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Discussion Starter #1
I ran across this 1977 article from Hayek, and was considering the growth of cryptocurrencies. I wonder if some bitcoin-like system is the answer that Hayek didn't have back then?

https://fee.org/articles/hayeks-free-market-money/

I have always defended the gold standard, and later fixed exchange rates, not because I thought they resulted in particularly good money but because they provided the only effective protection from government abuse of its monopoly to issue money.But now, when this discipline has broken down, I see no hope of its being ever restored.
Therefore, unless we fundamentally change things, our prospect seems to be for indefinite accelerating inflation worsened by price controls, followed by a rapid breakdown of the market, of democratic institutions and ultimately of civilization as we know it.

But, as Shakespeare taught us: "diseases desperate grown, by desperate appliance are relieved, or not at all."
Two years ago I suggested a radical cure – i.e., taking from government the monopoly of issuing money, and handing the task to private industry – partly as a bitter joke.
However, thinking further about it I became increasingly fascinated by this idea. For it now appears to offer an effective remedy to our monetary troubles and opens a new and unexplored chapter of monetary theory.
Not only our troubles with money but the instability of the capitalist economy and the growth of government are wholly due to governments denying free enterprise the right to supply the good money it needs, money which competition would undoubtedly long ago have provided if it had not been prohibited by government.
Ever since Bodin in the 16th Century first declared the right of coinage one of the essential attributes of sovereignty, the contention has been that government needed that power to supply itself with money. Yet there have been few attempts to justify the government's money monopoly on grounds that it would provide better money, at least not since the issue of money referred solely to coinage. And even that prerogative was generally abused by governments.
But things have become entirely hopeless since modern economists began teaching governments that they were doing good by spending more than citizens were prepared to give them in taxes.

Two Misunderstandings

I have no doubt that competition would be much more inventive in providing the kind of monetary institutions needed for the proper functioning of markets. But two misunderstandings would have to be dealt with.
The first is that there must be a legal tender. In fact there is no need for it at all. The liberal economists of the 19th Century understood that "legal tender" meant simply that government forced parties to a contract to discharge their obligation in a manner they had not intended when concluding the contract.
As Carl Menger pointed out 85 years ago, economists inexplicably allowed themselves to be persuaded by lawyers that legal tender was an essential attribute of perfect money. Yet the financial expert of 100 years ago, who reported that after centuries of abuse the Chinese had recovered their confidence in paper money "because it is not legal tender and it is no concern of the state," understood things much better than most of the lawyers.
Of course in China the state soon again interfered and spoiled it all.
The second objection is, what about Gresham's Law? Would not the bad money inevitably drive out the good?
But Gresham's Law does not apply to competition between money of different denominations, the rate of exchange between which is currently determined by the market. It is only when people have the choice of paying in either good or bad money that they will inevitably choose the bad one and keep the good one for other purposes.
But if the rates of exchange between different media of exchange are variable, people will (as has been shown at the end of all great inflations) refuse to sell for the bad money. They will insist on being paid in the good.
If I were in charge of one of the big joint stock banks in Zurich, and assuming there were no legal prohibitions, I would announce that I would issue certificates and open checking accounts in terms of some new monetary unit. I would claim exclusive rights for it, holding myself responsible to redeem on demand, at the option of the holder, for a specified number of U.S. dollars, Swiss francs or D-Marks.
I would further announce my intention, although without assuming a legal obligation, to control the quantity of this issue so as to keep its purchasing power as nearly constant as possible (measured against a specified list of commodities).
I would add to this announcement that I fully understood that the success of my business, which should be very profitable since I would lend money, depended on my meeting the public's expectation that I maintain my currency at the announced real value. I am convinced that I could satisfy this expectation.
All executive officers of the issuing bank would be guided in their decisions about lending and the purchase or sale of currencies or other assets by a guide number, the current value of which a computer would constantly flash before them.
The guide number would be, in effect, an appropriately weighted average of the monetary prices – probably of raw materials and internationally traded foodstuffs, taken in the first instance in terms of the currencies in which they were traded, and converted at the current rate of exchange.
In other words, it would be an index number continuously computed on the basis of the latest arrived price and exchange quotation. If the basis of this index number were, say, 1,000, a rise to 1,003 would instantly inform all officers of the bank that they would curtail their lending and purchases slightly. Similarly, a fall to, say, 998 would tell them that they could relax slightly.
The same information would of course be used by the market and the media, with the result that any deviation from the announced standard would rapidly be brought to public notice.
Individual consumers would probably be content to be paid in any generally accepted money that did not depreciate noticeably. But the large manufacturing firms and trading corporations would choose money that made a reliable capital accounting possible, minimized as much as possible uncertainty about the future movement of particular prices, and was internationally acceptable. Eventually a common commodity standard would develop, represented by a number of different specified currencies.
Since the assets of any such bank would consist chiefly of short term loans in terms of its own stable currency, there should be no problem about its being able to control amounts outstanding. For purposes of instant liquidity it would have to hold a certain limited reserve in other currencies, but its situation would be exactly that of all other banks that have ever existed – namely, that it could not meet all its demand obligations if they were required at the same time.
Successful pursuit of such a policy would mean that if the national currency into which the private one was legally convertible continued to be inflated, the private currency would come to float higher and higher. From the beginning it would have been valued more highly than any of the currencies in which it was redeemable at the option of the holder, simply because thanks to that option it was less risky.
But as official currencies continue to depreciate, the difference would steadily grow, and with it public awareness of the advantages of stable currency.
The apparent profitability of this business would obviously attract competitors.

