Why Bitcoin Might Be A Bad Economic Model Afterall

in bitcoin •  3 months ago

Before I begin let me just say that I was one the first supporters of Bitcoin when the project begun. I studied the economics behind it and it made better sense compared to a world that was just coming around after a major financial collapse.

Today, many things have changed. If you have been following my blog over the past 2 years you will see that I am appearing very skeptical in regards to Bitcoin's evolution. I am also very cautious about alt currencies and the way the entire economic model is treated from VCs and normal investors alike. I am not a believer anymore nor will I become if the market turns bullish.

One thought in particular seemed to cloud my thoughts about Bitcoin. Let's assume for a second that Bitcoin became the world currency. The concentration of wealth would still be worse than any other FIAT currency that came to be with over 80% of the wealth going to no more than 10.000 people (If we are optimistic. In actuality the number of people is far less). Bitcoin does not solve the distribution of wealth. It makes it worse. Heck, Bitmain is about to gain 51% of the entire network.

When Bitcoin becomes a world currency, for better or worse, those on top would not want to spend it, but rather hoard it. The more they hoard the less they get spend since they will drive demand exponentially. They can wait for the 99.9999% to drive the demand sky-high and then use the large stakes to basically control everything. This scenario is as dystopian as it can get. Imagine having an entire warehouse full or rice and you just decide to give to the commoners enough so they can barely survive. Bitcoin hoarding is much the same.

In contract, FIAT inflationary currencies that print money on will, do not have this problem. Sure the economy collapses every few years, forming cycles of debt, but the economy emerges stronger and stronger even if the debt multiplies. The simple reason this is happening is not because of some kind of superior economic modelling but rather due to simple human nature. Debt is as an abstract concept in the human mind as it is in practical terms. This is why the entire planets ended up owning money that is 5 times its combined GDP.

The problem with Bitcoin and in retrospect, gold, is that it freezes the exponential growth of an economy due to lack of liquidity among parties. Without debt humans cannot engage in economic endeavors. They will hold on to their stash rather than bet their tiny amount against much larger holders. Same thing applies with the crypto markets today. A few whales move the entire market. They slowly unload for profits, milking everyone die and then buy super cheap.

And this is really what it comes down to. Bitcoin does not reflect the hunger for economic growth, advancement and risk that is made possible with unlimited supply FIAT money. In the long run, the benefits of the FIAT system outweigh the drawbacks because a handful of players create new kinds of paradigm for the entire species. Bitcoin on the other hand is a safer and much more logical economic model but limits this capacity of human enterprise for economic growth.

I believe that no party would ever agree to take part in a globalized world economy that is based on Bitcoin because a few individuals we be the ultimate overlords as we have already seen. In comparison with those in control today, it will shadow how much worse things can do since they won't even need to issue policies or print money. They will simply hold and watch the world bow before them. I used to believe in the better part of human species but the events that have unfolded over the past few years in the Bitcoin world have made me change my mind both ideologically and economically.

Humans are much the same whether they hold FIAT or BTC. We are assholes by nature that just want to survive. We are extremely simple to figure out if one pays enough attention. This is also why I am a believer in humans. I believe that no individual ever changes. Rather, much like evolution, humans become more and more of whom they already are, stacking up strata of experiences upon one another. The economic modeling that has driven us up to today with BTC will not just erase everything that came before us. What will likely happen is that banks will take the best features of cryptocurrencies and employ them in their own already established system.













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Human nature is not going to change over the short or medium term. I presume that humanity will continue to use "money" for some time to come, and, because of human foibles, those controlling a money system will "work" that system to benefit themselves at the expense of all others.

That being said, bitcoin appears to lessen two of the problems. Fractional reserve banking is mitigated and so is uncontrolled issuance of the tokens by the central authority.

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Indeed but those last two don't really help economics if Bitcoin was to be the world currency. The hodlers would HODL their coins and they would put immense buying pressure to the ones that had little to nothing.

Well, as you noticed, bitcoin only solves one real problem.

The problem with gold is that there is far more of it than anyone realizes, both in the ground and above ground. At any time, any big holders could own the market.

But, gold and bitcoin are things that cannot just be printed. And thus, they are better for an economy than our current inflationary fractional reserve lending model. (i estimate that actual inflation is about 25% per year. Adding up both ends of the deal)


There are other models, and some people are working on them.

Such as, when you make a good, you also make the money to buy the good.

There is one person working on such, where it benefits the original creator to buy back "his" money, thus completing the loop.


All monetary system will accrue to a few people. It is the Pareto Principal. The money has to be designed to work in spite of this.

And actually, bitcoin and litecoin (as an example) might do this. Where all the big money buys bitcoin, and all the little guys use litecoin. Bitcoin becomes a store of wealth. Litecoin is a currency of exchange.

