[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.

[mikeash]

It's a tax on all your cash that you own. There are lots of other places to keep wealth. For example, a lot of people own a mortgaged house, and inflation makes them wealthier every year because it increases the value of their house without increasing the associated debt.

That last part sounds like an appeal to emotion. Being able to do things the rest of us aren't allowed to do is pretty much the whole point of having a government. They get to create money, levy taxes, imprison people, wage war, etc. Looking at all the special privileges the government has, the privilege to create new money doesn't seem particularly special.

[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.

[mikeash]

How long does it take for new money to get into the hands of the average person? I'd think a couple of months. A 15% inflation delta then means an "invisible tax" of maybe 3%. Not very important. And that's ignoring the highly questionable nature of those stated assumptions.

[twblalock]

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

I can't find any evidence-based reason to believe that.

[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.