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Author Topic: The economic model behind Bitcoin is flawed  (Read 14034 times)
deisik
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November 29, 2015, 12:02:29 PM
 #21

In terms of my comment on monetary system, I just meant that it is impossible to have a medium of exchange that isn't intrinsically useless. Even systems like the gold standard relies on people's perception that gold is valuable. People can argue that it is nice for jewelry/pretty but that is mainly because it is expensive to start off with - like everything else, the value is based on societies perceptions (rightly or wrongly we cant change this!)

And fiat, which is intrinsically useless, serves this purpose the best. It is the closest approximation to the concept of money, i.e. a dimensionless yardstick for measuring the value of goods against each other

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November 29, 2015, 12:10:51 PM
 #22


They won't be able to do this since their prices are determined on market terms, i.e. through the balance of demand and supply. If the currency is appreciating, raw materials actually end up more expensive to you, since your profits are diminished when you sell finished goods for less price (due to currency appreciation)...

I have explained it many times already how exactly an appreciating currency hurts producers up to a point they begin suffering losses and stop production

Sure I think that you're right to some extent, but you are only focusing on the supply element of the trade. If people have the feeling that they are wealthier then they will naturally pay more in order to maintain the same standard of living as before.

Take a normal fiat economy for example. If I have $100 of savings in my account and there is deflation in the economy of 5%. A product that previously cost me $10 now costs me $9.50 - you're right, in this sense the producer has lost out - to the tune of 5%. But if the price level has fallen by 5% then it also means that the producers costs have fallen by 5% too - so technically they have not lost out at all.

Furthermore, if you just focus on the consumer (the guy with $100 of savings) - his savings are now worth 5% more than they were before. So if the price of the good increased by 5% then he would still buy the good. This only doesn't hold if he is irrational and doesn't value goods based on his ability to consume.

I would also make the same point again - people will adapt to continuous deflation. If you have a deflation-linked salary then you remove any excess saving incentives. In the same way that by having inflation linked pay rises in the public sector acts to protect workers from their earnings being eroded over time.

There is a simple free market solution to any of the problems from companies suffering losses- they either increase prices or as you mentioned stop production. As the least efficient leave the market it allows room for the most efficient to flourish and rebalance their supply to meet the demand.


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November 29, 2015, 12:15:01 PM
Last edit: November 29, 2015, 02:39:21 PM by deisik
 #23


They won't be able to do this since their prices are determined on market terms, i.e. through the balance of demand and supply. If the currency is appreciating, raw materials actually end up more expensive to you, since your profits are diminished when you sell finished goods for less price (due to currency appreciation)...

I have explained it many times already how exactly an appreciating currency hurts producers up to a point they begin suffering losses and stop production

Sure I think that you're right to some extent, but you are only focusing on the supply element of the trade. If people have the feeling that they are wealthier then they will naturally pay more in order to maintain the same standard of living as before

I'm not going to discuss this matter here since it is off-topic and of no interest to me (as I had already said everything I wanted to say on the issue long ago). This has been discussed a lot of times already, and if you want to continue, you are free to make a new topic. A short version, you are wrong since the production cycle of most producers is not instantaneous, and inflicted losses remain losses even in terms of an appreciated currency...

You would just be better off if not producing at all (which impoverishes society, though)

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November 29, 2015, 02:21:47 PM
 #24

accumulation of bitcoin will reduce the price of bitcoin,

what if there was a fee for holding bitcoins for a long term? Huh

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November 29, 2015, 10:12:00 PM
 #25

"accumulation of bitcoin will reduce the price of bitcoin,"

That makes no sense.

"what if there was a fee for holding bitcoins for a long term?"

That is not a solution. There is already a free market for cryptocurrencies.
The solution is to invent a better cryptocurrency, or more specifically, a
cryptocurrency that does some things better than bitcoin.

