Ten years in, nobody has come up with a use for blockchain(hackernoon.com)
hackernoon.com
Ten years in, nobody has come up with a use for blockchain
https://hackernoon.com/ten-years-in-nobody-has-come-up-with-a-use-case-for-blockchain-ee98c180100
36 comments
I really dislike bitcoin (and most of the first-generation cryptocurrencies) for a lot of reasons (as an economist, I consider a deflationary, fixed-supply currency noxious). But the blockchain is rather fascinating. People seem to not realise what it is, generally speaking. And what it is, is this: a distributed manner of manufacturing scarcity of information in our day and age of infinitely duplicable data. It’s basically a distributed DRM system.
> as an economist, I consider a deflationary, fixed-supply currency noxious
I would think that as an economist, you would know better than try to dictate what people in a large system should do and focus more on the incentives that drive them.
The part that people who talk about the negatives of a fixed supply currency don't understand is that what economists thank people should do isn't going to come in to play. All else being equal, if someone can choose between a currency that inflates and one that doesn't, why would they choose one that will be stripping their value away? Inflationary currencies benefit only one party - the one that gets to create the money out of nothing.
Inflation is good for countries that can't control their spending and need to hide it behind eroding the value of people's wages. It is poor for anyone saving the currency for liquidity or anyone whos pay is denominated in it.
I would think that as an economist, you would know better than try to dictate what people in a large system should do and focus more on the incentives that drive them.
The part that people who talk about the negatives of a fixed supply currency don't understand is that what economists thank people should do isn't going to come in to play. All else being equal, if someone can choose between a currency that inflates and one that doesn't, why would they choose one that will be stripping their value away? Inflationary currencies benefit only one party - the one that gets to create the money out of nothing.
Inflation is good for countries that can't control their spending and need to hide it behind eroding the value of people's wages. It is poor for anyone saving the currency for liquidity or anyone whos pay is denominated in it.
Everyone would agree that right now and the US dollar is experiencing about 2% inflation, and the number of bitcoins in circulation is increasing about 4% per year, yes?
By way of your reference to incentives I assume by ”those who create the currency” you intend the private banks that through fractional reserve banking create about 97% of the money supply, not the central banks that create the 3% of base currency (”high powered money”). If so, I suggest you look at BaseCoin (which I am not invested in, and not affiliated with) and take a look at the scheme they propose, which makes sense to me.
I must however point out that in an inflationary regimen the debtors also gets an advantage, as their debt load becomes progressively easier to service as inflation compounds to inflate their earnings, on average leaving more cash that can be funnelled into covering financial expenses after revenue has been duly deducted of operating expenses.
I must however point out that in an inflationary regimen the debtors also gets an advantage, as their debt load becomes progressively easier to service as inflation compounds to inflate their earnings, on average leaving more cash that can be funnelled into covering financial expenses after revenue has been duly deducted of operating expenses.
If you lived in a deflationary regime, what incentive would you have to work? You'd rather just sit on your wealth and do nothing. There would be no economic output.
You do realize that the current monetary system has only really been in place for about 45 years right? The world ran on gold for hundreds of years and somehow people still managed to find the motivation to work without someone printing off the money they use.
(Also most inflation pragmatically comes in the form of fractional reserve banking)
(Also most inflation pragmatically comes in the form of fractional reserve banking)
You might be interested in Hernando de Soto’s project to create a global blockchain registry for land ownership.
Podcast interview: https://www.ft.com/content/5887858e-f499-4bff-8f3f-5434b5780...
Podcast interview: https://www.ft.com/content/5887858e-f499-4bff-8f3f-5434b5780...
Who will mine and how will the miners be compensated?
Good questions; I have no idea about any of that. I was guessing that might use an Ethereum Dapp, but the podcast is the first I've heard of the project and it had no technical information, being concerned instead with property rights and economics.
This is very interesting, could you elaborate on what you mean by information scarcity?
I mean that once you have a token (coin) nobody else can use it.
Curious why you don't like a fixed supply currency. Any theories or resources I can read about this?
I keep getting asked this question, this is an article I wrote to answer this: https://medium.com/p/543da352fc49?source=linkShare-229012a5f...
