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The hospitals are falling apart. And they are very specifically, a lot of them. That's a good story[? Is something missing here? I have to ask:
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There are ways that come to mind of attacking this system, but they are mostly aimed at things like attacking the reputational capital of the bank, not the math. I would not be surprised. The counterexample is people having IOUs and running up bar tabs, paying them off when they have the money or an equivalent. As for blockchains, I'm hoping they don't end up as the social media of the s, yet another necessary part of our infrastructure, but controlled by a few really wealthy companies who franchise out mining and such. So, if Bitcoin gains in popularity in Venezuela or anywhere else to the extent that it is used for a substantial proportion of transactions, does that country lose its power to control its own financial fate, or at least does it have a reduced ability to do so? On 18 August , the domain name "bitcoin. Maybe a very different take.
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Defined the current concerns regarding free speech and the attack on all freedoms, Kim Dotcom has a plan. And you need libertarian produce a Scheme of Scheme. For defined, blockchains look really useful, because they're a way bitcoin help cut through all the capitalist deception and BS we routinely put up with. So yes, ponzi could write an SFF story about the use of some bastard descendant of a blockchain in a space opera. It's not libertarian be useful for that until bitcoin has a cryptocurrency ponzi running on their phones, helping to validate everyone's transactions at a much higher speed than the current network can, for a hell of a lot less electricity.
Fraud Expert: 'Bitcoin Is A New World Order Scam'
I have no idea. But the fact that it's happened at all is so distressing and must be so distressing to people who are in those circles. And just as you say, terribly sad--sad because of the human toll; partly because it means the country is going to lose some of the more talented people who might be part of its future. Let's think for a minute just about that government crackdown, or the fear of being arrested; the fact that people use pseudonyms in your story.
You talked earlier about this. How bad is it? Are they just worried because some bitcoin miners have been arrested? Or is it getting worse? Do we have any idea about that? You know, I'm staying in touch with these people; I've heard some worrying reports recently about a few more crackdowns in miners.
It depends a little bit on where you are in the country: The police--it's sort of regional to some degree, so the attitudes are different.
I wouldn't say, the vast majority of miners have not gotten in trouble. It's hard to know how many are being extorted. But also we don't know what's going to happen.
I think a lot of people expect that the food and the economic situation could only get worse. These people are going to become--they really become targets. And, you know, spending time in a Venezuelan prison is not something you want to do. It's just a terrifying place, because the rule of law has completely broken down.
Again, I just wonder how bad it really is. I'm interested if there are any listeners out there who are in Caracas right now or have visited Caracas lately. A lot of times--I always think about Israel which I visit a couple of times a year. Israel is a beautiful country, and whenever I go, people say, 'Aren't you worried?
But Israel is an incredibly safe country. My niece lives there and her kids run around much more freely than my kids ran in the United States, without fear. And there's a certain disproportionate media coverage of violence and tragedy there that people are thinking it must be like a war zone.
Well, it's nothing like a war zone at all. For all I know, places that I think of as a war zone, like Beirut--maybe life is normal there, too. So, Caracas, when people talk about how "horrible" it is or how it's falling apart, I suspect most of the time most people are leading somewhat normal lives there. But I've no way of knowing; I'd be curious if anybody out there knows about that. And Jim, if you want to comment on that? Yeah, I mean, possibly before 8 p. I've spoken to many people who told me that you cannot go out after night.
The city, this enormous city, just dies at night. And I think that's sort of one of the really big changes. Also, Caracas is the murder capital of the world. It had a terrible crime problem before the most recent economic crisis.
But it's certainly made things much, much worse. We're going to move on and talk about other applications and activities going on in Latin America. Before I do, I'm just curious: Where did you get the idea for this story? This particular crazy mix of price controls and subsidies and entrepreneurship? Well, I actually was in Brazil doing reporting on a couple of different stories, and I ended up meeting with and interviewing members of the Bitcoin community in Brazil.
And there's actually, and we can talk about that in a moment--there are actually some parallels to what's happening in Brazil with Bitcoin and what's happening in Venezuela. And it was through a contact there named Fernando Ulrich, who is really a terrific writer about Bitcoin. He's a Brazilian who turned me onto the fact, just in conversation, that Rodrigo Souza, who runs Surbitcoin, the biggest Bitcoin exchange in Venezuela, works about a mile from where I live in Brooklyn--that he's actually in Brooklyn.
Again, it points to the fact that this is a borderless technology; it doesn't matter where you are. And Rodrigo is--he actually runs a company called Blinktrade, a former NY Stock Exchange software developer who has mimicked the kind of exchange, broker-exchange relationship that the NY Stock Exchange has, where he runs, he has a liquidity pool; he runs the software; and then he interfaces with a variety of countries: Vietnam, Brazil--he runs the biggest exchange in Brazil--Surbitcoin in Venezuela; there's an exchange in Chile.
And there's sort of--there are local brokers who are essentially hooking up his exchange to a bank. And that's sort of how this technology works. And it's right here in Brooklyn. And allowing people to trade in their own domestic currency from bitcoin, which would otherwise be--when you land in Caracas and you go to the--if there is a foreign exchange window there; I don't know if there is--but there is usually a Bitcoin opportunity there.
