[erwan]

You can inflate the money supply and still be "deflationary" if the convenience yield of holding the money (tokens, UTXOs, or whatnot) exceeds or neutralize that inflation rate. You make an excellent point, Bitcoin doesn't have to overtake gold or become a global-reserve to change the world. It just has to be a plausible alternative that enables people to opt-in or out of the system. It has largely already achieved that and I'm hopeful for a future of monetary pluralism.

[Robotbeat]

It has? Bitcoin isn’t an alternative to the existing system for people. It might be a digital alternative to gold for people hedging inflation or in failed states, but its transaction fee is just way too high to be a practical alternative to anything but, like, wire transfers (Visa and ACH are WAY cheaper except for huge transfers... and Bitcoin isn’t particularly fast, either). And this high cost is driven by the fundamental non-scalability of the blockchain which requires other layers for the little people (and this is partly why you have people doing business through large companies like coinbase or whatever instead of the vision of decentralized cyberpunk utopia where everyone is at the same level and can directly make transactions using just math... which is the part of the original Bitcoin white paper that was fascinating to me). It’s primarily NOT an alternative to the existing system except that, as a speculative investment, it’s crowding out other more productive physical investments.

I suppose it is helping people think outside the box, but I fear that Bitcoin is sucking a lot of air out of the room. We should be pushing for instant and extremely low-fee ACHs, alternatives to banks like credit unions where customers—as owners—hold more power, etc. Hopefully things move in that direction.

That startup people see cryptocurrency as a way to lock up rents by becoming new gatekeepers for the blockchain (like banks are for the traditional system) or whatever is really a betrayal of the hacker ethos IMHO.

[kragen]

If you live in a country with a highly functional banking system and no kleptocracy, Bitcoin is probably a bit puzzling unless you have family in Cuba. But it's not puzzling at all for those of us who live somewhere in the middle of the broad spectrum between Switzerland and Somalia, because most places have a little kleptocracy. Argentina is far from being "a failed state," but if you want to send US$500 abroad via non-Bitcoin means it's basically impossible, and the only broadly available savings vehicle is real estate ("ahorrar en ladrillos"), which of course grossly inflates real-estate prices, with a substantial part of the capital city occupied by empty apartments someone bought "as an investment". Historically Argentines have saved by buying dollars but that's limited to US$200 a month now, and then only if you have a non-under-the-table job (about a third of total employment is under the table):

https://www.ambito.com/finanzas/dolares/cronologia-del-cepo-...

You can see that in September 02019 when this measure was imposed the price of a dollar was AR$63.50; now it's AR$147. So whatever savings you had in pesos in 02019 have lost 57% of their value to peso devaluation.

In 02001 a lot of Argentines had saved dollars in their dollar-denominated bank accounts. This did not preserve their savings through the financial crisis that year; the cash-strapped government limited withdrawals to a trickle, then converted dollar deposits to pesos at a one-to-one rate, then released the exchange-rate peg, at which point peso went overnight from being worth US$1 to being worth US$0.25 before settling at about US$0.31 for the next few years.

You suggest, "alternatives to banks like credit unions where customers—as owners—hold more power," but Credicoop depositors suffered the same two-thirds confiscation of savings as depositors in for-profit banks. And they pay the same 3% tax on bank transactions including checks. That's more than a fast Bitcoin transaction fee of US$15 for transactions over US$500.

But we're not a failed state. There are no gangs of bandits roving the streets in Argentine cities (though there are some pretty bad slums where you'll get robbed if you wander in without knowing anybody). Courts, free public hospitals, and roads continue to function, though there are more potholes than a year ago. Argentine infant mortality is 10 per 1000 live births, down from almost 20 in the late 01990s and the same as the late 01980s in the US; life expectancy at birth is 77 years, worse than Switzerland's 84, but the same as China and Hungary, and better than Saudi or Mexico. (Somalia is 54.)

Most of the world is worse off than Argentina, although not necessarily in such a statistically transparent fashion. About one fourth of the people in the world are unbanked, 51% here in Argentina; even advanced countries like Russia, Hungary, and Uruguay have roughly a quarter of the population unbanked:

https://www.gfmag.com/global-data/economic-data/worlds-most-...