You need to go back and read Keynes -- in a multi-asset world cryptocurrencies will absolutely weaken the ability of Central Banks to stimulate the economy through monetary policy. But the presence of highly-liquid and mildly-deflationary alternatives to cash will also reduce the need for market intervention at all since the people trading INTO crypto will by definition be trading OUT of fiat. And with fewer people holding cash off-market as a long-term investment we will have effectively eliminated the source of liquidity traps, which is the entire justification for monetary policy in the first place.
I blame the lack of enthusiasm for crypto among orthodox macroeconomists on the fact that economic history is out-of-vogue and no-one bothers to read the major thinkers anymore. But it's also ironic on the other end -- since for all of the fuss goldbugs make about Keynes, he would absolutely love bitcoin (read his war diaries!). Sure, it is important prices, wages and taxes continue to be denominated in and settleable in a national currency. But as long as that happens cryptocurrencies will be a boon not a curse, although they are also likely to bring about short-term inflation as the purchasing power of digital assets rises relative to those of traditional currencies.
I blame the lack of enthusiasm for crypto among orthodox macroeconomists on the fact that economic history is out-of-vogue and no-one bothers to read the major thinkers anymore. But it's also ironic on the other end -- since for all of the fuss goldbugs make about Keynes, he would absolutely love bitcoin (read his war diaries!). Sure, it is important prices, wages and taxes continue to be denominated in and settleable in a national currency. But as long as that happens cryptocurrencies will be a boon not a curse, although they are also likely to bring about short-term inflation as the purchasing power of digital assets rises relative to those of traditional currencies.
I understand the argument: however, it pivots on the availability of assets, not currencies. If ’cryptocurrencies’ were termed and marketed as ’cryptoassets’, and folk were under no illusion that this stuff is money with which you can directly buy your food and pay your rent but rather something you can exchange for money to indirectly affect your wealth depending on whether it’s value appreciates or depreciates, I’d be much more content with the rhetoric.
There's no reason that people can't transact in cryptocurrencies directly, qubex. Remember that the economic problems caused by the Gold Standard did not result from people transacting in gold -- they came about because there was a fall in aggregate demand. Governments embraced hoarding/austerity in response to their own budget problems and that starved the global economy of general liquidity.
As long as all crypto purchases require an exchange of fiat for crypto the total amount of fiat in circulation never falls. It doesn't hurt if people transact in non-fiat assets (that may be preferable in many cases given the efficiency gains involved). Sure, the growth of alternatives to fiat may lead monetary authorities to reduce the amount of fiat in circulation, but all that is really necessary to prevent deflation is that prices continue to be denominated in fiat and that fiat continues to be acceptable as legal tender.
As long as all crypto purchases require an exchange of fiat for crypto the total amount of fiat in circulation never falls. It doesn't hurt if people transact in non-fiat assets (that may be preferable in many cases given the efficiency gains involved). Sure, the growth of alternatives to fiat may lead monetary authorities to reduce the amount of fiat in circulation, but all that is really necessary to prevent deflation is that prices continue to be denominated in fiat and that fiat continues to be acceptable as legal tender.
”Transacting in non-fiat”, beyond the crypto-jargon, has a name: barter. You can’t keep your accounts in barter units (particularly volatile ones), and more pertinently you cannot settle your tax liabilities in altcoins.
I'm going to end the discussion here because I don't want to personalize it, but all you are doing is contradicting yourself and you don't even seem to be reading what I have written. So what is the point?
Yesterday you were complaining that that if everyone transacted in crypto the money supply would be deflationary; today you are insisting no-one will want to hold crypto assets because of volatility. Yesterday you were comparing crypto to the gold standard; today you are suggesting that all economic activity prior to Bretton Woods was "barter" (as if that is an argument!). And then it is clear you haven't even read my previous comment, which explicitly states that cryptocurrency is non-problematic so long as prices continue to be denominated in a non-deflationary asset -- so of course taxes need to continue to be paid in fiat.
So I'll stick to my earlier observation: if you want to understand how crypto will intersect with the fiat economy you need to go back and read Keynes on the causes of liquidity traps, and then work forward from first principles. You don't see it now because -- like Krugman -- you think you are arguing against the Gold Standard. But the Gold Standard is irrelevant: in practice the only question that matters from a macro perspective is to what extent fiat-denominated activity will shrink as crypto-adoption spreads, and whether the manner in which crypto is adopted translates into wage and price rigidity across the economy as a whole. If your generation of macroeconomists do not or cannot understand this, the next ones will.