Think ahead. What happens when the next halving occurs? Will the miners
have to raise the fee to stay viable?
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November 29, 2015, 10:15:41 PM
 #26


what if there was a fee for holding bitcoins for a long term? Huh

Freicoin does that. If you continue to hold it it slowly eats itself. This is a classic example of the total unworldliness of crypto developers. Would you bother with a currency that slowly kills itself? I can't think of a single normal human on the planet who would be interested in such an idea.
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November 29, 2015, 11:30:12 PM
 #27

The economic model behind fiat money is even more severely flawed, but human can still adapt to it, so they will have no problem adapting bitcoin

I don't think so. In fact, the economic model behind fiat money, if not abused in application, is actually more fair, since it favors producers, not savers and profiteers, thereby making the whole society richer

In fact, it is very difficult to understand that the current system you are living in is a huge scam, but try watch some youtube videos and you will get to that conclusion sooner or later  Wink

Inflation or deflation is not the problem, the problem is that the money creation must be done by work or exchange resources of a value similar to its face value, that is what makes money valuable, since everyone has to work or exchange valuable resources to get money (except robbery and stealing). But fiat money is not created by any thing of similar value, so it is some kind of robbery/stealing, which impoverish the whole society

Notice that inflation or deflation is just a small variable in the big picture, you can print 2 trillion dollars to get inflation, and print 1 trillion dollars to get deflation, both do not change the fundamental flaw in the existing system

Ture, bitcoin will benefit the savers, however, everyone can be a saver, not only central bank. It will indeed encourage saving, but as observed during recent years, when bitcoin price rose, people spent them more, because they were richer, so deflation is not a problem for the same reason that inflation is not a problem either




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November 30, 2015, 12:18:06 AM
 #28


If the economy expands, more goods are being produced overall, but given the limited money supply, it leads to currency appreciation (more goods chasing less money) which allows the savers to become richer for doing virtually nothing (by being able to buy more with their stash). It essentially means that producers are sharing (socializing) their profits with do-littles...

I didn't quite understand what you meant by "monetary system which is backed up with something intrinsically useless"

I think that is true, but I would imagine that producers would be changing their prices in order to make sure their production remains profitable for them

They won't be able to do this since their prices are determined on market terms, i.e. through the balance of demand and supply. If the currency is appreciating, raw materials actually end up more expensive to you, since your profits are diminished when you sell finished goods for less price (due to currency appreciation)...

I have explained it many times already how exactly an appreciating currency hurts producers up to a point they begin suffering losses and stop production

this is wrong, because when the currency is appreciating the cost of raw materials is going down.
there arent less profits either.
in absolute numbers the final cost is less but through appreciation your buying power is the same.
hoarding raw materials happens - but not at the magnitude you are describing.
(in the end it is also another form of price speculaton)

supply and demand will lead to a equillibrium, it is not possible to hoard forever(=0 demand).

also you might want to look at scarcity theory - i think it is very interesting and closely related to bitcoin and other economic processes.

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deisik
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November 30, 2015, 07:14:06 AM
Last edit: November 30, 2015, 07:53:26 AM by deisik
 #29

this is wrong, because when the currency is appreciating the cost of raw materials is going down.
there arent less profits either.
in absolute numbers the final cost is less but through appreciation your buying power is the same.
hoarding raw materials happens - but not at the magnitude you are describing.
(in the end it is also another form of price speculaton)

supply and demand will lead to a equillibrium, it is not possible to hoard forever(=0 demand).

Simply put, you don't understand what you are talking about. Then again this is not a place for discussing such things, but you can go and discuss the question in this thread. Most likely that all your arguments you can ever think of have already been brought forth there (so you'd better read first)...

I strongly recommend against raising the issue of deflation vs inflation here

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November 30, 2015, 07:19:27 AM
 #30

Bitcoin apologists and supporters often recklessly claim that a controlled supply with the 21 million coins cap is good and beats the shit out of fiat monies as well as cryptocurrencies that don't have a limit on the number of coins mined...

Why is there any question at all? It's in the code. You can't change that; it's a systematic part of the entirety of Bitcoin. Otherwise, inflation occurs and everything goes to crap, just like FIAT currencies. Well... it's just that people haven't noticed that things will get out of control with FIAT yet. That, or they're reliant on them.

They forget a few things, though


Bitcoin is an experiment.

It is mimicking the gold/silver supply which is limited on planet earth.

Fiat doesn't do that as now you can write $1,000,000,000,000 and now you have $1trillion.

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November 30, 2015, 07:21:27 AM
Last edit: November 30, 2015, 09:23:36 AM by deisik
 #31

Ture, bitcoin will benefit the savers, however, everyone can be a saver, not only central bank. It will indeed encourage saving, but as observed during recent years, when bitcoin price rose, people spent them more, because they were richer, so deflation is not a problem for the same reason that inflation is not a problem either

What did they actually spend them on, I'm sorry? Personally, I converted my bitcoins to fiat and got done with that. Did they buy any goods en masse? I remember some poor wretch having sold his home for bitcoins (meaning someone did actually buy something real for crypto), when the price was almost at the top...

