tag:blogger.com,1999:blog-6704573462403312459.post2236934250166776742..comments2024-03-28T06:53:23.473-04:00Comments on Moneyness: The zero problemJP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger51125tag:blogger.com,1999:blog-6704573462403312459.post-42884269054111477922015-07-26T09:49:16.017-04:002015-07-26T09:49:16.017-04:00http://jpkoning.blogspot.ca/2015/07/stablecoin.htm...http://jpkoning.blogspot.ca/2015/07/stablecoin.html?showComment=1437918531580#c6295630248626775830JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-1714286086955825422015-07-26T00:31:46.003-04:002015-07-26T00:31:46.003-04:00JP,
I do not think that Bitcoin (or the USD for t...JP,<br /><br />I do not think that Bitcoin (or the USD for that matter) suffers from what you call the "zero problem." <br /><br />The theoretical result in which fiat money suffers from the zero problem relies critically on an absolute complete lack of intrinsic worth. If one adds even an "epsilon" of backing, then the zero problem disappears. <br /><br />In the case of the USD, this epsilon backing might come from the ability of legal tender to discharge a tax obligation.<br /><br />In the case of Bitcoin, this epsilon backing comes from the intrinsic value in a P2P global value transfer system.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-9162303731353514152015-02-10T10:01:31.594-05:002015-02-10T10:01:31.594-05:00I don't think it's extraordinary. There ar...I don't think it's extraordinary. There are many risks that you're exposing yourself to when dealing with fiat currencies, such as the risk of identity theft, the counterparty risk, the risks following from systemic leverage, various forms of regulatory restrictions, capital controls, the volatility of the supply, and so on. As time goes on, I'm becoming more and more pessimistic about the viability of fiat currencies.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-67207533869466120252015-02-09T21:43:36.247-05:002015-02-09T21:43:36.247-05:00"There are people who are risk averse, but th..."There are people who are risk averse, but think that fiat money is more risky than cryptocurrencies due to systemic issues, for example, even if it may be less volatile."<br /><br />That would be quite an extraordinary position to take, especially because currently it is overwhelmingly the case that the average fiat money is much much less risky than the average cryptocurrency, or even the best performing cryptocurrencies. So I assume that the reason one might take this position is theoretical in nature and I wonder what exactly it is.Koenhttps://www.blogger.com/profile/14226133743749804429noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-45428183138211822302015-02-09T21:41:00.719-05:002015-02-09T21:41:00.719-05:00I understand there is no reason for velocity to be...I understand there is no reason for velocity to be stable and hence that it is possible for bitcoin's velocity to go up (especially by this much), but I'd need to hear additional reasons to think that it is also plausible / likely for this to happen.Koenhttps://www.blogger.com/profile/14226133743749804429noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-83748185383995592622015-02-04T09:38:26.312-05:002015-02-04T09:38:26.312-05:00Why not? There's no reason for velocity to be ...Why not? There's no reason for velocity to be stable. Milton Friedman used to think that money velocity was stable until the data blew his assumption out of the water.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-77491428286248082622015-02-04T06:50:42.661-05:002015-02-04T06:50:42.661-05:00I understand that the difficulty retarget is not s...I understand that the difficulty retarget is not smooth, but on the other hand neither are the expenses. You don't pay your electric bill hourly, for example.<br /><br />Further issues that I have with the "price spiral outrunning difficulty adjustment" argument are twofold: assumptions of partirucar profit curves, and assumtion that everyone herds (i.e. everyone behaves like a sheep). If I see price dropping, I might start looking for used mining equipment from liquidation sales, for example. For argument's sake, I will however admit that it is a theoretical possibility.<br /><br />I think that nowadays most miners are driven by business plans, and they use the stuff they mine for expenses. Some use hedging, e.g. selling hashing capacity and thus offload the volatility risk to customers. In the past (over about 2.5 years ago), it wasn't like this, and "investment" miners were more typical, I for example have not used anything that I mined to pay for electricity or mining equipment.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-8202428020846707542015-02-04T06:40:25.487-05:002015-02-04T06:40:25.487-05:00I am not questioning the idea of risk aversion. Ri...I am not questioning the idea of risk aversion. Risk aversion is not the inverse of volatility. Rather, volatility is one aspect of risk. There are all kinds of other risks, and cryptocurrencies and fiat money have different components of risks. There are people who are risk averse, but think that fiat money is more risky than cryptocurrencies due to systemic issues, for example, even if it may be less volatile.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-10412841354265797922015-02-04T04:13:53.573-05:002015-02-04T04:13:53.573-05:00John: blockchain could still operate but will char...John: blockchain could still operate but will charge a fee for that? Yet I agree that Ripple solves the problem entirely.Jussinoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-39205104632551430032015-02-03T23:15:51.788-05:002015-02-03T23:15:51.788-05:00it would have been if I sold my bitcoins
