Topic: Defiatize the unit of value (Read 3129 times)

What is a "non-digital native"? Also, there are billions of people on the planet still struggling with providing adequate drinking water, food, and shelter. We aren't in some digital utopia, this is very much a new part of society.

That's not accurate. Don't believe it just because the internet says so.

Again, highly dramatic and inaccurate.

Its not up to the consumer.  Its up to the state.  Fiat money is created and maintained by the state.

As a consumer you are free to use any private money you want except when paying taxes.  You have to use the states money to pay taxes

So then we arrive at the same question.  Why is private money better than state money?

Look up Free Banking Era and see what happened during that time

I hate to be this blunt, but honestly the general problem of non-digital natives will be solved over time as the people who aren't comfortable with technology get old and die.

In the specific case of Bitcoin, the factor you've left out of your analysis is that fiat currencies around the world are in the process of committing suicide.

If our grandparents can figure out how to use Facebook just because they want to see everyone's pictures then they can figure out how to use Bitcoin as their financial survival increasingly depends on it.

Obviously you are not a Nigerian prince, so you can not get what I'm talking about  

You used to work in a vague large multinational? Man, no way, I used to work for a nondescript multinational so you should believe what I am saying! I am also a Nigerian prince!

I doubt your efficiency rose 10 to 20 times. What industry were you involved in, and why was efficiency so poor? And those are the ONLY two possible reasons in your fabricated scenario? Unlikely. That's a fake choice you're trying to force.

OMG! You've seen it with your own make believe eyes! It must be true! You're making all of this up, it's pretty obvious.

It will be a long process, maybe will never happen. Bitcoin is deflative and increase in value constantly, it is difficult to act as a unit of value

Energy can be used as a unit of value, like Joule. Energy can always be utilized in modern society to do some work, so its value is relatively objective. However, you can't store and circulate energy directly, so something that is produced mostly by energy will act as a token of corresponding energy's value

Since most of the time Bitcoin's value is closely related to the energy that used to produce it, using bitcoin as a token of energy will make it close to a very objective measure of value

That's just my experience. I used to work in a large multinational enterprise. In 10 years, I clearly observed that the efficiency has increased at least by 10 to 20 times. However, the average salary of the branch never raised by that much, in fact it barely keep up with the inflation. Where are all those increased productivity gone? Why did not we have 5-10 times increase in salary?

There could be two reasons:

1. Demand has dropped due to market saturation, more production means less profit, so those added capacity will only result in redundancy of work force, not added income

2. Although the money supply also increased many folds, but those money did not reach the consumer to purchase more of our product thus bring us more income, they actually went to a few investors, they use majority of those money to push up the asset price and seldom increased the consumption of the whole society.

So, your income solely depend on where the FED money goes. This is very true because I have seen some of those top executives chasing the FED money, they even call it the top of the food chain. It is amazing that although we have so high productivity today, most of the people are still chasing those money which is simply printed by a few, and they don't even care slaughter each other to get a bigger share.

In one word, as long as banks create money and others chase, most of the people will always fall to the lower end of the food chain and get the least share of those money

To defiatize the unit value of bitcoin at this time or even on the next five to ten years is next to impossible. we always need something to measure its value. In saying that the valuation of one currency is not correlated into another currency is like saying that import and export is not existing.

That's a completely fabricated statistic. How do you expect to be taken seriously when you're clearly making things up?

No, checkbook money are just like your bitcoins in an exchange, it is the number that platform shows you, just a number in their database. It is this part most of the people misunderstand

For example, you put 100 bitcoins in an exchange, your account shows a number of 100, exchange write 100 coins in their checkbook. However, those coins went to their own wallet, and get moved to somewhere else. You still play around with the platform thinking you are playing with your bitcoin. But one day, the platform closed and the owner claim it was hacked... In fact, those coins are long gone the moment you put them in, you were just playing with numbers in their database

Same for the banks, the moment your 100 dollar bill were saved into a bank account, it is gone, you are left with only a number in your account to play with. Banks lend 90% of that bill to another people and he deposited or spent and deposited to merchants account in the same bank and they get another number 90 dollars, and so on. Because there are many people playing in the bank's account just like in an exchange, they are all playing with numbers, it is these numbers banks call it M2 M3 etc... But without your original dollar bill, these numbers will all disappear since they never existed in reality, that is the reason banks strictly restrict your daily withdraw of cash, a large scale of cash withdraw will empty their vault quickly