And if your family lives in a country like Iran or Venezuela subject to US sanctions, and you live in the US? Good luck sending them an ACH, instant or otherwise! It's well known that Bitcoin is very popular in Venezuela, which kind of is a failed state, so one of the Venezuelan governments is trying to tax Bitcoin remittances at 15%.

https://archive.fo/ZRXzS

Bitcoin handles a few billion dollars per year in such remittances. This might seem like a trivial amount of money to someone in a rich country, but in poor countries, it's enough to keep several million people alive.

Even in the US, it's common for the police to confiscate large amounts of paper currency just because they can ("civil forfeiture"); US bank accounts are probably fine for US$100K but probably somewhat risky for US$10M if the bank thinks you don't seem like the kind of person who ought to have it. US$10M in US$100 bills fits in a box you can wheel around on a dolly, but Bitcoin is a lot more practical. (And of course US$10M in dollar bills loses about US$200k per year to inflation.)

So, Bitcoin doesn't have to be a cypherpunk utopia to be a big improvement on the status quo ante. For those of you living in stable countries where your worries are things like "instant and extremely low-fee ACHs" and "decentralized utopia", this may be very confusing, but try to remember that most of the world lives in places with much more pressing concerns, concerns that Bitcoin helps a lot with. And you may live there too, soon — the loyal subjects of Kaiser Wilhelm in 01913 certainly didn't expect that in 15 years they'd be in the middle of a hyperinflation episode that remains legendary a century later.

[ordinaryradical]

This is the most cogent answer I've seen regarding BTC utility for those living under less stable regimes. Usually it's a hand-wavy "something something Venezuela something," which, as bad as Venezuela is, makes it seem like crypto is only really relevant in exceptional cases of instability.

Thanks for the effort.

[firekvz]

Venezuelan and bitcoin whitepaper lover here

I've posted several times that the adoption of bitcoin in venezuela is pure bull**

Is only used for corruption/drugs money laundering, more details onhttps://news.ycombinator.com/item?id=25599693

So please, the fact that some venezuelan hners say they use bitcoin doesn't make bitcoin a real valid alternative and widely used

Venezuelans right now only care to protect against the 5000% yearly inflation and they do it with the dollar, they don't care _for now_ about dollar losing value when Bolivar loses 5000%

[kragen]

I'm not Venezuelan or in Venezuela, but I definitely know Venezuelans here in Argentina who send Bitcoin back to Venezuela. But it's clearly not widely used—the best estimates are that there are only a few billion dollars per year in total Bitcoin remittances, of which under US$400 million (per year) are to Venezuela, and there are 5 million Venezuelan expats. And Venezuela has almost 30 million people. So clearly only about 2%–10% of Venezuela's population uses Bitcoin at most, and many of them only use it to provide "send money to your family" services to and from other Venezuelan expats—who may not know or care that Bitcoin is involved.

That certainly doesn't add up to "widely used" but it's not "absolutely 0" as you said in your other comment either.

When I said, "Bitcoin is very popular in Venezuela" I meant relative to its popularity in other countries, not relative to the Venezuelan population as a whole. I mean, if I said Emacs was very popular in Venezuela, that wouldn't mean that every other moto-taxi driver could give you Elisp tips. It would just mean that more people used Emacs than VS Code.

Where does this hypothetical 2% of Bitcoin adopters live? Maybe not in Caracas where it's easy to find someone to exchange dollars with. Maybe they live close to the Colombian border, where they trade with drug traffickers? (Though why would Colombian drug traffickers be Bitcoin buyers rather than sellers? Maybe I need to think this through better.) Maybe they live in rural areas? Probably one of the P2P market sites has a map.

If you had to flee Venezuela, maybe through unsafe areas where bandits were operating, would you rather be carrying your savings in Bitcoin or in dollars?

[mshks]

Hey firekvz, very interesting to hear a take on crypto from someone who actually knows what's happening on the ground. I was wondering if you'd be interested in having a chat for a policy paper I am working on. It would be beyond helpful because as you said the media and a lot of major research paints a very different picture.

[kragen]

I'm glad you found it useful!

