Bitcoin Forum

Was having a discussion with a family member who happens to be a Councilman in Australia at the moment.  Working his way up through the government at a very young age, and I believe he will be very successful.

He raised an issue that I didn't have a very good response for.  Can any of you give me some in-depth thoughts on this statement he made?

"I don't see how it will avoid the currency crisis issues faced by the Gold Standard era when the US dollar was pegged to the amount of gold mined.

Bitcoin is a very similar model, and would likely lead to a supply crisis, like Gold did"

Thanks all.

-B-

The first way I will address this question is by linking this important speech: Bitcoin vs. Political Power (http://Tinyurl.com/BTCvsPolitic).

The second, and far less important way, is by saying this:

Gold is a physical asset. A supply crisis of a physical asset is what he was talking about. In no way does this problem apply to cryptocurrency.

Bitcoin is a digital asset that, unlike gold, is VERY highly divisible (.00001 BTC), instantly transmittable to anywhere in the world, and can in fact exist in more than one place in the world at the same time.

By sharing private keys with trusted friends anywhere in the world, you can essentially have a privately shared bank account. Couples in long distance relationships can do this right now, for free.

I believe Satoshi made the cap 21 million coins because there are approximately 7 billion humans on Earth. 7x3=21. People are thinking "oh there must be at least one BTC for each person", but that is wrong.

A Bitcoin is not like a gold nugget. A Bitcoin is a vault full of gold nuggets. A Satoshi is a gold nugget. People don't get that because at this moment Bitcoin is undervalued by about 9999(9?)%.

There is no supply crisis because every one of you has WAY MORE BITCOIN WEALTH than you think you do. The world just hasn't figured out how rich you are yet.

As Beliathon said it's divisible. Even further than a satoshi if need be, so there isn't a "lack" of ability to spend it.

I know a lot of people here don't like hearing this, but there are alt-coins. If it's too hard to get bitcoins other things will fill in the gap. One of the reasons there is a contraction in the economy when there is less money is because we're hooked on the idea that we have to do everything with our government issued currency. Once we break free of believing that everything has to go through one kind of currency we're free from the economy contracting because of a lack of fiat (or gold). We can trade with anything that's convenient, from goods we create ourselves to frequent flier miles. If I can't get any bitcoin I can trade goods and services. Currency should be thought of as a convenience not something that decides what we can and can't do.

If it leads to a supply crisis that means the price of bitcoin would skyrocket.

What would happen after that remains a question.

The Gold Standard didn't have a supply crisis.
It had a inflation crisis, when governments printed receipts for more gold than they had in the coffers.
The governments, simply, engaged (like today) in massive counterfeiting and manipulation.

Thats same as a supply crisis.

Same thing when Greece couldnt print their own currency to pay debts because they use Euros

Gold and USD do not have technology dependency.

People expecting the internet or mobile phone that will still function in the event that shtf will be surprise on how things actually work.

This matter has been adressed several times, see: https://bitcointalk.org/index.php?topic=140793.0
Of course, bitcoin would mess with several aspects of the State if it was its main currency: monetary policy, because "printing" money would be impossible, the central bank would have to borrow bitcoins to luanch them into the economy.
Deflation would be a constant, with all the economic consequences it has.
Tax evasion would threat the very existence of the State. It would be necessary to control Internet access in much worst terms than in China, to avoid it.
People would dump fiat for bitcoin and that would aggravate fiat inflation and bitcoin deflation. People with savings in fiat would be ruined.

Not only that but the mining rate was not fixed.  Where it is progressively harder to mine Bitcoin, or the PoS coins where there is no mining, the amount of gold mined was unpredictable and this resulted in periods of severe deflation and inflation.

http://en.wikipedia.org/wiki/The_General_Crisis

Deflation as such is not a negative just like inflation doesnt have to be.   ITs the volatility in supply that would cause most trouble and/or excess, so 30% inflation has occured in the West and it led to poor economies.

