Bitcoin and positive vs. normative economics

http://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/

by the_economist • 13 years ago

201 506 13 years ago

krugman.blogs.nytimes.com

perlpimp• 13 years ago

I've hit a paywall that can be disabled with real dollars. Oh the sense of irony.

lingben• 13 years ago

Just google the title of the article: "bitcoin is evil" newyorktimes and the google search result link will take you to a readable version.

noname123• 13 years ago

Ctrl+Shift+N on Chrome, Incognito.

wcummings4• 13 years ago

I have a really hard time taking a column called "The Conscience of a Liberal" seriously, even more so when he claims: "Stross doesn’t like that agenda, and neither do I; but I am trying not to let that tilt my positive analysis of BitCoin one way or the other." in a piece titled "Bitcoin is Evil".

ubernostrum17• 13 years ago

How about taking seriously someone who is, you know, well-known (to the point of receiving a Nobel Prize for his work) for being good at this economics stuff? If a Nobel-winning physicist was writing about physics, you wouldn't dismiss it because the physicist's politics don't agree with yours. Ditto Nobel-winning chemist writing about chemistry, etc.; why should economics be different?

Also, his point about BitCoin enthusiasts being unable to distinguish between what makes a good currency and what pushes their ideological buttons may apply to you.

rdl• 13 years ago

Krugman is more like Chomsky -- he did some academic work (including a good textbook in microecon), but then left that to do politics, almost entirely disconnected from his academic record.

The Econ "Nobel" is a little more rationally awarded than the Nobel Peace Prize, but neither is the same as Physics/Chem/Medicine.

I think it's fine to judge Krugman's political arguments on political merits; there isn't "nobel-caliber" economics behind them. They're usually about things which economics doesn't even address.

ahomescu1• 13 years ago

Actually, I think that if a physicist/chemist came out with unproven theories or opinions (the original article is nothing more than an opinion), the community would react pretty much the same. Physics and chemistry (and economics as well) have proofs and experiments, and this post doesn't offer either of those. It makes perfect sense to dismiss it if you disagree with him, since he doesn't really say anything concrete.

wcummings4• 13 years ago

Eh, the article doesn't say much, is pretty light on details/analysis, heavy on rhetoric ("Bitcoin is Evil") and says very little anyone with even passing familiar w/ Bitcoin doesn't know already.

I'm not sure what technologists he's been speaking with, but I think the distinction between value store and payment network is abundantly clear to most people even peripherally involved with Bitcoin. I think the view of most competent technologists is that Bitcoin is a promising technology, with somewhat unproven utility.

theboywho• 13 years ago

> If a Nobel-winning physicist was writing about physics, you wouldn't dismiss it because the physicist's politics don't agree with yours.

First of all, Physics and Economics are two different things.

Physics tends to be about facts, Economics is more about opinions, views and theories. It's not because we're not Nobel Prize winners that we shouldn't disagree with the author, and I'm sure there are many well-known economists out there who won't agree with him.

> Also, his point about BitCoin enthusiasts being unable to distinguish between what makes a good currency and what pushes their ideological buttons may apply to you.

Bitcoin enthusiasts are not the only users of Bitcoin. I use Bitcoin and it's for no ideological reason. It's helping me better than any other payment system right now and that's all I care about.

burntsushi• 13 years ago

How about taking seriously someone who is, you know, well-known (to the point of receiving a Nobel Prize for his work) for being good at this economics stuff?

When was the last time you saw a Keynesian taking Hayek's work on business cycle theory seriously? (For which, in part, he won the Nobel prize for!)

Ironically, to more directly address your point, Hayek had this to say in his Nobel Prize acceptance speech:[1]

    In his speech at the 1974 Nobel Prize banquet Friedrich Hayek
    stated that had he been consulted on the establishment of a
    Nobel Prize in economics, he would "have decidedly advised
    against it" primarily because "the Nobel Prize confers
    on an individual an authority which in economics no man ought to
    possess.... This does not matter in the natural sciences. Here
    the influence exercised by an individual is chiefly an influence
    on his fellow experts; and they will soon cut him down to size
    if he exceeds his competence. But the influence of the economist
    that mainly matters is an influence over laymen: politicians,
    journalists, civil servants and the public generally."

Stated differently, the comparison between a hard science (like Chemistry) and economics is rather unfair.

[1] http://en.wikipedia.org/wiki/Nobel_prize_economics#Controver...

icelancer7• 13 years ago

How about taking seriously someone who is, you know, well-known (to the point of receiving a Nobel Prize for his work) for being good at this economics stuff?

This is the type of claim that is fairly dangerous. It is perhaps vitally important to understand WHAT Krugman won the Nobel Prize for, and that was due to his contributions to New Trade Theory. Additionally, his work on NTT (superceded by NNTT I should add) was long, LONG ago, and he has since turned into a political pundit/shill.

Compare it to his polar opposite, say, Hayek, who won it for his general contributions to the field due to libertarian/market anarchist theories. Yet Hayek is widely seen as a crock of shit while Krugman isn't, mostly because he writes for the NYT.

mapgrep4• 13 years ago

On the contrary, I'd rather listen to an economist who is upfront about his political viewpoints and transparent about how he tries to keep them from influencing what he here terms the "positive economics" -- i.e. the practical economic impact -- of Bitcoin or any other problem.

As opposed to economists who conceal their political viewpoints to cover the fact that their supposedly scientific economic conclusions are intended to push a given agenda.

One of the best ways to fight your own political biases in areas where you want to try and be more objective is to be incredibly up front about them. That way, people can say, "I think you are indulging your bias in specific manner X." I wish you would do that (be specific about any complaint) instead of dismissing Krugman simply for being honest and up front.

randyrand2• 13 years ago

You act like those are the only options. What about a moderate economist that actually considers both sides before creating an opinion?

carbocation2• 13 years ago

Usually, journalists don't get to choose their own headlines. Does that fact change your read on this piece?

hindsightbias2• 13 years ago

It's not a column, it's a blog.

This is his column: http://www.nytimes.com/2013/12/23/opinion/krugman-bits-and-b...

Aqueous3• 13 years ago

Oh boy - this should get a positive reaction!

bdcravens2• 13 years ago

1) Bitcoin mining has a pretty horrible carbon footprint. ("but so does ..." doesn't eradicate this argument)

2) similar to the author's point that advocates can't tell the difference between "store" and "medium" of value, I can't tell you the number of arguments I've gotten in with people who equate a "store of value" to be the same thing as the "increase in value"

3) It's a 1% wet dream. Make money, potentially hidden income, avoid taxation? No money paid into the welfare state? WIN!

lacero• 13 years ago

The only way you can make money off something like a currency is if demand > supply. What determines the supply? Solving problems with machines and energy only the 1% can afford. What determines the demand? The early bitcoin adopters hyping the "currency" so that they can later offload their bitcoins to bigger fools once they have made a good investment return.

hendzen6• 13 years ago

Actually, for your first point, you have to compare the carbon footprint of bitcoin to the carbon footprint of the alternative. What is the carbon footprint of all the different transaction processing systems run by Mastercard, Visa, Amex, etc? What about if you add in the cost of the massive mainframes that handle ACH transfers? The cost of printing millions of archaic paper checks?

I'm not saying bitcoin replaces all those things (it certainly doesn't), but it aims to.

seiji8• 13 years ago

The other systems aren't based around grinding CPUs at 100% power utilization for days/weeks/months doing worthless busy work. Unless your power comes from a zero-carbon-footprint renewable resource, it's pretty ugly.

bdcravens2• 13 years ago

I'd argue that value / footprint (edit: had this backward) generated is higher for legacy systems than Bitcoin. (Unless you can totally eliminate CPU and GPU mining)

nhaehnle4• 13 years ago

I wouldn't be surprised if the Bitcoin network already costs more than those mainframes in terms of carbon footprint - after all, the Bitcoin network is basically the world's largest supercomputer [0].

On top of that, you have to consider that those systems offer much more value than just a barebones ledger as the core of Bitcoin does. If you add in all those companies building stuff on top of Bitcoin, the comparison starts to become less favorable.

[0] Purely monetary terms are obviously different. The vendors of those systems inflate prices ridiculously because they can - banks have traditionally not been under much pressure to operate efficiently in this arena.

coldtea2• 13 years ago

1) Bitcoin mining has a pretty horrible carbon footprint. ("but so does ..." doesn't eradicate this argument)

From a logical standpoint, "so does X" (e.g gold mining) very much does eradicate this as an argument against BitCoin, unless there is some Y which has less carbon footprint than either. If there is not, then the carbon footprint it's an necessary evil, and a constant through all similar systems.

davidy1232• 13 years ago

What's the carbon footprint of an elected government creating more money?

dnautics11• 13 years ago

printing dollars is done by keynesians to artificially inflate consumption. Which means, burning more oil, making more plastics, mining more (physical) metals, using more agriculture, etc, etc, etc,. I shudder to think of sustainability impact of currency manipulation.

tlrobinson4• 13 years ago

Regarding Bitcoin mining's carbon footprint:

Since miners will eventually only be able to compete based cost of their electricity mining will be driven to places with extremely cheap electricity. I don't know if that will always correlate with "clean" energy, but it seems like it would. For example, the recently announced Bitcoin mining operation in Iceland, where cheap geothermal and hydroelectric electricity and plenty of cold air for cooling is available: http://dealbook.nytimes.com/2013/12/23/morning-agenda-the-bi...

If the heat from mining can be reclaimed for other purposes (heating homes, etc), then the effective carbon footprint is reduced even further.

novalis782• 13 years ago

please make sure you read: http://www.ofnumbers.com/2013/12/18/charles-stross-takes-on-...

It will hopefully make clear that your argument is flawed.

droidist22• 13 years ago

The title is pretty sensationalist. He doesn't really come close to arguing that it's evil in the piece.

icelancer7• 13 years ago

Obviously. Krugman wields his power at NYT to troll market anarchists / public choice theorists and not much else.

droidist22• 13 years ago

I used to think he was so cool.

smtddr• 13 years ago

>BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions.

So basically it brings an ability to the middle-class that normally only the top 1% have. We know wealthy people use tax loopholes(and a few of them, laundering) and... why do the states need to monitor financial transactions? Don't tell me because terrorism. I'm sick of that being the reason for everything when we have this kind of nonsense[1] happening.

I translate this to: "Bitcoin is designed to free non-rich people from the restrictions, fees & surveillance placed upon them by the wealthy elite"

I don't know if crypo-currency will succeed long-term, but seeing how hardcore scared/doubtful some people are about it makes me think a nerve has been hit. I just hope that if btc fails, it fails naturally/organically/mathematically on its own... not because someone arbitrarily makes it illegal.

1. https://news.ycombinator.com/item?id=6954341

dbla• 13 years ago

This may be the end result, but it seems to me like the more direct (but not necessarily simple) solution to this problem is to close up those loopholes for the rich. The government does need to collect taxes after all, and if nobody is paying then we've created another problem.

seiji8• 13 years ago

If r/bitcoin could speak, it would collectively say: "All tax is theft. It is our job to stop being stolen from. All money belongs to me for the benefit of myself. I am all that matters in society."

paul2• 13 years ago

I wish someone would tell me what all these loopholes are so I could stop paying taxes too...

username2237• 13 years ago

"why do the states need to monitor financial transactions?"

I hate the "terrorism" BS as much as you, but money laundering and large-scale scamming ( https://news.ycombinator.com/item?id=6972139 ) are actual threats.

smokeyj• 13 years ago

but money laundering and large-scale scamming are actual threats.

Yes, banks launder drug money for cartels. Without the state, who would slap their wrists?

pyvpx• 13 years ago

like the kind HSBC did in plain sight for over a decade with essentially zero repercussions (the fine was barely enough to break out of 'cost of doing business' territory, so please don't bother with the largest settlement in history uselessness)?

but yeah...bitcoin is bad! cuz...bad people!

hershel• 13 years ago

I wonder: with the power of the NSA and the right laws ,maybe it's really easier to track and control bitcoin transactions than control international banks?

mikeryan• 13 years ago

The state monitors financial transactions primarily for tax purposes. I'm guessing a very substantial amount of data they collect is around payroll and sales.

seiji8• 13 years ago

"Monitors" is a bit strong, unless you're talking about actual states. NY/NYC will go after you fiercely if you are wealthy and try to get out of city taxes.

All federal tax information for employees is self-reported by employers. There isn't a huge monitoring infrastructure in place—just required-by-law reporting of what people get paid. Getting paid with not-dollars doesn't change the system.

zende• 13 years ago

The state monitors transactions first for illegal activity under mechanisms like the Bank Secrecy Act (BSA). Any payments or financial services company follow Know Your Customer standards including running OFAC checks to ensure that the recipient is not a known terrorist.

