Speculations for cryptosceptics

[Spathi]

Currently there are many crypto-deniers ("no-coiners") in the world, especially in authoritarian countries, and I like to argue with such people. Below I write some simple speculations, which explain why the cryptosceptics are wrong:
The inflation is in fact a hidden taxation, and this "tax" is mostly paid by poor people, not by the wealthy (because rich people store their wealth not in the form of money, but in the form of assets like real property). And this situation makes useful any things which can help people to store their savings:
1)
Let's assume that there is some completely useless and worthless product on the market, let's call it pipyruses; and everyone knows that the price of pipyruses will remain constant in the future (in a "right" currency, which is not constantly emited and thus does not have inflation). One pipirus costs ten dollars. Then people will quickly understand that they can use pipiruses as means of accumulation: a worker will buy 300 pipiruses every month, and after ten years, having accumulated thirty thousand pipiruses, he will sell them and buy an apartment with this money. And this option for accumulation is obviously more profitable than dealing with banks, loans and mortgages.
2)
Let's say 100 programmers have created a a cryptocurrency pipycoin for themselves and agreed to use it as an alternative money (to exchange it for real money). The price of one pipycoin is 10 dollars. And once a month, each of these programmers sells a part of his salary and buys 300 pipycoins from other programmers. Then, once every 10 years, each programmer sells 30 000 pipycoins to others and buys an apartment with this money.
It turns out that for these programmers, the pipycoin is a convenient means of lending money to each other; thus, an ordinary means of exchange, i.e. money, turns into a means of accumulation, which allows these programmers to save money relatively successfully. These programmers loan the money from each other more honestly, than the banks do.

 

[jack action]

First, no product keeps its value over time, especially property. Money must be put in them for them to keep their value; otherwise, decomposition, oxidation, wear, attack by wildlife, or even theft will eventually mean you will lose it. So inflation kind of realigns money with reality: nothing lasts forever. The only way for money to keep its value is to lend it with interest to someone else.

Second, how are your pipycoins protected from inflation? When you sell your 30 000 pipycoins ten years later, the legal currency won't have the same value because of inflation, so how much do you sell them for versus the cost you bought them? Even worse, how will you protect them from speculation?

 

[Spathi]

First, no product keeps its value over time, especially property. Money must be put in them for them to keep their value; otherwise, decomposition, oxidation, wear, attack by wildlife, or even theft will eventually mean you will lose it. So inflation kind of realigns money with reality: nothing lasts forever. The only way for money to keep its value is to lend it with interest to someone else.

What about the real estate? I see that often people buy an appartment not for living in it, but simply because this is a way to save their money. And this can lead to situations like 2008.

Second, how are your pipycoins protected from inflation? When you sell your 30 000 pipycoins ten years later, the legal currency won't have the same value because of inflation, so how much do you sell them for versus the cost you bought them? Even worse, how will you protect them from speculation?

Both gold and the bitcoins are protected from their inflation, because their total amount is limited and they are not "printed".

 

[jack action]

What about the real estate?

A house deteriorates over time, even if nobody is living in it. For example, rain falls on the roof and wears it. You will also most likely insure it, which will have an annual cost that you will not recover if nothing bad happens.

Both gold and the bitcoins are protected from their inflation, because their total amount is limited and they are not "printed".

I don't see how something being limited protects it from value variation.

Inflation is basically currency speculation. It can be - and is - controlled. Gold doesn't have that luxury, and therefore, the speculation is totally at the will of the market. If you buy $100 of gold, you cannot be sure that you will sell it at $100 in the future (considering inflation or not).

In the end, it is all about trust between individuals. Do we still all agree about the worth of what we have worked for? If someone sells $100 worth of gold for $90, others might think gold loses its value and sell their gold before they think it drops too far, thus creating disarray. The opposite may also be true with price increases.

 

[Borg]

Crypto is great for criminals who wish to hide their illegal activities. Anyone and everyone can spin up one of these shell games for whatever purpose they want.

Opinion | This meme coin dinner is over the top — even for Trump

This is over the top — even for Trump.

www.msnbc.com

 

[Greg Bernhardt]

Crypto is so clearly designed for corruption

https://www.reuters.com/world/middle-east/wlfs-zach-witkoff-usd1-selected-official-stablecoin-mgx-investment-binance-2025-05-01/

 

[Spathi]

Crypto is great for criminals who wish to hide their illegal activities. Anyone and everyone can spin up one of these shell games for whatever purpose they want.

This is true, but the criminals are not the main problem of the planet. And I think that cryptocurrencies can save the world.
Here are two youtube music videos with a big amount of information:

 

[Borg]

This is true, but the criminals are not the main problem of the planet. And I think that cryptocurrencies can save the world.