Deflation is not depression or even recession.   Growth can occur while a money supply contracts.     Ditto the inverse, a country can suffer losses even while inflation raises prices, the value of earnings can drop.    Since we have had inflation since the federal reserve came about, this is the most familiar scenario but both are possible



Gold is massively divisible.   All the way down to a dollar, you can get a stamp of leaf gold.  It will blow away in the wind, its not useful for anything really.  They put it on cakes and eat it.  In theory you could trade this, some company is producing plastic casing /notes for minute gold such as this.    And they'll sell 1 dollars worth for 5 or 10 I presume hence btc is far more practical in small amounts but either works as obviously a token coin with trace amounts of gold can be used etc


BTC is very determined to give regular production.       All that bother with difficulty is for regular supply rather then the normal model gold has which is capitalist driven mining activity.   The avoidance of leverage also stops the fractional reserve liquidity issues, except for fraud / centralised off blockchain issuance of which people should be more cautious as we saw with gox

Can you give a historical example where growth occurred while money supply contracted?

From this Wikipedia page all examples of deflation led to economic slumps or liquidity trap.

Seems to me deflation is harmful

The 21 million supply confuses a lot of people. The divisibility of the unit of measurement is infinite and if necessary in the future the developers can even add coins by adding a proof of stake function if it becomes necessary. 

Not really because half has already been mined.  So if the early adopters hoard the supply, it forces future generations to share less of pie

Infinitely divisible means we can use the currency in as small a unit of measure as needed. The smallest one currently is the satoshi. Divide the 21 million by that number first for your starting point. There is plenty of room for expansion.

I know what it means but its not practical.  Much better to have supply that can be expanded knowing for certainty that population and ecomic activity will expand.  Why do you think we left Bretton Woods.  OPs friend is correct, elasticity is a necessity for modern money.  

Bitcoin (and Crypto in general) is not a tool to expand the society/economy (collectivism) even more. It is a tool to destroy the society (patriarchy). It's a tool to bring back anarchy, a world with those self-sufficient communities, which had been destroyed 10'000 years ago.

No, elasticity of money is a necessity for Statism and Socialism.  Individual Rights begins with the right to hold private property without the State, or anyone else, taking it or devaluing it.  A currency that slowly devalues is a currency that slowly steals your property.  It is a way to tax the people without their realization.  It is an affront to anyone believing in individual liberty and the absolute right to hold private property.

So destroy everything and start over?  What would happen if ECB didn't print money to restructure Greece's loan.  Tough shit?

You talk you as if you live on a deserted island disconnected from the rest of civilization

On the contrary, inflation of fiat destroys wealth.  A non-inflationary currency preserves it.

Greece created its problem through overspending and monetization of debt.  It was an incredibly stupid decision to enter into the EU knowing they would be unable to monetize their debt.  One of these happened: a) They didn't realize they were spending more than their took in with taxes, b) They didn't realize they couldn't monetize their debt after joining the EU, or c) Those in power knew and wanted to use this to stop monetization of debt.  The real answer is almost certainly (c), initiated by those who held large amount of currency and no longer wanted to support the masses with inflation of their holdings.

@OP - Rome had a fixed money supply (gold and silver) between 27BC and, approximately, 4AD.
There were issues in the long term: the price of grain fell because a) the supply increased and
b) realpolitik of bread and circuses; the legions daily pay remained static while purchasing power
increased, (pensions are somewhat complicated here.)
Theoretically, interest rates should have gone to zero, but didn't otherwise banks would have
gone bust as in the reign of Tiberius.

Also worth bearing in mind is the unsuitability of pure gold as a coinage. It is too soft, hence
the need for a near substitiute.

Hence when people point to particular problems with a gold standard, they are, by definition,
being selective, as others have pointed out on this thread. There are problems with
cryptocurrencies and the medium to long term economy that are significantly greater than
those associated with a "gold" standard.   