If we're talking about political regimes, though, I don't think we're even talking about "less stable" regimes—whatever you might think about Cuba ethically, old Raúl and his brother have been in power there for over 60 years and show no signs of losing control, and I don't see any signs of incipient revolution in Indonesia, PRC, Mexico, or Vietnam either. Here in Argentina we've remained democratic since 01983, electing presidents from three different political parties (UCR, PJ, and PRO), and there's no serious insurgency. It's the economy and government policy that are ruinously unstable, to a point that seems satirical to anyone accustomed to the US, but is lamentably common worldwide.

Thank you for the ego strokes!

[Robotbeat]

Yeah I grant Bitcoin has value as a hedge against system failure. And maybe you’re right about the corner case it addresses being larger than I think. But so much of the hype of Bitcoin is in developed countries with very low inflation. And this should be tempered.

[kragen]

But I'm not talking about system failure, primarily; I'm talking about day-to-day life for somewhere between one third and two thirds of people, most of whom aren't using Bitcoin yet.

[Robotbeat]

Is it practical to use Bitcoin for day to day life for one to two thirds of people if the transaction fee is now $24? The Bitcoin blockchain itself is limited to 7 transactions per second. With 7 billion people using it, that mean each person doesn’t get one transaction per day, they get one transaction per billion seconds (over 31 years).

It’s useful for rare cross-border transactions for a small portion of the world’s population, I agree. But it cannot, in its current form, be used by one-third to two-thirds of people day to day. Even if you increased the block size 1000 fold (which is not necessarily very practical), you’re still only talking about one transaction a week.

So first layer blockchain Bitcoin simply isn’t going to be useful to most people for day to day operations. They’ll have to go through intermediaries or use higher layers (perhaps with more localized trust, etc). Which may be fine, but we should temper our expectations here of first layer Bitcoin.

[stickfigure]

Not that many years ago, we used to pay for things with physical cash (gasp!). Once ever week or two, I would go to an ATM, withdraw $N00 in USD, and put it in my wallet. Sometimes I'd have to spend $2 in fees for this service.

There's no reason BTC can't work the same way. With high transaction fees, maybe you'd withdraw once a month? The cost is annoying but it's still safer than having your savings in a shady banking system.

[kragen]

> Is it practical to use Bitcoin for day to day life for one to two thirds of people if the transaction fee is now $24?

Yes, but the transaction fee is typically about US$15 these days, down to US$5 or so if it's the kind of thing you can wait 24 hours for. This is about the same cost as Western Union. Today there's a lot of trade volume as people panic, but the latest block https://blockchain.coinmarketcap.com/block/bitcoin/671850 contains fees ranging from .023 mBTC, with a bunch of transactions paying .042 mBTC up to 58.7 mBTC. The block reward including fees was 7763 mBTC, of which 6250 mBTC is the mining bounty and the other 1513 mBTC is transaction fees for the 2900 transactions in that block, a mean of 0.52 mBTC. The median transaction in that block paid .341 mBTC:

https://btc.com/00000000000000000000476ab57eea9be8ada36e2680...

The recommended fees from earn.com (previously blockchain.info) are currently 102 satoshis per byte for immediate inclusion and 88 satoshis per byte for inclusion within the hour, but this .341 mBTC median from the last block is generally 140 satoshis per byte.

https://bitcoinfees.earn.com/api/v1/fees/recommended

In dollars at US$50/mBTC, this means that the latest block included transactions that paid as little as US$1.15 and as much as US$2935 (!!!), and a whole bunch of transactions that paid US$2.10, but the mean is US$26 and the median is US$17. That means about 1400 of those 2900 transactions paid less than US$17.

But yeah, this is not what you want to use to pay for a can of Red Bull or even a restaurant dinner. It's more like Western Union or US$100 bills or gold. For example the current underground market spread for dollars is AR$142 buy, AR$147 sell, which is a price you will not get for small bills like US$20:

https://preciodolarblue.com.ar/

In effect every time you buy US$100 for savings from one of the "blue market" currency dealers (travel agencies and the like) you are paying half that spread, AR$250 or US$1.70, to the money changer. 1.7%. The break-even point where this is more expensive than the Bitcoin transaction fee is US$16000 for a US$26 fee, US$10000 for a US$17 fee, US$1200 for a US$2.10 fee, or US$700 for a US$1.70 fee. And, as you point out, lots of Bitcoin transactions happen inside of a single vendor platform like Coinbase and so don't pay the fee at all.

