Re: [tlug] Finance regulators to recognize Bitcoin as "money"

[Edmund Edgar <lists@example.com>]

On 13 October 2016 at 15:47, Benjamin Kowarsch <trijezdci@example.com> wrote:
> The problem with bitcoin is oversimplification. It aims at a single aspect of a rather complex problem. The idea is that all problems of our financial system ultimately stems from the fact that whoever is in charge of currency can arbitrarily increase the money supply without regard for the actual wealth in the economy. Based on this idea, the system is designed with an upper limit for the total amount of money that can be created in the system.
>
> Not only is it wrong to assume that having a fixed limit for the money supply will solve any of the problems in our financial system. As an economy grows and shrinks, money supply should grow and shrink with it. Fixing the money supply will lead to assets becoming overvalued when the economy grows and they become undervalued when the economy shrinks. This is not different from the problems we already face in our current system.

Quite a few bitcoin enthusiasts look at it from this point of view but
that's not really the original goal.

The specific problem bitcoin and similar systems can solve is this:

> Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model. Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for nonreversible services. With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party

https://bitcoin.com/bitcoin.pdf

This is a genuine problem and bitcoin does actually solve it, albeit
with some very nasty downsides like insanely unpredictable volatility
that currently make it unattractive for practical commerce except in a
few niches.

Having your own currency rather than using a normal one is a nuisance,
but nobody has yet come up with a proven way of pegging a digital
currency to something else without having somebody reliable backing
it, at which point you recreate many of the problems you were trying
to avoid.

There's a good discussion of the whole territory here, including what
happened when people originally tried to make a non-p2p digital cash
system that would work without intermediaries or the possibility of
reversal:
https://epicenter.tv/episode/151/

> But even if fixing the money supply was the cure that bitcoin proponents would have us believe, then we would still have a problem: There very fact that bitcoin is a DIY currency that can easily be copycatted means that the money supply is not actually fixed because anyone can start their own digital currency and thereby increase the money supply again. The limit within one such currency system means absolutely nothing as long as there is no limit on creating other such currency systems. Bitcoin would need to be imposed as a monopoly for its limit to actually be a real limit. The whole scheme is thereby self defeating.

The great thing about digital scarcity is that you can make as much as you like.

But seriously, no, go and create a copy of bitcoin and see if you can
sell the tokens for 8 billion dollars. Let us know how you get on.

The argument for why your copy of bitcoin isn't valuable but the
original bitcoin can still be valuable is kind-of weird and it feels
like there must be a trick, but it's right: If your copy was valuable,
none of them would be useful, for the reasons you give. So your copy
can't be valuable. But if your copy can't be valuable, then the
original version can...

*How* valuable is another question, and I agree with Stephen that it's a bubble.

Edmund


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Edmund Edgar
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