I think that it is indeed a problem of Bitcoin that it has a fixed supply, but i don't think its as bad as Golds because of:
1) ease of funds transfer
2) speed of information flow

Now to be more specific:
A clear point: the alternative (government / centrally controller money supply) we are currently using is in my book somehow worse just because we don't yet have a "all-knowing" manager who can predict exactly the right amount of money (and will possibly newer have) to be in circulation. I am not really dogmatic about Bitcoin, Gold or $, in my view its just "the oil" in the system and all of them can be better or worse at helping us (the people) work together.

My understanding of the "gold" / fixed-amount of money crisis is that we as a group of people tend to over/under speculate and at some point we could stretch our speculations so far out from reality that the prices (including wages) have to be re-adjusted in a major way. This re-adjustment can be done trough quickly printing the needed amount of currency if you have a fiat currency and spread the effect (trough inflation or debt repayment) over a couple of years (our solution now for the 2008 crisis). With a fixed amount money, this is not possible, so you really have to talk / be in contact with each of the "resource" (/money) holders, request that they give up a share of their money "for the better of society" / "because we are not that smart as we thought ". Some of them will, some of them wont, but you sure can not force them to do so.

The positive thing about Bitcoin (that Gold does not have) is that you can have a quick campaign and gather all the funds from the willing people in a matter of hours / days and distribute them to the people who need them so that we as a society get over the "bump" as healthy as possible. Heck ... with Bitcoin you can even make sure that the transfer is done only if a significant enough percentage of the population wants to, so that we don't have a prisoners dilemma. I strongly believe that we as people are generally sociable and if i get a choice to renounce to 20% of my wealth to transfer to some poor guy who lost his home because of "whatever very complicated financial crisis" i most likely will. But that is a decision that i would like to take and not some other guy (because indeed, maybe its not really that big of a crisis or maybe the guy getting the handout was reckless to begin with). Bitcoin gives me this possibility in a decentralized way. Gold would offer you similar features, but sadly you have to rely on some third-party to manage your "resources" (i am sincerely not able to split Gold to 0.0001% of a ounce and get it to someone on another continent and also consider storing Gold a lot more complicated than Bitcoin).

I am more libertarian than anarchist but your point holds true. The network can also add a POS mechanism if the supply does begin to get too tight. The statists will never fully accept decentralized currency but I suspect they will either adapt or get left behind.

Flipping to the extremes is how politics justifies itself.   Not everything gets wiped out, mostly its those who lent money foolishly to the Greek banks and government.    Why was Germany so keen to bail out Greece, its mostly self interest because their banks had become mired in the situation believing Greece to be equal to other countries in the Euro.   Clearly this was not true, when we ignore mistakes like this we are set to repeat them and probably in a more costly way.

I believe they did haircut the loans but Greece has once again issued more debt recently and has not revoked many of their destructive laws which prevent normal business operating and so they continue with their unemployment and other failings until they really fall over into nationalism or fascism.  Bankruptcy law does not promote those causes, it attributes the losses to the lenders and so they are cautious instead of reckless.  When losses are spread over the entire population it promotes bigger failures as the risk of loss no longer exists like it normally would

The Greece government could print its own currency as much as it want, the problem is forcing people to accept it as payment for debts.
Printing more currency is just robbing people holding money or credit denominated in that currency.
The Greece Government spent a lot of money, built up the debt and then it want someone else (like the banks and people loaning to it) to pay the price.
Worse, it do not want the responsibility to fail to payback its loans. It want stick it to someone else.
It want just to continue to spend in excess of its abilities to pay back.

If the government of Greece went broke and stopped to payback the loans it would be forced, by the market, to spend exactly as much as it was able to raise in taxes.
it would be forced to choose between politician's  checks and retirement checks; between poor people and welathy politicians.

And be clear, the banks lending to the Greece government deserve to be left to their own devices. The rest of the EU government are not much better, not even the Germany's.
I do not understand because I must pay to save some bankers receiving lavish paychecks because they made so many loans to unworthy people, enterprises and governments.
Let them all rot to hell together. Why I must save the rich and weathy?