People felt very sorry for him, though

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November 30, 2015, 12:36:54 PM
 #32

Ture, bitcoin will benefit the savers, however, everyone can be a saver, not only central bank. It will indeed encourage saving, but as observed during recent years, when bitcoin price rose, people spent them more, because they were richer, so deflation is not a problem for the same reason that inflation is not a problem either

What did they actually spend them on, I'm sorry? Personally, I converted my bitcoins to fiat and got done with that. Did they buy any goods en masse? I remember some poor wretch having sold his home for bitcoins (meaning someone did actually buy something real for crypto), when the price was almost at the top...

People felt very sorry for him, though

People also felt very jealousy for those bought a lot at $5, like Winklevoss twins  Wink

You spend bitcoin by first convert to fiat money and then buy goods, just like when you are traveling in Japan, your dollar/euro can not buy anything there, you have to first exchange to Japanese Yen and then spend

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November 30, 2015, 02:25:45 PM
Last edit: November 30, 2015, 02:54:25 PM by deisik
 #33

Ture, bitcoin will benefit the savers, however, everyone can be a saver, not only central bank. It will indeed encourage saving, but as observed during recent years, when bitcoin price rose, people spent them more, because they were richer, so deflation is not a problem for the same reason that inflation is not a problem either

What did they actually spend them on, I'm sorry? Personally, I converted my bitcoins to fiat and got done with that. Did they buy any goods en masse? I remember some poor wretch having sold his home for bitcoins (meaning someone did actually buy something real for crypto), when the price was almost at the top...

People felt very sorry for him, though

People also felt very jealousy for those bought a lot at $5, like Winklevoss twins  Wink

You spend bitcoin by first convert to fiat money and then buy goods, just like when you are traveling in Japan, your dollar/euro can not buy anything there, you have to first exchange to Japanese Yen and then spend

Then Bitcoin is not money, but just a speculative asset. Like many others out there. Or a Ponzi, since it neither functions as a currency (a medium of exchange) nor has any value of its own (yeah, I know nothing has value of its own)...

That, simply put, sums it up

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November 30, 2015, 05:37:44 PM
 #34

this is wrong, because when the currency is appreciating the cost of raw materials is going down.
there arent less profits either.
in absolute numbers the final cost is less but through appreciation your buying power is the same.
hoarding raw materials happens - but not at the magnitude you are describing.
(in the end it is also another form of price speculaton)

supply and demand will lead to a equillibrium, it is not possible to hoard forever(=0 demand).

Simply put, you don't understand what you are talking about. Then again this is not a place for discussing such things, but you can go and discuss the question in this thread. Most likely that all your arguments you can ever think of have already been brought forth there (so you'd better read first)...

I strongly recommend against raising the issue of deflation vs inflation here

Please provide proof and dont show me a 22 page thread where the answer might be or not.

Ture, bitcoin will benefit the savers, however, everyone can be a saver, not only central bank. It will indeed encourage saving, but as observed during recent years, when bitcoin price rose, people spent them more, because they were richer, so deflation is not a problem for the same reason that inflation is not a problem either

What did they actually spend them on, I'm sorry? Personally, I converted my bitcoins to fiat and got done with that. Did they buy any goods en masse? I remember some poor wretch having sold his home for bitcoins (meaning someone did actually buy something real for crypto), when the price was almost at the top...

People felt very sorry for him, though

People also felt very jealousy for those bought a lot at $5, like Winklevoss twins  Wink

You spend bitcoin by first convert to fiat money and then buy goods, just like when you are traveling in Japan, your dollar/euro can not buy anything there, you have to first exchange to Japanese Yen and then spend

Then Bitcoin is not money, but just a speculative asset. Like many others out there. Or a Ponzi, since it neither functions as a currency (a medium of exchange) nor has any value of its own (yeah, I know nothing has value of its own)...

That, simply put, sums it up

Funny that the lawmakers are saying the exact opposite.
( in the eu btc is money)
U seem to ignore that bitcoin is just 6 years old.

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November 30, 2015, 06:01:03 PM
 #35

Bitcoin apologists and supporters often recklessly claim that a controlled supply with the 21 million coins cap is good and beats the shit out of fiat monies as well as cryptocurrencies that don't have a limit on the number of coins mined...

Why is there any question at all? It's in the code. You can't change that; it's a systematic part of the entirety of Bitcoin. Otherwise, inflation occurs and everything goes to crap, just like FIAT currencies. Well... it's just that people haven't noticed that things will get out of control with FIAT yet. That, or they're reliant on them.

