The more people get excited about faster ways to hoard bitcoins and eventually make a nice profit (presumably in USD in the end) the dramatically more cynical I become about its future. When the bitcoin discussion was mainly around its use as a currency for things like silkroad, VPNs etc I actually thought it seemed to have a promising future. I really hope I'm wrong, but I have a feeling in 2023 the bitcoin discussion will be relegated to nostalgic jokes about how crazy we used to be.
This is working out exactly as planned - the security of the system against double-spending is predicated on honest nodes controlling the majority of the hashing power in the bitcoin network, so the fact that people are working very hard to add hashing power to honest nodes is desirable for the system as a whole.
Indeed, it is pretty crazy. I know someone with an Avalon ASIC who claims Satoshi is a genius. I think he's biased by the fact he has a small device that plugs into the wall and makes him more money than his day job.
> The more people get excited about faster ways to hoard bitcoins
People seem to be oblivious to the fact that a currency must be available in order to be useful. There is a reason that Gresham's Law has achieved "Law" status.
Oddly, the right thing to do for currency acceptance would be to shutdown all of the ASICs.
I think people are more oblivious to the fact that a "deflationary currency" is inherently flawed because it by definition results in hoarding, which is not what you want people to do with your currency. Why would you bother loaning or investing it if you can make more money just sitting on it?
If USD was limited to currency in circulation then it would not be nearly as inflationary as it is.
Once an established lending system based on bitcoins is established it will have the same problems as our current currencies. It wasn't printing money that caused the real estate bubble, it was the way to banking system has the power to expand credit and the systemic risk that expansion of credit causes.
Once there are fractional reserve bitcoin banks it will no longer be a deflationary currency.
Will people want to borrow in defalationary biased currency though? Better to borrow in Bernanke Bucks where there is an unstoppable torrent being emitted monthly.
IMHO the Real estate bubble was from the Fed bailing the prior tech bubble by suppressing interest rates - which encourages borrowing. When loans are paid back, the currency created by taking the loan is extinguished but they have been juicing the system by continually suppressing rates via QE/bond purchases and not letting the real market decide the risk (ie: price of bonds). Now that interest rates have hit the floor - the next bubble to pop is the USD itself.
If the USD pops then BTC may be less deflationary. The bubble did not pop because mortgages were paid back.
Loans are generally repaid in currency, paying back a loan creates even more currency as the additional currency created by the interest becomes an asset against which loans can be issued.
> It would be a global catastrophe of a scale not yet seen, but also not threatened
It would have been in the 70s -- which is why USD support has remained despite the Nixon shock for a few more decades. By now, most central banks and governments are increasingly, dare I say "prepared" or slowly preparing for the possibility without it impacting their economies or trade too badly. Nobody wants to see the USD fail or die --- but day-to-day economic / monetary policies on US soil should become less and less of a rest-of-the-world economic worry, concern or impact compared to previously.
Now, the last remaining problem is savings of millions tied up in USD promises worldwide. Still a big problem, and rest assured the USD will continue to get "support" to the proportion that these savings haven't "migrated" over to "something else" yet.
Anyway, one day all these notes the US has been "exporting" globally for many years will come home one way or the other. Hope the new cash supplies won't, ahem, "overwhelm" a struggling domestic economy at that time, shall we?
"One day". It will be a gradual process - it has to be - because anyone stupid enough to try and cash-out mass USD in bulk will not get there money's worth back in it.
But more importantly, is there any real sign that that time is soon? Global financial crisis...and the world's investors are literally paying the US to take their money with the current returns on US treasuries.
But it's hardly the USD "collapsing" - it's a gradual process over time, which crucially doesn't effect the buying power of individuals over meaningful timespans to them (decades, not days - unlike BTC).
And, probably more importantly, whatever replacement reserve currency comes to the fore (and what would it be, exactly?), it won't be something like BTC.
Agree BTC is way too unstable but being the the best nag in the glue factory doesn't mean much.
USD collapse would certainly be a far reaching global event but that doesn't mean it will not happen. I'm sure all prior entities with reserve status also thought their position unasailable.
Global support for it is waning. China is doing direct currency swap deals and is no longer supporting USD by stacking treasuries at the rate it was. Russia is dishoarding treasuries too. The current trade deficit is propped up by the Fed buying USG bonds and suppressing interest rates. USD is not long for this world in its current form.
Plenty of currencies exist without being de facto global currencies and survive just fine. The question is what makes the USD likely to collapse as a currency altogether - rather then simply behave more like the normal internal currency of a sovereign nation?
People don't go around predicting the decline and fall of the Australian dollar for example.
