Hacker News Reader

The thousands of servers that run FedWire, ACH, VISA, MasterCard Paypal, Venmo, ApplePay and the Cash-transport Trucks, Physical banks, all waste energy preventing people from trying to steal money too.

These thousands of servers manage millions of concurrent transactions per second in multiple currencies across multiple jurisdictions worldwide.

The largest cryptocurrency network (Bitcoin) spends more energy than that to handle...10 transactions per second?

Bitcoin has no preventative measures, and as designed most cryptocurrencies can't implement preventative measures or refunds. That's not a positive. That's a massive step backwards.

The energy consumption of proof-of-working mining is entirely unrelated to the transaction volume. 10x'ing the transaction volume of the network would not require 10x more energy for mining.

So it is an extremely wasteful system.

Kind of a requirement for decentralised consensus.

> Bitcoin has no preventative measures, and as designed most cryptocurrencies can't implement preventative measures or refunds. That's not a positive. That's a massive step backwards.

Actually that's one of the flaws Bitcoin was meant to fix. Charge back fraud is a very real problem for merchants and essentially makes all purchases more expensive as the credit card companies are forced to eat the expenses.

Even if it's not in the millions, Bitcoin has much more than 10 transaction per second : https://blockchain.info/charts/transactions-per-second

That chart is written in the common English format: `.` is the decimal separator, not the thousands separator, so in fact Bitcoin has fewer than 10tps

> The thousands of servers that run FedWire, ACH, VISA, MasterCard Paypal, Venmo, ApplePay and the Cash-transport Trucks, Physical banks, all waste energy preventing people from trying to steal money too.

All that addresses directly the problem of moving money around and theft prevention. The amount of upkeep you have to pay is bounded on both sides. Proof of Work, on the other hand, is just about wasting as much energy in the system as you can and ensuring that anyone trying to overtake it would have to waste even more energy. The energy use isn't related to any useful work, and is potentially unbounded.

Federal Reserve profits are returned to the federal government. While that's still a step or two removed from being returned directly to society, it's far closer than anything in the bitcoin ecosystem.

Inflation is pretty stable and thus predictable. The profits from seigniorage are made by the Fed itself (and thus the government), not the member banks. Member banks can make money from having privileged access to the discount window, but that's still not seigniorage.

Coinbase, Bitpay, et. al. incur all the same kinds of costs as VISA, MasterCard, Paypal, et. al. on top of the Miners' power consumption. Traditional systems might be inefficient because they're running on old hardware or something, but that's a problem that can be fixed. Bitcoin mining is already done on bleeding edge hardware, so its power consumption cannot be significantly reduced. I suspect it isn't enough to be a major concern, but Bitcoin clearly has a higher lower-bound than traditional systems.

> Federal Reserve profits are returned to the federal government.

Is inflation returned to the people forced to pay it?

inflation benefits borrowers.

should all families who borrowed for a house be forced to pay those who chose to save?

> inflation benefits borrowers.

Not if the price of living increases at a greater rate than the rate of return it doesn't. Which, as you would know, it is doing.

that makes no sense. both borrowers and savers have to live, they both get hit by the cost of living. savers don't get to avoid eating and paying for healthcare just because they don't borrow.

You've just explained why people want bitcoin.

> inflation benefits borrowers

Not really, because lenders factor inflation into their rates.

Wouldn't it be great if inflation aligned with price increases then.

It depends. It seems that you see inflation as a kind of taxes and that you are against taxes.

If the government "print" new money to create more roads or to give healthcare and this cause inflation is that so unfair?

Only if you consider that you are entitle to a part of the economy, only because you have savings, nevertheless the needs of the society where you live.

> you are against taxes.

I said no such thing.

Inflation is expected, so by holding dollars you're agreeing to pay it. Nobody is forced to hold dollars.

If you don't want to pay that 2% a year, don't accept payment in dollars, or immediately convert it to another store of wealth upon receipt.

