What is Reddit's opinion of Paper Money Collapse: The Folly of Elastic Money?

From 3.5 billion Reddit comments

The idea that you need some price inflation to “encourage spending” and “stimulate the economy” is the propaganda being put out by the parasitic class that’s perpetuating and profiting from this MASSIVE scam. The truth is that you don't need to “encourage” people to spend money. Spending money is all that it's ultimately good for. So it's always a question of how you choose to allocate that spending across time, how much to spend today vs. tomorrow vs. next year, etc. Also consider that when you save money, you are in effect making an investment in the overall economy. Money isn't wealth. Instead, it allows you to make a claim on scarce, real resources. Money is an accounting system for facilitating the exchange of those resources by serving as a credible record of value given but not yet received. When you "just sit on money," the resources that you could have claimed immediately will instead remain available to be used by others -- whether for immediate consumption or investment. You have in effect loaned those real resources to the rest of society. So if we had a system with a fixed money supply, it makes sense to me that the purchasing power of that money should increase over time as the economy grows. In that scenario, the rate of price deflation is essentially the market-determined "interest rate" on a very low-risk loan that can be recalled at any time (by spending the money).

Or think about it from the opposite angle -- why an inflationary money supply doesn't make sense. Again, money is supposed to represent a credible signal of value given but not yet received. If there's an entity that can simply print new money into existence at essentially zero cost, the message carried by that new money is going to be a false one. I’m sure you can intuitively grasp how an ordinary counterfeiter is in effect stealing from others when he prints up phony hundred-dollar bills in his basement. Well the same is true of the more sophisticated counterfeiters in fancy suits who call their counterfeiting things like “open-market operations” and “quantitative easing.”

Recommended reading: Paper Money Collapse: The Folly of Elastic Money

>We should expect that a growing economy that is growing rapidly should have some kind of minor deflation as your money should be worth more in purchasing power by that same growth.

Yes, exactly! Here's my standard argument in defense of deflation.

The idea that you need some price inflation to “encourage spending” and “stimulate the economy” is the propaganda being put out by the parasitic class that’s perpetuating and profiting from this MASSIVE scam. The truth is that you don't need to “encourage” people to spend money. Spending money is all that it's ultimately good for. So it's always a question of how you choose to allocate that spending across time, how much to spend today vs. tomorrow vs. next year, etc. Also consider that when you save money, you are in effect making an investment in the overall economy. Money isn't wealth. Instead, it allows you to make a claim on scarce, real resources. Money is an accounting system for facilitating the exchange of those resources by serving as a credible record of value given but not yet received. When you "just sit on money," the resources that you could have claimed immediately will instead remain available to be used by others -- whether for immediate consumption or investment. You have in effect loaned those real resources to the rest of society. So if we had a system with a fixed money supply, it makes sense to me that the purchasing power of that money should increase over time as the economy grows. In that scenario, the rate of price deflation is essentially the market-determined "interest rate" on a very low-risk loan that can be recalled at any time (by spending the money).

Or think about it from the opposite angle -- why an inflationary money supply doesn't make sense. Again, money is supposed to represent a credible signal of value given but not yet received. If there's an entity that can simply print new money into existence at essentially zero cost, the message carried by that new money is going to be a false one. I’m sure you can intuitively grasp how an ordinary counterfeiter is in effect stealing from others when he prints up phony hundred-dollar bills in his basement. Well the same is true of the more sophisticated counterfeiters in fancy suits who call their counterfeiting things like “open-market operations” and “quantitative easing.”

Recommended reading: Paper Money Collapse: The Folly of Elastic Money

>If you want to make the case that bitcoin is a settlement network not meant for small transactions, then that seems to not be Satoshi's design intent - he considers it a "peer-to-peer electronic cash system".

Well, that’s not exactly the argument I want to make. Satoshi was obviously reasonably confident in the scalability of Bitcoin proper. I share that optimism but I’m still not convinced that Bitcoin the blockchain will scale to the point that it will be practical to use it to pay for your coffee (to use everyone’s favorite example). But will it scale enough to allow the average person regular access to it? E.g., will it be practical / affordable for the average person to make a few on-blockchain transactions per month? I certainly think that’s realistic. But my larger point is that Bitcoin can still be tremendously successful / valuable even if a lot of day-to-day transactions occur “off-chain.”

>For example, Fedwire too is irrevocable and has low transaction fees, and it's effectively instant, rather than "effectively irreversible in less than an hour" like bitcoin. Even in your apples-to-apples comparison, bitcoin's competitive advantage changes depending on which variety of apple you compare it to, especially when you consider that each settlement network has been specifically designed and adapted over time for its application.

Well, I think that Fedwire is certainly more analogous to Bitcoin the blockchain than a credit card payment network. And yet note that no one is using Fedwire to pay for their coffee. Which obviously means that “the dollar can’t scale!” But seriously, sure, I would agree that a centralized settlement network “should be” (at least nominally) cheaper and faster, but from my perspective, centralization is itself a huge systemic cost.

