Тег: Fiat

Paper money as a cause of people’s impoverishment

Voluntarist, Bitarch

Do you know why in the United States after 1971 labor productivity continued to grow at a constant rate, but at the same time real incomes of people abruptly stopped following the growth of productivity and remained virtually unchanged? Or why after 1971, over 50 years, the consumer price index soared 7-fold (what cost 1 dollar in 1971 now costs 7 dollars), although before 1971 it took almost 200 years for an approximately similar price increase? Or perhaps why the share of US residents living with their parents until age 29 gradually decreased until 1971, but began to grow again after? Or why the cost of housing relative to workers’ incomes in the US has only increased several times during this period?

The answer is extremely simple – on August 15, 1971, US President Richard Nixon finally liquidated the gold exchange standard, canceling the fixed conversion of the US dollar into gold. After this, the US dollar turned into paper that was effectively backed by nothing. It was after this decision that the impoverishment of Americans, who had previously only grown wealthier, began.

This rather simple fact clearly confirms the absolute failure of paper money as a means of exchanging goods between people and accumulating wealth. The use of paper money is merely a reliable way to become poor. After all, what else can be expected from money that can be printed in unlimited quantities, thereby devaluing people’s savings, while enriching officials, government structures, subsidized oligarchs, and banks, who received the new money supply first and realized it at the old prices. Or what else can be expected if money is distributed boundlessly at an artificially low interest rate for the development of businesses that would be absolutely unprofitable and failing at a rate formed under free market conditions. Indeed, the theory of the Austrian School of Economics does not call unlimited money emission and credit expansion the main causes of economic crises for nothing.

People will only grow poorer until we abandon government paper currencies in favor of money that is not controlled by any centralized governing bodies and has a strictly limited issuance of new coins. Precious metals demonstrated their reliability as a means of exchange and wealth accumulation in the past. But in today’s digital world, where information technologies play a key role in all types of activity and relationships, cryptocurrencies can serve as a reliable means of exchange.

The sunset of fiat money and the rise of cryptocurrencies

Voluntarist, Bitarch

Record inflation in the US has once again shown that one cannot rely on currencies with unlimited emission and centralized management, such as modern government (fiat) money. For a long time, the US dollar was considered a fairly stable currency, and many chose it specifically as a means of accumulating wealth. Now, all dollar savings are merely awaiting devaluation. The reason for this is the inadequate economic decisions of the US government during the coronavirus pandemic; it decided to combat the arising difficulties by increasing the money supply. And no government in the world can guarantee that it will not make decisions leading to the devaluation of money and the impoverishment of people. Rather, the opposite should be expected—inflation is beneficial to governments, enriching those whose hands the new money supply reaches first (for example, the government itself and state banks), since they can spend these funds at pre-inflation prices. Thus, there is no such fiat currency in which your funds would be safe.

Cryptocurrencies demonstrate a different picture—of course, not all of them, but certainly those that are truly decentralized and crypto-resistant. The emission of such currencies is limited by the mathematics of large numbers, and centralized management is absent—any changes in the network’s operation (and even the implementation of updates by developers) are possible only with the direct consent of the holders of the majority of the computing power involved in it. Together with the absence of any restrictions on the exchange of funds (funds can be sent to any person in a matter of minutes, even one located in a distant country on the other side of the Earth), this makes cryptocurrencies a valuable asset in the eyes of an increasing number of people—the well-known Bitcoin, for instance, recently broke another record in its value.

Sooner or later, the governments of all states whose currencies are considered guarantors of savings stability will, mistakenly or even intentionally, make decisions leading to an uncontrolled increase in the money supply, meaning the devaluation of money and the impoverishment of people. And each time, cryptocurrencies whose emission remains at the initially set level will only become more popular as a means of accumulating wealth, or even as a means of exchange. The decline of fiat money is inevitable when such a good alternative exists!

Donations in rubles

I have added the ability to make donations in rubles. The forms for sending rubles differ slightly on different pages so that I can understand whether the donation is for a question, for Eric Mac’s translation, or simply for the project’s development. Unfortunately, I cannot trust you to write the payment purpose yourselves—the state does not react well to joking payment purposes such as “to overthrow Putin” or “4.20” (congrats, by the way!).

It looks something like this:

From time to time, I write reviews of various articles or videos, and it occurred to me that you could also suggest materials for reviews to me, if you are interested. Naturally, preference will be given to requests accompanied by donations. This option could be especially interesting for Telegram channel owners, because it is certainly more interesting to readers than a standard promo post.