So, base money is the money, checkbook money is database numbers, just like your bitcoins in an exchange, they never existed in reality

When you do commerce with other people, those numbers move around: Your numbers get lower, merchant number get higher. From bank's point of view, the sum of your numbers does not change, they don't need to move money around, just adjust numbers in your account. However, every time the same money get loaned again, there will be new numbers generated in the database, that is the reason they say loan create money, in fact it only create new database numbers

If paper money is totally eliminated, then the loop will close, banks will never have a bank run and can create as much money as they want to rob people of their wealth. But what if people abandon their money altogether and don't play with their game anymore? Bitcoin fist time in human history let you hold your own money without the need to put them in a bank and play with numbers in their database, this is a vast evolution

What I mean is, you and many others around you should have 10 times more wealth than you have now, because your productivity is enough high to command that amount of wealth. However in current system you are maxed out at your current status, all your extra productivity goes to those bankers and become their asset, they don't work, you work

What is this fair share bull****? What is this egalitarian crap? Economic systems are inherently unequal, because we are not equal. People makes choices and win or lose. You aren't entitled to a fair share, you're entitled to the same shot every individual receives. Make your own way instead of asking someone to give it to you.

You may not call checkbook money "money", but it's 90% of what most people and industry needs for commerce. Some countries are exploring eliminating paper money altogether. Base money will then just be numbers in checkbooks between the fed and the banks.  That will certainly "confuse" normal people.

I'm not saying base money isn't important. It keeps the banks honest. In practice they never have to hand out more than a small fraction of their liabilities in base money. But they do have to produce it on demand hence they need to keep their reputations intact so they can borrow some when they need it.  This makes the correspondence between checkbook money and base money very tight.

My comments on the desirability of being able to borrow fiat (base or checkbook) still hold. My comments on the opinion that fiat (base or checkbook) is backed by loan contracts representing promises to labor also still hold. Banks will shun a bank that has ruined its own credit by not balancing its liabilities (checkbook accounts) with assets (loan contracts and the associated income).

Base money, of course, can be printed as needed by the fed. They print the right amount to target inflation at under 2%. That's the "if it's well managed" part of my comments. As far as I can tell, the fed seems to be pretty conservative in this regard.

An intersting alternative setup is to get rid of the fed and allow banks to issue their own paper money. See the literature on free banking for how that works. The idea is that if a bank abuses its power to print it is punished by the market when their paper bills are not accepted. The owners will have a market incentive to be responsible.

There is nothing called "total fiat money", only two types of money: base money and checkbook money. Banks usually add them together and call it money supply, but this is to confuse normal people

A 100$ note is base money, banks can lend it out again and again to accumulate 1000$ in their checkbook (records), but at any time, they have only 100$ note in circulation, when more than two customer ask for a withdraw at the same time, bank will run into a liquidity problem and have to borrow base money from FED. Of course in a mostly electronic money system like today, the customer withdraw will end up in another bank account, which the original bank can borrow back to deal with more withdraw, so the liquidity crisis only happens when all the banks were facing the same withdraw pressure in a very short time

Anyway, that $1000 (or M2) is only the total number recorded on bank's checkbook, it has nothing to do with what amount of money in circulation, it is just a database number indicating how many times the banks has lent the same money out

That's true, banks bribe you with a good job and a family life and even a home and a nice car, while at the same time they grab hundreds of more asset than you without doing anything, but you don't care, since you are fine. This is the mindset of many people, so you really should not be here

But there are some people who feel the unfairness nature of the current system and want to get their fair share of the wealth

He's right. The practice by which banks create money is called "fractional reserve banking."

You keep repeating one event:


My slavery? Hahahaha my slavery is quite palatable. I have a job I enjoy, a wife I love, a nice home, a dependable vehicle, hobbies I enjoy, and enough of this evil evil money to provide all of these things comfortably. If this is the curse of fiat, I welcome the curse!

I'm afraid that's not right.

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Commercial banks do create money. It may not be base money but base money is only a small fraction of total fiat money. They create a loan on their books and balance it with an asset which is the contract you sign for a loan, not any base money they may or may not have. Base money is only used for cash withdrawals, a very small value relative to their normal volume. If they run short they're allowed to run to the fed and borrow some.

They don't over borrow from the fed because they have to pay interest. They can't just have base cash sitting in their vaults if they have to pay interest on it.

Base money is small part of the total fiat money we use.

