The tone of condescension that comes from professional economists is telling. It's impossible for them to just present their arguments, cleanly, simply and without ostentation and vitriol. They have to try to make you feel stupid for disagreeing with them.
When you don't have a sound scientific basis for your discipline, you need something to step in to fill the void - in order to make other humans believe in your worth. Economists use their enormous egos, as well as the frailties inherent in the egos of others.
Heather R Morgan has not written an article which rises above the flaws of her discipline. It starts with a jibe - oh, you invested in bitcoin, why not flush it down the toilet - that's HOW STUPID YOU WOULD BE...
Engineers and hackers don't have to worry about whether or not their discipline makes a genuine contribution. They have proved themselves time and time again. They build a product - ship it - and if it fails, they start working on the next idea. They don't have to worry about fighting over 'theories' with academics who desperately claw at one another for those disappearing tenure tracks.
As we who have spruiked for bitcoin have always said: "This is an experiment that might fail."
Heather might want to consider switching to a discipline in which experiments are even possible...
>> As we who have spruiked for bitcoin have always said: "This is an experiment that might fail."
It's fine to experiment but when Bitcoin became more mainstream the kind of stupid mistakes MtGox has made are inexcusable. Ordinary people were using it and are losing money now. You can't promote a new technology and push for it's adoption by a wide audience and just call it an experiment when it fails. That's reckless.
>> Heather might want to consider switching to a discipline in which experiments are even possible...
This is just silly - here we have someone lecturing us about economics who describes herself as a "Rogue Economist" - so are we expected to buy this analysis because she is an orthodox economist (which is how it reads), or because she is a "rogue economist"?
More significantly, the line "While we may dislike the government’s regulation and intervention into financial markets, their oversight prevents moral hazard and rampant fraud." is just laugh-out-loud funny - we've seen PLENTY of moral hazard and rampant fraud in orthodox financial markets, on a scale which is simply mind-boggling in comparison to anything happening at Mt.Gox.
Did the 18 people who upvoted this crap not even notice the glaring factual errors?
...the efficient market hypothesis (that free markets will regulate themselves)...
Fiat currencies (money) are pegged to real assets...
...it is as vulnerable to financial crises as any deregulated financial market... US subprime mortgage market, bubbles follow the same patterns for growth and implosion.
Most amusing is the idea that unlike USD, BTC has no protection against fraud. The same is true for most "regulated" transactions, credit card payments being a notable exception.
>Bitcoin is possibly the most valueless asset in history. If people no longer wish to hold or accept Bitcoin, the value will be exactly zero since it has no inherent value, making it an extremely fragile asset.
Stock in a shell company also has zero inherent value. This is simply a localised critique of the "most valueless asset" accusation - many assets share that characteristic.
After world war II, people in Germany burn paper money in winter. Because, by that time, fiat money is cheaper than coal and wood.
That's funny it seems that this economist thinks fiat money can't never be valueless. Well, look Cyprus, and look Ukraine now. I am not saying Bitcoin won't never be valueless, but apparently fiat money is not completely invulnerable.
Except a shell company does generally have assets, IP and so on, when there is a bankruptcy, there is a chance the shareholders get something out of it. Also, Fiat money has the government (and well, the bank notes are worth at least something on ebay :)).
Bitcoin on the other hand, by design, has NO backing, if the system tank, you wont be able to get anything out of it.
Thus she's correct on that point, whether or not it's important.
Quote from the article: Bitcoin mining is not valuable for anything other than creating Bitcoins. Bitcoin is possibly the most valueless asset in history. If people no longer wish to hold or accept Bitcoin, the value will be exactly zero since it has no inherent value, making it an extremely fragile asset.
Therein lies the trouble with taking lessons from economists who don't think it through.
The core argument surrounding Bitcoin can be brought to focus by asking the question : "Would you rather trust a government or a mathematical algorithm?". Of course, crypocurrencies are not just algorithms, they're more like algorithms + protocols, but still, that's a great question to ask at a gathering (of like-minded people); it generates some very interesting discussion.
My personal take is that : there are two kinds of people. Some need a Central authority. (They probably respect and believed everything uttered by their parents and teachers as children, too. I'd LOVE it if someone did a psychological study of such correlations in personal beliefs.) Others are suspicious of the utility of government. One need not be a full-blown anarcho-capitalist or whatever the well-read cool kids call it; it's just that the 2008 financial crisis has left a deeply unsettling feeling about whether governments are serving the common man. Such people would rather trust a computer science researcher's invention. I'm definitely in the 2nd camp.
