The Future Of Money

[Pertinacious Tom]

The point was that the processing power of the NSA is not infinite either. Kauffman has a few computers, So does Jeff Bezos. So does Mark Zuckerberg. And so do hundreds of millions of us around the world. How many might be Uncooperative?

Who has more processing power, the NSA or the rest of us combined? I don't think it's close. 

 

[BeSafe]

The point was that the processing power of the NSA is not infinite either. Kauffman has a few computers, So does Jeff Bezos. So does Mark Zuckerberg. And so do hundreds of millions of us around the world. How many might be Uncooperative?

Who has more processing power, the NSA or the rest of us combined? I don't think it's close. 

Point taken.

 

[Raz'r]

I like bitcoins.  Totally cool  And I do believe that eventually this technology will be part of the standard world of "money".  But it's not infinite.  

Money aside - what about using this tech for personal identification? could we eliminate all the fraud issues from things like the Equifax breach to create truly secure identification?

 

[BeSafe]

Money aside - what about using this tech for personal identification? could we eliminate all the fraud issues from things like the Equifax breach to create truly secure identification?

Maybe.

The bitcoins are really a ledger.  It's a book.  Within that ledger, you record a series of transactions.  In some of the newer forms of bitcoins (particularly etherium and it's variants), you can include additional information.

The ledger itself is completely open.  Anyone can read it.  So in terms of 'identity fraud', there exists the possibility that you could tie a piece of data to ledger entries that are truly uniquely individual - like some DNA meta data.  That could then be truly unspoofable but you'd also need to be able to access that meta data for any transaction that you wished to actually carry out.

In that regard, it's not terribly different than today's security with one notable exception - the ledger is totally open to anyone that wants to read it.  If someone 'stole' the money, it has to GO somewhere and so it's not sufficient to just spoof the sender, you'd also have to spoof the receiver or else anyone could just look up where the money went.  If you remember the 'wannaCry' virus, that was one of the things that caused issues.  After the money was sent to the ransom account, every law enforcement group in every country affected trained eyes on that account and waited for activity. Its not trivial to follow the bread crumbs but it's not impossible with effort.

Incidentally, that's why banks are so interested in it as a form of tracking Credit Default Swaps and such.  One of the real problems with the Lehman collapse was that the CDSs and such relied on 'two party' authentication.  In other words, you and I agree to a bet and YOU AND I keep the records so that when the day comes to pay up, YOU AND I have to reconcile everything.  Well, if YOU disappear, then it's just my word.  That may seem OK but remember, other people also bet on that action and now it's just ME saying what happened.  No two-party verification.  At the time of Lehman's collapse, I think they held the counter party on something like 73 TRILLION dollars worth of transactions.  The net 'value' of those transactions were worth somewhere between 'Zero' and 73 TRILLION, depending on what I said they were worth.. yea, that freaked people out.

So its really value is in 'public record keeping'.  No more secrets.  Not in personal identity.

The libertarians get a stiffy over it because it's true open accounting.  There is no printing of money.   No cutting the coins. At least in theory.  

 

[Pertinacious Tom]

Money aside - what about using this tech for personal identification? could we eliminate all the fraud issues from things like the Equifax breach to create truly secure identification?

Identifying people is probably not the best use but a blockchain is unsurpassed at identifying who owns what.

We spend a great deal of time and energy establishing who owns real estate. A blockchain can serve more or less the same purpose as the title insurance industry.

Moving money around the world is another place where a blockchain is great because it can do it securely, transparently, and with smaller transaction costs. You can know whether someone around the world really has the money and whether he really sent it to you, which can be a lot more useful than just knowing who and where he is.

It's interesting to watch the Bitcoin scam make a complete mockery of the Venezuelan fiat currency scam. Their fiat money means nothing. Money that means something works.

 

[Steam Flyer]

Identifying people is probably not the best use but a blockchain is unsurpassed at identifying who owns what.

We spend a great deal of time and energy establishing who owns real estate. A blockchain can serve more or less the same purpose as the title insurance industry.

Moving money around the world is another place where a blockchain is great because it can do it securely, transparently, and with smaller transaction costs. You can know whether someone around the world really has the money and whether he really sent it to you, which can be a lot more useful than just knowing who and where he is.

It's interesting to watch the Bitcoin scam make a complete mockery of the Venezuelan fiat currency scam. Their fiat money means nothing. Money that means something works.

It's an interesting concept that every discrete (or quantum if you like) money unit has a chain of title as it moves thru the economy, verifying each individual, and the value exchanged. Since money never dies, it would eventually become unwieldy. Also, it's not a new concept, been used in several sci-fi novels that I know of.

