Bitcoin survival guide


#1

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#2

This is a really good introduction/overview of Bitcoin. It was also created recently (11/22) so it’s not too dusty.

http://letstalkbitcoin.com/e61-lets-talk-bitcoin-for-new-users/#.UpNaa-IkRLM

I posted it under one of the other Bitcoin conversations but thought I’d drop it here in case people are interested.


#3

I really, really wish for some kind of a cryptographic digital currency to succeed. But Bitcoin, with its promise of eternal appreciation vis-á-vis state controlled currencies just makes the hoarding/speculative aspect of its utility completely overtake the medium-of-exchange usefulness.

Is somebody working on a similar digital currency project with a 2% inflation built into it?


#4

The deflationary aspect of Bitcoin is really interesting to me. It makes people really think before spending, which is maybe a good pendulum swing for generations who have simply learned to spend and extend credit.


#5

Well, exactly… That would keep any economy based on it in a permanent depression, with output significantly below potential. And, more relevantly to the current state of affairs, it locks it in an endless cycle of booms and busts, with no stable value equilibrium.


#6

I am a little curious what you mean by “really interesting to me.”

You’ve just described the economic system that directly caused the Panic of 1837 (cf. “The Specie Circular” of 1836), the panic of 1873, the panic of 1884, the panic of 1893, and helped bring on the great depression. Each of those was caused by the gold standard making an expansion of the money supply impossible, and led to multi-year depressions.

There is a reason “you shall not crucify mankind upon a cross of gold” is one of the most famous lines in American History.

Here’s the problem with any “fixed amount” currency: you can’t grow your economy without inducing deflation. That may not seem like an inherently bad thing, but deflation is terrible for any economy the moment uncertainty strikes. If you know the gold/silver/cowry shell/Bitcoin in your hand will definitely be worth at least as much, and probably more, tomorrow, why would you give it way for anything with uncertainty? - like, say, an apple that might rot. As every actor in the economy makes the same calculation, the economy grinds to a halt and a depression ensues.

Note that Bitcoin is deflationary by design.

The only people who benefit long term in such a world are those lucky “one-percenters” who can hold on to their hoards through the deflations. Those lucky few get to wear to awesome tophats and waistcoasts.

So definitely poke around with Bitcoin. It certainly has its uses. If you can make money speculating on it, or it solves some transactional problem in your life, go for it.

But I, for one, will take Ben Beranke over Satoshi Nakamoto for my economy’s steward every single time.

p.s. You were one Helluva a great Gamemaster. The wider BB Audience deserves to know that.


#7

Are those our only options? How about someone who understands deflation but also understands that driving up the prices of assets is inflation, and is a kind of inflation that hurts normal people just as much or more than general price inflation? Or someone whose main goal isn’t keeping a criminal cartel afloat, but promoting a sound and stable economy? I could go on but I won’t.


#8

The problem is, you aren’t going to be able to tell what the motivation is until long after it’s too late. So you need to be extremely careful going in.


#9

“Understands” strongly implies that the assertion that rising asset prices constitute inflation is an uncontested fact, which I emphatically disagree with.

How exactly does this phenomenon hurt “normal people?”


#10

Rising asset prices is not the same as driving up the prices of assets. I chose my words carefully. In this most recent bubble, the Fed and its constituent banks most assuredly drove up the prices of commercial and residential real estate using fraudulent accounting, valuations and securities, all while Greenspan and Bernanke looked on completely untroubled by what they were doing and allowing to be done. A bubble in real estate can be identified. For example, the fact that rental prices were not tracking anything close to real estate prices was a significant indication of a bubble forming; that loan origination standards kept dropping was another one. The myth that bubbles can’t be identified only serves to protect the people doing the blowing: namely the big banks and their conspirators/enablers.

But all we got was pablum about how real estate was “finding its level”, as if the levels it had occupied for decades prior were some kind of massive undervaluation.

Lets be real here, asset inflation is good for those who own assets. Who owns assets? Rich people. Who cares if general prices rise along with wages (price/wage inflation)? Rich people? Why? Because wage inflation takes money directly from their pockets as owners of the capitalist means of production, and general price/wage currency inflation devalues their assets.

So the bankers crush the first sign of wage inflation (while accepting a slow drip of price inflation that, over time also serves to disenfranchise the average person) and let asset inflation explode.

Its long past time our central bank started serving the people’s economy instead of the large private banks. But the Fed was set up to serve them, as they own it. So we need to do away with the Fed and form a true central bank under the control of the treasury. Its not too much to ask, but apparently its way too much to expect.

Oh, and this “phenomenon” of asset bubbles hurts people by making it unaffordable to purchase a home and by driving up rents. It might be okay for some people who own their homes already, at least in the short run (though they certainly aren’t having an easy time selling these days), but everyone else (most of us) who don’t own homes are screwed.


#12

I don’t know much about currency and this is the first time I’ve ever been fascinated by how it works. Crypto-currency is a clever implementation and prior to last week I hadn’t really put much thought into the differences between deflationary and inflationary currency. That’s what I mean by interesting, it’s a subject I’m enjoying and learning about.

I’m not convinced that Bitcoin can be pigeonholed as a great evil simply because it’s deflationary. I just need to do more reading an thinking before I can accept that. You ask why I would give a bitcoin away for an apple, maybe I’m hungry for an apple.

The thing I like most about crypto-currency is how it functions as a distributed, user processed system. I’m excited to see a similar implication of email or social networking.

Thanks for the kind words, that game was a lot of fun and you brought a lot to it yourself. I’ll probably have another run at it once things settle down again for me.


#13

I wonder if we could create a currency that tracks the number of people in the world. The historic problem with gold was that the real, physical economy could grow faster than the supply of gold that represented it. The problem/feature of bitcoin is that the economy accessible through bitcoin is growing much faster than the currency is produced, hence the ridiculous rise in the exchange rate of a single bitcoin. The ultimate upper bound on the value of a bitcoin is the world GDP divided by 21 million


#14

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