Bitcoin

[Econ4every1]

Gobs of government regulation characterized the "free banking era".

Do you just make stuff up?
There was not a lot of government regulation during the "Free Banking Era"

In fact, the defining characteristic of the Free Banking Era was precisely the minimal and often ineffective government regulation of banking. Before this period, banks typically required a specific legislative charter from a state government to operate, which limited their number and often involved political favoritism.

The "free banking" laws (first in Michigan in 1837, then widely adopted by other states) aimed to remove this legislative bottleneck. Under these laws:

• Banks could be established more easily: Anyone meeting certain general requirements (like depositing specified collateral, often state bonds, with a state banking authority) could open a bank and issue banknotes, without needing a special act of the legislature.
• Limited Oversight: While there were some requirements (like collateralization of notes), oversight was often weak, inconsistent, and varied greatly from state to state. There was no federal regulation of these state-chartered banks.
• Lack of Uniformity: Each state had its own laws, leading to a patchwork of regulations.
• No Central Bank: As we discussed, there was no central bank to provide a lender of last resort function, manage liquidity, or enforce uniform standards.

This lack of robust and centralized regulation contributed to significant problems, including:

• Proliferation of "Wildcat Banks": Banks with insufficient capital or speculative lending practices.
• Unstable Banknotes: Banknotes (paper money issued by individual banks) often traded at a discount far from their face value, or became worthless if the issuing bank failed.
• Frequent Bank Failures: The system was prone to panics and bank runs, as seen in the crises we discussed.

So, the "Free Banking Era" was notable for its low level of effective regulation, which ultimately led to its reputation for instability.

And then the "solution" to the problems caused by government regulation was a central bank

A fiction created in your head to avoid the cognitive dissonance that would almost certainly take place if you came to terms with the fact that the "Free" in "Free Banking Era" was the lack of government regulation.

99% of the population doesn't understand how inflation works

So then the solution is to protect people from their ignorance? Who knew! Your a progressive!

and it harms people on fixed incomes and savers the most.

There are ways to deal with people on fixed incomes and savers just need to save in inflation protected assets.

Like when Trudeau froze bank accounts during the trucker protest?

So, people should have to lose money to real thieves because Trudeau may have abused the Emergencies Act? I say may because I don't know the details of that case, but the courts in Canada think he overstepped and the Canadian government and it's people can decide how to prevent that in the future if that's what they want.

But I'm not defending Trudeau and I'm no expert on Canada nor do I want the US President to use that power the way that Trudeau did. I'm defending people who are legitimately robed of money every day, and the power to freeze accounts helps people recover their life savings (in some cases). Thousands, 100's of thousands, even million of dollars, but you'd rather risk that, then figure out how to prevent a situation where the President oversteps and inconveniences few truckers who couldn't spend money and will likely sue the government for recompence and will probably come out better on the other side.

Another example of binary thinking. You see a situation where the government oversteps, so you want to eliminate government despite all the terrible things that would happen in the governments absence. You have no plan or ideas on how to fix any of the problems that a power vacuum created by a dismantled government would create, you want might makes right.

And let me thank you for strengthening the case for cryptocurrency with every post you make.

And let me thank you for allowing me to expose how immoral Libertarian philosophy really is.

 

[Econ4every1]

Volatility isn’t the same as debasement.

Better to have a small reasonably predictable loss in value over time that contributes to stability, than a highly volatile "currency" that swings madly over the course of just a few weeks or months resulting in instability.

Can you find me an example of a strong economy where the value of the currency swings unpredictably from very high, to massive loss?

And it's worth noting that small predictable losses can be baked into future decisions, including prices, in in a real sense, people can avoid the real effects of inflation.

 

[aociswundumho]

And it's worth noting that small predictable losses can be baked into future decisions, including prices, in in a real sense, people can avoid the real effects of inflation.

How? People can't "bake in" their wages to rise with inflation. Prices can adjust overnight, but your paycheck and savings can't and won't. Inflation hits hardest where people can't plan ahead, like for groceries, fuel, food, etc. And when the "small predictable losses" suddenly becomes 5% inflation year after year, it turns out they weren’t so predictable after all. It’s nearly impossible to avoid the inflation tax unless you’re holding assets that outpace it, and most people aren't.

