Blockchain = Powerful Tool for Keynesian Monetary Policy

[cunicula]

That would be like paying a huge premium to acquire a controlling share of a company and then deliberately rendering that company worthless through mismanagement. And then repeating that process. That doesn't sound like a great business model.

It is worth pointing out that the investment is chump change and that the investment would be highly profitable. Say bitcoin replaces all card payments in the Euro area. That is about 54.8 billion Euros in 2008. Suppose that the average fee on bitcoin payments is 0.1%. Suppose that hardware depreciate at a 20% rate [slow for computer hardware], that labor costs are negligible [labor costs make monopoly easier], and that the interest rate is 5%. Assuming a competitive market, we have

capital rental costs=flow of bitcoin payments
(0.20+0.05)K=0.001*54.8 billion
K=$212 million.

It is chump change for a large corporation like VISA (let alone the central bank). More importantly, monopoly control easily repays itself. Suppose the monopoly raises the fee to 3% (same as credit cards) and that the volume of payments declines by five-fold to 10 billion as people flee instantaneously to gold or other types of rocks or whatever you might think of as 'sound money'. VISA/ the central bank will earn $300 million from the 3% fee. That is a nice 142% return on capital.

Now let's think about the volume of payments decreasing five-fold in one year. Is that plausible? Of course not. You cannot bootstrap a new currency in one year. If you could, you guys would not still be using USD. Thus the monopolist's profits during its first year of operation will be far greater than a measly 142% annual rate of return.

You may say we will have many competing PoW currencies. If so, the payment flow from each of these media decreases accordingly. The central bank's total expenses for controlling many small competing cryptocurrencies are identical to the central bank's expenses for controlling one large cryptocurrency. Only the total flow of fees matters.

Why don't you propose a fix for the problem? Or explain why I am wrong? Why does burying your head in the sand seem like a good idea?

[cunicula]

False argument alert.  Of course cunticula leaves his premises tacit, to make his false argument harder to refute.

I made the premises of the argument explicit well before you posted this. https://bitcointalk.org/index.php?topic=125822.msg1341445#msg1341445.

You chose to ignore these premises. Which you are free to do. But of course it is obviously false to claim that the premises are tacit.

[Rudd-O]

https://i.imgur.com/Ur0FQ.gif

I'm so happy that this forum has a killfile feature.

[cunicula]

I'm so happy that this forum has a killfile feature.

Ah, the usual libertarian approach. Seek Truth by ignoring facts.

[Rudd-O]

Oh, cunticula answered!

Hmmm, given that I can't read his reply, what's an appropriate reply...

Cunti culi, cunti cula
cunti culi, cunti culaaaa
lie lie lie lie lie, cunti culi cunti cula

:-)

[cunicula]

Oh, cunticula answered!

Hmmm, given that I can't read his reply, what's an appropriate reply...

Cunti culi, cunti cula
cunti culi, cunti culaaaa
lie lie lie lie lie, cunti culi cunti cula

:-)

Again, I am confounded by libertarian reasoning. Such sagacity! My interlocuter has bested me. I am at a loss for words.

[Rudd-O]

Cunticula:

"He doesn't believe in Godvernment and Mommy isn't around to beat him up, so I'm going to whine until he goes away".

:-)

(Note: I haven't read his comment -- ignore list -- but based on my experience, I'll wing it and suppose that's a good transliteration of what he said.)

[cunicula]

Cunticula:

"He doesn't believe in Godvernment and Mommy isn't around to beat him up, so I'm going to whine until he goes away".

:-)

(Note: I haven't read his comment -- ignore list -- but based on my experience, I'll wing it and suppose that's a good transliteration of what he said.)

Thanks

[sunnankar]

Suppose the central bank controls 51% of hashing power and wants to achieve a stimulus equivalent to a 3% increase in inflation. ...

It is pretty clear that the blockchain gives central banks unprecedented control over monetary policy. All they have to do is command 51% of hashing power. An absolutely negligible investment for such a well-capitalized institution.

Not sure you correctly understand the 51% hashing power weakness.

But that aside the real issue with Bitcoin is the open-source nature in contrast to the closed-source nature of current monetary policy. The result of closed-source is greater information asymmetry amongst market participants leading to inefficiencies in the market.

If central banks attempted to conduct monetary policy through an open-source instrument, like a blockchain, then market participants would adapt so swiftly and severely via algorithms and high frequency trading that it would render the manipulations powerless because there would be no uncertainty in the market place as a result of the open source blockchain.

Statist monetary policy must be conducted in secret or it will not be successful at allowing the rent seekers to take advantage of market inefficiencies as a result of their access to power centers. Look at how vigorously the Federal Reserve attempted to defend Bloomberg when it came to disclosing bailout funds.