However, you're still apparently in the dark about what money IS. Money doesn't have to "mean" anything. It just has to be exchangeable for goods and/or services. What is happening in Venezuela is just another demonstration that the wealth of a country is the productivity of it's people.

For those that weren't paying attention last time Dame History taught us this lesson......................

-DSK

 

[Raz'r]

Identifying people is probably not the best use but a blockchain is unsurpassed at identifying who owns what.

We spend a great deal of time and energy establishing who owns real estate. A blockchain can serve more or less the same purpose as the title insurance industry.

Moving money around the world is another place where a blockchain is great because it can do it securely, transparently, and with smaller transaction costs. You can know whether someone around the world really has the money and whether he really sent it to you, which can be a lot more useful than just knowing who and where he is.

It's interesting to watch the Bitcoin scam make a complete mockery of the Venezuelan fiat currency scam. Their fiat money means nothing. Money that means something works.

in your example - you state that it both identifies the owner, and the amount. so why do you say identifying the owner isn't really a strength?

 

[BeSafe]

in your example - you state that it both identifies the owner, and the amount. so why do you say identifying the owner isn't really a strength?

Probably a clarification.

So, how bitcoin works, is you download a 'wallet' file which is a program that syncs with the bitcoin chain that is being constantly updated by 'miners'.  The wallet is then used to generate a random code (it's like 20 characters long).

That random code is used to authenticate your side of the ledger. Now say you have a code and I have a code.  I could 'transfer' you bitcoins by sending them to your code.  That code having received the  coins from my code is a matter of public record for anyone who wants to look at the blockchain.

But that code is just a number.  There's no direct tie to YOU personally, other than your own knowledge of that number.  if you lose that number, there's no way to 'recover' it.  The bitcoins attached to it are basically dead.

Thats why people keep saying bitcoin is anonymous transfer of money.  It's really not. What's anonymous is the correlation between the number and you.  But transfers between numbers themselves are not hidden.

Hope that helps.

 

[Raz'r]

Probably a clarification.

So, how bitcoin works, is you download a 'wallet' file which is a program that syncs with the bitcoin chain that is being constantly updated by 'miners'.  The wallet is then used to generate a random code (it's like 20 characters long).

That random code is used to authenticate your side of the ledger. Now say you have a code and I have a code.  I could 'transfer' you bitcoins by sending them to your code.  That code having received the  coins from my code is a matter of public record for anyone who wants to look at the blockchain.

But that code is just a number.  There's no direct tie to YOU personally, other than your own knowledge of that number.  if you lose that number, there's no way to 'recover' it.  The bitcoins attached to it are basically dead.

Thats why people keep saying bitcoin is anonymous transfer of money.  It's really not. What's anonymous is the correlation between the number and you.  But transfers between numbers themselves are not hidden.

Hope that helps.

Thanks. So what’s needed is a way to create a secure “code” tied to each individual....

 

[Pertinacious Tom]

Thanks. So what’s needed is a way to create a secure “code” tied to each individual....

My point above was that the individual might matter less than the money.

Lots of people know who and where I am. But if you're sending me a product from around the world, do you really care? What you really want to know is whether I have the money and whether I sent it to you. If the answers to those are yes, it matters a whole lot less whether you know my real name and location. It might not matter at all.

 

[Pertinacious Tom]

Your position is some random bits "mean something"? That's hilarious.

"money" means something because a group of people decide it means something. What it "means" in terms of real world good prices fluctuates daily. For stable groupings of people in sound times it can fluctuate little. For unstable groupings - Venezuela, Weimar Germany, Zimbabwe - it can spiral out of control.

Now, if you'd like to add contact Tom - support your position with volume of bitcoin transactions out of Venezuela. Compare to cash or goods.

It's not so much my position as theirs. Bitcoins mean more to them than the fiat currency. Random bits mean more than random promises from politicians. I guess it's hilarious unless you're a Venezuelan, then it's just grim reality.

 

[Pertinacious Tom]

However, you're still apparently in the dark about what money IS. Money doesn't have to "mean" anything. It just has to be exchangeable for goods and/or services. What is happening in Venezuela is just another demonstration that the wealth of a country is the productivity of it's people.

If it's a medium of exchange, it means value.

Whatever value people place on whatever is backing the currency. Often, that's the promises of politicians. And those are often broken. As long as they're only bent and not broken, fiat money works well enough. It's the only kind I use.

Venezuealans are not peculiarly unproductive people. They just have a terrible government that no one can believe. "We promise this is worth something" coming from that bunch just elicits ridicule. The promise is worthless so the money is worthless.

 

[Guest]

Had a look at the link. Agree with most except the 'Where does the value come from?' part.