If the banks fail, the poor with little money in the bank will be the least hit.
If the government fail, I will not be forced to pay for absurd, unuseful, wasteful policies and programs with half of my paycheck. Polices benefiting the wealthy not the poor.

If banks fail, everybody gets hurt.  The rich lose more BC they have more to begin w.  Except they won't starve or go homeless like the poor.  Its because every one pays same price for goods and services

If you have $10M and I have $100K.  We both lose 50%.  Who is in greater pain?

Greek debt is denominated in Euros,  printing Greek currency won't help.

The point is to the OP is that you need money to be elastic in modern economies

Gold has been tested for many centuries.

Bitcoin is still at it infant stage.

What you fail to realise is that the wealthy do not store their wealth in FIAT currency, they store it in finite asset classes, art, wine, metals, property and land.

The wealthy will lose...... 50% of their art? Is the interest rate going to take half a Monet? Like cut it in half?

You will lose 50% of your wealth when your buying power is eroded by inflation, the wealthy will lose nothing.

When the banks fail, the middle class will be butchered, the poor will still be poor and the wealthy will be wealthier than ever.

True story bro.

G x

Oh, I missed the last bit, elastic money.

1. No, you don't.
2. We don't have elastic currency, where is the decrease in supply? by what mechanism have central banks applied hookes law to money?
lolcatz bro, when you buying power has been erroded by 99% what are you even talking about elastic? currency is plastic, not elastic.

The wealthy have the money to move anywhere in the world they want.   If Im a millionaire, I will jump on my yacht and goto hong kong perhaps.
There I wont be as rich but who wants to stay and do the hard work.

Trying to favour one person over the other doesnt work.    If the lenders decided this greek debt was a good idea then they must pay for their judgement, if they want any return it is on their backs to help the business they lent to, now they are the owners of it not the people.  

Who is paying stupidly high taxes in Greece now, the rich can just off shore their wealth.  The common man cannot take his donkey and goto hong kong, he has to stay behind, the bail outs almost certainly favour the richest people because the poor never had much to lose in the first place but the taxes and inflation does hurt them.
  Also the greece situation is stopping new jobs, its massively ironic but its not impossible to understand that after bankruptcy you have cleared space for new business not owned by the rich or politically connected but people with good ideas and hard work.   Take away the failure and you lose the possibility of replacing the bad business with good.

When the OP talks about deflation or contraction, these arguments almost always ignore political interference.   Who passes laws to stop trade, to force taxes, regulations, to make rules why you cannot do your simple work and sell it.  Is that capitalism failing or politics saturating every transaction.   There is zero reason why fair exchange of a fixed currency be it gold or bitcoin is any negative to those people

The Monet loses value due to inflation --in relation to prices

Banks destroy money when loans are paid off.   Duh.  Go read an economic s textbook

I was going to read an economics text book, but then I read physics instead.


What you havn't grasped is that the value of the Monet is in what I could trade for a Monet, not how much 'money' it is worth at any one time.

What you are calling money is not money, it is currency, and there is a world of difference, but that can wait.

Hypothetically, in a period of inflation due to increasing money supply, this is what happens.

My Monet is 'worth' 1 million pound.

1 million pounds buys me 2 tons of silver.

My Monet is then worth 2 tons of silver.

set: 1 Monet == 2 Tons of Silver

fast forward to HyPeR iNfLaTiOn.

There is more money around and it now takes 1.5 million pounds to buy what used to take 1 million.

Well, it now takes 1.5 million pounds to buy 2 tons of silver, but I have previously established the Silver to Monet cost price ration of 1 Monet = 2 tons of silver.

So if it cost  1.5 million to buy my 2 tons of silver, fuck it chaps, that means my Monet is worth 1.5 million.

Inflation? That's for the middle classes (sheep).

Currency is a unit of exchange, not wealth (economic energy) storage (+1 if you can find out why without being told).

Hope that helps you understand.