Monitoring for taxes comes second.

BSA: http://en.wikipedia.org/wiki/Bank_secrecy_act

rch2• 13 years ago

So why don't they just invoice me in April? I shouldn't have to be bothered with tracking things on my end as well, right?

cynicalkane• 13 years ago

The rich are not exempt from tax monitoring and transaction monitoring. Actually, a lot of monitoring targets exclusively large accounts and transactions.

HarryHirsch• 13 years ago

As far as tax monitoring goes, I'm not sure that account and transaction monitoring is helpful. If you have a stated income near the median, yet own a palace, a Porsche and a Lamborghini for the wife, a yacht &c something just has to be off. Apparently you can see the phenomenon in at work in Greece. If you have undeclared income, at some point the funds have to enter the regular economy, and from then on it's just old-fashioned police work.

Just how you do the actual enforcement, that's a different issue, especially if corruption is entrenched already.

anonbanker• 13 years ago

I know I personally avoid monitoring by storing my assets in trusts with formal equity in foreign (I'm in Canada) LLC's that manage said assets. Myself, I own no property, I'm legally homeless [1], and one of my LLC's gets a tax credit for owning a homeless shelter. I strongly argue to anyone around me that If you owe taxes, you should pay them. I don't tell them that you can avoid owing taxes, and it's not considered tax evasion.

Bitcoin makes a lot of this even more complex, and as more people start using/trusting it for larger transactions, it'll be quite difficult to know who actually owns what. I might not even need half my loopholes anymore.

1. just like this guy: http://blogs.wsj.com/wealth/2008/05/19/the-homeless-billiona...

pavelrub• 13 years ago

The fact that wealthy people use tax loopholes is a bad thing. Making in possible for everybody to use tax loopholes is a really horrible idea.

pjbrunet5• 13 years ago

As far as making it illegal, I wonder if the blockchain gets to a certain size where it's easy to detect and delete, if that's not already the case. At that point I think the blockchain morphs into something harder to detect--maybe that technology already exists? I think the coin with the best developers will survive--maybe that's Bitcoin, maybe not.

kordless4• 13 years ago

I'm going with the blockchain that has the most transactions is the most valuable because of the meta data you can glean from it. That's currently Bitcoin.

dimitar2• 13 years ago

I have had and am continuing to have a dialogue with smart technologists who are very high on BitCoin — but when I try to get them to explain to me why BitCoin is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange.

My friend, you fall under this critique. While the middle-class can make transactions if it chooses using Bitcoin, it has to deal with its huge volatility - a 'store of value' problem. You cannot have just a 'medium of exchange', like the song "You can't have one, without the other".

greyman5• 13 years ago

The Krugman's problem is, that he is used to certain definition of "money", and then when something else comes, he compares it to that definition. For example, the original paper from Satoshi didn't mention the term "store of value". Given the ambiguity of the word "reliable", we can say nowadays that bitcoin is not "reliable store of value". But who said it is? It must not necessarily have the same attributes as fiat money does.

Anyway, I think the root of the problem with those mainstream journalists is that they do not distinguish between Bitcoin as an unit of account (like, I have 0.5 BTC, or this item cost 0.1 BTC), and a Bitcoin as a technology (peer-to-peer trustless network with all the wonderful attributes it has). Their mind mangles those two things into one, and they then see Bitcoins as only some virtual numbers, which are moving from one wallet to another. Starting from this perspective, they can't conclude anything useful, and can't see the intrinsic value of Bitcoin the technology.

DenisM• 13 years ago

I believe that unmanaged (fire-and-forget type) store of value is a fiction to begin with. Most if not all thing depreciate in time for wear and tear or plain obsolence. Managed assets such as a business you're controlling or your own set of talents and skills can appreciate over time. Scarce assets such as gold or real estate appreciate, however not due to their inherent value, but only due to the "greater fool" dynamic; it's unstable, and unpredictably so.

So what we have is governemnt creating an illusion of unmanaged store of value through financial engineering. It's is somewhat artificial, so I suspect it's not stable either. Consider that financial bubbles are caused by excess of capital relative to production needs, and the glut of capital was accumulated strictly due to people trying to preserve value of their savings. There is a mismatch between amount of value people are trying to preserve and cumulative size of viable investment opportunities.

chipsy2• 13 years ago

What I think is important about cryptographic assets isn't exactly in the economic properties they have now, but in the potential for reforming governance.

That is, if people are successfully using a crypto asset for their business, AND they are able to use a power and network infrastructure for this that is difficult enough(not perfect) that government authorities aren't successfully applying their "monopoly on force," then government is now pushed into competition with the crypto-anarchic principles and must find a way to become a "better product," enough so that people will prefer government money over crypto.

How will government come up with a product that is better - in a positive way - than a crypto asset? Government has the authority to issue new centralized currencies. This means that if it truly embraced computing - which it never has to date, having never faced a challenge of that nature - it could program a form of currency that is "smart" and bakes in the policy decisions and taxation currently executed by bureaucracy. It would be made attractive to citizens by building in basic income, as well as the service provisions. The result would be more powerful and more efficient than anything we currently know as government. Cash would still exist as a backup, but the government could discourage its use except in emergency situations.

natrius16• 13 years ago

Ignore the flamebait headline. The distinction Krugman makes between positive and normative economics is a useful one.

On the positive side, I think Krugman and DeLong are overestimating the strength of the floor for the value of a dollar. Hyperinflation would make it impossible for the Federal Reserve to buy up enough dollars to stabilize the value of the currency. Sure, you can pay taxes with them, but the government collects taxes to buy things, and if people no longer have faith in the dollar, the government won't be able to buy things with those tax dollars. There's no floor on the value of Bitcoin, but there's no floor on the value of the dollar either.

On the normative side, I don't think one's position on the utility of central banking matters when it comes to Bitcoin. If blockchain currencies are the future, central banking is over, and our society will have to figure out how to make the economy work with endemic deflation. I think central banking is useful, but I don't see a future for it.

mapgrep4• 13 years ago

Hyperinflation would make it impossible for the Federal Reserve to buy up enough dollars to stabilize the value of the currency

Even if this is true, where is the evidence that we're in imminent danger of hyperinflation? Despite mounting public debt, U.S. inflation has remained incredibly low since the start of the financial crisis four years ago, as has the interest rate that must be paid by the government to issue new debt.

From what I can tell, we have on the one side a dollar that has endured as a value store and medium of exchange for hundreds of years, and which has proven remarkably resilient (valuable) by any objective measure throughout the worst economic implosion since the Great Depression (which the dollar also survived). On the other hand we have Bitcoin which is intriguing in many ways but which has demonstrable volatility even just in the short span of its existence. And which, as a feature, is not backed (in the hard economic sense) by any nation or bank. I mean it's cool and all but I see where Krugman is coming from.

natrius16• 13 years ago

We weren't in imminent danger of hyperinflation. I think mass adoption of Bitcoin will cause hyperinflation.

If every merchant you patronize today accepted Bitcoin, would you rather have Bitcoin in your bank account or dollars? I'd rather have Bitcoin. They're easier to transfer, they can't be counterfeited, and their supply can't be manipulated.

If every merchant accepts Bitcoin and every consumer agrees with my logic, hyperinflation of the dollar would occur. Coinbase and its 0% transaction fees will lead to rapid adoption of Bitcoin on the merchant side. I'm less confident about the consumer side, but I see that happening as well.

anoncowherd2• 13 years ago

> we have on the one side a dollar that has endured as a value store and medium of exchange for hundreds of years, and which has proven remarkably resilient (valuable) by any objective measure throughout the worst economic implosion since the Great Depression (which the dollar also survived)

There's something you're overlooking though: the dollar was backed by gold until 1971, and that's where our problems really started mounting.

pron• 13 years ago

If blockchain currencies are the future, central banking is over, and our society will have to figure out how to make the economy work with endemic deflation.

There's a somewhat cyclical argument here, as a semi-deflationary (or at least unregulated) currency was already standard for many years, and central banking and regulated currencies grew because that system was unacceptable. So you could say that central banking was a response to problems with Bitcoin-like currencies, and Bitcoin is therefore reactionary. There is little evidence yet that Bitcoin is anything but a reactionary currency, and no evidence that crypto-currencies are in any way "the future" (I believe they will be used in the future, perhaps more than they are used now, just as gold and diamonds are still used in some circles; but I don't see any indication that they are the future).

MarkPNeyer4• 13 years ago

[the system of semi-deflationary currency] was unacceptable.

Unacceptable to whom?

dnautics11• 13 years ago

grew because that system was unacceptable

Historically (you should read http://www.amazon.com/Great-Wave-Revolutions-Rhythm-History-...) inflationary money systems have been the tools of those in power to quietly take from the poor and less powerful. Whether or not the current era of central banking was intended to be that way is a question for conspiracy theorists - but it's very clear that that is exactly what it has become. These inflationary systems were ALWAYS less stable than their preceding deflationary systems, and ALWAYS ended in revolution, or conquering, or plagues, or what not.

Even Keynes knew this to be true:

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery. Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

dnautics11• 13 years ago

"our society will have to figure out how to make the economy work with endemic deflation"

So, 1600-1900 in the US (minus wars which were incredibly inflationary but always temporary in that era) not enough for you?

The counterargument is this: In the era of central banking we have struggled to figure out how to make the economy work with endemic inflation. And it's failing. The two eras where the gap between the rich and the poor widened in a protracted, long-term fashion, have been in the aftermath of FDR's great dollar devaluation and after Nixon closed the gold window. 1972 was the last year the rich-poor gap was closing.

ubernostrum17• 13 years ago

Look at all the things you're sweeping under the rug in your defense of deflationary currency:

https://news.ycombinator.com/item?id=6977547

gnaritas9• 13 years ago

Hyperinflation would make it impossible for

So would another planet colliding into the earth, fortunately we're in danger of neither.

If blockchain currencies are the future, central banking is over, and our society will have to figure out how to make the economy work with endemic deflation.

No. Deflation is a part of bitcoin, not of crypto currencies in general. When deflation shows itself to be the problem it likely will be, we'll just switch to a better crypto currency that has predictable inflation built in; they exist already.

eropple• 13 years ago

And Bitcoin speculators are pricing in the frictional impact of changing to another arbitrary, fragmentary currency "when we need it"...where, exactly?

undoware• 13 years ago

If blockchain currencies are the future, central banking is over, and our society will have to figure out how to make the economy work with endemic deflation.

Good luck with that. You've just said something along the lines of, "we'll just have to figure out how to live with terminal cancer."

Now, I'm no economist, but deflation is standardly seen as really, really bad, and for good reason. It's not just 'the opposite of inflation', as you probably know: it's an accelerating, self-intensifying brake on commerce.

How? Ask yourself: why buy today what can be bought tomorrow cheaper?

holmak2• 13 years ago

Ask yourself: why buy today what can be bought tomorrow cheaper?

I know the the correct, rational answer to this question: "I won't buy it today, or ever, because it will always be cheaper the next day." (And then the deflationary spiral begins!)

But if this is really true, why has anyone bought a Playstation 4 or Xbox One? They will undoubtedly be cheaper in two or three or ten years. Well, consumers might be totally irrational; what about firms? Why has any company in history ever bought a computer when the price of computing power has been falling rapidly and (mostly) predictably for fifty years?

I don't think the question "Why buy today what can be bought tomorrow cheaper?" fully explains the behavior of people in the face of increasing purchasing power; there seems to be something else going on. Any thoughts?

patrickg_zill2• 13 years ago

Could you maybe point to some examples?

I think you haven't really looked into deflation in detail, quite frankly.

nabla9• 13 years ago

Hyperinflation can only occur in cases where debt is in foreign currencies.

For example the German hyperinflation was started by "London ultimatum" that demanded reparations in gold or foreign currency.

ashray3• 13 years ago

This title of this post does a disservice to its contents. "Bitcoin is evil' makes it sound like it's a propaganda piece. I went in expecting some of the usual poorly researched allegations that we've been seeing over the past few weeks. But surprisingly, the post does make a few good points.

Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 million bitcoins is reached. Placing a floor on the value of bitcoins is… what, exactly?

However, the analysis fails again because he wants to decouple bitcoin's role as a store of value from it being a medium of exchange. To which I would like to ask: What's the point of a store of value if ultimately it cannot be exchanged for something else ?