Indeed. That's what bitcoin is. The store of wealth.

> The Federal Reserve literally creates money out of nothing

I hear this often, but while it's a literal fact, maybe it's not that simple. Central banks create money out of the Trust that people put on them, and the trust has been built by the state for years or centuries.

The main problem I see in these discussions is that you can either conceptualize currency as a Thing (and therefore creating it out of nothing is "weird"), or as an Illusion/Social Contract (and therefore you're now beholden to the will of society).

Though the Thing conceptualization doesn't hold up too much when you realize that the practical value of BTC beyond the social value is zero. they're just numbers!

The key is the trust that this special power that the Federal Reserve and Banks in general have to create the medium of exchange. If that power is used in such a way that all participants are not treated fairly, the system is ultimately unsustainable.

Regarding trust, have you heard of the Rai stones [0] from the island of Yap in Micronesia?

From the wiki article:

The extrinsic (perceived) value of a specific stone is based not only on its size and craftsmanship, but also on its history. If many people—or no one at all—died when the specific stone was transported, or a famous sailor brought it in, the value of the rai stone increases by reason of its anecdotal heft.

[0] https://en.wikipedia.org/wiki/Rai_stones

The primary mechanism that "creates" money is ordinary banks loaning money in the fractional reserve system. The Federal Reserve does not have as much control as people think.

You are right. Central banks can only influence the process, but what really decide the creation or "extinction" of money is the demand of credit in commercial private banks.

In a way, the system is self-regulated.

In fact, all the "fractional-reserve" thing is a myth. Banks loan when they see the opportunity of profit, and then they search for reserves. Not the other way around.

Its not that simple but in this context it is. Quantitative easing is basically borrowing from the future.

Borrowing what? Do we have time machines now?

There is money and there is real resources. Money is just a real resources distribution technology.

What is important is the real resources of a society. We (as a country, whatever is your country, if it has its own money) will never be short of money.

It can, however, get short of real resource if it leave infrastructure and knowledge diminish.

The available capital far outstrips realizable capital. In other words money isn't a direct product of productivity but rather of trust in the ability to be able to realize the capital. There aren't enough things to buy from the available capital we are literally betting on not everyone realizing their capital at once if that was the case we would be failing completely.

So borrowing from the future is the best way to think about it we are betting on the ability to keep the system of realized capital much much lower than available. Money is not a thing it's a concept of trust.

All that would happen is prices would go up dramatically basically repeating germany in the 30's if not worse.

> The only way this statement is different than how the Federal Reserve works is that Bitcoin is voluntary

Not at all.

Until 1971, a dollar bill was just a piece of paper. However, the US government would redeem it for gold. The US had thousands of tons of gold at Fort Knox. It held tons of gold elsewhere as well.

It also has and had the ability to tax, and collect taxes, the world's largest military and so forth.

In 1971, the gold window was shut. Dollar/commodity ratios did not immediately change much. Why? Because an announcement that the gold window was opening up again would end any problem.

The US still holds thousands of tons of gold at Fort Knox. Germany is repatriating its gold back to Germany. Why? Why spend so much guarding gold?

The answer is the gold implicitly backs the dollar. Any currency panic can be immediately stemmed by an announcement that the gold window is open.

I mean since 2008 there's been plenty of discussion of how the US financial sector grows not only by FDIC assurances, but the implicit assurance that when banks are in trouble, like the 1980s S&Ls, or the 2008 banks, that the taxpayer will bail out the banks. There has been a lot of literature on this, and you can read it if you want.

If banks are implicitly backed by the US government, as they obviously are, then dollar convertibility is even more backed by the US government, even if it is not official policy.

Otherwise, why does the taxpayer pay to guard tons of gold in Fort Knox?

Uh what? The USD is not implicitly backed by the gold. At least nothing close to what we had back when we had the gold standard.

We have over $1.5 trillion USD in circulation around the world but the government has only about $200 billion in gold.

