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Author Topic: Comparison of currencies and trading schemes  (Read 2412 times)
herzmeister
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January 13, 2012, 12:56:31 PM
 #1

When discussing Bitcoin, I noticed that we have been brainwashed into believing that there can be only one currency. In my view, Bitcoin can help to free currency and trading from the hands of governments (depoliticization, in the spirit of division of power). In that vein, I try to explain that in a free world, there will be different currencies we can use, each have their own advantages and weaknesses, and we would choose accordingly in each situation.

In order to illustrate that and because I don't want to shove Bitcoin down people's throats praising only its advantages, I started to make an overview that compares strengths and weaknesses of currencies and trading schemes:


Code:

                                          Gold/                                                                 Minutos/
                                          Silver/       Cash          PayPal                                    Local
                                          Shiny metals  (eg US$)      and similar   LETS          Ripple        DIY-IOUs      Bitcoin


Perceived precious "material" value       ++            --            --            --            --            --            --

"Tangible"                                ++            ++            --            O             --            ++            --

Stable value/fairness (no speculation)    O             O             O             ++            ++            ++            --

Not largely held by today's elites        --            --            --            ++            ++            ++            ++

No need for a social net of trust         ++            ++            ++            --            --            --            ++

No need to trust in governments           ++            --            --            ++            ++            ++            ++

Potentially pseudonymous/anonymous        ++            ++            --            --            O             --            ++

Decentralized issuance                    O             --            --            ++            ++            ++            ++

Environmentally friendly extraction       --            --            O             ++            ++            ++            -

Decentralized transactions management     ++            ++            --            O             ++            ++            ++

Instant world-wide (digital) transfer     --            --            +             --            ++            --            ++

Today's ubiquity                          ++            ++            ++            --            --            --            --



++ = very good
O  = neutral / does not apply / depends
-- = very poor

Any questions, suggestions, corrections, opinions, additions welcome.


Updates:

  • Added: Not backed by "trusting government"
  • Added: Free from control of today's elite
  • Improved some wording
  • Added: Environmentally friendly extraction

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January 13, 2012, 12:59:06 PM
 #2

You may want to add something about how divisible it is....

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January 13, 2012, 02:35:06 PM
 #3

You may want to check what Bernard Lietaer has to say about monetary diversity (Poptech video in English): http://www.e-ducat.fr/?p=195.
In essence, we are stuck today with an outdated monopolistic monetary system (dating from the 17e century) when in fact monetary diversity is waht s needed in a digital age. Technology allows us to run different systems in parallel when the 1% want us to keep using the system they are controlling (USD or EURO or whatever).

Patrick Villeret, a French economist, also advocated complementary currencies as early as 2006 when he set up the SOL in used today in several cities of France (the SOL is pegged to the Euro).
In Switzerland, the WIR has been in use since the thirties.
Its important to realize that in current estimates 97% of the transactions in Euros or USD (in volume) are performed by the financial community and only 3 % by the rest of the economy (ie the productive sectors).

herzmeister
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January 13, 2012, 02:42:11 PM
 #4

You may want to check what Bernard Lietaer has to say

Yap, it was him who criticized Bitcoin of being speculative. I acknowledge that. He advocates local currencies. But these also have weaknesses. Hence my motivation to create this overview.

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herzmeister
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January 13, 2012, 02:51:52 PM
 #5

You may want to add something about how divisible it is....

I tried, but I find any of these currencies is basically "divisible" enough. I find I have to explain this to people only specifically in the context of the 21 million limit of Bitcoin.

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finway
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January 13, 2012, 02:55:58 PM
 #6

Good comparison.

grondilu
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January 13, 2012, 03:01:35 PM
 #7

That's a usefull and apparently accurate overview.  Should be in the Wiki if it's not already.
herzmeister
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January 13, 2012, 04:46:51 PM
 #8

tnx, didn't find such an entry in the wiki yet.

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January 13, 2012, 06:03:21 PM
 #9

You may want to check what Bernard Lietaer has to say

Yap, it was him who criticized Bitcoin of being speculative. I acknowledge that. He advocates local currencies. But these also have weaknesses. Hence my motivation to create this overview.
Your overview is a useful exercise albeit perilous in avoiding the comparison between apple and oranges. Lietaer failed in connecting the dots between local currencies and complementary currencies.

It seems that bitcoin fits in the "think global" of the now famous "think global, act local" motto.
Local currencies are an expression of local initiatives but they lacked a resilient technology implementation before the inception of bitcoin.

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January 14, 2012, 01:34:23 AM
 #10

In a free market there is competition in everything, even currencies.  Ron Paul wants to allow competing currencies against the USD.  Monopolies should never be protected.  The only thing that needs protection is personal Liberty.
herzmeister
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January 14, 2012, 03:57:10 PM
 #11

Lietaer failed in connecting the dots between local currencies and complementary currencies.

It seems that bitcoin fits in the "think global" of the now famous "think global, act local" motto.
Local currencies are an expression of local initiatives but they lacked a resilient technology implementation before the inception of bitcoin.

There is a slide at 21:50 in your video that shows "Matrifocal Societies" and "Dual Currency Systems: Patriarchical one for long distance trading, different type of currency (bottom up) for local exchanges".

The patriarchical one can be Bitcoin, and the bottom up would be local trading schemes based on trust. I agree and that is exactly what I intend to say with the overview as well.

