Topic: 2013-04-12 krugman.blogs.nytimes.com - Adam Smith Hates Bitcoin (Read 3610 times)

It occurs to me that Adam Smith subscribed to labor value theory.  And, based on his ridiculous ideas about unemployment, so does Paul Krugman.  I can see why they both hate Bitcoin.

@BubbleBoy

So to recap, bitcoin mining will consume an amount of electricity non-negligible relative to overall world consumption if it completely supplants all the world's currencies in less than ~24 years (6 halvings of the inflation rate).  In this case it could run into conflict with national energy policies, and potentially create an existential political threat to Bitcoin.

Leaving aside how unrealistic this growth scenario is, if such a thing were to happen, then I suppose Bitcoin users would be given an ultimatum: hard fork to further limit the inflation rate, or be forced to take on governments.  It'd be a damn shame to bring the inflation schedule into question, but if the alternative is really so dire, then I'm sure the network would adapt.

It's the same chicken and egg problem as in Bitcoin, not a different one. What makes miners compete ? The fact that a coin has a market value. Mining does not create value, it's the market value that puts a price on mining. And just like BTC, coins gain value because they are scarce and useful for trade.

So the whole "wasted resources" versus "doing useful work" comes at a later stage; the bootstrap is similar to Bitcoin and there's no debate charities would sell the coins dirt cheap into the hands of the early adopters, just like early miners gained coins almost free.

OK, suppose you have developed a more "fair" way of distribution of coin. What gives the coin value? At the start, they will have exactly zero value. Assuming charities will even agree to put resources towards them, they will probably just hand them out for free. What is stopping someone from going around and just buying all those coins for dirt cheap and then holding them until the network is more mature? Charities require cash for immediate needs, they are rarely in the business of investing, particular with a wildly speculative currency. The "fairness" of the scheme wouldn't last long because people/groups in need of food/clothing/shelter would sell for whatever the going rate was. You could counter by forcing them to hold onto those coins, but then the coins would never become valuable because that would prevent a market to form for those coins. It's a chicken/egg problem.

There's is nothing wrong with Satoshi's strategy, I've called it "clever" above. Bitcoin is a profound insight and a game changer, but you must take it for what it is, an experimental early design. Now that the game is changed and cryptocurrency proven, the charities would more than likely accept the keys, and if not it's their loss; you don't have to cover all charities, just a representative set so that most people owning currency can find some cause they can support. The idea is simply to spend the money into existence without a single point of failure (Opencoin) and without burning resources.

It's no task I can realistically accomplish on my own, we're just debating the principle, is Bitcoin "wasteful" or not, and if it is, in reference to what.

Also try to remember that when Satoshi started bitcoin, nobody knew about this thing.  He could not have knocked on the doors of these organisations and say:  "guys, I know how you will receive your fundings from now on.  I will give you some electronic tokens that are not backed by anything and you will use them as money".  They would have smiled at him, told him they are not interested and politely showed him the way to the door.

How do you plan on convincing all those organisations to be involved in such a project?  Again, if you can do it, please be my guest.

The worst thing they can do is steal the money, that's why you have a say in which charity receives the money and the initial list contains reputable well known names like Unicef, Doctors without borders, Wikipedia, FSF, EFF, OXFAM etc. It's just as in the real world, if they don't have a good reputation they don't get money.

@Timo: except for the lack of mining, XRP is a step back across the board, a "retrogression" so to say.

I bet that when Ripple becomes successful, Krugman will just come up with some other excuse about why it's bad, since he won't be able to use the "wasted energy" excuse.  

I don't trust charities with money.  It's easy to create a fake one just to get government subsidies and stuff like that.

Anyway I think what you're suggesting is much more difficult than you think.  But if you really think it can be done, be my guest!   Prove me wrong and do it.   After all, bitcoin is free and open-source software so anyone can fork it.