Furthermore, the inflation tax is incompatible with democratic principles. It’s hidden, and voters have no clear idea who to blame - exactly the opposite of how a democracy is supposed to work.

 

[Visbek]

I know you didn't....

Nonsense skipped

Yes, a 51% attack has been a attack vector since the very first day Bitcoin launched. But if you are capable of doing that to Bitcoin, it will cost so much money to just rewrite one single block that it is not really worth doing.

Or, you'd just need 2 of the top miners to coordinate an attack.

More to the point, you said and I quote: "When it comes to the protocol itself and the consensus mechanism, you just can't cheat it." That simply isn't true.

Yeah, there's plenty of ways to cheat everybody. Stockholders.

Stocks are regulated. Brokerages offer fraud protection. Brokerages don't touch depositor funds, and have mechanisms in place to enforce that. Crypto offers none of that.

Have you ever stopped to think why just holding money isnt good enough that you have to speculate in the stock market that you have to buy indexes or pay people to manage your portfolio or invest in real estate or art or collectibles? Have you ever wondered why that is that you can't just hold dollars in the bank?

Oh man, where do I even begin?

The reason why people invest in stocks is because they appreciate in value.

It is NOT the job of a currency to appreciate in value. As I've told you over and over and over, when a currency rises in value, that means it is deflating, and that is the kiss of death for any currency. (So is the extreme volatility we see with crypto... including the Ultra Super Special Bitcoin).

Well then, so are you by thinking that it's trash. What's the difference?

I have absolutely nothing to gain or lose by making ANY statements, pro or con, about crypto. I don't hold any crypto, I'm not betting against it. You, in contrast, obviously have a lot to gain by promoting crypto. That's... how conflicts of interest work.

Actually, Bitcoin and the stock market also correlate to the M2 supply.

Does this look like a graph of the S&P 500? Survey says... nopes

No, that's wrong, because Bitcoin is not digital gambling.

Yes, you can't burn electricity for two different uses at the same time. But Bitcoin enables all kinds of energy-positive scenarios.

No... it doesn't... because it's using that electricity.

Texas has built wind and solar farms that Bitcoin mners are the first customer of.

Texas was building wind farms at least a decade before any crypto miners wanted cheap electricity.

If there were no crypto miners in Texas, then those renewable energy sources would still get built -- and the electricity would actually be used by actual people and actual businesses.

When the grid is stressed by high temperatures or some other energy need, then the miners can be switched off and all of this renewable energy can flow straight into the grid.

Oh. So they're just wasting 99% of the electricity, instead of 100%. (Hint: They're almost never actually told to shut down.) Good to know!

Did you know that one of the biggest Bitcoin miners in Texas uses enough juice to power 300,000 homes?

This has done great things to solve some of the issues that Texas saw a few years ago.

Is that a joke? Do you really not know that miners kept going during the winter storm of 2021?

Did you know that when the state finally told them to shut down, they got paid $175,000 an hour? That they made $18 million off the state while people were freezing to death?

Texas didn't have massive blackouts in 2021 because of a lack of renewables. It's because Texas deliberately cut its grid off from the rest of the US, and because natural gas pipelines froze. Crypto miners monopolizing renewables doesn't do jack shit to solve either of those issues, because a) the grid is still separated, and b) they're using up all that energy almost all the time.

Oh, and we should note that the Supercalifragilisticexpialidocious Bitcoin? Yeah, it's one of the most energy-inefficient cryptocurrencies out there. Right now, it's producing as much greenhouse gases as Qatar, and consuming as much energy as Poland. For what? No, seriously, for what? What does it actually do, other than give speculators something to gamble on?

 

[CimpleMan]

Volatility isn’t the same as debasement. Bitcoin swings because it’s still young and supply is fixed. The dollar loses value guaranteed every year because they print more of it, and with a 37 trillion dollar national debt and trillion dollar deficits for the foreseeable future, inflation will be back with a vengeance.

Furthermore, bitcoin isn’t the only game in town. The crypto space is evolving fast, with defi, smart contracts, privacy coins like monero, make the dollar look like a financial fossil.

