= 27d567bc2d48d9f40e9ccc20ea370b15)
wedrifid comments on Bitcoins are not digital greenbacks - Less Wrong
You are viewing a comment permalink. View the original post to see all comments and the full post content.
= 783df68a0f980790206b9ea87794c5b6)
Loading…= b715d02e85f7b3b4ae65ca3d3e450868)
Subscribe to RSS Feed
Powered by Reddit
= f037147d6e6c911a85753b9abdedda8d)
You are viewing a comment permalink. View the original post to see all comments and the full post content.
Comments (159)
Let me rephrase: The problem is that Bitcoins will have an advantage over the average productive investment, e.g. stocks (sort of), as a store of value, since Bitcoin has all their average expected growth with none of their added (local) volatility. This is what presents the starting problem in an economy that starts out with a steady velocity of Bitcoins, and then increased holding makes the velocity go down (and the value go up, and the bubble effect hit even harder). This is why we don't get an equilibrium with steady Bitcoin velocities. Even if we did have that equilibrium, people would have a much greater incentive to just "invest" in Bitcoins instead of being forced to try to invest in something productive. You don't want an economy to have a perfect non-inflating store of value which is intrinsically unproductive!
I like the rephrasing. To expand on what seems to be a generalisation of this problem: Any cryptocurrency sibling of bitcoin that relies on cryptographic mining as a basis will either have this problem or will result in (value of currency * inflation rate) additional resources wasted on computation each year.
I believe (tentatively) that the above is an unavoidable result of the cryptographic and micro-economic principles that such currencies rely on.
Note, I wrote this in reply to the original version of the grandparent, which is as quoted in the parent. This is confusing since it is a bug/feature of the lesswrong system that Eliezer's edits to his own comments do not get marked with an asterisk like others.
I do not endorse the current version of the grandparent, in as much as it overstates the position and seems to verge on encouraging magical thinking about how a currency can extract value from a system.
Reclarified?
This is not limited to cryptocurrencies, e.g., gold-based currencies cause people to "waste resources" mining.
Yes, the 'mining' metaphor was well chosen.
In terms of that gold analogy, what we are talking about in the context would be if gold spontaneously generated itself in proportion to the amount of existing gold and automatically buried itself at whatever depth makes it barely worthwhile to dig up. That waste is the unavoidable cost of making bitcoin-style cryptocurrency have ongoing inflation.