What Will the Public Prefer?

This raises the question: What money will the public prefer if it can choose among several kinds, differing in character and stability?
The answer will depend upon the success or failure of the competing currencies, which may be based on different standards. That is, there could be differences between the different commodities to which the monetary index is pegged, differences in the degree of stability and differences in bank growth.
But once the public shows preference for a particular standard (or perhaps several standards), nothing can prevent other banks from basing their own currency (although under another name) on that same standard.
I anticipate that ultimately a single or a very few standards would prevail, certainly in large regions and perhaps worldwide. I also anticipate that currencies aiming at the same standards would be issued under different names by many different banks, which would continue to compete as to the reliability of their faithfulness to those standards and as to all the other services they would offer users of their currency.
Removing government's monopoly on issuing legal tender would not only provide us with stable money, it would also do away with those credit pyramids in particular countries where a fractional reserve system makes it equally impossible for the central bank and the commercial bank to exercise effective control over the quantity of all money of a particular denomination.
The absurdity of this system with its "inherent instability" and "perverse elasticity" of credit has long been understood, but men like Walter Bagehot and Ludwig von Mises felt that it must be tolerated for the time being because people had become adapted to it.
We now have no choice but to change our money and currency system, sooner or later. And one of the prime needs, if we are to eliminate the great fluctuations of credit, is to do away with the distinction between the cash issued by government and the monetary credit which banks create.
I believe we shall yet understand that the one thing the government of a free country must not be allowed to possess exclusively is a printing press for money. The sooner we learn that the better for all of us and our free institutions.
 

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Discussion Starter #2
In case you don't know who Hayek was: https://en.wikipedia.org/wiki/Friedrich_Hayek

F. A. HayekFriedrich Hayek (1899 – 1992) was an economist and philosopher, author of seminal works that changed intellectual history, who won the Nobel Memorial Prize in Economic Sciences for his pioneering work in the theory of money and economic fluctuations and penetrating analysis of the interdependence of economic, social and institutional phenomena. He taught in Vienna, London, and Chicago.
 

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Bitcoin is an easy triple in the next 5-10 years. It will be volatile....but it will happen.
 

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There are a ton of very creative people working in blockchain technology at this point, with some very interesting projects. I will be quite surprised if none of them work out--I honestly expect to see them disrupt a lot of the traditional financial markets within the next 20 years.

Chris, are you holding any bitcoin?
 

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I'll be honest, I have a difficult time grasping cryptocurrencies. I'm not sure if they're legit or fad, kind of like the cabbage patch kid of currency.
 

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There are a ton of very creative people working in blockchain technology at this point, with some very interesting projects. I will be quite surprised if none of them work out--I honestly expect to see them disrupt a lot of the traditional financial markets within the next 20 years.

Chris, are you holding any bitcoin?
I will be very soon, I've been following it casually from inception. With intent for about a year now. We're at a good entry point for the long play.

Russia is getting ready to officially endorse, which will be good for a quick pop if someone is interested in a short play.

Bitcoin value rises over $1 billion as Japan, Russia move to legitimize cryptocurrency
 

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Discussion Starter #7
The important part of the enabling technology isn't the cryptography. It's the blockchain.

Basically;

Traditional financial transactions worked by actually handing over items of value.

Originally, this was the actual items to be traded, in a pure barter economy. I had a chicken and you had a cow, so I traded you some of my eggs for some of your milk.

Eventually, currency with inherent value (gold coins, for example) came into use as a way to create smaller units and facilitate multi-partner trading over time. Now I could trade you some of my eggs for some of your coins, and then I could use the coins to buy meat from Chris over there later on. That's much more efficient because I don't have to figure out what Chris wants before I sell my eggs, and also because the coins don't go bad, so I can sell eggs now and buy meat next week.

