Sunday, October 15, 2017

Neil Wilson — Crypto-Shilling

Everything you wanted to know about cryptocurrencies from an MMT perspective.

Modern Money Matters
Neil Wilson

See also
Bitcoin transactions use so much energy that the electricity used for a single trade could power a home for almost a whole month, according to a paper from Dutch bank ING.
Bitcoin trades use a lot of electricity as a means to make verifying trades expensive, therefore making fraudulent transactions costly and deterring those who would seek to misuse the currency.…
Also this week, a team of analysts led by Gautam Chhugani and Gaurav Jangale from the research house Bernstein said that bitcoin was still just a "censorship-resistant asset class," out of the reach of state control and yet to form a part of the system of settlement and credit that defines money.
"Fiat money is still the final form of settlement — governments still collect taxes in fiat money and salaries are still paid in fiat money," the team said in a note to clients on Wednesday.
Business Insider
The electricity required for a single bitcoin trade could power a house for a whole month
Will Martin

It's time for the world's central banks and regulators to get serious about digital currencies, according to the head of the International Monetary Fund.
Global financial institutions are taking risks by not watching and understanding emerging financial tech products that are already starting to shake up the financial services and global payments system, according to IMF Managing Director Christine Lagarde....
'We are about to see massive disruptions': IMF's Lagarde says it's time to get serious about digital currency
Elizabeth Schulze
President Vladimir Putin said on Tuesday crypto-currencies were risky and used for crime, as Russia’s central bank said it would block websites selling bitcoin and its rivals - a change of tone from a month-old promise to legalize the market....
Russia turns cold on crypto-currencies
Denis Pinchuk, Elena Fabrichnaya
According to data from virtual currency software platform, China accounts for about 70 per cent of the world’s bitcoin mining power – computer server farms that tap into cheap electricity to solve the complex mathematical problems that underpin bitcoin.
Garrick Hileman, a research fellow from the Cambridge Centre for Alternative Finance in Britain, said the authorities were careful not to kill off mining, the “goose that lays the golden egg”....
SG Kinsmann

1 comment:

André said...

Neil, I will answer your post here because I don't want to create an account at "medium". I hope you read it.

"The value of the token derives initially from what you have to do to get it"
"Consequently, the value of Bitcoin in USD terms ends up being driven by the cost of producing the Bitcoin"

I can't understand why you claim that. For the "price=cost" hypothesis be true, you need first to believe in the perfect market and perfect competition hypothesis. If there is not perfect competition or perfect market, than the price=cost hypothesis does not hold. I thought you didn't agree with that sort of hypothesis.

If you drop the perfect market hypothesis, the bitcoins can be priced way above the cost, if the speculators want to pay a high price for it. All you need is some delusional people believing that somehow the bitcoins have some kind of value (or will have some kind of value in the future). That's what an investment bubble is all about. And it's hard not to see the bitcoins as a bubble.

Although I am no specialist and have not done any kind of research on the bitcoin market, I find it very hard to believe that the bitcoin price is determined solely be the production costs.

"So when Bitcoin gets too hard to mine, miners switch to a different token and mine that."

That's an entire different subject. That "switch" would not be as simple as you imply. As I said before, I believe that cost is not the exclusive determinant of bitcoin price. The price is also influenced by demand factors. Some people are willing to pay a high price for bitcoins, high above the cost. They may not be willing to pay high prices for other cryptocurrencies. So the miner would have to face difficult choices when "switching" to a different token. There would always be that risk that they are going to the wrong market.

Also, all vendors that do allow transactions in bitcoins would have to change their systems to accept the new cryptocurrency, and there is a cost associated to that. So you cannot just simply "switch"...