[LINK] Blockchain

Jim Birch planetjim at gmail.com
Fri Sep 22 10:22:46 AEST 2017


Kim Holburn wrote:

>
> > Would you take a two year loan in bitcoins, repayable in bitcoins?
>
> That's the same as a loan in any currency other than your own.


No it's not.  Holding Bitcoin is essentially gambling.  If you borrow
capital for a business you are expecting to repay the loan from the profits
from the business.  If the currency value escalates 100% in a that two year
period, you are going to need a wildly lucrative business, and would be way
better off using an alternative source of finance.  There is a ongoing
major and often costly efforts by governments to keep their currencies
stable because it is a basic component of economic stability and
productivity.

Bitcoin might be suitable for short term trading.  Virtual currencies
certainly have potential for low friction transfers.


> As long as the total value of any kind of currency is small, it is going
> to be volatile.


This might be true in general but Bitcoin show classic bubble behaviour,
not ordinary currency volatility.  Humans are have a fashion-driven herd
mentality and counteracting this is a key function of economic management.


> We trust a particular kind of paper money because that government has
> proved trustworthy so far?
>

Have you ever lived in a place with no government?  I wouldn't recommend it
both economically and in terms of personal safety.  Trust is scarce.
Distrusting the government is a minor secular religion in the West - and
has certainly produced some significant positives - but this is not
actually an evidence-based argument for eliminating government from
anything.

> (Unlike bitcoin's value which is basically an emotionalized
> > fantasy.)
>
> Actually, it's based on mathematics.
>

The mathematics determines the computation requirements to produce a
bitcoin, or in practice how much CO2 your bitcoin farm needs to pump in the
atmosphere per bitcoin, but the value of a bitcoin, ie, what people will do
for control of these funny numbers -  is driven by emotions and
mythologies.  Government currencies also require mythologies but these are
deeply bound into fundamental real world economic activities like paying
taxes.

There is a lot of hype, there is also something happening that no-one
> thought possible.
>

Bubbles, the black economy and currency optimisation are actually standard
economic subjects that don't surprise economists.  Virtual currencies are
here to stay but economics says the real ones are going to be government
sponsored (and may not be blockchain based).  Bitcoin is as likely to
vanish in a decade as not.  The major reasons to be involved with Bitcoin
at all are libertarianesque coolness, and, to facilitate criminal
activities like tax evasion or dealing in proscribed items.  Bitcoin might
survive as an enabler of these activities but it will be under increasing
attack by governments because that it enables crime and avoids tax.

Jim



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