Topic: The irony of the Bitcoin guinea pig. (Read 1626 times)

Governments are made up of individuals, and in the case of the most corrupt governments those individuals are sock puppets to the selfish rich of the land. Whilst I agree the government will probably be the last to 'officially' recognise a non state endorsed crypto currency, I can not see how the wealth structure will change significantly?

A broken government such as Argentina may fail if their fiat fails, but the key holders to the wealth of the nation will still be at the top and will regroup after the cards have been shuffled. Bitcoin is not the elixir many believe it to be. It will not cure all evil, but hopefully at least prevent the game from being rigged.

Yes Bicoin will be adopted in those countries. No not by their governments.

The debt they hold is suddenly not such a burden, if it is linked to wealth measured in an increasingly worthless fiat denomination. Granted the poor population of the first country to 'forced' to adopt Bitcoin wholesale will not miraculously be able to afford houses where once the couldn't, but at least they won't have to pay off their first world debt before laying the foundations.

But wouldn't the analogy be if someone somehow tried to establish a similar fixed rate of exchange between the USD and bitcoin?  That was the problem with bimetalism, the governmnet ordering the ratio.

Hyack argues very convincingly in "A choice in currencies" that giving consumers freedom of choice in currency, outside of government mandates, solves virtually all these problems.

The key word is "hold".

Half the population doesn't hold money. Most of the population has a negative net worth. Partially a side effect of the system as is, granted. But just because everyone switched to bitcoin wouldn't mean they could all suddenly afford a house, or a car, or whatever they need that they cannot presently afford. Most of the population holds debt, not money. That is a no brainer, I would much prefer to hold a debt in an inflationary currency. A deflationary currency only benefits the wealth holders, which tend to gravitate towards 1-10% of the population.

The point being, we had that system. We didn't just start with a planned inflationary system. We evolved into that because it fixed some of the problems of a deflationary system. You can go back to a deflationary system to fix the inflationary problems, but you are going to face the same problems they faced before the system that was implemented to fix them.

The majority if people will not want a deflationary currency for this reason. Only those with positive net worth and assets to save will want it. 

^ Infinite divisibility ^

deflationary currency or Inflationary ? which one would you hold?

Are you aware of the disastrous effects that deflation had prior to the advent of designed inflation?

At the end of the 19th century there was a major political upheaval around the issue of bimetalism. Using silver as a currency as well as gold. The problem was all the producers who profited from the economy would inevitably end up with all of the gold. They were rich, and always took in more gold than they spent. So the rest of the economy would be periodically starved, until they spent enough gold to generate economic activity again. William Jennings Bryan had a stump speech where he declared that the masses were being crucified on a cross of gold.

Their solution at the time was to Increase the money supply by adding silver as a mainstream currency. The gold owners hated the idea because it diluted their control of the monetary system. The fight went on through to the creation of the fed and the eventual outlaw of gold holdings. 

A bitcoin economy would have the same problem. Also you all seem to miss that people depend on financing to buy homes and cars and education etc. so there will be a very real need for loans. If bitcoin maintains a constant increase in value over time it will not benefit borrowers, as they will have to repay loans with increasingly more value, meaning the creditors benefit from both interest and currency appreciation. 

These are reasons people will choose a fiat currency and what we will most likely have is both bitcoin and fiat operating in tandem. Some uses will favor bitcoin, others fiat. It isn't going to replace fiat, unless fiat completely fails on its own accord. Possible and maybe even certain for periods of time. But not permanently. Every hyperinflation ends after the upheaval and people change the system. After the Weimar episode Germany emerged as one of the strongest economies in the world.

That is the nature of disruptive technology.

But if, as I hypothesize, ecurrency makes the suffering from hyperinflations and severe inflations a thing of the past, then what has happened is that a disruptive technology prevented a lot of disaster for people, while bringing some of its own.

If the aggregate of billions of small purchasing and currency decisions by individuals leads to the demise or shrinking or irrelevance of the nation state, so be it.

William Gibson in his various science fiction books made an interesting point.  At some places he had characters talking about nations and countries, but the characters didn't know much about them.  Someone then says what country they live in and another person asks "What does a country do?"  

Some really good books on what it's like to live in hyperinflation are Paarsons "Dying of Money" and "The Black Obelisk" by Eric Maria Remarque.  A person can read these and ask the "what if bitcoin ...." question.

Fascinating definitely, but only from an academic point of view. I really foresee the huge disruption that the 'bitcoin effect' will have, as being nothing short of disastrous for vast amounts of people. Saying breaking eggs and omelets just doesn't cut it here. The mid game of this whole 'experiment' gets VERY messy for some countries and people. What plan is being prepared? How will the populations of these soon to be failed states be looked after when the bitcoin typhoon smashes down everything they know?