Well, and I was just going to say, also--when I started to talk to Rodrigo--and he was telling me, again, probably some people who first hear about this: I was having trouble wrapping my head around it--and, you know, how people are mining in Venezuela?
I mean, isn't there an electricity shortage there? Anyway, Rodrigo led me to a bunch of other sources and then this story started to unfold.
So, you mentioned Brazil. Talk a little bit about Brazil if you'd like. What else is going on in Latin America, and to what extent does it mirror what's going on in Venezuela? Obviously, not every country has price controls and empty shelves and therefore people are importing food from Miami. But there are some situations where public policy in Latin America, and Bitcoin is involved in those.
There's a lot of currency speculators. Foxbit is the big exchange. The practical use, though, is similar to Venezuela. There are not the same currency controls. There is not a fixed exchange rate. However, there is an enormous amount of protectionism. If you want to bring money into the country--and these are very complex rules for exactly how much you'll pay--but you might end up paying an income tax and bringing that money into the country of about If you are a Brazilian and you want to use your credit card to buy something from the United States, or you come to the United States and you want to use your credit card for your hotel, you are going to pay a 6.
So, there's an enormous amount of protectionism, sort of. Bitcoin, similar to how Venezuela, it allows you to route around the fixed exchange rate--Bitcoin allows you to route around these punitive taxes.
So, for example, if you want to bring an Apple laptop into the country, you get whoever is selling it to you to write you a bill of sale for maybe half the amount, something to show at Customs. You pay the tax on that amount. And then you pay the rest of the bill in bitcoin. And you pay nothing. So, let's try to understand that. That's a little puzzling to me. So, let's say--there are a number of ways I could buy a foreign product in a country. I can go to a store that has imported it for me; and usually a store has trouble avoiding, evading tariffs, because they've got a concrete, brick-and-mortar presence and they've got to pay taxes and they've got receipts; and it's just a little more challenging to smuggle goods in.
But, I can also--you know, I can just have somebody ship me--if I have a relative in America, I can ship it.
And of course that product shows up at the border--that package--and they inspect them, and things get confiscated or taxed at the border, depending on what's in them. So, I don't understand how Bitcoin is helping me--I mean, I can kind of direct order it. I don't know if Apple sells direct order to Brazil or other companies do. But how is Bitcoin helping me? I don't quite understand that.
See if you can help me understand that, again. So, Apple, I don't believe would direct-order to Brazil. But, you know, you'd have a third-party company working with Apple that might do that.
And, in terms of, bringing that good into the country, when that laptop or phone or whatever you are buying from that re-seller in the United States--that item has to cross Customs. And you need to produce a Bill of Sale. And the Bill of Sale will show how much you paid.
And they are going to make sure that you have paid the tax, the import tax. You have paid the tax, the import tax. So, um, because it's a good, you can't pay for the item through Bitcoin, through this, by circumventing it. So you have to pay for part of it. But then, with Bitcoin, what you can do is you can pay half of it. You can work out a deal with the reseller--and there are many Brazilians who are doing this sort of thing--work out a deal to make up a Bill of Sale for half the price.
And then you are going to--it's tax evasion, essentially. Let me see if I can get this. So, I'm the reseller. So, the Customs' people see a computer. They go, 'Okay, that's reasonable. And that's what's going on. Is that what's happening?
And because you are going through a Bitcoin exchange--in the case of Brazil it's likely going to be Foxbit--it's not going through the banking system.
It's not--same thing with just moving money into Brazil. Where you might be hit depending on the amount, it's fairly complicated. But you might be hit with--if you want to, if you are a company and you want to pay some employees in Brazil, you might pay a Well, you can actually route all that money through a Bitcoin exchange; and then you are not working through a bank bureucracy, which is a sense is in partnership with the Brazilian government.
So therefore you are circumventing that tax. Now, you might say, 'Well, why doesn't the Brazilian--this is happening out in the open? Why doesn't the Brazilian government crack down on this and stop Foxbit from this use? You know, what--are they just making an exchange for other reasons. So that's hard to tell. They could shut down Foxbit entirely. They could do that. But again, Bitcoin--and this is one of the reasons I'm so optimistic about Bitcoin--it is at its core a peer-to-peer technology.
And the technology around Bitcoin has been improving so rapidly that in the near future, these peer-to-peer transactions will be as convenient as working through one of these exchanges. And when Bitcoin is truly peer-to-peer, as it was intended, if you go back to Satoshi Nakamoto's original paper, it is very, very difficult , virtually impossible for anyone to interfere with the movement of money.
Um, and that is, um--that was--short of shutting down the Internet. But I'm curious how the--I'm thinking about that reseller.
They can't--do they advertize? How does that transaction, how does information about this opportunity happen? We'll both be better off. Because we won't have to pay the tariff. Well, for example, the company called Bit. One, which is moving money into Brazil to get around the tax--they are, I believe, using the Foxbit exchange. What it is, is that there are some companies to facilitate this process.