That's like saying that the energy inside an atom's nucleus has no value. (prior to the discovery of controlled nuclear fission) Of course it had value but we couldn't use it without accessing it and tapping into it somehow.

Bitcoin's value is closely coupled with its utility as a medium of exchange, which is based solely off some pretty excellent technology and principles.

Now, don't get me wrong, I don't think its current value in terms of USD/Euros/etc. is necessarily linked well to it's current utility. However, there is value in being able to transfer something (a bitcoin or parts of it..) that no one else can transfer to someone across the world securely and almost instantly with little to no centralized control.

This ability is what places a floor on its value, whatever that hypothetical floor may be.

This is what excites the 'technical people' he mentions in his article. I don't expect non-technical people to 'get it' immediately, but people will get it, eventually. No one understood why email was important in the beginning either.

username2237• 13 years ago

Maybe some day Bitcoin will be a cheaper way to transfer money than EBT, credit cards, etc. (a few percent). If/when that happens, people will hold Bitcoins for just long enough to complete a transaction -- microseconds -- rather than for however long it takes them to cash out their speculative bets.

MarkPNeyer4• 13 years ago

Yes. This is already happening to a small extent, and the use of bitcoin as a money transfer mechanism is where the value comes from. People who wish to transfer money using bitcoin do not care about the market price; if they have $1000 USD to send, they buy $1000 USD worth of bitcoins at market price, send them over the network in seconds, and then that value is converted into cash locally. They don't care about the market price, as long as it isn't volatile over the short time it takes to move the value.

The market price of bitcoin is determined by the number of bitcoin holders who think they will go down in value; as coins gradually transfer to the hands of people who believe they hold long term promise, the market price of 'loose change' available for transfer will rise; that rise in price will actually _increase_ the use of btc as a transfer mechanism because it will attract more people seeing BTC as a store of value, which increases the store of bitcoins held for long term positions and thus the market price of BTC, etc. The increase of its usage as a medium of transfer ALSO increases the market price of BTC; that interplay between new value-minded long term investors and new users of btc as a transfer mechanism is what has been pushing the price up continually. the entrance and exit of speculators in the market is a short term distraction that has the benefit of spreading awareness but the drawback of adding to conception as a bubble.

after about the 6th or 7th one of these 'boom and bust' cycles that triples/quadruples the market price, people will stop seeing this as a 'maybe' thing, and my guess is that will drive a massive one-time spike in the value.

richcollins• 13 years ago

This would create a floor on price ... which would then make it useful as a store of value (since there is a high probability that you'd be able to sell them in the future).

pdonis4• 13 years ago

What's the point of a store of value if ultimately it cannot be exchanged for something else?

One can also turn this point around: what requires the store of value to be the same thing as the medium of exchange? The store of value must be convertible into the medium of exchange, but that doesn't mean they have to be the same thing. Yet Krugman blithely assumes that they must be: "To be successful, money must be both a medium of exchange and a reasonably stable store of value." He doesn't even consider the possibility of, for example, an economy based on Bitcoin as a medium of exchange and, say, gold as a store of value. For that matter, he doesn't even bother to mention that very few people actually use dollars as a store of value: people don't keep their retirement funds in cash under the mattress.

ubernostrum17• 13 years ago

he doesn't even bother to mention that very few people actually use dollars as a store of value: people don't keep their retirement funds in cash under the mattress.

Individual people, perhaps not. But the US dollar is the most widely-held reserve currency in the world, followed by the Euro. Wikipedia states that approximately 2/3 of reserve currency holdings are dollars.

notahacker5• 13 years ago

If Bitcoin isn't a relatively stable store of value then there is no sane reason to use it purely for exchange. If you're able to send dollars to Coinbase or MtGox and the end user is able to receive dollars from Coinbase or MtGox, chances are you can cut out the middleman and the liquidity risk by sending them direct, at similar or lower transaction costs. The equation looks a bit different if you're holding non-trivial Bitcoin balances, but you won't do that if it doesn't reliably store your value.

vixen99• 13 years ago

"its contents", "its value", "its utility". "It's" is an abbreviation for "it is" or "it has".

ashray3• 13 years ago

Right, I've edited the post. Thanks for pointing that out.

fm88922• 13 years ago

To which I would like to ask: What's the point of a store of value if ultimately it cannot be exchanged for something else ?

It's very simple: Suppose you used Bitcoins only to facilitate transactions. You'd identify some good/service you want to purchase, buy the appropriate amount of Bitcoin on the open market. You then transfer them to the merchant who then sells the Bitcoin in his or her local currency. In order for that to work, the value of Bitcoin must be relatively stable over the timescale of the transaction. If ratio of Bitcoin to USD (for example) goes up a few percent over a period of ten minutes, then you're either giving the merchant a "tip" or he is giving you a discount. Either way, both you and he don't really know the cost of the good you are purchasing until sometime after the transaction.

More relevantly, if Bitcoin were to catch on, people would probably keep some assets in the form of Bitcoin so that they don't need to pay Bitcoint <-> USD transaction fees on every purchase. People will not do that if the value of a Bitcoin often changes radically between paychecks. Frankly, I can't see Bitcoin being used by "normal" people until the value is relatively stable (say, in most months the Bitcoin-USD exchange rate varies by less than 10% over the course of most 30-day periods) for this very reason. Unfortunately, the 21 million coin limit will prevent this from ever happening.

There seem to be a large number of people who operate under the misapprehension that "Inflation Bad -> Deflation Good." Inflation is bad, but deflation can be just as destructive to an economy, and having the ability to conduct transactions in a femtoSatoshi does nothing to fix that.

lowglow• 13 years ago

That's why I invest only in Dogecoin.

cantbecool• 13 years ago

Same, the it's the only alternative that seems like it could potentially take off.

zenocon• 13 years ago

Placing a ceiling on the value of gold is mining technology, and the prospect that if its price gets out of whack for long on the upside a great deal more of it will be created. Placing a ceiling on the value of the dollar is the Federal Reserve’s role as actual dollar source, and its commitment not to allow deflation to happen.

Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 million bitcoins is reached. Placing a floor on the value of bitcoins is… what, exactly?

Where's the floor on the value of the dollar?

natrius16• 13 years ago

He claims that the ability to pay taxes in dollars and the Federal Reserve's willingness to buy up dollars to maintain their value places a floor on the value of the dollar. I disagree. In a crisis of confidence in the dollar, both factors would fail.

ubernostrum17• 13 years ago

In a crisis significant and widespread enough to crash the dollar or any other government-backed currency you'd like to pick on, it seems likely that there would also be significant disruption to electrical and communication networks, which does not suggest BitCoin is a great thing to hold for that situation.

(a similar point is often raised against gold, in that a post-economic-apocalypse world would not immediately have the infrastructure to verify claims like "this is one ounce of pure gold", meaning gold's utility as a medium of exchange would not be as high as suspected by people who buy it to hedge against such apocalypses)

Aqueous3• 13 years ago

I'm a liberal, a Keynesian, but my interest in BitCoin is completely non-ideological. And I resent being painted with an ideological brush by Krugman because I can see the elegance in BitCoin, and I can see the possibility that one day, in spite of my ideological beliefs that unregulated markets are susceptible to bubbles and destructive volatility, BitCoin or something like it might still be able to function as a stable, useful world currency.

Ideology is never an accurate or complete description of the world. It is false awareness. What might be true under paradigm A might no longer be true under paradigm B, but at no point will an ideologue change his world-view to fit paradigm B. He will try to cram paradigm B into his ideology in order to preserve his ideology, rather than adjust his ideology to describe paradigm B.

For instance a fiat currency heavily regulated by state monetary policy might have been the best idea in the 20th century, during which for the most part there was no Internet. But in the 21st century, where the Internet enables markets that can function more efficiently, a virtual currency with a self-regulating monetary policy might be a better replacement. The jury is still out on that. BitCoin is an experiment, and that's the best thing about the Internet - it is a laboratory for experiments, where we can try new and different monetary policies really quickly, whereas in the wildly inefficient 20th century we were locked into one monetary policy at a time. We're just figuring out what works the best, but Krugman calling BitCoin "evil" suggests to me that he is afraid of what we might find out.

atmosx6• 13 years ago

You seem pretty accustomed to economics. Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency?

Then again, it's not a design a flaw - as I once thought - it's a clear choice: Why would anyone would want to own a non-deflationary asset? :-)

So actually, in my view, BTC as a currency is already failed. No one will be eager to buy online (perform an actual exchange) when he can buy the same items using USD, because BTC will possibly have a higher value tomorrow. While the USD almost certainly will not.

Best Regards,

ps. FIAT currency is regulated by the FED and you know who runs the FED. BTC market is run by those who have huge amounts of BTC and you don't have a clue about who they are. Not sure which one is more secure for a society.

natrius16• 13 years ago

USD and BTC are very easy to interchange. I see no difference between the dollars in my wallet and the Bitcoin in my e-wallet from a spending perspective. I'd spend my Bitcoin at any merchant willing to accept them. I think their value will go up, but I can buy more at the same price at which I just spent them.

Aqueous3• 13 years ago

It depends on how fast the deflation happens. BitCoin is not all that useful as a currency right now because it's value is so volatile. This is because it is subject to huge increases in demand as it spreads to more places across the globe. It is not hindered by any export controls or borders, which means it can "infect" whole nations/societies/cultures in lumps, as we saw recently with China, sparking a huge jump in price.

But eventually everyone will have heard of BitCoin, and I believe BitCoin's growth will slow down, and its curve will flatten and look more stable. The more people have BitCoin the less small groups of individuals, or even countries, can influence its price.

But look at the growth of vendors who are accepting BitCoin over the same period. For the same reason it doesn't make a whole lot of reason to spend BitCoin during this growth phase, it does make sense to accept BitCoins. And even though most merchants don't wish to speculate with their revenue, even keeping a "float" of currency in BitCoin could be profitable, and so it is reasonable that merchants and vendors might want to accept BitCoin even though not a whole lot people are spending them these days. That can only increase BitCoin's value as a currency in the long run.

If it was unwise or wise to spend something based on its changing value, no matter how slowly, then it would be rational for me to want to spend all my dollars for goods and services today because the dollar value is going down. But the US dollar isn't depreciating at a fast enough rate for it to be rational for me to spend all of my dollars today, right? This is because the currency is inflating at a pretty slow percentage rate. A slow inflation rate is not all that different from a slow deflation rate.

It all depends on what will ultimately be the rate of deflation of BitCoin. If it is sufficiently slow(1% annually, for instance) it will be useful as a currency. If it is all over the place, it won't be.

nefreat• 13 years ago

You seem pretty accustomed to economics. Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency?

This is identical to arguing: Why would anyone buy computers when they are getting cheaper every year. At some point you make a choice where your preference for owning a computer is greater than your preference to save money.

So actually, in my view, BTC as a currency is already failed. No one will be eager to buy online (perform an actual exchange) when he can buy the same items using USD, because BTC will possibly have a higher value tomorrow. While the USD almost certainly will not.

Gold is deflationary. When gold was the primary currency for the world commerce was very vibrant. Gold not being currency is a fairly recent development. People currently purchase things online with bitcoins when they could use dollars but choose to use bitcoins. I think it's very early to write off bitcoins as a failed currency.

yummyfajitas5• 13 years ago

Can you explain how exactly or why would anyone buy any items (that's what currencies are for after all) using a deflationary currency?

Why would anyone ever cash out of any position with a positive rate of return?

By this logic everyone should stop consuming and put all their money into SPY, or similar market tracking indices. Yet they don't.

sausman• 13 years ago

If your assumption were true, I wouldn't have bought a computer because I could have delayed my purchase and bought a cheaper+better one later. Even if I forecast computers falling from the sky in a year I would still buy one now if I didn't have one already. Wouldn't you?

drdeca• 13 years ago

This seems to be mainly a reference to another article that has also been on HN.

By approximate scroll down length on mobile, the ratio of content that isnt a quote, to that which is, seems to be approximately 7:5 . (not taking into account the fact the quoted text takes less horizontal space, but I did overestimate the new text length in a few small ways as well, so I hope that this ratio is at least approximately accurate)

Essentially the article states a difference between "positive economics" (what is), and "nomfyvhbxgv economics" (what should be). The author claims that their political opponents tend to get the two confused (and that despite what people criticizing the article might think, that his political allies tend not to make the same mistake)

They then go on to say that the other article suggests that bitcoin was created as a weapon, connecting to the "what should be" part of economics, quote the other article, and repeat from the other article the part about a "gold fetish".

