Bitcoin exists to solve the principal-agent problem that comes with delegating control of the money supply to singular institutions.
If you look at the history of empires, from the Romans to the Han, it is littered with instances of societal decline as a direct result of inflation and overspending. This unilateral currency debasement is much harder if the collective (and global) definition of money is determined by distributed networks of computers.
Maybe Bitcoin itself isn't the final form, but the fact that distributed systems and cryptography tech is out there means the cat is out of the bag.
Even if your view on the crypto industry is negative, it's important to take some time to understand why millions of people around the world are involved in it. It's not only because of the appeal of ponzi schemes.
> If you look at the history of empires, from the Romans to the Han, it is littered with instances of societal decline as a direct result of inflation and overspending.
Not only was the decline of the Roman empire too slow and variegated to attribute to a single cause, "inflation and overspending" isn't even on the shortlist. If we're oversimplifying, it was more akin to the opposite of the sentiment that you're shooting for here: the decline of Rome was due to the erosion of centralized authority, which increased factionalism and caused the elites to at best become apathetic to the plight of the empire and at worst actively pursue its destruction for their own gain, leaving Rome ripe for disruption from without. A blockchain wouldn't have saved Rome.
Also if you want to attribute the decline of Rome to any monetary policy, deflation is much more likely. Periods of deflation in the 4th and 5th centuries led to hoarding and burying of coins rather than productive use of wealth, leading to declines and further deflation. Rome never escaped from this deflationary trap and many of these coin hoards were never dug up.
Ironically bitcoin attempts to replicate this failed monetary policy.
You're conflating the consequences of modern and ancient inflation, which were extremely different. In modern times when we want to print money, it just involves a mixture of worthless sheets of paper or even more worthless entries in a database. So we have the luxury of being able to just pull trillions of dollars out of thin air, devaluing all of the other preexisting dollars in the process.
But in the past, money was made of materials that themselves had major value - like silver. And so you couldn't just print more money, because you had to have the valuable resources that it was made of to do so. So the way the Empire dealt with this was by simply reducing the percent of those values. Wiki has a table showing the composition of the Roman Denarius over time here. [1] The original denarius, from the 3rd century BC was 95%+ pure silver. By the 3rd century AD it was down to 5% silver. So the process of printing money in ancient times, ended up making the old money worth more, which is the exact opposite of what happens now a days!
A good analog here is the US penny. We've been debasing it over time, but all the way up until 1982, the penny was made with at least 95% copper. [2] So old pennies are actually worth more than $0.01 in raw materials, which is why it's currently illegal to melt pennies (and nickels) or sell them for their material value. So there are plenty of people hoarding these, waiting for the government to eventually declare them obsolete - enabling them to melt them down and make a large profit. It's a nice investment because your upside is uncapped and your max loss is $0, if you can get them at around the fiat rate.
Now imagine if 225 pennies was a year's salary, as was the case for e.g. Julius Caesar's professional soldiers and Denarii. It creates a huge motivation for hooooold, precisely caused by the government spending. Same today where the more we inflate the currency, the more old pennies become worth.
I don’t think you understood my comment, at all. Debasement in the late Roman Empire was triggered by deflationary conditions. They needed to inject more money and couldn’t (because there literally wasn’t more silver), so they debased it. But why did they need to inject more money? The deflationary spiral I mentioned.
The reason they ran out of money is because they were spending more than they had - and then spending even more, exactly the same as today. That has nothing to do with deflation. For instance one obvious cause is that the Roman Empire kept increasing the size of its military. By the time it collapsed, it had its largest military ever, by a wide margin. Again, table [1] here. Note also that is just nominal forces, it doesn't include the e.g. Barbian forces Rome also began integrating into its military machine to try to keep everything going just a bit longer.
Explain how Bitcoin, which for the next 100 years will continue to print new coins, is attempting to replicate deflation. Maybe inadvertently, by people losing access to their Bitcoins for various reasons, but the design itself certainly isn't deflationary. Not even in its final form, the supply will merely be constant.
Also I find it humorus when people complain about deflation, which pretty much is the natural condition of the world. New techniques and improvements will unenviably lead to products costing less. The problematic factor has always been the current ruling money being controlled by a central authority who will debase it.
Constant supply creates deflation because population/usage increases. You're right that products will cost less - which is exactly what deflation is.
The reason it's because taboo in modern times is ostensibly because it creates a disincentive to investment. Why invest in something that might return 5% with some risk, if your money will be worth an almost guaranteed 5% more in a year anyhow? IMO the "real" reason is because it's a proxy for politics. Governments spending trillions of dollars sends inflation skyrocketing - the US is only slightly guarded against this because of our unique ability to 'export our inflation' - a web search can elaborate more on the term if one is unfamiliar with it. So opposing inflation is largely a proxy for opposing excessive spending which is one of the main political divides, which is odd because both parties spend like maniacs - but one pretends to not want to.