Usually cashing out your savings so you can buy a car or pay the rent or buy food or whatever is an every-month or every-few-months kind of thing. But you're still buying food on a day-to-day basis.

Even if you're using Bitcoin in an ATM-like fashion, paying a fee of US$15 or so every time you withdraw US$200, it's in the "everyday financial bad decisions" category, not the "totally impractical" category. (I hear ATM fees are a lot lower than that in the US now. Sadly, not in Argentina.)

Early on I avoided Bitcoin because I worried it might destroy civilization—after all, I rely on public streets, the public education of the people around me, and the public hospitals, not to mention the police, all funded by tax dollars. And there's been a cogent argument since Tim May presented his manifesto at Hackers (01991? Certainly before early 01993, when I read it) that cryptocurrencies would inevitably kneecap taxation and thus cause the collapse of governments.

But the US election in 02016 made it clear that civilization is doing a perfectly fine job of destroying itself before losing any significant taxability to Bitcoin or other cryptocurrencies, and the best we can hope for is to salvage its crown jewels from the rubble.

[UncleMeat]

The same four countries get brought up by BTC proponents all the time. Yes, evading authoritarian regimes can be useful. But like 1/3 of the planet lives in just India/China. Going from "a use case is sending cash from the US to your family in Iran" to "2/3 of the world population wants this" is a big leap.

[kragen]

Which ones—Cuba, Venezuela, Iran, and Argentina? I don't think Bitcoin adoption is terribly high here in Argentina, but hopefully you can forgive me bringing it up—I live here, so it's the place I know best, and the uses of Bitcoin are pretty easy to understand here even if most people aren't using it yet. And even those four countries are hardly inconsequential in terms of the global commonweal: 170 million people live in them, one in every 46 people alive. That's, like, more people than play Fortnite or Minecraft. More people than have bought a Justin Bieber album. Almost as many people as follow Ariana Grande on Instagram. Four times as many people as live in California. We're not talking about some tiny Elbonia here. Anything that affects 170 million people is a big deal for human welfare.

But the utility, or potential utility, of Bitcoin is a lot broader than that.

Argentina is not terribly high on the scale of "people being unbanked" or "kleptocracy". If we take infant mortality as a rough measure of kleptocracy, we're #84 out of 201 countries and territories in https://en.wikipedia.org/wiki/List_of_countries_by_infant_an..., so we're actually better than average. We're neck and neck with PRC and way ahead of India. If we trust the table in the GFMag link I posted, which they attribute to "a just-released study by the British research platform Merchant Machine", whoever that is, there are nine countries with an even larger percentage of unbanked than Argentina, namely, Morocco, Vietnam, Egypt, the Philippines, Mexico, Nigeria, Perú, Colombia, and Indonesia. Each of Nigeria and Indonesia are individually nearly the size of the US; Indonesia is the fourth biggest country in the world. As for India and China, they claim that 20% of PRC's population is unbanked (another unbanked population nearly as large as the US) as well as 20% of India's (yet another).

And Bitcoin doesn't become useless just because you have a bank account. If you're paying a 3% tax on every bank transaction (as we do here), experiencing substantial inflation rates, working under the table, or facing the prospect of an Argentina-style bank confiscation, you have a use case for Bitcoin. Don't tell me it can't happen in the US; it did happen in the US in 01933 with Executive Order 6102, with gold playing the role of Argentine dollars.

To expand on the inflation question, on https://en.wikipedia.org/wiki/List_of_countries_by_inflation... there are 24 countries with a consumer price inflation index over 10% per year, of course including Venezuela, Argentina, and Iran (but not Cuba), but also including Sudan (regular and South), Zimbabwe, Congo, Angola, Libya, Syria, Suriname, Haiti, Sierra Leone, Burundi, Nigeria, Mozambique, Turkey, Pakistan, Zambia, Azerbaijan, Uzbekistan, Ghana, Liberia, and Malawi. You may not care about Burundi but this list also includes the 7th-biggest country in the world by population and the NATO member with the largest military. These countries don't necessarily have "authoritarian regimes" but it's still useless to try to save up money in the local currency for anything more than the very short term; after 5 years you've donated 40% of it to your central bank by way of inflation. Or maybe 85% if you're in Angola.