I personally believe that it didn't add a whole lot to what was already in the other article, though I admit I should probably reread the guidelines for comments and submissions. I intend to do that, and then possibly modify this post that I am now making.

mortenjorck2• 13 years ago

Krugman is to Bitcoin as Ebert was to video games.

The central failure of Krugman's understanding of cryptocurrencies is in the value of mining. It's not simply throwing energy away into solving useless math problems; it's spending energy to create infrastructure. That infrastructure is the part that does have intrinsic value, that can be used for something else in the same way gold can be made into useful things. Look at Bitmessage or any of the other projects built on top of Bitcoin. These form the floor Krugman can't seem to find.

jamroom• 13 years ago

But does Bitcoin really have a floor related to the energy put into the mining? Since the energy cost is paid for by the miners, do other players in Bitcoin "respect" that floor? I don't see that - there's nothing keeping a Bitcoin from going all the way to zero - regardless of the energy consumed in it's production, and Krugman argues that gold (and the feds) have a bottom that is greater than zero.

My understanding could be wrong, as my understanding of Bitcoin would definitely be at the "noob" level :)

sans-serif2• 13 years ago

No, the floor is unrelated to the energy put into mining. The intrinsic value of Bitcoin is the ability to facilitate financial transactions.

Brinks' entire CIT vehicle business is based upon just a subset of this function, and we can agree their value is not zero.

chipsy2• 13 years ago

I think Bitcoin does have a soft floor because that cost would form the natural price target for a miner trying to trade, but the cost is avoidable by switching to proof of stake as done in PeerCoin and Nxt. The crypto problems solved in Bitcoin don't have the intrinsic utility of a precious metal; you could make a better argument for something like PrimeCoin, which attacks a major computation problem, having this kind of utility.

So as I see it Bitcoin is already obsolete; there are new coins that achieve the transaction capabilities for cheaper - they can be used in more potential applications, thus they're more interesting speculative instruments.

The specific benefit of proof of work mining comes in insuring more people have a chance to enter during initial distribution, but it still massively favors the early entrants and especially the people who have the hardware environment to mine efficiently.

ashray3• 13 years ago

I think the core problem with bitcoin acceptance is that understanding the way it functions spans many domains of expertise. There are cryptography, cryptocurrency, decentralized networks, economic concepts (inflation/deflation), centralized banking, government controlled currencies, computing ability, mathematics, human psychology, and ... so much more! It's really something that has a little bit of everything in there.

As such, to an expert in any one of those fields, it's very hard to digest because looking at it from the perspective of one field might suggest it is doomed for failure. But experts tend to look at things from the perspective of their own expertise.

For laymen who might know a little bit about each of those domains, it feels like "Yeah.. this could work..". A simple analogy might be about how hardcore web developers always feel about PHP. They always say it's a pile of garbage and it's bound to self destruct and swallow the earth in the process. However, PHP trudges on with some very large projects and sites under it's belt.. and novice developers will almost never notice a problem with it. Experts can be wrong.

So yes, bitcoin has it's issues if you analyze each aspect of it. But maybe if you zoom out and take an overview it might start to make sense how all the parts get together and even with flaws with each sub-aspect it just might work.

vincvinc• 13 years ago

suggest it is doomed for failure

Wait, I think we are missing his point. Last sentence of the article:

"So let’s talk both about whether BitCoin is a bubble and whether it’s a good thing — in part to make sure that we don’t confuse these questions with each other."

I think this article does not go into the 'will it work?' debate. It alerts us instead to another debate, 'to what degree do we want it?'

It is an addition to what Charlie Stross was saying. He is just adding "guys, why are your comments replying to a different question?"

At least, I think that is the discussion he wants to start. But his talk about the ceiling and floor in value in the middle of the article actually belongs to the OTHER discussion, the one he does not want to start but spends half of the text going into.

It is like trying to talk about empirics to consider for deciding national policy, while everyone is shouting their usual political opinions.

olefoo2• 13 years ago

So you need to write that up in a format that Krugman can understand and get it in front of his eyes. But I think his main criticism is that all of that infrastructure falls under the medium of exchange function and doesn't serve as a store of value.

What I think you're saying is that the block chain and it's supporting infrastructure and the functions it enables ( decentralized notary, unrepudiable statements, etc. ) are creating value in the same way that making jewelry from gold creates value. And that's an interesting argument. Much more interesting than a bunch of people ranting incoherently about "fiat".

If I were in search of a dissertation topic as an economist/anthropologist; I would be looking at the current wave of cryptocurrencies as a fascinating natural experiment in the social construction of value.

davidy1232• 13 years ago

Couldn't someone under any sane system simply copy someone's block chain work in a new system? There has to be more to a 2014 system than a technical ability.

ansible2• 13 years ago

It's not simply throwing energy away into solving useless math problems; it's spending energy to create infrastructure.

I don't see how it is not the case that mining Bitcoins is throwing away energy.

If someone had made a crypto currency based on, say, protein folding [1], I could get behind that.

We could just create a crypto currency where we just hand out 100 units to every person. That certainly wouldn't require ASIC farms and such.

[1] Yes, I realize that the whole 'hard to do, easy to verify' bit is not completely obvious in the case of protein folding or SETI signals.

jellicle3• 13 years ago

Nearly 100% of the attractiveness of bitcoin is the promise of infinite rewards to the early investors in the Ponzi scheme.

Bitcoin couldn't and wouldn't exist at all without that promise. So a simple system based on allocating 100 coins to everyone just wouldn't do at all.

codeulike• 13 years ago

We could just create a crypto currency where we just hand out 100 units to every person.

Not without a trusted central party you couldn't. The work that goes into bitcoin mining is the 'distributed engine' that prevents double spending or forging of bitcoins. Bitcoin mining is not just a way of handing out new coins, its the very engine of the whole system. The only known way to break that engine is to control a bigger engine of the same spec (the >50% attack), and thats looking increasingly unachievable by anyone.

aaren5• 13 years ago

I don't see how it is not the case that mining Bitcoins is throwing away energy.

The 'work' is actually the verification of transactions on the blockchain - the reward from mining is just an incentive to do this (mining & verification are tied up in the same process).

The energy expended in mining is necessary to validate transactions in the network.

You might be able to make it more energy efficient but you can't remove the energy expenditure.

hendzen6• 13 years ago

Feel free to design your own cryptocurrency that does that. Nobody's forcing you to use Bitcoin.

SectioAurea11• 13 years ago

This has actually been done. You can now do protein folding and SETI (and a bunch of GMO research) while mining. Gridcoin is working with the full cooperation of the UC Berkeley BOINC project and is compatible with your choice of dozens of research projects: http://gridcoin.us

gnaritas9• 13 years ago

The central failure of Krugman's understanding of cryptocurrencies is in the value of mining.

Mining is not that valuable, there are other ways to do it that don't waste so much energy.

It's not simply throwing energy away into solving useless math problems

Yes it is, since there are solutions like proof of stake that solve the same problem using vastly less energy.

haberman2• 13 years ago

It's not simply throwing energy away into solving useless math problems; it's spending energy to create infrastructure.

But it is also an arms race of energy spent. And the more valuable BTC becomes, the more energy a rational agent will use to mine it. Unlike mining gold, BTC mining does not have a fixed cost.

gweinberg2• 13 years ago

Gold mining doesn't have a fixed cost either. Different locations have different costs per gram of mining and refining gold, and whether it is worthwhile or not to mine in a given location depends on the price of gold.

jjindev2• 13 years ago

All currencies rely on belief (like those flats in Monty Python). It is possible that gold could lose global belief, but unlikely, given the long history of belief. The US dollar too could lose faith, but again, a pretty good history of trust. Bitcoin? I think belief and trust battle novelty a bit. Will enough people believe, in 20 years, to power the computations necessary at that point? Or will a more novel and exciting currency emerge?

XorNot12• 13 years ago

Gold isn't a currency at the moment. Even if no one wanted gold for its store of value properties, they'd still want it for electronics, science etc. at which point the market would revitalize.

icambron9• 13 years ago

The positive part of Krugman's argument that discusses floors is saying that external forces have ensured that dollars and gold are useful even in the event that people stop wanting them as a value store. Your infrastructure argument seems to say that, all of that spent electricity has second order effects that make it a net positive for society. Not sure I agree, but fine. But that does not provide a floor of Bitcoin, because infrastructure being useful for other things does not make Bitcoin more useful. If BTC starts collapsing, perhaps all that infrastructure will go on to do great things for society, but how does that help Bitcoin?

So either you're misunderstanding Krugman's argument or I'm misunderstanding yours. I think you're confusing his normative and positive arguments (which are entirely separate!). You have used an argument against his normative argument ("Bitcoin is evil because it's wasteful.") but then used it to challenge his positive argument ("Bitcoin won't work out because it has no value floor."). That a crypto currency might end up helping society does not make it a good value store. Why would it?

mortenjorck2• 13 years ago

I appreciate your putting the distinction between Krugman's arguments into greater relief – I believe I have conflated them somewhat in talking about second order effects.

For the time being, let's ignore those and concentrate on the primary purpose of Bitcoin's infrastructure, to facilitate decentralized value transactions between arbitrary parties. It is the infrastructure's fitness for this purpose that I see as giving it its floor; this may seem a slightly circular argument, but by enabling what it does it will always have the value of accomplishing that goal, even if it's trading for vast fractions of a cent (like Dogecoin).

Adding the network effects of its installed base, this probably places its floor somewhere well above Dogecoin's current value, but certainly far below what it's currently trading at. And indeed, it could very well undergo further corrections until it reaches a level of stability appropriate for a value store.

yohanatan4• 13 years ago

If BTC starts collapsing, perhaps all that infrastructure will go on to do great things for society, but how does that help Bitcoin?

If the infrastructure goes on to do great things for society then it has (and has always had) intrinsic value and thus the price of BTC rebounds (or more likely never collapses in the first place).

azernik3• 13 years ago

I don't think you're understanding Krugman's point.

If the gold price collapses, you can sell it to jewelry and electronics manufacturers at some (low) price point. Gold has a weakness as a store of value because this price point is a lot lower than its market price during good times - and this is why Krugman is also not in favor of it as a store of value.

If the price of the dollar collapses, you can sell it to the Fed (usually indirectly - the Fed sells debt and then sits on the proceeds). This floor is pretty solid, cf. Volcker's recession in the early 1980s.

If the price of Bitcoin collapses, you can't sell the electricity used to produce it onto the grid - that electricity is a sunk cost. So what provides a floor to the Bitcoin price if for whatever reason its value suddenly falls? Probably only its utility as a medium of exchange, which in an era of electronic exchanges lasting fractions of a second probably doesn't provide a huge demand for the stuff.

aestra2• 13 years ago

Yeah right. If the gold market collapsed then nobody would be making selling or wearing gold jewelry. The reason it is popular now is because it is expensive.

mahdavi• 13 years ago

If the gold price collapses, all the energy spent mining it and transporting it will be gone too. and that energy is much much higher than the energy bitcoin network is consuming.

nandemo• 13 years ago

If the price of the dollar collapses, you can sell it to the Fed

I think this is a dubious argument. It describes what happens most of the time, when the value of the dollar fluctuates. But what if the collapse of the dollar is accompanied by a downfall of the Fed? Hyperinflation has happened in many, many countries that used fiat currencies, and even the US has had high inflation:

http://en.wikipedia.org/wiki/Hyperinflation#Examples_of_hype...

Canada2• 13 years ago

I'm not disagreeing with everything you're saying, but your point about Bitmessage is wrong.

Bitmessage doesn't use the same blockchain as bitcoin. The work of bitcoin miners does nothing at all to help bitmessage.

Only inherited protocol design or reused code can be said to contribute, and that's not relevant to this discussion.

james10713• 13 years ago

I am afraid that you have missed the point entirely. The only function that mining performs is a means of distributing the currency and encouraging its use.

SectioAurea11• 13 years ago

In the case of clones Namecoin/Primecoin/Gridcoin/Datacoin and others, there is even useful work being performed as part of the protocol of the software. Gridcoin's block rewards, for example, scale 30x in favor of those who devote enough computing resources to BOINC to achieve a BOINC score of 100.

zby2• 13 years ago

You don't need this amount of computing power to send messages. All that these processors do is guarding against 'double spending' - but 'double spending' is a peculiar problem of distributed cash - a centralized currency could be secure against 'double spending' without burning so much electricity.

atmosx6• 13 years ago

Krugman is right, I agree with him 100% on this, but almost every time I tried to make any sensible argument about bitcoin with people actually holding bitcoin, I hit a wall.

Most people confuse currencies with assets, storage-medium with exchange, etc. While at the same they are just hoarding.

