How governments could affect the bitcoin economy

[joecascio]

It's often said that governments can't touch bitcoin, which is true with respect to ownership, but they could still affect it economically acquiring or releasing large amounts from/to its citizens. Think of it like gold reserves. If gold were still used as currency, the government could affect how much was in circulation by throttling its spending to the public.

Governments could acquire large reserves of bitcoin by taxation (yes, people will still pay their taxes) and throttle how much goes back into the economy thru spending, or maybe even giving it away to people when they want more in circulation. The important thing to me about this is that they can't just print more. They have to acquire it the way everyone else does, by buying and selling.

Are there any logical holes in this conjecture? Fundamental economics, International effects, etc?

[cbeast]

Anyone can participate in Bitcoin, they just cannot directly control it. Taxation is the only way they will function and stupid things like wars will require taxes to pay for them.

[Redi]

As I said, the only way how to control BTC is to ban its use in shops and arrest every businessman who use it...

[ralree]

It would be rather unprecedented to actually collect taxes in BTC, and even if the government gave that as an option, do you think they'd actually refuse their own national currency?  Think about gold profits - do they make you pay the tax in gold?  No.

[BTC_MACD]

Is your conjecture based on the premise that governments are not behind bitcoin?

[zif33rs]

Breaks out tinfoil hat and some popcorn.

[molecular]

It's often said that governments can't touch bitcoin, which is true with respect to ownership, but they could still affect it economically acquiring or releasing large amounts from/to its citizens. Think of it like gold reserves. If gold were still used as currency, the government could affect how much was in circulation by throttling its spending to the public.

Governments could acquire large reserves of bitcoin by taxation (yes, people will still pay their taxes) and throttle how much goes back into the economy thru spending, or maybe even giving it away to people when they want more in circulation. The important thing to me about this is that they can't just print more. They have to acquire it the way everyone else does, by buying and selling.

You mean by taxation (some call it theft)?

I'd still not like this very much, but as you see: at least they can't print it. So I'm all for that. Forces them to be prudent in spending and will shrink government. A good thing.

[stumpper98]

They could set up a paper system to trade BTC's - like they have for trading commodities, they control pricing with this system - this is why Gold and Sliver have not move vs BTC
 

[joecascio]

What motivates my conjecture is the need for economies to be buffered against wild inflationary or deflationary swings, which are good for no one. Right now, the government does it by deficit spending or adjusting money supply.

A purely unbuffered economy is subject to great swings due to people's anticipation. This is a fundamental fact about human behavior that has nothing to do with bitcoin in either a positive or negative sense. It's just a fact of economic life regardless of what the currency of medium of exchange is.

Since governments can't simply create bitcoin out of thin air, there would be a desire for some form of buffering or shock absorption against wild speculative swings.

[molecular]

What motivates my conjecture is the need for economies to be buffered against wild inflationary or deflationary swings, which are good for no one. Right now, the government does it by deficit spending or adjusting money supply.

A purely unbuffered economy is subject to great swings due to people's anticipation. This is a fundamental fact about human behavior that has nothing to do with bitcoin in either a positive or negative sense. It's just a fact of economic life regardless of what the currency of medium of exchange is.

Since governments can't simply create bitcoin out of thin air, there would be a desire for some form of buffering or shock absorption against wild speculative swings.

Where is this coming from? What evidence is there that "unbuffered" economy will experience wild swings (in moneys buying power I assume). I'm of the impression that it's the money printing that is causing wild booms and bust cycles, and misallocation of capital.

[molecular]

They could set up a paper system to trade BTC's - like they have for trading commodities, they control pricing with this system - this is why Gold and Sliver have not move vs BTC
 

Why would people trade the paperBTC at all when transaction cost of BTC itself is so low and it can be traded already? The only reason the paper games work with metals is the fact that you can't just send metal through a wire.

[justusranvier]

Why would people trade the paperBTC at all when transaction cost of BTC itself is so low and it can be traded already? The only reason the paper games work with metals is the fact that you can't just send metal through a wire.

Some people want to make BTC as difficult for the average person to trade directly as gold. That's what will happen if the block size stays limited - we'll all be limited to paperBTC with all the potential loss of agency that implies.

[joecascio]

What motivates my conjecture is the need for economies to be buffered against wild inflationary or deflationary swings, which are good for no one. Right now, the government does it by deficit spending or adjusting money supply.

A purely unbuffered economy is subject to great swings due to people's anticipation. This is a fundamental fact about human behavior that has nothing to do with bitcoin in either a positive or negative sense. It's just a fact of economic life regardless of what the currency of medium of exchange is.

Since governments can't simply create bitcoin out of thin air, there would be a desire for some form of buffering or shock absorption against wild speculative swings.

Where is this coming from? What evidence is there that "unbuffered" economy will experience wild swings (in moneys buying power I assume). I'm of the impression that it's the money printing that is causing wild booms and bust cycles, and misallocation of capital.

