[jnordwick]

Why do people seem to assume that those most capable of implementing the cryptography, networking, or other code are also those most capable of understanding the economics of cryptocurrencies or determining their future?

Most of the arguments against the core team revolve around the economics and future of the coin, but the tech team seems to think that somehow their coding experience gives them insight into that.

Bitcoin seems like technically great but it fails on many of the economic aspects (e.g. making a currency with a fixed amount basically ensures it can never be used to write long term counteracts in).

[twblalock]

> Why do people seem to assume that those most capable of implementing the cryptography, networking, or other code are also those most capable of understanding the economics of cryptocurrencies or determining their future?

I guess I'll give the blunt answer: many proponents of cryptocurrency have views on economics, politics, society, law, and contracts that are ignorant of the way those things really work. Many really do believe that currencies, transactions, and contracts can be implemented entirely by computer programs and that governments and courts should have no jurisdiction over such things.

If you don't believe me, go to some of the active crypto forums and get involved in political discussions. You'll see an astounding mix of techno-utopianism, extreme libertarianism, and baseless conspiracy theories about fiat money and governments in general.

The blockchain is an interesting technical achievement, and so are smart contracts, but they are not a replacement for laws and governments. Unfortunately, a lot of people think they are. Some people even insist that bitcoin doesn't have governance, but that's clearly not the case because the current controversy about the core developers is exactly about governance.

I bring this up because these kinds of beliefs are the reason people in the bitcoin community think the programmers who implement bitcoin are capable of solving the economic problems -- they reject the idea that there are any economic or social problems facing bitcoin that can't be solved with the underlying technology. They don't accept that these are social problems with social solutions.

[brightball]

I've never used bitcoin but one of the core appeals as I understood it was mathematically limited supply to create an inflation proof currency. There seem to be lots of fluctuations in the price but eventually it hit a point of relative stability (in theory at least) with value that increases slightly relative the rate that the dollar inflates.

If that's the case then it certainly does the job.

There are a lot of people out there who are very aware of how their saved money loses value and actively want an alternative that feels "safe". I don't know that Bitcoin is that alternative, but it's definitely trying to be and even I have to admit has been far more successful than I ever would have expected.

[twblalock]

The cap on mining is actually a good example of an inflexible technical solution for a problem that is better solved through flexible governance. There are several problems with it:

Inflation can be a good thing. It can be used to combat deflation, and the absence of inflation can lead to stagnation via the paradox of thrift. There are certain central bank policies that encourage inflation and are known to work pretty well, including QE, which was demonized by a lot of people but has now been proven an effective aid in the recovery from the 2008 crash.

The bitcoin approach focuses on the money supply only, but there are other factors to inflation. There is general agreement among economists that the money supply is the key driver of inflation in the long term, but in the short term, other factors can be involved.

Inflation is possible with a static supply of money, because the amount of money in circulation (versus the amount of money in savings accounts or bonds, or otherwise locked up) can change.

Inflation can also happen even with a static supply of money and no changes in the amount of money in circulation. An example is an oil price shock, caused by an embargo: oil is an input into many manufacturing processes, as well as people's cars, so a general increase in the prices of goods and services can be expected.

So, the bitcoin approach takes away some valuable monetary policy tools and it doesn't actually prevent inflation in the short term. People shouldn't believe that their bitcoins are protected from inflation.

[elmar]

I have replied to a similar thread on HN recently here is the link.

Inflation the Hidden Tax

https://news.ycombinator.com/item?id=14828655

[mikeash]

I don't understand what the big deal is there. I can understand it in a hyperinflation situation, but when inflation is ~2%, surely this hidden tax is insignificant compared to the more visible, explicit taxes?

[zo1]

That 2% may seem little compared to your yearly income-tax. However, it's a tax on all your capital that you own, and it gets applied every year. So it's a tax on all amassed wealth, not earnings. It implies that you can't just keep what you've earned, and that if you were to put it away for your children/grandchildren, it'll magically get eaten away slowly until it is practically nothing.

In addition to that, it makes it painfully obvious that someone out there, is through some means, conjuring money out of thin air. The thing each of us sweats and toils every day to earn? Someone gets the privilege of printing it and injecting it into the economy. I simplify it a bit, but that's essentially the gist of the criticism.