I understand the mathematics and economics behind it and it is exceedingly bad in multiple ways. Believe what you want. You're not going to change reality with a YouTube video.

 

[Spathi]

If you want to argue using economic terms, I suggest discussing this article written by a FED employee:

Unique Implementation of Permanent Primary Deficits? | Federal Reserve Bank of Minneapolis

www.minneapolisfed.org

I have not read it carefully yet, but as far as I can see, the author complains here that bitcoins prevent the FED from expropriating money from people like you, and to solve the problem, the author suggests taxing bitcoins.

 

[Grinkle]

And I think that cryptocurrencies can save the world.

Save the world from what, and by what means?

 

[Grinkle]

Both gold and the bitcoins are protected from their inflation, because their total amount is limited and they are not "printed".

Is there an economic basis for claiming that things of finite supply are immune from inflation that you can reference, or is it your own reasoning?

I assume you mean that the value of an asset that is protected from inflation will always rise by at least the amount of inflation, if you mean something different, please elaborate.

 

[Jonathan Scott]

As I see it, the problem with bitcoin is that while gold has significant intrinsic value, for example for electronics and jewellery, ensuring a secure base for its value, bitcoin and most of the other cryptocurrencies do not; the value is determined purely by the market, and could be destroyed completely by a loss of confidence. The value fluctuations are far greater than for most common forms of investment, and those who gain the most benefit are often those who create disruptions in the value, cashing in on the resulting swings.

And if that volatility problem can supposedly be "fixed" by linking a cryptocurrency to a national currency to make it stable, it should be treated as being equivalent to that currency, for example to avoid making it possible to bypass tax by paying using an equivalent amount of cryptocurrency.

 

[Grinkle]

My concern with BC is the huge energy consumption.

91 - 150 TWh per year is rather a lot, to put it plainly and mildly.

The US consumed about 4000 TWh in 2023, so just to exist BC is using around 3% of all the electricity consumed by the US every day, on average. IMO that is unconscionable. 30 or so such "currencies" would require as much electricity as the entire US simply to enable transactions. Sorry to be putting forth such simple math as though its deep, but the numbers just stagger me.

How Much Energy Does Bitcoin Consume? | Crypto.com

Here’s how energy-intensive Bitcoin’s Proof of Work consensus mechanism is and what’s being done to offset it.

crypto.com

 

[Borg]

I really don't want to get into a debate about it but here are couple of facts about crypto currencies:

• Grinkle beat me to it but yes, huge power consumption in the mining process as coins become harder to obtain.
• The ledger has several issues - first, it is a history of all the coin's transactions - including partial transactions. Over time, those files become enormous.
• If that isn't bad enough, ledgers are free text which means that they can accept anything and everything - including child abuse images, porn and any other imagery.

Those three alone are more than enough for me to see crypto as a useless and terrible device - even leaving out the criminal aspects of it.

 

[Jonathan Scott]

Different cryptocurrencies have different creation methods and different features in their blockchain ledger. Bitcoin uses a proof-of-work mining method which has become a major problem from an energy point of view. Other coins use other methods, including fixed allocations by the creator, but there does not seem to be any "ideal" solution.

It seems that many supporters of cryptocurrencies simply want some form of investment and exchange mechanism which isn't tracked as currency, which immediately raises questions as to why. Overall, a cryptocurrency is typically like a cross between a Ponzi scheme and gambling, and I feel it should be subject to similar restrictions.

 

[Spathi]

Is there an economic basis for claiming that things of finite supply are immune from inflation that you can reference, or is it your own reasoning?

First of all, it seems to me a self-evident fact, one might even say an axiom in economic theory: since the price is always determined by the balance of supply and demand, an increase in the amount of money inevitably leads to an increase in price. It also seems self-evident to me that the inflation is a hidden taxation; I had read about this in particular in a book of a big Russian liberal economist Yegor Gaidar. I often see this statement mentioned by people who seem competent to me.
Accordingly, if we compare fiat money like the dollar with private money like bitcoin, the latter look more attractive, because they are not printed. Supporters of the traditional financial system sometimes object to me that instead of "dollar printing" one should say "quantitative easing", but there is not much difference here.
In this video, Arnold Schwarzenegger explains that the reason of US dollar inflation is the printing of dollars:



I have posted a link with a time code, if time codes do not work on this forum, the words about printing dollars begin at 26:06.

 

[Jonathan Scott]

The effect of printing more money is well understood. But that assumes a reasonably stable purchasing power of a given amount of currency, for example as supported by national or international banks.