Radically reworked the donations page

Today is a day of serious upheavals: the Russian government has resigned, the US Congress has sent impeachment documents for the president to the Senate, and I have completely rewritten the donations page.

Since the project is anonymous, collecting donations for it has its specifics: money mostly arrives in bitcoins, but I have been repeatedly asked to provide the possibility of payments in fiat as well. Rejoice, a method has been found, and the description is provided.

Topping up a Lightning wallet has now become very simple, fast, and cheap, managed by a new concise Telegram bot.

Previously, various ways of acquiring and using crypto were described across as many as four different pages; now all key things are grouped directly on the “Donations” page, and only the purchase of bitcoins has been left as separate text just in case as an optional supplement.

A couple of discussions on direct democracy

Regarding Bitcoins

Regarding yesterday’s note on comparing Bitcoin with low-inflation fiat, I received a detailed response. In short, it postulates the importance of stable prices when using a currency as a medium of exchange. To ensure this, a decentralized cryptocurrency fiat is proposed: a crypto whose emission parameters are set by a vote of the currency holders.

To this, I can briefly respond: if anything is a fundamental property of prices, it is their variability. Price carries information about the relative need for goods for specific buyers at a specific moment. If you want the price of a specific good, expressed in a specific currency, to remain unchanged, your only option is to peg the exchange rate of that currency to the value of that good—effectively backing the currency with the commodity. There is no problem with creating a Bitcoin sidechain, freezing a certain amount of Bitcoins, and pegging the tokens issued against them, for example, to oil. That’s it; now one barrel of, say, Brent costs one token. Always. You just have to monitor the collateral size, because if oil becomes significantly more expensive in Bitcoins, the collateral will have to be increased. At the same time, when buying some aluminum or grain with “oilcoins,” you will inevitably encounter price changes.

But all of this has nothing to do with direct democracy, because you can never predict in advance what emission parameters the holders of your crypto-fiat will set. Perhaps they won’t want stable prices for some basket of consumer goods, but will simply take advantage of the fact that the emitter always profits from emission—and issue more tokens to quickly buy up Bitcoins with them. Or do you intend to build a managed democracy and prevent holders from acting so unsightly?

Regarding Self-Ownership and the NAP

The channel Prometheus, whose programmatic article I recently analyzed, decided to return the favor and began analyzing an overview article on libertarianism from the LPR website. In the first part of the analysis, they touched upon the principles of self-ownership and non-aggression.

After logically poking at the boundary conditions of the two principles (if a person belongs to themselves, they should be entitled to sell themselves, and may also be stripped of themselves by court decision; as for the application of the non-aggression principle, everything boils down to the definition of aggression, which is subjective, and one cannot build stable orders on such a shaky foundation), they point out that left-anarchism has a solution. As a solution, that same direct democracy is proposed: all orders are established by all members of society.

Here I can only point out that a society of total direct democracy would require some criteria for who to include in the set of voters for each specific issue. Where is the line that, once crossed, a person loses the right to vote on a certain topic because it does not concern them? If there is no such line, we get a society where everyone is obliged to ask everyone’s permission for everything—a legal absurdity worse than the city of Morlow from Interstate 60. I hope to see an answer in the following parts of the review (in the article I analyzed, there is no such answer).

The image of legal absurdity—may it haunt you as well

Bitcoin vs fiat during freebanking

I keep wondering which currency will prevail in conditions of free currency circulation: a guaranteed hard currency or one with an emission center?

Let’s imagine a hypothetical case of gold/bitcoin versus paper money. In this case, paper money could be issued by a Central Bank or a private issuer (like MMM) and have a pre-announced inflation rate at the beginning of the year (for example, 0.5%). They could also be stored on cards, meaning everything would be like with the dollar, but without the obligation to use it specifically in a certain territory. Mainstream proponents claim that this is better than hard money (because there are fewer crises, as far as I can understand), and I am supposedly some kind of backward Austrian. But I want to argue that it is their statism that has skewed everything in the modern economy, and free people use free money. In short, my question is: which money will win under conditions of freedom—money controlled by a group of economists or free money?

Attached to the question is a donation in the amount of 0.00118933btc

Since you are a proponent of AES, you most likely mean not “price increases”—that is, a decrease in the value of the currency relative to some hypothetical basket of goods—by inflation, but purely monetary inflation, meaning the rate of increase of the money supply. For gold in 2017, inflation was 1.5%. For bitcoin today, it is 3.65%. Presumably, it will equal gold in terms of inflation rates in 2022. Thus, the hypothetical fiat money with 0.5% inflation that you propose comparing with gold and bitcoin appears, at first glance, to be an even better store of value than gold or bitcoin.