[Rudd-O]

Statist monetary policy must be conducted in secret or it will not be successful at allowing the rent seekers to take advantage of market inefficiencies as a result of their access to power centers. Look at how vigorously the Federal Reserve attempted to defend Bloomberg when it came to disclosing bailout funds.

The whole "in secret" thing, I can vouch for it.  In my country of origin, there existed (some still exist) quite a few characters who had connections with the money printers (this was before they dollarized the economy).  They got rich as FUCK.  As it is to be expected from a group of official counterfeiters and their scumbag friends.

Their M.O. was, essentially, like this: the counterfeiters would tell their friends "we're about to devalue the currency by counterfeiting more money and changing the peg to the dollar", which prompted their friends to buy large amounts of dollars at the then-official price, after which they would print a shitton of bonds (which they of course eventually defaulted upon).  Which would cause the currency to be worth even less nothing (try to imagine that grammar horror in terms of currency) than it was before.  Then they would repurchase all the money they had sold, and then some, using the bought dollars.  Kickbacks, of course, were the norm.

Insider forex trading for the lose.  Many people lost their homes, cars, businesses, some even their lives, to poverty.  But that was all "okay" because these scumbags made hundreds of millions, hand over fist, until a new president (who was ejected from power in a coup) dollarized the economy.  Now they're trying to bring back galloping devaluation (a national currency they will devalue at will, of course) using bullshit "sovereignity" arguments.

Expect the same to happen with the Fed (except this time the insiders are literally inside the Fed).  I've seen it happen, The Bernank is doing the exact same moves, there is no way in hell this isn't going to happen in the U.S., because it's -- quite simply put, and incontestably so, according to the history of every single statist currency that went bust -- the natural, and malevolent, destiny of paper currencies.  What mathematically cannot continue, will not continue.

Thank FSM we have Bitcoin to hedge against that inevitable upcoming disaster.

[Rassah]

You are wrong, because you assume anyone would use a currency with a 51% weakness already in progress, and because your formula doesn't account for the initial investment in hardware required to achieve that 51%. You are only accounting for operating expense with that $212 million.

[cunicula]

Statist monetary policy must be conducted in secret or it will not be successful at allowing the rent seekers to take advantage of market inefficiencies as a result of their access to power centers. Look at how vigorously the Federal Reserve attempted to defend Bloomberg when it came to disclosing bailout funds.

The whole "in secret" thing, I can vouch for it.  In my country of origin, there existed (some still exist) quite a few characters who had connections with the money printers (this was before they dollarized the economy).  They got rich as FUCK.  As it is to be expected from a group of official counterfeiters and their scumbag friends.

Their M.O. was, essentially, like this: the counterfeiters would tell their friends "we're about to devalue the currency by counterfeiting more money and changing the peg to the dollar", which prompted their friends to buy large amounts of dollars at the then-official price, after which they would print a shitton of bonds (which they of course eventually defaulted upon).  Which would cause the currency to be worth even less nothing (try to imagine that grammar horror in terms of currency) than it was before.  Then they would repurchase all the money they had sold, and then some, using the bought dollars.  Kickbacks, of course, were the norm.

Insider forex trading for the lose.  Many people lost their homes, cars, businesses, some even their lives, to poverty.  But that was all "okay" because these scumbags made hundreds of millions, hand over fist, until a new president (who was ejected from power in a coup) dollarized the economy.  Now they're trying to bring back galloping devaluation (a national currency they will devalue at will, of course) using bullshit "sovereignity" arguments.

Expect the same to happen with the Fed (except this time the insiders are literally inside the Fed).  I've seen it happen, The Bernank is doing the exact same moves, there is no way in hell this isn't going to happen in the U.S., because it's -- quite simply put, and incontestably so, according to the history of every single statist currency that went bust -- the natural, and malevolent, destiny of paper currencies.  What mathematically cannot continue, will not continue.

Thank FSM we have Bitcoin to hedge against that inevitable upcoming disaster.

Are you from Russia?

[cunicula]

You are wrong, because you assume anyone would use a currency with a 51% weakness already in progress, and because your formula doesn't account for the initial investment in hardware required to achieve that 51%. You are only accounting for operating expense with that $212 million.

I am confused (as to why you would attempt to disagree with me given your limited intelligence and knowledge base).

The K value I calculated is the annual capital expense (otherwise why would I include the interest rate and depreciation rate in the calculation?).

[cunicula]

Suppose the central bank controls 51% of hashing power and wants to achieve a stimulus equivalent to a 3% increase in inflation. ...

It is pretty clear that the blockchain gives central banks unprecedented control over monetary policy. All they have to do is command 51% of hashing power. An absolutely negligible investment for such a well-capitalized institution.

Not sure you correctly understand the 51% hashing power weakness.

