Bitcoin, Capitalism, Democracy and Decentralisation

[Gyfts]

the high school economics think double the money in a country is a tax as it doubles the price of goods..
but this is not true

Well, it technically can, just to a certain extent. You can look at the M2 charts for the US and see how steep the increase is from around March 2020.

Set that aside, look at the federal reserve balance sheet, massive increase in the federal reserve liabilities because they are trying to inject money into the economy by quantitative easing. Well, at some point you can't keep taking on debt without inflation running away.

And as it turns out, the inflation rate for the US is something like 5 percent. So what was the benefit of injecting more money that has ever been printed in human history over the span of 1.5 years? Increased prices for goods.

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[brainactive]

I believe that’s why Bitcoin should never substitute the existing financial system, too many things can go wrong and there are benefits to the centralized control, e.g., as you said, acting in emergency situations, or fighting the crisis.

Bitcoin shouldn’t be a full substitution, because it could never fulfill some of the fiat functions, but rather it should be a perfect complement to it. Then people will have more freedom, but, in the general matter and in extreme situations the government would be able to act on its own.

Agreed that it makes more sense for Bitcoin to complement fiat rather than substitute it, because fiat system has a last-resort mechanism (money-printing) for catastrophic situations and a Bitcoin standard doesn't. Having the option is better than not having the option because it can act like insurance when needed (even though it can also lead to some mis-allocation and benefits some at the expense of others). On balance, I think it makes sense to have the option.

So if we think that there are merits to a fiat system and it makes sense for fiat system to sit alongside Bitcoin, then the next question is: does it make sense for governments to hold Bitcoin as reserves?

Personally I don't think so because there aren't sufficient advantages to holding Bitcoin (vs gold) from government perspective.
- Government gold reserves are just sitting there. There's no need to transport or transfer much. So Bitcoin's advantage of being easy to transfer/transport is irrelevant.
- If governments were to hold Bitcoin, holding a single private key which gives access to their entire reserves is a bit laughable.

Keen to hear any opposing perspectives though.

[pooya87]

The reason why the regulators have been reluctant to give the green light to digital currency all the way is because they are worried that the digital currency market will be manipulated and become a tool for certain institutions and individuals to plunder everyone’s wealth.

That is a very broad statement you are making, starting with generalizing "cryptocurrencies" and not just bitcoin. For example majority of countries are reluctant to show any positive reaction to altcoins, specifically the ICO scams and the alternative names simply because they are scams.
But when it comes to bitcoin everything is different. There are lots of countries in the world and their stance goes from adopting it with open arms as a legal tender all the way to outright banning it and imprisoning anyone using it. But mostly the reason why any government is hesitating about bitcoin is because it is decentralized and they can't control anything about it. Otherwise they don't care about market manipulation and people's wealth!

[brainactive]

But mostly the reason why any government is hesitating about bitcoin is because it is decentralized and they can't control anything about it.

I don't think this is necessarily the case. Guess it depends on which government.
- China government: yes you're probably right.
- US government: I don't completely agree. I don't think its control/decentralised nature of bitcoin that they're concerned about. I think they just don't really see the benefit of getting involved (see below).

So if we think that there are merits to a fiat system and it makes sense for fiat system to sit alongside Bitcoin, then the next question is: does it make sense for governments to hold Bitcoin as reserves?

Personally I don't think so because there aren't sufficient advantages to holding Bitcoin (vs gold) from government perspective.
- Government gold reserves are just sitting there. There's no need to transport or transfer much. So Bitcoin's advantage of being easy to transfer/transport is irrelevant.
- If governments were to hold Bitcoin, holding a single private key which gives access to their entire reserves is a bit laughable.

[pooya87]

I think they just don't really see the benefit of getting involved (see below).

"Benefit" or "Control" or whatever else you want to call it, they are two sides of the same coin. Bottom line is that governments have no say in anything when it comes to bitcoin. For example they can't print more of it or censor transactions. Or in case of US government when they sanction countries left and right they can easily block every fiat transaction but they can never prevent people from using bitcoin. So that doesn't sit right with them that such a simple tool is completely out of their control that has made them powerless.

[brainactive]

"Benefit" or "Control" or whatever else you want to call it, they are two sides of the same coin. Bottom line is that governments have no say in anything when it comes to bitcoin. For example they can't print more of it or censor transactions. Or in case of US government when they sanction countries left and right they can easily block every fiat transaction but they can never prevent people from using bitcoin. So that doesn't sit right with them that such a simple tool is completely out of their control that has made them powerless.

These tools are not out of their control though. They can still sanction countries and print money all they want because just like how Bitcoin can't be banned and will always be around, so will fiat. And governments know this. Because fiat can act as a last resort mechanism. And Bitcoin can't. So fiat is not going away and governments are not afraid of Bitcoin threatening their tools. Government don't want to buy in because they don't see how it's better than gold for reserves. They don't need to transport their reserves very often and they don't need a censorship resistent currency because they're the ones doing the censoring. Based on governments use cases Bitcoin is not superior to gold so they're likely to keep using gold for their reserves. Even if governments were to think about it objectively this is a decision that makes sense for them.