Tell me what i'm missing? You seem to be making a comparison of investing $1000 in Bitcoin to putting $1000 in your mattress.

 

[aociswundumho]

Tell me what i'm missing? You seem to be making a comparison of investing $1000 in Bitcoin to putting $1000 in your mattress.

You're going to have to clarify what you're asking.

 

[CimpleMan]

You're going to have to clarify what you're asking.

Putting $1000 in the mattress for, let's say 10yrs loses purchasing power due to inflation. Putting $1000 in a asset for 10 yrs may or may not just like Bitcoin.

 

[aociswundumho]

Putting $1000 in the mattress for, let's say 10yrs loses purchasing power due to inflation. Putting $1000 in a asset for 10 yrs may or may not just like Bitcoin.

It would depend on the asset of course. Real estate, gold, stocks are some of the best ways to protect yourself. And inflation is what drives people to buy crypto.

 

[CimpleMan]

It would depend on the asset of course. Real estate, gold, stocks are some of the best ways to protect yourself. And inflation is what drives people to buy crypto.

So wasn't missing anything. Investments should be the comparison.

 

[Econ4every1]

How? People can't "bake in" their wages to rise with inflation.

Of course they can.

Estimate future future expenses. Add in inflation expectations. So if you make $100k today and you expect to get 4% per year in raises and inflation is 2%, then your real raise is 2%. Live within those means. If there is a particularly bad year an inflation increases 5%, then a person should be able to ask for more wages, but given the current climate, labor representation has been eroded so employees generally cannot get raises equal to or better than inflation in some circumstances. So prices increases 5% For an employer their input costs increase by 5%, but if an employer can keep wages (a price) down to 3%, the employer can raise their price 5% and net the 2% that should have gone to wages for themselves as increased profit. Kinda makes you wish there were more unions huh?

Prices can adjust overnight

It's true that prices tend to increase before wages, but historically, at least until the Neoliberals began their crusade against organized labor, that even though wages tend to lag prices, it's been made up by the fact that wages have outpaced inflation. So wages lag, but increase more. The control that corporations have exerted over the labor market in the last 40 years, both in decreased wages relative to costs and decreased benefits.

The "free market" you yearn for would make this problem much, much worse.

Inflation hits hardest where people can't plan ahead, like for groceries, fuel, food, etc.

Everyone can plan ahead, but it's inevitable that things happen. But you don't support any sort of entitlements or government assistance. So, I'm not sure how things aren't worse in the world you year for.

it turns out they weren’t so predictable after all.

Keeping the value of money stable would only cause greater price fluctuation. The idea that all you have to do is maintain the value of money solves the problem of high prices is a fundamental misunderstanding of how markets work.

 

[Econ4every1]

Real estate, gold, stocks are some of the best ways to protect yourself.

It's insane that you can contradict yourself like this and not realize it. To suggest that specific investments can protect against inflation, yet simultaneously claim that people are powerless to protect themselves against inflation. The reality is, the only individuals truly unable to shield themselves from inflation are those without any savings to invest. However, for these people living paycheck to paycheck, their earnings hold their value exactly at the moment they receive and spend them; there isn't idle money under a mattress to be eroded over time. Their current income is worth what it's worth when earned, and it doesn't lose buying power simply by hitting their bank account for immediate expenses. If someone does have disposable income they wish to protect from inflation, then, as you mentioned, they should invest it in those very assets you listed.

If your concern is the devaluation of future earnings due to inflation, then the focus should shift to policies that ensure wages keep pace. This could involve advocating for higher minimum wages indexed to inflation or supporting labor unions, which possess the collective bargaining power to ensure that company profits are shared more equitably with workers. If inflation increases by 5% in a year, and workers receive a 5% raise, they are effectively treading water in real terms, avoiding a loss to inflation. A 6% raise, then, would represent a 1% real gain. The challenge is that individual workers often lack the leverage to secure such increases on their own. For instance, as an IT professional with decades of experience, I personally faced a situation in 2023 where my raise did not match inflation, meaning a real-term pay cut from my then-employer. However, due to a competitive job market for my skills and an extensive resume, I was fortunate enough to transition to a new company offering a 10% increase in salary which was essentially a raise, which turned into a real gain as inflation subsided. This illustrates that personal agency is often limited by market power; for those in entry-level positions, the systemic issues you seem to implicitly support (exploitation and extortion) only exacerbate their financial challenges and make things worse.