If by creating a "disincentive to investment" you mean a disincentive to gamble their hard earned money on the stock market, then yes. The current situation where (at least before interest rate was somewhat high) the average man had to spend time and effort by going to the stock market with their money is not healthy. You shouldn't have to gamble your money just so it doesn't lose value by merely holding it. Investments will of course still exist, it will just be of a higher quality/yield. Because now there's actually an alternative to "investing" on stocks.
Commodity currency does have a "disincentive to investment" which has a measurable negative effect on the economic climate. This was first identified and studied by Silvio Gesell in the early 20th century, then John Maynard Keynes a few decades later. Removing this disincentive is what ushered in the post-WW2 period of prosperity and growth that we're still living in today.
The part your analysis is missing is that for a commodity currency there is a whole segment of productive, non-risky investments which cannot raise capital in a deflationary environment. If deflation is 5% and a civic works project with an effectively guaranteed 3% return is fundraising, who in their right mind would put money into that? Better to hodl than to invest in your community. There is, btw, a deep tie between this result and Henry George's analysis of the impact of rents, if you're familiar with that.
This basic phenomenon of the risk-free interest rate being non-zero, and its ramifications for the economy, is one of the most confirmed results of 20th century economic research. If you could get the risk-free interest rate to zero, it would boost the economy and lower unemployment with absolutely no ill effects whatsoever.
The USD was a 'commodity currency' up until 1971 thanks to Bretton Woods. It was convertible to gold at a fixed rate, and other currencies were, in turn, pegged to the USD. The idea was to have the stability/security of a backed currency, with the convenience of a fiat one. The security was intended to come from the fact that if the US printed too many dollars, devaluing the USD, then other countries would buy up those dollars and convert them to gold - both making profit, and punishing poor fiscal behavior.
It was a self-protecting system. The problem is it assumed the US would keep to its word. Instead we got everybody hooked on the USD, started printing a bunch of money anyhow, and then just defaulted on our obligations when other countries tried to convert it to gold, and withdrew from Bretton Woods. This led to the famous quote from Nixon's Treasury Secretary: "The dollar is our currency, but your problem."
So you're only looking from 1971 onward. This not only doesn't look especially pretty [1] in countless sociopolitical aspects, but the tremendous economic gains we have seen can also be largely attributed to a complete tech explosion that reshaped the entire world's economy, which we ended up being the natural epicenter of owing to a relatively large population, English being the defacto global language of science, and the fact that we were left entirely untouched by WW2.
The current completely free floating global fiat experiment may end up being the shortest lived economic experiment in our entire history should it turn out that we're just blowing up the mother of all bubbles. And it sure does feel that way!
Hahah, I can see you now furiously searching for 'wtfhappenedin1971 debunked.' Of course there is no debunking it as the site's just a collection of data, primarily from the US government. The data just happens to be quite inconvenient for pro inflation economic arguments.
I actually used to be of the same mindset as yourself, but it increasingly seems to me that the general preference for inflation based economics is much more of a status quo bias than something as strongly supported by data as one would think. There's also a simple logical problem you run into. When you give government the power to freely print infinite money, who do you think they're going to disproportionately direct that money towards?
Recent times actually provide one of the clear illustrations of the problem. Mega corporations take on multi billion dollar contracts from the government at way beyond market rate markups, then the moment the economic weather shifts even slightly they start large layoffs. The reason is not because the integrity of the company is threatened or anything of the sort, but simply to continue maximizing value for shareholders. It's not hard to see how with monopoly money economics you start an exponential increase in many things, like income inequality.
> Explain how Bitcoin, which for the next 100 years will continue to print new coins, is attempting to replicate deflation.
The supply of bitcoins is limited. It's harder and harder to print new coins. It means that 100 years from now the new generations will have to make do with 0.0000000000000001 of a bitcoin while people who hoarded just 1 bitcoin 100 years prior would be infinitely rich.
The only incentive in bitcoin is to hold on to it as long as possible. And we've literally seen this already.
The question was not if Bitcoin overall is deflationary. The comment said it was by design, which it arguably isn't because by design it's actually inflationary.
Once all bitcoin is issued, there will never be any more. That is intrinsically deflationary.
I really don't see how you can argue that bitcoin is inflationary by design when the period of inflation is a temporary necessity for the initial issuance, and then never repeats[1].
The Romans were only able to fund the expansion of the empire by overextending their resources. This meant that the empire became too expensive to maintain without relying on tactics like currency debasement, subsequently triggering many of the other symptoms of decline that you listed.