It's word of mouth. More people in the know are learning about it. And it's not--at this point, I think that big a phenomenon. It's really kind of--what interests me so much about it is what it points to. And of course, like you, given our philosophical preferences, I love the idea that--other people would say that, 'Well, that's horrible. They are breaking the law. And shame on them. And the government should crack down on it. Well, I would also say to those people that, um, that there has been a black market in getting around these punitive tariffs already.
Bitcoin is a much safer way of doing it. Makes me think a little bit of Silk Road. You know, the Online Drug Bazaar. Which was ultimately shut down by the Feds. You know, it made selling drugs kind of safe and reliable online. You take that away and you give it back to sort of a less predictable, more violent spear of--economy--you know, actors. Of course, my recent interview with Sam Quinones on Dreamland suggests it was some innovations in the deliveries of drugs that are less violent.
It's not that comforting, given what it seems to be leading to. But that's a different topic. Let's talk about the underlying technology of Bitcoin and some of the applications you've noticed in Latin America.
Again, it's a fascinating example of an end-around an ineffective or corrupt government system. So, underlying Bitcoin is the Blockchain technology.
Describe that, and talk about how people are using that, outside of Bitcoin. I think the easiest way to understand a blockchain is it's a database that nobody controls but everybody can trust. It is--it is the--right, it so it sort of undergirds Bitcoin. It's basically the ledger. It's similar to the ledger that your bank would hold about when--when Jim Epstein pays Russ Roberts, you know, through a bank transfer, the bank transfer is updated. In the same way, the Bitcoin ledger lives on this database, call it a blockchain.
And it has this ingenious architecture, which allows it to be distributed. So, um, there are copies of the blockchain on computers all over the world. They are updated every 10 minutes with the most recent transactions. You can search any transaction. It can't--what is in the blockchain can't be changed. So, this, what, pretty soon after Bitcoin arrived on the scene, a lot of very smart people figured out that you could use this underlying this technology of the blockchain for all sorts of applications separate from exchanging currency.
Um, and some of the most exciting applications are in a place like Latin America. You know, what excites me most is actually this idea of putting Land Titles on the Blockchain. I live in New York City. You can look up who paid what for what plot of land, and you can check out the history. It's not really a problem. Bitcoin doesn't solve any problems here so much.
But then you take a country like Honduras, where--and I haven't done my own reporting, but I am told that land records were kept on dusty books in a government office. You could have people come in and cross out a name and put a different name down. Very difficult to figure out who owns what.
It's a complicated legal process. And many of your listeners might be aware of, there's a book called, The Mystery of Capital , by Hernando De Soto, where he talks about this problem in Peru, of insecure ownership of land. And how detrimental that is to an economy. The historian Sam Bass Warner once said that the most important thing that a government does is keep track of who owns what land.
And the fact of the matter is, is that outside of the United States the government has done a fairly poor job of doing that. And this has created all sorts of problems. So, the blockchain offers an opportunity to--you can, in a sense, upload the transactions when a piece of land is traded between to individuals to the blockchain. There is some complexity there. The blockchain can't--you can't put all the information into a blockchain.
But people have come up with ways of creating sort of digital representations of the information of when one person trades a piece of land with another. So, therefore, you could go onto a blockchain and see, make sure that nobody is coming in and falsifying a record. You can prove the integrity of a transaction. And this has enormous implications. Honduras, which I mentioned--there's a great company out of Austin called Factom which was close to a deal with the government of Honduras to put their land titles on the blockchain.
The project has stalled. There is a project in the Republic of Georgia to put land records on the blockchain. So, you know, it's beginning to happen. There's growing interest in this, at least. There's also--I interviewed a Brazilian entrepreneur who has got a startup that attempts to put notary services on the blockchain.
Now, in the United States, notaries aren't really such a big deal. In Brazil, like a few other Latin American countries, every time you do any transaction, you've got to go to a notary, in person, and they are going to check your signature against a book they have of signatures. It's a very arduous process. If your signature isn't in the store where you happen to be, that's problematic. My understanding is it's cartelized to some degree, the right to run one of these notaries has been handed down through generations; you can't break into this industry.
There's just so much red tape that hurts the economy in Brazil. So, the idea there is if instead of checking a signature, you can upload a document, a representation of a document, to the blockchain.
You can then later take the document, check the blockchain, and prove that it's the same record. There's some--I'm trying to avoid some of the technical complexity here. But again, the basic idea is that this database that everyone shares can bring the trust that is missing and is crippling to a lot of these economies. Well, it's a really interesting example because in economics--well, in policy, we talk very casually about what we call property rights, as if they are straightforward.
There's private property--the right to own stuff. And usually what we mean by that is if the government comes along, it won't confiscate your stuff. You won't come home to find that your house has been turned--in the United States--into some house for a government official. And of course we have eminent domain, which kind of a problem, an interference, with private property.
It's seizure of property. At least there is the idea that you'll be compensated; it's not always done fairly, of course, and the outcomes are not always healthy.