I have friends trading in bitcoin and I will be soon to probably. The value is a function of choice, yeah, but it is also a function of limited quantities of the currency. I do not gamble but if I had to I would bet on bitcoin over the US dollar over the next decade.

bitcoin will crash, its deflationary in the long run. Ride it while you can

 

[Steam Flyer]

However, you're still apparently in the dark about what money IS. Money doesn't have to "mean" anything. It just has to be exchangeable for goods and/or services. What is happening in Venezuela is just another demonstration that the wealth of a country is the productivity of it's people.

If it's a medium of exchange, it means value.

Whatever value people place on whatever is backing the currency. Often, that's the promises of politicians. And those are often broken. As long as they're only bent and not broken, fiat money works well enough. It's the only kind I use.

Venezuealans are not peculiarly unproductive people. They just have a terrible government that no one can believe. "We promise this is worth something" coming from that bunch just elicits ridicule. The promise is worthless so the money is worthless.

Sorry, but your basic premise is incorrect. Currency has value because people value it, and will work (or give goods) to get it so they can spend it.

(pause) I just spent about 15 minutes wandering around the interwwwebs looking for a decent on-line monetary history essay; there are a couple of good ones in the Fed websites but they are a bit over-specialized and you have to download them, and also most Ron/Rand Paulians hate-hate-hate the Fed (although they can't say what it does). So we'll go with good ol' Wikipedia

https://en.wikipedia.org/wiki/History_of_money

You'll find many many many examples of currency that didn't rely on "the promises of politicians" for value. You'll find many many examples of currencies that were manipulated overtly, or just badly abused, and lost value. But it also discusses briefly why ancient people liked gold as a medium of exchange, and the rise of paper money and banks. But the key point is that money doesn't need anything "behind" it to have value.

(quoted from above) Many cultures around the world developed the use of commodity money, that is, objects that have value in themselves as well as value in their use as money.[15] . Ancient China, Africa, and India used cowry shells.

The Mesopotamian civilization developed a large scale economy based on commodity money. The shekel was the unit of weight and currency, first recorded circa 3000 BC, referring to a specific weight of barley, and equivalent amounts of silver, bronze, copper etc.[16] The Babylonians and their neighboring city states later developed the earliest system of economics as we think of it today, in terms of rules on debt,[8] legal contracts and law codes relating to business practices and private property. Money was not only an emergence, it was a necessity.[17][18]

The Code of Hammurabi, the best preserved ancient law code, was created ca. 1760 BCE (middle chronology) in ancient Babylon. It was enacted by the sixth Babylonian king, Hammurabi. ...   ...   ...  These law codes formalized the role of money in civil society. They set amounts of interest on debt... fines for 'wrongdoing'... and compensation in money for various infractions of formalized law.

It has long been assumed that metals, where available, were favored for use as proto-money over such commodities as cattle, cowry shells, or salt, because metals are at once durable, portable, and easily divisible.[20] The use of gold as proto-money has been traced back to the fourth millennium ...    ...    ...    ...    ...

The use and export of silver coinage, along with soldiers paid in coins, contributed to the Athenian Empire's 5th century BC, dominance of the region. The silver used was mined in southern Attica at Laurium and Thorikos by a huge workforce of slave labour. A major silver vein discovery at Laurium in 483 BCE led to the huge expansion of the Athenian military fleet. (note the expansion of money supply matched by an increase in tangible productivity)

The worship of Moneta is recorded by Livy with the temple built in the time of Rome 413 (123); a temple consecrated to the same goddess was built in the earlier part of the fourth century (perhaps the same temple).[36][37][38] The temple contained the mint of Rome for a period of four centuries.[39][32] The name of the goddess thus became the source of numerous words in English and the Romance languages, including the words "money" and "mint".


Assaying


The discovery of the touchstone which led the way for metal-based commodity money and coinage. Any soft metal can be tested for purity on a touchstone, allowing one to quickly calculate the total content of a particular metal in a lump. Gold is a soft metal, which is also hard to come by, dense, and storable. As a result, monetary gold spread very quickly from Asia Minor, where it first gained wide usage, to the entire world.

Using such a system still required several steps and mathematical calculation. The touchstone allows one to estimate the amount of gold in an alloy, which is then multiplied by the weight to find the amount of gold alone in a lump. To make this process easier, the concept of standard coinage was introduced. Coins were pre-weighed and pre-alloyed, so as long as the manufacturer was aware of the origin of the coin, no use of the touchstone was required. Coins were typically minted by governments in a carefully protected process, and then stamped with an emblem that guaranteed the weight and value of the metal. It was, however, extremely common for governments to assert that the value of such money lay in its emblem and thus to subsequently reduce the value of the currency by lowering the content of valuable metal.[citation needed]


General notes


Gold and silver were used as the most common form of money throughout history. In many languages, such as Spanish, French, and Italian, the word for silver is still directly related to the word for money. Although gold and silver were commonly used to mint coins, other metals were used. For instance, Ancient Sparta minted coins from iron to discourage its citizens from engaging in foreign trade.[40] In the early seventeenth century Sweden lacked more precious metal and so produced "plate money", which were large slabs of copper approximately 50 cm or more in length and width, appropriately stamped with indications of their value. (end quote)

Sorry for the length of all that, I started to snip more but most of it conveys some necessary concepts to -why- gold was so persistently used as money, and the origins of the concept of "some intrinsic value (ie commodity) behind money." Since I often skip steps, better to include more.

