Hacker News Reader

As someone with a split existence between North America and the Euro Zone, I was sincerely hoping that cryptocurrency would at a minimum be a reliable medium of exchange: i.e. a way to convert dollars into euros and vice-versa in a matter of minutes with very low fees. I never needed it to be an investment vehicle.

Unfortunately, bitcoin's utility in that respect seems to have gotten worse since I was playing around with it 5 years ago. I haven't been following recently so maybe it's changed, but during the bubble there was a move towards high fees and less liquidity, with plenty of horror stories of exchanges locking people out of their wallets during big price moves.

IMO bitcoin would be much more useful if it had remained a niche tool for people to buy drugs on the internet rather than the pure speculative instrument it seems to have turned into.

> As someone with a split existence between North America and the Euro Zone, I was sincerely hoping that cryptocurrency would at a minimum be a reliable medium of exchange: i.e. a way to convert dollars into euros and vice-versa in a matter of minutes with very low fees.

You're not looking for a new currency, you're looking for a regular currency exchange. Whatever fees your currency exchange charges for going from EUR to USD (and back) can only increase if you need to involve another exchange (for the bitcoin-conversion).

So the promise of Bitcoin when I started reading up about it was that the fees could be close to zero. It's become less of an issue, because there are some traditional currency exchange services out there which have reasonable flat-rate offerings nowadays, but I would still be happy to pay less.

> So the promise of Bitcoin when I started reading up about it was that the fees could be close to zero.

I don't see why this would be the case. Neither when talking blockchain-fees nor exchange-fees.

> dollars into euros and vice-versa in a matter of minutes with very low fees

I can do that immediately on one of the challenger bank platforms. And yes, the rates seem to be the same ones as what I used to trade institutional FX.

You probably can't have a stable global cryptocurrency without a central bank. Bitcoin fundamentally cannot work for credit because the risk to the lender is ridiculous.

Macroeconomics doesn't work in diverse economies if you can't partition off areas of the globe and create friction at the borders for trade (with monetary policy).

The same products and services need to have location based costs to ensure local economies can function.

Now complete isolation is worse that perfect free trade, but there must be a balance. Lack of balance brings wealth concentration, poverty, starvation, and war.

"Bitcoin fundamentally cannot work for credit because the risk to the lender is ridiculous."

Kind of like this startup founder who wanted to buy property with a SAFE. I told him get a bank loan. He said: "That's risky!"

Arguably there already is a global dollar-denominated credit market, it's just highly intermediated. And the risk history of p2p credit shows why the intermediaries are useful.

> in order to earn a low-risk return on their money

How does the economics of this work - you're claiming lower risk and higher return, but cryptocurrency does nothing to help with default risk?

> Arguably there already is a global dollar-denominated credit market, it's just highly intermediated.

Correct. However, the fact that the Federal Reserve can underbid everyone (with regards to interest) on short term credit causes a destabilization of interest rates (which is why they've been falling for the past ~40 years). There's no point in saving dollars when you can't protest against a too-low rate of interest -- a bank can always tap into the Fed's credit and underbid you. This can't happen with non-centrally produced money.

So the "killer app" here is money for which no central party can control the interest/discount rate.

> How does the economics of this work - you're claiming lower risk and higher return, but cryptocurrency does nothing to help with default risk?

I'm not claiming lower risk. I'm claiming a higher return by not competing with a party (the Fed) that can always underbid you on short-term credit.

The low risk comes from financing consumer goods in high demand sitting on the shelves of retail stores (ie. Bills of Exchange). Unless people suddenly stop eating food, you ought to get your money back (plus the prevailing discount rate).

> This can't happen with non-centrally produced money.

As cryptocurrency investors keep finding out the hard way, you can create credit in bitcoin very easily, every exchange balance is a credit; what the lack of a central bank means is that when there is a bank run or "liquidity event" you definitely can't get your money back. The Tether people have been very effective at centrally producing decentralised money too.

> I'm claiming a higher return by not competing with a party (the Fed) that can always underbid you on short-term credit.

OK, so what does the other side of this equation look like: what's the advantage to the borrower in taking out more expensive credit? Even worse, they're taking out credit in a currency that's appreciating against the dollar?

I'm not saying cryptocurrency-denominated debt doesn't exist. It clearly does, as you say. What I'm saying is that when the cryptocurrency in question is not centrally produced, there's no actor who's able to underbid everyone else on interest.

With regards to bank runs, they are not a problem if the deposited money is invested in something sufficiently liquid (like the Bill of Exchange). After all, a bank run just means you sell into the market whatever instrument you've purchased for the deposited money, and this will only be a problem if this instrument isn't liquid enough. Bonds, for example, are not sufficiently liquid to sell into the market in case of a bank run. The lesson here is to not invest demand deposits in bonds (or anything else of insufficient liquidity).

> OK, so what does the other side of this equation look like: what's the advantage to the borrower in taking out more expensive credit?

The advantage to the retail credit borrower is that they don't have to compete with businesses who are good friends with the commercial banks (who have access to the Fed's cheap credit). All savers, world-wide, become lenders, instead of just a few huge banks, who don't really care to lift a finger unless there are huge profits in sight.

Also, a reasonable, market-based 3% discount rate compared to, say, a cheaper Fed-funded 1% rate, is relatively insignificant in the context of retail credit with a maximum duration of three months. For goods that take three months to clear, the retail shop will pay three fourths of a percent instead of one quarter of a percent. That's a very small additional price to pay for widely available retail credit (ie. not having to rely on big banks to give you a credit line).

> Even worse, they're taking out credit in a currency that's appreciating against the dollar?

Taking out credit in a currency that's not stable against the dollar is only a problem if your income is dollar-denominated. After all, millions of people take out non-dollar denominated debt every day, which is fine since their income is denominated in that same currency.

I had a similar idea about closing the loop a couple of years ago. I actually built the buying half you mention (olodolo.com) and it is still used by a small handful of happy customers. On top of it I imagined an Uber-like app where you're paid in tokens along with fiat currency, thus closing the loop, but never got further along than that thought.

There's no way to close the loop unless governments also agree to accept tax payments directly in cryptocurrency (not just a conversion). And that's never going to happen, at least not in any major industrialized country.

The idea would be to start with less developed countries -- who lack both strict taxation rules and retail financing.

Couldn't my employer then see what I'm spending money on? If they know the address of the wallet they're putting money into, they know where that money then goes?

Also, with a distributed ledger and billions of transactions a day, how is anyone supposed to actually index and understand all the transaction data? I like how Bitcoin I can actually sync all the data and (potentially) see stuff, but that was GBs of data and no where near as widely used.

Cryptocurrencies have a place, but they are a solution to a small subset of problems while creating others. There's a reason why people still use cash over cards.