Do you really think governments will allow a 500 billion dollar crypto-economy?

[bryant.coleman]

The size of the Black market economy is 10 Tr USD. So if BTC goes mainstream, and gets accepted by the black market mafias, a 1,000x increase in valuation is not impossible. 

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[DeathAndTaxes]

Well once again $1T economy doesn't require $1T in cash.   i.e. the world economy $75T annually runs on ~$10T in cash (M0).

Money supply is a timeless value.  Values of economies (i.e. GDP) are timed value (i.e. usually $x per year).  You can't directly compare the two and they will never exactly equal each other unless velocity is 1.  Usually the same unit (dollar or Bitcoin) can be used in MORE THAN one transaction per year and thus the velocity is >1.

[Doublelucky]

Well once again $1T economy doesn't require $1T in cash.   i.e. the world economy $75T annually runs on ~$10T in cash (M0).

Money supply is a timeless value.  Values of economies (i.e. GDP) are timed value (i.e. usually $x per year).  You can't directly compare the two and they will never exactly equal each other unless velocity is 1.  Usually the same unit (dollar or Bitcoin) can be used in MORE THAN one transaction per year and thus the velocity is >1.

I'm new on here but I always pay close attention to your posts, after reading through some older epic threads (circa 2011) where you posted and seem to always know what you're talking about

I understand that you can't quite compare GDP market caps with bitcoin (it's just encouraging and fun to see the comparison)

What would bitcoin's market cap be more comparable to?

[Lauda]

Yes, they have to.

[wachtwoord]

Last time  I saw this Bitcoin was but a dot in that figure. One can't help but get sentimental 

 

[stompix]

Well once again $1T economy doesn't require $1T in cash.   i.e. the world economy $75T annually runs on ~$10T in cash (M0).

Money supply is a timeless value.  Values of economies (i.e. GDP) are timed value (i.e. usually $x per year).  You can't directly compare the two and they will never exactly equal each other unless velocity is 1.  Usually the same unit (dollar or Bitcoin) can be used in MORE THAN one transaction per year and thus the velocity is >1.

Like usual , appreciating your post.
But can I have your view on the "velocity" of those two ? BTC and $ ?
I have the feeling that currently bitcoin is the tortoise looking at the number of transactions in the blockchain.

[eldentyrell]

Main conflict here is that governments are only willing allow things to grow if they get a slice of the action and is ultimately in control.

The most important historical reference here is the USA's ITAR restrictions on cryptography in the late 90's.  They simply couldn't enforce it and had to give up -- not because they wanted to allow it, but because they were forced to admit they couldn't stop it.  It was a colossal loss of face for the US government.  In fact export of a lot of everyday crypto technology is still technically prohibited without a license but nobody bothers to ask for the license.  So crypto export happens even though it isn't allowed.

So, it has happened once already, and quite recently too.  Don't be so quick to berate people who think it could happen again.

To answer your question directly: no, they won't allow it, just like the US didn't allow the export of encryption technology.  But it happened anyways.  So I think the question is likely to be moot.  I think the likely endgame is something similar to the ITAR situation where you're supposed to have some sort of license but nobody bothers with it and the government knows it is unable to enforce the regulation.

[eldentyrell]

REALISTIC discussions.

I don't think we can have any sort of civilized discussion if you are going to insult people.

Agreed, I think this is a troll thread.

[eldentyrell]

OP, if you re-run your analysis assuming that individuals in government will look after their own self-interest and that of those closest to them, does this change the game-theory outcome?

There's a selection effect in play here, where the kinds of people who become career-track civil servants are those who believe the government is somewhat immortal/omnipotent/eternal, or at least damn stable.  Whether it's true or not is another thing.  Some people believe this, some don't… the ones who believe it are much more likely to be civil servants.  These people have a really really really really high threshold for jumping ship… major cognitive dissonance.  As in, about as likely as me applying for a job at the NSA.  It would take something truly apocalyptic.

The way I see it is that once bitcoin is a credible threat, individuals in governments will hedge.  Those that hedged early will see they have more to gain by allowing bitcoin to win than by supporting the collapsing status quo.  They will tow the party line in public, but act in private in ways the stealthily support bitcoin.  

That's nice, but the in-private actions of bureaucrats are no more relevant to government policy than the in-private actions of non-bureaucrats.  My point is, even if these people are hedging in private that fact isn't going to deter obnoxious+hostile laws and regulations from being promulgated.

[DeathAndTaxes]

But can I have your view on the "velocity" of those two ? BTC and $ ?
I have the feeling that currently bitcoin is the tortoise looking at the number of transactions in the blockchain.

