Bitcoin is touted for its many improvements to traditional currency. It is easy to transfer, requires no central authority to administer, works across political boundaries, and is easy to use.
But beyond the practical niceties and technical implementation details is the true intention of its inventor, Satoshi Nakamoto, who has now vanished and is unable to tell his story. Bitcoin is trying to solve a much larger problem: the economic instabilities of paper currency that fundamentally affect us, change the nature of business in our economy, make it hard for us to put valuations on things, and lead to a cyclical, chaotic economy of prosperity and recession that is both wasteful and ravaging to the progress of humanity and the stability of our lives.
In this talk, I will demystify currency and delve into the fundamentals of economic exchange. I will discuss how currencies work, what gives them their value, why most of them are fundamentally flawed, and how these flaws manifest themselves in our world. I will discuss how Bitcoin intends to solve these problems, the rearchitecture of our economic lives that would happen if we used it for everything, and where things might go wrong.
This talk was done at CyborgCamp 2012. There is a video of the talk available here: http://www.ustream.tv/recorded/26694951
If you like this, send me a tip! My Bitcoin address is 1AQHTW9MaAbaoN5xLcNPcas6LACg4jmavd. Thank you for your support!
7. In The Beginning
Bartering
Example:
A gallon of milk for a lobster.
8. In The Beginning
Bartering
• How much milk is worth a lobster?
• The milk dealer is a vegetarian (not a pescetarian)
• Milk and lobsters depreciate in value very quickly
• Difficult to account with
• Hard to make divisible into small units
It’s very difficult to determine value this way!
Finding William Stanley Jevons’ “coincidence of wants”
26. Prisoner Economics
• Some were vegetarians
• Some didn’t smoke
• Nobody wanted the carrots
• One of them became a currency.
27.
28. Prisoner Economics
Cigarettes!
• Impossible to reproduce in prison camp
• Smaller units, easy to hold and count
• Relatively shelf stable and durable
29. Forms of Money
• Used by all (including non-smokers)
• Arbitrage helped equalize the prices
• Guards could be bribed with them
Lots of real-world economic activity:
Inflation
Goods price speculation
30. After lots of experimentation,
markets found the
best commodity to use.
49. How Currencies Fail
Debasement
Classic version:
Lowering the value of coinage by reducing the content
of precious metal.
New version:
Lowering the value of a currency by artificially
increasing its supply beyond current economic growth.
Simple version:
Printing a ton of more money
62. Satoshi Nakamoto
• Founder of Bitcoin
• Wrote the whitepaper, wrote the code
• Satoshi is a pseudonym!
• Anonymous e-mail services and Tor
• Only ever discussed Bitcoin
65. The Genesis Block
Alistair Darling has been forced to consider a second bailout for banks as the lending
drought worsens.
The Chancellor will decide within weeks whether to pump billions more into the economy
as evidence mounts that the £37 billion part-nationalisation last year has failed to keep
credit flowing. Options include cash injections , offering banks cheaper state guarantees to
raise money privately or buying up “toxic assets”, The Times has learnt.
The Bank of England revealed yesterday that, despite intense pressure, the banks curbed
lending in the final quarter of last year and plan even tighter restrictions in the coming
months. Its findings will alarm the Treasury.
The Bank is expected to take yet more aggressive action this week by cutting the base rate
from its current level of 2 per cent. Doing so would reduce the cost of borrowing but have
little effect on the availability of loans. Full: http://tinyurl.com/8qhxfe
66. Bitcoin
• Mathematically designed electronic currency
• Introduced in 2008, started up January 2009
• Decentralized (network peers are the “Shroffs”)
• Grows slowly by solving cryptographic problems
• Eventually stops at 21 million BTC
67. Bitcoin
Controlled Inflation
If Miners are making Bitcoins too fast, the
system algorithmically throttles creation of
coins.
The money supply of Bitcoin grows at a slow,
predictable rate.
68. Bitcoin
Controlled Inflation
Bitcoin does not add enough to its money
supply to cause inflation. Rather, it is far more
likely to deflate.
69. Bitcoin
Deflation
When money becomes
more valuable over time.
Economic policymakers are
terrified of deflation.
70. Bitcoin
Is Deflation Bad?
There are not a lot of answers on this topic.
“It is unclear just how much monetary policy
makers should fear deflation today”
- Deflation: Current and Historical Perspectives
“People will hoard their money”
71. We have a bias towards inflation.
Changing that would change us.
Maybe even for the better.
72. But if you must have
money devalue to
encourage spending, I
have a solution for you.
73. Demurrage
Makes it cost money to hold onto money.
Less damaging to economies than inflation, and more
predictable.