Of course, we aren't living in the Roman Empire today. But what is consistent is that delegating monetary policy to a third party means that they can overspend and inflate the currency base, charitably for reasons of national interest, cynically for their own gain.
The rise of cryptocurrencies like Bitcoin is a sign that many people want to reduce their personal exposure to this.
> The Romans were only able to fund the expansion of the empire by overextending their resources.
No, they never ran out of the resources needed to expand. It just became more individually profitable to spend those resources on internal competition, and eventually civil war, than on growing the pie.
> This meant that the empire became too expensive to maintain without relying on tactics like currency debasement, subsequently triggering many of the other symptoms of decline that you listed.
Even if we take this at face value, that doesn't sound like currency debasement causing the collapse - if anything it allowed them to stave it off at least for a time. Businesses renegotiating their loans/bonds is normally a precursor to going bankrupt, but that doesn't mean renegotiating your loans/bonds causes bankruptcy; if you took your loans/bonds in a form where you can't renegotiate them, that only makes you more likely to go bankrupt sooner.
(Traditional currencies are in many ways like a slightly odd bond that doesn't pay interest)
I said millions because of every day crypto usage in countries like Argentina and Turkey, where inflation makes it challenging to save money, and in countries where there are high remittance rates.
More builders are definitely needed to improve the crypto user experience across a range of categories.
i trade bitcoin with other people here in argentina several times a year; it's by far the easiest and safest way to send money either into or out of the country, and it's widely used by money changers
remember that this is a country where the police take dollar-bill-sniffing dogs onto river ferryboats to prevent people from taking usd or eur across the river to their bank in uruguay
someone in a [dead] comment said, 'The most traded crypto assets in Argentina, by far, are dollar-pegged crypto-currencies.' this is absolutely correct, and from my point of view it's a total plague. also virtually everybody has their bitcoins in binance. but most of those people will still buy and sell bitcoin if that's what you want
It is the best asset to hold if you local currency goes -5% every day. Easy to buy (officially and not), easy to liquidate, can be used as unofficial currency for trade
Not by any stretch of the imagination. A highly volatile asset isn't suitable for storing value reliably. This is because the chances of you having to liquidate your position at a loss are very high.
If you think that a business can remain in business after its revenue shrinks by a factor of 8 without wage costs adjusting accordingly, you need a reality check.
Speaking of Bitcoin specifically, if this is your view then you should take some time to understand the severe societal and economic problems that come with persistent deflation. And more generally, determining the optimal level of the money supply to match the needs of a dynamic economy is not trivial — there is no simple formula involving straightforwardly measurable variables that I am aware of.
Bitcoin is not a deflationary asset yet. It is a disinflationary asset until around year 2140 (with the rate decreasing every ~4 years and trending towards 0, at which point it will be deflationary).
For now its supply still inflates by ~1.7% a year.
Neither you, nor I will live to see that moment when the last bitcoin will be mined (as long as miners keep mining in our lifetime).
Bitcoin exists as an option to a lot of very inflationary assets (currencies which not that long ago almost reached 2 digit inflation rates) and having different kind of assets should be welcomed in my opinion, as it seems like a good way to diversify the risk you can't "straightforwardly measure".
I like to hold at least one asset for which I can almost guarantee a supply/emission won't change... better yet I can trustlessly verify it. If these propositions are not attractive to you or others, they don't have to acquire this asset either, it is completely opt-in, unlike the fiat money which your government forces you to acquire to pay their taxes.
> And more generally, determining the optimal level of the money supply to match the needs of a dynamic economy is not trivial
No, we don't need some grand wizards in an ivory tower to finely tune the amount of money in the economy, that idea is absurd. The economy has worked fine for thousands of years before they started doing that. In fact, since they started doing it we've seen ever growing boom and bust cycles.
Bitcoin and BFT consensus primarily solve the principal-agent problem, and give us a better means to experiment.
Personally, I don't think a deflationary global reserve currency is the precise answer, but I do believe that these experiments in monetary governance (like Ethereum's burn and mint model) will allow us to move closer to it.
Bitcoin has no governance mechanism for managing the money supply. If it was adopted as money, governments would have to implement some mechanism to manage the bitcoin supply, just like they did under the gold standard. Therefore it doesn't solve any principal-agent problem.
We have as many reasons to believe that the legacy of the Roman Empire, through the Catholic Church, still exists today and is a billion people strong as we do why it fell at any one particular day for any one particular reason.
i can't parse your comment, but it seems to presuppose that the roman empire fell on one particular day; there seem to be a lot of candidates, though. which one do you mean
it probably makes more sense to argue that the byzantine empire is the continuation of rome, but in a broader sense, all of human civilization is the continuation of the indus valley civilization
The point being there isn’t a single cause to the fall of Rome and there are even a few arguments that Rome continued in various forms, some of which still exist today.
