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Author Topic: Suppose you wanted to start a geographically localised bitcoin economy  (Read 2868 times)
fergalish
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April 13, 2012, 01:39:14 PM
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I've been thinking about this, in the context of the European crisis, Greek local currencies, Argentinean peso collapse, etc.  My question is: suppose you wanted to convince your locality to begin trade in bitcoins, eventually hoping that bitcoin would dominate the incumbent currency (e.g. you're a politician in Greece, or a popular businessman in Somalia etc.).

Well, here's a problem.  As soon as bitcoins start to be accepted somewhere (let's say... Athens!), well then, there would be a large influx of bitcoins to the Athens area from all over the world as people order Athenian products, causing a general inflation.  The effect on sellers would be negative, and the initial failure might even cause people to reject bitcoins.

So perhaps a better way to do it would be to create "The Athenian Bitcoin Bank" TABB.  This bank would obtain a reserve of bitcoins and issue a (paper?) currency, let's call it Tabbies, fully backed by their bitcoin reserve.  Anyone wishing to trade, then, would have to go to that bank, cash in their bitcoins and obtain Tabbies.  That way TABB could regulate the number of tabbies in the economy.  As long as the bitcoins at TABB's public address don't go missing, then everyone's tabbies have a fixed bitcoin-backed value.

Ok, so it's clear that it might not work out that way.  Even if you think the bank is unnecessary, is it possible that initial localised adoption might trigger increased localised bitcoin velocity and therefore inflation?  i.e. bitcoin has to be adopted everywhere simultaneously, or nowhere?

Just thinking.
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April 13, 2012, 02:00:27 PM
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How would an influx of bitcoins into a specific geographical location be detrimental?

The value of a bitcoin is not tied into how many your neighbor has, but how much it can be exchanged for, e.g. how many apples/widgets/dollars/drachma I can get for a bitcoin. The idea that merchants experiencing an increased number of bitcoin based sales would consider them worth less because of it doesn't make sense to me.

My hometown of San Antonio has a very healthy tourist based economy. Is the dollar worth less here than in other cities just because visitors happen to leave with fewer dollars than when they arrived? On the contrary, the cost of living here is well below the national average.

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April 13, 2012, 02:45:27 PM
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Yeah I agree with 2nd poster, you're misunderstanding inflation - its like saying our danish crowns are worthless because we have a lot of them right here.

BTC would most likely RAISE significantly in value if a country or even a small town took up using them.

This would happen even if people sold them right after usage:

1. Forced user buys BTC. Price raises to Y.
2. Uses BTC.
3. Receiver sells BTC. Price falls back down to X.

This pattern is repeated by many people and as such once saturation happens someone will ALWAYS be in step 2 at a BTC value Y and to trade you will have to wait forever or buy at this higher Y rate.


Now since the country would be an early adopter later generating its own huge BTC interest/price spike the central bank of that country could make a HEFTY profit.

Further the country would not have to worry about trade balance as regards to its currency value anymore (here we have to worry since we are small = if too much money goes out the country and not in -> inflation/huge currency drop).

With BTC the price is determined internationally.

All in all unless robbing your poor populace is your goal BTC would be a great boon to any community.

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April 13, 2012, 03:06:43 PM
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I understand your points.  In the example given, as long as the Athenians could find a way to get bitcoins out of Athens again, then the price should stabilise.

The example of dollar tourism is different or Danish crown - those currencies are already established.  Tourism providers in San Antonio use their dollars to buy stuff from elsewhere, so total dollars in San Antonio is constant.  Suppose after 20 years we had a curious situation in which all bitcoins were in Athens - i.e. only Athenian shops accepted them.  Then 1 bitcoin would be valued at GDP(athens)/21million, which is much lower than if bitcoins were accepted worldwide: 1BTC=GDP(world)/21million.

So... an influx of bitcoins into one area, without a corresponding outflux, would probably cause bitcoin related inflation in that area.  It wouldn't be stable though - it would become cheaper for Athenians to buy their products elsewhere then, so bitcoins would exit the area.  My question is,... well, I'm not sure what my question is.  I think BTC would increase in value for everyone else if some town/country started using them, but not necessarily in that town/country.  Or at least there would be an initial bumpy period.

