The Guns of Bitcoin (2017)

https://medium.com/@simon.sarris/the-guns-of-bitcoin-1f779309a718

by rfreytag • 6 years ago

52 110 6 years ago

natch• 6 years ago

Wow, app wall, that’s a new one. “Download the app or create an account to read.”

gt2• 6 years ago

Seen it. Most recently was trying to view a reddit on mobile. Said download the app or take a hike. Circumvented by doing 'request web view' option (in mobile safari)

varbhat2• 6 years ago

https://outline.com/VBSEgq

solids• 6 years ago

You can use something like https://getpocket.com/

seibelj2• 6 years ago

What makes dollars valuable is that the government wants them back.

Very common misconception. Dollars have value because there is demand for them (governments, other governments, other people and institutions). Bitcoin also has value because there is demand for it. As does your house, expensive art, etc.

Why does anything have value? Because someone else will pay your for it. I can say my pencil is worth $1 billion, but it doesn't really unless someone else will execute the trade.

thephyber• 6 years ago

Yes.

Usually that concept in that quote is a baseline of demand. The government will accept tax payments in US dollars, but they will probably demand no BitCoin, stamps, bullion, etc.

That said, tax payments are not the only type of demand.

paulgb2• 6 years ago

My model of fiat money is like a battery: the government is both the outgoing pole (money printing) and the incoming pole (taxation). Money flows through the economy from one pole to the other, but all demand terminally stems from the taxation pole just as all supply stems from the printing pole.

Of course, things get more complicated because money exists across time, credit, and inflation. But as a simple model it explains why, for example, money tends to get devalued when it stops being accepted as tax. Just as a circuit stops flowing when you disconnect either pole.

munk-a4• 6 years ago

I disagree strongly here - there really is no incoming pole in the government and the outgoing pole is incredibly ineffective. The US (as an example) doesn't have the ability to effectively decrease monetary supply by simply failing to redistribute taxes - the total national wealth of the US is currently 105 trillion[1] while the total tax revenue is somewhere in the 3.5 trillion[2] range - it would take 30 years to cycle the full value of the US through the government at the current churn rate, the GDP is significantly smaller and (at 22 trillion) would likely take six years to fully process.

Money can be thought of like a battery - sorta, but more like a bank of batteries - each one of us has a certain earning and spending potential that constitutes the voltage we're contributing to the economy - and it's all of us tiny batteries that contribute a much large proportion to the over all monetary flow than the big contributors like government (who are, by comparison, in the minority).

1. https://en.wikipedia.org/wiki/List_of_countries_by_total_wea...

2. https://en.wikipedia.org/wiki/United_States_federal_budget

NetWorth16254• 6 years ago

Actually you wrong. Dolar has value, because even if no one will want dollar, government will buy it for dollar. It backed on government promise.

dash2• 6 years ago

Not sure if this is a joke? What does it mean to say the government will buy a dollar for a dollar?

xerxesaa• 6 years ago

Your argument sounds recursive. What does it mean to say the government will buy a dollar for a dollar? A dollar is only useful if it can be exchanged for things other than itself.

munk-a4• 6 years ago

That guarantee is sort of like the spark plug of the economy - because it exists (and because the US government was a thing) people initially believe in the value of a dollar (and the same thing happened with every currency) but the currency continues to have value (and has a value exceeding that initial US valuation) because other people will buy it as well.

Also, just for a moment, the statement: "Dollar has value, because even if no one will want dollar, government will buy it for dollar." - that's a fair bit of nonsense, outside of the dollar having an exchange value the dollar has no value - fiat currency (and even precious metals TBH) only have value to to the continued demand for them and if that demand falters or if people stop valuing a dollar at as many whoppers as it used to be valued - then bad things start to happen really fast and the government is pretty powerless to stop it once it starts.

clarkmoody2• 6 years ago

Specifically, "reserve demand." People and institutions demand to hold a positive balance of the monetary good, and the aggregate sum of these reserve demands set the purchasing power.

The notion that fiat money has value because governments demand it in taxes, might set a non-zero value for the money, but it does not set a specific price level.

For instance, I could make a trade for dollars at the exact moment that I pay taxes, and it wouldn't matter what the actual value of the dollars is at that point. I would hold the dollars long enough to pay the taxes but no longer, so my reserve demand for the dollars is minimal. The effect on my finances is exactly the same if one dollar buys a pair of leather boots or a single shoelace.