We have very limited data to work with.  Velocity is the metric which balances money supply and GDP.
GDP = Velocity * Money Supply.

In plain english terms
(economic activity) = (avg number of times a $/BTC is involved in an economic transaction) * (money supply)


Change in velocity is why we have seen little inflation despite the fed printing an insane amount of cash.  If velocity remained constant we would have seen massive price inflation which would drive up at least the nominal GDP and force companies to spend their rapidly depreciating cash reserves.  Everyone has heard about how much the fed is printing (increase the money supply) however the other component is velocity and in this lackluster recovery velocity has collapsed.  More money is offset by less transactions per unit (dollar) and thus the economy remains sluggish.


BCT image proxy doesn't like the image so here is a direct link to the chart: http://research.stlouisfed.org/fred2/graph/?s[1][id]=M1V


In the Bitcoin world I don't know of any detailed analysis of GDP or velocity.  The nature of Bitcoin makes that difficulty,  although as Bitcoin gets larger I imagine economists will attempt to estimate the GDP just like they do other economies.  Even in "real" economies GDP, velocity, inflation, and even money supply are just estimates. 

One crude way would be to look at things like blockchain.info "estimated transaciton volume".  Blockchain attempts to remove the change from the transaction, but not all those transactions are "economic" and thus don't contribute to the "Bitcoin GDP".   Someone moving coins from one wallet they own to another wallet they own is not economic activity, anymore than moving $100 from your checking account to your savings account adds to the US economy.  Per blockchain.info there were 73 million BTC in transactions in 2013.  The average money supply for 2013 was 11.4 million BTC.  If we assume all blockchain tx were economic (not likely) and there were no economic off blockchain tx (not likely) that would be a velocity of ~6.5.  The hard part would be quantifying economic tx vs non-economic txs.

In comparison, national economies generally have a velocity of between 5 to 10 when looking at the M1.  Bitcoin is technically more like M0 but it probably displace the utility of M1 so that might be a better comparison.   Currency is a store of value, and a unit of account (used in transactions).  Bitcoin has been primarily the former but if it was used in transactions heavily I would imagine it would have a velocity on the high end of national currencies (i.e. velocity of 8 to 10 or higher).  On the other hand if BTC remains primarily a store of wealth and not a transactional currency it could have a very low velocity.  I don't know if anyone computes the velocity of gold (or more specifically gold bullion and coins) but my SWAG is that it is very low (<1).  A lot of gold once minted simply never changes hands for years or even decades.

TL/DR version:
We don't have enough information to estimate with any degree of accuracy the velocity, or GDP of the "Bitcoin economy".  Most national economies have a velocity (M1) of 5 to 10.  If we Bitcoin ends up similar that would mean supporting a $10T economy would mean a money supply valued at $1T to $2T.  On the other hand if Bitcoin was used more as a store of value then it would drive down velocity and increase the value of the money supply.

[mtnminer]

It is whether the banking cartels which largely control governments will allow bitcoin. Clearly they are already scared as you see US bank accounts shut down for depositing and withdrawing from exchanges.

But Governments aren't just run by bankers, there are other interests involved, like Silicon Valley in the US which now holds a lot of sway in Washington D.C. and is all for BTC. We in the Bitcoin community have to get organized. We have to support those with counter interests to the banks and the Basel based Western powers, so they can support us. We need to set up a rock and a hard place for the banking cartels of Basel, New York, London etc.

The banking cartels will not allow themselves to be relegated to an obsolete middle-man of history pushed aside by an emergent technology. I'm not saying that their victory is assured, but they will have no choice but to take a swipe at us, as they are already doing.  Right now without any real organization we look like easy prey. We must tip the balance and quickly.

I am considering how good strategy might play out, both from the bankers' perspective and ours, but it is clear to me at least that we must become organized if we are even to have viable discussions of successful strategies. I don't know that being nebulous and distributed/decentralized is enough. Although certainly educating every user back to annonymity is important.

No crypto can make all the banks close down.
You have to understand that banks don't just issue credit cards or allow you to deposit your money with interest.

Banks also lend money!
How will bitcoin lend money? Stop with the transpiration and FUD theory.
Banks and bitcoins can go along very well.

BTCJam is a bitcoin community loan system.  It works very well, bitcoin users fund loans for others and receive loans from bitcoin users.  There is a rating system that works very well, and arbitration system and You choose the loans you choose to participate in and your risk.

Mtnminer

[Peter R]

Well once again $1T economy doesn't require $1T in cash.   i.e. the world economy $75T annually runs on ~$10T in cash (M0).