@edd: if a merchant sees demand for bitcoin priced objects increase, he will increase his bitcoin price.  Simple Supply and Demand.  Value of bitcoin is not related to how many my neighbours *have*, but by how many are in circulation. If my neighbours have lots, and spend lots, then total circulation is higher, and value is lower.

@Realpra: suppose someone suddenly came along and bought up half of all Danish crowns.  They would suddenly be worth twice as much.  Likewise, if someone suddenly floods the market with them, they become worth less.  That's the basis of currency exchange.
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April 13, 2012, 03:19:45 PM
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@edd: if a merchant sees demand for bitcoin priced objects increase, he will increase his bitcoin price.  Simple Supply and Demand.  Value of bitcoin is not related to how many my neighbours *have*, but by how many are in circulation. If my neighbours have lots, and spend lots, then total circulation is higher, and value is lower.

You're making a jump that I don't follow. Why would more bitcoins in circulation mean a lower value? If my coffee sales skyrocket, I become wealthier. There's no reason why my store of bitcoins needs to lose its value to maintain some sort of equilibrium.

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fergalish
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April 13, 2012, 03:39:36 PM
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@edd: if a merchant sees demand for bitcoin priced objects increase, he will increase his bitcoin price.  Simple Supply and Demand.  Value of bitcoin is not related to how many my neighbours *have*, but by how many are in circulation. If my neighbours have lots, and spend lots, then total circulation is higher, and value is lower.

You're making a jump that I don't follow. Why would more bitcoins in circulation mean a lower value? If my coffee sales skyrocket, I become wealthier. There's no reason why my store of bitcoins needs to lose its value to maintain some sort of equilibrium.
GDP = VelocityOfMoney x MoneySupply = NumberOfTransactions x AverageTransaction

If either Velocity or MoneySupply increase, without the other decreasing to compensate, then the GDP must increase.  If this is just a nominal increase and not brought about by a real increase in production, then that implies there has been inflation.

If demand for a product increases, then the price also increases.  It's the first law of supply and demand.  It might subsequently be followed by an increase in supply and a reduction in price. But the immediate reaction is price increase = inflation.  https://en.wikipedia.org/wiki/Supply_and_demand
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April 13, 2012, 03:55:43 PM
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I've been thinking about this, in the context of the European crisis, Greek local currencies, Argentinean peso collapse, etc.  My question is: suppose you wanted to convince your locality to begin trade in bitcoins, eventually hoping that bitcoin would dominate the incumbent currency (e.g. you're a politician in Greece, or a popular businessman in Somalia etc.).

Well, here's a problem.  As soon as bitcoins start to be accepted somewhere (let's say... Athens!), well then, there would be a large influx of bitcoins to the Athens area from all over the world as people order Athenian products, causing a general inflation.  The effect on sellers would be negative, and the initial failure might even cause people to reject bitcoins.

So perhaps a better way to do it would be to create "The Athenian Bitcoin Bank" TABB.  This bank would obtain a reserve of bitcoins and issue a (paper?) currency, let's call it Tabbies, fully backed by their bitcoin reserve.  Anyone wishing to trade, then, would have to go to that bank, cash in their bitcoins and obtain Tabbies.  That way TABB could regulate the number of tabbies in the economy.  As long as the bitcoins at TABB's public address don't go missing, then everyone's tabbies have a fixed bitcoin-backed value.

Ok, so it's clear that it might not work out that way.  Even if you think the bank is unnecessary, is it possible that initial localised adoption might trigger increased localised bitcoin velocity and therefore inflation?  i.e. bitcoin has to be adopted everywhere simultaneously, or nowhere?

Just thinking.

It's possible. But here is your problem, in Greece if you convinced a town to use BTC instead, they would no longer be contributing to the 'get out of debt' problem. Which will make it even harder for them to get out of debt. The 'state' of Greece would come down on this pretty hard for businesses that used BTC.

The problem with Democracy is the people are responsible for the debt. Just because they didn't pay attention to their elected officials and didn't care to think about any possible future consequences, is no excuse. However with that being said, anyone that wasn't able to vote shouldn't be held responsible for their 'stupid' greedy parents. So the young should use BTC and bypass the whole issue. Go for it.

