BTCIndia Wrote:Respected Sir,
I'm faced with following question related to cryptocurrency(Bitcoin).
Assumption: At this moment of time, most transactions are verified without any transaction/mining fees. In future, there will be competition to get transaction verified and engraved in block which will result in some minimum mining fees due to limitation of block size and therefore number of transaction it process/hold.
I believe, there will always be some 'negligible' transition fees associated with every transaction in future else confirmation will take awful lot of time to get confirmed, which is not acceptable in instant transaction (i.e. medium of exchange).
If we compare two economies- one using traditional money as medium-of-exchange and other using Bitcoin as exchange then, we'll find that one using physical money is efficient as they've no transaction cost.
Money is not three common functions mentioned. It is also transaction cost minimizing medium of exchange.
Question: How can we justify use of decentralized currency (Bitcoin) money as "efficient" in large scale use?
MOOC Team Replied: Dear,
While your assumption would be accurate if we only dealt in physical cash and only person to person transactions, consider the economic activity on the whole planet today. Monetary transactions are "financial communication".
Let's say you want to send a few spare dollars to your cousin that lives on the other side of the planet. You have him on skype, but to send the money is simply impossible (too many fees). With Bitcoin, this is very possible and costs next to nothing. Global financial communication is available for very low fees and with no intermediaries.
Besides, even paper money has costs to print, store and distribute, as all physical tokens used as means of exchange. Aren't these transaction costs aggregated via inflation or seigniorage to the issuing country?
I am not sure whether "transaction cost minimizing" should be as core of a function as the other three, since it needs a functional currency to work first. That could be a very interesting added feature next to fungibility, durability, etc but not a part of the core three functions.
Thank you for the interesting question.
We hope our reply covers it somewhat, this is a huge topic! We'll try to answer this and many more questions at the live session. Be sure to not miss it.
Best regards and thank you for reaching out!
Best regards,
Antonies Polemities
BTCIndia Replied:
Sir,
“While your assumption would be accurate if we only dealt in physical cash and only person to person transactions, consider the economic activity on the whole planet today. Monetary transactions are "financial communication"
Perfect thought! Monetary transactions at different level in hierarchy must be regulated just like corporate communications are. It would be chaos, if anyone could approach and talk Mr. Anastasiades. Likewise it would be chaos if everyone had 100% freedom of “financial communication” which Bitcoin promises on global scale.
Right now, with Bitcoin we’ve absolute freedom of financial communication no matter which level of hierarchy we’re at. But, it is not going to be same in future. It is mandatory to have absolute freedom of financial communication on lower end of hierarchy with physical money already provides.
Well, that doesn’t worry me, as exchanges are gateways, which would regulate financial communication in future. What worries me is Bitcoin itself. Bitcoin is perfect “Einaudi’s-ghost money” whose repercussions will be grave on third world countries. It’s giant leap towards “free market philosophy” which developed countries believe in not ‘us’ and it is impossible to curb ‘ghost money.’ In addition, semi-literate citizens who’re ‘homogeneous globules of desire’ are attracted towards Bitcoin’s deflationary nature making conditions worse. In addition, whosoever touches Bitcoin becomes it networking agent.
Scenario of sending money on skype is very attractive. If Bitcoin was only payment system or blockchain then, it was acceptable. But, disrupting payment system is partial picture of what Bitcoin is here to do. Isn’t it
“Besides, even paper money has costs to print, store and distribute, as all physical tokens used as means of exchange. Aren't these transaction costs aggregated via inflation or seigniorage to the issuing country?”
I’ve read research paper by Oxford scholar comparing impact of Bitcoin, Gold and money. And that is subject of detailed discussion with seigniorage itself. Therefore, I’ll skip here to focus on money as ‘transaction cost minimizing agent.’
If we consider Bitcoin as only evolution in payment system then, “transaction cost” is obviously minimized and there is nothing to worry about it. But, when we consider it is as money, which it obviously is, because it fulfils all three core functions of money. Then, “transaction cost minimizing” function becomes very important because of following reasons:
a. Bitcoin is more fluid and frictionless then any other money. Therefore, frequency of transaction will be more than ever before. Especially in bottom level of hierarchy.
b. In addition, we’re seeing more volume of transaction in economies which are going to exponentially increase in future i.e. paying for things we never paid before. Popularly known as ‘micro transaction.’
c. Physical money is better at ‘transaction cost minimizing’ compared to Bitcoin.
I’m big fan of decentralized cryptocurrency, blockchain and other innovation associated with it, not of branded gold 2.0/cryptocurrency (Bitcoin) being actively marketed by developed countries. Forgive me for my limited knowledge and frame of mind which clouds my precise thinking (or an advantage that helps me see ulterior motive behind bitcoin)!
I personally believe, Bitcoin is asymmetric war. It’s another front in era of economic imperialism that, we (developed and underdeveloped) counties have to fight in era of economic imperialism.
I look forward to answer on various other questions that I've in back of mind.
MOOC Team Replied: Dear,
I believe the points you raise are mostly valid, but I am afraid we'll veer off the course content significantly. We'll start discussing things from our personal perspectives which may not be so academically useful to either of us. I think it would benefit the course and the other students as well, if we carried this conversation to the forum or (even better ) the live sessions !
The first one is this Friday and we'd love to hear the thoughts of other professor on this , as well as give food for thought to the other students, what do you think ?
On a final note, freedom stops where others' freedom begins. Freedom of speech (or freedom of economical speech for Bitcoin) doesn't mean that anyone is obliged to hear you, it means that you can speak to whoever wants to listen to you, and no one should stop you from speaking. I would infringe on a person's freedom if I spoke to them against their will. In that sense (of financial communication), Bitcoin can't "force" anyone to accept a currency but they can make sure he can be "heard" because there is nothing to silence them (censorship, intermediaries, etc).
Best regards,
Feel free to further discuss thou revolutionaries! 