Mining is a competitive lottery, the more you invest the better chances you have. But it need not be. If we hardcode in the genesis block 100 special addresses belonging to 100 real charities, the whole socialist identity verification affair can be done by a single person in a few days. Then one of those addresses is randomly selected to receive the money during each block. The users agree the initial list is fair by using that chain, that is buying coins from the charities on the market.

You could affect the probability in favor of "Saving the pigmy people" by including a small charity id in your transactions, so high worth individuals can affect the distribution; "KKK of America", assuming it's the initial list, doesn't get much of the money. It's as if instead of trading certificates for burned energy (bitcoins) we trade certificates for donation to charities (charitycoins; yes, that is a stupid name). Both are scarce and impossible to fake.

It might be fair but it would be centralized, thus probably not trustworthy: you would need someone to do the distribution, and you would have to trust this person.  Also, you would have to do stuff much more complicated than running a software.   Verifying people's identity, organizing reunions, and so on.  It would be a totally different affair, a major pain in the ass, and it would look like some kind of operation from a socialist party.   It would suck big time.

Also, you mention a lottery but that's basically what mining is.  Every nonce is a lottery ticket.  And the winner is whoever can check the most lottery tickets in ten minutes.

It's not that different.  If electric cars were more efficient and faster, people would probably use electric cars for racing.   The goal is to go fast and to have fun.  Burning fossil fuels is only a mean for doing so.   With bitcoin, the CPU race is the way to decentralize the system.   The goal is to acquire a distributed, incorruptible currency.  Could it be done without a CPU race, everybody would gladly use it instead of bitcoin.  But until Ripple or any other alternative is proven to fulfill its promises, there is no other way.

It's not my intention to question the freedom of people to use bitcoins or watch Nascar. There's one critical difference: in the case of bitcoin the resources employed to mint it are part of the economic design, it's not the desired end result. Free people want a monetary and transaction system and the incentive structure built into bitcoin encourage them to expend resources towards that goal. So if a better system can be designed that offers the same freedom and features with less resource expenditure, everybody is better off and you can objectively call bitcoin "wasteful" by comparison. Whereas the whole point of Nascar is having people's run around with their ass on fire, there's no waste because that's the end goal.



We should discern the minting part of bitcoin (disbursing new coins in existence) from the consensus algorithm (keeping transaction with existing coins safe from double spend). Bitcoin cleverly conflates them during initial bootstrap  so that sufficient security exists despite not much transactions going on, but they are really two different problems.

For the purpose of this discussion let's ignore Ripple and it's ilk and posit that proof of work is the only way to achieve reasonable security in a distributed system. Well, then we should design the system so that it can prevent a given double spend size (say, 1 million dollars), compute how much proof of work we need for that goal, and limit the block reward at that level. We could have a 1 trillion dollar economy on top of this network, it's just that those accepting large payments should spread them out in multiple blocks no larger than 1 million dollars. Hardly a major issue and it caps the energy waste to a negligible level.

This leaves us with the initial distribution problem. It is here where the "proof of work" vs gold parallel exists. There's no fundamental reason that we should waste resources to bring money into existence. We could design quite a number of "fair" schemes that don't involve "mining": gift every person in the country with 10 coins, allot them by lottery to a list of charities etc. OpenCoin decided to gift itself with the whole 100 bln XRP, hardly a fair scheme but again, no resource waste.

@marcus: So I see you have detected the skillful errors I've planted in my calculations. Illuminate us all, if you please.

that's right, money is just information. However, it has to be secured, in one way or another. We also expend lots of resources on door locks. We don't live in a perfect world unfortunately.


I think it is robust but its secret is that it works on a higher level: there's much less privacy, it knows about accounts. It's costly and inconvenient to create an account. That's part of their security model.

Bubbleboy is an alarmist from the time he arrived on this board ...

... and he's been wrong since the time he's arrived on this board also.

"OMG bitcoin enviromageddon!" is just another of his red herrings ... (I'm assuming he doesn't really believe his contrived calculations).

