16

I'd say that some benefits of Bitcoin and other cryptocurrencies (i.e. "altcoins"), include: Decentralization -- which is advantageous for those who are skeptical of monetary policy, runs on banks, etc. Anonymity, or at least the perception thereof -- with increasingly comprehensive monitoring of transactions (particularly non-cash transactions), those ...


16

FooBar is quite right that unless you expect GDP growth to stop, fixed nominal supply currencies will lead to deflation. A moderate degree of currency inflation serves a number of useful functions in the economy. The most obvious are: It induces people to spend their money before it loses its value. In a deflationary environment there is an incentive to ...


10

It is a fallacy to conclude that a steady number of coins will give you no change on the monetary value (inflation/deflation). The classical quantity theory of money can be used as a first-order approximation here: $MV = PY$ where $M$ is money, $V$ is the velocity of money, $P$ is the price level and $Y$ is the quantity of real goods. The equation says ...


7

In general, "Ponzi schemes" in the context of asset pricing refer to "rational bubbles", or a failure of the transversality condition you need when passing from a flow identity to a present value identity. They are not "fraudulent schemes". For instance, there can be a rational bubble on a "fundamentally" worthless asset in a perfect foresight world if its ...


7

The other answers are correct in respect of what would happen if the money supply of a currency was kept constant, however there is nothing in bitcoins to ensure that money supply will stay fixed This is such a common misconception so I'll repeat it. Bitcoins limit the money base, but that does not limit the money supply. The money supply is the money ...


6

One of the patterns to watch for, which may or may not be a benefit, is what happens during periods of capital controls, account confiscations, hyperinflation, or other financial controls imposed on citizens. Many people will highlight Cyprus as an example, but that's only one example and it's too early to tell if it will be an alternative electronic safe ...


5

There is quite a bit of research on it and a good argument as to why central banks should not issue cryptocurrencies, but should issue electronic money. I would recommend reading https://research.stlouisfed.org/publications/review/2018/02/13/the-case-for-central-bank-electronic-money-and-the-non-case-for-central-bank-cryptocurrencies/ and https://...


4

Reduce work and hence let someone else work for him (increase employement) But that won't necessarily work. Say the person is Bruce Springsteen. He's making enough from royalties to hit the max. So he doesn't need to tour at all. But if he doesn't tour, there isn't necessarily someone else that can tour instead of him. It's just as likely that his fans ...


4

Your coins do not have 0 inflation in the long run First, we need to set straight that you have a critical error in your supposition: The rate of creation of money is not the only determinant of the inflation rate, see here. Even if we ignore these equilibrium effects, is any of these coins superior in its rate of money creation? Suppose hereinafter that ...


4

Imagine: I borrow 1 bitcoin from you and agree to pay you back $(1+r)$ bitcoin in a month. I immediately sell the bitcoin you lent me. One month from now, I buy $(1+r)$ bitcoin and pay you back. If I can conduct those transactions, I can short sell bitcoin.


4

As there is no practical limit on the number of cryptocurrencies that can be created, and as no one crpytocurrency has a unique advantage over any other, and as no cryptocurrencies are legal tender anywhere, the theoretical market cap of any one cryptocurrency has zero underlying value. What its actual market cap is, will depend on how many suckers can be ...


4

Mining cryptocurrency can be considered an export of computing processing time, which is paid in a foreign currency (e.g. BitCoin). The GDP is a measure of production of wealth of a nation. Exports and imports are considered in every method of calculating the GDP. You can read more on how each country calculates their GDP in this Economist article. It is ...


4

If I understand correctly you are asking for a model of the price of bitcoin based on the number of transactions. This is impossible for a number of reasons. 1) Theres not necessarily a relationship between those two variables 2) Even if there is a relationship between the two variables then there may be other variables which have an equal or stronger ...


3

In order to increase use of a cryptocurrency it could be suggested that the developers making this currency should not seek to develop a medium of exchange which would work separately from the country's currency as an independent currency, but rather seek to work together with it. Though having a cryptocurrency working with an already existing currency ...


3

The value of money is derived entirely from others' willingness to accept it in exchange for things of value. Money has in fact emerged— Rai stones on Yap is the classic example— without the existence of either a "trusted authority" mandating its use (I assume that by "trusted authority" you mean a government-mandated fiat currency) or any recourse to a ...


