On 20/07/11 9:08 PM, Eugen Leitl wrote:
On Wed, Jul 20, 2011 at 11:56:06AM +0200, Alfonso De Gregorio wrote:
I'd better rephrase it in: expectation to have "money backed by
bitcoins" exhibiting all the desirable properties of a perfect
currency (ie, stable money) are greatly exaggerated.
The question is not whether it's perfect, but whether it's good enough.
The question is whether it is even close. It's pretty clear it can
never be stable enough to be a currency. Pretty much all currencies
lean on some form of stability; BitCoin does not, and suggests "when
it's big enough, supply v. demand will stabilise it..."
Only gold/silver has ever pulled off that trick, and emulating gold is
not what you'd call a winning strategy. Actually there's a name for it:
alchemy. BitCoin is cryptographic alchemy.
BTC is basically a global version of http://en.wikipedia.org/wiki/Local_currency
or http://en.wikipedia.org/wiki/Alternative_currency and hence
isn't something completely new.
Sure, and those things have rules too. Local currency is local;
BitCoin is not. The difference is that in local currencies we can rely
on the trust and reputation networks to stop people stealing. In
BitCoin, we can't. In local currencies, when the currency moves outside
the very tight trust circle where everyone knows each other, they fail,
because someone moves into the currency who has no reputation to lose.
(Alternative currency is just a term used by the regulated currency
people, it doesn't really tell us anything.)
It would be intesting to see whether BTC's successors
could improve the scheme, by allowing a (subexponential)
growth, built-in devaluation to encourage circulation and
discourage hoarding (this would be probably hard to
do), and so on.
Not really. It's problem isn't its mathematics or its release rate, but
that it has no ground to stand on. Which is to say, if people want to
bid it to the sky, they can. If people want to dump it to the bottom of
the ocean, they can too...
With a currency that is backed on something stable, the stable commodity
forms an anchor around which value gyrates. So, it is worth holding if
the price goes up too low, because you can always use it for its stable
thing. E.g., in US of A, the american people are quite happy to hold
$$$ because they can pay their taxes with it. They really don't care
that much what the exchange rate is doing, up or down. This anchor
means USD is a good currency.
Possibly what people don't realise is that it is very easy to corner a
market. However, the fundamental value of the unit (the commodity) will
stabilise and punish the speculator who corners the market. With
BitCoin there is no underlying anchor to punish the person cornering the
market, so the games will be excessive, and volatility will be too high
to be "current."
iang
PS: having said all that negative stuff, I quite like BitCoin. If it
got the econ right, we'd be having different conversations :)
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