I'm not an economist, but nothing has convinced me yet that bitcoin is not the best form of money.
Are those things that can change over time? Certainly - but it hasn't happened yet.
Transaction cost is pretty low in multiple views:
- You can globally settle billions of dollars worth of bitcoin for less than 10$ [0]
- FIAT Settlements between banks is a complicated and non-auditable process, which is internationally speaking also very slow
- You can build layers on top of bitcoin, i.e. the Lightning Network or liquid, which reduces transaction costs and time by a lot (sub cent range in the lightning network)
Energy usage is not tied to transaction throughput. It is vital to be very high in the future, as it secures this global and auditable settlement network. Mining is a very competitive business. Renewable and unused energy IS the cheapest energy available (without govt. subsidies), thus the most competitive miners will use them. Mining also "subsidizes" research in cheap energy, as it gives you a competitive advantage.
[0] https://twitter.com/CoreFeeHelper/status/1366787351985287168
(1) Most people don't settle on large volumes (thats typically banks/states/institutionals) so small volumes have a high cost percentage making it not a good daily driver. The fact that there is any transaction cost makes it challenging to work with as a daily money vehicle for consumers.
(2) It requires energy to exist and keep a ledger, it also requires energy to mine. Your comment on renewable energy isn't accurate sadly and unused energy works only if you can get access to it which isn't universally available. In some jurisdictions renewable energy beats on price but this is largely on huge projects that are bid into utility grids (At least in North America). It will get there but still needs more time.
I don't see how mining subsidizes research in cheap energy.
Understand they have been debated ad nasueum and the reason is that they haven't really passed muster for the use case we are talking about.
Don't equate my arguments as saying bitcoin is bad - it doesn't have a good universal use case for money and it does have negative environmental benefits associated with it.
Transaction rates - Artificially kept low to profit miners.
Privacy - Every Bitcoin transactions is on a public blockchain.
Transaction fees - Using Bitcoin for even one transaction a day gets expensive.
Online only - Unlike cash only works with network access.
Conformation Time - Failing to wait for conformation in effect allows double spend attacks. Think 10 people buying computer equipment from different stores at the same time.
Assuming the implementation was changed to support wider adoption, a fixed currency has significant economic issues. For example, making or taking a loan in a currency that’s gaining value quickly becomes untenable.
PS: Of course all of this could be changed, but acknowledging issues is the first step in selecting a new set of tradeoffs.
You don’t need a bitcoin backed token, lightning does it.
Transaction rates are not artificially kept low. In fact most the vast majority of the time bitcoin has excess capacity.
Privacy- this is a legitimate concern but it is improving, slowly. Taoroot and Lightning are both privacy improvements.
So your daily transactions aren't meant for bitcoin. A distributed ledger that replicates all data globally for eternity is not an appropriate method for recording coffee purchases. Though I have done it. Bitcoin makes sense for settlement, and lightning is appropriate for coffee.
That said, I regularly clear bitcoin transactions for $1 or less in fees, and it is cheaper then every other form of payment in the world. You may think a SWIFT transaction is “free”, but its merely the cost is hidden. And don’t forget the inflation tax, that is a global wealth tax on any money held in an inflating currency. So compared to that, $1 to send $100 is cheap.
Online Only- I don’t think there is a solution to this criticism, but not sure what the issue is.
Lightning allows speed without double spend problems. Personally when moving large (for me) amounts of money I font mind waiting an hour for the confirmations. I certainly won’t trust a payment without them.
But bitcoin is voluntary, it doesn't have to be perfect in every regard.
The fact that I need to connect to some peer-to-peer network or third party service for every transaction is a limiting factor. It reduces the efficiency of the system and increases latency, and it adds additional points of failure.
In fact it can be solved for electronic transactions and there is a mountain of published research on the topic that dates back to the late 80s. Here is a recent research paper:
https://eprint.iacr.org/2017/1220.pdf
The idea is to ensure that users who attempt to double spend can be identified and penalized later (e.g. by being added to a blacklist; some systems actually ensure that all transactions in which the cheating user participated can be identified, so merchants who try to evade the blacklist can also be penalized). The money has to be issued by a bank under the security definition. If anonymity is not a requirement -- and presumably a Bitcoin enthusiast does not care about anonymity since Bitcoin is not anonymous -- this can be easily achieved by using ordinary digital signatures.
You can look it up, larger blocks where allowed in the past, 1MB is a completely arbitrary size that was overkill at the time but hasn’t increased. Even 1$ transactions are quite expensive though they are often much higher.