I think it's fair to say...not "bitcoin but ready availability of ANY substitute currency that can be readily adopted".   

Nothing will prevent hyperinflation if they powers that be want to run the presses.  But a fiat currency can become worthless through not being trusted, and this is different than hyperinflation.  Some currencies you just don't want, and it has nothing to do with hyperinflation.  North Korea might be an example.  Hard to exchange it for something else.  Etc.

hyperinflation is WTR local fiat, and not bitcoin price?

Yes, bitcoin price would/could/might hyperdeflate.

It'd be absolutely fascinating to watch bitcoin duel it out with a national currency in some nation like Argentina.  We'll probably have numerous such spectacles unfold in the next five years.

Obviously farmer was a poorly chosen example as he will have relatively high physical wealth as he creates goods and owns land, perhaps I should have used retired teacher living off savings. Nevertheless you raise an Interesting point. I haven't studied economic history, other than a passing interest, i'll have to take your word that some precedent has been set here. As you say hyperinflation is essentially nothing more than an exponential rush away from government issued fiat into whatever form of secure asset is available it pianos or bitcoin.

However, What I don't understand is why you think this will significantly change the status quo? The most poor will remain poor and most rich rich. The rich already have vast non fiat wealth, houses, stocks (outside the country wealth too) gold ect. The change I forsee is simple those with the highest % exposure to local fiat currency over goods and possessions will suffer the most. This will occur across the board rich or poor. Many members of each group will suffer and many will 'competitively' gain. (vastly oversimplifed) but general status quo unaffected.

This seems to be drifting away from the original premise though; in that, however you see the details of a hyperinflation event playing out. When the dust settles, the country will still have to trade a currency. If we take it that bitcoin has filled this gap, the country will be bitcoin rich.

Now if we go on the assumption that bitcoin continues its huge price increase Do you not think a vast reward will be had by the entire country that first manages to debase its currency to the point nobody wants it, and successfully drives its population to use bitcoin? Argentinian citizens for example have almost no other options. Convert you increasingly useless currency for physical wealth or into bitcoin. If this trajectory continues Argentia, will on a global level have a relatively high bitcoin per captia as they all become early bitcoin adopters, The government, through financial suicide and corruption will have essential been rewarded for their inaction, with a newly wealthy, early adopting bitcoin nation.


Bitcoin definitely brings a new dynamic to the situation, with any luck it will cancel out some of the worst problems of a hyperinflation event. However I don't think bitcoin can prevent hyperinflation. If anything it will accelerate it. (on the assumption that you mean hyperinflation is WTR local fiat, and not bitcoin price?)

The farmer IS PREPARED.  During the 1921-1922 Weimer hyperinflation, the farmers would go into town and do crazy stuff, like buying a high class grand piano for four sacks of potatoes.  The farmer had hard goods.  Inflation and hyperinflation is nothing more than the preference  of the consumer for hard goods rather than currency.

The mass exodus into other forms of wealth is never quick enough.  Human habits are hard things to break.  Before they know it their savings and wealth has vanished.

Yes bitcoin adds new dynamic to these things and in fact it may prevent the possibility of a hyperinflation.  Let me try to explain what that new dynamic is. 

Suppose the hyper is looming and people think, maybe they better diversify a bit.  SOME are goldbugs, they've already done that.  But 98% of the people, they look around and notice that the only bank accounts available are USD (or whatever the local currency is).  They say, "gee, not so easy to get a stash of some other currency - they have me locked in!.  But no problem, I'll just stock up on hard goods."

Now if the guy is comfortable with multiple currencies, uses them and has bank accounts in them, he's got no problem.  But few people do - and the countries like it that way. 

Now consider the situation same as above, 2% goldbugs, 98% just with USD.  Some of those though are using bitcoin (nothing more or less than a substitute currency but one that's very rapidly adoptable)  As the fiat worthless pressure mounts, market forces cause a shift to the bitcoin.  It becomes commonly used on the street.  The fiat starts to fade away in importance, although the government still prints it like crazy.

What happens is that the human suffering that occurs in a hyperinflation/severe inflation cannot occur.

