Timeline for If Bitcoin becomes a globally accepted store of value, would it be liable to the same problems that mired the gold standard?
Current License: CC BY-SA 4.0
34 events
| when toggle format | what | by | license | comment | |
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| Feb 17, 2021 at 20:25 | comment | added | JimmyJames | @user4574 The argument I was responding to was that the resources wasted by bitcoin transaction processing wouldn't be a problem because there wouldn't be a lot of transactions. You are trying to apply my response to that assertion to a completely opposite argument where all transactions occur using bitcoin. | |
| Feb 17, 2021 at 20:18 | comment | added | user4574 | @JimmyJames "If governments are hoarding coins and everyone else is because the system is deflationary, and there are no more coins to mine, where does the volume of transactions required to support the ecosystem come from?" No matter how deflationary, if bitcoin were the only currency, then people would spend them simply because they need to pay for food and bills. Just spending on food would probably generate billions of transactions a day. Also Each coin is divisible into 100 million tradeable units. Even if 90% of the supply is hoarded there are still 210 trillion units to trade. | |
| Feb 17, 2021 at 16:03 | comment | added | JBentley | Let us continue this discussion in chat. | |
| Feb 17, 2021 at 16:01 | comment | added | JBentley | @JimmyJames It may be your point now, but it wasn't our point originally, if you care to scroll up. We were debating whether or not hoarding bitcoin removes electricity from the supply in the same sense that hoarding gold removes gold from the supply. It does not, because these two commodities are fundamentally different to each other and an equivalent comparison cannot be made. Now it may or may not be the case that a government hoarding bitcoin causes bitcoin to collapse, but that was not what I was originally challenging you on. | |
| Feb 17, 2021 at 15:29 | comment | added | JimmyJames | @JBentley "Gold that has been bought and hoarded can be sold back to people wanting gold, electricity that has been used to transfer a bitcoin to a hoarder cannot be recovered by the person selling the bitcoin back." I'm not sure why you think this is a good point. Part of the reason gold has it's place as a medium of exchange is that it's not really very useful. It's not 'consumed' in significant quantities by industry. This made it superior to consumables like salt, for example. | |
| Feb 17, 2021 at 15:15 | comment | added | JimmyJames | @JBentley " The issue we were debating was whether bitcoin hoarding removes electricity from the supply, not whether the bitcoin system will collapse." No this is the point entirely. The bitcoin system requires the use of significant resources or if will collapse. There's no third option. | |
| Feb 17, 2021 at 15:10 | comment | added | JBentley | @JimmyJames The main point is that gold and bitcoin are not comparable in terms of removing useful commodities from the market. Gold is finite in supply, electricity in theory at least can be generated from renewables. Gold that has been bought and hoarded can be sold back to people wanting gold, electricity that has been used to transfer a bitcoin to a hoarder cannot be recovered by the person selling the bitcoin back. Gold purchased removes gold from the market at a 1:1 ratio, a bitcoin transferred has a variable electricity cost which can be kept low. They are fundamentally different items | |
| Feb 17, 2021 at 15:06 | comment | added | JBentley | @JimmyJames "Everyone else" hoarding is not a realistic scenario. Money still needs to be spent even in a deflationary scenario, and there will be a demand for bitcoin by those wanting to convert other assets which are not increasing in value at the same rate. Such demand will push the price up to an equilbrium at which some people holding coins will sell them, as in any other economic scenario. In any case, this is beside the point. The issue we were debating was whether bitcoin hoarding removes electricity from the supply, not whether the bitcoin system will collapse. | |
| Feb 17, 2021 at 14:53 | comment | added | JimmyJames | @JBentley If governments are hoarding coins and everyone else is because the system is deflationary, and there are no more coins to mine, where does the volume of transactions required to support the ecosystem come from? | |
| Feb 17, 2021 at 14:40 | comment | added | IMSoP | @TomLint "Investing" is probably the wrong focus, to be honest; a better distinction is between spending and saving: interest rates are currently low at least in part because the Central Banks want you to spend your money, so that it's being put to use in the economy. When they want you to save your money, e.g. if inflation is too high, they'll raise central rates, which raises bank rates, including savings accounts. Neither of these are more "normal circumstances" than the other. | |