I think the lack of central authority is what type 1 people find unsettling and unbelievable about Bitcoin. What the world needs is a "Cartoon guide to cryptocurrencies" book or video.
>> ""Would you rather trust a government or a mathematical algorithm?"."
Most people can understand government fiscal policy (to a useful extent anyway). Very few can understand an algorithm even when it's explained to them. They vote in the government and currency in it's current form (e.g. USD) has worked for generations. Trusting the government seems much safer.
Also with Bitcoin you are trusting more than an algorithm. You're trusting exchanges. You're trusting in the security of a digital system that can be hacked and you don't understand how to secure properly. With physical currency security is simple and understandable. With digital currency it's not.
> "Would you rather trust a government or a mathematical algorithm?"
The government, obviously. They have the guns and can simply use those guns to annex the necessary mathematicians, should the need arise.
Far too often, people seem to forget that governments are the one that has the monopoly on use of force. Thinks like "logic" and "rhetoric" and "math" don't mean a damn thing when the conflict has been reduced down to basic natural selection.
We, as a species, are incredibly talented at postponing that conflict. We pile on more and more layers of indirection - such as "politics", "police", "lawyers" - hoping to avoid the violent battle that lies at the core of any real disagreement.
Unfortunately, geeks tend to fall prey to the "just-world fallacy" in these cases. We're used to the rigor and determinism of math and logic, and often assume that such concepts are universal.
It's pretty funny how she uses E-gold as an example, which failed due to forcible dismantling by the government.
Hint: Bitcoin was created for the sole purpose of avoiding problems of that nature.
As for the rest of the article, not much content and many unsupported assertions. It would have been nice to hear why bitcoin is completely value-less, beyond not being "goverment backed". But I suppose that discussion would involve actually understanding bitcoin.
She doesn't get it bitcoin will never reach 0 there will always be people buying and selling bitcoin just as there's customers for even the crappiest websites.
Not to mention it's already reached critical mass which means it will never go away and the advantages outweigh the risks.
Now will this hurt bitcoin? Yes. Is this a good thing in the long run? Definitely.
It's always a bad thing when 70% of all speculation is done on one platform and that platform closes down.
I'm somewhat glad mtgox was allowed to fail that juts proves that the awful too big to fail mentality of the US did not corrupt the bitcoin marketplace.
This is a good thing in the long run even if it's going to hurt like hell in the short run.
Mt Gox was like the #3 exchange, not number 1 for some time, and definitely not 70%. They'd been having problems for a long long time, which is why a lost of people didn't want to go there anymore. They had name recognition, but it was nearly impossible to get cash out.
"Oh you silly engineers and your bit of coins, let me econ'splain how dumb you were."
Madam, there is nothing in your article that any of the engineers who were (and are) so excited by bitcoin didn't already know long before you'd even heard of bitcoin.
"You might as well flush your money down the toilet by investing in the Egyptian pound."
Does the author have some insider information on Egyptian currency trading? I hope they are putting their money where their mouth is by selling EGP on the foreign exchanges!
Or in other words, the author opens this article by spouting speculative bullshit. Why then should we treat the rest of it as useful?
Bitcoin mining is not valuable for anything other than creating Bitcoins
Bitcoin mining ensures the validity of the blockchain. Bitcoin is valuable as the unit of account by which things can be entered into the blockchain. Good luck trying to convince people that a distributed, consistent transaction ledger has no value.
Further, if or when Bitcoin transactions with scripted contracts become commonplace, mining would support the long-term existence and enforcement of such contracts.
On-topic: I remember my undergrad course in macroeconomics. It was a total and utter mess. Just tons and tons of theories and formulas that could not be demonstrated, but had to be memorized. Most macro-economists suffer greatly from the lack of a "credible" scientific base for their studies. Hence the article, a generous serving of all possible stereotypes that macro-economy can give.
BUT, I also remember microeconomics, and that was a totally different story. Most useful when thinking about markets and how people behave, but interesting if applied to greater scales (macro-micro-economics?).
Off-topic, but considered interesting: Am I the only one that finds it frustrating that Subtle blogs have no local comments? I find it diminishes the value of the text in itself.
why the upvotes? but I'm sure the author is an expert in Elliptic Curve Cryptography and understands the subtleties of hierarchical deterministic wallets.
This article has very little intelligent to say. There are plenty of legitimate criticisms against Bitcoin, but I really thought we were past the stage when economists with little or no understanding of Bitcoin attempt to weigh in on the subject.
In the article, an economist assumes engineers have no knowledge about economics. In return, Hacker News assumes economists have no knowledge. And this comment assumes everybody in Hacker News thinks the same way about economists.