So: positive value, but no specific purchasing power.

cameldrv• 6 years ago

There is a reserve demand created because taxes are not due until some time after the transaction that created the tax liability. If you don't want to have exchange rate risk, you need to hold the dollars until the tax is due.

austinl• 6 years ago

You mentioned expensive art, which is a pretty fascinating field because the value of individual pieces can be fairly subjective and difficult to appraise.

This has massive tax implications in the United States. Imagine donating a piece of art, which you claim is worth $1 million. But the question of who is allowed to make that claim is quite complex, and often goes unnoticed unless the IRS chooses to investigate.

A couple of articles on this:

Inflated art appraisals cost U.S. government untold millions https://www.latimes.com/local/la-me-irs2mar02-story.html

The secretive panel of art experts that tells the IRS how much art is worth https://www.washingtonpost.com/lifestyle/magazine/the-secret...

notahacker7• 6 years ago

Why does anything have value? Because someone else will pay your for it.

Sure, but there is a reason why dollars will have value in future: the quantity of outstanding dollar-denominated debt and future tax liabilities vastly exceeds the number of dollars in circulation. As people will need to have dollars for future repayments in future, you won't have trouble finding people to execute a trade of dollars you have for things you want. The [central] banking system can also vary the amount of dollars in circulation to link the supply of a currency on a given day to its demand and keep prices in line.

Conversely there's little reason to believe that anybody will need most of the Bitcoin in circulation in future [very little BTC denominated debt, and all other payments or speculative holding can be made with other currencies, crypto or otherwise], and no other stabilising mechanism. So whilst you can say your BTC is worth at least what you paid for it, it really isn't unless you're lucky enough to find someone else to offload it to.

imtringued• 6 years ago

I'm not sure how you disproved what you quoted. You only strengthened it. Governments create artificial demand for the national currency.

varbhat2• 6 years ago

https://outline.com/VBSEgq

Read without annoying app/account wall

rboyd• 6 years ago

tired old arguments

atemerev• 6 years ago

Well it is possible to pay some (municipal-level) taxes in Switzerland in Bitcoin. That’s a start. As for the guns — how about, say, using Bitcoin in lieu of dollars for petroleum and other import-export settlements? You can’t sanction Bitcoin, you know.

louwrentius• 6 years ago

I would like to see a total ban/block of any kind of cryptocurrency articles on HN. I'm happy to include my own, if that's what it takes.

https://louwrentius.com/cryptocurrencies-are-detrimental-to-...

coinward5• 6 years ago

you want to censor discussion around a promising technology. why?

shobith• 6 years ago

I guess you can make a case for the neo-luddites

beachjpg• 6 years ago

Bitcoin is not really liked on HN. I'm guessing most of the older HN guys don't seem really interested in the tech or is terrified by the price action, perhaps

shpongled• 6 years ago

The idea of something being outside the control of the Nanny state terrifies them. One of his primary arguments is that cryptocurrencies "facilitate crime".

coinward5• 6 years ago

you ask for a benefit. a benefit of Bitcoin is zero unexpected inflation. Zero unexpected inflation means the cantillon effect is reduced with adoption of Bitcoin as money, driving out the systems behind central bank caused wealth inequality

akavi2• 6 years ago

Seems like bitcoin experienced a whole lot of unexpected inflation in early March this year. And fall of last year. And November 2018. And January 2018. And... well, you get the picture.

Bitcoin guarantees the supply remains fixed. But inflation is also a function of demand, and that is well outside its control.

Acrobatic_Road2• 6 years ago

I'd like to answer your challenge that you put forward in your article. I can think of two straightforward uses for cryptos.

1. It helps evade financial censorship imposed on legal businesses and individuals. Ex: 4chan is financially censored, and can only take bitcoin and other Cryptos as payment despite having broken no law.

2. Financial Privacy (in say, monero). Ex: Support controversial causes without having to worry about losing your job in case of a leak.

SuoDuanDao• 6 years ago

What are the guns of bitcoin? In answer I point to is its network. People who are willing to take payment in bitcoin are different from the general population. It's a club many desire to join.

Bishop_2• 6 years ago

People using pine wood for flooring to spite the king for claiming it is probably the most American thing I have ever heard of.

tossAfterUsing2• 6 years ago

Pine floors are terrible to maintain though.