If I were to add an amendment to the Constitution, I would add one that forbids the Government from any budget or contract that requires the people to pay for more than 30 years. PERIOD.  Social Security sure for 30 years. (Then it must be re-newed via a new congressional Vote).

Oh, I would also get rid of the Commerce Clause. (That clause will be used to tax you on the Air you breath)


Corporations have been enthroned, An era of corruption in high places will follow and the money power will endeavor to prolong its reign by working on the prejudices of the people until wealth is aggregated in a few hands and the Republic is destroyed. ~Abe Lincoln 1ApJdWUdSWYw8n8HEATYhHXA9EYoRTy7c4
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April 13, 2012, 04:15:01 PM
 #8

@edd: if a merchant sees demand for bitcoin priced objects increase, he will increase his bitcoin price.  Simple Supply and Demand.  Value of bitcoin is not related to how many my neighbours *have*, but by how many are in circulation. If my neighbours have lots, and spend lots, then total circulation is higher, and value is lower.

You're making a jump that I don't follow. Why would more bitcoins in circulation mean a lower value? If my coffee sales skyrocket, I become wealthier. There's no reason why my store of bitcoins needs to lose its value to maintain some sort of equilibrium.
GDP = VelocityOfMoney x MoneySupply = NumberOfTransactions x AverageTransaction

If either Velocity or MoneySupply increase, without the other decreasing to compensate, then the GDP must increase.  If this is just a nominal increase and not brought about by a real increase in production, then that implies there has been inflation.

If demand for a product increases, then the price also increases.  It's the first law of supply and demand.  It might subsequently be followed by an increase in supply and a reduction in price. But the immediate reaction is price increase = inflation.  https://en.wikipedia.org/wiki/Supply_and_demand

I think I see the problem now. You're considering an increase in demand for products priced in bitcoins without factoring in the merchants still offering products for alternate means of payment. I was imagining a more realistic scenario where the local economy gradually converted to bitcoin, just over a shorter timescale than the rest of the world.

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fergalish
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April 13, 2012, 07:16:15 PM
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So... to get back to the topic.  What do ye think then, better to use actual bitcoins, or better to institute a bank which issues as much currency as it has bitcoins in reserve.  Again, this is just to initially regulate the quantity of money in the economy.  It's clear that all merchants in a locality would probably have to cooperate in order for the local economy to be successful, so maybe the semi-centralised solution above, the bank, could be discarded in favour of a self-controlling system whereby each merchant promises to limit their bitcoin intake, or to manipulate prices of goods where necessary.


The problem with Democracy is the people are responsible for the debt. Just because they didn't pay attention to their elected officials ... shouldn't be held responsible for their 'stupid' greedy parents.
There are two interesting things here.  People are, and should be, responsible for the debts of their elected government.  BUT, not for the debts of private banks which is actually how it has worked out in many countries.  The elected officials either jumped on the bandwagon and are milking the system, or else they thought the economy was too systematically dependent on the banking sector to let it collapse.  Second, I'm really curious to see how things pan out in Europe where, if I understand correctly, the new EU tax treaty will allow the European Commission to dictate the budget of any member nation that can't get it's own budget under control.  Now, suppose you're... let's say Spanish.  Right now your economy is fairly messed up, but suppose the Spanish government messes it up even more so the Eurocrats step in and dictate tax rates, healthcare budget, education budget, the works.  And suppose the Eurocrats mess it up even more.  Now who pays?  The Spaniards pay for the mistakes of non-elected European officials?  The EU is, I think, by and large a positive thing, but this really has the potential to be a disaster.  Sorry - this bit is off topic.  If you want we can start a separate topic to discuss this.
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April 13, 2012, 07:41:32 PM
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So... to get back to the topic.  What do ye think then, better to use actual bitcoins, or better to institute a bank which issues as much currency as it has bitcoins in reserve.  Again, this is just to initially regulate the quantity of money in the economy.  It's clear that all merchants in a locality would probably have to cooperate in order for the local economy to be successful, so maybe the semi-centralised solution above, the bank, could be discarded in favour of a self-controlling system whereby each merchant promises to limit their bitcoin intake, or to manipulate prices of goods where necessary.
It would be the same difference either way, at least with respect to demand for Bitcoin.

