Are we talking about converting Bitcoins into Newcoin (say by sending them to a fake address as a precondition for minting X many Newcoins) or are we talking about trading them (“you send me X many Bitcoins, I send you Y many Newcoins” transactions)? The former strategy would drive scarcity of Bitcoin up as a direct result of demand for Newcoin.
lsparrish
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I’m having trouble reconciling the “horrible store of value” part with the rest of your argument. A competing crypto-currency eventually comes into existence, better than dollars, everyone wants to use it instead, and you can’t get it without bitcoins… And we’re supposed to think bitcoins are not particularly likely to go up in value as a result?
Edit: I guess if you only mean “currently horrible” this makes plenty of sense. Also it could maybe lose value once it has played its part in getting everyone used to the new currency.
Pizza almost certainly would not go away even in a deflationary economy. If anything, more people would spend time creating pizzas in their own kitchens. This would take away from their hours previously available for leisure, education, and jobs. This is just one example of how deflation could make people act in less efficient ways, by relying less on mass production and economies of scale.
Hmm. I think you’re probably right, now that I think about it. The maximum size of the bitcoin reward falls towards transaction fees, which are themselves a small fraction of any given transaction. So there should tend to be significant money out there to reward manufacture of other kinds of space based goods more highly than bithashes.
I wonder to what degree FAI/CEV engineering considerations overlap with cryptocurrency/efficient-market engineering considerations. If they are a close match, encouraging the development of the latter would have benefits for the former, and could even be essential to overcoming scaling problems (since FAI is harder to sell investors on than cryptocurrency).
This isn’t just a random idea; markets are how humans in the absence of superintelligence actually do try (with some, not-unlimited success) to implement their values. Prediction markets are a possible extension of this concept, but even your run-of-the-mill securities markets are reliant on various kinds of predictive logic that responds somewhat to human desires and needs.
Not trying to trivialize the AGI field since it is outside my specialization, but is there some not-terribly-unlikely way in which a really good cryptocurrency could basically be/evolve into the same thing as an FAI? If so, are there any particular properties that would be likely to nudge it in that direction / away from uFAI?
I’m kind of concerned because I see bitcoin (and/or anything sufficiently similar) funding competition to purchase obscenely large amounts of hardware—which could possibly even extend to the point of satellite arrays that harvest solar energy, and space based fabrication of new ones. If it gets to that point, we might end up with a Dyson sphere that basically does nothing but compute bitcoin hashes. Extraordinarily wasteful, but not necessarily catastrophic for existing humans if the network continues to recognize them as owners/controllers of the resources in question.
You can spend in a deflationary currency but if you spend on stuff which isn’t worth it then you get to experience buyers remorse or guilt over all the money you could have saved if you had not bought that Pizza.
This is an example of why I don’t like deflation, at least not for the economy as a whole. It makes you get buyer’s remorse about things like pizza, which actually are a pretty good deal in some situations. You can get fed without having to make food, you can arrange a party without hiring a catering service. The time spent by humans on making the pizzas is drastically reduced on a per-pizza basis because the pizza maker has specialized tools and skilled personnel.
So to me the fact that it discourages people from buying pizza is a sign of economic inefficiency. If they were not buying pizza in a market where the choice to hold onto your cash does nothing aside from retaining the ability to make other purchases, it would be a clearer signal that pizzas are not needed, that other things are more important.
That there may be environmental advantages to deflation (and/or environmental harm from inflation) is not something I had deeply considered, but it makes a certain amount of sense. Thank you for pointing it out.
My long-term goals are to live as long as possible, to eventually establish residence off planet, and to minimize the number of people who die from preventable causes like (as I see it) aging. I think that can be done without harming the environment, but I much less sure deflation and an overall shrinking of the economy is beneficial to that goal. Stable currency that lets you send clear market signals about your desires in the form of expenditure and investment seems better.
Digital goods are already pretty popular in an inflationary economy, and I see this growing as they get better. Cleaner tech will tend to become more widespread as well, which is again a form of economic growth.