I think that BTC will stick around because it has some unique qualities that are requested by the market such as partial anonymity, speed and size (a USB can contain whatever amount of USD).

But it has some serious flaws and as a currency is clearly failed. It is a libertarian's dream, but I don't think that the US or DE or RU government can't monitor whoever moves money in and out of the BTC blockchain.

Malician• 13 years ago

I dealt with virtual game currency before I really started messing around with banks.

There was a ton of, "What do you mean I can't do this", and "What do you mean this takes longer than five seconds.. four DAYS?!", and "they're closed? So I can't? What? You're joking with me, right?"

I understand that dealing with money is incredibly hard due to regulation, but I would like something to use as a medium of exchange which doesn't leave me constantly infuriated.

yxhuvud• 13 years ago

Most of that probably has more to do with horribly bad legacy systems at the banks than it does with what currency is used. A little bit of competition will do well in showing what is possible, but shouldn't automatically replace the reigning currencies.

Tycho• 13 years ago

Sometimes I wonder if Bitcoin really is a weapon made by a nation state. Like Stuxnet. Or alternatively could a nation like North Korea co-opt it in an attempt to dislodge the dollar?

j2labs• 13 years ago

This is an easy one to understand.

Krugman was a proponent of mass inflation, aka. helicopters of money, as a solution to the credit crisis. Bitcoin makes it basically impossible to manipulate the money supply the way the Fed has done to navigate the 2008 crisis.

Krugman sees Bitcoin as a threat to the central banks ability to stabilize the economy.

seiji8• 13 years ago

Also see: the euro crisis.

It isn't a "threat" so much as just foolish.

pixelcort• 13 years ago

One capability of bitcoin not often addressed is the ability for the majority of its users to change the rules.

If you can get the majority of users to agree to a change in the rules, then they will fork off the block chain in a direction that follows those new rules. Of course, you will have some percentage of users who like the old rules, and could theoretically continue on the old block chain.

One rule change, for example, is to have miners vote on the reward for new blocks found. Then, every so often take the medium or a random vote and award that amount for new blocks mined. This would allow miners to regulate the amount of new coin being mined, which could level off the exchange rates between bitcoin and the world currencies.

darkhorn• 13 years ago

Bitcoin is evil like book pressing machines are evil to hand written books economy (like few centuries ago)

captainmuon• 13 years ago

Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 million bitcoins is reached. Placing a floor on the value of bitcoins is… what, exactly?

Doesn't he get that point wrong (like many others)? The mining rate, and eventually the limit of 21 million bitcons places a limit on the supply of bitcoins, not on their value. If bitcoin is successful, it will only keep getting more and more valuable. Its hard to estimate how much, but the total market capitalization will probably that of a commodity like silver, or that of a nation state's currency.

Also, I think bitcoin is not really supposed to be a store of value. Its main purpose is to pseudonymously buy and sell stuff (drugs, cough, cough). It's good enough if it can hold its value for a few hours - if someone builds a nice way to deposit dollars or euros, convert them, and immediately pay with the bitcoins, milliseconds would even suffice. In a market with such a high turnaround, of course, the value represented in bitcoin at a given time will be lower than for e.g. silver or gold, which are supposed to store value for a longer time (and also have applications as a material).

Finally, I don't think bitcoin can replace "real" money. It might have worked a few decades ago when there was a kind of self-carrying growing economy. The only way todays econonmy is still running is because of massive state intervention, which is impossible if bitcoin in the main currency. I mean, we gave up the Bretton Woods system and the gold dollar for a reason...

eudox• 13 years ago

BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions.

And you are going to have to live with it, the same way the people who created Bitcoin will have to live with interventionist policies.

etjossem7• 13 years ago

It's great that Krugman is trying to to make a purely positive analysis of the potential impacts of Bitcoin. He's entirely correct in saying Bitcoin has zero inherent value, as opposed to gold and USD. But that's missing the point.

Most of us don't think about owning gold in terms of how readily we can make pretty things out of it, or dollars in terms of how easily we can pay our taxes. We hold onto them because both have a reliable history of being easily traded for other goods and services. Ease of exchange trumps inherent value as soon as a currency's users regard it as stable, and Bitcoin hopes to be there in a few decades (presumably starting with the sort of people who follow interesting tech developments, rather than those who care about inherent value).

As a side note, the headline is ridiculous linkbait and someone really ought to change it. Krugman spends most of the article explicitly stating that he doesn't want to muddy the discussion of how well BTC will actually work with normative/political arguments (i.e. the word "evil"). I can't help but feel like someone other than the author titled this article.

username2237• 13 years ago

Krugman is smart and a bit condescending, with a sarcastic bent. "Is evil" was not prima facie humorous, but the way certain people in this thread have responded to the title without reading the article may have been part of the joke.

etjossem7• 13 years ago

It's still a totally inaccurate bait and switch title, which annoys me and makes me like his column a little less.

If I click through to an article called "Bitcoin is Evil", maybe I actually want to read about how a Bitcoin-dominated world is going to making exploiting the poor trivially easy. I'm not convinced yet, but it's a plausible (if normative) argument someone could make, so there's no sense in making a joke out of it. Especially if - like Krugman - you already support redistributionist taxation and the welfare state.

A_COMPUTER2• 13 years ago

Well, I disagree. He spelled out why he thinks Bitcoin is evil, he thinks it was cooked up in a lab by cyber-Libertarians to destroy the power of the State to tax, an activity which he thinks is a good and necessary thing. His only consolation is that he thinks it won't work, but that doesn't change the black, black intentions of Satoshi Nakamoto and his Crypto-anarchist crew. I'm serious that he's serious: he thinks Bitcoin is evil, in much the same way that some politicians think Tor is evil because child pornographers can use it.

greyman5• 13 years ago

He's entirely correct in saying Bitcoin has zero inherent value, as opposed to gold and USD.

No, no, he is NOT correct on that. Bitcoin's inherent value is in the Bitcoin technology. Inherent value of USD is that government declared it has value (by fiat). You can actually create "pretty things" with bitcoin technology, the same way you can create pretty things with gold - those are just other things.

etjossem7• 13 years ago

The United States is a superpower that many people enjoy calling home (you may even be among them), and it will probably be around for a good long while. If you chose to live there, you have a civic obligation to pay taxes, which are accepted in USD. If that's not inherent value, I'm really not sure what is.

Nobody believes the Bitcoin protocol itself is beautiful in the same sense as gold, although I do know a few computer scientists who might find it intriguing. I suppose you could make the case that the ability to make anonymous transfers has some inherent value - but even that depends on how well BTC is adopted as a medium of exchange.

prostoalex2• 13 years ago

Inherent value of USD is that government declared it has value (by fiat).

Wait, what? Definition of fiat currency is the one that has no intrinsic value.

USD's intrinsic value is the paper and the metal used to manufacture it.

hindsightbias2• 13 years ago

It's a blog. Krugman has always been snarky, and I've seen him reference the blog titles within the text on occassion, so he probably titles them.

Editorials/opinion pieces, the editors typically put there stamp there.

vijayboyapati• 13 years ago

There is perhaps no compliment greater than a criticism from the econostrologist in chief, Paul Krugman.

He is right about one thing tho. Bitcoin IS a bubble. But that is not a pejorative. Any good that becomes money will have a price that is far higher than is warranted by its use demand. It doesn't matter whether the floor price is 10% of the monetary premium, 1% or 0%. The monetary premium is based not on the good's use value, but its serviceability as money. I.e., is it fungible, divisible, transportable, verifiable etc. And along all these attributes bitcoin shines - even more than gold.

The best explanation of this so-called "bubble theory of money" is proffered by Moldbug. To wit:

http://unqualified-reservations.blogspot.com/2011/04/on-mone...

and

http://unqualified-reservations.blogspot.com/2013/04/bitcoin...

kybernetikos• 13 years ago

I'm glad this article makes the distinction between positive and normative economics.

I have no problem with paying taxes and obeying almost all laws in a democratic country, and I am persuaded that inflation in sensible times and amounts is a good thing for the world. The paranoia and anti-society feelings that run so high in the bitcoin community actually put me off it. (Although I also dislike the fact that the Credit Card companies have the power to extract rent from nearly all transactions in the economy too - the fact that the price is the same regardless of whether the merchant is paying a fee or not means that cash transactions are subsidising credit cards).

But I don't think bitcoin has much chance of becoming a state currency, and I think it would go horribly if it did, so most of that anti-state rhetoric is irrelevant.

However, up until now, neither the government, nor the banks nor the credit card companies have provided me with an easy, cheap and safe way to make tiny transactions with my friends (and untrusted acquaintances) across the world.

Bitcoin is currently useful. I can take a picture of a QR code with my phone or fill in a simple form on a web page and safely transfer tiny sums of money with no or minimal fee reasonably quickly anywhere in the world. That is wonderful and creates a floor on the value of bitcoin, until better options are available.

Anyone who really doesn't want to see bitcoin succeeed (and that goes for Stross and Krugman) should make it a priority to work on making sure that dollars and pounds and euro balances are just as convenient, cheap and safe as bitcoin balances.

etjossem7• 13 years ago

Three cheers to the mod who changed the title from "Bitcoin is Evil", even though that's what NYT wants to call it. The author spends most of the piece explicitly telling us that he will not be making a morality judgement about the currency.

One quote in the article caught my eye:

BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions.

Fun thought exercise: replace "BitCoin" with "cash." Businesses across the country choose to have a cash-only policy (or destroy receipts, avoid use of electronic records, and so on) to avoid paying taxes and having their transactions monitored. That's not to say this is wise or ethical behavior, but it certainly happens, even without cryptocurrency. So why do critics describe BTC as a libertarian threat and in-person cash transfers as normal?

A_COMPUTER2• 13 years ago

I don't know enough about economics to know if it's possible to "de-politicize" it, separate a theorist from a particular type of government. But I perceive that Krugman, master of his intellectual domain, becomes deranged in the presence of the name "bitcoin" because technological innovations don't go in reverse, and disruptive ones change the facts on the ground. In those circumstances all government can do is either accept it or go full-on North Korea. In his world, the state must have at least the power, even if it must only judiciously decide when to apply it, to direct all human activity to maintain stability and order. If bitcoin really does threaten the power of the state to tax, the government's reaction is going to turn his utopian social contract "we're-all-in-it-together" paradise into a dystopian surveillance hell-state. and he, as the cheerleader of the State (if anyone remembers him) goes from being a good guy to a bad guy. I can understand how then that bitcoin presents a scary proposition.

I don't know how closely he's been paying attention to the rest of the news on how the government has been reacting to things on the Internet it can't control, like encrypted communications, but the government isn't taking the "acceptance" route, it's going the North Korea route. If he wrote a "PGP is evil" article about how it destroys the ability of the State to keep tabs on pedophiles and terrorists and tax cheaters, it would be derided here with a lot more force.

JumpCrisscross• 13 years ago

I love rule-based central banking. It injects predictability and stability into a monetary system and has had fantastic results in the developing world. Cryptocurrencies allow for rule-based monetary systems without the risk of a central bank failing to adhere to its rules prescription. A world of competing crypto currencies would be fascinating - various rule systems being adopted and phased out as (a) critical flaws are discovered, (b) more competitive rules are introduced, or (c) the global economy's needs and hence optimal rules system change.

The downside of discretionless rules-based central banking is it makes learning, and thus evolving, very expensive, requiring a rerooting of the currency and thus monetary system. This is why developed countries do better with discretionary central banks - their economies are too complicated for any known rules systems to work reliably and their central banks trusted enough not to be stupid.

I love the future Bitcoin portends - a world of competing and overlapping rules-based and discretionary monetary systems. I am fairly confident, however, that Bitcoin is not competitive for that world. Still, it's a great introduction and has its social value as a stepping stone.

nhaehnle4• 13 years ago

I would argue that the rules of Bitcoin are not very useful for economic development.

Perhaps the most important lesson in the history of money is that the amount of money needs to flexibly adjust to economic circumstances.

The existing fiat system achieves this, because banks create and destroy money in a decentralized, market-controlled fashion by giving out loans and having them paid back. When a firm invests using bank loans, then the money supply and economic activity increase in lock-step. The result is an economy that was so stable in historical comparison that many economists declared the "macro problem" to be solved (the so-called "Great Moderation"; obviously, 2007 showed that they were hilariously wrong).

Metal standards do not achieve this, and they fail in two ways: The economy can grow faster than the supply of metal; that's the more usual failure mode. But the supply of metal can also grow faster than the economy, which is just as bad (i.e., Spain and the in-flux of metal from America).

