Topic: ECB paper on Bitcoin and virtual currencies - page 3. (Read 16899 times)

Wow.

http://www.libertariannews.org/2012/11/04/bitcoin-fear-mongering-by-an-mba-school-ranking-website/

Just a random thought.  As others have pointed out, the three categories of "virtual currency" the ECB identifies in its paper are interesting in an academic sense, but from a practical perspective, it almost seems silly to talk about them together.  It's sort of like doing a report on the threat posed by various lizards and discussing the following:

1. pet iguanas (like WoW gold and other "Type 1" currencies, these guys are cute and essentially harmless);
2. pet crocodiles (like Linden dollars and other "Type 2" currencies, these guys could be dangerous if you let them grow large enough and didn't keep them contained, but the threat is certainly a manageable one);
3. Godzilla (Japanese-in-origin Godzilla is the "King of Monsters" and Japanese-in-origin Bitcoin is the King of Cryptocurrencies; Godzilla had the power to destroy entire cities and Bitcoin has the power to destroy an entire financial system; Godzilla started out as a villain -- and that's certainly how the establishment views Bitcoin now -- but he became a hero and defender of the people; Bitcoin is the people's currency and a powerful tool for protecting their freedom, and I think it will become increasingly recognized as such as time passes)

Dude, you're sobering up! Please drink more of the Bitcoin kool-aid.

the paper was probably requested during the summer when there was a lot of btc/eur trading and the response to a "what's our bitcoin strategy" question was a deafening silence.  so they went to work on phase one for creating one.

More likely in my view, is that the report is just fine, but most of the dire implications that we are finding in it exist only in the bitcoin community's collective heads.

Maybe they tried to predict how things might play out, and decided that tentatively acknowledging and embracing Bitcoin would result in the least evil? Then again, I am assuming that they're smart.

Who knows? Maybe it's just like in a lot of companies: young people are hired for the cheap labour, creativity, and a fresh view on things. While bosses tend to be older and more experienced, although sometimes prone to being a bit stuffy and conservative. Maybe the big bosses were too busy fighting fires that they didn't notice they had a mutiny on their hands?

In general I think representative democracy as we have it now in the western countries has failed: it doesn't work. We have the internet now and there are possibilities to do this differently. Politics is the process of negotiation between different interests and coming up with a tradeoff everyone can live with. One of the problem currently is that not everyone gets to leverage his interests evenly. The emergence of the internet offers a unique possibility to rethink how this process could work (not a simple: everyone votes on each issue, that won't work). That's why I like the pirate party: they're trying new ways in that regard internally.

Now for bitcoin and the governments wising up: I think that's highly unlikely. They don't want to even discuss the issue honestly, because the current system (however doomed to fail) is so favorable for them. Imagine they were not allowed to create money by selling treasuries and were forced to do prudent budget management and raise taxes in case they want to spend more!!! The government apparatus would have to be downsized incredibly (which I support, of course, but have no hope of seeing happen). This is the separation of money and state we're talking about here. I don't think it's an option for anyone smart enough in government to talk about bitcoin or other alternatives to the current debt-based fiat system with the citizens.



I can't imagine a higher class of government that wants a discussion about money. Why would they shoot themselves in the foot like that?

Call me naive, but my current stance is: this report was a mistake, written by a single smart bureaucrat who looked into bitcoin based on the requests for statement the ECB might've been receiving. This guy knows all about money and economics already, maybe has a bias towards the austrian school or whatever, sees bitcoin and thinks: wow! This is cool! Digital gold! (just like us). He then tries to write an objective report, succeeds and goes buy bitcoins anonymously. We might actually have "a friend" at the ECB

Do we know who wrote this piece? Maybe we should call and ask to talk to the author

What I meant with the copyright example: several years ago, a window of opportunity came along for Western society to re-evaluate what "intellectual property" meant for them, and how various laws could be reformed to take into account the Internet age. People's values were changing, strange new concepts like "sharing partial downloads" were emerging. However, instead of conducting an honest debate with Joe Public on the matter, what did governments do? Nothing. At first they tried to heavy-handedly enforce old laws, and when that didn't work, they tried to force new legislation based on century-old values (SOPA, ACTA...). It doesn't seem very democratic, does it?

It seems that without some kind of helpful guidance, Western governments may blunder the same way with Bitcoin: they will keep ignoring it for as long as possible, then panic and attempt to dictate new legislation when their income starts disappearing. It would be a disaster for society if it ever came to that. For a government to function, it needs revenue. That usually comes in some combination of tax and inflation (in case everyone starts avoiding tax-traps by using cash). Bitcoin poses a unique threat to this old system, and governments may need to be reminded that they must behave democratically and co-operate with Joe Public to avoid a crisis.


It's curious. I really do get the feeling that the report is a message from "a higher class of government", and it's implied that the various national governments (in the EU at least) are indeed "middle management" bureaucrats.

Just reread this part because it was quoted in the zerohedge article


Wow, this sounds like it's actually possible to "slowly transition" from fiat to bitcoin?

(What they see as a problem (the inability for central banks to control interest rates or an "inelastic money supply"), some of us see as a goal, of course)

These are very good question I cannot answer. But I'd like to speculate a little bit, too:

The official goal of the EZB is price stability in the euro zone. Maybe it's that simple and they're afraid a bit bitcoin will screw with the prices if it becomes more widely used.

hm, "adapt to the 21st century" as in "the governments should roll out a bitcoin-like system?". Well, I'd be all for it (except it shouldn't be the government rolling it out), but what would that to for the ECB or any interests behind it? Nothing good, I think.