The lighting network has it’s own separate set of issues. It’s Bitcoin backed but loses some of Bitcoins advantages: https://arxiv.org/pdf/2006.08513.pdf
> Online Only- I don’t think there is a solution to this criticism, but not sure what the issue is.
It’s simply a dependency. Shops may have issues accepting CC payments after a hurricane for example, but they can always take cash.
Transaction clearance - Artificially kept centralised to keep states control supply.
Privacy - Every bank transaction requires real names.
Artificial scarcity - If everyone tried to withdraw the money from their banking accounts at or around the same time, all the banknotes in circulation would be unable to cover all the demand.
This is needed as otherwise banks could claim to have unlimited funds.
Bank notes provide privacy and are created on demand. Having 1:1 bank notes to M1 money supply would simply be wasteful.
Without regulation or FDIC insurance, very few people would be willing to give their bitcoins to a bank so that it could be lent out to people who have a better use for it. Even if a Bitcoin bank could exist, an economic downturn could cause a liquidity crisis, where everyone tries to withdraw their Bitcoin at once. The banks would have no way of returning the Bitcoins to many of their customers. Because there is no central bank that can print out Bitcoin, the entire Bitcoin financial system would be in ruin following the crisis.
I don't have any opinion about Bitcoin one way or another, though through these fascinating arguments I gain new insight about the money and its relationship with geopolitics, human civilisation and other aspects.
[1] https://www.yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-da...
I have yet to have an economist explain to me why deflation us bad- computers getting cheaper is good, fixed income people being able to afford things us good. Inflation mainly allows government to hand out money yo wall street in exchange for bribes at the expense of everyone else. That’s not good.
There are a few different issues. First, volatility is universally bad for a currency, because it makes all transactions in the currency more risky. Money should always be a medium of exchange first and foremost; there should be little to no room for speculating on the value of money and people should not have to factor in unexpected changes in the value of money when determining prices. In general people will switch from more volatile to less volatile currencies because less volatile currencies make trade more efficient.
Unexpected deflation is particularly bad, because in addition to the general problems with volatility, it also triggers defaults on loans (because money becomes more difficult to obtain). Too many defaults in too short a period of time will create a "contagion" effect by reducing the collateral held by lenders (who use loans as collateral for their own debts), which triggers even more defaults. Worse, as lenders see their collateral vanish, they will try to make up the difference with money, taking money out of circulation and causing even more deflation and thus more defaults. This is the "deflationary spiral" scenario.
Inflation is not some trick to hand money over to "Wall St." Rather, a low, predictable rate of inflation is targeted so that there will be some "breathing room" during an economic crisis. It does not hurt people on a fixed income because it can be planned for and the fixed income can be adjusted for inflation (e.g. someone could hold a portfolio of TIPS). It also has nothing to do with the price of computers, which have become cheaper because of economic growth (and in fact have become cheaper over decades of inflation). Inflation also encourages investment activity by discouraging the hoarding of money, which is a good thing for the economy.
1 bitcoin will always buy more and more and more and more. So you have zero incentive to spend your money today and you have all the incentive to wait as far as you possibly can before spending anything. The economy would grind to halt. Isn't this obvious?
Besides, rich people can sit on their money instead of re-investing. They will never have to work and neither will their descendants. You basically established some kind of stupid cyberpunk feudalism.
In the context of deflation goods getting 'cheaper' simply means that their nominal price falls, while real prices remain constant. If you thought that deflation makes people richer (or that inflation makes people poorer) then you were wrong.
At risk of being the "Let Me Google That For You" Guy, it's not too hard to find articles where economists give cases against deflation, e.g.:
https://www.brookings.edu/opinions/5-reasons-to-worry-about-...
https://www.economicshelp.org/blog/978/economics/definition-...
https://www.pbs.org/newshour/economy/why-is-deflation-bad
The basic argument is that in small amounts, both inflation and deflation can be fine, but either one can become a problem. The issues with too much inflation are fairly obvious; the issues with too much deflation is that downward price pressure falls on everything. If deflation is so reliable that prices are going to be meaningfully lower if I can put off a big purchase for as long as possible, I'm going to do that. If enough people follow my lead, that hurts sellers. Wages go down -- more than likely through layoffs rather than pay cuts. And anyone who's already in debt -- and this doesn't just include your Uncle Bob who routinely puts too much on his credit card, it includes companies using lines of credit -- can end up in real trouble.