Just cur...<i>it would have been if I sold my bitcoins</i><br /><br />Just curious--do you have any idea what miners are doing with newly mined coins? Do they mostly hold onto them, sell them immediately, or do both in roughly equal measure? Any guesses would be appreciated.John Snoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-74760219355528926002015-02-03T23:10:55.622-05:002015-02-03T23:10:55.622-05:00I mined when the price of Bitcoin was below 100USD...<i>I mined when the price of Bitcoin was below 100USD/BTC and it was profitable</i><br /><br />Roughly, between which dates were you mining? I can only assume it wasn't recently, since you could make a lot of money if your costs are still low enough to be profitable at $100/BTC.<br /><br />The difficulty does adjust, but as you know, it takes around 2 weeks (2016 blocks, 10 min/block) for each adjustment. If The Big One hits, a downward price spiral could certainly outrun difficulty adjustments. John Snoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-72898504273614072092015-02-03T17:40:31.254-05:002015-02-03T17:40:31.254-05:00That's definitely possible, but I don't se...That's definitely possible, but I don't see a good reason for thinking that it's also plausible. I mean, why would the velocity go up by that much? Koenhttps://www.blogger.com/profile/14226133743749804429noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-3916160023400297392015-02-03T09:50:14.722-05:002015-02-03T09:50:14.722-05:00Good questions. Maybe one of the more connected re...Good questions. Maybe one of the more connected readers of this post can answer.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-33397626451421610392015-02-03T09:49:14.791-05:002015-02-03T09:49:14.791-05:00"Volatility is not merely a cost, but also an..."Volatility is not merely a cost, but also an opportunity."<br /><br />Questioning the idea of risk aversion is probably not a path you want to take.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-75715572342875520612015-02-03T09:39:07.716-05:002015-02-03T09:39:07.716-05:00"... the 'size' of the public good th..."... the 'size' of the public good that bitcoin can support is very limited..."<br /><br />The velocity of bitcoin might be very high, so that a small base supports an incredibly large number of transactions, all at the $1 peg. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-7166362668537646152015-02-02T18:10:06.339-05:002015-02-02T18:10:06.339-05:00It looks like we're suffering from imprecise d...It looks like we're suffering from imprecise definitions. At one of the conferences, someone gave me a Zimbabwean dollar bank note for free. Does it mean its price is at zero?<br /><br />According to Wikipedia, after the reform following the hyperinflation, "In effect, the total amount of circulating pengő notes had a value of less than 0.1 fillér (0.001 forint).". Does that mean it's zero?<br /><br />For our purposes, what is probably relevant if any exchanges are willing to list the cryptocurrency (or in case of fiat, forex markets). We can imagine that a forex market would delist the Zimbabwean dollar. They forex markets will still continue operating. But what if a cryptocurrency exchange delists Bitcoin? There would be nothing left for them to do. They can just shut down. At least hypothetically, it is of course possible, just like it is hypothetically possible that suddenly everyone decides to stop using the internet. But I see little practicality in musing about what should be done to prevent that.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-74136831247233035402015-02-02T17:02:05.219-05:002015-02-02T17:02:05.219-05:00I know you weren't trying to be unfair. My poi...I know you weren't trying to be unfair. My point was just that it probably makes as much or as little sense to say that e.g. the Hungarian pengö [sic] and the Zimbabwean dollar went to zero (did they though?) because of a panic rather than because of other factors such as excessive money creation & low quality government than it is to say that e.g. Chinacoin or whatever other failed cryptocurrency we can think of went to zero because of a panic rather than because of other factors such as loss of interest, technical problems or fraud.<br /><br />And so that your remark that "Fiat currencies go to zero in a panic. If anything, that's one more reason to avoid holding them" would apply equally well or equally poorly to both cryptocurrencies and fiat money.