Friday, November 8, 2013

The Chicago Fed on Bitcoin

A senior economist at the Chicago Fed,  Francois R. Velde, is out with a paper on Bitcoin.

Of note, he writes:
Although some of the enthusiasm for bitcoin is driven by a distrust of state-issued currency, it is hard to imagine a world where the main currency is based on an extremely  complex code understood by only a few and controlled by even fewer, without accountability, arbitration, or recourse.
and

 So far, the uses of bitcoin as a medium of  exchange appear limited, particularly if one excludes illegal activities. It has been used as a means to transfer funds outside of traditional and regulated channels and, presumably, as a speculative investment opportunity. People bet on bitcoin because it may develop into a full-fledged currency. Some of bitcoin's features make it less convenient than existing currencies and payment systems, particularly for those who have no strong desire to avoid them in the first place. Nor does it truly embody what Hayek and others in the Austrian School of Economics proposed. Should bitcoin become widely accepted, it is unlikely that it will remain free of government intervention, if only because the governance of the bitcoin code and network is opaque and vulnerable. That said, it represents a remarkable conceptual and technical achievement, which may well be used by existing financial institutions (which could issue their own bitcoins) or even by governments themselves.
(ht  Gerard Vanhool)


13 comments:

  1. And yet another economist that doesn't understand Bitcoin...

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    1. True. It is governments and banks that will have to adapt to Bitcoin - not the other way around.

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  2. "...which may well be used by existing financial institutions (which could issue their own bitcoins) or even by governments themselves."

    What they don't yet fully comprehend is that Bitcoin will swallow national currencies.

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  3. "That said, it represents a remarkable conceptual and technical achievement, which may well be used by existing financial institutions (which could issue their own bitcoins) or even by governments themselves."

    Great. The new global currency....

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  4. "...it is hard to imagine a world where the main currency is based on an extremely complex code understood by only a few and controlled by even fewer, without accountability, arbitration, or recourse."

    Talk about the pot calling the kettle black! Velde's sophistic statement here fits the Fed monopolized US monetary system like a glove! However, thanks to Ron Paul's popularity, the complex relationship between the US government and the Fed is understood by more than a few these days. When the "accountability, arbitration (and) recourse" for the way this partnership has distorted and damaged the economy will come is still unclear...

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    1. The Siren-song of Welfare State
      Hugo Salinas Price

      Our world is run – and has been run for some time now – by a relatively very small group of individuals who have it in their power to manage, as they think, the economies of nations. Managing the affairs of a nation implies making people behave in ways in which they would not otherwise behave. National management of an economy thus means making millions of individuals do what they wouldn’t do if left to themselves.

      There is not one single national economy in the world today whose people are free to do as they wish; it is not so much that people are forbidden to do what they think best, as that their choices are being narrowed, day by day, to being able to do only what is allowed.

      One of the very first choices which free individuals made thousands of years ago was the choice of the money they would use in their exchanges of goods and services; after using other substances such as salt, or copper, or sea-shells, they finally chose gold and silver for use as money, because all humanity valued these metals above all other substances, and consequently gold and silver were the most convenient substances to use as money.

      The fact that today we are deprived of the possibility of using these metals as money indicates that we are worse off than our ancestors who lived several thousand years ago. We are forced to use fictitious money provided by our managers and masters. One important consequence of using fiat money is that it inevitably leads to making bad investment decisions.

      It is clear that if we are not allowed to do what we think best, anything else we do must be second, or third, or fourth best for our interest, and anyone who takes second best for what is in his interest, is incurring a loss. Our economic world has been so weakened and distorted by accumulated losses and false investments that it is now beyond repair.

      More than 7.3 billion human beings live in today’s world, and except for those living in the jungles or the deserts, not one of us can act freely to further his interest. We are all of us incurring losses, whether we are conscious of this fact or not.


      http://www.plata.com.mx/Mplata/articulos/articlesFilt.asp?fiidarticulo=223

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    2. Well said, Gentlemen!!!

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  5. How many americans even understand where our us dollars come from? Ask a random person on the street and you will get blind stares.

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  6. I love this part of his statement:

    "Should bitcoin become widely accepted, it is unlikely that it will remain free of government intervention, if only because the governance of the bitcoin code and network is opaque and vulnerable. That said, it represents a remarkable conceptual and technical achievement, which may well be used by existing financial institutions (which could issue their own bitcoins) or even by governments themselves."

    Good luck with that.

    The code is open source, totally free, and widely distributed. This means that even if the government tried to shut the project down, it would simply spring back up somewhere else, just like the PirateBay website keeps doing. It can't be stopped. It's like trying to stop online file sharing - it's virtually impossible, even with all the laws that make it illegal.

    If the government seized control of the existing bitcoin code and made changes to it, those changes would fork the blockchain. People would simply not use the government created version. The most the state could hope to do is shut down all the currency exchanges, but that would only slow its growth, not stop it, because people would simply buy them in person, locally. Further, people could simply transfer money to a foreign bank where bitcoin is still legal, and then buy bitcoins with foreign currency.

    Further, there is no way for any central authority to issue its own bitcoins. They would have to create their own digital currency to do that. No one can issue bitcoins. It's simply not possible, and any changes to the code that did make this possible would fork the bockchain, leaving people free to use the prior fork that did not allow for this.

    Finally, there will be regions in the world where Bitcoin becomes the dominate currency. And those regions of the world will then become the most productive and powerful regions on the planet. This will force people to use bitcoins if they want access to all the goodies those regions produce. This might take generations, but it will eventually happen.

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  7. "Although some of the enthusiasm for bitcoin is driven by a distrust of state-issued currency, it is hard to imagine a world where the main currency is based on an extremely complex code understood by only a few and controlled by even fewer, without accountability, arbitration, or recourse."

    Here are the documents that specify some of the more important protocols that drive the internet:

    http://tools.ietf.org/html/rfc793
    http://tools.ietf.org/html/rfc2616
    http://tools.ietf.org/html/rfc4271

    I'm sure that it was hard for the central planners to imagine a world where the main means of communication is built on a federation of computers speaking a bunch of obscure, extremely complex protocols to each other, right?

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  8. Dang, they really have some ignorant people at the FED. The idea that BTC has no value is simply ludicrous . It can.t be counterfeited , PERIOD. There is value in that.

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  9. "it is hard to imagine a world where the main currency is based on an extremely complex code understood by only a few and controlled by even fewer, without accountability, arbitration, or recourse."

    Try harder !

    BTW how many people really understand what's happening inside their car when they drive, it. Does this so called economist understands every details of how the computer he is typing on works ?
    Also bitcoin isn't controlled by anyone, it really makes you feel like they didn't even do their most basic homework before talking about this. They are just ignorant, lazy, and ridiculous. They will lose whatever is left of their credibility very soon.

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  10. Hahaha wenzel is now shilling for the Fed

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