Restrictions on arbitrarily creating more units of a given cryptocurrency similarly protect against that form of inflation. However, the value of bitcoin varies rapidly with investor confidence and is lacking any form of external stabilisation. It is also subject to the threat of various forms of legal action through being effectively an unregulated equivalent of currency.

 

[Grinkle]

an increase in the amount of money inevitably leads to an increase in price.

Absent an increase in productivity, I agree.

I understand better what you mean by immune from inflation. You are saying that if the money supply does not increase, then increased money supply can not cause inflation; I agree - its tautological. Correct me if I am wrong about your meaning of immune from inflation.

I'm I'm understanding you correctly, and what you want is a path to eliminating governments ability to change money supply, why is crypto the best path towards that, as opposed to something much simpler and cheaper like going back on the gold standard?

 

[Grinkle]

the value of bitcoin varies rapidly with investor confidence

I think the OP is imagining a world where there is no more fiat currency, only fixed supply crypto, so crypto no longer an investment vs fiat currency as it is today. I may be wrong, though.

 

[Jonathan Scott]

We are already well on the way towards all-digital currency today, but maintained by the network of banks rather than recorded in a cumbersome blockchain ledger.

The blockchain ledger is a technical solution for obtaining incontrovertible open agreement about which identity owns how much of the currency, but it is many orders of magnitude less efficient than conventional banking transfers, as it involves updating multiple cloned copies of a ledger that records all transactions worldwide, including voting schemes to resolve conflicts (for example if the same bitcoin is paid to someone else via a different part of the network while a previous transaction is still pending).

The bitcoin mechanisms for ensuring consistency are so resource-heavy that transactions take at least a few minutes and may take hours to be finally confirmed. At present, it is estimated that the original Bitcoin protocol may be able to handle up to 7 transactions per second worldwide, and alternative blockchain protocols a few times that:

https://en.wikipedia.org/wiki/Bitcoin_scalability_problem

In contrast, Visa alone currently averages something like 1700 transactions per second, with peaks of perhaps 4000, and Visa claim they should be able to handle up to 65000 per second if necessary.

So cryptocurrency is primarily a cumbersome technical solution for those desperate to avoid using the banking system.

 

[Spathi]

The bitcoin mechanisms for ensuring consistency are so resource-heavy that transactions take at least a few minutes and may take hours to be finally confirmed. At present, it is estimated that the original Bitcoin protocol may be able to handle up to 7 transactions per second worldwide, and alternative blockchain protocols a few times that:

https://en.wikipedia.org/wiki/Bitcoin_scalability_problem

In contrast, Visa alone currently averages something like 1700 transactions per second, with peaks of perhaps 4000, and Visa claim they should be able to handle up to 65000 per second if necessary.

This is true, and moreover, as far as I know, Bitcoin has a huge transaction fee now (around $100), so Bitcoin is not suitable for small purchases at all. But this does not prevent Bitcoin from being used to accumulate large amounts of money, for example, for real estate transactions.
For small transactions, as I believe, the best solution is the custodial Toncoin in Telegram. If you are accumulating cryptocurrency, you can receive it with small transactions in Toncoins, and when you have accumulated an average amount in Toncoins, convert it all at once into Bitcoins through the Telegram exchanger, and transfer it to your non-custodial Bitcoin account.
The custodial Toncoin in Telegram, as I understand it, is rather some private money than cryptocurrency. The Nobel prize winner Friedrich Hayek wrote that the private money would save the world economy. I wonder how many people in the West have Telegram now?

 

[Grinkle]

The Nobel prize winner Friedrich Hayek wrote that the private money would save the world economy.

Can you post a link?

 

[Spathi]

Can you post a link?

Hayek's Plan for Private Money | Mises Institute

Hayek’s last proposal for monetary reform calls for privately issued, competing fiat currencies. It's debatable whether or not this is a good idea.

mises.org

 

[Grinkle]

@Spathi

I don't read anywhere in that article Hayek saying the world economy needed saving, and the pamphlet cited in your link was written by Hayek in 1978.

I googled the world GDP in 1978 to be 8.7T and in 2023 to be 100T, so if Hayek thought the economy was in trouble, this article does not say from what, and since he published the 1978 pamphlet the world economy has expanded by more than 1000%.

I'll ask again for the sake of clear discussion (not trying necessarily to be argumentative) what do you think the world needs to be saved from and how do you see crypto making that save?

That aside, its a really great article and thanks very much for the link.

I am not sure Hayek would be a crypto fan, myself. I will call his currencies "FMC's" for Free Market Currencies.