<br /><br />I agree with you btw that it is unlikely that bitcoin will ever go to zero due to a panic. Or even at all. As long as they are scarce I think they will continue to have some value as a collectors' item (being the first cryptocurrency in the history of the world) even if they totally fail as a currency. <br /><br />So in addition to me thinking that there is not much of a categorical difference between $0.00 and >$0 *when it comes to trying to revive bitcoin*, I also think it is unlikely for bitcoin to ever again reach $0.00 in the first place.Koenhttps://www.blogger.com/profile/14226133743749804429noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-59279785481553043882015-02-02T14:43:10.253-05:002015-02-02T14:43:10.253-05:00I wasn't trying to be unfair. I wanted to inve...I wasn't trying to be unfair. I wanted to investigate the motivations of people. Why would the price go to zero due to a panic? Just because we can assume it, it doesn't mean it's a practically relevant. If it really went very low due to a panic, I would buy them all up for, say, about 900 USD (which was the money supply value when price first emerged) just to disprove the criticism.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-59870375872520026882015-02-02T14:25:47.025-05:002015-02-02T14:25:47.025-05:00I think it's probably as fair or as unfair to ...I think it's probably as fair or as unfair to say that a whole lot of cryptocurrencies went to zero because of a panic as it is to say that a whole lot of fiat moneys went to zero because of a panic. Koenhttps://www.blogger.com/profile/14226133743749804429noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-10746477512429459462015-02-02T14:04:50.966-05:002015-02-02T14:04:50.966-05:00Hungarian pengö or zimbabwean dollar? In case it i...Hungarian pengö or zimbabwean dollar? In case it is not clear, I wanted to say that hyperinflation (or the last phase of it) is a type of a panic.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-85750077249271032952015-02-02T13:24:52.509-05:002015-02-02T13:24:52.509-05:00Can't really think of a fiat currency that wen...Can't really think of a fiat currency that went to zero due to a panic.Koenhttps://www.blogger.com/profile/14226133743749804429noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-76876098450138329512015-02-02T13:21:20.679-05:002015-02-02T13:21:20.679-05:00Thanks for your responses.
Yes, if the incentive ...Thanks for your responses.<br /><br />Yes, if the incentive is solely altruistic then you're right, but do note that at a price of $1 or less the total of ((the size) x (number) of transactions) and hence the 'size' of the public good that bitcoin can support is very limited (a tiny fraction of the economy), and an increase in that total (assuming constant velocity) is only compatible with a higher price.Koenhttps://www.blogger.com/profile/14226133743749804429noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-58156060477797179102015-02-02T13:13:25.697-05:002015-02-02T13:13:25.697-05:00If gold were as abundant as rock, I doubt that the...If gold were as abundant as rock, I doubt that the people currently using gold for jewelry would continue to use it in that way, even if none of its properties (e.g. its shininess and durability) change. People wear gold because it signals wealth, and it signals wealth because gold is expensive and it is expensive mostly because of its monetary role (interpreted broadly so that it includes the use as a speculative store of value).<br /><br />Use in industrial processes *would* increase when the monetary demand for gold decreases, because in those uses gold behaves as a regular good. Koenhttps://www.blogger.com/profile/14226133743749804429noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-83891641763988019852015-02-02T12:09:20.153-05:002015-02-02T12:09:20.153-05:00Also, as far as I know, no cryptocurrency went to ...Also, as far as I know, no cryptocurrency went to zero due to a panic. They went to zero for other reasons, such as loss of interest, technical problems or fraud.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-11698070603198348432015-02-02T12:07:42.249-05:002015-02-02T12:07:42.249-05:00Volatility is not merely a cost, but also an oppor...Volatility is not merely a cost, but also an opportunity. Furthermore, even existing currencies are differently volatile, so they do not have the same relative advantages over Bitcoin.<br /><br />It is true that in the scenario you described, only speculators hold bitcoins. However, this neglects the other part of the transaction: the transaction costs of obtaining bitcoins for customers. For the same reason a merchant can decrese transaction costs by allowing customers to pay with bitcoin, a customer can decrease transaction costs by holding them for longer than just for the transaction. It is only because the encumbent payment systems are crap. If they weren't, neither side could reduce their costs and there would be no reason to use Bitcoin for payments at all.<br /><br />It is news to me that during speculative panics prices go to zero. But even if they did, why would that happen with Bitcoin? Bitcoin has been through several bubbles and panics, and the price never went to zero. Why should it happen in the future for this reason?<br /><br />Fiat currencies go to zero in a panic. If anything, that's one more reason to avoid holding them.Peter Šurdahttps://www.blogger.com/profile/17346161576941109337noreply@blogger.com