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Fixed-supply commodities simply can't be used as currencies. Even gold has historically had inflation due to mining. Modern currencies are not inherently that bad, it's just a question of who allocates and how.

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What happens when 20 people decide to hoard 50% of the supply? This is what my article explains

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It is still less centralized than the US$.
But they do not print about any of the richest people.
If they did, Bill Gates might not even make the top 100 list.

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Not at all, Bitcoin is far more centralized. I believe 1000 people own like 80% or more of the wealth.

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Unless governments started enforcing the use of bitcoin then the rest of the people would have used something else as currency thus bypassing bitcoin.Bitcoin is intrinsically worthless by itself.Its value is given by the demand and suppliers.Anyway i still believe some sort of Crypto is the future of currency but i highly doubt that it will be bitcoin.

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Do you have any links to the models you are referring to. I am very interested in creating an ideal currency.

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I am not finding them.

One had an interview with Chris Martenson.
https://www.youtube.com/user/ChrisMartensondotcom/search?query=money
Dig through there, you will probably find it interesting.

Charles Hugh Smith has some good models.
His books and blog.
https://www.oftwominds.com/blog.html

I think you expressed very well what many people think about bitcoin. Your final sentence nailed everything.

I would politely disagree with this entire sentiment, as well as almost everything said here.

That doesn't fit into reality, and a tokenized future.
If as you say bitcoin becomes a world currency, its not something you trade on a forex in that manner. It would 100% be an ETF that would be traded on that level. While I understand your purpose for a growing pie, and a currency that does not have the ability to inflate would be tough to trade, so it would likely be held like a commodity, or if anything used in a fractional reserve system. Like Bitcoin is stored and a DollarBit is created with a 1:10 ratio of backing to be used, and the ability to inflate and recycle based on transactions(just throwing a random idea) or even a value Index that buys and prints when value goes up, and burns as it deflates to keep a relative value with the fund etc... ETF's will stabilize the market so that is not a terrible thing, and would be good for above concept.

It is very Keynesian to think that without inflation people just hoard. Because of inflation, and artificially suppressed interest rates, you saw exactly what happens in Greece when a government does not have sound money and spends what It can not afford.
Value of property and commodities and everything goes up, inflation stagnates the value of something and people can no longer afford to live.

We already live in a lifetime of the gig economy, a tokenized economy would be no different, other than younger generations participation and ability to accumulate wealth in a new manner.

While this may be hard for someone looking at bitcoin or crypto on a micro level, it is fairly plain to see for a macro player, and esp an MMORPG and those of crafting guilds, who run economies on multiple games.

It is a long hold for sure, but it will catch on, if you have ever purchased a mobile game currency, or an item for something with riot points on league of legends, having currencies for each individual thing makes sense. It allows for those to compete in a space that they enjoy, and allows companies to reward that in a new manner, and they can trade it for whatever they need on any other platform and in the future, the world.

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Bitcoin is definately not a bubble. Market is in stable mode now. After few days Bitcoin can easily reach 8500$ mark.
@kyriacos

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On December I said it is going to 3100. I am still on that position

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At lowest I think it can touch 4900$ but 99% chances is of touching again 8500$
@kyriacos

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99% seems very arbitary

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Wild-ass guessing it is indeed.

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I don't think it will touch 8500$ so easily. This year is tougher than previous year for Bitcoin. Thanks

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Yes it will take some time but yeah it will definately touch 8500$ this year for sure.

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You say it is stable mode and going up to $8500. That is not stable!

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It is stable and will move towards 8500$ not in one short,but slowly
@rumblestiltskin

Thank you for a very lucid analysis, which is very rare in crypto space. I completely agree, that the supply of BTC would choke any larger scale market. I can imagine though that other cryptos might flourish, since they offer different solutions to the problem. I believe the distribution might be less of a problem, if a crypto works, beople would flock in an taking part.

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Most coins are heavily gamed and centralized. Ironically, FIAT currencies are less so.

Jesus man ... can you put some optimism :) ... Yes things are more or less like you explain, but we can make new rules, build new systems, take from the rich give to the poor etc .... they are allways options, and they are allways the old games iterating in new enviroment. But still we can continue trying.

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Taking from the rich and giving to the poor never worked. Also it is stealing.

An unorthodox opinion for this platform. You've really got me thinking, for sure.

I don't want you to be right, but I'm afraid you are.

I would like to add that DPOS set-ups are even worse and will speed up the appearance of the problem you describe. Not only do they concentrate wealth and control into the hands of a few at an alarming rate by their very nature and design, the DPOS set-ups there are now have also been set up from the start to be centralised in terms of distribution. While there is no need for the latter, the former is a fundamental problem.

Last sentence is such a sad truth.