Hi Ben, thanks so much for your comment! I do appreciate your good faith engagement. Here I'll respond to a few of your points, and hope that it can be a good starting point for deeper discussion.
I do think that the paper you cite makes good arguments, particularly for the scalability of bitcoin for payments. But I think you would find that the criticisms are outdated now. If you haven't yet, I would encourage you to learn about the "lighting network" which is a second layer peer to peer payment channel network built on top of bitcoin. You will find that the network can settle hundreds of millions of transactions per second at instant finality settlement with fees of less than a penny. It is also what the El salvador circular economy is building upon. The exciting aspect of this is that you can achieve high amounts of velocity of money, without credit creation.
Having prices in one currency is more efficient than having them in many.
This is true. Now think about the world adopting a single currency. It would remove so much friction that currently exists due to foreign exchange. This currency would necessarily have to be politically neutral, inclusive, permissionless and censorship resistant ;)
If prices in the cryptocurrency change dramatically and unpredictably compared to standard currencies, then measuring prices in the cryptocurrency don’t make sense. It’s hard to imagine this asymmetry being overcome entirely unless a single cryptocurrency became so widespread and dominant that it achieved more stability than reserve currencies.
Actually completely agree with this point. Bitcoin is still extremely early in its adoption phase, but the fundamental adoption is growing as fast as the internet, in its early days. Any new emerging monetary asset would necessarily have massive volatility on its path to reaching full adoption. I don't think this disqualifies bitcoin just yet.
Since there is no institution guaranteeing that the currency will be a reliable store of value, the currency is not a reliable store of value. Bitcoin in particular is a speculative asset.
Here I disagree, the value of something is not dictated by whether an institution says it has value. As demonstrated by the gold standard, when we went off the gold peg, many people said that gold only had value because dollars have value and they can be used to redeem gold. This was so wrong that the dollar devalued 10% against gold pretty much directly after the de-pegging. The inverse is also true, no matter how much value the Venezuelan government promises the bolivar to have, they cannot wish value upon the hyperinflating currency. The lesson here is ultimately the value of the currency is based upon trust. And since Bitcoin can verifiably maintain it's fixed supply, whilst fiat currencies are mathematically guaranteed to debase due to the debt obligations of the government, a lot of people are starting to place their trust in bitcoin more than fiat. Admittedly this is a small but growing number still.
I'll leave with these thoughts for now. But happy to engage further
Hi Jackson, thanks for your comments. I agree, that I could definitely have made a better case in this post, however I had to cobble it together in half a day before the submission deadline. I'd be interested to learn more about the NGDPLT you speak of as I'm quite unfamiliar with it.
In terms of crypto, I intend to make a case for why Bitcoin is different from the rest of "crypto". and I'm in general very skeptical of the promise of wider crypto.
Hi Michael, thanks for your comment. I am the original author of this post.
Yes I agree, you can argue that fiat allows governments to monetize their debt much more easily and spend more freely. I have two responses to that:
As Alex Gladstein (CSO of the human rights foundation) argues in this essay, fiat currencies have also allowed governments to finance wars in a much more opaque way. In other words, fiat currencies remove the checks and balances on government spending. This was, in fact, the main reason we removed the gold standard to finance the first world war and even though we re-pegged, we again had to depeg in 1971 in large part due to excessive spending during Vietnam war.
Increasing the money supply can be thought of as a regressive tax, because it ultimately leads to inflation which hurts the poor more than the rich. I'm not advocating for anarchism, and agree that healthcare education research are all important, but if we want to finance those things, we should do it via progressive taxation.
I think the government would still be able to tax bitcoin, via corporate income taxes, VAT etc, but their spending would be much more limited to what the people democratically approve of - think of how unpopular war bonds used to be and how we have replaced them entirely with "credit card wars".
Hi Ben, thanks so much for your comment! I do appreciate your good faith engagement. Here I'll respond to a few of your points, and hope that it can be a good starting point for deeper discussion.
I do think that the paper you cite makes good arguments, particularly for the scalability of bitcoin for payments. But I think you would find that the criticisms are outdated now. If you haven't yet, I would encourage you to learn about the "lighting network" which is a second layer peer to peer payment channel network built on top of bitcoin. You will find that the network can settle hundreds of millions of transactions per second at instant finality settlement with fees of less than a penny. It is also what the El salvador circular economy is building upon. The exciting aspect of this is that you can achieve high amounts of velocity of money, without credit creation.
This is true. Now think about the world adopting a single currency. It would remove so much friction that currently exists due to foreign exchange. This currency would necessarily have to be politically neutral, inclusive, permissionless and censorship resistant ;)
Actually completely agree with this point. Bitcoin is still extremely early in its adoption phase, but the fundamental adoption is growing as fast as the internet, in its early days. Any new emerging monetary asset would necessarily have massive volatility on its path to reaching full adoption. I don't think this disqualifies bitcoin just yet.
Here I disagree, the value of something is not dictated by whether an institution says it has value. As demonstrated by the gold standard, when we went off the gold peg, many people said that gold only had value because dollars have value and they can be used to redeem gold. This was so wrong that the dollar devalued 10% against gold pretty much directly after the de-pegging. The inverse is also true, no matter how much value the Venezuelan government promises the bolivar to have, they cannot wish value upon the hyperinflating currency. The lesson here is ultimately the value of the currency is based upon trust. And since Bitcoin can verifiably maintain it's fixed supply, whilst fiat currencies are mathematically guaranteed to debase due to the debt obligations of the government, a lot of people are starting to place their trust in bitcoin more than fiat. Admittedly this is a small but growing number still.
I'll leave with these thoughts for now. But happy to engage further
Hi Jackson, thanks for your comments. I agree, that I could definitely have made a better case in this post, however I had to cobble it together in half a day before the submission deadline. I'd be interested to learn more about the NGDPLT you speak of as I'm quite unfamiliar with it.
In terms of crypto, I intend to make a case for why Bitcoin is different from the rest of "crypto". and I'm in general very skeptical of the promise of wider crypto.
Hi Michael, thanks for your comment. I am the original author of this post.
Yes I agree, you can argue that fiat allows governments to monetize their debt much more easily and spend more freely. I have two responses to that:
I think the government would still be able to tax bitcoin, via corporate income taxes, VAT etc, but their spending would be much more limited to what the people democratically approve of - think of how unpopular war bonds used to be and how we have replaced them entirely with "credit card wars".