Mencius Moldbug weighs in with his version of this argument:
“If Bitcoin becomes the new global monetary system, one bitcoin purchased today (for 90 cents, last time I checked) will make you a very wealthy individual. You are essentially buying Manhattan for a quarter. There are only 21 million bitcoins (including those not yet minted). (In my design, this was a far more elegant 2^64, with quantities in exponential notation. Just sayin’.) Mapped to $100 trillion of global money, to pull a random number out of the air, you become a millionaire. Wow!
So even if the probability of Bitcoin succeeding is epsilon, a million to one, it’s still worthwhile for anyone to buy at least a few bitcoins now. The currency thus derives an initial value from this probability, and boots itself into existence from pure worthlessness—becoming a viable repository of savings. If a very strange, dangerous and unstable one.
I think the probability of Bitcoin succeeding is very low. I would not put it at a million to one, though, so I recommend that you go out and buy a few bitcoins if you have the technical chops. My financial advice is to not buy more than ten, which should be F-U money if Bitcoin wins.”
Is there any reason why Bitcoin cannot co-exist with other similar e-money schemes? If e-money in general is a winner, then the fact that there can only be 21 million Bitcoins in particular is no longer relevant.
Is there any reason why Bitcoin cannot co-exist with other similar e-money schemes?
Having learned more, I can point out that Bitcoin can co-exist, but those other e-moneys must have some trait Bitcoin doesn’t. It’s like evolutionary niches. My current example is an interesting little system I’m GPU mining for right now, Namecoin (homepage). The scarce things that Namecoin is decentralizedly allocating are domain names (.bit), rather than tokens used as money—not direct competition.
The success of one e-money makes life more difficult for the others; there are incentives to standardize (witness the EU, or how some countries peg their currency to the dollar—or just use the dollar).
how some countries peg their currency to the dollar
But that’s what I thought I was talking about… (well, actually, I have no idea what I’m talking about, but you’ve enlightened me on money issues before). What if someone comes along soon and creates another e-currency with some credible generation mechanism but without the hard cap that Bitcoin has and pegs it to Bitcoin at some appropriate time?
By definition, if there is no hard cap and people are generating, then a peg can’t be maintained to another currency with a hard cap—basic Pigeonhole Principle. Can’t uniquely match n+m items to just n slots. I’m not really seeing what you’re asking after.
Ah yes, I see. I didn’t think carefully about how a peg would actually be maintained.
Suppose the new currency does have a hard cap—suppose I copy the Bitcoin scheme and create Cyan-coin, of which there will eventually be 21 million. Even if I don’t personally maintain reserves of the two currencies to keep the exchange rate pegged, didn’t I just double the supply of e-money, thereby halving the purchasing power of an e-coin?
Only if people use it and make plans on it. You could make a trillion different Cyan-coin currencies, and if they never left your computer, would they affect anything at all? Of course not.
The purchasing power of a random bitcoin only halves if people run out and start using Cyan-coin in exactly the same quantities as Bitcoin. Otherwise, the actual purchasing power is much less, set by the exchange rate—obviously Cyan-coin is not equal to a Bitcoin in PPP if the exchange rate is 100:1.
I imagine that early uptake of a Bitcoin clone would be facilitated if people thought that the hard cap on Bitcoins proper would cause the scheme to have undesirable properties as a currency.
Although many will not see this, I want to compliment you expressly on these posts. You surely had a very eminent expectation and understanding of the community at the time and what could be expected. I think there is a general lack of the central issue that lead many to move to btc: distrust in the governments in general. I would love if you would perhaps do a retrospective on your memories and predilections of what you thought you knew, whether you did know it, what you weren’t aware of but suspected, and things you were wrong on.
I wouldn’t blame you for deleting all the posts either. I’m sitting here watching numbers go up and I remember 2011 when it became mainstream-ish, and frankly, I still agree with you and most of the posters here. I thought it was stupid and wouldn’t pan out. I was young then, too, so it’s not like I had money- and even worse, I didn’t know shit about computers at all.
It could certainly coexist with other e-moneys, even and especially those that use the same protocols as Bitcoin (but which merely give their currency a unique name to keep it distinct). They would have to overcome the chicken-and-egg problem, but they
In response to points raised by “User:”jsalvatier, I mentioned that this could be a solution to the issue of currencies being “run” poorly. That is, if the limited max number of Bitcoins[1] really poses a problem for the Bitcoin economy, people may start to favor a competitor with the same anonymity, etc. benefits but which allows indefinite expansion of the money supply.
Whenever Bitcoin-like competing currencies start up, they would expand the effective “digital anonymous money supply” but in a way that doesn’t violate the anti-inflation promises to current Bitcoin users. Over time, the experimentation with more currencies using Bitcoin-like protocol will help that economy. And the pickiness of people in terms of whether they insist on the original Bitcoins or the new ones will shape the future market.
In short, I don’t see a major problem with similar competitors coming along and using the same protocol and having floating exchange rates with each other.