Maybe my imagination is tilted to one side slightly, but I still can't how this scenario would make a difference? As the currency collapses, there will presumably be a mass exodus into any other form of wealth be it gold, property, bitcoin or whatever. Some in this scenario will no doubt be quicker on the uptake than others, although i'd guess generally the small town sheep farmer with his cash under the bed will not be as prepared as the rich banker, politician or  whatever fat cat.

lead on to the point when hyperinflation has run its course, terrible as that is, and the currency is deemed worthless. Then out of necessity bitcoin has been adopted by everyone. Now whilst this is obviously terrible for all concerned and maybe there will be some fairly serious wealth re-distribution between earlier and later adopters, the country as a whole, on a global scale is an early adopter.  Ergo the rich elite still remain at the top of the pyramid becasue they owned things of real value before; that despite currency collapse will remain valuable after.

 Here in lies the irony, despite plundering the riches of their own people and driving the currency into the ground. This country will on a global scale, be rewarded for being early adopters. The worst managed country and hence the first to fall, will see the biggest returns from going all in on bitcoin, yet the rich and corrupt will still be rich and corrupt.

Okay.  This:

The internal propaganda machines will cover up the problems just long enough until the elite have managed to exchange their useless pesos, rubles or somalian shillings for bitcoin or other forms of wealth. Then bring on hyper inflation and let everyone else take the fall. These same elite will then stand back and watch their early adopter advantage reel in super wealth as bitcoin price rises.

Is completely backwards.  The power of the collectivists is in their fiat and control of it.  Infiltration of "substitute currencies" occurs from the bottom, the little people buying things in the market, ebay, where ever.  This is fought against with laws, propaganda, and policing power.  Eventually the substitute currency comes to be or has to be used by the ruling elite, by the police and so forth.

The ruling elite are NEVER the EARLY ADOPTERS.  It is a radical fringe minority who are that.

However, these two dynamics are not completely separate.  Even while a member of the ruling elite is ordering heads chopped off for dealing in the "bad evil foreign money", he is taking bribes under the table in that same money.

Also, hyper inflation is very different from moderate to severe inflation.   Hyperinflation is not good for anyone, the ruling elite are also hit by it.  Rich people are landlords, and suddenly their rent streams are worthless, while they must pay bills in exponentially larger amounts.

I'm listening. How do you think this scenario will play out? Bearing in mind all studies of hyperinflation will have no precedent here as the replacement currency 'bitcoin' will probably be hyperdeflationary in the coming years, and thus more than counter any effect.

This is wrong, most likely.  I assert this from having studied history of economic inflation and hyperinflation.  You are referring to one case of a substitute currency coming into play and gradually gaining dominance.

This has happened many times.  It is inevitable in any country with severe currency problems.  But it does not play out like you project.

The thing that makes bitcoin bitcoin is the math, no need to trust a human being. Human nature is more in touch with a debt based society than a bitcoin society. People see credit cards as free money. Bitcoiners buying Lamborghini and Tesla, etc. nothing wrong with this but... I haven't seen Red Cross Bitcoin or something similar thus far.
One thing is to see another system than the banking system but for us to believe bitcoin will change our heart? Hmmm... Doubt it.

So I agree.

Somebody gets it.

The perspective amongst many is that everyone lives in a laissez faire democracy. The countries that will first suffer economic collapse of their corrupt fiat system, will still have wealthy at the top and poor at the bottom. The internal propaganda machines will cover up the problems just long enough until the elite have managed to exchange their useless pesos, rubles or somalian shillings for bitcoin or other forms of wealth. Then bring on hyper inflation and let everyone else take the fall. These same elite will then stand back and watch their early adopter advantage reel in super wealth as bitcoin price rises.

The interesting thing to me is so many of you have never lived outside of a credit card world.

you young whippersnappers when I was your age...

we used cash.

Yes BTC has some unique features that cash doesn't. But they figured out how to collect cash taxes long before the modern system. They could easily do the same with crypto and they will. If you want to business and engage in commerce you have to pay taxes willingly (coercively) or face the punishments by the establishment. Crypto may make it easier to evade but not by much. If you are employed there is a record of it, sell property there is a record of it, and etc.

I had a friend who smuggled a lot of cash out of the country in semi legal fashion. But the gov  He was audited and they didn't know what he took or where but figured out he was short, and assessed a fine and said he could pay it or go to prison. That is how bitcoin would be taxed too. They don't need access to it, they only need access to you.

As for the notion that bitcoin will suddenly revolutionize the system, end corruption, all of the hopium being smoked around here, I don't see why it would. People are people, and they are corruptible, and when the bitcoin billionaires take the reins they will be susceptible to evil and manipulation and control.  IN fact they may be worse, I think a lot of the hi tech community really looks down on the masses as if they are not even the same species. The two really do not understand each other. That is dangerous as empathy is at a minimum, and empathy holds a society together above all.

I do think it will be a net positive though, just a fascinating transition and really would keep an open mind and expect to be surprised by how it all unfolds.

Yeah, you just aren't being realistic.