I think Bitcoin is in a niche, that niche being it is the best currency for the digital space and for digital content.
That’s an okay near term perspective. Bitcoin currently serves that niche, for people who have bitcoin and view it as spendable. It could get replaced in that niche fairly quickly by something viewed as more stable. But then, digital content has little investment cost so it is plausible that bitcoin could continue to dominate there due to lack of need to borrow money for this kind of production.
The main thing in my opinion is getting infrastructure built. I think once Bitcoin has infrastructure built then all the alt currencies will piggy back on Bitcoins infrastructure whether Bitcoin fails or is a success or falls into a niche does not matter as long as the infrastructure is built.
It’s a complicated question. But I think people may underestimate how well bitcoin has picked the low hanging technological fruit and/or how adaptable it is. Most of the cryptocurrency money is apparently in bitcoin form, and it has massive physical infrastructure in the form of mining FPGAs and ASICs supporting it.
Of course I do not advocate people buying (or selling) junk. The whole point is to allow suppliers to more accurately gauge the level of interest in things on the part of consumers, by measuring their willingness to spend money without confusing interference from a changing currency supply.
I would argue that both deflation and inflation are forms of noise that inhibit market signals from traveling because they introduce more complex variables to the equation which don’t actually do anything. Volatility is probably worse than either of these things. Any of the three is probably tolerable in small amounts, but they will tend to act as a burden on the system.
If people are saving rather than spending, it’s a signal that products aren’t good enough to spend on, which should trigger investment in better products. If people hold cash savings instead of loaning it out to businesses, this makes it harder for businesses to find adequate capital to produce a better product.
Exactly right. I might have done better to create a fictitious name for the currency, but I figured “dollars” would be suitably generic because there are many different countries also using the term. Note that you can have unlimited different currencies each with its own rules and starting point. This could also be used to mimic stock or other intangible assets.
a) Bitcoins are deflationary in the sense that supply does not increase as fast as demand. If you have any bitcoins, your incentive is to hold onto them for dear life—unless your expenditure is a very safe strategy to net you more bitcoins. You can’t easily loan them because as the value increases over time the pressure to default will increase. Maybe this creates creative pressure to minimize risk or some other positive trait, but I’m cautious of labeling it good for the long term economy. The strategy I’ve outlined minimizes risk of losing your bitcoins by letting you loan them out in a form that will be worth the same later, which means defaulting on a loan has less severe consequences and less extreme incentives.
b) Volatility is a huge concern for contracts. If you can’t count on it being worth the same tomorrow, a given contract costing you so much makes it much harder to juggle long term financial gains and losses from holding many contracts with many different businesses and individuals. This imposes extra accounting costs that I would argue make it much harder to do complex business without incurring extreme risk.
c) I do agree that bitcoin does not need to replace the dollar to coexist with it. However, the case for it being a major financial instrument is better if we can define a niche that it fills better than the dollar. Also, if you are planning to hold long-term, it is important to distinguish whether its value is mainly fad/signaling based or not. Right now it seems like something geeks and hipsters use to buy each other coffee—which is neat, but could easily lose popularity when something else comes along.
I agree that it encourages saving. But does it really encourage investing? It would seem that the faster bitcoin’s value is rising the less incentive there is for me to allocate my scarce bitcoins towards stocks, startups, etc. -- it’s safer to hold onto them.
Also note that in the absence of as much spending, there are fewer profitable investments. That would also mean less jobs, less income, and possibly a deflationary spiral where nobody spends more than the bare basics for survival.
Yes, it would be because she withdrew the 100 times as many dollars and it is the only wallet so far that qualifies as dollars. She does get to set the amount more or less arbitrarily with the first minting transaction. Later when Bob attempts to pull out 10k dollars from his own 99-bitcoin or 101-bitcoin currency wallet, he has to reference the dollar-currency created by Alice (possibly by address or by reference to the initial transaction signature) to connect the two kinds of dollars and render them fungible with each other. When he does that he has to prove that he has enough bitcoins to justify that number of dollars, based on recent history of minting transactions as well as whatever parameters the specific currency goes by, otherwise the network won’t approve his transaction.