[elmar]

let's do some assumptions:

- the 2% inflation number is completely wrong and real inflation is around 5%~10%

- with no government monetary intervention we should have deflation let's assume around 5%

the delta is now 10%~15% looks less insignificant.

[brightball]

Inflation is one of those issues that nobody ever seems to see eye to eye on. The best example IMO, is that if those policies were actually effective then you wouldn't see this nationwide desire to increase the minimum wage. That happens because the wage people were previously earning buys less...which creates a cycle of more policy, more inflation, etc.

[trophycase]

These solutions can literally all be programmed. There is almost no way Bitcoin maintains the 21 million static cap by the time the mining reward is gone

[ForHackernews]

> There are a lot of people out there who are very aware of how their saved money loses value and actively want an alternative that feels "safe".

Inflation-linked government bonds (e.g. https://www.treasurydirect.gov/indiv/products/prod_tips_glan...) are extremely safe, and specifically protect against value lost to inflation.

There are some problems solved by bitcoin, but needing a stable store of value certainly is not one of them.

[trophycase]

How liquid/easy to trade are these bonds compared to Bitcoin, which I can spend and exchange for USD in minutes?

[ForHackernews]

TIPS are easily traded on secondary markets. In addition, there are multiple TIPS-backed ETFs [0] that trade in extremely high volume. I guarantee you could exchange TIP shares for USD in seconds, not minutes.

[0] http://www.investopedia.com/articles/investing/092215/top-5-...

[twblalock]

You can sell TIPS on the secondary market whenever you want, and you can redeem I-Bonds directly with the treasury after one year. The only delay is the electronic transfer to your bank account from your broker or the treasury.

[akira2501]

> I understood it was mathematically limited supply to create an inflation proof currency.

Put money in wallet. Forget password. Destroy currency forever.

Not a well thought out ideal.

[x1798DE]

That would cause deflation, not inflation.

[honestlyreally]

> The blockchain is an interesting technical achievement, and so are smart contracts, but they are not a replacement for laws and governments.

A lot of Venezuelans would disagree with you there. History clearly shows governments fail to act responisbly with currency. In the last 25 years, 21 countries experienced hyperinflation. What do you propose people in those counties do?

Your comment was big on problems but offered no solutions. Cryptocurrencies are a solution for many.

Take off the developed world rose tinted glasses for a moment and see that for a large majority of Earth's population their government and courts do not serve them well.

And this is not just poor countries, a woman in Saudi Arabia cannot open a bank account without a mans permission. That same woman can create a bitcoin wallet in one minute.

[omarchowdhury]

> And this is not just poor countries, a woman in Saudi Arabia cannot open a bank account without a mans permission. That same woman can create a bitcoin wallet in one minute.

But when she needs to turn it back into fiat, guess what, she's going to need a bank account to receive the funds from the exchange.

[flyingfences]

> But when she needs to turn it back into fiat

The whole idea is to create a new financial ecosystem that doesn't rely on old fiat currencies.

[hendzen]

Well, Alex Morcos (one of the Bitcoin Core developers), is a founder of Hudson River Trading - a HFT firm responsible for 5% of US equities volume [0]. So... I'd say Bitcoin Core has some economic expertise available if they need it.

[0] - https://blogs.wsj.com/moneybeat/2014/10/15/inside-hudson-riv...

[jnordwick]

I didn't know that. But i also work in HFT (have heard of Hudson River plenty of times) and I'm not sure that really gives any extra expertise.

I say BTC lack economic understanding not from some theoretical view but from some of the almost religious decisions that comes from the project (fixed issue, low tx volume, etc). It is almost like they don't want people to use it for anything important.

But i will search out Alex's posts more often though.

[haakon]

The fixed, pre-determined inflation rate has been part of Bitcoin since its launch, and is widely regarded as one of the most fundamental, immutable rules of Bitcoin, much like "software freedom" is to Debian. It is not something that is widely cited by the Bitcoin community as a problem, and I'm unaware of any efforts to change it. It has nothing to do with Bitcoin Core.

[hendzen]

The fixed supply doesn't really make sense if you want BTC to function as a unit of exchange (rather than a commodity). I won't go in to the reasons why since they have been elaborated on by many other people.

However, the fixed supply does incentivize holders (ahem hodlers) to increase the value of the coin - whether that is by starting companies that use BTC, spamming HN with BTC/Reddit related posts, etc. It's an interesting way of arranging a bunch of people in a sort of distributed boiler room.

