WingNews logo WingNews GitHub [2]
top | item 14682963

Ask HN: When will cryptocurrencies be currency?

25 points| RikNieu | 8 years ago | reply

I'm really excited about the potential cryptocurrencies offer as an international medium of exchange, as smart decentralised currency, but everyone seems to only view it as something to "invest" in.

I have family members who barely even know how to operate their smartphones "investing" in Bitcoin, but even a casual conversation with them reveals that they have no idea what it really is. They don't even know that it can be used to actually buy things, and they don't know about it's other applications, like smart contracts.

And it's such a shitty 'investment' instrument too! This is all madness.

How can we change this? How can we get people to stop hoarding it and start actually USING it?

51 comments

order
[+] atmosx|8 years ago|reply
That's never going to happen. Currencies are enforced and controlled by central, powerful authorities (the state). Institutions like central banks (or the FED) try to control inflation and/or deflation. In a time of prospering, the obvious goal for a central banker should be to have a mildly deflationary currency. That is because central bankers want consumers to spend their money today and not wait for tomorrow (hoarding).

Now bitcoin has built-in a hard limit. Which makes the currency, inherently inflationary. I have no evidence, but I believe that this was a strategic choice by Satoshi. Why would you buy a currency made out of cpu cycles, with no backing if not for it's future value? Without being a state (e.g. selling trust) or having huge amounts of gold to back up a new currency, the only reason someone would wanna buy it, is indeed, the future value that could hold. Hence, Bitcoin or any cryptocurrency can work as an asset but not as a currency given the current design.

Y. Varoufakis, spoke of a centralised digital currency in his solution for the Greek crisis. That could be a digital currency, that anyone can use. But was a fully controlled digital currency issued in the form of IOUs by the state.

NOTE: Talking about adoption of a decentralised currency a-la bitcoin, by a state or group of states to replace entities like the FED or the ECB shows a poor understanding of the most basic principles of the financial systems.

[+] zwily|8 years ago|reply
Don't you mean mildly inflationary? I believe the US fed aims for 1-2% inflation. Or did I misunderstand?

Similarly, bitcoin is deflationary because of the fixed supply.

[+] kaleidic|8 years ago|reply
Money has three functions : unit of account, store if value, medium of exchange. Cryptocurrency isn't great at the first two, but if we presume the scaling problems will be solved then it is pretty good at the latter because it doesn't require you to trust the banking system. So there is an unbundling of the functions of money described by Eugene Fama originally and then tidied up and better articulated by Tyler Cowen and Randall Kroszner in their book on the New Monetary Economics in about 1992.

Its completely irrelevant what the price of Bitcoin is for its usefulness as a medium of exchange.

This medium of exchange aspect is very important because it makes banks no longer special since its possible in time to make payments without a banking system. Thus the role of the state in regulating banks can disappear eventually - no deposit insurance, no bailouts and no too big to fail.

Credit can be provided by funds because the information asymmetry of banks no longer applies when you can port your banking records via API.

[+] MarkMc|8 years ago|reply
> Without being a state (e.g. selling trust) or having huge amounts of gold to back up a new currency, the only reason someone would wanna buy it, is indeed, the future value that could hold

Are you saying that gold can be a currency but Bitcoin cannot?

> Bitcoin or any cryptocurrency can work as an asset but not as a currency given the current design.

Why can't it be both? If I expect my Bitcoin to appreciate 5% per year I might be willing to spend it to buy my weekly groceries.

[+] arisAlexis|8 years ago|reply
You should make some research on Varoyfakis, his lies and failures before quoting him. His disastrous game charged my country 100billions more and banks are still closed.
[+] mathie25|8 years ago|reply
For now, I believe cryptocurrencies are mostly used for speculation, most people that buy them expect to sell them back with profit, just like stocks. The value of bitcoin is too volatile right now to be effectively used at a currency. I would not want to hoard bitcoin (or other cryptocurrencies) right now.

At the end of day, a currency is based on trust. If I have a 20$ Cad bill, I know all businesses in Canada will accept it, the Bank of Canada is backing this currency, people can be paid in Canadian dollars, and etc. I also know that I can easily exchange my canadian dollars to Euros, US dollars and etc. Most cryptocurrencies don't have that same level of trust right now. If there is no trust, people won't actively use this currency.

In addition, Currencies are also used by a country/central bank to regulate its economy through monetary policy.

But I can see cryptocurrencies to be an addition to "normal" currencies, but I don't think they will ever replace them.

[+] glumpyfish|8 years ago|reply
Which do you trust more? The decisions of a government, or the laws of mathematics?
[+] kyle-rb|8 years ago|reply
Money has 3 main uses: a medium of exchange, a unit of account, and a store of value.

Bitcoin works reasonably well as a medium of exchange, as long as transactions are confirmed relatively quickly.

Bitcoin prices are pretty much always tied to the price in US dollars or some other fiat currency. Online prices can be changed dynamically, so Bitcoin doesn't really need to be its own unit of account.