G x

in that example the price would probably go down some or value even.   Some of the buyers are not able to keep up with inflation, you have demand destruction from inflation so the price is 1.4 million or slightly less then 2 tons of silver.

It could be argued somebody will have their income completely outside the inflation, possibly yes but if some of the buyers are effected then in an auction type scenario likely the price does fall a bit as the highest bidder no longer has to compete with as many available buyers.  Since a museum quite often a buyer at auction this seems valid as it does then relate to the general public.

  Even the richest of the rich are connected through their business to the normal business of a country.   If inflation is making prices unstable and less trade is done reliably, contract pricing accuracy fails and balance sheets must account for greater volatility in their costs.
  It then becomes opposite to JIT or just in time, where stock must be built up to buffer against this instability.  All in this will affect even the richest prices most likely, underneath inflation an economy can grow smaller with lower real values in wages and all sorts

Your right of course. I should of perhaps started with the assumption of art and metal as substitute goods for the storage of wealth undergoing the same demand/supply curve transformations in periods of inflation. My primary point was to illustrate the idea that the middle/aspiring class, whom in ignorance store their wealth in paper currency will be destroyed, not the wealthy elite (and of course the poor are still fucked).
In my head, I see a normal distribution of probability vs. relative wealth and it's going to drop like a brick right on the mean.

G.

Check this out.  Annotation of Piketty's inequality chart

  
http://www.cepr.net/index.php/graphic-economics/graphic-economics/income-share-of-the-top-1-percent-1913-2012-annotated

How doe's this fit/support your argument?

In any case I agree that inflation affects poor more than rich.  I don't know what the point about Monet is about

All modern crisis are bank and debt crisis, with bitcoin acting as a central store of value nobody can get out tons of money of debt and nobody can print bitcoins, and the diff with gold is that the gold cant be counted publicy like bitcoin in the blockchain

I posted that if banks fail everyone gets hurt but poor will be hurt more than rich

Look at the chart and see what happened to wealth inequality after Stock Market Crash 1929.  The wealth gap narrowed.  So obviously the rich didn't get richer

Anyways, hasn't nothing to do with the OP topic which is why BTC face the same challenges of gold in the past

Ah, cool.

Hate writing so,

In 1929 dollar == gold.
thus elite store wealth in dollar == storing wealth in gold.
as for working and middle classes.
So this hurt everyone.

2014 dollar != gold (dollar is not convertible to gold)
dollar == ..............................? (nothing but confidence in the dollar system)
so
wealthy store wealth in asset classes == metals, art, land, utility (power/water/trains).
middle class store wealth in..... dollar, but dollar != gold
poor have no wealth, only debt in dollars.

so, by a quick glance the ingredients have changed from 1929 to now and so you can not apply 1929 as a predictive model.

logicically now....
inflation sets in
dollar decreased in buying power
wealthy unaffected as no great wealth stored in dollars
middle fucked as alot of wealth stored in dollars, middle class buying power eroded into nothing, their wealth is destroyed.
poor have no wealth to erode, perhaps even debt is eroded by the inflation.

The 1% will not take a hit, they will make out like bandits at the expense of the middle classes.

Fundamentally, supply and demand will change (whatever) but as the dollar is only a medium of exchange and a store of wealth it will only be used by the 1% as a temporary unit of account to move wealth from one asset to another and so their risk to dollar inflation is proportional to the liquidity of the assets being traded (hence why uk home buyers will one day be fooked)

did i mention that the graph is income produced vs % not wealth held vs %, the income shift is inconsequential as the name of the game is wealth preservation.
 

The question makes me laugh. There was no "supply crisis" under the gold standard. The period was marked by stable or gently declining prices (a good thing, not a bad thing - we want cheaper stuff) and a general rise in prosperity unmatched before or since. What ended the gold standard was the huge rise government spending from 1914 onwards, mostly though not entirely as a result of war.

Had the first world war not happened, it is highly likely that we would still be on the gold standard.