Except that so far it remains to be seen if that can work at scale. Bitcoin is moving towards the lightning network which changes things quite a bit, in particular potentially adding some centralization and giving some nodes advantages over others (well connected nodes with large open channels will have an advantage over a newcomer without connections for instance).
Bitcoin cash is trying an other route with bigger blocks but it remains to be seen if it scales well enough to real-world currency usage. And of course there's the big problem of cryptocurrencies being useless as currencies because they're not stable enough. Which itself can be largely blamed on their limited supply and inflationary nature which is necessary to bootstrap them (there's an incentive to get in early) but seems to turn against them in the long run since nobody wants to spend something that's by design supposed to become scarcer and scarcer.
It might be theoretically free but it doesn't work great so far. And of course we could discuss whether a completely free market is a good or a bad thing, but that's a whole different debate.
>Bitcoin is moving towards the lightning network which changes things quite a bit, in particular potentially adding some centralization and giving some nodes advantages over others (well connected nodes with large open channels will have an advantage over a newcomer without connections for instance).
The centralization narrative involving LN is somewhat mischaracterized IMHO. Given that source-routing puts control of payments into the the payer, you can choose to mitigate the custodial risk of a single hop holding up your funds in their payment channel a number of ways. For instance, there is no reason one payment from person A to person B needs to involve only one route.
Intelligent wallet software, on the order of tens of milliseconds, could break up one payment of $10 into 100 different routes across numerous payment channels. In addition to giving you custodial risk mitigation, its also beneficial for privacy as well.
I think the average human being values convenience and low fees much more than privacy (otherwise Facebook and credit cards wouldn't be quite as popular). That means that I expect that wallets and stores that offer the smallest fee will be the ones people use most. A well connected node will be cheaper to transact with by virtue of not having to open a new channel.
That gives well connected "bank" nodes a lot of power because they can decide who they connect with (you could imagine paying a "bank" node to connect with you to enable cheaper transactions for your customers) and as a user you have an incentive to host your coins in one of these bank nodes so that it remains easily and cheaply available for purchases. Meanwhile a small indie shop (or some guy selling socks on ebay) won't have any channel so transacting with them will end up more expensive than buying from a popular store.
Basically you've reinvented Visa without the insurance, regulations and customer protection. At least that's how it looks like to me.
I guess we'll know soon enough which one of us is right. Maybe the truth is somewhere in between.
> I think the average human being values convenience and low fees much more than privacy
I think it ends up being more nuanced than that, with plenty of gradations of all of those factors.
If it means, "Literally nobody can know whether I prefer pads or tampons, and where I get them, not even the person I buy pads or tampons from", then I'm going to lean toward paying cash at some random drug store. A brick and mortar because getting things shipped to me requires giving them identifying information, and cash because it has literally zero fees and leaves no paper trail.
If I have to buy something online, then I already have to give them my name and address so I can get it shipped to me. At that point I may not care if my bank and the credit card processing agency also have a record of the transaction, because the info's already out there. At that point it's just a question of whether there are privacy laws that prevent parties from selling too much information or not - either way, I'm guessing 1 and 3 parties will ultimately fall in roughly the same equivalence class, on the privacy front.
Personally, I don't see a middle path where blockchain is preferable to either of those options. If I want complete privacy, then I don't want that transaction appearing on the blockchain, either. If I don't, well, might as well get some consumer protection.
In reality, the average person is going to buy pads or tampons in a way that is most convenient to them.
Only the subset of privacy concerned consumers who don't want anyone to know whether they prefer pads or tampons will go out of their way to visit a random drug store.
That's not the argument. The idea is that if a given amount of bitcoins is set to increase in value as time passes (as is supposed to happen if the currency is successful) you don't have a lot of incentive to invest or spend your money.
If you have $100 on your bank account today then you've got incentives to spend or invest it soon because it's slowly losing value because of inflation, your $100 will probably buy you fewer goods and services in the future that it does now.
Now if you have BTC100 on your wallet and you believe that Bitcoin will succeed as a currency then you know for a fact that these bitcoins will be more valuable in the future than they are now (because the demand will grow but the supply is capped). Ergo you have strong incentives to hoard your bitcoins and not spend or invest them. Your savings gain value without actually being invested in anything. They don't contribute to the economy, they don't fund anything.
I don't understand why most cryptocurrency enthusiasts don't see a huge problem in this. How will you get a loan to start your company in the bitcoin world? Who would want to take such a risk when they'll keep getting richer by not doing anything at all? You'd have to promise them ridiculously high returns (higher than bitcoin's deflation at least). The rich gets richer by virtue of being rich, the poor needs to buy food and basic utilities so they can't save their coins to become rich. Basically what we have today, only worse.