This is a great example of direct democracy not working very well. They voted to California High Speed Rail.\n
The guy that works in the torpedo tube doesn’t like his job!\n
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Medium of exchange: an intermediary that allows you to buy anything else\nUnit of Account: Helps you to plan for the future and determine value\nA store of value: A way to save for larger projects in the future\n
Fixed in quantity: Limited growth of money supply\nDurable: Fits in hand, easy to carry\n\n
Fixed in quantity: Limited growth of money supply\nDurable: Fits in hand, easy to carry\n\n
Armlets, mostly bronze or copper\nMainly found in west africa\n500+ years old\nA British operation called “Operation Manilla” replaced them with British West African currency in 1948\n\n
Was often worn as a symbol of wealth\n\n
Used all over the place\nAfrica, Most of east Asia (Bengal, China, modern-day Thailand), New Guinea, Australia, North America\nStill a valid currency on East New Britain Island in New Guinea\n
China used them 3000 years ago. The character for money originated as a pictograph of a cowrie shell\n
Dentalia (now antalis pretiosum) are mollusks that were harvested as a currency\n\nThe tusk shell is naturally open at both ends, and can easily be strung on a thread. This shell money was valued by its length rather than the exact number of shells; the "ligua", the highest denomination in their currency, was a length of about 6 feet.\n\n
Collecting them was a difficult, labor intensive process, just like mining.\n
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Hand rolled cigarettes were considered counterfeit\n
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Electrum is an alloy of gold and silver. It’s better for a currency because it’s a little harder and more durable.\n
Alchemy would have rendered gold useless as money\n
Lydia - an iron age kingdom that was part of the persian empire for a while. Now in Turkey\n
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Sycees were not denominated or made by a central mint and their value, like the value of the various silver coins and little pieces of silver in circulation at the end of the Qing dynasty, was determined by experienced moneyhandlers known as "shroffs," who estimated the appropriate discount based on the purity of the silver and evaluated the weight in taels and the progressive decimal subdivisions of the tael (mace, candareen and cash).\n
Electrum is an alloy of gold and silver. It’s better for a currency because it’s a little harder and more durable.\n
Electrum is an alloy of gold and silver. It’s better for a currency because it’s a little harder and more durable.\n
The US has been on gold backed currencies since 1787, finalized with the Coinage act of 1792\n\n
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This is the Denarius\nThe Roman government established a currency mainly based on silver instead of copper, \nbecause foreign traders would not accept copper.\n
When the denarius was introduced, it was nearly pure silver. The Roman government would reduce the silver content to pay for wars. It caused the coin to be worthless, so the Antoninianus was introduced. Debasement is a form of taxation. It still is!\n
When the denarius was introduced, it was nearly pure silver. The Roman government would reduce the silver content to pay for wars. It caused the coin to be worthless, so the Antoninianus was introduced. Debasement is a form of taxation. It still is!\n
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When the denarius was introduced, it was nearly pure silver. The Roman government would reduce the silver content to pay for wars. It caused the coin to be worthless, so the Antoninianus was introduced. Debasement is a form of taxation. It still is!\n
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Weimar German Mark inflation: June 1921 to January 1924\n\n
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Ongoing problem: They are using foreign currency (mostly US Dollars). Gave up in 2009\n\n
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When the denarius was introduced, it was nearly pure silver. The Roman government would reduce the silver content to pay for wars. It caused the coin to be worthless, so the Antoninianus was introduced. Debasement is a form of taxation. It still is!\n
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It’s been tested in a few places, but not widespread.\n\nDemurrage-charged local currency was successfully tested in the Austrian town of Wörgl between 1932 and 1934, until the Austrian central bank stopped the experiment.\n
It’s been tested in a few places, but not widespread.\n\nDemurrage-charged local currency was successfully tested in the Austrian town of Wörgl between 1932 and 1934, until the Austrian central bank stopped the experiment.\n
It’s been tested in a few places, but not widespread.\n\nDemurrage-charged local currency was successfully tested in the Austrian town of Wörgl between 1932 and 1934, until the Austrian central bank stopped the experiment.\n
It’s been tested in a few places, but not widespread.\n\nDemurrage-charged local currency was successfully tested in the Austrian town of Wörgl between 1932 and 1934, until the Austrian central bank stopped the experiment.\n
It’s been tested in a few places, but not widespread.\n\nDemurrage-charged local currency was successfully tested in the Austrian town of Wörgl between 1932 and 1934, until the Austrian central bank stopped the experiment.\n
It’s been tested in a few places, but not widespread.\n\nDemurrage-charged local currency was successfully tested in the Austrian town of Wörgl between 1932 and 1934, until the Austrian central bank stopped the experiment.\n
It’s been tested in a few places, but not widespread.\n\nDemurrage-charged local currency was successfully tested in the Austrian town of Wörgl between 1932 and 1934, until the Austrian central bank stopped the experiment.\n
It’s been tested in a few places, but not widespread.\n\nDemurrage-charged local currency was successfully tested in the Austrian town of Wörgl between 1932 and 1934, until the Austrian central bank stopped the experiment.\n
It’s been tested in a few places, but not widespread.\n\nDemurrage-charged local currency was successfully tested in the Austrian town of Wörgl between 1932 and 1934, until the Austrian central bank stopped the experiment.\n
It’s been tested in a few places, but not widespread.\n\nDemurrage-charged local currency was successfully tested in the Austrian town of Wörgl between 1932 and 1934, until the Austrian central bank stopped the experiment.\n