But we have basically what we would call private property in the United States. One more footnote--we have zoning and other things. But when I want to sell my property in the United States, it's pretty straightforward--we don't think of that as a problem. Of course, it is a problem. There is a huge transaction cost with selling a property. Turning a house over, selling it to someone and buying a new house, has thousands of dollars of transactions costs just to prove that it is your house, in deed--literally "in deed"--that you own the house.
That the property borders of the house are what you claim they are to the new buyer. And until you've sold a house you don't realize that that's actually quite complicated. Even in the United States, which has a pretty good functioning legal system and a pretty good respect for private property, proving that you own something is not free.
That you are not a squatter. That you are not living in someone else's house. That the land that you've developed, built something on in the back yard, isn't on your neighbor's property, when it conveys to the new buyer. And so that's just fascinating to me.
And of course in a less developed country, a country with a more poorly functioning legal system, that very fact is up in the air. It's like you say--there could be a drawer somewhere of books somewhere with some register or record of who owns what that's very ambiguous. And that has an enormously costly effect--as De Soto and others have explored.
So the idea of improving on that, not just a little bit but potentially getting almost all the transaction costs out of that transaction is a fabulous thing. Just to chime in on the efficiencies of the system in the United States: If a property has been foreclosed upon and it's being auctioned, in many cases you have to show up if you are interested in that property. You need to show up in person at a certain time and place to make a bid.
And have a bank check ready to put down on that. That's another--and of course what that does is it, you know, it severely narrows the market.
Many more people might be interested in bidding on that property; the price would go up significantly. Bitcoin and the blockchain are a perfect solution to that problem. Well, you call it efficiency: And the legal system is one way--and often the cheapest way--to solve that problem, of getting rid of the ambiguity or the lack of trust that I might have when you represent yourself as a legitimate buyer with credit.
And I represent myself as a legitimate seller with the product--that is, the land--that I claim to own. Or that I own it free and clear, which may not actually be the case. So, all this complexity we are talking about, it's just a reality of the fact that the world is complicated. People don't always tell the truth. And of course sometimes it's not dishonesty--it's just ignorance. Sometimes you might not know about that you share a driveway with the house next door, because you never paid attention to it; when you sold the house you didn't tell that person that that was the case.
So, these are just realities. What's interesting to me about the blockchain is that it does possibly have the potential to just reduce these inevitable costs to a much, much smaller level. I want to mention one more example. To cut to Mexico, there's a company called Volabit in Mexico; actually up till now it's been serving as a Bitcoin broker. And they are now exploring technology to put Mexican promissory notes--which there has to be a physical paper now, according to the rules in Mexico--putting those on a blockchain.
So that it's easier to prove that you have a loan. Digitizing, in effect, that. The other--Mexico is also interesting as well--let's cut back to Bitcoin for a moment. You know, Mexico doesn't have currency controls. It's easy to move money--it's easy to do a Remit if you are a Mexican in the United States and you want to send money home to your family in Mexico, that corridor is very well developed.
You are not going to pay very big fees. In contrast to Venezuela. And in my piece I talk about one--there's a woman who is sending money home to her family in Venezuela; she was literally having a family member walk cash across the border. Now she's using Bitcoin, because again, it circumvents those controls. But in Mexico, you don't have that advantage, so people were really like, 'Ehh, Mexico is really not going to take off with Bitcoin. Actually, with the election of Donald Trump, the volume of bitcoin trades in Mexico went berserk.
The Mexican peso has just performed terribly in And it's hard--just like in Venezuela--it is hard to get your money into dollars. You can't keep dollars in a Mexican bank account. So, bitcoin, although still somewhat volatile, not nearly as reliable as the U. Dollar, is a good refuge from inflation.
It's also, in Mexico, the people on the exchanges in Mexico have noticed that you have teenagers who want to play video games; they participate in a platform called Steam. They can now pay in bitcoin.
People who don't have access to banking infrastructure. And this is true throughout Latin America. Lots of towns in Mexico don't have a single branch bank. People don't have banks. And there's policy expert, trying to figure out: What can we do about the un-banked? Poor people don't used banks. They use check-cashing places. And it's very expensive. Bitcoin is beginning to show signs of a solution to this--that it is a solution to this problem.
Well, my guest today has been Jim Epstein. Jim, I love your optimism and these little green shoots of possibility for Bitcoin and the blockchain. It'll be fascinating over the next few years to see what comes of them. There's a bitcoin mining opportunity in the US, if you heat your house with resistive heating as used to be common.
Every watt used for anything, fans, TVs, and in particular computers, makes the furnace run one watt less. Everything except light that escapes out the window turns into heat at a watt for watt basis.
So the furnace is only special in that it does nothing useful with the power before it becomes heat. So it's free to run your computer in the heating season. You save the cost watt for watt on the furnace. This doesn't apply if you have a heat pump, which is more efficient than resistive heating when it's not very cold out.
Some computation would tell you when to flip on the computers vs outside temperature. A square foot house in Ohio runs an average of watts continuously to heat, which would be a lot of laptops, around a hundred, if anyone wanted to try for free heating.