[AicecreaME]

Governments have copped a lot of flack ever since the start of the pandemic, with gasps and finger-pointing as they printed trillions of stimulus.

Is the idea of money-printing by centralized authority bad? When does it make sense to have a centralized leadership and when doesn't it? And more importantly, if the world was on a bitcoin standard when the pandemic started, what could have been done better? These are some of the questions I want to discuss.

The argument against money-printing is that it can lead to monetary mismanagement and currency debasement, both of which are bad for the general public. However, if we are faced with an emergency (such as global pandemic), what's the alternative? Let the markets sort it out? Let the general public decide how fiscal spending should be allocated? Allow the general public to decide and vote on outcomes via a Decentralised Autonomous Government? Give power back to the individuals and hope they can decide what's best in the midst of all the chaos? I just don't see how that's any better to be honest.

Sometimes there are merits to centralized control. For example, what would happen if Tesla was a Decentralised Autonomous Organisation and didn't have a central authority? Would the general public be able to create self-driving electric cars with their token votes? That just seems ridiculous.

Unpopular opinion, but I think the same applies to government. Yes, there are some shady people there (with their own incentives), but again what's the alternative? Under a bitcoin standard, you can argue that incentives are more aligned to general public. Ok so what does that mean? Well, we allow markets to crash and let markets do their thing and things will naturally sort themselves out. We have more wild swings in the cycle. Is this better than the current system which artificially smooths things out? It's hard to say. It's sort of like home insurance. Most of the time you pay premiums and your house s fine, but when your house collapses, then with insurance you're at least got a safety net. But over time, the insurance premiums will eat away at your savings (just like how money-printing will eat away at your savings over the long term).

Excessive money printing is bad for the economy. Whenever the government and the central organizations decide to print much money, they disrupt the market and the economy in general. No matter how the money is spent, the effect such as inflation will be noticeable. Although sometimes when the money is used properly, the negative effects aren't much of a problem. The issue just comes out whenever they use the money in the wrong way and they print so much to the point that the money loses its purchasing power.

Having a democratic country being lead by stupid and corrupt politicians is the worst thing that any citizen could have. During this pandemic, a strong, strategic, and compassionate leader is what the people need. However, most countries aren't really fortunate to have such. Hence, the printing of much more money just becomes another problem because of fund mismanagement and corruption in the midst of a pandemic.

I don't think there is ever a greater alternative than electing people that are fit for the job and not just because they are popular or because of the dynasty. Having the right people in government positions would be of great help in addressing the country's problem in the economy and in capitalism as well. The cryptocurrency community would also benefit if the officials are open-minded and are in favor of crypto.

IMO, if the pandemic has started and we are living in crypto particularly on bitcoin, we will still have a hard time given that bitcoin is very volatile and a lot of people aren't aware of how it works. Adding the fact that there are many people in the marginalized sector who aren't even given basic healthcare and necessities, it would be very hard to adapt, unless of course, you have the privilege.

[noorman0]

However, if we are faced with an emergency (such as global pandemic), what's the alternative?

Depends on what emergency? In fact, printing money has always worsened the economy. Let's say because of the pandemic, I don't really believe that people need stimulus money instead of food sources to survive. However, the government doesn't look any further than that and just assumes it's all an economic problem and you know, in the end it prints money.

During the pandemic, even (ironically) rich people are worried and blamed the government a lot as as if all their money is not worth it at that time, on the other hand the government prints it. That is, money or bitcoin is not the main need during an emergency, precisely people who are really rich are people who have sufficient food reserves.

The reason is that the government is not always ready for emergencies. Only relying on printing money as the ultimate solution, where I believe every emergency requires a different solution that is more effective.

[swogerino]

I had the fortune to be in a poor country in the middle of the pandemic and Bitcoin to me was salvation because I could with only my signature money have food and everything needed for a month,without touching my mining income.That is the only part where I am completely pro decentralization and is personal money,like Bitcoin can be your personal bank or savings account in troubled times.

For everything else a regulatory entity like a government is always needed otherwise it would be a jungle where only the strongest would survive and I am sure no one likes this.Capitalism is good up to a certain point but I don't know any better economic system than it so we have to stick with it,Communism and Monarchies most of the time have failed miserably and people in these countries are falsely "happy" as they are oppressed yet they don't realize it.So for me Democracy and Capitalism are the best systems to live in,as for the money I prefer full control only by me which means decentralization.

[mrongoz_imut]

It is undeniable that the bitcoin phenomenon in digital finance has become a public concern because of the innovation of its decentralized system. The digital financial system gets a valuable contribution from the decentralized system through the peer-to-peer mechanism introduced by bitcoin. However, bitcoin faces several challenges that become obstacles, such as bitcoin exchange rate fluctuations that are too high, bitcoin's disguised character provides opportunities for criminal action, and legal problems, which is why bitcoin should not take control of the government. .