Here are the real three lessons we have learned the hard way.
#1 My money stays in my wallet. All the time.
#2 If not possible #1, know the names of those who keep your money, you're trusting them, they should be held accountable and strongly punished by law to set a precedent. Do not trust your money to a faceless business.
#3 Cryptomoney is the future, spend more in research, protect wallets, methods to test solvency, public audits, webs of trust, etc.
This tragically had to happen so we could learn these lessons. Monetary darwinism at its best.
To me, it seems like this article merely repeats Keynsian axioms without bothering to argue for them. Not, in my experience, the way engineers like to be talked to.
[+] [-] grovulent|12 years ago|reply
When you don't have a sound scientific basis for your discipline, you need something to step in to fill the void - in order to make other humans believe in your worth. Economists use their enormous egos, as well as the frailties inherent in the egos of others.
Heather R Morgan has not written an article which rises above the flaws of her discipline. It starts with a jibe - oh, you invested in bitcoin, why not flush it down the toilet - that's HOW STUPID YOU WOULD BE...
Engineers and hackers don't have to worry about whether or not their discipline makes a genuine contribution. They have proved themselves time and time again. They build a product - ship it - and if it fails, they start working on the next idea. They don't have to worry about fighting over 'theories' with academics who desperately claw at one another for those disappearing tenure tracks.
As we who have spruiked for bitcoin have always said: "This is an experiment that might fail."
Heather might want to consider switching to a discipline in which experiments are even possible...
[+] [-] lclarkmichalek|12 years ago|reply
[+] [-] k-mcgrady|12 years ago|reply
It's fine to experiment but when Bitcoin became more mainstream the kind of stupid mistakes MtGox has made are inexcusable. Ordinary people were using it and are losing money now. You can't promote a new technology and push for it's adoption by a wide audience and just call it an experiment when it fails. That's reckless.
>> Heather might want to consider switching to a discipline in which experiments are even possible...
And you're complaining about condescension?
[+] [-] perfunctory|12 years ago|reply
Insert "economic theory" instead of "product".
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] glimmung|12 years ago|reply
More significantly, the line "While we may dislike the government’s regulation and intervention into financial markets, their oversight prevents moral hazard and rampant fraud." is just laugh-out-loud funny - we've seen PLENTY of moral hazard and rampant fraud in orthodox financial markets, on a scale which is simply mind-boggling in comparison to anything happening at Mt.Gox.
[+] [-] interstitial|12 years ago|reply
[+] [-] red12ooster|12 years ago|reply
[+] [-] yummyfajitas|12 years ago|reply
...the efficient market hypothesis (that free markets will regulate themselves)...
Fiat currencies (money) are pegged to real assets...
...it is as vulnerable to financial crises as any deregulated financial market... US subprime mortgage market, bubbles follow the same patterns for growth and implosion.
Most amusing is the idea that unlike USD, BTC has no protection against fraud. The same is true for most "regulated" transactions, credit card payments being a notable exception.
[+] [-] NateDad|12 years ago|reply
[+] [-] JumpCrisscross|12 years ago|reply
Stock in a shell company also has zero inherent value. This is simply a localised critique of the "most valueless asset" accusation - many assets share that characteristic.
[+] [-] victorlin|12 years ago|reply
That's funny it seems that this economist thinks fiat money can't never be valueless. Well, look Cyprus, and look Ukraine now. I am not saying Bitcoin won't never be valueless, but apparently fiat money is not completely invulnerable.
[+] [-] terranstyler|12 years ago|reply
[+] [-] ama729|12 years ago|reply
Bitcoin on the other hand, by design, has NO backing, if the system tank, you wont be able to get anything out of it.
Thus she's correct on that point, whether or not it's important.
[+] [-] VMG|12 years ago|reply
Therein lies the trouble with taking lessons from economists who don't think it through.
Also previously:
* http://www.wired.com/magazine/2011/11/mf_bitcoin/
* http://www.forbes.com/sites/timworstall/2011/06/20/so-thats-...
* http://money.cnn.com/2013/04/12/investing/bitcoin-bubble/
Don't get your hopes up just yet.
[+] [-] vijucat|12 years ago|reply
My personal take is that : there are two kinds of people. Some need a Central authority. (They probably respect and believed everything uttered by their parents and teachers as children, too. I'd LOVE it if someone did a psychological study of such correlations in personal beliefs.) Others are suspicious of the utility of government. One need not be a full-blown anarcho-capitalist or whatever the well-read cool kids call it; it's just that the 2008 financial crisis has left a deeply unsettling feeling about whether governments are serving the common man. Such people would rather trust a computer science researcher's invention. I'm definitely in the 2nd camp.