Commercial banks does not create money, I mean base money, not some check book numbers in their database. When you ask for a loan, if commercial bank does not have base money, they can not give you a loan, that's a liquidity problem. Otherwise there will never be any bank failure, they could just loan to each other and create trillions of dollars

Only FED create base money when government and commercial banks borrow from them. However, a loan is a promise to pay back in the future, what if you are not able to pay back? Then you have to default and all those money will be backed by nothing. So money backed by debt should worth much less than money backed by existing asset, since the debt is some thing in future, must be discounted for its risk of default

That is the situation today, since the aggregate ability of the whole society to pay back the loan will be less and less because of diminishing increase of productivity (partly caused by less and less increase in aggregate demand due to centralization and automation of the production), the loan based money issuing will eventually end up with large scale of default

The only way to avoid such a default is to borrow more and more to pay back the loan + interest, and that is what the government is doing right now. So it becomes such a game: Your ability to pay back the loan depends on your ability to get new loans, as long as you can get new loans, the game continues

So, unlike what you believe, the fiat currency's value is backed by the government's ability to get new loans, not any tangible product or service in future

Money is no different than any other goods, it is just the most liquid commodities in the market, it must have a cost to hold its value. Money without production cost is a scam

You know, of course that most money is not printed by the central bank. Most money is created by the stroke of a pen by normal banks when someone comes in asking for a loan. 90% of our economy runs on money created this way.

In reality fiat is not without backing. Fiat is backed by the promises we make to each other to pay back loans. Personally, I can't think of a better backing for the money I hold. Much better than some arbitrary faith in a yellow metal or some cryptography.

If the Government paid back all it's loans it would have to do it by taxing everyone today, making us poorer today. We are getting richer as a society all the time so it makes sense to pay our loans in the future when we are wealthier. Government borrowing is being paid off all the time. We do borrow as well so it just appears that we are not paying our debt. The amount we can wisely collectively borrow is also going up because we are getting richer. It makes sense that the balance goes up. We can afford it.

You may disagree with how much society spends through Government. That's politics. Just don't blame fiat. Fiat enables Government. It enables Industry. It enables you and me. It's just a tool and a good one if well managed.

Of course the current system will never collapse, as you said, it is all relative and floating. In a worst case scenario they will issue new money in exchange for old hyper inflated money, and last for another few years, like Zimbabwe government did for many times

If you regard fiat currency the unit of value, then your slavery will never end, you will forever working to earn some paper printed by a few while they take the ownership of your wealth by simply printing or adding zeros to their account

I know this is going to blow your minds, and I apologize for interrupting your circle-jerk of pseudo-theory, but what if currency doesn't exist in a vacuum? What if prices fluctuated, meaning purchasing power fluctuated, in a similar manner to currency?

What if, and I know this is really out there because it means the government and fiat money and the world isn't actually going to collapse, but what if the modern currency has enough flexibility to meet purchasing power at a reasonable level, and the only examples of this not happening are anecdotes, exceptions to the norm, and not statistically relevant?

Exactly, the reality does not match the logic and reasoning based on equal purchasing power theory, so either the theory is flawed, or it is only an ideal situation that never happens in real world

Even if your currency increased its purchasing power against another currency, there could still be barriers for you to arbitraging from the price difference in these two countries, include union trade protecting terms, which charge you 50% tax for importing from that country, and foreign currency exchange costs, which could be as high as 10% both way in a volatile market

Japan is a production-export style country, weaker currency will boost their export, especially when the material cost is low and most of their products are high value added industry productions like electronic and cars

It defies logic that a currency could lose 50% of it's value but have the same purchasing power as before. If the currency loses 50% of it's value, it loses 50% of its purchasing power. Value and purchasing power are the same thing. Further, your assertion that a currency could lose 50% of it's value relative another currency, yet people who use it would not feel the price change defies economics. This could only be possible if Japan's economy created everything their population consumed itself and had no imports, but it doesn't. With a weaker currency, everything Japan imports is more expensive. If you could somehow have a weaker currency vs. the USD that could somehow still purchase the same amount as before in Japan, you could make huge profits by converting USD to Yen and buying items in Japan to export out. Even net the shipping expenses. This doesn't happen because the situation you're describing doesn't exist.

Japan is also an interesting case because Japan has been undergoing price deflation as their economy has been stagnated over the last 10 years and their population continues to decline. I'm not sure it's a relevant analogy to bitcoin anyway because there are far more complex economic issues at play than just the value of the currency.