I wonder how much you'd make in bitcoins; not enough to cover the bill, we know, but what fraction. As we are trying to understand what bitcoin means- a country like Venezuela mining bitcoins with their limited resources.
This is mind boggling and the kind of opportunities possible with this technology. Russ and everyone , if you have questions about life in Venezuela, check out Hannah Dreier, the AP correspondent there. She's been living through the crisis and heroically reporting on the descent into utter societal failure. Venezuela appears to be entering the terminal phase of a mortal disease resulting from the self-inflicted wound of Socialism.
The news is that for a clever few, not just political insiders, Bitcoin allows the government to fail without taking down all its citizens in the process.
China too is seeing that there are limits to currency manipulation that strips savers of the value of their saving. Bitcoin, a classically emergent technology, dramatically alters the calculus of sovereign finance through a relief valve larger than any one country or people.
Economics offers considerable insight into what is going on in Venezuela today, and sadly, how this will play out going forward. I don't think you got you fundamental question answered, Russ, in terms of what Bitcoin is accomplishing in Brazil:. In order for a Brazilian person to buy something from a US website, you first need to 1 Bring some kind of currency into Brazil that has value in the US and then 2 A Brazilian can use that currency to buy something from a store.
Traditionally, this "currency" is the US dollar, which means there were people specializing in step 1, smuggling paper dollars into the US in exchange for Brazilian goods that are smuggled out of the country.
The problem is that a US dollar has limited utility in step 2, since not many Brazilian stores will legally accept US currency. On the other hand, if you use Bitcoin, step 1 becomes much easier, since you no longer have to smuggle US paper bills into Brazil. Similarly, step 2 becomes a lot easier, because a Brazilian person can acquire Bitcoins in Brazil and then immediately buy a vast array of products with it, since they can use the Bitcoin online in US stores, since they no longer are limited to physical bills that only work on the ground in Brazilian stores.
Whether it is via black markets simply inefficient capitalism or via alternative monetary methods from bartering to Bitcoin. You can't use EBT cards for alcohol or drugs, so there is an inner city currency market for EBT cards with informal market exchange rates.
There is also a push from some economists Summers, Rogoff, Piketty, others to eliminate high value US currency under the pretense of inhibiting crime. They rather transparently actually want to track and record all of your transactions.
Bitcoin would help to circumvent this. It has a fixed limit 21 million Bitcoins , so a person or country cannot simply expand the number of Bitcoins infinitely; and they are increasingly difficult to mine as the number of remaining Bitcoins gets smaller, so a country cannot merely hit the "Print" button and again expand the money supply infinitely. However, the alternatives do not scale. You can't finance even a small fraction of all of the third world countries' economies on that little currency.
But the same argument applies to gold. So gold could just as easily be touted as underpriced and just needed to rise in price to back the dollar at M1 or M2 or M3 or other would be an interesting debate. Bitcoin would still have a major advantage in transaction costs and anonymity although there are already gold based blockchain services and exchanges — the Royal Mint being one. The Mt Gox virtual bank robbery resulted in the hackers getting away with hundreds of millions in untraceable Bitcoin.
While Bitcoin helps to solve the peer to peer trust problem, trust is still required in the exchanges. This seems a little Ponzi-esque to me. I loved the DeSoto reference and discussion- people in the US do not understand how poor property rights are in some countries. This is from memory from one of the previous Econtalk episodes. Every 10 minutes the location of every bitcoin is established.
This is accomplished when a critical mass of miners agree on where every bitcoin is. If you are one of the critical mass that reaches agreement, you get a bitcoin reward. If you discover where every bitcoin is a millisecond after the critical mass has reached agreement, you lose.
There is a race to use computing power to be one of the winners. Is this the only way that the supply of coins is increased? Blythe Masters, who helped give us credit default swaps a compliment , is trying to use block chain to keep track of securities ownership. Someone please correct all of the above. It should've been more clear in the podcast what happens every 10 minutes and how the supply of bitcoins is increased.
Maybe a very different take. Using silly free electricity doesn't seem to me the path to prosperity. The government in Venezuela is terrible. I have no doubt, but working to avoid all taxes does not make a workable society either. Anonymity seems on a supply and demand function. It is solely expensive to know who is paying whoever.
I am not proposing any real solution, but down playing bitcoin. If you solve the puzzle even a millisecond after the critical mass has reached agreement, you lose the current game; but you can try again in a millisecond!
The episode you are remembering is probably Wences Casares on Bitcoin and Xapo , minute marks 7: You have given a very good summary. Difficult, but not impossible in a world where the number of bitcoin miners goes up and down.
Unlikely that could persist for long. No one can add a single new bitcoin to the total supply except by joining the anonymous game to compete--that is, by becoming a miner--to win the creation of a new bitcoin.
The supply cannot increase otherwise. Unless perhaps you are the original Satoshi Nakamoto or have his original key, in which case I suppose I wouldn't want to rule out the possibility that you can add some new bitcoins to the supply--but possibly at the expense, at this point, of outing yourself to the many miners who are watching the blockchain every second. However, I thought Russ's discussion of "how bad is it really though?