NB: BTW sea levels aren't rising out of ordinary in Micronesia either, more FUD.

There is no need but there is a will.  I mean that bitcoin could work with much lower a difficulty, but people race one an other to get new bitcoins, thus they increase the difficulty.   This is not a need, but the result of individual freedom.

Consider for instance car racing.  I've always thought these kinds of sports are stupid, as it just consists in driving again and again in circles.  I could say it's a ludicrous waste of energy and money, but it is above all the result of freedom.  People do foolish things and sometimes it involves spending lots of money and energy.  We just have to deal with it.

I agree that the fact that new bitcoins go basically to whoever spends the most energy is not the greatest aspect of bitcoin.  But that was the first ever solution to the double spending problem.  I'd love to see an other scheme, such as one where computing power could be used to actually crack real-life problem (I've opened a thread about protein folding for instance, but as far as I know nobody succeeded in implementing something like that).  The consensus system Ripple is supposed to use could be a nice alternative, if it works and if it is robust, which is not clear imho.

Anyway, as I said bitcoin will not trash the world, for the reasons I've explained above.  It hasn't so far and it won't.

Making Bitcoin out to be an environmental enemy is pointing to a sliver in one's eye while overlooking all of the logs jammed in to all of our heads.



Give it up.  Think about the Fed, CC payment processors, and 'money changers' electrical usage.



It's almost as if people don't have a sense of proportion.   


Oh, and shut up Meg Krugman.

As with all environmental arguments, this boils down to externalities. You might be very satisfied by the great energy based currency you have, but other people living in Micronesia who are on the receiving end of the higher sea levels would beg to differ. There are many indisputable externalities: increasing electricity price, higher proportion of dirty sources like coal since renewables are limited etc. These other people who have nothing to do with bitcoin have no economic leverage to control it's adoption, so bitcoin can be (moderately) successful despite being an environmental catastrophe.

It also puts some perspective into the whole "but the financial system is wasteful too". At least the money the banksters steal goes into nice yachts, mansions and impressive office buildings. I would rather they didn't steal, but at least it creates some employment and trickledown, and when we get rid of the thieves we can repurpose the buildings to some constructive goal. So I say let's fuck the banksters without trashing the world in the process. Money is just information and there's no real need to go back to the gold age (stone age). Krugman is largely right here despite his alternative solutions being wrong (print and spend more MONEY !).

The energy production capability does not matter because bitcoin mining is a race.  Bubbleboy's point was that the cost of mining would rise up to the market price of bitcoin, whatever the energy production technologies are.

It's a weird reasoning though.

The initial assumption is that bitcoin becomes the world currency in a not too distant future.   Then it is concluded that bitcoin mining would be a prominent part of world's energy consumption.  This would obviously raise energy costs, and thus would make lots of people unhappy.    But since bitcoin is a voluntary currency, this means that those unhappy people would stop using bitcoin.  Which contradicts the initial hypothesis.

Is it to be concluded that bitcoin can not be successful in a near future?   No, it means that the initial hypothesis is wrong:  bitcoin can not become the world currency any time soon.    Not so surprising.   People do not agree on what money should be anyway.   When I was a goldbug, there were quite a few people around me who told me that saving gold was ridiculous, that gold was a Ponzi scheme, a barbarous relic and so on.  So if even gold could not gather a consensus about money, surely bitcoin will not either.  This does not mean it can not be successful.   To me, bitcoin is already pretty much successful.  It does not have to be used by every single human on the planet, after all.  As long as enough people use it to provide a satisfying liquidity on the exchange market, it will be successful as a currency, imho.

What could happen, for instance, is that as bitcoin gains value, more and more bitcoin users feel concerned about the enormous energy consumption.  Those people would either decide to use an altcoin, or fork bitcoin into an alternate chain with no more mining rewards or a much reduced subsidy.

Anyway, imho what will happen depends much more on social and psychological aspects of human behavior than on technical factors.  It's very difficult to foresee.