Consider the recent period following COVID, where inflation soared to nearly 9% while many companies simultaneously reported record profits. This occurred largely because businesses increased prices preemptively based on inflation expectations, yet failed to raise wages proportionally. If inflation rises by 6% (above the prior 2.5% average) and average wages only increase by 3%, companies gain a significant surplus. They then face choices: allocate that surplus to shareholder benefits like stock buybacks and dividends, invest in research and development, or enhance worker benefits and training. The prevailing trend over the last three to four decades has been a growing emphasis on shareholder returns, often at the expense of worker benefits and compensation, including the erosion of traditional pensions. This pattern has demonstrably led to a decline in the real earnings of average individuals, while the top ten percent of Americans have seen their real wealth increase significantly.

 

[Jason Warfield]

The problem with crypto currency is that it doesn’t have much to back the value of it as currency to give stability that currency needs.

I’m not saying that all currency is infallible, they aren’t, Values of currency can crash and have done so. The difference is in how it crashes and it recovers.

There is no real value behind it. It isn’t stable and value doesn’t really increase or decrease normally in a slower fashion. You could literally be a millionaire one day and a pauper mere hours later. Stability is measured in months to quarters whereas crypto is days to weeks.

This isn’t to say that crypto couldn’t be more stabilized; but it needs to be backed by a value that is relatively consistent. It cant just be on consumer confidence and block chains and be traded like stocks. To be currency, it has to have more tangible value.

And it can be done. If the Japanese can maintain an economy based on the production of rice for centuries, then Crypto could find a value backing.

Until that happens, it’s just a volatile commodity or a payment method to be converted to cash ASAP.

 

[ldub23]

New high coming.

 

[devildavid]

This is ignoring the monetary value. Otherwise we would stop mining gold too. At least at a cost of about $300-400 an ounce which is the current estimation of it's industrial value. And we do stop when the gains from mining it becomes smaller than the COST of mining it.

So the price of Bitcoin, as well as the cost of mining it become the determining factors here.

What determines the monetary value of anything? What does monetary value mean? It is arbitrary.

 

[Threegoofs]

New high coming.

Well, now I'm convinced.

Women in swimsuits with cleavage giving generic stock/crypto recommendations are always a solid bet to place your money on.

 

[cAPSLOCK]

What determines the monetary value of anything? What does monetary value mean? It is arbitrary.

The market.

 

[devildavid]

The market.

The market is arbitrary. One day beanie babies are valuable, the next day they aren’t. The market doesn’t determine the inherent value of anything because most things don’t have inherent value unless we need them to stay alive.

 

[Econ4every1]

The market.

The market is arbitrary. One day beanie babies are valuable, the next day they aren’t. The market doesn’t determine the inherent value of anything because most things don’t have inherent value unless we need them to stay alive.

There are different measures of value.

Intrinsic and extrinsic. There's objective and subjective value. There are labor theories of value and subjective theories of value.

In quantum physics there's no privileged frame of reference, only relative. The same applies to economic value, before we can agree on what determines value, we have to agree on a frame of reference otherwise we're just taking past each other.

Bitcoin is one of the premier examples of something that has enormous monetary value but in other ways it's worthless. To talk about it's value requires that you understand your frame of reference relative to whomever you are talking to.

IMO, Bitcoin operates in spaces within society and institutions that were created for more traditional forms of money though lessens learned over centuries of money and banking. People do not understand the complexities of banking and why they exist. BTC an a concept is trying to solve a problem without understanding it.

/Random thoughts...

The internet and desktop computing has democratized money and finance and eroded the barriers between the average guy and career economists and bankers.

Economics is hard. In my opinion the efficiency of modern banking and finance is what obscures much of what the average person intuitively expects to see in a system of economics. For example, how can the bank of Anytown USA, a bank with just one branch, make a loan for more money then they have available in their vault? Is it legit? It is, if the right institutions and systems are in place, but when the average person sees a bank with $10 million dollars in capital making $100 million dollars in loans, most people ask; "how they can do that?". How is that not illegal? Yet, with enough time anyone who sees modern banking as a scam today could, with enough effort, understand exactly why a bank without the money on-hand to lend can do it AND, the benefits of that system (again, from the right frame of reference).