'cut off your nose to spite the king'

Bishop_2• 6 years ago

People have done worse for less, a specific parallel to current events should come to mind.

In any case i'll remove pine floors from my diy tiny house project checklist.

gruez• 6 years ago

Pine floors are terrible to maintain though.

Why? Is it the sap?

conanbatt3• 6 years ago

American dollars have value because the US Government taxes things, like land, and if you do not pay those taxes they will send you mean letters (trust me) before resorting to other means (trust Al Capone)

This is just plain wrong. Currencies have value themselves for their utility as a means of exchange, not because of taxes. This idea that raising taxes increases the value of a currency is bonkers.

hansvm2• 6 years ago

It's not "plain wrong." When minting a new currency you need a way to bootstrap it into being an accepted medium of exchange, and taxes help serve that purpose. They aren't the only method (and I'm not sure historically whether that was the case for the USD), but it isn't baseless.

conanbatt3• 6 years ago

Currencies existed well before governments minted them. Plus the dollar was once backed by gold: you can transition from a convertible system to a fiat system, which has nothing to do with fiscal policy.

monokh5• 6 years ago

The common mistake is to try to compare Bitcoin to a predefined experience of money.

Bitcoin's value is multifaceted. From a very simplistic perspective, it can be compared to gold. Things get more interesting when you value aspects such as it being:

- Fully digital

- Verifiable by the common individual

- Sent and received with no interference from third parties

- Free from supply emission increases or control

Each of these is especially hard to come across in any other form of money. Combining them is unprecedented.

1996• 6 years ago

Also, add the open source part meaning everyone can audit how it works and fork it if needed, and the network effects preventing said forks.

Being protected from double spend or 51% attacks by having everybody in the world cooperate, because it is in their own selfish interest to do so, is indeed unprecedented.

The current price seems extremely undervalued. I believe it is due to factoring-in the legal risks for when government realize a currency they can't control (block people they don't like, see eurodollars) or inflate at will (regardless of the reason, good or bad, it's about control) is a threat that must be legislated away.

munk-a4• 6 years ago

Gold is a very good comparison (especially since it is inherently pretty worthless much like bitcoins) but I think the core currency quality it has is the limit of supply. One of the more amusing qualities of the fallout world to me was always the usage of bottle caps as a currency. Oh sure we have a pretty much infinite supply now but in a post-war setting it's a relatively common material (we don't use rhodium for currency because it's rare in absolute terms and also very hard to come by) that isn't going to increase in volume - that said more recent games have under cut that with the sheer commonality of nuka cola, and it also seems like a rather easy currency to forge per the volume it takes to transact an exchange.

The other points you mentioned are what's really interesting to me, the verifiable property is one that physical currency has struggled with for a long term and the ledger aspect has no equivalence in physical currency exchange[1] - it's really neat!

1. Except, of course, for my most favorite currency ever the Rai stones https://en.wikipedia.org/wiki/Rai_stones which are essentially a built-in fiat currency that no one ever actually counts or carries but instead the ownership was/is tracked entirely by oral history which is amazing.

seibelj2• 6 years ago

The fixed supply is the most interesting aspect. There could be an extremely huge gold deposit, or someone could figure out how to extract it from the ocean efficiently, or an asteroid / planet made of gold discovered and mined. But there will never be more bitcoin. More bitcoin would just fork the chain, and it wouldn't be bitcoin anymore.

wslh4• 6 years ago

From a very simplistic perspective, it can be compared to gold.

It is indeed very simplistic to compare it to gold and this is sadly part of the Bitcoin narrative. Gold has a recognition as an store of value based on its network effects while Bitcoin network effect is pretty low in comparison. We can imagine than if a Bitcoin2 is created with similar economic properties and gain more traction it will automatically replace the Bitcoin1 as a store of value. Obviously, this can happen to gold either but with much less probability thinking on all the financial network gold is part of.

badloginagain• 6 years ago

Just gonna quickly fork this gold and call it silver

monokh5• 6 years ago

What you describe is exactly the property of Bitcoin. Have a look at how many forks have tried to create "Bitcoin2". Some even with overwhelming support from powerful actors. If they fail like they have during Bitcoin's infancy, later on they have no chance.

coralreef3• 6 years ago

Gold has a recognition as an store of value based on its network effects while Bitcoin network effect is pretty low in comparison.

Not sure I understand why you believe Bitcoin's network effects are lower than golds. The more people willing to accept a unit of Bitcoin, the more useful Bitcoin becomes.