>Then there's also the blockchain vs bitcoin argument - yes bitcoin has first mover advantage and network effects, but we've seen time and time again how they turn out to matter very little in the face of actual advancements in usability, practicality, and technology (Myspace vs Facebook, Yahoo (or alta vista) vs Google, Blackberry vs Apple, Napster vs bit torrent).

Borrowing from a previous comment of mine:

>The importance of network effects is going to depend on the specific context. So questions to ask include how much benefit does a larger network provide? (E.g., how much added value to each individual user do you get when the total number of users is doubled? And does the added benefit begin to taper off or disappear once a certain threshold size has been reached?) And how important are the benefits provided by a larger network in comparison to other features that differentiate the various competing networks? How high are the switching costs for an individual who decides to switch from one network to another? (E.g., one might consider the cost of switching from MySpace to Facebook to have been relatively low because creating a Facebook account was free and fast, and didn't require you to first delete your MySpace account. In contrast, the switching costs associated with learning a new language are huge.) How "nimble" is the incumbent network in terms of its ability to respond to competitive challenges from new networks that may offer superior features? (E.g., can the "network" under consideration even be changed at all or are we considering a rigid technology like Betamax or VHS? And even if it can be changed, is the incumbent a large corporation with an ingrained culture or is it an open-source software protocol that anyone can fork and tinker with?)

Without trying to answer all of those questions for Bitcoin, in short, I think that Bitcoin has a good chance of successfully fending off challenges from would-be rivals because I think that (a) the importance of the network effect when it comes to money is huge; and (b) Bitcoin is essentially infinitely adaptable. The Bitcoin protocol can change completely while preserving continuity of the all-important Bitcoin ledger.

>Six years is a long time for new technologies - how much time should we give bitcoin to implement a dominant use case that leads to widespread adoption?

Ok, but Bitcoin has certainly come a long, long way in those six years – even if it still has a long, long way to go before it takes over the world. How long will it take to go the rest of the way, assuming that it ever will? Well, I don’t think anyone can really say for sure. My own guess is that if Bitcoin is going to see mainstream adoption, that should certainly have become clear within the next ten years, and more realistically within the next five.

>To build additional application layers on top of bitcoin would just be making bitcoin less bitcoin and more like fiat, reinventing the wheel and making that new wheel relevant for a much smaller number of users. To make bitcoin more useful you would have to centralize it and require trusted third parties (payment processors, exchanges, escrow/consumer protection etc), and it is in this sense that I mean that the biggest obstacle bitcoin has to overcome is itself.

I disagree. Even if all that were ever built on top of Bitcoin were a no-imagination-required recreation of the equivalent fiat structures (100% trust-required, centralized banking, 100% trust-required, centralized payment processing, etc.), I think that Bitcoin would still be providing a huge amount of utility simply by serving as a kind of digital gold (that’s superior to analog gold in almost every way). But there’s no reason to expect that the application layers built on top of Bitcoin will be so limited. Bitcoin is an open, extensible network that allows you to do things that simply wouldn’t be possible with fiat (e.g., provable reserves, multi-sig banking and escrow).

>I don't think scarcity (or the method with which that scarcity exists, math vs government) in itself provides intrinsic value - useful applications for it does (if something else that is in demand can only be done, or done best with it). Just look at what altcoins are worth, even though many of them too have fixed supply backed by math - they're worth close to nothing because they have no unique value proposition that is in demand.

Scarcity alone doesn’t make something good money, but it’s absolutely one of the requirements. Again, I would identify three requirements for good money: scarcity, transactional efficiency, and network effects (the final requirement being the most important in the short and medium term). Altcoins can be just as good as Bitcoin with respect to the first two requirements, but they’re going to be hard-pressed to challenge its superior network effect for reasons already discussed.

>If you consider the value of world currencies relative to each other, its supply (i.e. inflationary monetary policy) actually has very little to do with it (unless it's poorly managed, like Zimbabwe). Instead, you see Canadian dollars weakening relative to the USD because of a lower demand for CAD, and that's perhaps due to lowered interest rates in response to a slowing economy or a reduced market price for its exports (e.g. oil).

Inflation of the money supply isn’t the only factor that affects a currency’s purchasing power (and may even have relatively little explanatory power when talking about short-term exchange rate fluctuations), but, especially over the medium and long-term, the expansion of the money supply has a pretty undeniable effect.

>So the idea that as bitcoin becomes more valuable, that extra volume will stabilize prices (the anchoring effect you suggested) isn't observed in the real world; even major currencies fluctuate in value against one another.

Yeah, but major currencies typically don’t see 100-fold increases in their purchasing power over the period of a year (or sudden 80-percent-plus crashes). Bitcoin’s value will always fluctuate, but if it becomes a major world currency those fluctuations will of necessity be a lot less extreme than they are now.

Final thought: I think that Bitcoin’s fixed supply / deflationary nature is probably the crux of why we hold such differing views about Bitcoin’s importance / prospects for success. I think that Bitcoin’s fixed supply is the lion’s share of its value proposition and, as a corollary, that fiat’s elastic supply is the largest of fiat’s fatal flaws. Here’s a book that really informed my thinking on this subject in case you’re interested: Paper Money Collapse.