Yesterday you were complaining that that if everyone transacted in crypto the money supply would be deflationary; today you are insisting no-one will want to hold crypto assets because of volatility. Yesterday you were comparing crypto to the gold standard; today you are suggesting that all economic activity prior to Bretton Woods was "barter" (as if that is an argument!). And then it is clear you haven't even read my previous comment, which explicitly states that cryptocurrency is non-problematic so long as prices continue to be denominated in a non-deflationary asset -- so of course taxes need to continue to be paid in fiat.
So I'll stick to my earlier observation: if you want to understand how crypto will intersect with the fiat economy you need to go back and read Keynes on the causes of liquidity traps, and then work forward from first principles. You don't see it now because -- like Krugman -- you think you are arguing against the Gold Standard. But the Gold Standard is irrelevant: in practice the only question that matters from a macro perspective is to what extent fiat-denominated activity will shrink as crypto-adoption spreads, and whether the manner in which crypto is adopted translates into wage and price rigidity across the economy as a whole. If your generation of macroeconomists do not or cannot understand this, the next ones will.
Pity you choose to end the discussion here because I was enjoying it and you have made some points that I am forced to concede, and that lead me to revise some of my statements.
Firstly, you are absolutely right that by calling all transactions that are denominated in non-fiat assets ”barter” I have inadvertently and inconsistently folded-in all transactions that occurred in official currencies that occurred prior to the abandonment of the gold standard, and that was not my intention. As such, I wish to amend my statement so that it is understood to apply now, far after the abandonment of the gold standard, and relates mainly to the fact that all official currencies that I can think of are fiat in nature, so that transacting in official currency and in non-fiat are understood to be mutually exclusive options (at this moment in time).
Secondly, I do not wish to give the impression that the inherent volatility of cryptocurrencies makes them unsuitable as investment vehicles: given their (naive) return/volatility profiles, they definitely have a role to play in an investment portfolio. What I am trying to say is that they are suitable for investment and speculation, not as a measure of value and as a unit of account (traditional roles of currencies) because they’re too damned unpredictable.
Hopefully you read this and given those two provisos you are willing to resume the (very engaging) conversation.
Firstly, you are absolutely right that by calling all transactions that are denominated in non-fiat assets ”barter” I have inadvertently and inconsistently folded-in all transactions that occurred in official currencies that occurred prior to the abandonment of the gold standard, and that was not my intention. As such, I wish to amend my statement so that it is understood to apply now, far after the abandonment of the gold standard, and relates mainly to the fact that all official currencies that I can think of are fiat in nature, so that transacting in official currency and in non-fiat are understood to be mutually exclusive options (at this moment in time).
Secondly, I do not wish to give the impression that the inherent volatility of cryptocurrencies makes them unsuitable as investment vehicles: given their (naive) return/volatility profiles, they definitely have a role to play in an investment portfolio. What I am trying to say is that they are suitable for investment and speculation, not as a measure of value and as a unit of account (traditional roles of currencies) because they’re too damned unpredictable.
Hopefully you read this and given those two provisos you are willing to resume the (very engaging) conversation.
Who are these people trading with? People trading OUT of cryptos INTO fiat. How does the asset distribution change, net, in that exchange?
The distribution of assets changes and also the relative purchasing power of each, but the total volume of fiat in circulation does not change -- you get it, yes!
(Ceteris Paribus the velocity of the relevant monetary stock measure drops proportionately, which is in and of itself neither a good nor a bad thing.)
Blockchain is indeed fascinating, but its pratical usefulness has yet to be proven.
I am keeping an eye on Modum. They are about to launch Q1 2018 and it's the first blockchain application that makes sense to me.
What's the point of using a blockchain in that case though ?
yes, without all of downsides of traditional DRM solutions
One proposed use is for real estate data registration. You put the individual entries of ownership changes etc. on the blockchain, as prior historical data should be immutable. Then going forward you enter new data as it comes in. When you want ti do a title search, you just go through the changes for that address.
How is it better than running mysqldump and putting up the result and a checksum on a CDN somewhere?
There are plenty of proposals, and very little delivered.
The thing to me is that you should still need a third party to arbitrate disputes and get the system to function (you can't implement all the weird edge cases of laws) so it wouldn't be trustless and shouldn't require a blockchain.
From what I have read of the history of technology, when a radical new technology is invented, it usually takes 20 or more years before people figure out how to put it to profitable commercial use.