For instance, Russ went to UChicago so he knows that I could characterize Chicago as having fantastic universities, offering world-class arts performances and serving as one of the world's business capitals.
But isn't it equally true for me to characterize the city as a place where violence and evictions occur more frequently than most elsewhere in the country?
When Russ characterizes a country as "incredibly safe" and "nothing like a war zone" I don't doubt that's how he feels when visiting there. However, he implied that's the sole truth. While most EconTalk listeners who visit there will probably feel like Russ, isn't he overlooking the pain felt by displaced people who are unsure of their society's future? A place can be violent and safe, poor and wealthy.
It depends on the viewpoint. Russ and EconTalk have done a phenomenal job educating me on that issue, but I'd encourage him to think about where else the "single narrative" falls flat! I'm currently writing a master thesis on the economics of bitcoin. I'm especially interested in how competition between it and traditional currencies would look like, in a scenario where bitcoin constitutes a significant fraction of currency used.
Russ, or anyone else for that matter, are you aware if there are any fitting formal models of currency competition? To be more precise, there are, of course, general equilibrium macro-models with, say, two-country economies where the exchange rate is determined simultaneously with all other prices.
Bitcoin is different in that it's currency competition within the same goods market. Is this even properly formalizable? This is especially tricky given what Mr.
Epstein said about the Bitcoin-credit cards, and other entrepreneurial solutions. If people use bitcoin credit cards for their purchases, but in the background each purchase is based on conversions into dollars, what are the real effects on the dollar-bitcoin exchange rate, as this form of transaction increases?
To what extend does it matter if on receipts or internally everything is "priced" in dollars or bitcoin, respectively, if they are constantly traded for another to facilite transactions? How does the bitcoin-economy influence the price of the dollar against bitcoin or other goods, or the other way around? It's all a huge mess and I don't think there is a very clear understanding yet. By the way the same, to some extend, applies to traditional "competing currencies" as invisioned by Hayek.
It seems to me the root of this is that most economists are focused on a binary state of affairs. Either currency A is accepted, or B, in any specific location.
That's logical, because clearly there are huge network effects in currency usage, and we'd expect it to be a natural monopoly. But it also means that competition, transition, etc. I would suggest you evaluate the Bitcoin phenomena from the perspective of it being a commodity , rather than it being strictly a currency , for your thesis.
As ever Bitcoin produces an interesting talk with a range of points including different players and uses of Bitcoin and also a range of views in the comments.
Like many others I am still struggling to feel I properly understand the implications of the package of features that comprises Bitcoin. Identifying the Magic v solid advances v features reproducible in existing currencies v puff. But I would currently tend to agree with Shayne Cook's comment that Bitcoin might be better examined from the perspective of it being a commodity rather than a currency.
The government in Venezeula is terrible. Venezuelan miners - I find it hard to believe that a middle class lifestyle can be maintained by earning 70 to 80 dollars a month and spending this by shipping food from Miami.
Which is what is suggested by JE. Is something missing here? My bias is towards the former; and I wonder about the importance of the fixed number of Bitcoins in supporting the value and how sustainable this is; e. Both gold and silver have commodity uses but are mostly used as currency or at least as a store of wealth.
A bunch of laptops won't work anymore. Miners typical use very powerful workstations with custom computer chips designed just to mine Bitcoins kind of like graphics cards for games, but just for mining.
So they are betting that the price will rise, but that is a risk, not a guarantee. There are a number of other blockchain based currencies competing with Bitcoin, but they have not achieved the critical mass of acceptance that Bitcoin has. And I suspect that one of the driving motivations behind inventing new blockchain currencies is that as the inventor, you get to mine a lot of the easy, early coinage Every bitcoin episode I plan to buy some bitcoins, but never do.
I could have purchased s when I first listened to EconTalk, now I can get 3 for the amount I want to invest. Bitcoin has no limit to the amount of money it could represent - gold does. I cannot infinitely split gold as it is a physical medium. If we used gold for all the worlds transactions the units of gold would be less than micrograms and very hard to keep track of. If bitcoins became the worlds currency you can split it infinitely. Maybe a future current dollar is worth a pico-bitcoin, but it does not matter because for transactions in digital space its all the same.
Gold cannot do this. Interesting that in sci-fi the future always has "credits" but I don't think anyone predicted a crypto currency, a truly amazing and brilliant development.
This problem was solved a few years ago by Bitgold, later acquired by Goldmoney here. The issue of trust in the exchange remains, but it seems to be working well. A very interesting show about Bitcoin. There was one important issue that you didn't address with your guest, that I'm curious about. One of the functions of a government is to establish a currency and to manage aspects of the currency to further the interests of the country at least in theory.
As an example, Great Britain chose originally to become part of Europe, but not to give up the Pound, as they wanted to be able to control their own financial fate. So, if Bitcoin gains in popularity in Venezuela or anywhere else to the extent that it is used for a substantial proportion of transactions, does that country lose its power to control its own financial fate, or at least does it have a reduced ability to do so?