If Greece users demand 1M Bitcoins, then either:
1. The bank has to buy 1M Bitcoins to place in reserve, then issue notes in place of those Bitcoins.
2. The users have to buy 1M Bitcoins to use.

Either way, 1M Bitcoins are being demanded and purchased.
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April 13, 2012, 07:42:22 PM
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  The EU in general brings up some difficulties by utilizing a ECB in concert with Sovereign Governments. I don't know whoever thought that would be a good idea. However, the bar of entry should be high to enter and low to get kicked out. Politics, as usual, prevented and prevents the correct thing from happening. Greece should have never entered the EU but it was allowed. Once a member country fell below thresholds they should be force to comply or withdrawal. BTW: This is what is going to happen. The ECB will dictate to a Sovereign Nation what it needs to do and a Sovereign Nation is going to say: NO, and withdrawal.

   This will in no doubt cause a domino effect as no one wants to be holding the hot potato in the end. If Germany were smart, and they are, they will exit first leaving the other countries that messed it up with the potato.

  Now as how BitCoin can be a transactional currency if EU citizens dump the EUR into BTC while the EUR inflates to worthless, the citizens could renter their new sovereign currency from the BTC with little deflation in value as compared to the EUR. That would be how I would sell it anyways. However, they can do that with USD backed accounts, Gold, etc... also.  BTC could provide some portability and tax havens for many that the other ways do not.

 No government will want its money displaced by another. BTC however can be hard to stop. My biggest concern is the lack of ability for individual clients to mine (easily). Miners want to mine, haters want to hate, yadda yadda yadda. However if every official client could easily turn on the mining capability, they couldn't do much about it. If even to mine at a reduced rate as to not max out CPU/GPU usage.

As to get totally back on topic, start it via underground, System-D, etc... Then let the seed take hold and grow. Paying people (under the table) is becoming more and more common. Funny, governments try to prevent the effect rather than cure the cause. Rather than stop the influx of underground economies, they should try to stop the cause of them. But then, they would have to look in a mirror and blame themselves.

The old cliché : "Those who do not learn from history are doomed to repeat it" should say: "Study history because you are going to repeat it, Until..."


</EOR>  End of Rant   Smiley

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April 13, 2012, 07:42:45 PM
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The problem with Democracy is the people are responsible for the debt. Just because they didn't pay attention to their elected officials and didn't care to think about any possible future consequences, is no excuse. However with that being said, anyone that wasn't able to vote shouldn't be held responsible for their 'stupid' greedy parents.

I agree that "didn't pay attention to their elected officials and didn't care to think about any possible future consequences, is no excuse". However, not personally choosing to borrow the money in the first place is a perfect excuse. No one who didn't vote for it--whether they weren't around yet, voted against, or simply abstained--can be held morally responsible for what others chose to borrow.

One of the many problems with democracy is that it pretends that people can be held morally responsible for the choices and actions of others.
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April 14, 2012, 10:56:00 AM
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@Realpra: suppose someone suddenly came along and bought up half of all Danish crowns.  They would suddenly be worth twice as much.  Likewise, if someone suddenly floods the market with them, they become worth less.  That's the basis of currency exchange.

That is correct, HOWEVER unlike DKK you can NOT "flood" the market with BITCOIN.

To introduce them in a region you would first have to drive up demand and buy some for your people.


The only thing that COULD lower the value would be if the Athenians dumped them as soon as they got them - the BTC value would then go back to normal, not lower though.

This is however unlikely to happen as BTC has a wide range of good qualities.

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if a merchant sees demand for bitcoin priced objects increase, he will increase his bitcoin price.
This is incorrect:
1. The cost of converting from BTC to say EUR is pretty low.
2. A BTC merchant may thus only increase his price with the amount of that conversion cost.
3. Should he increase FURTHER people will just convert to EUR and go to his competitors.