If in the quest to solve the problems people perceive in modern banking, they destroy the frame of reference (the systems, institutions, laws) that support today's more efficient system, they may end up being right only to learn after, what they gave up to get there and what it will take to get back.

People believe that BTC solves a problem that the "traditional" banking industry solved a long time ago.

Take one of the best features of BTC is the transfer of money for a low or no cost to the end user. But the costs to move that transaction have real costs which are measured in electricity, IT equipment like storage, switches, routers, cables and alllll the people that support it.

Today BTC traffic is treated like everything else. But the greater the proliferation of BTC, the higher the cost. And just like the system of roads, the cost to pay for them is targeted at the people that use them (through gas taxes, registration costs and other fees), if BTC were ever to replace traditional money, the infrastructure costs would increase and the people paying for it would likely attempt to target financial transactions for a fee, just like banks pay for many of the networks they use.

In the end, if BTC were ever to be adopted as currency at scale (ignoring that right now that's not feasible for technical reasons), you'd find that over the 10-20 years that followed, the people that thought it was a good idea would re-learn all of the lessons of traditional banking and finance.

That's not to say that traditional finance is perfect, it isn't. It is slow, it's been the domain of a few "experts" over the last 100 years and recent changes to efficiency aren't being taught because a lot of the literature and teachers are teaching an outmoded ideas. If BTC can do anything positive, it will be to drag traditional banking into the modern era, sadly, I predict, that the tension between traditional government fiat currency and crypo will be a lesson hard learned.

/off...

 

[Threegoofs]

The market is arbitrary. One day beanie babies are valuable, the next day they aren’t. The market doesn’t determine the inherent value of anything because most things don’t have inherent value unless we need them to stay alive.

Comparing Bitcoin to beanie babies is pretty apt.

I’ve heard stories about how some people had their life savings in beanie babies.

@cAPSLOCK, are you listening?

Beanie Babies: How They Went From Retirement Plan to Paperweights

Like a fuzzy, cute Ponzi scheme, the Beanie Baby promise of untapped riches was a lie. Here's why Beanie Baby values were such a disappointment.

www.yahoo.com

 

[Econ4every1]

@cAPSLOCK, are you listening?

I don't like crypto, not because I don't think it has usefulness, but because the usefulness attributed to it relative to it's market value is way, way out of whack and I'm concerned about destabilizing the economy for everyone so a relatively small number of people can seek significant short term profit.

That said, BB's were never putting the national or global economy at risk when the market for them collapsed...

 

[cAPSLOCK]

First of all, I'm editing out great swaths of your wonderful post because I don't want to hit the limit very quickly. Not because I didn't find value in it.

The same applies to economic value, before we can agree on what determines value, we have to agree on a frame of reference otherwise we're just taking past each other.

Which is something that happens in human conversation quite a bit and at this site nearly always.

Bitcoin is one of the premier examples of something that has enormous monetary value but in other ways it's worthless. To talk about it's value requires that you understand your frame of reference relative to whomever you are talking to.

Yes, Bitcoin is really 100% economic value. And it is absolutely abstract.

IMO, Bitcoin operates in spaces within society and institutions that were created for more traditional forms of money though lessens learned over centuries of money and banking.

This is an interesting point and one where I believe we might just disagree a priori. I would agree that the banking system has solved all kinds of problems. Credit and debit cards are pretty amazing tools. We already have payment networks that work perfectly well.

But... I think there are also problems. The Cantillon effect is one example.

People believe that BTC solves a problem that the "traditional" banking industry solved a long time ago.

Yes, and I think there are a lot of ideas and problems that we are talking about here. For example, I think trying to solve the idea of payment systems is (at least for now) Is a fool's errand since they're pretty well solved already.

Take one of the best features of BTC is the transfer of money for a low or no cost to the end user. But the costs to move that transaction have real costs which are measured in electricity, IT equipment like storage, switches, routers, cables and all the people that support it.