But then we encounter problems of scale. If I want to buy a house, or a ship, or some other very large thing, it's difficult (and risky) to carry around a wagon load of gold to make the purchase. So we create financial intermediaries (like banks) to hold the gold. Now, instead of having to bring a whole wagon full of gold, I just write a note to my bank that says "please give Mjorin 100 gold coins out of my lockbox, and I trade you that note for your herd of cows. You can take it to the bank and cash it in later.

But then we realize that the intermediaries can act as storehouses for our gold, too. Instead of taking the 100 gold coins when you go to the bank, you just have the bank move the 100 coins from my lockbox into your lockbox--they keep the gold on hand and just move it between our "accounts".

This is fundamentally the way the modern banking system works (leaving aside fractional reserve banking, which doesn't actually matter for this discussion, because the blockchain doesn't generally use fractional reserve), except that the "gold coins" are now fiat money that's only worth something because the government says it's worth something.

The thing that makes the system work is that we both trust the bank to properly account for our money, and to give it back to us when we ask for it. In fact, in the modern world, the bank doesn't even really have the money--it just keeps track in a computer, and moves electrons from one account to another to represent money. We are trusting the bank to keep the ledger of all the transactions accurate, so it can tell us all how much money we have. The real function of the banks (or other trusted financial intermediaries) is to to keep this ledger showing who paid how much to whom, and consequently how much "money" each of us can withdraw from the bank (or transfer to someone else's account) when we want to.

The blockchain is basically a replacement for the bank. Instead of the bank keeping the ledger of transactions, there is a continuous, ongoing, public ledger that we both log our transaction in. Now we both know how much money we have, but more importantly, there is no need for us to trust the bank, because the entire ledger is public record for everyone to see.

All the cryptography stuff is basically about hiding the identities of the people behind the transactions, so that no one can know which transactions are "ours" without us telling them. Instead of the accounts being held in our individual names, they are held in the names of long strings of numbers and letters (cryptographic keys), and only the person holding the right key can access the funds. The only reason we need the cryptography is that we don't want just anyone to be able to track our money around in the public ledger.

The ledger itself is maintained by a (very) large number of computers, working independently, which record and post the transactions to the ledger, and then cross-check and verify with each other to be sure the entire ledger (which is replicated a bunch of times so it can't be lost) is accurate and all copies are the same. The computers (their owners, really) are rewarded for doing this work with very small amounts of the underlying currency, at least in the Bitcoin blockchain--different systems work differently. And anyone who fires up an appropriate computer and runs the underlying blockchain software can contribute to the maintenance of the public ledger.

Basically, the blockchain is a way to create a functional, efficient money transfer (banking) system without either banks or governments. In fact, it's so efficient that many banks and governments are starting to use it as a way to resolve transactions for themselves. There is a blockchain called Ripple, for example, that basically only uses big banks as the keepers of the ledger, and is primarily used by those banks to resolve massive payments amongst themselves.

The second generation of blockchain concept was to allow logical programs to run on the blockchain. Now, instead of our transaction saying "Tom pays Mjorin 2 bitcoins" the transaction can say "2 Ethereum will move from Tom's account to Mjorin's account if and only if Mjorin provides Tom with 22 milk cows." This is a huge logical and functional leap, which allows the blockchain itself to be used to resolve contracts (you don't get paid until the actual underlying real world trade is verified, basically--I'm simplifying quite a bit).

And the third generation blockchain concept was to allow other things to be registered and saved on the blockchain--not just financial transactions. There's a company called LBRY that is using a blockchain to record books, music, works of art, and other things. There's an interesting article about some of the ramifications here: https://lbry.io/news/20000-illegal-college-lectures-rescued

Basically, I think there's a lot of potential to challenge a lot of centralized control mechanisms that have been running society for a long time, and I think that's a good thing. I'm not convinced that the underlying cryptocurrencies are good long term investments, but I do think he underlying technology is going to be a real force for positive change in the world within my lifetime.
 

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Discussion Starter #8
I'm not convinced that now is the ideal time to buy Bitcoin. It's at a historic high (over $1400 right now), and I'd rather see it come down a bit before putting more money into it as a long term investment. I could be wrong though, and it might be all up from here.
 

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I'm not convinced that now is the ideal time to buy Bitcoin. It's at a historic high (over $1400 right now), and I'd rather see it come down a bit before putting more money into it as a long term investment. I could be wrong though, and it might be all up from here.
For the long term play, now's as a good a time as any....but waiting for a slight dip (7-13% maybe) for a short play based on coming news is wise. It'll go over 3500 in 5 years. Too versatile a solution to an ever encroaching state....as more individuals and institutions recognize it as such.....