I think the lack of central authority is what type 1 people find unsettling and unbelievable about Bitcoin. What the world needs is a "Cartoon guide to cryptocurrencies" book or video.
[+] [-] k-mcgrady|12 years ago|reply
Most people can understand government fiscal policy (to a useful extent anyway). Very few can understand an algorithm even when it's explained to them. They vote in the government and currency in it's current form (e.g. USD) has worked for generations. Trusting the government seems much safer.
Also with Bitcoin you are trusting more than an algorithm. You're trusting exchanges. You're trusting in the security of a digital system that can be hacked and you don't understand how to secure properly. With physical currency security is simple and understandable. With digital currency it's not.
[+] [-] pdkl95|12 years ago|reply
The government, obviously. They have the guns and can simply use those guns to annex the necessary mathematicians, should the need arise.
Far too often, people seem to forget that governments are the one that has the monopoly on use of force. Thinks like "logic" and "rhetoric" and "math" don't mean a damn thing when the conflict has been reduced down to basic natural selection.
We, as a species, are incredibly talented at postponing that conflict. We pile on more and more layers of indirection - such as "politics", "police", "lawyers" - hoping to avoid the violent battle that lies at the core of any real disagreement.
Unfortunately, geeks tend to fall prey to the "just-world fallacy" in these cases. We're used to the rigor and determinism of math and logic, and often assume that such concepts are universal.
[+] [-] dwaltrip|12 years ago|reply
Hint: Bitcoin was created for the sole purpose of avoiding problems of that nature.
As for the rest of the article, not much content and many unsupported assertions. It would have been nice to hear why bitcoin is completely value-less, beyond not being "goverment backed". But I suppose that discussion would involve actually understanding bitcoin.
[+] [-] adamnemecek|12 years ago|reply
[+] [-] borplk|12 years ago|reply
[+] [-] Fuxy|12 years ago|reply
Not to mention it's already reached critical mass which means it will never go away and the advantages outweigh the risks.
Now will this hurt bitcoin? Yes. Is this a good thing in the long run? Definitely.
It's always a bad thing when 70% of all speculation is done on one platform and that platform closes down.
I'm somewhat glad mtgox was allowed to fail that juts proves that the awful too big to fail mentality of the US did not corrupt the bitcoin marketplace.
This is a good thing in the long run even if it's going to hurt like hell in the short run.
[+] [-] NateDad|12 years ago|reply
[+] [-] terranstyler|12 years ago|reply
If you don't understand anything about something but need to opine, put the words "lesson" and "engineer" in the head to fake your understanding.
[+] [-] NateDad|12 years ago|reply
Madam, there is nothing in your article that any of the engineers who were (and are) so excited by bitcoin didn't already know long before you'd even heard of bitcoin.
[+] [-] joosters|12 years ago|reply
Does the author have some insider information on Egyptian currency trading? I hope they are putting their money where their mouth is by selling EGP on the foreign exchanges!
Or in other words, the author opens this article by spouting speculative bullshit. Why then should we treat the rest of it as useful?
[+] [-] drstrangevibes|12 years ago|reply
[deleted]
[+] [-] quarterto|12 years ago|reply
[+] [-] mkempe|12 years ago|reply
[+] [-] NateDad|12 years ago|reply
[+] [-] lesingerouge|12 years ago|reply
Off-topic, but considered interesting: Am I the only one that finds it frustrating that Subtle blogs have no local comments? I find it diminishes the value of the text in itself.
[+] [-] bachback|12 years ago|reply
[+] [-] Fuxy|12 years ago|reply
[+] [-] weavejester|12 years ago|reply
[+] [-] facepalm|12 years ago|reply
I don't know what the eventual value of Bitcoin will be, but this economist doesn't, either...
[+] [-] drstrangevibes|12 years ago|reply
[deleted]
[+] [-] rjtavares|12 years ago|reply
Assumptions...
[+] [-] Thiz|12 years ago|reply
Here are the real three lessons we have learned the hard way.
#1 My money stays in my wallet. All the time.
#2 If not possible #1, know the names of those who keep your money, you're trusting them, they should be held accountable and strongly punished by law to set a precedent. Do not trust your money to a faceless business.
#3 Cryptomoney is the future, spend more in research, protect wallets, methods to test solvency, public audits, webs of trust, etc.
This tragically had to happen so we could learn these lessons. Monetary darwinism at its best.
We will raise from the ashes stronger, Spartans.
[+] [-] threepipeproblm|12 years ago|reply