I'm assuming this analysis was carried out by bureauocrats. Maybe there was no "greater goal from the top" and they just followed their rules (which might read: "if there's a threat to price stability, analyse it and publish the findinds").

There's this nagging voice in me that says: "The interests that ordered this are planning something really evil! Find out what it is!" But for some reason I can't think of an evil plan that would require this. Strange.

There is a phenomenon closely related to the network effect, it's called path dependence. With money, these manifest themselves as liquidity.

Bitcoin and litecoin are very similar, but they differ in liquidity (which with technologically and legally similar money normally determines which market will prefer). So normally you'd expect the one with the higher liquidity to be preferred, i.e. Bitcoin to litecoin. Krugman wrote 2 papers in the 80s where he argues that liquidity influences the choice of money in international trade.

Or to put it in more casual terms, Bitcoin has a first mover advantage. That does not necessarily mean it will have it forever, but for the time being it looks like it is helping.

I would appreciate it if you addressed my arguments rather than complained.

You brought up "GDP volatility", I was talking about price volatility. Furthermore, I was claiming that the paper you presented is consistent with Austrian viewpoint. That does not mean Austrians are right, it just means you're wrong, you did not provide evidence that the lender of last resort improves anything.

I was actually very careful to formulate my post only with respect to its consistency with the Austrian position. I did not claim I believe it.

So, yet again, you show how for you, emotions take precedence over scientific neutrality.

Wow! There's some interesting debate going on regarding the minutiae of the ECB's self-published opinions on Bitcoin. However, I wonder if someone could enlighten me by answering a few questions.

1) What was the purpose of the "Virtual Currency Schemes" publication? Why did they publish it? Surely, they could have just sent out some private memos to the interested parties instead?

2) What do they hope to achieve by involving the public? Considering that the Internet is a major communications medium, on par with television, presumably 'we' the naive Netizens have some kind of role to play. What is that role?

3) Bearing in mind the presumed intentions of the ECB, we can then speculate about what they really think. So, what's really going on? What is the ECB actually worried about?


By answering these questions myself, I can speculate that the ECB is actually trying to leverage the public into pressuring governments so they hurry up and adapt to the 21 century. Western governments and society-at-large still seem to be grappling with simpler issues like intellectual property laws (e.g.: copyright protections, patent laws, etc.), which are already difficult in their own right. The ECB poignantly mentioned "press coverage" in their concluding remarks, which I interpreted as a kind of threat or warning to the established order. However, I welcome other opinions on this.

This made me laugh.  That's pretty awesome coming from the guy that can prove that proof-of-work will fail by saying it over and over again.

I don't think that the success of Bitcoin vs Litecoin has much to do with either beliefs or the intrinsic properties. It can be explained fairly well with the network effect. Bitcoin has a strong network effect and similar technologies are at a major disadvantage because of this. They have to be much more than just copies with small changes to overcome this effect.

http://en.wikipedia.org/wiki/Network_effect

So beliefs about the future of bitcoin do not affect its valuation and use, only its intrinsic properties.
If bitcoin succeeds than litecoin must also succeed since they are almost identical. Right? Or no? Because if the answer is no, then beliefs must matter.

As I predicted at the outset, you are immediately heading off topic to dodge the issue.

Point to data which suggests that the absence of a lender of last resort reduces GDP volatility.

If you can't point to any evidence whatsoever to support your beliefs, but still maintain them. Well ... There isn't much use in communicating with you then is there?

This is consistent with the Austrian view, the bank panics correlate with shrinking of the money supply. Also, branch banking was prohibited in the US in the 19th century.

The Austrians also view the shrinking of the money supply (and accompanying panics) as a move towards, not away from, an equilibrium. So when evaluating central banking based on the number of panics, they reach the opposite conclusion, especially the gold standard branch (Rothbard in particular favoured bank runs as exposing the "fraudulent" nature of fiduciary media). The freebanking branch (White and Selgin), on the other hand, argues that freebanking (fractional reserve banking based on commodity standard) in Canada and Scotland was more stable than US (based on number of panics).

Also, from a logical point of view, lender of the last resort in a fiat money system is just an externalisation of costs. It does not fix anything, it just redistributes debt. No wonder if such a course of action is possible that the debtors view it positively.

EDIT: Most importantly for Bitcoin though, in a system with inelastic money supply (when credit has no effect on it), the whole concept of the lender of last resort makes no sense from the point of view of monetary policy.

This makes no sense unless BTC is a unit of account, and it at the moment isn't, and as I wrote, it probably won't until we're at the stage where the fiat money system is collapsing due to its internal mismanagement.

Bitcoinica had a crappy hedging algorithm, and in fact was unprofitable during the time of high price stability and high liquidity (the exact opposite of what you allege). Pirate most likely did not do any trades whatsoever and was a pure ponzi (the guy has a long history of allegations of fraud and theft).

I would appreciate if you read what I wrote, and produced arguments instead of ad hominem attacks. Bitcoin can evolve into a unit of account, but we're far away from that.

This "multiple equilibria" with respect to Bitcoin is also dubious. With normal fiat money, for example, the stregth of the national economy, monetary policy of central banks, transaction cost difference among forms of money, or demand for credit influence the money supply, but with Bitcoin they don't (and potentially never will).

I already read it. I checked my bibliography records and I made four notes on this paper. I agree with it that fiat money is more efficient with respect to storage costs than what has commonly been understood as commodity money, and also that velocity is not a good indicator of "moneyness". I disagree that "beliefs" play a significant role in the selection of money, and also the authors fail to sufficiently appreciate the heterogeneity of transaction costs (a very common mistake for almost all the authors that I read, including many Austrians).

Yay.