Also, gold's store of value power is also attributed from its stock to flow ratio (the difficulty of inflating gold supply). Bitcoin has an even better stock to flow ratio, which is why its often compared to gold.

zaphar• 6 years ago

Those are value adds for a currency. But the article here is speaking about the core value of a currency. Essentially for an asset to be useful it's value must be backed by something and it must be possible to both defend and deploy that asset in a reasonable way. Bitcoin has not yet made the case that is practically useful for anything other than a volatile store of value.

sushshshsh• 6 years ago

I would say that it has made the case for it based on how many people have used it to exchange value internationally, trustlessly, at a very low cost.

Additionally, Bitcoin network is backed by its ability to detect and refuse counterfeit coins.

You can do most of the above with Visa or Venmo as well, however you run the risk of tax reporting, transaction reversal, fraud, negligence, changing fees...

When Visa works, it works well. But when it fails, it fails in quite bad ways that Bitcoin does not.

scottmsul• 6 years ago

What's going to stop me from using bitcoin for everything, and then exchanging some into dollars at the last second to pay my taxes?

null0pointer• 6 years ago

Nothing, really. Except that it would be a taxation nightmare, since every time you spend some you need to report the difference in price between when you acquired it and when you spent it, and pay tax on the gain/loss. It would also be a lot of effort to find people willing to accept bitcoin for things like groceries.

tripletao2• 6 years ago

Nothing, but if I earn $1 on January 1 and anticipate 30% tax on that due April 15, saving $0.30 guarantees that I can pay that debt. If I earn 1 mBTC on January 1 and save 0.3 mBTC, then that might be worth much more or less than my tax liability come April 15.

The tax argument for the value of USD is because people have future debts denominated in USD (taxes), and they become aware of the amount of those debts in USD before those debts are due. If those people want an asset perfectly matched to that future liability, then they want USD. The demand is from that saving period, not the actual payment (which you correctly note is brief, just however long the transaction would take). Most discussions either express this distinction unclearly or miss it altogether, including the linked article.

solotronics• 6 years ago

There are already initiatives to pay taxes directly in Bitcoin. https://bitcoinmagazine.com/articles/why-ohios-state-treasur...

This isn't some fringe idea it is being developed by governments around the US. I remember reading about some city in America that will take Bitcoin directly for tax but I can't find the article.

tripletao2• 6 years ago

See my comment below--the tax-related demand for USD comes from the holding period between incurring the tax liability and paying it, not from the payment itself. Even if you get paid in BTC and pay your taxes in BTC, 1 mBTC earned on Jan 1 with a 30% tax rate doesn't imply you owe 0.3 mBTC on April 15--USA tax law expects you to convert from BTC to USD using the Jan 1 exchange rate to calculate your tax liability, and then convert back using the April 15 exchange rate when you make the payment.

coinward5• 6 years ago

full decentralization and seizure-resistance work as good guns against state tyranny

rlucas• 6 years ago

That is orthogonal to the point of the article.

The state can demand, using their guns, that you pay them in the coin of their realm.

At that point, you need to come up with those coins, or face their guns.

You can have your BTC be decentralized and seizure-resistant at that point, but that will not stop the Leviathan from jailing or killing you. The "guns" of the article are the actual guns of the IRS.

coinward5• 6 years ago

Do the IRS really carry guns? The man-power needed and costs to enforce collection of coins means this doesn't scale well for the state

ed25519FUUU• 6 years ago

The article makes a lot of good points. I think people put way too much stock into the government not being able to regulate digital currencies. Besides the obvious technical advantages of a state power, they can simply create policy that turns people into criminals if they intentionally answer questions wrong on their tax returns.

Acrobatic_Road2• 6 years ago

I think the guns of bitcoin are it's decentralized design backed by the lobbying of domestic forces (The EFF, ACLU, exchanges, etc)

beervirus• 6 years ago

Since when does Medium require an account to read articles? Guess I'm not gonna read this one.

Shared404• 6 years ago

It's an interesting article and worth a read. Here's an outline link from elsewhere in the thread.

https://outline.com/VBSEgq

paulpauper• 6 years ago

yaaawn. this article is full of tired arguments. Bitcoin is a lot more like gold than a competitor to the US dollar or substitute for cash.

The Guns of Bitcoin (2017)

Related Stories