But it never really works as a store of value, due to its volatility. I have about $20 in Bitcoin today, but I have no idea what that will be worth in a week, so it's risky to keep any large amount of money in Bitcoin. The safest way to buy things in Bitcoin would be to buy it, and then immediately send it to whomever you're buying from.

So I think that Bitcoin will be much more usable when its price stabilizes, and there's much less friction with each purchase.

[+] kaleidic|8 years ago|reply
Yes - that's right : people mostly shouldn't need to hold such high Bitcoin balances to buy things. What's in the way is the state interfering so you can't change dollars for Bitcoin with your bank and there aren't services that do that which are convenient enough. In time this will change so you can just make Bitcoin payments from your checking account.
[+] z1mm32m4n|8 years ago|reply
One thing that hasn't been suggested yet is the lack of point of sale support for cryptocurrencies.

Companies like Coinbase and Stripe have already made it relatively straightforward to accept Bitcoin online. Think if companies like Square or other point of sale terminal vendors made it easy to accept Bitcoin to pay for my coffee!

[+] taysic|8 years ago|reply
There are a few issues - there are no "chargebacks" with Bitcoin. You get a lot less protections in your capability to return things - its all up to the merchant. Also, the transaction times are too slow right now, esp for small purchases. Finally, there is so much volatility with the value of cryptos - would a merchant want to see the amount you paid him lose 20% value the next day just due to the market?
[+] ThomPete|8 years ago|reply
They already are. All currencies are based on trust nothing else. There is no inherent value in any currency besides the trust in it's issuer.

They can be used to buy things already that's enough.

[+] thehardsphere|8 years ago|reply
I don't understand why this is being downvoted; it's the most correct answer.

People in other answers are adding superfluous fluff about taxes and governments and such things, but none of that is relevant to whether something is currency.

[+] neilwilson|8 years ago|reply
Never.

A currency is something taxes are denominated in. And those currencies are necessarily controlled by the authority issuing the tax or the power to tax loses it effectiveness. (see Greece for details)

Everything else is just a transferable asset - intangible or otherwise.

It's why gold isn't a currency. You can't settle taxes with it.

A currency is the modern equivalent of a tally stick. It's what an authority uses to command physical resources.

[+] Mikeb85|8 years ago|reply
It'll never happen. Any sort of currency needs to be backed either by an asset or a government, otherwise it's essentially worthless.

Cryptocurrencies have value because they're basically one big ponzi scheme where people invest because they are confident someone after them will buy it, but the odds of them having staying power are slim because, at the end of the day, there is nothing with actual worth backing them.

[+] ErikVandeWater|8 years ago|reply
I strongly disagree - If I know I can trade an item to someone else for something I want, I will accept it as payment. It doesn't matter what any government thinks about it, nor whether it can be used for something other than trading.
[+] eadz|8 years ago|reply
Worth can be assigned by people. There is nothing "backing" gold, we have simply decided that it is worth something.
[+] MarkMc|8 years ago|reply
Someone once said that the price of gold is a 6,000-year-old bubble. There is no doubt that the price of gold far exceeds it's utilitarian value. The same is true of cryptocurrencies.
[+] rak00n|8 years ago|reply
> where people invest because they are confident someone after them will buy it

That's stock market.

[+] SippinLean|8 years ago|reply
Not every scheme is a Ponzi scheme, you may want to read up on what that means.
[+] xiphias|8 years ago|reply
People need to hoard it before being able to use it. It needs to grow about 1000x to be hoarded by all people, which may take 20-50 years.
[+] nnn1234|8 years ago|reply
I saw a popup store at a local flea market with "pay with Bitcoin" sign. Use and knowledge can be increased with improved access and merchant use
[+] drydot|8 years ago|reply
Bitcoin will enter mainstream progresively, and will be replacing Gov currencies as fast as the society realizes it. Once reached the point we decide there is no need for Govs to manage us we'll be free. Dont worryabout concepts like i nflation deflation, having a fix number of bitcoin is like havin a fixed number of tons of gold. Each bitcoin will vary its value in a offer/demand basis, naturally
[+] thehardsphere|8 years ago|reply
People will use it when it makes sense for them to use it. People are ignorant because they don't need to use it.
[+] miguelrochefort|8 years ago|reply
Money is deeply flawed. The only reason it works is because it's heavily backed regulated, and manipulated by the government. A good example of this is inflation, which governments use to discourage hoarding and encourage spending.

Cryptocurrencies have many benefits over fiat currencies, as you mentioned, but they still share many of their flaws. I believe that blockchains and smart contract will have a huge impact, but I don't believe tokens will replace money.

What will replace money is a new kind of currency that's based on people's reputation. This is unavoidable, but will first require the death of privacy.

[+] joeclark77|8 years ago|reply
Since cryptocurrences are basically pyramid schemes, and sooner or later you run out of suckers, probably never. Don't interpret this as me saying that fiat currencies are much better, though! Really nothing that anyone has invented out of thin air can beat gold and silver, or paper directly exchangeable for the same.