I don't think that Professor Shiller gets it. His generation is not going to use digital currency. They are on the other side of change and don't think digitally. The coming generations grow up in a digital world. Digital currency isn't just going to happen; it's already here. Bitcoin is just the Amazon of the group — at the moment. This story is evolving.
Not that I deny that Bitcoin may be in a bubble. We don't know. What we do know is that Bitcoin is extremely volatile and unless it settles down, it will be mostly a speculative vehicle outside of it advantages as a payment system, in particular an international one.
Bitcoin entrepreneurs need to create a way to short Bitcoin to iron out the bumps. Then people like Shiller could walk their talk by taking a position in "sure thing."
Oh wait, someone has already thought of that.
Business Insider
Joe Weisenthal
Tom, Shiller's generation does use digital currency. We all use dollars, and most dollars are now digital. We pay electronically for almost everything. So the digital nature of Bitcoin is not new. And since digital dollars are a modern "fiat" currency produced on a keyboard, then the mining aspect of Bitcoin is not new either. Bitcoins are electronically mined by elite tech-savvy users while dollars are mined by government officials. I have been listening to Shiller's Yale lectures on the history and evolution of modern finance, and I have no doubt that he understands all of these mechanisms very well.
ReplyDeleteThe innovation of Bitcoin consists only in the clandestine payments. And it has further appeal to those who believe laissez faire systems are always better than government-run systems.
Bitcoin is at this time a classic ponzi investment mechanism. Most people investing in Bitcoin are not acquiring bitcoins to make payments. They are acquiring them to sit on them and trade them latter at a higher price. It's speculation in its purest, most foundation-free form. But as is the case with any ponzi mechanism, chain letter etc., the sustainability of the system depends on having an ever-growing pool of investors, so that funds from later investors can be used to pay off the earlier investors. Since no investment pool can grow indefinitely, they always crash eventually.
That may be true of Bitcoin, Dan. Not all of these innovations will survive, and entrepreneurs are betting that one will become dominant as an alternative payment system.
ReplyDeleteCheck out Ultracoin , for example. It's being advertised as a competitive payments system. It's going to happen unless the financial industry lowers its rents or governments act to suppress it as "terrorism."
I had friend in finance some years ago that used to lie awake at might trying to figure out how to extract a tiny fee from a large volume of transactions. This is a simple way to do it and the financial industry and governments are going to have to respond to the competition it will create to both economic rents and government control.
I don't think so Tom. I think we will see that of these new payment systems are completely parasitic on government currencies, and are not alternatives to them. They are just further innovations along the same road as PayPal and their ilk.
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ReplyDeleteII don't think that they are entirely parasitic, Dan. They add purchasing power to economies that is usually needed because government do not supply enough of their currency and the alternative is borrowing from banks or otherwise going into debt. For this reason, they are called complementary currencies and they increase commerce without increased borrowing.
ReplyDeleteSee Bernard Lietaer and Thomas Greco on this for example.
Randy argues that complementary currencies not only will not replace tax-driven currency but there is no historical evidence for thinking that complementary currencies are even viable for long.
While that may be, I know of several complementary currencies that have increased commerce where they are used for some time, e.g., barter club currencies. Digital currencies are a new experiment. We'll have to see how they fare. I think that the future looks good for them unless governments decide to eliminate or tightly control them, as China as done already to enforce capital controls.