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Comment by Aunche | Hacker News Reader

> But bitcoin does not suffer from these defects.

Ok. So you're a nation whose official currency is backed by Bitcoin. Suppose that years of economic depression have left your country's Bitcoin reserves relatively sparse. Suddenly, your neighboring country Fiatland is starting to mobilize for war thanks to their freshly printed money. Meanwhile, your nation is only able to raise Bitcoin bonds that must be paid with interest from your already tight Bitcoin reserves. Due to the uncertainty caused by the looming threat of war, Bitcoin interest rates skyrocket, so you're even further limited by the how much you're able to finance. The very obvious solution to this problem is to switch to fiat currency, so you're no longer constrained by some arbitrary limit defined in 2008.

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We may well see this scenario play out in our lives.

Countries with free speech and no capital controls, ie the west, bitcoinize.

Countries with controlled internet and capital controls, ie china, act like fiatland.

Who wins the war. It's not an easy question. It's not an obvious answer.

But it's true. You can't have both.

*****

One reason to hope for the west over fiatland in a conflict is, defense contractors and soldiers and police would rather get paid in a hard currency.

So at some point fiatland may just collapse.

That doesn't mean no more wars.

Bitcoin country 1 can tax and borrow, and wage war against Bitcoin country 2, who can do the same.

I never subscribed to bitcoin equals forever peace. Bitcoin doesn't cure cancer either, or wash your car.

But the extent of the taxing and borrowing is at least constrained.

Except the extent of the taxing and borrowing is not constrained because you can just mint new cryptocurrencies. The world you're talking about is wholly imaginary. The only way this works is if you ban all other cryptocurrencies and enforce some kind of capital controls...

You can mint new fiat currencies. You can mint new cryptocurrencies. You can issue gold coins diluted with base metals.

But only one cryptocurrency can have the greatest proof of work. Unlike with counterfeit gold, this is easy and cheap to verify. And the cryptocurrency with the greatest proof of work is most secure (against 51% attack) from those who would seek to weaken, control, or destroy it. By its definition, proof of work crypto is a winner-take-almost-all market.

Capital controls are not necessary for a bitcoin dominated world.

No, your comment is completely wrong in basically every aspect. The difficulty of proof of work (for the most part) only determines the profit margins of the miners and the volume of transactions on the network, and is also not set in stone and can be changed at any time. It's literally just another form of capital control. Also by dramatically increasing the difficulty you actually make the network much more susceptible to takeovers because that leads to consolidation amongst the miners.

>>> by dramatically increasing the difficulty you actually make the network much more susceptible to takeovers because that leads to consolidation amongst the miners.

I understand why gold got centralized into USA during WW2 (physical security, costly to assay). Why does increasing BTC difficulty lead to miner centralization?

Mining difficulty roughly maps to a financial incentive for a miner to operate. As that line rises, the number of miners who can afford to mine in any significant amount would naturally decrease, right?

Unless there's some other angle to convince miners to continue mining unprofitably, which feels like defeats the whole purpose of a crypto-maximal economy to me.

Small miners typically join a pool to smooth the variance.

Also, hash rate and reward value don't always correlate - mining difficulty can increase during periods of flat or declining coin price.

It's funny that you mentioned war because Bitcoin proponents pointed fiat enables reckless wars.

"Since the start of organized warfare, the crucial sinew of war had been “endless streams of money.”

https://publications.armywarcollege.edu/pubs/2339.pdf

But if it enables war for fiat countries and constrains it for BTC countries, doesn't they imply a significant likelihood that the fiat countries will conquer the others?

Fiat enables. Period. Plenty of kingdoms and empires were able to finance their pointless wars with gold.

Two generations from now when new generations fight for scraps of deflationary money, those who amassed wealth early in the crypto cycle will definitely finance wars.

Aren’t you basically repeating the same thing as the person you’re replying to? If the nation with a Bitcoin economy is threatened by the nation with a fiat economy and in the process of armament, what should they do?

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