This is a gigantic topic in itself, and I will not have room in my response to go very deep. This line of thought ends in the oversimplification of this typical statement. " Bitcoin uses more electricity than x country! ". But simply, I would argue that debt-based central banks have to have support systems that are quite extensive as well. Just not as obvious. And perhaps they're more connected to military hardware than electricity, for example. (Another huge rabbit hole)

In the end, if BTC were ever to be adopted as currency at scale (ignoring that right now that's not feasible for technical reasons), you'd find that over the 10-20 years would re-learn all of the lessons of traditional banking and finance.

I do not necessarily believe that Bitcoin has to become primarily currency. Not at first. I think it can be an extremely successful store of value. There are many people in the Bitcoin world who see this way. Michael Saylor is one of them. He argues the Bitcoin will help bolster the U.S. dollar as the continued world reserve currency. And on the other side, Jack Dorsey believes that if Bitcoin does not become transactional and topples the world currencies, then it was a failure.

And to your point that Bitcoin is technically incapable of becoming transactional for the entire world,.. I think this was the argument made immediately after Satoshi's first post on the mailing list when he introduced the white paper.

But layered systems are being developed that are already working for transactional Bitcoin. I could name several places where it's happening every day and beginning to scale up quite a bit.

I predict, that the tension between traditional government fiat currency and crypo will be a lesson hard learned.

We agree on this wholeheartedly. I just think from first principles we may have disagreement as to which is the better outcome. And yes, the bigger it gets, the harder it will fall.

To sum up... I think I have less faith in the debt-based central banking system and it being the best we can do than you. And taking the most central and basic control of money out of the hands of even well-meaning small groups of humans might just have an amazingly positive impact. It doesn't have to replace everything either. It could just be another asset that people use because of its particular design and trade offs, advantages and risk profile.

Finally, I thank you for your thoughtful, even, intelligent posts. It's what I come to this site, craving, instead of the one-liners and name-calling that we do so much of here.

 

[cAPSLOCK]

I had to delete so much of the above response that I kind of neutered it. I suppose I need to become more concise. Anyway, I really do appreciate the conversation.

 

[cAPSLOCK]

Comparing Bitcoin to beanie babies is pretty apt.

I’ve heard stories about how some people had their life savings in beanie babies.

@cAPSLOCK, are you listening?

Beanie Babies: How They Went From Retirement Plan to Paperweights

Like a fuzzy, cute Ponzi scheme, the Beanie Baby promise of untapped riches was a lie. Here's why Beanie Baby values were such a disappointment.

www.yahoo.com

Not really, no. I have spent too many hours of my time deeply understanding what Bitcoin is and getting at least a shade tree understanding of economic ideas to see the very basic beanie baby/tulips argument as having merit.

I'm not even saying that Bitcoin couldn't fail, and if it does, it will be spectacular, but it's not beanie-babies, not even close.

 

[cAPSLOCK]

The market is arbitrary. One day beanie babies are valuable, the next day they aren’t. The market doesn’t determine the inherent value of anything because most things don’t have inherent value unless we need them to stay alive.

I don't see how this can be the case. If I sell you my car, you and I will determine the price. I have a price range at which I'm willing to sell it. You have a price at which you're willing to buy it. And if we can meet in the middle, then we're signing the title.

No one needs gold unless you happen to make electronic devices that use it. And yet, after thousands of years gold is a 24-hour day worldwide market in which human beings are constantly setting the price.

And as to things that we need to stay alive, having reliable places to store wealth over time is pretty basic. My stomach is full today, but I might be very hungry tomorrow. So having a bank account is very useful.

 

[Threegoofs]

Not really, no. I have spent too many hours of my time deeply understanding what Bitcoin is and getting at least a shade tree understanding of economic ideas to see the very basic beanie baby/tulips argument as having merit.

I'm not even saying that Bitcoin couldn't fail, and if it does, it will be spectacular, but it's not beanie-babies, not even close.

True.

You can still use beanie babies as a toy.

I’ve spent quite a bit of time trying to understand crypto too. I get the arguments for it- I really do. But my conclusions are a bit different than yours.

But when someone tells me they have their life savings in it…. I automatically am very suspect of their judgement- because, as another poster eloquently pointed out, diversification is the only thing that makes long term sense in investing.