Bitcoin can only fail in one of these modes, but since that's the more usual failure mode anyway, it's just as bad as a metal standard.

So that belongs to the normative discussion that Krugman talks about: An economy based on Bitcoin as money is going to suffer through the same problems (gratuitous recessions and mass unemployment) that economies based on metal standards used to suffer from [0]. We already know that, so let's just not go there.

[0] Similarly, economies based on the Euro suffer the same problem via the exact same mechanisms, as do economies where politicians implement unnecessary austerity.

dimitar2• 13 years ago

I think most commentators here missed the point of the article. Bitcoin is evil not because it fails at x, because the interest in it propagates bad (Krugman POV) economics. Krugman/Stross assume this type of economics is the 'Austrian school'/Goldbug economics.

gweinberg2• 13 years ago

Most likely Krugman didn't choose the title.

guscost2• 13 years ago

Bitcoins can only be as evil as cars, guns, LEDs, pin-and-tumbler locks, trusted computers, square-rigged ships, Jacquard looms, and enriched uranium. The point is that these are technologies, not people.

steveklabnik2• 13 years ago

There's an assumption here which may or may not be true: technologies are ethically neutral.

Some reasonable people disagree with this assumption.

guscost2• 13 years ago

But can technology be immoral? I'm a bit rusty on all that stuff but it sounds like we're talking about two (subtly) different questions. I would argue that technology can be used for evil, but technology just sitting there by itself is no more evil than rocks or sand.

If you can prove that a certain technology can not or will not be used for good, then that raises different questions.

semiel• 13 years ago

Who changed the title from the original's "Bitcoin is evil"? I thought Hacker News was opposed to editorial titles.

edward• 13 years ago

Why does he write it as BitCoin? I'm sure he is aware that it is normally written as Bitcoin.

EGreg6• 13 years ago

I am an on again off again fan of Krugman in some respects. In this case he has managed to clarify the discussion, which is good!

The truth is that bitcoins derive most of their value from being a great medium of exchange and enabling things (smart contracts are ahead) that otherwise wouldn't be possible. Things like making no recourse payments online for the first time ever.

Bank of America did an analysis on the value of bitcoin and concluded that one of the components is the payment network. If PayPal's market cap is billions, why not bitcoin?

So I see this as giving a "floor" to the value of bitcoin via demand the same way as the US government's demand for dollars from its citizens (or the controversial petrodllar warfare theory and other shenanigans) boosts demand for the dollar. There is definitely a lot of demand boost in that.

And for now there is alsothe speculative bubbl. I don't know what the value of bitcoins should be, but it's certainly not zero - there will be demand for it by chinese millionaires trying to get their $ out of the country and bypass currency controls, and other things like that. And if the market cap is high enough, moving a few million dollars in bitcoins at a time won't move the market. Demand drives the price up.

XorNot12• 13 years ago

If you couldn't turn Bitcoins into USD, would you accept them as payment for something?

That's your floor price. It's 0.

EGreg6• 13 years ago

Yes, if I can trade them for something else I need. Cashing out is a hassle anyway.

It's true that dollars are more liquid. Does that mean you wouldn't accept a ton of free stuff if you couldny trade it for dollars but only other services?

ChristianMarks• 13 years ago

Krugman is somewhat like Bishop Berkeley, no fool, arguing against infinitesimals before they acquired--in the 20th Century--a rigorous basis. The auditability of Bitcoins distinguishes them from the inaccessibility of the highly mathematized and virtually untraceable instruments of the financial crisis.

jokoon• 13 years ago

Finally Krugman talks about it...

Articulate2• 13 years ago

It is deplorable that he used the word "evil" to describe Bitcoin. He fails to point out that Bitcoin is a system and of course it is possible for individuals to use this system to achieve some personal nefarious goals; but we have literally watched banks knowingly gamble huge sums of money in the centrally banked system and the whole system came crashing down. The decentralized nature of Bitcoin will not allow a few major players to crash the system, and then use the government to bail it out... and as a side note the government doesn't ever bail anyone out, it leverages its authority to force taxpayers (today and future generations) to bail out a system so that it can maintain the status quo.

wdr1• 13 years ago

It is deplorable that he used the word "evil" to describe Bitcoin.

Krugman is clearly an intelligent man, but in his public writing he has a habit of declaring things he doesn't like as "evil."

Given we know he's not stupid, I assume it's to increase the attention he receives. Based on the re-shares from my left-of-center friends, it tends to work.

Articulate2• 13 years ago

A few minutes after I posted that, I regretted that my comment focused on that. Krugman wrote another article implying that Bitcoins were "barbarous" and likened them to digging up mostly useless gold. I feel like he must think Bitcoin is serious because he is writing about it regularly- I wish I had focused more on his economic theory in my comment... maybe next time.

anoncowherd2• 13 years ago

Krugman's rants can be safely ignored. He either genuinely thinks that the solution to problems created by printing and borrowing way too much money is.. printing and borrowing shitloads more money, or he doesn't actually think that and is a government shill instead.

Either way, he's not to be trusted.

> BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions

So? Damaging States' ability to forcefully confiscate everyone's wealth is a distinctly good thing, here in the real world.

kungfooguru• 13 years ago

>BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions.

What does that sound like? Maybe an earlier top post on HN http://blog.oleganza.com/post/71410377996/crypto-anarchy-doe...

paul2• 13 years ago

I'm most bullish on bitcoin when I read articles such as this one, and most skeptical when I read the thoughts of the bitcoin believers. It's truly the most interesting technological development in years, if only because it reveals how little anyone really understands money or economics.

Here's another interesting (though imperfect) way of thinking about bitcoin: it's a decentralized corporation, where bitcoins are ownership shares and the business is money transfer, like a decentralized Western Union. And for further thought, could other types of businesses also be structured in this way?

peterjancelis• 13 years ago

Exactly. Bitcoin is the first autonomous corporation.

erikpukinskis• 13 years ago

The next thing we need is an autonomous web host.

greyman5• 13 years ago

I am not a libertarian and do not have a political agenda, but it is imaginable that certain parts of the government could be replaced with the structure like this one.

I don't know how the transition could happen, but at the end, the mining in the network will be done by citizens, bitcoins will be named "bitvotes", and every citizen will mine those bitvotes, or they could be distributed fairy (one bitvote to each citizen). Then, the citizens could vote about anything with those bitvotes, and the bitcoin technology ensures that the voting is provably fair and verification of the correct voting results doesn't require any third party.

But again, this is not my agenda and I don't know if it would be good; I just say that the bitcoin technology invention allows this to happen.

ReidZB3• 13 years ago

Such a scheme has a huge flaw: it allows extortion/coercion. Suppose I am a mob boss and I wish to become (insert position here). I send my goons to inform you that voting for me is a wise decision because I can offer you protection from the vicious thugs in the area. It would be a shame if the vicious thugs burned your house down, wouldn't it?

So, you'd be forced to reveal your bitvote address to me under threat of violence. Once you vote, I just check that you voted for me. And if you didn't...

A real cryptographic voting system goes to great lengths to prevent this scenario. In such a system, a voter can prove to himself that his vote counted toward the proper party, but crucially the voter cannot prove such to anyone else. This prevents coercion.

Of course, real cryptographic voting systems have a bunch of other nice properties, but this is a really major one that most people overlook.

Example of a cryptographic voting system: Helios (https://vote.heliosvoting.org/). Also see the tech docs (http://documentation.heliosvoting.org/verification-specs/hel...). Helios is an online system, so it's not ready for prime-time voting --- it would need to be adapted into an in-person scheme, which cryptographers have already created --- but it does demonstrate the concepts involved.

This is an area of active research, BTW.

DrJokepu• 13 years ago

Voting is a solved problem. I’m not saying that the idea of using bitcoin technology to solve problems beside monetary systems is a bad idea (in fact, I think it’s a very interesting concept), but really, democracies around the world already have established and efficient voting systems that work well enough.

SectioAurea11• 13 years ago

I explore some of the possibilities of achieving transparency and trust in government through blockchain records here: http://www.wallstreetcrypto.com/2013/12/distributed-anonymou...

nickbauman3• 13 years ago

Ah, then everyone will be bitvoting for the candidate that will get them the widest-screen TV possible.

blahbl4hblahtoo2• 13 years ago

That is a fundamentally bad idea.

Votes and "dollars", what ever your concept of dollar is, should never be the same thing.

natrius16• 13 years ago

My current answer to that question is that any industry that relies on trust could be structured in this way. If DNS were implemented on a blockchain, purchasing that chain's currency would be betting on increasing demand for that chain's transactions, domain names. What other industries are fundamentally about trust?

Rhapso2• 13 years ago

Verification and validation. Bitcoin gives us a way to change and extend the trusted third party system Cryptography has been built on since the 80s. Those schemes worked great in theory, but it turns out there are no trusted third parties to build them on.

lukifer2• 13 years ago

In case you're not aware: there is a BitCoin fork which seeks to compete with DNS, called NameCoin. Though the primary purpose is domain resolution, it's also a generic key-value storage system using the block chain.

baddox12• 13 years ago

Virtually any service that can feasibly be arranged and delivered online is fundamentally about trust, and you don't even need Bitcoin to solve many of those.

I'm reminded of an example which I believe was given by some libertarian writer, perhaps David Friedman. One big role of governments and private institutions is the regulation of service industries through testing and licensing. In many places it is illegal to provide legal advice without an official license, often from the government. But all you need is email and public key cryptography to solve that issue. A certain legal expert, known only by his public key, could develop a good reputation for providing good service in some jurisdiction, let's say California. He need not be legally licensed in California or even live in California. You can just email him your question, arrange some electronic payment (okay, Bitcoin could work here), and he can respond with legal advice signed with his private key. Bingo. You know for a fact that you received legal advice from someone with a good reputation for providing legal advice, which is precisely the point of government licensing for lawyers.

steveklabnik2• 13 years ago

Searching for "distributed autonomous corporation" will find you all sorts of half-interesting, half-totally ridiculous garbage information on this topic. It's really fascinating.

SectioAurea11• 13 years ago

It's all in the brainstorming stages. Distributed Autonomous Government is also theoretically possible, offering voluntary participation, transparent workings and direct democracy.

RoboTeddy4• 13 years ago

In theory, possibly:

- identity ledgers

- credit scores / reputation tracking

- credit & debt creation and trading

- non-bitcoin asset ownership ledgers

- voting systems

- kickstarter

- ebay

It'd actually be possible to build distributed voting systems into this applications, such that changes require majority approval. It's also possible for new decentralized corporations to raise money by "IPO"-ing with a currency (Mastercoin raised ~5 million this way).

tlrobinson4• 13 years ago

In fact, "decentralized/distributed autonomous corporations", or "DACs", are a popular notion among Bitcoiners: https://en.bitcoin.it/wiki/Distributed_Autonomous_Community_...

loceng4• 13 years ago

The problem that I have heard being stated before is that Bitcoin is associated with real money. This basically leads to the value of each Bitcoin increasing, and then early adopters making gains that they shouldn't really be making. I don't know how a system would look, where everyone starts off with X Bitcoin, though the current system feels wrong where some people now have $100s millions of Bitcoins and didn't do anything for them. This value should be re-distributed somehow.

001sky• 13 years ago

hmm...sounds like real estate in NY, London, or California !

tolmasky• 13 years ago

... Why? It seems to me that it works the same as any system with early adopters willing to take on risk. People that got into twitter early make more than people who get in later, without any necessary correlation to how much work they've contributed. Early investors in a company often put in no work beyond their capital, should their shares be redistributed after it becomes a sure thing?

If bitcoin fails, the losses of those that went into bitcoin certainly won't be "redistributed", so why should the gains? Not to mention the current monetary system also has huge disparity so it doesn't really seem to be a property exclusive to bitcoin per se.

A system that offers no rewards to early adopters makes no sense because everyone is incentivized to just wait until it proves itself since the gains will be redistributed anyways, so why bother with the risk before it's a sure thing?

fragsworth• 13 years ago

people now have $100s millions of Bitcoins and didn't do anything for them. This value should be re-distributed somehow.

That is ridiculous. Those people invested early, which drove the price and popularity up, which adds legitimacy and publicity to the system. This is a perfectly fair reward for being on top of technological advances and understanding them enough to want to invest, I see no reason to rescind any of it.

api• 13 years ago

I'm not sure Bitcoin is money, at least not in the traditional sense. As I said on another thread: one of the reasons I think Bitcoin is probably a fundamental innovation is that nobody quite seems to know what it is, including me.