However, you did not mention such a parameter as the hardness of money for nothing. By hardness, we mean the elasticity of the money supply in response to a price increase. Let’s say, if the price of gold rises sharply, it becomes more profitable to invest in its development at deposits previously closed as unprofitable, or even in extracting dispersed gold from seawater. Thus, gold is not a very hard currency, but due to the enormous stock of gold accumulated by humanity, even a twofold increase in the global production of this metal would still only increase its inflation to 3%.

In order to increase the supply of bitcoins, a hard fork is necessary. But a hard fork means a split of the chain and the creation of two cryptocurrencies with different emission rates. Naturally, the main mining power will work on producing the less inflationary old bitcoin, and the fork will remain a toy for speculators, losing value even more strongly than could be attributed to the difference in inflation rates. In other words, one can quite confidently assert that bitcoin is an absolutely hard currency, and there are no scenarios in which the production of new bitcoins could increase in response to a price increase.

Now let’s consider a private fiat MMM-coin. Yes, we know that today the inflation rate is 0.5%. But we have no guarantees that tomorrow the emission center will not decide to make inflation 1% or 10%. Fiat whose emission is centralized is absolutely soft money; therefore, its use as a means of saving only makes sense if the investor in this currency has reasons to trust the issuer that the supply of new money will remain low in the future. For example, he holds a hypothetical gun to the issuer’s hypothetical temple, but even in this case, hackers could be a serious problem.

However, the function of storing value is not the only task set for money. The second function is the use of money for settlements. And here, fiat certainly holds all the trump cards. Distributed ledger technology, which underlies bitcoin, will be inferior to the centralized ledger technology used in fiat settlements in terms of speed and cost—at least in the part of the operation where end users of the settlement system are served.

Naturally, the bitcoin community is also solving this problem by proposing the use of technology such as Lightning or sidechains. Their essence is that a certain amount of bitcoins in the blockchain is frozen, and in return, exactly the same amount is launched to move outside the main blockchain. In other words, we are talking about the issuance of fiduciary means of circulation, and if bitcoin is digital gold, then Lightning or Liquid is the technology for issuing digital banknotes.

What can a centralized money producer oppose this with? First and foremost—aggressive marketing. Imagine that tomorrow total ancap and free banking arrive, and the day after, Jeff Bezos releases a fiat Amazoncoin. He can offer his store customers a 10% discount when paying with Amazons. He can provide any other stores with terminals for accepting Amazons for free and charge them less for acquiring than Visa does, or charge nothing at all for the first year. Finally, he can invest tons of money in advertising.

So I wouldn’t write off fiat just yet; it will leave the stage slowly and majestically, and most likely will eventually simply merge with the crypto-economy, turning into fiduciary money backed by bitcoin, just as it once grew out of fiduciary money backed by gold.

For a deeper mastery of the material, I recommend reading the article “Modeling the Value of Bitcoin Considering Limited Emission”, as well as the monograph by Saifedean Ammous “The Bitcoin Standard”.

Ode to Bitcoin

This morning I discovered something terrible: in a drunken haze last night, I had lost my wallet, which contained all my cash reserves and my bank card.

Alone. In a foreign country. One with which Russia doesn’t even have diplomatic relations.

Naturally, I had plenty of options.

  • Get married urgently and stay in Georgia
  • Walk home on foot, racing against a Yakut shaman
  • Organize a meet-and-greet with readers in Batumi and ask for a loan
  • Learn the phrase “madam, monsieur, I haven’t eaten for six days” in Georgian

But instead, I started investigating whether there were any crypto ATMs in Batumi. I found only one, but that was all I needed. From there, it was just a matter of technique.

Approach the crypto ATM
Tap the screen, the menu appears, select Withdraw Cash
Select the desired currency, which in my case definitely means Bitcoin
Check the rate, select the amount
The crypto ATM generates a QR code, the code is scanned by a bitcoin wallet on a smartphone, an outgoing transaction is created; you need to choose a higher fee so that the bits arrive quickly, otherwise you’ll be stuck waiting in front of the crypto ATM for a long time.

Then the crypto ATM prints a receipt with a certain redemption code and a notification that cash can be claimed after the first transaction confirmation. When the confirmation arrives, you can go back to the crypto ATM again.

Enter that same redemption code
And that’s it, the crypto ATM dispenses the coveted cash

That’s how I played the part of a blacklisted extremist, and consequently, someone without access to banking services. As is easy to see, Bitcoin is a great help in such extreme situations.

Value the freedom of maneuver that cryptocurrencies grant us! This is exactly what they were designed for.