Are you saying all those talented individuals who were crypto experts and became LLM/AI experts overnight and promoted both with the same zeal are actually concerned about societal decline and not just schemers? Faith in humanity restored.
> If you look at the history of empires, from the Romans to the Han, it is littered with instances of societal decline as a direct result of inflation and overspending.
There is little evidence to support this. There is an abundance of evidence of empires responding to the crisis of a population overburdened by debt by cancellation, though, if we're going by history to dictate what our current state should do....
When I learned about the limited supply of Bitcoin, I thought, "Great, no more rampant currency printing!" But then they developed the fork technology, which can split one Bitcoin into countless pieces. I guess I underestimated the extent of human greed. Thankfully, it's all digital and our math can handle it.
No, weird that you’re comment is so high up, but shows how little crypto knowledge is around in HN.
A Bitcoin is a Bitcoin, but it consists of smaller units called Satoshis. Like Dollar and Cents. Since the beginning of Bitcoin.
A fork is a copy of the underlying source code of Bitcoin, which in itself has no value at all. You would also need to find people who run nodes for your fork and start convincing exchanges that your fork should be supported too…so no, this is not splitting Bitcoin
If you fork the bitcoin blockchain you have now two ledgers, each one telling you that a certain number of bitcoins really exist. Who is to say that one is right and the other is wrong? In this scenario, it's debatable how many bitcoins are in existence.
You might want to read the Bitcoin whitepaper. There is zero ambiguity in the situation you describe. That is the essence of the proof-of-work (or proof-of-stake, take your pick) solution to the Byzantine generals problem.
Uhhh but what about the Keynesian tools we need to get us out of jams that a fixed money supply doesn’t afford us? They apparently worked great the last two crises.
I know, I know… it’s all part of one of Dalio’s big cycles, and I just haven’t seen it play out yet, I’m naive and all that. Bitcoin save us.
Bitcoin just like capitalism is a horrible failure making life worse for humanity and no proof exists it made anything better. Both accelerate the destruction of the planet and humanity.
It’s ridiculous to claim any of this is good just because you think you have a chance to get some imaginary part of the big cake.
Capitalism has its problems, for sure, but it is the only system in history that has raised the majority of people out of abject poverty. Even Marx recognized this, which is why capitalism is a necessary step on the path to Marx's communism.
And of course Marx was seeing capitalism before it had done the majority of the good it has done over the past ~200 years.
I lived in capitalism for 50 years. I’ve seen hyper capitalism reduce or remove education, devalue income and Labor, force people to work two or three jobs to survive barely. That’s in a western society where capitalism is supposed to work.
If anyone thinks the good it did is anything but an accident I expect some people will be really surprised when it turns out how bad things are.
At this point it’s ignorant to not see how much damage it has done. But okay. Keep riding the dead horse.
I apologize if I'm wrong, but "3 jobs to survive" sounds like you're living in the US. I don't think equating the US political and economic system with "capitalism" is particularly useful - it is a capitalistic society, for sure, but it is far from the only one.
The US is, for whatever reason, accepts extremes of both wealth and poverty. Many other capitalistic societies choose a different mix, sacrificing the upper extremes to protect against the lower extremes.
First it giveth, then it taketh away.....Well it's all relative to where and when. From the perspective of someone in PRC, participating in markets and having some form of capitalism helped. Deng literally lifted China out from Up the Mountains down to the Countryside into the cities and into everyones homes. We've just lived long enough to see things deteriorate.
Nothing goes straight up forever, life is stochastic.
The whole thing is basically parasitic in nature, and would de without and banking system behind it. The value is hiding money, the motivation is mostly committing crime, fraud, etc. The majority is owned by conservative people willing to send us back into feudalism.
Censorship seems to be a property of any system, see the US. To this day, they are so stupid they censor nipples.
"Maybe Bitcoin itself isn't the final form, but the fact that distributed systems and cryptography tech is out there means the cat is out of the bag."
The bitcoiner argument would be that only bitcoin has reached a level of decentralization to survive, and the powers that be stand ready to crush any would-be stronger substitutes before they reach critical mass.
Bitcoin is far too slow and far too energy intensive to ever pose a real threat to a centralized system. I do think there is truth in that the future of currency is decentralized though!
If you look at the history of empires, from the Romans to the Han, it is littered with instances of societal decline as a direct result of inflation and overspending. This unilateral currency debasement is much harder if the collective (and global) definition of money is determined by distributed networks of computers.
Maybe Bitcoin itself isn't the final form, but the fact that distributed systems and cryptography tech is out there means the cat is out of the bag.
Even if your view on the crypto industry is negative, it's important to take some time to understand why millions of people around the world are involved in it. It's not only because of the appeal of ponzi schemes.