Money supply is a timeless value.  Values of economies (i.e. GDP) are timed value (i.e. usually $x per year).  You can't directly compare the two and they will never exactly equal each other unless velocity is 1.  Usually the same unit (dollar or Bitcoin) can be used in MORE THAN one transaction per year and thus the velocity is >1.

Interesting.  Would you agree that the M3/M0 ratio would be larger in a fiat-based economy than in a bitcoin-based economy?  

For example, I have very little "cash" at home, but plenty in the bank.  Of course my cash at the bank is not my cash at all and is instead lent out, thereby increasing velocity.  In a fully-developed bitcoin economy, I believe I would store a much larger fraction of my bitcoins in a paper wallet, outside any bitcoin banking system that emerges.  Perhaps a lot of economic participants would be content to sit on paper wallets and slowly take advantage of the natural deflationary gains, rather than risking their coins by lending them out.  

When you factor in those in the top tiers of the wealth distribution holding in excess of (say) 75% of the coins, could not velocity in a fully-developed bitcoin economy drop below 1?

I wonder if we can find historical data on velocity during times when gold coins circulated freely (and rich lords had huge vaults full of the stuff).  

[wachtwoord]

TL/DR version:
We don't have enough information to estimate with any degree of accuracy the velocity, or GDP of the "Bitcoin economy".  Most national economies have a velocity (M1) of 5 to 10.  If we Bitcoin ends up similar that would mean supporting a $10T economy would mean a money supply valued at $1T to $2T.  On the other hand if Bitcoin was used more as a store of value then it would drive down velocity and increase the value of the money supply.

We can easily shelve this and reopen it later with more information. Even $1T implies ~$48k per Bitcoin

[justusranvier]

There's a selection effect in play here, where the kinds of people who become career-track civil servants are those who believe the government is somewhat immortal/omnipotent/eternal, or at least damn stable.  Whether it's true or not is another thing.  Some people believe this, some don't… the ones who believe it are much more likely to be civil servants.  These people have a really really really really high threshold for jumping ship… major cognitive dissonance.  As in, about as likely as me applying for a job at the NSA.  It would take something truly apocalyptic.

The fraction of government employees who are True Believers is fairly small, at least in the US.

The typical government employee is disgruntled to at least some degree and is there for the pension.

[stompix]

But can I have your view on the "velocity" of those two ? BTC and $ ?
I have the feeling that currently bitcoin is the tortoise looking at the number of transactions in the blockchain.

We have very limited data to work with.  Velocity is the metric which balances money supply and GDP.
GDP = Velocity * Money Supply.

In plain english terms
(economic activity) = (avg number of times a $/BTC is involved in an economic transaction) * (money supply)


Change in velocity is why we have seen little inflation despite the fed printing an insane amount of cash.  If velocity remained constant we would have seen massive price inflation which would drive up at least the nominal GDP and force companies to spend their rapidly depreciating cash reserves.  Everyone has heard about how much the fed is printing (increase the money supply) however the other component is velocity and in this lackluster recovery velocity has collapsed.  More money is offset by less transactions per unit (dollar) and thus the economy remains sluggish.


BCT image proxy doesn't like the image so here is a direct link to the chart: http://research.stlouisfed.org/fred2/graph/?s[1][id]=M1V


In the Bitcoin world I don't know of any detailed analysis of GDP or velocity.  The nature of Bitcoin makes that difficulty,  although as Bitcoin gets larger I imagine economists will attempt to estimate the GDP just like they do other economies.  Even in "real" economies GDP, velocity, inflation, and even money supply are just estimates. 

One crude way would be to look at things like blockchain.info "estimated transaciton volume".  Blockchain attempts to remove the change from the transaction, but not all those transactions are "economic" and thus don't contribute to the "Bitcoin GDP".   Someone moving coins from one wallet they own to another wallet they own is not economic activity, anymore than moving $100 from your checking account to your savings account adds to the US economy.  Per blockchain.info there were 73 million BTC in transactions in 2013.  The average money supply for 2013 was 11.4 million BTC.  If we assume all blockchain tx were economic (not likely) and there were no economic off blockchain tx (not likely) that would be a velocity of ~6.5.  The hard part would be quantifying economic tx vs non-economic txs.