I never said the US had gold reserves to pay off every dollar in circulation. What I said was "Any currency panic can be immediately stemmed by an announcement that the gold window is open".

I also said the US government had "the ability to tax, and collect taxes, the world's largest military and so forth".

Executive Order 6102, the Gold Reserve Act and measures such as this show how the US government has dealt with such things in the past.

Also I don't think gold has a magical quality - silver will do just as well, or platinum, or any commodity. Although obviously some commodities have the qualities that make a good currency, such as durability, uniformity, portability, divisibility and so forth.

I also would add tangential to this, that cryptocoin advocates seem desperate to find things which have a cost but no inherent utility or usability. They cast about, with almost nothing in the world to point to, until they come upon the dollar and euro. They point to it and say they are mystified as to why these things have a cost but no utility, and then say Bitcoins should have a price as well, because they're "just like" the dollar but "better". Of course, this all is a silly argument.

Bitcoins don't even have the value the dot bomb stocks like Pets.com and Webvan had. Bitcoins are completely worthless. Which means the cryptocoin market will inevitably crash, no matter the lofty rhetoric of Silicon Valley VCs. I mean, they spouted the same rhetoric about the dot bomb stocks as well, those VCs which were around way back then. The publication of the book "Dow 36000" back at the height of the dot bomb bubble, October 1999, by two American Enterprise Institute "scholars", saying that the Dow was undervalued, should have been a sign of such things. It's 17 years on and the Dow still has yet to hit that mark.

The midst of a currency panic will be the exact point when the government is least interested in parting with its gold. Assuming it's even really still there.

what use is the gold if the US economy collapses? Whose gold would it be if the gov't falls over?

It kind of works if you have a place to run off too, but nobody in the federal government can just go take the gold and hide for a bit. The incentives are aligned so that the gov't does "the right thing" (stem the fall)

This is wrong in every possible important way. Not least is the idea of confusing the Gold Window it’s the Gold Standard (gold backing currency in any way).

The worldwide gold standards (in any form, or even silver backed) were dead by WW1.

There’s no implicit backing of the dollar since then, at all, and convertibility was a (really terrible) relic of that period.

They came back after WW1 just long enough to cause the Great Depression though. Totally gone by the mid 1930's.

Mostly silver standard - which suffered the same problems - but yeah, a few did gold. Which... well.. failed dramatically.

> Not least is the idea of confusing the Gold Window it’s the Gold Standard (gold backing currency in any way).

There's not a confusion between the Gold Window and the Gold Standard. It's just the Gold Window is the only real bottom line. There can be different types of gold standards, and some of them are abstractions of the Gold Window. The Gold Window is not abstract, it is an exchange of paper for gold.

> The worldwide gold standards (in any form, or even silver backed) were dead by WW1.

They were dead and what happened to Germany's currency? The Papiermark fell into complete worthlessness.

> There’s no implicit backing of the dollar since then, at all, and convertibility was a (really terrible) relic of that period.

If it was a "relic" it was something that existed because it needed to exist.

As I said in another post, I don't think gold has a magical commodity. It is a commodity which has good qualities for a currency, or backing a currency - it is uniform, divisible, durable, portable etc. An announcement that the gold window was open again would quickly stem any currency panic and would give government officials time to deal with it. There is no magic in a gold commodity, silver would work as well, as would platinum, as would any commodity (although the more currency properties the commodity had the better).

If there's no implicit backing of the dollar, then why does the US government, at great expense, store thousands of tons of gold at Fort Knox and elsewhere?

Why did Germany start repatriating hundreds of tons of gold from overseas five years ago if these gold reserves mean nothing? What are they for other than as an implicit backing of currency?

I know the US government would like to have a magic printing press that printed out hundred dollar bills and had them be worth something without any connection to anything. But things don't work like that.

Why did the price exchange of a Papiermark collapse after World War I if convertibility has no relevance to paper currencies?