Nearly all Bitcoin's critics criticize it for being a poor replacement for cash, or for gold, or for some other traditional monetary unit. Automobiles are poor carriages too, and engines are poor horses.

I sympathize with some leftist critiques of deflationary currencies and libertarianism, but since I'm not sure Bitcoin is a currency I am not sure they are applicable. It is true that many bitcoiners have a libertarian/anarchist ideology, but I am not sure that matters much. A thing is what it is. Bitcoin is... whatever it is.

pjbrunet5• 13 years ago

Seems it's only decentralized to a degree. Go to the Bitcoin Foundation website, they say they want to keep Bitcoin decentralized. So how much influence does this Bitcoin Foundation have over the future of Bitcoin? No idea. There's only one (unpaid) Bitcoin developer responsible for the whole thing? Sounds like a tremendous responsibility for one person, considering what's potentially at risk. How are changes rolled out, how are changes vetted and to what degree are new changes a threat to Bitcoin's supposed ideals?

RoboTeddy4• 13 years ago

Whoever who convinces 50+% of the miners to adopt their version of the software wins.

The core developers can commit code and make releases that do whatever they want, but if they e.g. tried to pay all transaction fees to themselves, miners wouldn't install the new version and someone would fork the project.

How much control does any open source developer have over the projects they work on? Linus seems to have pretty tight control over Linux, but if he started messing up, he'd lose his position pretty fast. Likewise, the developers have a lot of control, as long as they are effective and behave well.

mrb3• 13 years ago

Bitcoin is fully decentralized. Bitcoin is just a protocol. There are dozens, if not hundreds, of developers of alternative Bitcoin nodes and wallets.

The reference client is just that: a reference client. It is irrelevant how many or how few developers are working on it.

rokhayakebe• 13 years ago

It is amazing how one word "COIN" added to this word has shaped everyone's thinking. Would we treat it the same if the guys behind it named it "Bitcard" or "Bitpoint?"

That one word is what set apparently most people to speak of it, and treat it as money.

BC is nothing like Money. BC is a card trading game where the players make the cards, the difficulty to make cards increases , and the value of the cards is decided by the market. It's a fun geek game. Awesome.

BC is everything money as we know it today is not. Money followed value creation (something made, something done).

Bitcoin was created, valued at X, AND THEN looking for value to replace.

kordless4• 13 years ago

Bitcoin has a funnel, just like any other business or technology platform. Branding is a form of marketing, and it's marketing's job to raise interest. This is the first tier of the funnel. Interest gives way to being able to understand how a given technology is important to us. This is the second tier. Next, those of us that fully understand how Bitcoin works begin to spread the word about how it's reliable and how it could possibly change the world. This is the third tier. As implied trust comes online for Bitcoin for the general population, it will move to wide-spread adoption. That's the fourth and final tier.

We're still in the second tier, which means people are still asking "why should we care?" and vocalizing their fears about something they don't understand. With technology adoption rates increasing over the last year (due to the greater interconnects we have via the Internet) I'd suspect we'll see the start of the third tier in 3-6 months, tops. As fears give way to trust, we'll all settle into a routine with the technology by the end of the year.

brownbat2• 13 years ago

It is amazing how one word "COIN" added to this word has shaped everyone's thinking.

Yeah, Bit-distributed-public-ledger doesn't have the same ring, but I feel like there are a million problems that can be solved with this technology that are barely being explored.

Namecoin is one example, a distributed DNS system, but it feels like that's just scratching the surface of problems that require allocating sparse control over many decisionmakers.

nickbauman3• 13 years ago

Exactly this! Bitcoin is much more interesting as way of representing CREDIT, not MONEY. Credit is much older and much better way of representing of how humans make contracts with each other. Money is a sideline invention we did to make it possible to pay soldiers for fighting. (Soldiers are inherently bad credit risks because they kill and die for a living).

zby2• 13 years ago

"BC is nothing like Money" - care to explain this?

What does it mean to be money? I like the definition that money is what we value not for its usefulness in itself - but because we speculate that we'll be able to exchange it for something useful. And bitcoin fits this definition perfectly.

ubernostrum17• 13 years ago

Given how often Bitcoin is advertised, by its genuine proponents, specifically as a currency, this feels like an attempt to move the goalposts when someone points out that it doesn't do so hot at being a currency.

ahquresh3• 13 years ago

The fact that your comment is correct and wrong at the same time is what really raises red flags for me with regards to bitcoin.

Let's look at what you find if you were somebody searching up bitcoin for the first time. You would eventually land on http://bitcoin.org/en/. bitcoing.org describes bitcoin as open source P2P Money. It says "Bitcoin is an innovative payment network and a new kind of money". You go on Wikipedia and you get "Bitcoin is a peer-to-peer payment network and digital currency based on an open source[6] protocol, which makes use of a public transaction log".

The creators and early adopters of Bitcoin clearly wanted it to be used as a currency and as money, but it is being done in an unconventional way, to say the least. Unfortunately, none of us seem to understand this so everyone thinks that if it is supposed to be money at its root, it should behave like money does.

Bitcoin is such new and uncharted territory that most of us do not know what to expect. We are all wondering how these virtual coins are able to stand and hold value on the mere fact that people are exchanging them among one another for nothing other than speculating that they will benefit from the exchange in a future exchange (their really is no benefit you feel right away, such as their would be if you bought something with cash, as many places do not accept bitcoin). But at the same time, I feel that when money in the form of paper bills was first introduced, there had bound to be people wondering the same thing. After all, taking a step back, who would consider putting such value to pieces of paper that we do in today's day and age?

At the end of the day, I see what Bitcoin is trying to be and would be real happy to see it get there, but I also see what people think it is, a glorified internet point, their ticket to wealth.

baddox12• 13 years ago

And for further thought, could other types of businesses also be structured in this way?

I'm not sure that this is exactly what you mean, but there are many existing and proposed "businesses" (I prefer the term "markets") built on Bitcoin:

https://en.bitcoin.it/wiki/Transferable_virtual_property

https://en.bitcoin.it/wiki/Trade#Financial

jhonovich2• 13 years ago

"I'm most bullish on bitcoin when I read articles such as this one .... it reveals how little anyone really understands money or economics."

That is an incredibly arrogant statement, considering the article is from a Nobel prize winning economist and you did nothing to refute or undermine his actual points or references.

fat0wl3• 13 years ago

lol this this thisssss! bitcoin culture in a nutshell. the major economists & finance analysts say stuff like "explain how this is not a speculative bubble", for example, because they outright see it as one & the bitcoiners dismiss them as hacks because they didn't use a bunch of crypto buzzwords

olalonde• 13 years ago

I could name at least one Nobel winning economist who has completely opposite views from Krugman. Economics is far from a hard science unfortunately.

atmosx6• 13 years ago

Although I don't consider economics to be a science by any means, what I'm seeing generally on HN is that programmers have a very good understanding of the possibilities and applications of bitcoin (the protocol) but don't understand much about economics. Not even the basics and I'm not talking about Friedman, Marx, Aristotle, Smith, Keynes, etc.

I'm talking about basic micro/macro-economics.

salient• 13 years ago

I've never agreed much with Krugman's theories, but at least he understands a thing or two about economy. However, what I've always found him to be always clueless about is - technology. You have a better chance finding a more insightful tech article from a random tech blogger than from Krugman. He always misses the point. Without exception. I don't know even why he keeps doing this to himself. He just ends up embarrassing himself.

How can Bitcoin, a technology, that has shown so much promise, in many other ways besides being "money" (which some still disagree it is), be "evil"?

Also, as someone else has mentioned, he says FIAT money is backed by men with fun, and Bitcoin by "nothing" (another point where he shows just how little he understands technology in general), yet Bitcoin is the "evil" one?

CamperBob2• 13 years ago

However, what I've always found him to be always clueless about is - technology. You have a better chance finding a more insightful tech article from a random tech blogger than from Krugman. He always misses the point. Without exception. I don't know even why he keeps doing this to himself. He just ends up embarrassing himself.

Yes, a textbook example of the Dunning-Krugman effect. He doesn't know what he doesn't know, and he's OK with that, because hey, Nobel Prize.

shimon2• 13 years ago

US Government taxes certainly do support the US Dollar's value, but that support was more vital at the creation of the currency than it is today. Today's value is secured by the many merchants who trade in the dollar at fairly predictable prices.

Iran comes to mind as a merchant who could make a similar commitment to a cryptocurrency. What if you could suddenly buy oil at BTC X per barrel? This could establish enough of a link between BTC and a high-volume commodity that it could create some stable value, and might appeal ideologically to a class of economic actors that are already somewhat motivated to avoid trade in dollars and euros.

sarreph• 13 years ago

Does anyone else think that Paul Krugman looks a lot like Chris Parnell? Couldn't stop thinking about it when watching Chris as Dr Spaceman on 30Rock.

tlrobinson4• 13 years ago

I was not disappointed to find this as the top comment (at the time I viewed the article):

1998 - Another "evil" prediction from Mr. Krugman:

---

The growth of the Internet will slow drastically, as the flaw in "Metcalfe's law"--which states that the number of potential connections in a network is proportional to the square of the number of participants--becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's.

---

But hey, the future of the dollar might be the same as that of the fax machine ???

swalsh• 13 years ago

Maybe as an economist, his predictions about economics will be more accurate than his predictions about technology?

mike_hearn3• 13 years ago

The two cannot really be unentwined, especially not now.

wpietri8• 13 years ago

Somebody took a careful look at that set of predictions. It's a reasonably good record: http://marginalrevolution.com/marginalrevolution/2010/12/pau...

Your apparent heuristic of "they said one wrong thing so we can ignore them" is faulty. It just encourages the typical pundit's trick of never saying anything. I'd much rather hear from people who state things clearly and are sometimes wrong.

Thiz• 13 years ago

"Stross doesn’t like that agenda, and neither do I"

Statists gonna hate bitcoin, no matter what.

frabcus2• 13 years ago

I'm a statist, and I like Bitcoin.

In particular, I think a mixed economy half run by the state, half free markets works pretty well.

There is no contradiction between Bitcoin and the existence of a state. There are lots of ways of regulating and taxing. Sure, Bitcoin might change the details of them - that's just growing pains.

e.g. I would make it compulsory for any company granted limited liability to register the public keys of all Bitcoin wallets it has the private keys of with the tax office.

Or, if necessary later because that's too hard to track, tax either land or carbon emissions directly (rather than income or exchange of goods).

forgottenpaswrd• 13 years ago

" I try to get them to explain to me why BitCoin is a reliable store of value"

I don't believe that BitCoin is a reliable store of value like the dollar is not a reliable store of value. I went to the US after a year to visit family(I live in Europe) and was surprised how much prices had gone up. Probably you don't see that when it is incremental, but you get to see after some time out.

The same happens with civil liberties. US was one of the countries with higher freedom in the world, but the tendency is so bad, compared to countries that were really bad in the past, but the tendency is so good.

Paper money, or digital money by the way is a medium of exchange. And there lies their utility as Mr Krugman knows..

I am biased about Mr Krugman, for me he is a puppet of central banks that create money and compete against bitcoin. He was awarded the Nobel Memorial price paid by a central bank and he owes his position from defending Wall Street against Main Street.

azernik3• 13 years ago

For the last 30 years inflation (drop in buying power/value of the US dollar) has been between 0.1 and 4.6%; before that, during a period of record inflation, its value fell bye an eye-popping 10-13% a year. By comparison with Bitcoin's volatility, that is an astounding store of value.

james10713• 13 years ago

I think you will see rather bigger falls than that with Bitcoin, once the early investors sell out.

belluchan• 13 years ago

The new title is much better.

MarkMc2• 13 years ago

Underpinning the value of gold is that if all else fails you can use it to make pretty things.

But this 'floor' only accounts for, say, 3% of the price of gold. Whatever makes the remaining 97% a reliable store of value could also provide Bitcoin with 100% of its store of value.

A similar point comes from Tim Harford's fascinating description of the currency used on the Pacific island of Yap:

------------------------

Oddly enough, there is a near real-world equivalent to the Ningi, the triangular rubber coin larger than Mars dreamed up by the humorist Douglas Adams. It can be found on the island of Yap, in Micronesia in the West Pacific. Their coins, the rai, are stone wheels with a hole in the middle. Some are fairly portable a handspan or less across, and the weight of a couple of bags of sugar. But the most valued stones are far bigger - one British sailor wrote in the late nineteenth century of a stone wheel that was four and a half tons in weight and over nine feet in diameter. In other words, it was almost completely immovable.