I do not necessarily agree with you that these local currencies have to be based on and backed by Bitcoin.


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January 14, 2012, 05:56:23 PM
 #12

Good idea. I would argue that cash in fact is perceived as "precious material." An average person would have same thoughts at the sight of a pile of gold or a pile of cash. Both kinds of materials are treated as precious - guarded, etc. Also used to show off by people who are inclined to.

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herzmeister
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January 24, 2012, 10:37:07 PM
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I experienced most folks know by now that today's money's doesn't have any inherent material value, and also that it isn't backed by and redeemable for any. For the aspect you mention I introduced "tangible".

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February 10, 2012, 10:52:59 PM
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Lietaer failed in connecting the dots between local currencies and complementary currencies.

It seems that bitcoin fits in the "think global" of the now famous "think global, act local" motto.
Local currencies are an expression of local initiatives but they lacked a resilient technology implementation before the inception of bitcoin.

There is a slide at 21:50 in your video that shows "Matrifocal Societies" and "Dual Currency Systems: Patriarchical one for long distance trading, different type of currency (bottom up) for local exchanges".

The patriarchical one can be Bitcoin, and the bottom up would be local trading schemes based on trust. I agree and that is exactly what I intend to say with the overview as well.

I do not necessarily agree with you that these local currencies have to be based on and backed by Bitcoin.


I don't think bitcoin fits in the matrifocal/patriarchal dichotomy proposed by Lietaer. Bitcoin does not prevent or favor any behaviour like hoarding or fractionnal reserve banking to the detriment of some other behavior like spending. In fact hoarding and spending are suppported equally well by a digital money in limited supply, infinitely divisible on the internet. Something old school economists have failed to predict. Then again they exist only to make meteorologists look good..

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February 17, 2012, 09:25:35 PM
 #15

the problem that i have with Bitcoin for local, largely self-sufficient communities is that it just doesn't give them much advantage. Why should they invest anything to mine or buy Bitcoins when all they need is to keep track of the services they provide to each other? LETS, mutual credits, self-made IOUs etc is better suited here, doesn't cost them anything.

but either way, so then let the market of free currencies decide i say  Wink

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February 17, 2012, 09:49:43 PM
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the problem that i have with Bitcoin for local, largely self-sufficient communities is that it just doesn't give them much advantage. Why should they invest anything to mine or buy Bitcoins when all they need is to keep track of the services they provide to each other? LETS, mutual credits, self-made IOUs etc is better suited here, doesn't cost them anything.

That's the beauty of internet and Bitcoin. A piss poor village in sub Saharan Africa, with a crap internet connection and a few people with cheap phones, can have powerful datacenters in India, Europe, and USA mine and secure their Bitcoin for them. It doesn't matter where on the planet you are or how weak your hardware is. Keeping that currency locally also allows them to buy globally without worrying if the next town over will accept their local currency, and they don't have to worry that someone in their group will reneg on their IOUs. Also, even mutual credits and IOUs will require some heavy accounting and records-keeping if it gets beyond each person owing only one other person. That's a difficult, full time skill. Bitcoin takes care of that for you, so they can instead spend their time on more important things.

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February 17, 2012, 10:31:42 PM
 #17

Self-issued DIY-IOUs like the German minuto-zeitgutscheine are completely decentralized. They are promissory notes in their literal sense. You and everyone can print them at home, sign them with your name (it's notarial!), put them into circulation by buying goods and services from those who accept, while providing service yourself for all of these notes in the community.

Thus, these (and Ripple) don't have much of this centralized "administration overhead" (this will be another good point in my overview, thanks).

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February 17, 2012, 10:51:50 PM
 #18

When discussing Bitcoin, I noticed that we have been brainwashed into believing that there can be only one currency.
I'm not sure where you get that impression.  I think this is a view that's more prevalent outside the bitcoin community.  Or are you saying that when you discuss bitcoin with people that they tend to dismiss the idea because they believe their can only be one currency?

One thing I would add to your chart is counter party risk.  Debt instruments have counter party risk (of default).  Gold and Bitcoin do not.  Cash is an interesting one…even though the paper itself does not have counter party risk, it is backed by debt.  It's valuation can fluctuate dramatically in both directions when there are systemic debt related problems (such as widespread over-indebtedness).  Also, with gold and bitcoin, while they don't have direct counter party risk, you do have valuation risk that can be intimately related to conditions in credit markets.

(gasteve on IRC) Does your website accept cash? https://bitpay.com
hashman
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February 17, 2012, 10:58:41 PM
 #19

Nice list Smiley  How about adding:  publicly verifiable money supply? 

There are some advantages to complete elimination of counterfeiting and other secret inflation. 
herzmeister
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February 17, 2012, 11:09:43 PM
 #20

I'm not sure where you get that impression.  I think this is a view that's more prevalent outside the bitcoin community.

yap, I meant when discussing Bitcoin with outsiders. They are too used to "officially" enforced currencies, so it's all black-and-white for them. I then say Bitcoin is *not* enforced by anyone, and they could use any of these other currencies or trading schemes if they don't feel comfortable with it (where's that gold bug spray when you need it  Cheesy).

One thing I would add to your chart is counter party risk.  Debt instruments have counter party risk (of default).  Gold and Bitcoin do not.

Good point, thanks, although "No need for a social net of trust" already may cover this.

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