| Feb 17, 2021 at 14:26 | comment | added | Shadur-don't-feed-the-AI | @Jimmyjames If your money constantly increases in value you have no motivation to spend any today if it'll be worth twice as much tomorrow. | |
| Feb 17, 2021 at 12:16 | comment | added | Tom Lint | @IMSoP That's not what I meant, and the current interest rates are only as low as they are because of the never-ending stimulus package ran by the ECB. Prior to the 2008 financial crisis I never had any incentive to invest, because the interest rate on my savings account was close to or higher than the inflation. It is also not inflation that is causing me to invest, but, rather, the fee to host my bank account being higher than the interest I get on my savings. Under normal circumstances, the incentive to invest is non-existent. | |
| Feb 17, 2021 at 10:28 | comment | added | JBentley | @JimmyJames Thus, no burden is placed on the market for electricity by an entity which passively holds onto coins, other than an intiial demand for electricity, and that initial demand can be kept arbitrarily low through the use of intermediaries. | |
| Feb 17, 2021 at 10:26 | comment | added | JBentley | @JimmyJames Not sure what you mean by having it both ways. My point isn't that you don't need constant transactions, my point is that if a large entity decides to buy and hoard a bunch of coins, this doesn't make any difference to the amount of processing that needs to be done to maintain the system as a whole, apart from at the exact moment that entity requires transaction(s) to acquire its coins. Whether the entity gets involved or not, the same processing is needed to maintain a flow of transactions. | |
| Feb 16, 2021 at 22:04 | comment | added | JimmyJames | @user4574 Absolutely but if there aren't a lot of nodes in the network, it becomes trivial to spin up enough to take control. The fundamental aspect that makes proof-of-work viable is that the work is hard to do. If it becomes easy to process a transaction, the system is no longer reliable. | |
| Feb 16, 2021 at 21:41 | comment | added | user4574 | @JimmyJames Wouldn't the size of the transaction processing infrastructure simply size itself depending on what's profitable, just like every other industry? If there are less transactions then the excess computing power is shut down or sold off. If there are more then people invest and buy more processors. I don't think we could expect all transactions to disappear, so there will always be some nodes who can process them. The nodes are allowed to charge a transaction fee, they can set the fee to whatever they need to stay in business. | |
| Feb 16, 2021 at 18:26 | comment | added | JimmyJames | @JBentley I don't think you can have it both ways. If there aren't constant transactions happening, how do you expect a large network of compute resources to exist that are ready to process them? What's in it for the transaction processors? | |
| Feb 16, 2021 at 18:01 | comment | added | JBentley | @JimmyJames Transactions require that, not storage. Note that this will be the case independently of whether or not any particular entity decides to acquire coins - doing so does not add to the need to keep the system decentralised, because Bitcoin is proof-of-work, not proof-of-stake. Even as far as transactions are concerned, you're looking at just one aspect but you're disregarding the others (layer 2 solutions, exchanges, etc.). E.g. you can in theory acquire all your needed coins piecemeal on an exchange and then transfer them out in a single transaction. | |
| Feb 16, 2021 at 17:21 | comment | added | JimmyJames | @JBentley In order for the Bitcoin system to work, you must avoid anyone having enough compute power to create arbitrary transactions. There's no way to make the costs "arbitrarily low" in such a system. It requires a constant input of resources or its defunct. | |
| Feb 16, 2021 at 13:44 | comment | added | IMSoP | @TomLint "the only reason to invest is because storing my money in the bank, with current interest rates, is costing me more than the interest provides" - precisely: the presence of inflation has encouraged you to keep your money active in the economy, rather than stuffing it in your mattress. Deflation presents the opposite incentive - you can stuff money in your mattress and wait for its value to increase, and so can everyone else. | |
| Feb 16, 2021 at 13:28 | comment | added | Hobbamok | @user253751 yes, that is a reason. But that itself is solved better by a million things that are not the bitcoin standard, such as Layer 2 Solutions or just using a Crypto that isnt technically garbage to begin with. | |
| Feb 16, 2021 at 13:27 | comment | added | JBentley | @TomLint I thought it was pretty obvious that rich people who store their money in overseas bank accounts are most likely doing so for tax avoidance (or if they are also criminals, evasion). Also, JimmyJames said "why risk investing it or loaning it" (emphasis added). When you deposit money in your bank account you are doing exactly that - loaning it. | |