India doesn't have a high inflation rate by the numbers but it did "demonetize" the savings of the poor in 2016—those piles of rupee bills under your mattress didn't lose just 10% or 20% of their value but 100% of it—and this in a country where hundreds of millions of people have no bank accounts! Most of them have cellphones, though.

Both India and China also have a tendency to limit their subjects' access to foreign exchange in general, and cut it off entirely at precisely the moments when their subjects most need to emigrate to seek work. This is not at all unusual among poor countries; a Bloomberg overview of some of the measures current in 02019 is at https://economictimes.indiatimes.com/markets/stocks/news/fro... though mostly from the perspective of foreign investors.

Now, even if the 84 million Turks (one third without bank accounts) aren't currently using Bitcoin to escape the ruinous inflation rate (15% per year)—the way they used to use dollars before the government cracked down on it—it's clearly a problem many of them need to solve, whether or not their nominally democratic government is an "authoritarian regime". But diffusion of innovations doesn't happen in a vacuum, and it may take a while for Bitcoin or something similar to get widely adopted in Turkey.

So that's the kind of thing that makes me think my Argentine experience generalizes to about ⅔ of the world population, and my US experience doesn't.

[vkou]

Not to mention that the reason you can't send money to Iran is not because of any problem in Iran - it's because the United States doesn't want you to do it.

If you live in the US, and you are using bitcoin to circumvent the embargo, you're just adding to the list of crimes you're committing.

[mancerayder]

You should publish this someplace. This perspective is never mentioned in the mainstream outlets, even if it's pro or neutral on BTC.

[kragen]

Everyone is free to redistribute my comments in this thread, in whole or in part, modified or unmodified, with or without credit; I waive all rights associated with them to the maximum extent possible under applicable law. Where applicable, I abandon their copyright to the public domain. I wrote and published these comments in Argentina in 2021.

http://creativecommons.org/publicdomain/zero/1.0/

[Lord_Baltimore]

This a very good use case for a cryptocurrency, but in the long run a crypto like NANO might be a better solution with due to quicker transaction times, lack of fees, and much lower environmental impact.

[redblacktree]

> I'm hopeful for a future of monetary pluralism.

My big concern about monetary pluralism is what happens to US citizens, when their day-to-day currency stops being used as the reserve currency for the world? I have trouble imagining any way in which that turns out good for me, as someone living and working in the US. Anything you can do to assuage my fears, since you seem to be educated on the matter?

[PragmaticPulp]

As much as we hear about things like M1 money supply, the vast majority of wealth doesn’t exist in the form of cash. Investors hold companies, stocks, real estate, and so on. Fluctuations in money supply (or demand for currency) have exaggerated significance in online crypto discussions because crypto proponents find that angle more favorable to their “buy crypto” argument, not because it’s the full picture.

The global reserve currency issue is worth watching, but remember that it isn’t a binary on/off switch where everyone changes overnight. Likewise, it’s not really true that USD is the global reserve currency so much as one of the most trusted. Again, crypto proponents like to suggest the collapse of the US currency is imminent, but the global market believes otherwise. Likewise, crypto proponents want you to believe that Bitcoin is the logical alternative, but again that’s missing the point that part of the reserve currency math depends on things like stability, resistance to manipulation, and backing of a powerful government.

[spiralx]

For one the USD is only the largest reserve currency used internationally: GBP, EUR and JPY are also used as reserve currencies. For another the US has been trying to reduce the role of the dollar as a reserve currency because it actually has significant downsides and fewer benefits than is popularly portrayed - this even has it's own term, "exorbitant privilege". Here's Ben Bernanke talking about it:

https://www.brookings.edu/blog/ben-bernanke/2016/01/07/the-d...

TL;DR: the USD's reserve currency status is very much exaggerated.

[redblacktree]

Thank you, that was interesting reading. Not sure why you were downvoted.

[spiralx]

No problem, this is another article on the subject I'd bookmarked:

https://www.ussc.edu.au/analysis/the-reserve-currency-myth-t...