That said, once the mining subsidy completely ends (assuming BTC is still actively used then) its possible we will see some calls to increase the supply. Otherwise the transaction fees will need to become huge (or the price will need to rise 1-2 orders of magnitude) to support current levels of mining activity.

[omarchowdhury]

But you do know that a Bitcoin is divisible? A satoshi is one hundred millionth of a single Bitcoin. Why would there need to be an increase in supply to make Bitcoin a unit of exchange if its that divisible? Other than for psychological reasons?

[hendzen]

I do, in fact, know a Bitcoin is divisible.

That however, is irrelevant to its lack of utility as a unit of exchange. In particular, if Bitcoin is "going to the moon" - i.e. expected to always increase in purchasing power superlinearly, why is it ever rational to spend a Bitcoin (or a Satoshi)? This is the problem with hyperdeflation.

[Hermel]

As someone who used to read /r/bitcoin daily for years, I can confirm this. Economic and business considerations are often disregarded, for example the concept of a "window of opportunity" that one can miss when moving too slowly. But what alienated me most from the Bitcoin-community is how the two most important forums do not value freedom of speech. For example, I've been permanently banned from bitcointalk.org for saying "Thank you Alex! I couldn't agree more."

See: https://bitcointalk.org/index.php?topic=1842146.msg18340002#...

[slice_of_life]

The BTC reddit community is the worst! I no longer go there for any BTC related conversations. Zero decorum, literal insults and intolerance towards on-boarders are some of the reasons I'm personally disgruntled.

[wodenokoto]

> (e.g. making a currency with a fixed amount basically ensures it can never be used to write long term counteracts in).

Bitcoin is digital gold. The idea that is should be used as currency only seems plausible to the biggest proponents of a return to gold standards.

But for everyone who believe in inflationary currency, bitcoin is still a viable value store, which definitely can be used for all sorts of contracts.

[SkyMarshal]

>Why do people seem to assume that those most capable of implementing the cryptography, networking, or other code are also those most capable of understanding the economics of cryptocurrencies or determining their future?

Imho on average it's easier for computer scientists and engineers trained and practiced at algorithmic/systems/recursive thinking to learn (and invent) the relevant economics than it is for economists to learn computer science. The emerging field of cryptoeconomics is an amalgamation of high-assurance systems engineering and mechanism design (applied game theory), and computer scientists and engineers are on average better equipped to understand both parts of it than most economists are.

There's also an invaluable degree of street smarts and intuition in people who build and work on complex systems of varying non-/determinism and value-at-risk on a daily basis than in folks who just study/model them.

>Bitcoin seems like technically great but it fails on many of the economic aspects (e.g. making a currency with a fixed amount basically ensures it can never be used to write long term counteracts in).

Fwiw Bitcoin's issuance model is what it is b/c Satoshi wanted a strong incentive for people to bootstrap Bitcoin in the early days via mining, and a scarce deflationary currency was a simple and effective means of achieving that. He succeeded obviously. Any problems down the road resulting from that can theoretically be fixed with some kinds of derivatives, or worst case-scenario with a non-contentious hard fork to change the issuance model. But that would require a clear crisis affecting the value of the currency that everyone could agree would need solving, which likely won't be the case for as long as there are non-trivial mining rewards.

[ForHackernews]

> Bitcoin seems like technically great

Does it? It seems horrendously, even criminally, inefficient to me.

[beaner]

Can you explain what a "long term counteract" is and how it relates to a currency's inflation rate?

[jnordwick]

With the fixed supply you have three problems:

1. The value (not necessarily price) of the currency will fluctuate wildly since they money supply cannot grow and shrink along with demand for it. The fixed supply will make these swings even wilder.

2. In a currency which is constantly deflating at say 3% a year, you would never want to take a loan unless you can cover that 3% plus any other return on capital you require. You're going to be paying back BTC that is going to be more expensive every year passing. Imagine a 5 year contract for 10 BTC a year. The next year is it 10.3 BTC (deflation adjusted). And at year five you are paying back BTC worth 11.6 BTC.

3. If you are on the other side, any counter party (default) risk is also huge since you are losing an asset that you could have held on to for zero risk and still gained 3% a year.

To enter a contract you need a stable currency. It is like building a house with a yardstick that keeps getting longer and longer. And it is very difficult to figure out what the value and exchange rate of BTC will be in a year from now, much less longer.