Hayek proposes that corporations issue non-fiat currency which value derives from fiat currency (same as crypto), corporations act as free-market central banks (same as crypto) and implicit in this proposal is that the cost of maintaining the each FMC would be a non-issue, it would be competitive with fiat currency maintenance costs. That is not the case with crypto-currency (extremely so) as has been noted in this thread. If Hayek could have considered a hugely expensive computer-game version of money, I wonder what he would have thought of that.

Hayek did not forsee or did not think relevant that such free-market central-banking would enable black-market transactions to such a degree as we see with crypto. I don't see that listed in the "problems" section of the article. I don't think he saw that coming, myself.

Hayek predicted that FMC's would be more stable than commodity prices, and that has not turned out to be the case for crypto, granted the volatility difference I see when I Google is order of magnitude x, not 10x or 100x.

Hayek proposed that to avoid deflation as world productivity rises additional currency would be printed and disseminated, perhaps as dividends to existing currency holders. I don't see the difference between this proposal and just telling government central banks to target zero inflation instead of 2% inflation, as is their target today. I think Hayek was arguing that free market agents would do a better job of hitting zero inflation because competition between differenct FMC's would drive them to do that. We certainly haven;t seen any of that behavior with our crypto incarnations. If you know of a crypto token that measures its own value vs a basket of goods and services and strives to keep that value constant, I'd be very interested to know about it, please link if so. I don't think any such exist, but maybe some do.

 

[placebo]

As I see it, the problem with bitcoin is that while gold has significant intrinsic value, for example for electronics and jewellery, ensuring a secure base for its value, bitcoin and most of the other cryptocurrencies do not; the value is determined purely by the market, and could be destroyed completely by a loss of confidence. The value fluctuations are far greater than for most common forms of investment, and those who gain the most benefit are often those who create disruptions in the value, cashing in on the resulting swings.

The problems you attribute to bitcoin also apply to the US dollar (and fiat currency in general). Those pieces of paper only have value because you know others will accept them in return for goods and services. They don't need to be backed by, say, gold to have value.

If you look at a cryptocurrency as an investment, though, I see your point. Calling it a currency seems to be a misnomer. As far as I can tell, cryptocurrencies aren't accepted for payments on a widespread basis, and the fact that people view it as an investment suggests they don't see it as money either. I mean, I generally don't invest in cash. It seems like investing in a cryptocurrency is pure speculation. At least when you invest in a company, it's based on the expectation of future earnings.

I'm I'm understanding you correctly, and what you want is a path to eliminating governments ability to change money supply, why is crypto the best path towards that, as opposed to something much simpler and cheaper like going back on the gold standard?

This raises the question of why we'd want to go to something like a gold standard. The ability to controlling the money supply is one of the most powerful tools the government has to help manage the economy. I understand the fear that this lever can also be used to mismanage the economy, but it seems to be me the Fed has done a pretty good job since the '80s.

 

[Spathi]

I'll ask again for the sake of clear discussion (not trying necessarily to be argumentative) what do you think the world needs to be saved from and how do you see crypto making that save?

I haven’t read Hayek’s texts in detail, but I can explain this as I understand. During the last 40 years, in the Western countries the inequality grows: the rich become richer, the poor poorer, the middle class disappears. I have seen a lot of such graphs in the Web:

I am not a US resident and it is difficult for me to speculate reliably, but I have a lot of scattered information relating the subjects – some information from bloggers, some posts of the residents in the Western countries about their life – and all this information forms a general picture. Roughly speaking, 40 years ago only one member of a US family worked, now two members work, and at the same time 40 years ago the family could afford a house, now it is much more difficult.

One of the reasons of this is the inflation, as I wrote in OP (rich people store their wealth in the form of assets, not money).

 

[Grinkle]

@Spathi Thanks, I understand where you are coming from better now. I'll start a thread around wealth disparity, that's a great topic, and this thread, which I think is a good one and I'm glad you created it, is specifically about crypto.

 

[Grinkle]

Moving this thread to Political Science and Research, I'll leave a marker here so folks won't be lost.

 

[Spathi]

Bitcoins are analogous to gold; both gold and bitcoins are limited in total amount, making them an effective way to store money without paying the "inflation tax". However, there are currently many problems with cryptocurrencies, such as the division into "pure" and "dirty" crypto, and I am not sure that cryptocurrencies are more convenient to use than gold. And this leads to a new question: why the gold is not growing as fast as bitcoins? Maybe buying gold is illegal in the US/Europe?

 

[Greg Bernhardt]

I am not sure that cryptocurrencies are more convenient to use than gold

Are you carrying around gold bars with you to the store or shipping gold bars to Amazon?

And this leads to a new question: why the gold is not growing as fast as bitcoins?

Bitcoin is tech sexy. Gold bars are dull.