However I left off the parts about paper money and banking. A key to understanding fiscal issues today, the next step up from understanding money, is the difference between banking and a central or national bank. One of the current problems we have in the US is the blurring of this line and the politicizing of the central/national bank (Republicans should love Greenspan, but generally they hate him..... go figure)

I didn't mean to imply that Venezuelans were inherently lazy or unproductive; just that they are suffering from a lapse of judgement and leadership. The value of their money was tied to oil, which was great when oil was expensive and rising; they used this to finance a lifestyle that they have grown out of the habit of supporting by their work & productiveness. Now that oil has crashed, so has the lifestyle, and their leadership is unable to organize greater productivity on any other basis. Unfortunately, their cultural tradition includes changing governments by violence and that is the most likely scenario before life improves there... it's most likely to get worse.

Actually, there is a powerful lesson there for the US but I doubt we will benefit from it.

-DSK

 

[BeSafe]

I always liked Dalio's explanation too.

http://www.economicprinciples.org/economic-principles/index.html

 

[Pertinacious Tom]

Coins were typically minted by governments in a carefully protected process, and then stamped with an emblem that guaranteed the weight and value of the metal. It was, however, extremely common for governments to assert that the value of such money lay in its emblem and thus to subsequently reduce the value of the currency by lowering the content of valuable metal.[citation needed]

The value is in the emblem. Meaning, the promises of politicians.

I'm not saying it can't work at all. I have fiat money in my wallet right now. You can't have it. It has value for exactly the reason you said: we value it. It's a bit circular (well, more than a bit) but it does work.

As for Bitcoin, I'm not sure being inherently deflationary is a death sentence but I'm pretty sure it doesn't matter. There are already competitors and there will be more.

 

[Steam Flyer]

The value is in the emblem. Meaning, the promises of politicians.

I'm not saying it can't work at all. I have fiat money in my wallet right now. You can't have it. It has value for exactly the reason you said: we value it. It's a bit circular (well, more than a bit) but it does work.

As for Bitcoin, I'm not sure being inherently deflationary is a death sentence but I'm pretty sure it doesn't matter. There are already competitors and there will be more.

Ah good.... you picked ONE example out of 5,000 years of history. Question: does that prove your idea about "fiat money" even though that's what you carry in your wallet? Or is it just one example of how varied and complex history can be, and shows that economics is not a simple straight-line topic (which it obviously isn't, but wishing to use "commodity money" in modern times is trying to force-fit a simplified linear view)? You pick.

I find history in general to be interesting, and the knowledge of the history of money/finance/investing has been useful to me. At least once a decade somebody comes up with a great NEW idea which gets all the news and twists market practices and/or regulations... I have never yet seen one that hasn't been invented dozens of times before, helps me avoid the inevitable crash & burn.

I always liked Dalio's explanation too.

http://www.economicprinciples.org/economic-principles/index.html

That's a good one too, thanks. Did not watch the video but have picked out a couple of the chapters below.... lots of material there.

-DSK

 

[Raz'r]

US Dollars have value, because the US govt accepts them for payment of taxes.

next...

 

[Pertinacious Tom]

Miscut, I don't care whether you believe they're using Bitcoins in Venezuela.

They probably don't care whether you think having a competing currency that can actually buy stuff is a good thing. That isn't surprising.

 

[Steam Flyer]

US Dollars have value, because the US govt accepts them for payment of taxes.

next...

Well shucks, it says right on it, "Good for all debts public and private." There have been lawsuits over businesses being forced to accept payment in the form of a truckload of pennies. A PITA but it beats having your bushels of grain you accepted in payment spoil while you are bartering it for a haircut and/or a bicycle or whatever else you need. Or getting sunburned while gathering sea shells to make a bigger wampum belt.

I have never invested any of my own money into arbitrage, but if competition between different currencies becomes a major cost then that's a way to hedge other investments. Transaction costs are very real and in the absence of readily-accepted form of payment, they have to go up. This is a classic zero-sum game. People have made big money on this, I've always considered it a form of speculation rather than investment.

-DSK