I really wish I'd established a position in Ethereum in September when I first really became interested......c'est la vie.
 

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Discussion Starter #10
Look at the other applications built off the Ethereum blockchain too. Melonport, Augur and Golem all have pretty interesting underlying programs.

Gnosis ran their ICO today. Pre-ICO auction price was around $30, and they're trading post-ICO at 60+, although I'd expect that to come down in the next couple days, before hopefully starting a long term upward trend.


I've also been digging around in the super-anonymous crypto markets, which are basically first gen (transaction resolution and value holding) systems like bitcoin, but with beefed up cryptography and privacy. Monero, Zcash and Dash are the second tier leaders there, but Zcash and Dash have climbed so much in the past three months that I don't really think they're good buys at the current price level. Long term I think Zcash has great potential to move financial transactions away from the prying eyes of the government on a permanent basis, though.

I tend to evaluate the currencies for long term investment based on the merits of their underlying systems, and also the intellectual seriousness of the people involved. Vitalik Buterin has put up some articles on his blog that are mind-blowing in their insight into potential for non-governmental transaction systems, which is one of the reasons I think Ether has a bright future. Reading his stuff, Buterin is legitimately off-the-charts smart. Dash, on the other hand, seems like it's run by a bunch of clowns.
 

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Heyek was the economist king IMHO.
And a much better rapper than that hack Keynes.
 
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In February 1975, Margaret Thatcher was elected leader of the British Conservative Party. The Institute of Economic Affairs arranged a meeting between Hayek and Thatcher in London soon after.[SUP][56][/SUP] During Thatcher's only visit to the Conservative Research Department in the summer of 1975, a speaker had prepared a paper on why the "middle way" was the pragmatic path the Conservative Party should take, avoiding the extremes of left and right. Before he had finished, Thatcher "reached into her briefcase and took out a book. It was Hayek's The Constitution of Liberty. Interrupting our pragmatist, she held the book up for all of us to see. 'This', she said sternly, 'is what we believe', and banged Hayek down on the table".

-
John Ranelagh, Thatcher's People: An Insider's Account of the Politics, the Power, and the Personalities (Fontana, 1992), p. ix.
 

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Discussion Starter #13
I love the EconStories videos.

Did you watch the series about the girl dating "gov" the abusive boyfriend?
 

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You bet!
Great stuff ;-)
And right on target!
And I personally preferred The Road To Serfdom out of his books.....
At least the ones I've read so far.
 

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While I'm thinking about it, it occurs to me that crypto currencies also have the potential to end the deflationary power of the Fed.

Because the federal government has no hard budgetary limit (it can always print currency), there is no reason for it to _ever_ rein in spending.

If crypto alternatives took over, the government would basically inflate itself out of business, because the federal government could potentially become the only entity on earth using increasingly worthless fiat US Dollars.

Maybe this is the real way to "End the Fed"?
 

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I'm not convinced that now is the ideal time to buy Bitcoin. It's at a historic high (over $1400 right now), and I'd rather see it come down a bit before putting more money into it as a long term investment. I could be wrong though, and it might be all up from here.
And let me laugh at myself here. In the 3 days since I posted this, bitcoin has come up another $150...10% appreciate against the USD in 3 days. Crypto markets are insane right now.
 

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What is to keep the governments of the world from just outlawing cryptocurrencies?
 

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Discussion Starter #19 (Edited)
Nothing. Government can outlaw whatever it wants--and it usually does.

Many recreational drugs, for example have been outlawed, and they have disappeared and now have no value whatsoever.

Firearms, too, have been outlawed in many places, and for many people, and none of those people now possess firearms.

Several governments have also outlawed the private ownership of gold at various times (the US government did that too--https://en.wikipedia.org/wiki/Executive_Order_6102) and as a result private parties divested themselves of all their gold holdings, and the value of gold collapsed.


What is to prevent the government from simply outlawing private income? Or the holding of private property? Again, nothing.


My point is that laws require enforcement, and enforcement can be a lot trickier than legislation.

Cryptocurrency designers can be notoriously difficult to identify, and most of them have given a fair amount of thought to privacy and potential future legal actions. The identity of bitcoin founder Satoshi Nakamoto, for example, is well established (https://en.wikipedia.org/wiki/Satoshi_Nakamoto) should the government ever decide he represented a threat to public health and safety.
 

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Discussion Starter #20
Bitcoin is an easy triple in the next 5-10 years. It will be volatile....but it will happen.
Bump for Chris...

BTC Price on May 3 2017 (roughly when he posted this) was $1490.

BTC price today is about $47,000.

How 'bout them apples?
 
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