First of all, I think bitcoins are basically a kind of stuff and not a kind of dollars. My brother commented that the market reminds him of the market for certain rare items in certain MMOs. And that’s basically what this is, to my thinking. Stuff that exists online in limited supply, that people want. A more environmentally friendly way of satisfying our consumer impulses than cars and houses. (But also more fungible and so forth, and I think possible to convert into a kind of dollars in the sense of something optimized for price stability.)
However, there is a hole in the model that this particular kind of stuff also depends on the standard set of sanctioned jack-booted thugs who protect it and promise to give it back and so forth. Bitcoins really only exist as information codes (private keys, placed in files known as wallets). You can arrange it so that the only thing that gives someone the ability to transmit your bitcoins is knowledge of a passphrase (or rather, which passphrase out of millions possible was the one you used). Or if you choose, you can move the only copy of the numbers needed to use your bitcoins to a piece of paper, USB drive, etc.
This also isn’t the same thing as logging into a website where you basically have to take their word for it that they are storing only a salted hash of your password, where they could potentially shut you down or transfer out your funds due to a power outage or government intervention, etc. Rather, it’s something where you yourself do the encryption all client-side and publish your transactions when you want to. The choice to republish and share that transaction to the network is made independently by a bunch of different nodes, who are programmed to block you if you try anything mathematically fishy. You only have to publish anything when you sign a transaction, which itself only happens when you need to prove that money someone else sent to your public address (which otherwise would be just a random number) does in fact belong to you, so you can pass it along to another public address.
This simply doesn’t change anything, because you can still trade two barrels of tomatoes for one barrel of oil.
That is true as far as it goes, but for people deciding what portion of their savings need to be in bitcoin versus some other form from one week to the next it is very relevant. A counterexample would be countries with runaway inflation, where people are forced to spend their money extremely quickly. I’m not sure that runaway deflation ruins commerce to the degree that inflation does, but it seems like it would slow it down quite a bit by placing greater incentive pressure towards cash savings rather than investment or expenditure.
That does overcome the in-principle argument that bitcoins are limited, deflationary, and thus too volatile to be used as cash. However, considering that the network (comprised of bitcoin holders, presumably) would have to decide they are okay with diluting the supply and changing the rules, I feel that is somewhat unlikely.
Bitcoins are not digital greenbacks
Ok… Well… If that’s the case, and if you can tell me why you feel that way, I might have a response that would modify your preference. Then again, your reasoning might modify my own preference. Cryptic non-argument isn’t particularly interesting, or helpful for coming to an Aumann Agreement.
Edit: Here is my response.
I wonder if many people are putting off buying a bitcoin to hang onto, due more to trivial inconvenience than calculation of expected value. There’s a bit of work involved in buying bitcoins, either getting your funds into mtgox or finding someone willing to accept paypal/other convenient internet money sources.
Good point. I am thinking the problem stems from Discussion becoming oversaturated—they move out of New Comments too quickly. Splitting into multiple groups focused on a general topic-area could perhaps alleviate the pressure to make sure that first comment counts / make more comments than needed.
I now see that when I wrote the original post, I probably should not have used the term “trade” as a synonym for “convert”. Someone who did not read my post closely might have thought I was enthusing about incremental improvements that let you reassign ownership like a traditional marketplace, only more efficiently, with automatic bid processing or something. That might be nifty, but it is not the earth-shattering point that makes me want to buy lots of bitcoins. What makes me want to buy more bitcoins is that reassignment of ownership is not the easiest way to do it. Instead it’s easier to make a system that destroys so many bitcoins and creates so many newcoins. It is also something that the current owners of bitcoin have significant financial incentive to make sure happens. Since it’s easier and massively incentivised, I think it carries the bulk of the probability mass.