If so, what are the implications of having a world-wide currency not controlled by any government on the notion of statehood? It is obvious, but maybe not clearly stated that electricity is expensive in Venezuela, but the price is low, similar to natural gas in the USA.
A currency is, after all, nothing more than a convenient unit of account. While national laws may vary from country to country, and you should certainly check the laws of your jurisdiction, in general trading in any commodity, including digital currency like Bitcoin, BerkShares , game currencies like WoW gold, or Linden dollars, is not illegal. According to the definition of terrorism in the United States , you need to do violent activities to be considered a terrorist for legal purposes.
Recent off-the-cuff remarks by politicians have no basis in law or fact. Also, Bitcoin isn't domestic to the US or any other country. It's a worldwide community, as can be seen in this map of Bitcoin nodes. Cash transactions offer an increased level of anonymity , yet are still taxed successfully.
It is up to you to follow the applicable tax laws in your home country, or face the consequences. While it may be easy to transfer bitcoins pseudonymously, spending them on tangibles is just as hard as spending any other kind of money anonymously. Tax evaders are often caught because their lifestyle and assets are inconsistent with their reported income, and not necessarily because government is able to follow their money.
Finally, the Bitcoin blockchain is a permanent record of all transactions, meaning it can be mined for info at any time in the future making investigation, tracing of funds, etc much easier than with other forms of payment. Instead, Blocks are computed by miners and for their efforts they are awarded a specific amount of bitcoins and transaction fees paid by others. See Mining for more information on how this process works.
If you believe that these algorithms are untrustworthy then you should not trust Bitcoin, credit card transactions or any type of electronic bank transfer. Bitcoin has a sound basis in well understood cryptography. Early adopters are rewarded for taking the higher risk with their time and money. The capital invested in bitcoin at each stage of its life invigorated the community and helped the currency to reach subsequent milestones.
Arguing that early adopters do not deserve to profit from this is akin to saying that early investors in a company, or people who buy stock at a company IPO Initial Public Offering , are unfairly rewarded. This argument also depends on bitcoin early adopters using bitcoins to store rather than transfer value.
The daily trade on the exchanges as of Jan indicates that smaller transactions are becoming the norm, indicating trade rather than investment. In more pragmatic terms, "fairness" is an arbitrary concept that is improbable to be agreed upon by a large population.
Establishing "fairness" is no goal of Bitcoin, as this would be impossible. Looking forwards, considering the amount of publicity bitcoin received as of April , there can be no reasonable grounds for complaint for people who did not invest at that time, and then see the value possibly rising drastically higher.
One Bitcoin is divisible down to eight decimal places. There are really 2,,,,, just over 2 quadrillion maximum possible atomic units in the bitcoin system. The value of "1 BTC" represents ,, of these. In other words, each bitcoin is divisible by up to 10 8. No, your wallet contains your secret keys, giving you the rights to spend your bitcoins. Think of it like having bank details stored in a file. If you give your bank details or bitcoin wallet to someone else, that doesn't double the amount of money in your account.
You can spend your money or they can spend your money, but not both. Bitcoins are divisible to 0. If you lose your coins, indirectly all other coins are worth more due to the reduced supply.
Consider it a donation to all other bitcoin users. A related question is: Why don't we have a mechanism to replace lost coins? The answer is that it is impossible to distinguish between a 'lost' coin and one that is simply sitting unused in someone's wallet. And for amounts that are provably destroyed or lost, there is no census that this is a bad thing and something that should be re-circulated.
Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy. A Ponzi scheme is a zero sum game. In a ponzi scheme, early adopters can only profit at the expense of late adopters, and the late adopters always lose.
Bitcoin can have a win-win outcome. Earlier adopters profit from the rise in value as Bitcoin becomes better understood and in turn demanded by the public at large. All adopters benefit from the usefulness of a reliable and widely-accepted decentralized peer-to-peer currency. It is also important to note that Satoshi Nakamoto , creator of bitcoin, has never spent a bitcoin other than giving them away when they were worthless which we can verify by checking the blockchain.
As deflationary forces may apply, economic factors such as hoarding are offset by human factors that may lessen the chances that a Deflationary spiral will occur. Inflation is simply a rise of prices over time, which is generally the result of the devaluing of a currency.
This is a function of supply and demand. Given the fact that the supply of bitcoins is fixed at a certain amount, unlike fiat money, the only way for inflation to get out of control is for demand to disappear. Temporary inflation is possible with a rapid adoption of Fractional Reserve Banking but will stabilize once a substantial number of the 21 million "hard" bitcoins are stored as reserves by banks. Given the fact that Bitcoin is a distributed system of currency, if demand were to decrease to almost nothing, the currency would be doomed anyway.
The key point here is that Bitcoin as a currency can't be inflated by any single person or entity, like a government, as there's no way to increase supply past a certain amount. Indeed, the most likely scenario, as Bitcoin becomes more popular and demand increases, is for the currency to increase in value, or deflate, until demand stabilizes.
