Questions for Bitcoin BoostersSubmitted by Molusk on Wed, 12/04/2013 - 21:21
It is claimed that the supply of BTC is limited to some specific for now and all time, that the supply won't exceed x coins.
Question: Those 'controlled release' restrictions, aren't they just self imposed? Couldn't they be changed if that's what was desired by whatever body makes the decision?
Suppose competing cryptocurrencies were the dominant form of currency by 2140. Wouldn't the same pressures of for expanding supply exist, i.e., standard macroeconomic arguments about the proper rate and role of inflation and all the political pressures that currently apply to banking, law, academia, and government?
You could reply that competing cryptocurrencies would be like an open market where private individuals could mint gold (the cryptocurrency) into coins freely (competing cryptocurrencies), and that the supply of each would expand and contract according to the wishes of its open source community, with the public acting as the consumer and being the arbiter of the specific X-coin's market value.
You could also argue that market share would accrue to whichever X-coin was best managed as demand would increase it's market value and take market share without adding supply, just by gaining value from demand.
But the problem with these arguments is that gold and silver were never permitted to be freely made into currency in the market, nor were financial institutions allowed to freely issue promissory notes without regulation (free banking).
What happened was that the law imposed limits on the minting of currency and regulation on the activity of financial institutions, all of which would apply no less to cryptocurrencies were they to become widely used, as long as the political environment is what it is.
If cryptocurrencies were the dominant medium if exchange in 2113, why wouldn't the state simply legally make itself the only legal issuer, and replace physical currency counterfeiting prevention with cryptographic counterfeiting prevention, and then allow licensed financial institutions to act as brokers and lenders of the base cryptocurrency in a regulated way?
In such a case, all the pressures that currently exist to increase supply would exist for cryptocurrencies.
You could respond that publicly controlled cryptocurrency is not REALLY the point, but only privately managed open source competing currencies would count for your argument.
Well, leaving aside the obvious question of why that would be permitted politically anymore than free minting of gold or free banking, let's for sake of argument assume that in 2113 the government has relinquished control of currencies to the market, and that a few top cryptocurrencies are dominant, and are managed in the same kind of open source standard as BTC.
Suppose there was 30% unemployment after some particular bubble or some particular natural disaster, or war, or what have you. Or suppose there is simply very high poverty as the economy is transitioning from human to robotic labor.
Wouldn't the same pressures and arguments for inflation exist to compel the collective BTC community to add more supply? Or wouldn't political pressure simply mount so that the law compelled a supply increase, in exactly the same way gold holders were forced to accept paper in 1933?
Isn't it true that BTC has very few 'end uses' and 'end users'?
By end use I don't mean eating or wearing your bitcoins; obviously the end use of every currency is to purchase other goods and services or else maintain a store of purchasing power (save in currency; hold liquidity rather than buy an asset). In the case of saving, long term holding of BTC might be an example of an 'end use,' if we apply the term liberally. But that demand is unreliable, as the future path of BTC is strewn with dangers and we can't assume a long term holder isn't going to throw in the towel with uncertainty.
By end use I mean some use of BTC that only BTC provides for, or which the market has decided that BTC provides better and is thus superior to FRNs or traditional state or banker currencies.
Someone looking to use bitcoin for a purchase he either could not or would not make with a financial transaction or cash (illicit end use, silk road, etc.) is an example of an end user.
There are some purchases which the user simply prefers to make with BTC rather than cash or financial transaction, due to some perceived convenience or the trait of irreversibility. That would be a source of end use demand.
In contrast to an end user, the typical BTC user just wants access to the BTC market so he can trade BTC for dollars. This would be someone vending for BTC and asking donations in BTC but who intends to spend the proceeds in dollars.
Of course its a dynamic situation and there can't be a clear demarcating line between the two, because the snowball effect of people adopting BTC will lead to more people spending and using BTC for their own purchases after earning BTC.
For non BTC, an example of end use demand would be paying federal and state taxes and debts; only FRNs are accepted. Or paying liabilities in legal tender. Or accepting payment from the government in its currency, or accepting payment by law in legal tender. Or dealing with banks and brokers who only accept legal tender, or accepting federal entitlements and transfer payments, or accepting a government paycheck (civil service, military).
Or, holding treasury securities with a full faith and credit guarantee (whatever the motivation; liquidity, politics, mercantilism, etc.)
Anyway, aside from these sources of end use demand, the rest of BTC users seem to use it only to change it into dollars, not as an actual store of value or unit of account. It has the property of being a medium of exchange, but not those other properties of a currency, unit of account or store of value.
Bitcoin not a panacea
Bitcoin and all CCs (cryptocurrencies) are subject to the exact same legal environment and political status quo as precious metals or commodities or paper money or bank issued money are and were.
The enforcement of taxes and regulation apply equally to CCs as to gold or paper money. If it ever became widely used enough to really attract the interest of governments or threaten them they could act politically and legally (force is the final word, sadly) to make its status 100% illicit, underground, black market and socially stigmatized.
People are stupid
Since by its nature BTC (and all CCs) will only ever be understood by 1-4% of people, isn't it the ultimate easy sell for the state to raise fears, 'concerns' and hysteria about it? "It is funding terrorism, drug trafficking, weapons trade, human trafficking, etc."
Think about it. The government was able to confiscate gold at a time when a large portion of the public owned gold, traded in gold daily and understood gold, and at a time when there were greater restraints on government and individual liberty was more prized. Wouldn't it be so much easier to ban or take control of something as esoteric, intimidating and poorly understood as BTC? Face it, stupid people are biased. They don't trust what they don't understand, and will be happy to blame awful BTC snobs for any market hiccup that happens during the ascendance of the cryptocurrency.
You might object that since CCs are not physical they would be harder to confiscate or prohibit, but I would reply that it wasn't the confiscation per se that made trading in gold a problem post 1933, but simply the legal status and stigma. Most people just aren't going to do something illegal, hide their business income, hide their taxes, etc., and fight the state. Banks and corporations and individuals on the dole aren't going to stop doing business in Fed bucks.
How would CCs be viable if the government chose to ban, tax or confiscate them?
Finally, for bitcoin to serve as a full blown currency, it would need to be subject to lending, market making, trading, and banking. That would bring it under the sway of regulation.
In a free market of any sort, BTC promissory notes and fractional reserves could be maintained. Competing CC open source standards could certainly ban or try to ban holders from lending at FRB, but that would introduce the same market situation as in banking during its infancy, in which FRB came out ahead.
Unless you subscribe to one of the very fringe theories that FRB is fraud or that the market would stamp it out if the government wasn't involved (rejected by most free market economists, libertarians and a sizable cohort of the modern Austrian school, and the free banking school, and Hayek, and Mises), you are stuck with FRB.
And if you are a political realist, you will accept that the political forces that effected gold and ultimately shoved it aside for state issued fiat currency;
-which effected banking, regulated it and got rid of free banking;
-which effected minting gold into coins, closed it to private free entry and made it the domain of the state;
-which made economic policy the subject of politics, unemployment and business cycle management at the hands of government connected bankers and academic economists;
-which made the USD the grease that turns the wheels of corporate-government relationships;
-which pays the military, civil service, and provides the backbone medium of exchane for those territories and regions where we are the dominant power and which aren't as financially sophisticated or politically stable (yes, this is changing);
-which makes USG the only object that can extinguish tax liabilities and private debts (legal tender law);
-which feed the millions of government dependents;
-which stabilize the entire banking system in its wild speculations, booms and busts by providing an elastic supply of reserves to the Fed's top cartel members and their sub members...
Then why would you expect bitcoin to make any real difference?