[1] which is a distinct issue from the divisibility of Bitcoins, even though people will keep equating the two for some reason
I haven’t actually applied any serious economic analysis to the problem, but I’m very suspicious of the fact that Moldbug’s argument not only uses but actually relies upon a feature of Bitcoin that would serve as an obstacle to its use as a major currency, viz. the relative rarity of bitcoins. Unless there’s a highly robust way to trade in fractional bitcoins that I’ve never heard of, that puts an effective—if soft—upper bound on the currency’s total value.
ETA: Okay, apparently fractional bitcoins can be traded. This is less of a problem than I originally thought.
Mencius Moldbug weighs in with his version of this argument:
Is there any reason why Bitcoin cannot co-exist with other similar e-money schemes? If e-money in general is a winner, then the fact that there can only be 21 million Bitcoins in particular is no longer relevant.
Having learned more, I can point out that Bitcoin can co-exist, but those other e-moneys must have some trait Bitcoin doesn’t. It’s like evolutionary niches. My current example is an interesting little system I’m GPU mining for right now, Namecoin (homepage). The scarce things that Namecoin is decentralizedly allocating are domain names (.bit), rather than tokens used as money—not direct competition.
The success of one e-money makes life more difficult for the others; there are incentives to standardize (witness the EU, or how some countries peg their currency to the dollar—or just use the dollar).
But that’s what I thought I was talking about… (well, actually, I have no idea what I’m talking about, but you’ve enlightened me on money issues before). What if someone comes along soon and creates another e-currency with some credible generation mechanism but without the hard cap that Bitcoin has and pegs it to Bitcoin at some appropriate time?
By definition, if there is no hard cap and people are generating, then a peg can’t be maintained to another currency with a hard cap—basic Pigeonhole Principle. Can’t uniquely match n+m items to just n slots. I’m not really seeing what you’re asking after.
Ah yes, I see. I didn’t think carefully about how a peg would actually be maintained.
Suppose the new currency does have a hard cap—suppose I copy the Bitcoin scheme and create Cyan-coin, of which there will eventually be 21 million. Even if I don’t personally maintain reserves of the two currencies to keep the exchange rate pegged, didn’t I just double the supply of e-money, thereby halving the purchasing power of an e-coin?
Only if people use it and make plans on it. You could make a trillion different Cyan-coin currencies, and if they never left your computer, would they affect anything at all? Of course not.
The purchasing power of a random bitcoin only halves if people run out and start using Cyan-coin in exactly the same quantities as Bitcoin. Otherwise, the actual purchasing power is much less, set by the exchange rate—obviously Cyan-coin is not equal to a Bitcoin in PPP if the exchange rate is 100:1.
I imagine that early uptake of a Bitcoin clone would be facilitated if people thought that the hard cap on Bitcoins proper would cause the scheme to have undesirable properties as a currency.
Surely. But that’s not the case, as people think the presence of a hard cap is one of the valuable traits of Bitcoin.
Although many will not see this, I want to compliment you expressly on these posts. You surely had a very eminent expectation and understanding of the community at the time and what could be expected. I think there is a general lack of the central issue that lead many to move to btc: distrust in the governments in general. I would love if you would perhaps do a retrospective on your memories and predilections of what you thought you knew, whether you did know it, what you weren’t aware of but suspected, and things you were wrong on.
I wouldn’t blame you for deleting all the posts either. I’m sitting here watching numbers go up and I remember 2011 when it became mainstream-ish, and frankly, I still agree with you and most of the posters here. I thought it was stupid and wouldn’t pan out. I was young then, too, so it’s not like I had money- and even worse, I didn’t know shit about computers at all.
It could certainly coexist with other e-moneys, even and especially those that use the same protocols as Bitcoin (but which merely give their currency a unique name to keep it distinct). They would have to overcome the chicken-and-egg problem, but they
In response to points raised by “User:”jsalvatier, I mentioned that this could be a solution to the issue of currencies being “run” poorly. That is, if the limited max number of Bitcoins[1] really poses a problem for the Bitcoin economy, people may start to favor a competitor with the same anonymity, etc. benefits but which allows indefinite expansion of the money supply.
Whenever Bitcoin-like competing currencies start up, they would expand the effective “digital anonymous money supply” but in a way that doesn’t violate the anti-inflation promises to current Bitcoin users. Over time, the experimentation with more currencies using Bitcoin-like protocol will help that economy. And the pickiness of people in terms of whether they insist on the original Bitcoins or the new ones will shape the future market.
In short, I don’t see a major problem with similar competitors coming along and using the same protocol and having floating exchange rates with each other.
[1] which is a distinct issue from the divisibility of Bitcoins, even though people will keep equating the two for some reason
I haven’t actually applied any serious economic analysis to the problem, but I’m very suspicious of the fact that Moldbug’s argument not only uses but actually relies upon a feature of Bitcoin that would serve as an obstacle to its use as a major currency, viz. the relative rarity of bitcoins. Unless there’s a highly robust way to trade in fractional bitcoins that I’ve never heard of, that puts an effective—if soft—upper bound on the currency’s total value.
ETA: Okay, apparently fractional bitcoins can be traded. This is less of a problem than I originally thought.