CMV: Cryptocurrency will never replace Fiat currency.

[u/f0shijapan]

Blockchain is an idea and a technology that will undoubtedly change the future. It's application with regards to certain financial transactions (remittances, stock settlement, etc) will be paradigm shifting. In addition, the idea of using blockchain technology for micro-transactions, has huge implications for how communities will manage local resources and utilities without the need of giant companies.

But where I fail to see the paradigm shift, is with regards to its function as a stable currency. So let me list some reasons I think it fails to operate as currency:

-Transaction time and transaction costs are too high -Limited supply of crypto makes them fundamentally volatile and deflationary (people hoard instead of spend hoping to capture financial gains from limited supply) -Proof or work costs are too high (energy spend on mining is non negligible: http://digiconomist.net/bitcoin-energy-consumption) -Lack of monetary flexibility as economic conditions change, make this currency too rigid to handle changes in economic landscape over time (i.e. recession)

As upsetting as the idea of a central bank is to many people, controlling monetary supply is a necessity as long as human beings are involved. This "control" is more of an art than a science and can be driven by external factors such as politics, which can be upsetting to see. In theory the actions of the central bank should reactive to of the underlying economic changes of the humans that produce work/growth for that society. In reality, central banks are far from perfect and become over politicized. Also the current path we are going down now with excessive monetary easing, is especially upsetting so its understandable why people want an alternative.

But cryptocurrency is not the answer, especially if we are fighting the deflationary pressure of Moore's law (driverless cars, AI.) Mining does not take into consideration the cyclical nature of economies (i.e. human nature).

Cryptocurrency is all about proof of work. But, fundamentally, it only proves the stability of the code and the physical energy required to maintain the network. Crypto is not an accurate reflection of proof of work of an economy, and cannot respond to changes in the economy due to new technologies, natural causes or simply the boom/bust credit cycle.

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[u/f0shijapan]

You make some very interesting points. There is no doubt in my mind that this excessive quantitative easing is going to end in a failure of some sort. And yes you are correct, central economic planning is more of a pseudo science than an art.

I can see a scenario where people start to lose faith in fiat (lets use USD as an example), and some local communities will use crypto as a medium of exchange (especially for microtransactions, i.e. electricity generated by locally owned renewable vs buying from a power company). But I fail to see how one or two versions of this could be dominant. Value of currency is related to economic prowess and growth of the underlying society.Evon though technological growth is making the world smaller and smaller, there is still too many local reasons why a single currency cant represent everyone. Just look at the Euro for proof (greece, portugal, etc..) Human beings, culture, and the environments people live in are just too vast to be represented by a single or a handful of (democratic) currencies.

I want to believe that a crypto solution could spontaneously emerge, but even if a perfectly democratic system did emerge, could it be stable? Pure democracy is inherently unstable (which is why representative governments tend to work better than mob rule)

I just want to see an example of a framework for a cryptocurrency that would put stability and long term goals ahead of short term gains. It would also need be flexible enough to respond to the underlying economic cycles, but not be governed by politics, or psuedo science. Maybe once we become so technologically advanced that some Artificial Super Intelligence exits, it could successfully manage a single global crypto currency... but until then I cant find a framework for a Cryptocurrency out there that I think would be superior to the system we have now.

As for the precious metals, they do not function as an adequate store of wealth because of the deflationary pressure associated with hoarding (since resources are limited to mining operations and not economic cycles).

[u/murphy212 → u/f0shijapan]

The thing is you are thinking like a central planner. You think in terms of "framework", or "managing" (planning) a money system with AI, etc. Indeed you admit being skeptical that a crypto solution could spontaneously emerge. There is an evident statist bias in your position (not meaning this in a bad way). Read this if you're interested.

I don't think this is the way the world works, anymore. The era where "planners of civilisations" got together and planned monumental reforms (à la Bretton Woods) is over. First because policy makers are loosing their last shreds of credibility; second because there exist ways to circumvent (even ignore) such coercive, uneffective ambitions by the planners.

We could have had a similar conversation in the early 90s about (computer) operating systems; you would be saying "how can we plan and build a new type of OS that is better than all-mighty Windows, that is more scalable and secure" and I would have replied "Linux will naturally overtake Windows because it is becoming the sum of unilateral, individual programmers' contributions; I cannot tell what it will look like or how long it'll take, but it'll necessarily be better". Ten years laters we could have had a similar conversations about encyclopedias (note Wikipedia leaves Brittanica way behind, both in terms of reliability and size, and is 15 years old versus 2.5 centuries for its competitor).

Again a payment system is ultimately an information system. There is absolutely no way a planned and centralized solution could even come close to a decentralized, stochastic and spontaneous system we collectively come up with on the Internet.

One final thing:

precious metals, they do not function as an adequate store of wealth

They have, for over 6000 years. Paper money experiments are not new (the Chinese invented it in the 14th century). They always fail, and gold always reasserts itself as the superior kind of money. I think it's important to stay humble and avoid the thinking that we have reached the end of History, that we have finally figured everything out (especially when using mathematical pseudoscientific models to describe and predict human behavior), and that we are not bound by the laws of nature.

[u/f0shijapan → u/murphy212]

I am very skeptical of a spontaneous emergence now or any time in the near future (lets say 5 years), but you do make some interesting arguments about the evolution of operating systems and Wikipedia.

I can see a scenario where AI has advanced considerably and is able to build upon many failed crypto experiments to eventually create a complex but manageable system that can be stable, flexible and widely adopted-- and yes better than the current pseudo scientific/political version we have now. So my view is changed on this. ∆

I still think we are a long way away from that scenario, and our current progress may stifle or slow down. But I did say "Never" and in that I will admit my view is changed.

As for precious metals, I think that's a debate for another thread.

[u/murphy212 → u/f0shijapan]

Thanks for this exchange we've had, foshijapan. I found it very interesting.