| Feb 16, 2021 at 12:53 | comment | added | Criticizing Israel not allowed | @Hobbamok Bitcoin standard is not useless. Consider the immense transaction costs of Bitcoin (just like gold!) compared to the low transaction costs of US Dollars. | |
| Feb 16, 2021 at 11:22 | comment | added | Tom Lint | @JimmyJames "The problems with deflation are often underappreciated. Every person who accumulates wealth in an inflationary system is driven to invest." Really? Then why do so many, especially rich folks, store their money in overseas bank accounts, to prevent anything from touching it? Too much money is left stagnant in the current economic system. For me, personally, the only reason to invest is because storing my money in the bank, with current interest rates, is costing me more than the interest provides. And my interest rates aren't even negative, just stupidly low. | |
| Feb 16, 2021 at 8:21 | comment | added | JBentley | @KevinWells See my comment above. As the supply of unmined coins reduces, the future of bitcoin processing will continue to shift away from mining and towards processing transactions. Thus the demand for graphics cards and ASICS will be driven by the demand for transactions (quantity traded in a given time interval). Governments hoarding bitcoins will certainly produce an initial burst of demand for transactions (but see above for mitigating via the lightning network, etc.), but there will not be a continued effect in the same way that the permenant removal of gold from the market causes. | |
| Feb 16, 2021 at 8:14 | comment | added | JBentley | @JimmyJames Yes, but your assumption that bitcoins will be mined is incorrect. There will only ever be 21 million bitcoins in existence. 18.5 million of those have already been mined. If governments hoard bitcoins they will do so (mainly, or entirely) by purchasing them, not mining. With the lightning network, low-priority transactions, and cryptocurrency exchanges, the electricity costs of transactions can be kept arbitrarily low | |
| Feb 15, 2021 at 22:44 | comment | added | Kevin | This isn't really an advantage because all you're doing is inflating the price of one resource rather than another. In this case it would drive the price of graphics cards and ASICS even higher than they already are, and it would take an immense amount of electricity to power the bitcoin mining industry to keep everything running. | |
| Feb 15, 2021 at 21:35 | comment | added | JimmyJames | @JBentley "A government hoarding bitcoin doesn't remove electricity the supply. Once a bitcoin is mined, it is mined, and the electricity used to mine it is gone forever." These two sentences don't seem to go together. I agree with the latter but not the former. If a power plant produces N kWh per day and you use X kWh to mine bitcoins, the supply of energy from the power plant is N-X kWh per day. And whatever resources were used to create that N kWh have been consumed. And to be clear, electricity is a raw material in the production of many more things than gold is. | |
| Feb 15, 2021 at 20:24 | comment | added | JBentley | "If bitcoin shortgage would become a real economic problem, so will electricity shortgage" - @JimmyJames 's analogy doesn't work here. A government hoarding gold removes gold from the supply. A government hoarding bitcoin doesn't remove electricity the supply. Once a bitcoin is mined, it is mined, and the electricity used to mine it is gone forever. You cannot convert the bitcoin back to electricity. Additionally, there is a fixed supply of bitcoins and once they are all mined, electricity is only used to transfer bitcoins. Merely holding coins doesn't affect the market for electricity. | |
| Feb 15, 2021 at 17:34 | comment | added | Dmitry Grigoryev | @JimmyJames Thanks. I actually didn't think about it, but yeah, if bitcoin shortage would become a real economic problem, so will be electricity shortage. | |
| Feb 15, 2021 at 17:30 | comment | added | JimmyJames | The problems with deflation are often underappreciated. Every person who accumulates wealth in an inflationary system is driven to invest. In a deflationary system, if I expect my money to grow in value over time, why risk investing it or loaning it? Deflation is economic suicide. | |
| Feb 15, 2021 at 17:21 | comment | added | JimmyJames | Since gold is a far less useful commodity than electrical power, I'm not sure that we can really call that an advantage, that aside, I think this hits the mark. | |
| Feb 15, 2021 at 13:09 | comment | added | Hobbamok | And that's because a "bitcoin standard" is a completely braindead idea. Either you just use bitcoin (or any other, more suitable crypto) INSTEAD of a local currency, or you don't | |
| Feb 15, 2021 at 13:04 | history | answered | Dmitry Grigoryev | CC BY-SA 4.0 |