I am a big supporter of crypto currencies, and I do see a problem in that. However, the current volatility will level off significantly once there is wider adoption. That will help reduce incentive to hold. I would never recommend somebody give/accept loans in crypto currencies right now. The time will come though (unless governments squash crypto through regulation or outright banning).
That said, there's no guarantee that BTC or any crypto will appreciate indefinitely; in fact quite the opposite. It can (and does) lose value.
This also overlooks the benefits of a non-fiat currency, such as protection against things like hyper-inflation (most of us don't think about this right now, but if you have any friends in Venezuela ask them how important this protection is).
I'd imagine very useful - just sell it for a few thousand and then "Including Venezuela's equivalent of food stamps, the total pay package now rises to 250,531 bolivars, or $32.19 a month" so it should cover that for a while. Or a flight out.
Except that Bitcoin was mostly minted by a small group of users who simply horde it, hoping to sell it to other users who due to the software will not be able to generate it for as low cost as the early users.
It's zero sum (minus the cost wasted in maintaining the network), and the game theory Satoshi designed will inevitably disincentive new users from adopting it as the barrier to entry increases and alternative options will likely obsolete BTC.
Bitcoin is still deflationary, which makes it unusable as money. Inflationary currencies like USD incentivize people to spend and invest. Deflationary currencies incentivize people to hoard.
Bitcoin is inflationary until the mining period ends, which it hasn’t. You could then still increase the virtual money supply through fractional reserve banking; also “investing” is a lot more like hoarding than it is spending…
So far I don't really know if you can call it inflationary or deflationary because while it's true that the supply keeps increasing the main source of variation for the currency's value is speculation. BTC barely qualifies as a currency today so I don't think we can think in these terms, it's more about what it could end up being if it manages to turn into a proper currency.
>You could then still increase the virtual money supply through fractional reserve banking
You can't do fractional reserve banking on-chain as far as I know so that would mean having your money managed by 3rd party banks who would take ownership of your coins, pool them with other people's coins and manage them for you. So... Back to the start?
Furthermore I don't think it solves the problem of deflation, even with a fractional reserve the bank has no incentive to invest the money if the expected return are less than what it would end up with by not doing anything at all (and therefore not taking any risks either). If you have inflation of, say, 2% then any investment expected to create value or even lose less than 2% is a good one. If you have deflation of 2% then an investment that managed to generate 1% of additional value over your investment actually made you lose money because you'd have been better off not doing anything.
Therefore deflation will make it a lot harder to loan money, fractional reserve or not. Interest rates will be a lot higher to make up for it. The poor will pay the price for being poor, the rich will reap the reward for being rich.
>“investing” is a lot more like hoarding than it is spending…
Depends what you invest into I suppose, if you "invest" in gold bullions then you're right, if you're investing in a startup or loaning money to people buying houses then you're powering the economy.
If you compare the thousands of years where deflationary currencies were working well to the modern Era I think most would prefer an inflationary currency.
It would appear the choice between deflationary and inflationary monetary systems was, at some point along the way, democratised.
And the majority chose inflationary monetary systems.
Each of us is free to offer to pay for goods and services with, say, for example, gold, and each of us is free to ask you trade your gold for legal tender and give us that instead - yeah, the one the tax agency accepts.
The only thing stopping deflationary currency from being used by most people is that most people are too busy surfing / skiing / rock climbing / recovering from a hang over / what have you to care much about how monetary value is exchanged. People, on the whole, only seem to really care about convenience. And more specifically, the more convenient it is to spend money, your own or credit, the better.
But is that the way it should be? Also, this isn't universally true. There are some vendors that started accepting Bitcoin as payment. Some of them stopped accepting it a few months ago when transaction fees were insane, but there are still some that do. You can even get debit cards that automatically convert to fiat on the backend, so the consumer can hold crypto and pay in fiat.
Bitcoin cash is trying an other route with bigger blocks but it remains to be seen if it scales well enough to real-world currency usage. And of course there's the big problem of cryptocurrencies being useless as currencies because they're not stable enough. Which itself can be largely blamed on their limited supply and inflationary nature which is necessary to bootstrap them (there's an incentive to get in early) but seems to turn against them in the long run since nobody wants to spend something that's by design supposed to become scarcer and scarcer.
It might be theoretically free but it doesn't work great so far. And of course we could discuss whether a completely free market is a good or a bad thing, but that's a whole different debate.