yeah, I really can't understand why they would choose a deflationary model.

Oh, it made immediate sense to me. The value of early bitcoins grows more than the value of later bitcoins, which is to the advantage of the founder and early adopters, if they cash out soon enough.

[Archivist]

Echoing what I said on the server chat:

To play devil's advocate: how is bitcoin a more efficient or simpler method of accepting payment?

Perhaps for the business entity allowing transactions between peers it could be, as in this case the onus of currency conversion falls on the participants, while in direct payment to the business, they'd still be responsible for converting to "real" money to utilize those assets because bitcoin is not in widespread use.

Example: I'd have to buy or otherwise convert my USD to BTC, pay you, and if you want to use the payment value for anything realistic, you'd have to convert BTC to EUR or RMB or GBP or whatnot. And the value of BTC, the middle-man commodity, fluctuates widely. Wouldn't it be more effective and simpler for me to pay you my USD or convert my USD to GBP and pay you that?

[cata]

I'd pay BTC if I could -- I dislike Paypal and don't really care to patronize them more than I already do (plus, they take a chunk as a transaction fee.)

[cata]

This is actually false. People hold small amounts of currency to do things like, oh I don't know, buy burritos, and they hold assets denominated in currency because they expect them to appreciate. If you're hoping for 1% real interest rate from your bank, you shouldn't really care whether the nominal rate is 1% or 5%.

The actual money supply needs to be expanding constantly to keep up with business activity. If ten million people get a raise, they may all decide to get guacamole on their burritos at lunch (luxury!) and all of a sudden the central bank needs there to be an extra $15,000,000 in circulation every single day. If the central bank neglects to print that currency, all of a sudden people will find that they can't get guacamole on their burritos (sad! ) and they'll forgo other purchases so that they can stockpile dollar bills for their daily trip to the burrito vendor. However, that ruins the cash flow of some other business, which in turn try to stockpile dollar bills so that they don't go into bankruptcy.

The short story is that it's better to expand the money supply by more than people really need, because otherwise you risk getting into a nasty situation where people are worried about running out of money (not valuable assets, just the bills) and start stockpiling them, making it even more difficult for everyone else to use the money. The risks of having too many dollar bills are much smaller than the risks of having too few.

I don't quite understand. I think I get your argument in the context of physical currency: If there aren't literally enough physical dollar bills or coins to satisfy all the people who want to move them, then we need to print more bills and coins. But if you could subdivide dollar bills indefinitely into fractional dollars (as you could with BTC) then what would the problem be if everyone wanted to buy burritos? The price of burritos might go up, but everyone with enough money could still make the transaction.

Perhaps I misunderstood your point?

[Bill Spight]

This is actually false. People hold small amounts of currency to do things like, oh I don't know, buy burritos, and they hold assets denominated in currency because they expect them to appreciate. If you're hoping for 1% real interest rate from your bank, you shouldn't really care whether the nominal rate is 1% or 5%.

The actual money supply needs to be expanding constantly to keep up with business activity. If ten million people get a raise, they may all decide to get guacamole on their burritos at lunch (luxury!) and all of a sudden the central bank needs there to be an extra $15,000,000 in circulation every single day. If the central bank neglects to print that currency, all of a sudden people will find that they can't get guacamole on their burritos (sad! ) and they'll forgo other purchases so that they can stockpile dollar bills for their daily trip to the burrito vendor. However, that ruins the cash flow of some other business, which in turn try to stockpile dollar bills so that they don't go into bankruptcy.

The short story is that it's better to expand the money supply by more than people really need, because otherwise you risk getting into a nasty situation where people are worried about running out of money (not valuable assets, just the bills) and start stockpiling them, making it even more difficult for everyone else to use the money. The risks of having too many dollar bills are much smaller than the risks of having too few.

I don't quite understand. I think I get your argument in the context of physical currency: If there aren't literally enough physical dollar bills or coins to satisfy all the people who want to move them, then we need to print more bills and coins. But if you could subdivide dollar bills indefinitely into fractional dollars (as you could with BTC) then what would the problem be if everyone wanted to buy burritos? The price of burritos might go up, but everyone with enough money could still make the transaction.

Perhaps I misunderstood your point?

If bitcoins keep appreciating, then Gresham's Law applies. People will prefer to hold on to bitcoins and spend other money. But if nobody spends bitcoins, what good are they? They are not backed by anything except the idea that people in the future will want them.

[jts]

I don't quite understand. I think I get your argument in the context of physical currency: If there aren't literally enough physical dollar bills or coins to satisfy all the people who want to move them, then we need to print more bills and coins. But if you could subdivide dollar bills indefinitely into fractional dollars (as you could with BTC) then what would the problem be if everyone wanted to buy burritos? The price of burritos might go up, but everyone with enough money could still make the transaction.

Perhaps I misunderstood your point?

I think you're confused. If everyone needs more pictures of George Washington so that they can buy burritos, the Fed gives them what they want and the price of burritos stays the same. If everyone needs more bitcoins so that they can buy burritos, the price of burritos will go down.

And since the price of burritos needs to go down, suddenly your friendly neighborhood purveyor of burritos doesn't have as much bitcoin as he expected. He needs the bitcoin to meet various debts (the tortilla guy, the pinto bean guy), so now he's hoarding bitcoin too. And now the tortilla guy isn't moving as many tortilla's as he wanted, so he's hoarding bitcoin so he can pay the flour guy.

Enough burritos for everyone, but not enough pictures of George Washington to buy them with = prices fall. People are swimming in pictures of George Washington, but they're queuing up buy burritos = prices rise.

This is a very simplified picture, of course. If the burrito vendor has too much chopped steak sitting around at the end of the day, he doesn't go out and slash his prices and get all his signs reprinted with the new price the next morning. And we're not just talking about burritos.

And, except in very severe deflationary episodes, the primary problem is corporations hoarding money, not ordinary folk hoarding burrito money in a coffee can.

The physicality of the currency doesn't matter too much. I used dollar bills and burritos to make the underlying logic clear, but primarily the problem is not the "monetary base" (dollar bills lying around in wallets and bank vaults), but "M1", the ostensible quantity of dollar bills that everyone with a savings account thinks they can access. M1 is just as ethereal as bitcoin: it exists in the electronic records of the banking system.