It is happening right now with bitcoin. It's going straight up due to pure demand, so people are hoarding it, causing it to rise even faster. That causes people not to use it for commerce because buyers feel as though they're losing future value by giving it to someone else in return for a good or service, and they're right!

A lot of people seem to think bitcoin is somehow this magic thing that's immune to human behavior and fundamental economics. It's not.

[scribe]

I started thinking about this a bit too, here. I'm particularly interested in the idea that governments may have access to otherwise-undiscovered anti-crypto techniques, which while they couldn't employ them against a network overtly, may be useful in certain directed attacks, e.g. Large transactions, specific IPs or addresses etc.

More likely, there's a possibility of targeting machines through trojans and other network attacks - recent South Korean events point at this, for instance. You wouldn't need to attack the network itself, but a coordinated attack against a particular pool, or country, might be effective enough to allow a different attack, or disrupt btc going into a region at a crucial moment.

But I suspect we'll see a few states doing dumb stuff like insisting all wallets have to be "declared for tax purposes" (and tracking) first. If they're not doing that covertly already.

[joecascio]

Yes, trojans, keystroke grabbers (why don't operating systems grant exclusive rights to programs to get keystrokes?), phishers, all will smell blood in the water with bitcoin. I think this will cause a lot more development in key security techniques, which is a good thing!

[jzcjca00]

What motivates my conjecture is the need for economies to be buffered against wild inflationary or deflationary swings, which are good for no one. Right now, the government does it by deficit spending or adjusting money supply.

A purely unbuffered economy is subject to great swings due to people's anticipation. This is a fundamental fact about human behavior that has nothing to do with bitcoin in either a positive or negative sense. It's just a fact of economic life regardless of what the currency of medium of exchange is.

Since governments can't simply create bitcoin out of thin air, there would be a desire for some form of buffering or shock absorption against wild speculative swings.

This is why we created the Federal Reserve system, to even out the bumps in the economy.  And other than 1 great depression, 17 recessions, one long period of stagflation, plus the awful mess we're in today, it's worked wonderfully!  We should be grateful that the dollar, once considered good as gold, has only lost 99% of its value since the Fed was created.

The economy, when not manipulated by central planners, has minor bubbles and dips.  No central planner in history has ever been able to do better than that.  The Federal Reserve system was an awesome experiment, as it clearly showed that the greatest minds on the planet cannot do better than no manipulation at all.  

Given that power tends to corrupt, and seeing how central planners always eventually wind up acting corruptly, and since central planning has never worked, how many more centuries of economic pain to we need to suffer before we can give pure liberty a try for a change?

The beauty of Bitcoin is that governments don't have to agree to give economic liberty a try.  People can force governments to do so simply by investing in and using bitcoins!

[BlindMixerDR]

What motivates my conjecture is the need for economies to be buffered against wild inflationary or deflationary swings, which are good for no one. Right now, the government does it by deficit spending or adjusting money supply.

A purely unbuffered economy is subject to great swings due to people's anticipation. This is a fundamental fact about human behavior that has nothing to do with bitcoin in either a positive or negative sense. It's just a fact of economic life regardless of what the currency of medium of exchange is.

Since governments can't simply create bitcoin out of thin air, there would be a desire for some form of buffering or shock absorption against wild speculative swings.

I think that it is not possible to remove all the "wild swings" in the economy with finite money. You might have one big deflation which means you need to put more money in the economy and now you have no more reserves. Then when the next deflation comes how to put more money in the economy? Or there can be a huge deflation beyond the ability to fix with the reserves you have.
But it would be interesting to see.

[Blowfeld]

But I suspect we'll see a few states doing dumb stuff like insisting all wallets have to be "declared for tax purposes"

Many if not most jurisdictions already have such regulations.  Whether it's cash in the local currency or bitcoin, you may already be required to report and/or pay a certain percentage of your wealth each and every year to the king, the governor, or to their representatives.  I think this harks back to the days where you would hand over a share of your pigs, goats, and grain to the local tax collector.  The laws are usually very general -- "anything of value".  There's no shortage of real-world examples.  See the following links:

  http://en.wikipedia.org/wiki/Wealth_tax
  http://www.artkabinett.com/content/frances-wealth-tax-explained
and http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/Estate-Tax

This is nothing new or unexpected.  From a government's point of view, bitcoin is just another asset to be taxed and regulated.

[BTC_MACD]

This is nothing new or unexpected.  From a government's point of view, bitcoin is just another asset to be taxed and regulated.

And it could also be a way for them (or those that control them) to bring in a cashless society and a one world currency. I saw an article today on Sky News about bitcoin suggesting it was a way of "fighting governments and banks". A sure sign that they are behind it IMO (a bit like wikileaks (I mean if he was giving away classified information why tell people where to find it?)).

Whether their behind it or not I think it's a mistake not to be in it.