In comparison, national economies generally have a velocity of between 5 to 10 when looking at the M1.  Bitcoin is technically more like M0 but it probably displace the utility of M1 so that might be a better comparison.   Currency is a store of value, and a unit of account (used in transactions).  Bitcoin has been primarily the former but if it was used in transactions heavily I would imagine it would have a velocity on the high end of national currencies (i.e. velocity of 8 to 10 or higher).  On the other hand if BTC remains primarily a store of wealth and not a transactional currency it could have a very low velocity.  I don't know if anyone computes the velocity of gold (or more specifically gold bullion and coins) but my SWAG is that it is very low (<1).  A lot of gold once minted simply never changes hands for years or even decades.

TL/DR version:
We don't have enough information to estimate with any degree of accuracy the velocity, or GDP of the "Bitcoin economy".  Most national economies have a velocity (M1) of 5 to 10.  If we Bitcoin ends up similar that would mean supporting a $10T economy would mean a money supply valued at $1T to $2T.  On the other hand if Bitcoin was used more as a store of value then it would drive down velocity and increase the value of the money supply.

Thanks for the explanation , I appreciate it.
I also believe that lots of those transactions are from people changing addresses not even talking about some betting websites that artificially inflate the volume , or how the scammers from sheep market tried to run with the coins.

But still to think of bitcoins trying to replace this and the value it should reach for this sounds too good to be true for a bitcoin HODLr.

[iluvpie60]

A serious question.




Major investors and many people have been making predictions about bitcoin rising to 40,000 USD per coin.


Going by recent figures, that would mean the total market size of crypto economy will rise to half a trillion dollars.


That's easily more than half of several top 20 economies in the world. Around near 13% of annual US federal budget.




And it's supposed to be decentralized, anti-government.




Is there really a realistic possibility that a market of such size can exist without either 1. some form of governmental oversight/regulation, or 2. going fully underground as an illegal form of black economy?



Only recently a national government acted to shut down a significant portion of crypto economy. That's only when BTC reached 1200 USD. What do you think governments will do when they figure such a significant market is trying to become a national economy in its own right?


Realistic discussions please. How can crypto survive to reach the level many people want to see? Remember, nothing is particularly fool-proof. What has been made can be unmade. Nothing is absolute.


How can this work?


Discuss.

Crypto won't survive. That's the whole point. Look you could have had some other cool and fancy and amazing formula/equation or whatever you want. In the end the government is going to tax/regulate. If anyone is going to sit here and say this will be tax free with no regulations, you literally are some kind of self delusional free spirit thinker who thinks they know everything. Governments always tax, they always regulate, they always create laws/bills/amendments/policies/reforms.

The thing that puts me off the most about the virtual currency community by large, is that you all are so incredibly idealistic to the point of insanity. Come on down to earth and look at the track record of the US government. Don't sit there and say oh ra ra bitcoin da best, oh ra ra nothing can stop us, oh ra ra we are so incredibly hipster in the virtual world. Once everyone gets in on this almost none of you will even want to be associated with it. Same with Facebook, all the adults start using it, your parents, uncles, aunts, grandparents etc and everyone is fleeing Facebook and hopping on the twitter/instagram/pinterest/vine "next best thing that is for cool alt people".

I am extremely prejudiced against these type of people because my girlfriend has so many stupid friends like this (some are even into bitcoin) and they are the most annoying pretentious stupid people I have ever met.

[justusranvier]

Isn't it funny how people who hate Bitcoin and believe it will fail will somehow still take the time and effort to register on this forum and talk about it?

How often do people actually do that in real life?

I know I've never taken the time to register and hang out in a forum relating to things I'm not interested in, and I also know there are people who are paid to do exactly that:

http://www.rawstory.com/rs/2011/02/18/revealed-air-force-ordered-software-to-manage-army-of-fake-virtual-people/

[iluvpie60]

Isn't it funny how people who hate Bitcoin and believe it will fail will somehow still take the time and effort to register on this forum and talk about it?

How often do people actually do that in real life?

I know I've never taken the time to register and hang out in a forum relating to things I'm not interested in, and I also know there are people who are paid to do exactly that:

http://www.rawstory.com/rs/2011/02/18/revealed-air-force-ordered-software-to-manage-army-of-fake-virtual-people/

I like bitcoin if you are addressing it towards me.

[eldentyrell]

There's a selection effect in play here, where the kinds of people who become career-track civil servants are those who believe the government is somewhat immortal/omnipotent/eternal, or at least damn stable.  Whether it's true or not is another thing.  Some people believe this, some don't… the ones who believe it are much more likely to be civil servants.  These people have a really really really really high threshold for jumping ship… major cognitive dissonance.  As in, about as likely as me applying for a job at the NSA.  It would take something truly apocalyptic.

The fraction of government employees who are True Believers is fairly small, at least in the US.