If majority of the cost is payable using bitcoin, then the loop will be closed. Of course not every industry will adopt, but basically you need only one large supermarket chain, one house renting chain to accept bitcoin, then they will cover majority of the worker's demand, then you could just hand out bitcoin as salary to your employees

Actually housing/renting is almost the biggest cost for enterprises, if the landlord start to accept bitcoin payment, then that's almost on track

deviation could occur in bitcoin because bitcoin value depends on the value of fiat currencies prevailing in each country, bitcoin is still hanging by a fiat currency because there are very few people using bitcoin as a medium of exchange in trade, in the future when bitcoin can be as a tool of trade , probably will not happen deviation in bitcoin

hopefully this can happen immediately, so that government regulation will not mempegaruhi value of bitcoin ... 

The cost of goods is ultimately set by the fact that a merchant's costs are a certain amount plus a certain amount of profit that the merchant wants to earn. The fact that merchants do not have costs in terms of bitcoin means that they should not price items in terms of bitcoin

The value of Japanese Yen dropped so much against USD, while Japanese people seldom feel any price change, and none of the Japanese merchant were driven into losses, because everything's price in that economy is presented in Japanese Yen, unless all of them change at the same time, they will become sticky altogether

In fact, I'm selling products at a fixed bitcoin price (updated every 6 months). As a result, sometimes they become more expensive fiat wise, sometimes cheaper. But since my profit margin usually is more than 100%, the exchange rate will not affect my profit too much. In fact, many business's profit margin is bigger than 100%, unless that is a large multinational corporation

The benefit is: From short term view, my profit might fluctuate, sometimes even goes into negative, but from long run, it will give bitcoin exchange rate support so that it will have less volatility

For example, if the bitcoin exchange rate suddenly dropped 50% against USD, while all products priced in bitcoin does not change, people will find out that all the products become cheaper if purchased using bitcoin, then they will purchase bitcoin to buy the products. That purchase will raise the exchange rate back to the point where they think it does not worth the effort. If bitcoin economy become very large and many merchants set a fixed bitcoin price for their goods/services, then the power of those purchase will be enormous and can push the exchange rate right back into the normal value range

It is similar the other way, if exchange rate rise 50%, while all products' bitcoin price do not change, people will find out it is much more expensive to purchase products using bitcoin, they will not use bitcoin to purchase, or even sell bitcoin to get USD to purchase goods

That ignores profit margin and cost of ingredients. It's arbitrary and not practical to just decide a burger = .01 btc and then make your mind not to change it. Plus bitcoin isn't a stable store of value, the value fluctuates. This problem would not be solved by setting the cost of a burger at .01 btc. It would drive the merchant into losses if he didn't change his prices with the changing price of btc.

It takes time to change. I have already received income in bitcoin's form like 4 bitcoins for a small project (20 days full time work). If one hamburger cost 0.01 btc, I won't argue

The purchasing power is simply set by merchants. For example, if most of the merchant set the price of one humburger at $5, then $5 will have the purchase power of one hamburger. Similarly, if most of the merchant set the price of one hamburger to 0.01 bitcoin, then 0.01 bitcoin can buy you a hamburger anywhere

And this has nothing to do with exchange rate, only the merchants' willingness to fix the price at 0.01 bitcoin

The economy text book said it should work that way, but it did not. The exchange rate might reflect real change of the currency's value, but domestically the currency's value is not correlated to money supply. I could print one billion dollar and raise the stock market without change a single cent in milk's price


People only deal with their own currencies domestically. By defiatize I mean people should abandon the habbit to measure value in fiat currency, maybe using electricity or energy is a better unit of value, since anyone will always have some use of energy

One problem is incomes are defined in Fiat. Valuing everything in Bitcoin is not useful when you can't tell if you can afford to buy something.

Your mind automatically goes to Fiat to compare to your income.

How are you supossed to give value to something without being compared to anything?
what dictates BTC purchasing power? i never understood that.

Actually, yeah, that's how it would work. If the Yen lost 50% of it's purchasing power, a hamburger that used to cost 100 Yen would be more expensive. That's how you know it lost purchasing power, the price inflation of the things it buys.


People don't only deal in btc, or USD, or Yen, or Euros. And they never will. And even if they did, the value of the currency wouldn't necessarily be stable. Money is only a store of value, not value itself. It's a representation of the value of all the goods and services mankind produces. If bitcoin was the only currency, the value of a bitcoin would rise and fall based on how much stuff it could purchase, which would be dictated by how much stuff is on the market. It will never be practical to "defiatize" btc.