They forget a few things, though


Bitcoin is an experiment.

It is mimicking the gold/silver supply which is limited on planet earth.

Fiat doesn't do that as now you can write $1,000,000,000,000 and now you have $1trillion.
Exactly; Bitcoin mimics a limited supply that had value, while fiat money is completely unlimited, be it banks or the government. That's the reason that gas costs $3/gallon; ever since the central banks were installed the numbers have just kept going up, and there is no indication that it's slowing down or that we'll see the monetary supply become stagnant.
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November 30, 2015, 06:04:02 PM
 #36

this is wrong, because when the currency is appreciating the cost of raw materials is going down.
there arent less profits either.
in absolute numbers the final cost is less but through appreciation your buying power is the same.
hoarding raw materials happens - but not at the magnitude you are describing.
(in the end it is also another form of price speculaton)

supply and demand will lead to a equillibrium, it is not possible to hoard forever(=0 demand).

Simply put, you don't understand what you are talking about. Then again this is not a place for discussing such things, but you can go and discuss the question in this thread. Most likely that all your arguments you can ever think of have already been brought forth there (so you'd better read first)...

I strongly recommend against raising the issue of deflation vs inflation here

Please provide proof and dont show me a 22 page thread where the answer might be or not.

What proof should I provide? At first you say that "the cost of raw materials is going down" and right after that you claim that "your buying power is the same". Is this not enough to prove that you don't have a clue what you are talking about?

Go finally and read that thread carefully (it has all the answers)

deisik
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November 30, 2015, 06:06:49 PM
 #37

Funny that the lawmakers are saying the exact opposite.
( in the eu btc is money)
U seem to ignore that bitcoin is just 6 years old.

I don't care what lawmakers are saying. You cannot call something "money" which is not used as money. Money is what money does

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November 30, 2015, 06:10:04 PM
 #38

this is wrong, because when the currency is appreciating the cost of raw materials is going down.
there arent less profits either.
in absolute numbers the final cost is less but through appreciation your buying power is the same.
hoarding raw materials happens - but not at the magnitude you are describing.
(in the end it is also another form of price speculaton)

supply and demand will lead to a equillibrium, it is not possible to hoard forever(=0 demand).

Simply put, you don't understand what you are talking about. Then again this is not a place for discussing such things, but you can go and discuss the question in this thread. Most likely that all your arguments you can ever think of have already been brought forth there (so you'd better read first)...

I strongly recommend against raising the issue of deflation vs inflation here

Please provide proof and dont show me a 22 page thread where the answer might be or not.

What proof should I provide? At first you say that "the cost of raw materials is going down" and right after that you claim that "your buying power is the same". Is this not enough to prove that you don't know what you are talking about?

Go and read finally that thread carefully (it has all the answers)

How about you carefully read what i wrote?

1. Money appreciates
2. Raw material cost down
3. final price of product goes down


What should change in the buying power??

Cherry picking at its best or full choo choo retardness.

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Yakamoto
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November 30, 2015, 06:15:49 PM
 #39

Funny that the lawmakers are saying the exact opposite.
( in the eu btc is money)
U seem to ignore that bitcoin is just 6 years old.

I don't care what lawmakers are saying. You cannot call something "money" which is not used as money. Money is what money does
Well I think that overall, money is defined as a form of currency with which you can buy items or services, however, there are more specific definitions like Mike Maloney's "Money is a store of value" and Google's "a current medium of exchange in the form of coins and banknotes; coins and banknotes collectively" definition.

I would say it comes down to the person's definition of what "money" is defined as, however I am not sure how to interpret your definition. Would you mind elaborating? You aren't very clear with what money is, however you do make it clear you don't define Bitcoin as typical money.
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November 30, 2015, 06:40:55 PM
Last edit: November 30, 2015, 07:45:53 PM by deisik
 #40

I would say it comes down to the person's definition of what "money" is defined as, however I am not sure how to interpret your definition. Would you mind elaborating? You aren't very clear with what money is, however you do make it clear you don't define Bitcoin as typical money.

There is a concept of money and application of this concept in real life. Regarding the former, as I said earlier, money is a dimensionless measuring rod for valuing goods against each other. Dimensionless means that it has no units (like meters or grams) attached, but has a numerical value. In real life, this concept is implemented in the means of exchange (or means of payment, which is the same), which allows to value goods and provides a device for an effortless exchange of goods...

Since you can't buy anything worthy with Bitcoin directly, it can hardly be considered as money

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