> computers getting cheaper is good
Sure, but -- even though I've seen this example trotted out before as a pro-deflation argument -- the prices of manufactured goods steadily fall due to continual improvements in manufacturing processes, economies of scale, and general technological progress. This has been particularly noticeable in computers over the last three decades, but Moore's Law isn't a supporting argument for the benefits of monetary deflation.
Is this going to be a new slur from the community?
Contrary to the Bitcoin crow I don't spend my days thinking about it so my argument may seem weak. You mention bitcoin being 'the best form of money'. Assuming there is a hierarchy of forms of money, from what I understand the main advantage of Bitcoin is that Government can not manipulate its quantity. I wonder if a world where there is no possibility for governments to use monetary policy in times of trouble to stabilize the economy is desirable.
The economy is very complicated. There are no models that can predict the output of changing its parameters. It wasn't possible before to have the properties in money that we have with bitcoin (a gold standard was easily removable by a powerful government). The current central banking system is an experiment as much as anything before it and anything that will follow.
I see it like this. I want my economic output to be measured in something that is:
- salabale over time (1 btc is always 1/21 million of the monetary base)
- salabale over space (i want to work remote)
- understandable and auditable (the bitcoin concept can be understood by everyone, the code is auditable by mid-level developers)
Why is that good? Why should I, if I have 1 bitcoin, always have ownership of a fixed proportion of the entire societal monetary base?
This seems like a great deal for someone who has a bitcoin, and a terrible situation for new workers and the economy as a whole. If the economy expands, your fixed proportion of the monetary base sees you profit off the backs of others for nothing more than sitting on currency. Not investing, not even speculating, just sitting on it.
In other words, you must cover the cost of vastly more energy per Bitcoin transaction compared to the mainstream financial system. Environmental concerns aside, that amounts to a huge tax on every transaction that reduces the economic efficiency of the system. Note also that this is a per-transaction tax, regardless of transaction size, making Bitcoin less useful for small transactions.
There is also the fact that such a high energy cost per transaction causes the value of Bitcoin to be more strongly correlated with the price of energy. Energy prices are notoriously volatile; hence Bitcoin's value will also be volatile. Volatility makes a currency less useful (it introduces risk into every transaction and disincentives investment) and a very volatile currency will eventually be abandoned entirely. It should surprise nobody that the overwhelming majority of merchants who "accept cryptocurrency" as payment do so via services that immediately convert that cryptocurrency payment into their local fiat currency, because the majority of the world's fiat currencies have very stable values (compared to Bitcoin etc.).
I could go on but to be honest the technical objections to Bitcoin outweigh the economic objections, at least in my opinion. Happy to get into those objections as well if anyone is interested.
Btc is not replacing visa. Btc is replacing central banks. The appropriate comparison here is what is the energy cost of the banking infrastructure of the incumbent system.
>Environmental concerns aside I am concerned that you are using electricity to power your computer, access the internet, and comment on HN. Are you the arbiter of "moral" energy use? Am I? Slippery slope, and an anti-human one at that.
>Energy prices are notoriously volatile; hence Bitcoin's value will also be volatile.
This is not how it works. There is an argument to be made for risk of on-grid miners sudden increase of electricity prices in the case of a power shortage. Miners don't like this type of risk, so they choose to locate at places with abundant supplies and stables prices of electricity. Miners sign long-term electricity agreements. Risk to off grid miners is another level removed from on grid miners.
>will eventually be abandoned entirely. According to how you feel? All signs point otherwise.
>the technical objections to Bitcoin outweigh the economic objections You are free to make your own fork, BIP, or new "crypto" and compete. Good luck. By the way, there are 7999 "crypto" coins competing and losing so far.
Also, as you noted the energy usage is correlated with the value, not the transaction rate. Transaction rate limits could be changed arbitrarily without affecting the energy usage of the coin.
However you have the causal relationship backwards: The value of the coin determines what level of electricity spending is profitable for miners. The electricity spending of miners doesn't determine the value.
The transaction rate is not what matters; what matters is the energy spent per transaction. Visa process many more transactions for much less energy than Bitcoin, and is therefore more efficient. I suspect Western Union's energy consumption is roughly in proportion to Visa's, but I have no data (the Visa example comes right out of their annual report, which covers both the number of transactions and amount of energy consumed).
"The electricity spending of miners doesn't determine the value."
The energy cost determines the transaction fees. Higher transaction fees make Bitcoin less valuable by imposing a greater burden on using the system. Yes, there are other factors that determine price of Bitcoin, but if nothing else changed ("all things being equal") then volatility in energy prices would trigger volatility in transaction fees and thus volatility in Bitcoin's overall value.