Yap’s stone money used to be a serious business. The stones were quarried and carved on the island of Palau, 250 miles away One Victorian naturalist witnessed four hundred men from Yap, a tenth of the adult male population, at work in the quarries of Palau. Getting the stones from Palau to Yap on a little bamboo boat was a difficult and sometimes lethal affair - some of them weighed as much as two cars. (And rai were especially valuable if someone had died on the expedition to fetch them.) The biggest stones might have been used for major transactions such as buying land or wives; more modestly sized stones - a couple of feet across - were exchangeable for a pig. Even then, it would have been a lot easier to move the pig than to move the stone.

All this meant that for purely practical reasons, the Yap islanders had to develop an important monetary innovation: they divorced ownership of the stone from physical control of the object. If you wanted to buy my pig, that transaction would be publicly witnessed: I’d give you the pig and in exchange, you’d transfer ownership of one of your stones - the one leaning against the tree, second on the left behind your hut. Now everybody would know that that particular stone was Tim’s stone. You and I wouldn’t have to go to the trouble of actually moving the thing. One day, a crew from the quarries were bringing a new large stone from Palau when they ran into a storm not far from the coast of Yap. The stone sank while the men swam to shore to tell the tale of their lucky escape and their loss. But of course, if the stone propped up outside your hut doesn’t need to move around to change ownership, why should the stone at the bottom of the sea be any different? This giant stone on the seabed had an owner - the chief who had sponsored the expedition to get it. And now his ownership could be transferred to another rich islander, and then to another, just as with any other stone. It was perfectly good money, even though it was out of sight and out of reach.

------------------------

From "The Undercover Economist Strikes Back" by Tim Harford: http://www.amazon.com/Undercover-Economist-Strikes-Back-Ruin...

patrickg_zill2• 13 years ago

3% of the price of gold? Where did you get that figure from?

MarkMc2• 13 years ago

I made it up - in this case it doesn't matter whether the correct figure is 3% or 0.3% or 30%.

josephlord• 13 years ago

I'm not sure Krugman's understanding of normal money is that great (or at least it is just developing): http://www.debtdeflation.com/blogs/2013/12/17/oh-my-paul-kru...

That said I also don't see that there is any reason that the value couldn't drop to zero or near zero. Maybe the next crypto currency could be called BitTulip.

master_shake• 13 years ago

every article from PK:

"you see this nobel prize? yeah bitch. I AM the muthafuckin' economy. Now worship this bitcoin opinion piece that highlights my lack of technological understanding. I am your God."

onebaddude4• 13 years ago

Every article, huh? Krugman has much insight to offer about the world of economics, although I know it's hip to rip on him nowadays. Oh well, stay ignorant.

mrb3• 13 years ago

It boggles my mind that Krugman continues to fail to see the point. I am not the only one who has noticed his blindness [4]. Or is he deliberately avoiding discussing certain aspects of Bitcoin (notably as a payment processing platform)?

"Underpinning the value of gold is that if all else fails you can use it to make pretty things."

This is a very weak and in fact invalid argument. I can't believe Krugman is quoting this! "If all else fail" then gold would lose 90%+ of its value overnight. Look: roughly 45% of the world's gold production is used for financial speculation, 45% for jewelry, and 10% for industrial purposes [1]. In other words, 90% of gold buyers are buying mostly because they believe gold will preserve its value. And "if all else fail" (if speculators exit the gold market), prices will drop, and jewelry buyers will redirect their desire to other precious metals [2], leaving only industrial demand as buyers. Suddenly the world would be producing 10 times more gold than the demand, leaving the prices depressed.

And again, Krugman completely misses the point of Bitcoin having value not as a currency, but as a payment processing platform. Overstock CEO Byrne said it beautifully:

*"You’re getting rid of the interchange fees. We’re paying credit card companies around 2%. For a company whose margin is 1%, picking up 2% on that is quite attractive." [3]

[1] http://www.gold.org/investment/statistics/demand_and_supply_...

[2] For the same reason people prefer expensive diamond over cheap cubic zirconia, even though both are practically indistinguishable to the naked eye. Yes they CZ is less hard, but most jewelry buyers don't care about hardness. They buy diamonds because they are expensive, that is all.

[3] http://www.coindesk.com/overstock-unveils-more-details-bitco...

[4] http://www.washingtonpost.com/blogs/the-switch/wp/2013/12/23...

thaumasiotes2• 13 years ago

Your numbers are badly off. Jewelry is the use referred to when Krugman says "you can use it to make pretty things". (Gold in industrial use is generally invisible).

Gold isn't used in jewelry because it's expensive. It's used because it's pretty, it's soft and workable, and it doesn't tarnish. And it's gentler to your skin; my sister's ears are too sensitive to wear cheap nickel earrings.

Now, I agree with you that the statement you quote from Krugman is invalid. But there's no reason to go around interpreting him as saying something wildly different than what he said. Gold bars are a store of value. Jewelry is not.

mrb3• 13 years ago

You misunderstand me. I know he is talking about jewelry. My point is that people are buying gold jewelry mostly because it is expensive. Yes gold has certain properties, but there are other precious metals with similar properties (platinum, etc). So given the choice between similar metals with similar properties, people will tend to use the most expensive one for jewelry.

In other words, Krugman's argument is circular (gold has value because it has value).

bjornsing• 13 years ago

Even if he's slightly off I still think Krugman is right in identifying Bitcoin's main weakness: it's the world's "hardest" currency ever - much "harder" than gold - and that will make it very volatile, which in turn will make it difficult to use as a store of value or (independent) medium of exchange.

What I mean by "hard" in this context is that its supply is constrained. If you look a fiat currency it can (and is) produced in whatever volume necessary by the central bank, in order to avoid a fall in prices. Gold has a similar (but distributed) mechanism: when the gold price goes up people mine more gold, increasing the money supply.

Note that that property of gold works even if it's the primary medium of exchange: if there is too much deflation then an ounce of gold will buy you more goods and services, making it more worthwhile to mine it - which in turn increases the money supply and acts as a counterforce to price deflation.

But this is obviously a flaw in the design of Bitcoin, not in crypto currencies generally. It should be possible to create one with potentially infinite supply, but where the cost of mining a coin remains relatively stable over time. Such a crypto currency would be usable as a store of value and as a (primary) medium of exchange.

I'd love to see that "infinite supply crypto coin", but unfortunately I'm much less optimistic that it would become as popular as Bitcoin. It wouldn't be usable as an investment/speculation vehicle, and that's probably the main use of Bitcoin right now.

diminoten• 13 years ago

Underpinning the value of gold is that if all else fails you can use it to make pretty things.

Is this really why gold has value? Are you kidding me?

mcguire2• 13 years ago

"(b) that the Federal Reserve is a potential dollar sink and has promised to buy them back and extinguish them if their real value starts to sink at (much) more than 2%/year (yes, I know)."

I had not heard thing. Buy dollars back with what?

Rogerh91• 13 years ago

I had recently thought about this very topic, and having spent just a bit more time than Krugman on it, and knowing a bit more about bitcoin, I find it somewhat interesting that we arrived at drastically different opinions about the morality of it. I have a rather more positive (haha, pun intended) take on it given what has happened with the conventional monetary system, one that Krugman and any mainstream economist would probably agree with: the system is (largely) broken, and we must look for solutions. If Bitcoin is the technologist's experimental solution, it is worth embracing because it delivers on change. Krugman's solutions will focus more on government force as a constraining framework, instead of extensions of innovation---but I believe at the core of it all, the "libertarians" he decries are also the same people he would agree with on the utter folly of our current banking/finance dominated economy.

My expanded thoughts can be read here: https://medium.com/technology-meets-policy/fd097809f88f

dgacmu• 13 years ago

Ok. Krugman actually annoyed me enough with this one to respond. Here's an attempt to start a slightly more technically sophisticated dialogue with Krugman about Bitcoin. http://da-data.blogspot.com/2013/12/to-krugman-finding-intri...

Now if I could find one of my economist colleagues to actually get him to read it... :-)

brownbat2• 13 years ago

Krugman and Stross base their critique on Bitcoin's libertarian appeal, as if they took the promises of a few cypherpunks as reliable predictions.

Those in Krugman and Stross's "libertarianism is evil" camp should take heart that some people out there think Bitcoin is a huge win for developing economies, and will cause only incremental disruption for places like the EU or US.

For the rich countries: Governments have many tools in their belt before they just lie down and accept, say, universal tax fraud, or the end of monetary policy. People interested in tax policy (sometimes very) slowly come up with good ideas to reduce fraud, like putting down the SSN of all claimed dependents (which made a lot of children disappear one year, but jumped revenues), or double reporting of W-2s. They likely wouldn't just roll over if we moved to BTC.

For the poor countries: A better medium of exchange, allowing cheaper remittances, easier cross border trade, or a relatively more reliable store of value than local currency is an enormous win.

There are lots of options going forward. Bitcoin could be a passing fad. Bitcoin could liberate the economically oppressed while providing little more than a nice toy for those in wealthy countries. Bitcoin could destroy monetary policy and lead to barricades of wealth while destroying the capacity of governments to benefit their most vulnerable citizens.

But it's not safe to make moral approbations based on picking one of these uncertain results and assuming it is inevitable (especially, IMHO, by picking the most outlandish of the three).

lcuff• 13 years ago

The title is just link bait. Very annoying.

novalis782• 13 years ago

What's quite interesting in this piece from Krugman is that for the first time I hear hime doubt his previous outright negative stance. He slips in some "clues" how he is actually "not trying to be swayed one way or the other" when everything else I have read or heard from him regarding Bitcoin was entirely negative. Maybe he is just trying to keep the door open in case Bitcoin's success will prove him similarly wrong as his funny predictation in 98 where he mentioned that "the Internet is going to disappear in 2005".

Regarding the Charles Stross article, someone else had written a very good counter-piece just the other day:

http://www.ofnumbers.com/2013/12/18/charles-stross-takes-on-...

mikekij• 13 years ago

If Krugman is short bitcoin, I'm long.

rumcajz• 13 years ago

[Placing a floor on the value of gold is that you can make pretty things of it.] Placing a floor on the value of bitcoins is… what, exactly?

The fact that the blockchain serves as a tool for global distributed consensus. There's unlimited number of applications that can take advantage of that, irrespective of actual price of Bitcoin as a currency.

thedawn• 13 years ago

Can't understand how it going to work. In my opinion the banks will kill the Bitcoin before it will really start working, I don't see how they are going to let it succeed.

generalseven• 13 years ago

I'm a founder of PikaPay, bringing Bitcoins to Twitter since 2011, so here's my take:

One of the most interesting social & tech experiments since the Internet itself. We are witnessing a revolution.

The number of nodes in the Bitcoin network makes it the most secure system of its kind. If it were used as currency, you could say technically that it was one of the most (if not the most) counterfeit-secure currencies in the world.

If it were used as a medium of exchange, due to network effects alone it would be extremely valuable.

I appreciate Krugman's raising the discourse even slightly above the level of "evil hackers." I don't think he realizes that the Bitcoin movement transcends politics and economics. With Bitcoin (as technology) you can actually even create a system that Krugman himself would like to use.

jessaustin2• 13 years ago

As is often my habit, I skimmed the voluminous commentary here before reading TFA: I've got to stop doing that. I clicked through expecting a massive paper and got four original paragraphs, along with quotes of stuff we've already seen on HN.

I'll ignore the moralistic Stross material, both because that is wise and because Krugman takes pains to emphasize the positive nature of his argument. The tentpole of that is that there is no theoretical floor for the exchange value of BTC. This is roughly true, but I don't think it entails the disastrous consequences that excite so many BTC antagonists.

Even if it's difficult to imagine hyperinflation of USD (although I'm not quite so confident as Krugman in the Fed's dollar sink policy: if this is not a new policy why didn't it work in the 1970s; if it is new why shouldn't we expect it to change?) we've seen hyperinflation of many other currencies, a number of which were held by more investors than currently hold BTC. If such hyperinflation was disastrous, then it was mostly for those who held the affected currency, and mostly in proportion to their holdings. No tinpot dictator has decreed the use of BTC; if you think they're overvalued then just sell them.

Of course if there is eventually a giant terminal sell-off of BTC for reasons, investors might just choose some other set of cryptocoins, some of which might have an appropriately theoretical floor. Would Krugman care to opine on the positive fate of those theoretically worthier assets?

dschiptsov• 13 years ago

TL;DR - but when I try to get them to explain to me why BitCoin is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange. (or what a clever crypto technology it is based upon).

Bitcoin and positive vs. normative economics

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