> Plenty of currencies exist without being de facto global currencies and survive just fine. The question is what makes the USD likely to collapse as a currency altogether
Bingo! You got it! The USD is not going anywhere or collapsing. The global "reserve asset" named dollar however seems to be slowly on its way out.
Fair game right?
Problem is, there's a wave of trillions global dollars that will now seek to "go home". Inflation hasn't happened yet when fresh currency notes are "exported" (exchanged for real goods from the world) immediately. But those USD, whether in bonds or treasuries or bank deposits or hard cash, will seek to come back to their native soil when global savings or trades no longer desire them as they used to. Wait for it! The money has already been "printed", then "kept in custody" all over the globe for some amount of time (circulating at times, finding a good temporary residence for some other times), but still waiting to go back to their permanent home, to circulating with ever-increasing velocity..
The USD is the global reserve - therefore it is needed in vastly greater quantities to lubricate global trade than would otherwise be needed internally. To buy oil, France needs to export to the US in order to obtain USD to purchase off oil off Saudi Arabia. The US gets to print off (and spend) a lot of currency that would have otherwise caused inflation domestically but instead is mopped up by the need for global trade lubrication. Central Banks also absorb USD for reserves - for now.
The USGovt is now addicted to its budget deficit that has been enabled by this reserve status but it gives the USA an exhorbitant privelige against other nations - this is starting to unwind - CB's no longer trust the debt of other sovereigns. There is a glut of USD in existence - vulnerable to a change in other nations willingness to hold them.
The military is powered by oil and goods and services bought on USD. The USD enables the military, not the other way around.
I didnt say there was inflation, its just one of those things that can make people drop the US if it happened.
US debt cannot increase indefinitely without consequence, and in a time of desperate need (such as the 2008 bailouts) it has to print lots of money and hence cause inflation. If the US dollar suffered 10% inflation 2 years in a row, it could originate some drastic changes, as dollar holders might want to get rid of the coin. Figure china selling out its entire dollar reservers in one year, US goes to the tank.
Im not being alarmist, its just a possibility. Comparing Bitcoin to USD makes no sense at this stage in many ways, starting with volume.
By observing that the USD did not "collapse" despite it?
Plenty of BitCoin people seem adamant the USD is definitely going to collapse, but can't explain why it hasn't already, or where the instability causing it too would come from, or why smaller, less wide-spread currencies don't do the same barring exceptional circumstances (i.e. Zimbabwe).
Deflation is not desireable in itself, but it is not a crippling disadvantage. Eg Japan has had a very long deflation spiral and it didn't affect the usability of their currency. And the west has been living in a world of negative real interest rates since the 2008 crisis.
As long as we don't have a big bitcoin credit market and we don't want to regulate the bitcoin "printing press" to adjust for market cycles, it won't even be a disadvantage. = As long as it's only a secondary currency to most users.
I'm not a gold bug and I see many problems with using gold as a currency, namely that the amount of currency in circulation should depend on how much stuff we can dig out of the ground. (In the case of BTC something about how many times a SHA-256 hash can be calculated.)
The idea that gold fell out of use as currency because of industrialization is either a completely new discovery in economics, or completely wrong. I'm pretty sure it's the latter.
I don't think the Bretton woods system counts. That's between countries, I'm talking about everyday preference for gold by individuals. I suppose I should have said specie instead.
Yeah but that I define as "monetary metal for Central Bank settlements" gold, not "day-to-day normal-people transactional currency". Was it still "money" / monetary after 33? Certainly, until '71 (42 years ago, not 39). But "currency" (circulating to facilitate/lubricate individual micro rather than macro exchange&trade)? Hardly ;) Also not "legal tender" -- as in, for courts enforcing contract liabilities or tax payments.
TL;DR: only outside the US, only to Central Banks.
Interesting point. Wouldn't an individual Frenchman see a USD as a token for metal until the shock? And until the shock, national currencies circulated at a fixed exchange with the USD - thereby his own currency was effectively gold backed?
At a national level, yes the Central Banks settled in gold, but that was after the micro transactions bubbled up to be settled from the commercial banks and then eventually cleared at the Central Bank level (Talking on the edges of my understanding here - just trying to see if the reality for an individual level was the currency was gold backed until 71).
> And until the shock, national currencies circulated at a fixed exchange with the USD - thereby his own currency was effectively gold backed?
Yes, "effectively gold-backed" until the first guy came along to openly demand an actual physical (rather than "potential") exchange of USD reserves for real ounces, in size, from the US. Bam, Nixon shock. Essentially "caused" by one "individual Frenchman" (de Gaulle) testing whether the system can in fact, in size and in physical actuality consistently deliver what it promised to the world.