Quote
So... to get back to the topic.  What do ye think then, better to use actual bitcoins, or better to institute a bank which issues as much currency as it has bitcoins in reserve.
Actual bitcoins, most likely on smart cards, would be best:
1. Bitcoin does not hold value in the minds of REGULAR folks yet - a BTC reserve would not impress anyone into accepting the bills.
2. Gold is the go-to reserve/currency builder, in this use it may even beat BTC, at the moment anyway. Additionally, they (Greece) already hold gold! (For now)
3. A BTC backed bill could be taken off the BTC standard and inflated to pay for an oversized government, just as happened with the dollar.

That said physical bills from a government might be some use, like Casascious coins on huge scale.

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April 15, 2012, 09:13:50 PM
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If the coins are worth more other places they'll just flow to those other places. But if there are a bunch of merchants who really want coin and make it easy and/or give discounts then coins will flow in to your area.

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April 15, 2012, 09:23:01 PM
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1. Buy virgin blocks of bitcoin from a miner and transfer all of them to a green address
2. Create casascius style physical bitcoins. They just need to be very hard to counterfeit.
3. Develop customized hardware/software that separates your green bitcoin from "tainted" bitcoin
4. Declare the value of your green bitcoin much higher than the bitcoin market.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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April 16, 2012, 02:16:11 AM
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Shocking how few understand the velocity of money portion of a money's value.

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April 16, 2012, 02:23:31 AM
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There are two interesting things here.  People are, and should be, responsible for the debts of their elected government.  BUT, not for the debts of private banks which is actually how it has worked out in many countries.  The elected officials either jumped on the bandwagon and are milking the system, or else they thought the economy was too systematically dependent on the banking sector to let it collapse.  Second, I'm really curious to see how things pan out in Europe where, if I understand correctly, the new EU tax treaty will allow the European Commission to dictate the budget of any member nation that can't get it's own budget under control.  Now, suppose you're... let's say Spanish.  Right now your economy is fairly messed up, but suppose the Spanish government messes it up even more so the Eurocrats step in and dictate tax rates, healthcare budget, education budget, the works.  And suppose the Eurocrats mess it up even more.  Now who pays?  The Spaniards pay for the mistakes of non-elected European officials?  The EU is, I think, by and large a positive thing, but this really has the potential to be a disaster.  Sorry - this bit is off topic.  If you want we can start a separate topic to discuss this.

If we stopped this atrociously idiotic idea that money has to be backed by debt then this would not ever be a problem. Take away more and more services that the people pay taxes for so that their taxes can go to paying interest to the wealthy elite. Right on!

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April 16, 2012, 03:01:35 AM
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Shocking how few understand the velocity of money portion of a money's value.
That's because like most economic hypotheses, they are correlative, not causative relationships and do not make accurate predictions for future observations.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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April 16, 2012, 03:23:47 AM
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That's because like most economic hypotheses, they are correlative, not causative relationships and do not make accurate predictions for future observations.

They don't have to be "causative" to have significance. Correlation still matters, and there is several hundred years' worth of history to back up this correlation. Sure the US government could match everyone's salary (pretend no fractional reserve) and everyone could do absolutely nothing with that extra money and prices could remain the same. But that isn't what is going to happen. Yes this involves "printing" more money, but you can come up with more convoluted scenarios where the same dollars are used, just much more frequently.

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Why would more bitcoins in circulation mean a lower value?

you would not likely see someone ask this question with "bitcoins" being replaced with "dollars".

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April 16, 2012, 03:35:06 AM
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That's because like most economic hypotheses, they are correlative, not causative relationships and do not make accurate predictions for future observations.

They don't have to be "causative" to have significance. Correlation still matters, and there is several hundred years' worth of history to back up this correlation. Sure the US government could match everyone's salary (pretend no fractional reserve) and everyone could do absolutely nothing with that extra money and prices could remain the same. But that isn't what is going to happen. Yes this involves "printing" more money, but you can come up with more convoluted scenarios where the same dollars are used, just much more frequently.
I'm not discounting correlation, just pointing out that money science (economics) is not really very scientific at all. Like any other social science, studies are mostly relevant to the population studied and do not generalize very well. I disagree that "printing" money is necessary to make people spend money. They would spend money more wisely and the market may instead respond by acting more wisely. Instead of a race to the bottom as we have experienced with slavery, mercantilism, and now consumerism, we may instead make wiser choices in what and how we produce.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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