But that aside the real issue with Bitcoin is the open-source nature in contrast to the closed-source nature of current monetary policy. The result of closed-source is greater information asymmetry amongst market participants leading to inefficiencies in the market.

If central banks attempted to conduct monetary policy through an open-source instrument, like a blockchain, then market participants would adapt so swiftly and severely via algorithms and high frequency trading that it would render the manipulations powerless because there would be no uncertainty in the market place as a result of the open source blockchain.

Statist monetary policy must be conducted in secret or it will not be successful at allowing the rent seekers to take advantage of market inefficiencies as a result of their access to power centers. Look at how vigorously the Federal Reserve attempted to defend Bloomberg when it came to disclosing bailout funds.

You don't understand monetary policy. Changes in the interest rate are announced publicly. The aim is to erode the purchasing power of the unit of the account in order to encourage people to get it out of their hands like a hot potato. The market can't do shit about this (except abandon the currency). Maybe they would like to do that. Fine. That is what the central bank wants. But they have nothing widely accepted to turn to. This is what gives the central bank power.

[Rudd-O]

caligula continues to caligulate on this thread?

[jl2012]

I will just regularly send my BTC between my own accounts. Problem solved.

Recall that the purpose of money printing is to encourage or discourage spending. When the central bank wants to encourage spending, they print money leading to inflation. Inflation encourages people to turn cash into goods and physical assets. This increases spending in the short-run and stimulates the economy.

The blockchain makes it possible to execute more powerful monetary policy. Money printing is coarse because price increases occur with a time delay. The blockchain is precise and effective inflation can be achieved instantaneously.

Suppose the central bank controls 51% of hashing power and wants to achieve a stimulus equivalent to a 3% increase in inflation.

Simply demand a txn fee equal to 3% of coin-age (with age measured in years). This is just like instantaneously increasing the inflation rate by 3%. Take the fee proceeds and hand them out to banks. Voila. You have stimulated spending. Once the economy recovers, the txn fee can be lowered again. The inflation rate of every single block is completely at the bank's discretion. This is 100% impossible with the tools available today.

Now people might try and horde (the bank can't steal my coins... I'll just wait till they lower the fee and spend then). Ha, this would not work at all.
The bank has a historical record of its inflation policy and would bill these guys. The fact that you haven't paid yet won't help them. The seignorage will be deducted from their account whenever they finally decide to spend. [Could go through more details on calculating seignorage fee, but I think that is enough for now.]

It is pretty clear that the blockchain gives central banks unprecedented control over monetary policy. All they have to do is command 51% of hashing power. An absolutely negligible investment for such a well-capitalized institution.

I am kind of confused why we still operate with dollars. Central bankers should start issuing dollars and euros this way. Or they could just adopt bitcoin. It would make their lives so much simpler.

[bitCooper]

It's interesting to see that there are always people on the Internet who love to try to disparage a topic among enthusiasts. Some call them trolls.

I think mr. krugman brings up a very valid theoretical weakness in bitcoin. However, I do wonder about his intentions. Why would someone invest hundreds of hours and thousands of posts only to try to prove to others that their work will fail?

I enjoy the story of innovators being told that their ideas are flawed and will not succeed; yet it is those who invest their blood, sweat and tears, like Satoshi and the numerous bitcoin developers and merchants, who can achieve, not the naysayers.

The amazing thing about bitcoin is that is has already succeeded. It has survived four years and plenty of Ponzi schemes, hacked exchanges, and bad press. Maybe bitcoin will now replace the Twinkie as one of the two things to survive a nuclear war?

But all hyperbole aside, I don't think bitcoin is bankrupting visa anytime soon. As mr Anderson has pointed out before, it is more efficient to worry about the short term problems before worrying about how bitcoin will survive when it has uprooted the pillars of the global economy and obsoleted the central bank.

[Rotsor]

I will just regularly send my BTC between my own accounts. Problem solved.

x^(a + b) = x^a * x^b, you know! You can't do anything about it.

caligula continues to caligulate on this thread?

Stop trolling. Delete all your messages before it's too late.

cunicula has presented a very interesting scenario and no one tried to prove it impossible except by trolling or personal attacks. I'll try to show that it's not so easy as cunicula claims it to be.

You see, the described scenario makes 51% attack very profitable (because the central bank profits off of it). This means that a third party will be very much motivated to claim this power to themselves, so the central bank will be constantly pressured to increase its hash power to compete with the third party, ideally to the point of next-to-zero returns from monetary policy. What do you think about that?

[Rotsor]

Also this: http://gavintech.blogspot.com.ar/2012/05/neutralizing-51-attack.html
Basically, it says that a crude proof-of-stake can quickly and easily be bolted upon the protocol if and when the attack comes.

[Rudd-O]

caligula continues to caligulate on this thread?

Stop trolling. Delete all your messages before it's too late.

Is this a threat?

Haha!