Uh, who's talking about True Believers?

The fraction of government employees who think the current form and amount of government will persist for the rest of their lifetime -- and will retain its current degree of control over society and the economy -- is damn near 100%.  Otherwise….

The typical government employee is disgruntled to at least some degree and is there for the pension.

… they wouldn't assign so much value to that pension.

In order to "jump ship" that civil servant has to admit to himself/herself that all those years spent working towards that pension were wasted.  Most normal people have a hard time taking a step like that.

[nodroids]

The governments around the world are all heavily debt laden. They used housing bubble to save the IT bubble from crashing, now when housing bubble crashed, they need another bubble that is magnitudes higher than previous housing bubble (e.g. at least one million dollars investment/consumption from every person) to restart the economy, and the best choice is bitcoin, since it has the ability to grow to whatever size when needed

The first government who mass invest in bitcoin will first get their economy back on track, because the extremely high return of bitcoin investment would help them to get rid of their debt quickly

http://sterlingdesktops.com/Stocks/obama-national-debt-thumb.jpg

I agree with the fact that some major institutions will benefit greatly from using bitcoin, it might not necessarily be a government  anytime soon, but some major institutions will/is adopting it.  We need to find and encourage those institutions with what little power and influence we have.

We need to create allies to stand up to the banks with us. We need to be able to surround the Basel based cartels with counter-levers.

We will need some legal or at least wink-wink nudge-nudge jurisdictions where we can convert into other forms of liquidity, whether gold or IMF money.

I personally think that bankers and those regulators in China and India (especially China) are already buying big into bitcoin for themselves personally. Watching trading closely with the BTCChina.com price movement, and knowing Chinese culture, where corruption and well positioned networks taking care of theselves isn't really considered corrupt like we in the West do, I think there is little doubt that the very Government officials who banned deposits onto the exchanges are themselves getting Yuan on the exchanges. Even if they aren't getting their own deposits on right now, the Chinese population assumes that's what's happening.  It's just the accepted way their economy and culture works, it's considered normal.


I think we will have to consider diversions and distractions as key in our maneuvering. We will have to show the Basel, London, New York cartel “one main initiative” while actually going after multiple lesser initiatives more quitely. Remember, many within the cartels and governments know just how messed up it all is even more than we do, and are probably hedging their wealth just like we do. So it's not that the beast is totally committed against Bitcoin. Officially as an institution they may be, but as component individuals in those institutions they are not, so we already have our “double agents within the enemy. “

China is a great example, right now as the world's 2nd largest economy they have practically no power in the IMF and global banking/printing regime. They have no derivatives market power from the Yuan, they have no international repo market power. This is why they are buying shit tons of gold and have printed $15 Trillion in the last 5 years (there really is shit tons of money to get out of China). They are getting ready to assert themselves by playing unfairly. They are waiting for the natural cracks in the Western alliances to form, then China will say, oh look, we have real money, gold and real copper, and real, etc., etc. They already have the influence  all over Africa and Asia to the point of boxing out all Western corporations from getting any major new (mostly engineering) contracts.

Why wouldn't it be in  China's interests for example to get a contract with Friedcat and right now on the exchanges be buying Bitcoin , and then back 2 million BTC with gold as a part of asserting themselves into the new global reserve system (whether or not that new system is the reworked Special Drawing Rights regime when the IMF gets reshuffled).
Many states have been screwed by the Anglo-American-Basel power triangle, why wouldn't they give Bitcoin a home and thus let more bitcoin flow to them? The central bank of Malaysia is cuttting edge and has been diversifying into very innovative baskets of reserves for a long time, why wouldn't they buy bitcoin and give it a home?

We just need to provide a few side doors for the powerful who are inside the Anglo-American-Basel triangle to feel secure in the liquidity of their own personal Bitcoin reserves. And then we secure Bitcoin's double-agents in the halls of Basel, the Square-Mile of London, on Wall Street and in Washington.

We should probably set up a fund for legal and political economic lobbying and alliance building. Just laying down when finally libertarians have a real chip on the grand poker table of world affairs would be to act like the slaves they try to make us think we must be. ... When it's time to go all in! Show some f*ck*ng balls my fellow libertarians! Do not just bow down because they dangle power over you like it's naturally theirs in the physical order of the universe. It is mostly in all our minds, it is phenomenological 'power' first! They have pieces on the board of the chess match of perception and belief, but so do we (and most of all, let them play chess while we play Go). Their fiat is weak, everyone knows it. We must see their strengths and weaknesses but also our strengths and weaknesses... And play to win!