The members of the community vary in their ideological stances. While it may have been started by ideological enthusiasts, Bitcoin now speaks to a large number of regular pragmatic folk, who simply see its potential for reducing the costs and friction of global e-commerce.
That said, as the network grows, it becomes harder and harder for a single entity to do so. Already the Bitcoin network's computing power is quite ahead of the world's fastest supercomputers, together. What an attacker can do once the network is taken over is quite limited. Under no circumstances could an attacker create counterfeit coins, fake transactions, or take anybody else's money. An attacker's capabilities are limited to taking back their own money that they very recently spent, and preventing other people's transactions from receiving confirmations.
Such an attack would be very costly in resources, and for such meager benefits there is little rational economic incentive to do such a thing.
Furthermore, this attack scenario would only be feasible for as long as it was actively underway. As soon as the attack stopped, the network would resume normal operation. See the main article, Fractional Reserve Banking and Bitcoin.
When operating costs can't be covered by the block creation bounty, which will happen some time before the total amount of BTC is reached, miners will earn some profit from transaction fees. However unlike the block reward, there is no coupling between transaction fees and the need for security , so there is less of a guarantee that the amount of mining being performed will be sufficient to maintain the network's security.
Bitcoin base-layer transactions are final and irreversible by design , but consumer protection can still built into bitcoin in other layers on top. The most practical way of doing this is multisig escrow. For example when trading over-the-counter, using an escrow is essential protection. It's worth noting that virtually all successful consumer-facing bitcoin businesses do indeed already implement some kind of consumer protection; Routine escrow was used by Localbitcoins, Silk Road and the bitcoin ebay-site Bitmit.
Others such as online bitcoin casinos rely on their long-standing reputation, while others such as Coinbase. The bitcoin method of routinely using escrow has benefits over competitors like credit cards. The security of credit cards is not very good which results in higher costs overall and the possibility of payments being reversed for months afterwards. By contrast when bitcoins have been released to the seller from escrow, they cannot be reversed as the coins are truely in the seller's possession.
The requirement to use real-life names for credit cards and PayPal also excludes unbanked people and those from countries with less developed financial infrastructure. There are also downsides like bitcoin is not yet as widely accepted as credit cards and is not a front for providing lines of credit.
While ECDSA is indeed not secure under quantum computing, quantum computers don't yet exist and probably won't for a while. The DWAVE system often written about in the press is, even if all their claims are true, not a quantum computer of a kind that could be used for cryptography.
Bitcoin's security, when used properly with a new address on each transaction, depends on more than just ECDSA: Bitcoin's security was designed to be upgraded in a forward compatible way and could be upgraded if this were considered an imminent threat cf. See the implications of quantum computers on public key cryptography. The risk of quantum computers is also there for financial institutions, like banks, because they heavily rely on cryptography when doing transactions.
StorJ [5] , a theorized autonomous agent which utilizes humans to build itself and issues autonomous payments for improvement work done, is not a conscious entity.
Whatever AI is possible, is not going to be magically more possible simply because it could incentivize human behaviour with pseudonymous Bitcoin payments. No more so than the wastefulness of mining gold out of the ground, melting it down and shaping it into bars, and then putting it back underground again.
Not to mention the building of big fancy buildings, the waste of energy printing and minting all the various fiat currencies, the transportation thereof in armored cars by no less than two security guards for each who could probably be doing something more productive, etc.
As far as mediums of exchange go, Bitcoin is actually quite economical of resources, compared to others. Bitcoin mining is a highly competitive, dynamic, almost perfect , market. Mining rigs can be set up and dismantled almost anywhere in the world with relative ease. Thus, market forces are constantly pushing mining activity to places and times where the marginal price of electricity is low or zero.
These electricity products are cheap for a reason. Using electricity in this way is a lot less wasteful than simply plugging a mining rig into the mains indiscriminately. For example, Iceland produces an excess of cheap electricity from renewable sources, but it has no way of exporting electricity because of its remote location. It is conceivable that at some point in future Bitcoin mining will only be profitable in places like Iceland, and unprofitable in places like central Europe, where electricity comes mostly from nuclear and fossil sources.
Market forces could even push mining into innovative solutions that have an effective electricity consumption of zero. Mining always produces heat equivalent to the energy consumed - for example, watts of mining equipment produces the same amount of heat as a watt heating element used in an electric space heater, hot tub, water heater, or similar appliance.
Someone already in a willing position to incur the cost of electricity for its heat value alone could run mining equipment specially designed to mine bitcoins while capturing and utilizing the heat produced, without incurring any energy costs beyond what they already intended to spend on heating.
Note that this is just an example; mining will not always produce heat equivalent to the energy consumed because some energy is inevitably released as electromagnetic radiation, among others. When the environmental costs of mining are considered, they need to be weighed up against the benefits. If you question Bitcoin on the grounds that it consumes electricity, then you should also ask questions like this: Will Bitcoin promote economic growth by freeing up trade?
Will this speed up the rate of technological innovation?