Bitcoin Forum

I've only recently begun understanding Bitcoins and decided to ask my Economics professor about the viability of decentralized digital currency.

She responded by saying that it will not be sustained just as the Gold standard was replaced by the Dollar (in the US).
The Dollar is also backed by the Fed. and our confidence in it.

What are some future speculations? When it hits the cap, will BTC be replaced by a inflatable currency?

Did she offer any reasoning to back up her viewpoint?

You might want to consider another path towards an economics education.

Hell, for that matter did she bother to even look at the fundamentals that underpin Bitcoin?

Asking an economic professor about bitcoin, which they probably never ever research in their entire life is probably like asking Newton about black holes and Chaos. He would have no clues.

+1

Comparing Newton to most economic professors of today - particularly one that thinks leaving the gold standard was necessary and good - is a major offense to the name of such a revolutionary scientist.

:D

Bitcoin won't be replaced by an inflatable currency, there's no way. If one comes along only fools will adopt it and it will collapse just like the dollar and other fiat currencies are currently doing. you might want to ask your prof. if she is teaching keynesian economics or Austrian economics. If it's keynesian economics you should probably take anything she says with a fistful of salt.

Unless - trying to be nice to your professor here - she meant that in the sense of "governments will outlaw this so they can keep inflating their currency on their favor". Then she might have a point, although I think it's not easy at all to outlaw something as bitcoin.

I see her point.

Let's say Bitcoin becomes as popular as the dollar. Banks start accepting it for deposits and making loans with it. At first you can cash out into your personal Bitcoin wallet.dat, but eventually banks start lending out Bitcoins from demand deposits. Bank runs occur. The US government institutes Federal Bitcoin Deposit Insurance and a Federal Bitcoin Reserve, institutionalizing fractional-reserve Bitcoin banking. Federal Bitcoin Reserve Notes are issued which are not redeemable in actual Bitcoins. And then we end up exactly where we are now.


The two solutions to this are

a) education about the problems of fractional reserve banking and the benefits of hard money

b) Making sure the default Bitcoin client is so useful that people don't feel the need to ever use banks in the first place.

I read somewhere that 90% or more of Economics professors get significant funding from the Fed.  So of course they are in favor of centralized banking.

It's not that high, but the vast majority do get a significant portion of their income from public sources (governments or their agencies, such as the Fed) either directly (professor at a public university) or indirectly (speaking/consultation fees from such agencies).  It's very difficult to get a person to understand something when her salary is dependent upon her not understanding it.

No-one will migrate to an inflationary currency. It's simple game theory: I stick here and my relative purchasing power goes up, or I go over here and my purchasing power goes down. Humans are selfish, and bitcoin fortunately supports that while keeping things fair :D

You are assuming government never gets into the business of regulating the Bitcoin economy, as they did with the regular, formerly gold economy.

Definitely this. A is more effective in the long term, but B is much easier to accomplish in the short. Either one will suffice.

The regular, formerly gold economy was not consciously formed to resist the government's power over money. Bitcoin is being consciously developed to undo that power. That's quite an advantage.

It sounds like she's pissing Kool-Aid i.e. she drinks the Kool-Aid so deeply and so frequently that her urine is mostly Kool-Aid.

This is a fair assumption, since there is precedent in the digital realm of distributed technologies being largely immune to the will of legistlators.

Intellectual kidney failure ahoy.

She failed to mention the gun that's used to "promote" the replacement of the gold standard with the dollar. And that the trust in the fed is actually fear of it's guns.

And to answer your question you have to understand first why even today gold is money to many people but they aren't using it as money and what sort of properties of gold handicap it in that regard. The answer to why is of course the government guns enforcing the legal tender laws and capital gains taxes on precious metals. Of course gold is physical element which can be seized much easier then Bitcoin. Also it's much harder to hide it and trade it especially at long distances. There's all these barriers set up by the government guns that gold has a really big problem overcoming even if the market wanted to use it as money where Bitcoin could potentially have a much easier job.

So if anything we are either going to move towards Bitcoins as money or we wont. But no one can know for sure what the markets and governments response will be to it and what will ultimately happen. I guarantee you this though: If BTC is replaced with an inflatable currency it wont be a voluntary market action but a forced government one. I'm 100% sure about that seeing as inflation is theft!