Well that's all well and good, but who is going to dictate the prices, and who is going to enforce compliance?

Fiat money usually hold its purchasing power relatively stable domestically, just because it is centralized. Although the commercial banks get tons of money from FED, they carefully watch the CPI index and do not let those money flow. They could even create deflation by simply raise the loan requirement (loan is the only way those money could enter circulation)

But for a decentralized system like bitcoin, the money is widely spread among many actors, and can enter the circulation at any time, very unpredictable. There is no way to stabilize the money supply on market, so exchange rate will always fluctuate to find a balance

However, if merchants use a fixed universal bitcoin price for their product/services around the globe, then it is possible to stabilize its usage. A hamburger will be 0.01 bitcoin anywhere in the world, when people get used to this, they will forget about the exchange rate of bitcoin and start to use bitcoin as a unit of value

We should use the Big Mac Index.
http://www.economist.com/content/big-mac-index

Take the people in Japan for example, their currency is very unstable and lost 50% of its value against dollar in 2 years. But in Japan, a hamburger used to cost 100 Yen would not become 150 Yen now, but still cost around 100 Yen (maybe 103 Yen since their central bank said the inflation is less than 2% per year )

Similarly, if a burger in bitcoin economy cost 0.01 bitcoin, it does not matter how much bitcoin worth in other currency, as long as everyone only use bitcoin to purchase the burger at a price of 0.01 bitcoin, the bitcoin's value will be stable

The problem is that currently no one use bitcoin to measure the value, while most of the people use fiat currency to measure the value. The reason? A consensus has not been reached, the bitcoin is not a currency that is forced upon its user by the government, thus the consensus of its value can only be derived from its cost, not like fiat currency, universally circulating in the country thus make it much easier to reach that consensus of its value

FED has printed 6x more USD since 2008 and you don't see anything's price rise by 6x, and you don't see GDP increase by 6x either. But people still think USD's value is stable, since they have a consensus: Today one burger cost $1, and tomorrow it will still be $1, it is that consensus holds fiat currency's value, so that no matter how much currency the FED print, people would still think one burger cost $1.

Some people who learned economics will understand that now USD should only worth 1/6 of its value since 2008 and everything's price should rise by a couple of times. But when they go to the street, they will find out that no one believe them, and almost everyone still think dollar is almost as valuable as 2008. So once the crowd has reached a consensus of USD's value, it will force anyone else to accept their valuation of USD (since they price the same thing using the same dollar amount as 6 years ago)

Similarly, if there is a large enough crowd reached a consensus of bitcoin's value, then they would also force anyone else to accept their valuation of bitcoin through a fixed pricing of their goods/services

It will still be a long way to go before we can reach that level. Speculators especially who have been betting on btc-fiat exchange will always maintain that so it will not run away. So i was wondering whether the drop is actually a blessing in disguise for us to untie btc to fiat. That is when speculators are gone

Fine, 1 BTC=15 barrels of crude oil.

The dollar supremacy is extremely solid and wordwide. How do you pretend things stop being compared to the mighty dollar? be realistic. Want to defeat the empire? Cool, tell us your cunning plan tho.

What benefit will leaving fiat give users? The case for abandoning fiat isn't a compelling one, even though people on the internet will be amazed to hear that.

I agree with you in theory, but people don't know the value of an item even in this purely bitcoin economy because it's not a stable store of value, so they have to consult in terms of USD still to see if the value of btc is falling or rising relative to fiat currency. Because btc is not a stable store of value, I don't see "defiatizing" the unit of value as possible.

Judging from most of the threads here, it seems that most of the people are still using fiat currency to measure the value of other things, just like ancient people regarding earth as the center of universe, they think domestic fiat currency is the unit of value

For example, a people living in US will not value other things using Japanese Yen.  Yen has lost 50% value against USD since 2012, means everything's price in Yen has risen at least 50% in 2 years, but no one cares in US, since they do not use Yen as a unit of value. Same for Japanese people, they don't care USD could buy more things, since they only use Yen to measure value. For them, USD appreciation is not their business

Similarly, if there is a bitcoin only economy, where people exclusively use bitcoin to carry out all the transactions, they would also don't care about the exchange rate of bitcoin against other currencies. In such case, bitcoin's exchange rate will only affect those people travel a lot or do lots of trade between different countries

It will take a long time to defiatize the people's unit of value, but people's finance knowledge is improving very quickly by using internet, it will eventually come. By the way, the change will never come from the bottom, it is always the entrepreneur first discover the truth