3

To the question "can't computer scientists be just as corrupt?" of course the answer is yes. The thing of it is that every bit of bitcoin is open source so everything is trust and verify with bitcoin. With status quo banking everything is trust and.... trust some more. Everything that I'll list as a benefit could equally be seen as a deterrent to a ...


3

You are missing the key element, transfer fees. If the transfer fees are large enough, then the marginal cost to move between exchanges just needs to stay inside the gross bid-ask spread. It can probably move outside that spread because there is an additional risk for one who moves between exchanges. Not all exchanges move back and forth between real ...


3

Futures and Options are all about exchanging something for something else. These kind of derivatives all involve exchanging different 'kinds' of goods so it doesn't make sense to have both sides denominated in the same currency: When you have X Ethereum which you are willing to give up for Y Ethereum later, what you have is a loan. Loans aren't going to do ...


3

Cryptocurrencies can be analysed from different perspectives: from the monetary perspective or from the asset & security perspective. The difference is: a digital asset is a good with some value which can be used/consumed for something, while currency is used as a store of value and mean of trade. I would say that currently is mostly being traded as an ...


3

It will vary in value because trust in it will fluctuate just as trust in facebook fluctuates. There will also be volatility as trust varies in confidence in the payment system; its integrity and security; how exchangeable it is; its exposure to fraud, to tax, to money-laundering investigations For holders, there is also significant counter-party risk in ...


3

The value of currencies (including most popular cryptocurrencies) is set by a market. If more people want to sell the currency (i.e., exchange it for a different currency) than to buy it then some of the sellers will be unable to find a buyer. Their only option will be to lower the price they demand until someone is willing to buy. Likewise, if more people ...


2

No, the above calculations are not a valid way to compare cost of these curencies, for exactly the reason you state: a cryptocurrency is just worth what someone is willing to pay for it. They don't have intrinsic value. Cryptocurrencies are inherently wealth-destroyers, they are not wealth: they require resources to construct, and then just act as ponzi ...


2

People think that inflation is bad when it gets out of control, say when its more than 3 or 4% a year. The idea is that we all make economic decisions based on prices and its harder to make those decisions when the prices are constantly changing! Moreover, we try to avoid holding on to money and committing to a price for a long time, because we know those ...


2

There isn't any good way to rehabilitate the quantity theory when there are other currencies that are perfect substitutes for dollars - so in that sense, there isn't any answer to Landsburg's question. Indeed, the irrelevance of the quantity theory under perfect substitutability - which has always been theoretically clear - has become a practical reality ...


2

I guess it depends on what precisely counts as "self-executing" but escrow transactions are very similar and quite common, particularly in real estate and certain kinds of online transactions. An escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of a specific condition or event. It ...


2

The companies who engage in these sort of mechanisms expect the token to have a variable price which remains accessible and fair for the product in question, and also keep some tokens for themselves which can be used to influence the. In case the price rises beyond intended, some companies reserve large amounts of initial tokens to sell in the market (sell ...


2

Unfortunately, those who are riding the current trend do not have a clue about what they are doing. I guess, they don't even think of hypothetical situations you've given above to legitimise cryptocurrencies, instead, they appear to be enjoying the joyride. If anything, cryptocurrency trading is more like a fantasy share trading with real consequences. As ...


2

I feel there's some technical confusion in the original question regarding "Instant Settlement" and BitCoin that's worth clarifying. Traditional short-selling doesn't occur because of the lack of instant settlement (or the lack there of); it occurs when I create a contractual construct where I agree to enter into a transaction at some point in the future to ...


2

Two more differences (1) You can pay your taxes in a government controlled digital currency, and you can't do that in cryptocurrency. According to Modern Monetary Theory, that is an essential element to the fundamental value of a currency (2) even though an individual cryptocurrency may have the feature of a limited supply, there's nothing to stop ...


2

This is a difficult question in that it is very difficult to prove that something is impossible. However, based on the types of analysis done in financial markets, estimating supply and demand curves is obviously difficult to do. The usual methods for valuing assets in financial markets is to rely on some relative value versus a similar asset, or discounted ...


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