Can the Government Destroy Bitcoin?

bitcoin, cryptocurrency, ICO, ban, government regulation
"Cutting a Bitcoin IMG_7685" by BTC Keychain, CC BY 2.0 https://www.flickr.com/photos/btckeychain/14253584496/in/album-72157644807123566/
bitcoin, cryptocurrencies, ban, ICO, government regulation
Image by BTC Keychain

China-based cryptocurrency exchange BTCC suspended all domestic trading in yuan last weekend. The decision came on the heels of a September 5 statement from regulatory authorities in China, which required all domestic cryptocurrency exchanges publish closing announcements, stop registering new users, and establish a schedule to cease yuan-denominated trading by September 15. Huobi and OKCoin — two other exchanges based in China — have announced similar plans to stop trading. To be clear: China has not banned the use of cryptocurrencies. It has banned cryptocurrency exchanges and initial coin offerings (ICOs). Even still, it has prompted some to consider whether a government might ban cryptocurrencies like bitcoin — and, perhaps more importantly, whether such a ban would be effective.

There seems to be no denying that governments can ban cryptocurrencies. Bolivia, Ecuador, Kyrgyzstan, and Bangladesh have already done so. Russia issued a draft bill to ban cryptocurrencies in October 2014 and recent rumors suggest it might follow through. More broadly, governments have taken steps to prevent other alternatives to their preferred monies. Cambodia recently suggested it might ban the dollar. Syria prohibited the use of any foreign currency in 2013. And the U.S. government shut down Liberty Dollar and E-Gold in the mid-2000s. Can governments ban cryptocurrencies? Absolutely. The question is whether — or, to what extent — a ban will actually discourage use.

Some bitcoin proponents have argued that governments cannot really prevent bitcoin use. Jon Matonis once stated that “a government ban on bitcoin would be about as effective as alcohol prohibition was in the 1920s.” How could a government prevent people from using bitcoin? It’s online. It’s pseudonymous. And, as Matonis notes, “demand for an item […] does not simply evaporate in the face of a jurisdictional ban.”

Or, does it? For starters, one must recognize that monetary demand — that is, the demand to use an item as a medium of exchange — is not quite like the demand for most other goods. Monies are subject to network effects. I can enjoy a fine bathtub gin even if no one else does. But the usefulness of a would-be money like bitcoin depends crucially on whether other people are using it. We must coordinate beliefs. If one does not believe others will use bitcoin, she will be less inclined to accept it herself. For cryptocurrencies that lack some non-monetary use, that means demand might fall to zero even if everyone would prefer it to the relevant alternative.

In general, governments might determine the medium of exchange by coordinating beliefs, employing transactions policy, and punishing users of alternatives. By declaring an item legal tender, for example, the government might create an especially salient focal point around which individuals can coordinate on a particular money. Legal tender status might be nothing more than a designation; it need not convey any special privileges under the law (though sometimes it does). Since I want to use the money you are using and you want to use the money I am using, simply stating that the dollar is legal tender and bitcoin is not legal tender might be enough to generate coordination on the dollar. As a large and powerful player in the economy, governments are often in a position to provide such a focal point.

Of course, if the net gains from switching to bitcoin are greater than the costs of coordination, we might establish some competing focal point to coordinate on the superior alternative. In this case, governments might resort to transactions policy — that is, committing to accept and spend its preferred money — in order to prevent bitcoin from gaining widespread acceptance. By collecting taxes and spending dollars (and not bitcoin), the government guarantees some demand for dollars and, correspondingly, limits the potential network size of bitcoin. Some governments will not be able to determine the medium of exchange with transactions policy. But a sufficiently large government can.

Even if a government is not large enough to determine the medium of exchange via transactions policy, it still has one last trick up its sleeve: punishments. By punishing those employing an alternative money, it lowers the expected benefits of the alternative and, hence, the relative demand for its preferred money. Whereas a sufficiently big government is required to determine the medium of exchange with transactions policy, a government of any size can determine the medium of exchange with punishments, so long as it is willing and able to mete out sufficiently severe punishments.

There are some obvious limits to the government’s ability to punish cryptocurrency users. For one, it has to find them. And, as Matonis and others have noted, cryptocurrencies like bitcoin are pseudonymous, making it difficult to tie an individual to his or her balance of bitcoin. Difficult, but not impossible.

Even if one has access to a perfectly anonymous payment mechanism, many transactions inevitably reveal one’s identity. When you purchase a good or service, there is usually some point in the transaction where you actually receive the good or service. And, at that moment, your identity is vulnerable to detection. That you can send or receive an anonymous payment is of little consequence if the other party in the transaction is a government agent. Sting operations are real.

More importantly, exploring the limits also reveals the vast range of transactions that would be relatively trivial to stamp out. A ban with significant punishments for those caught sending and receiving cryptocurrencies would surely see those “bitcoin accepted here” signs disappear. It would make finding a trading partner willing to use bitcoin a lot more cumbersome. Most people prefer to be on the right side of the law most of the time. Most routine transactions do not warrant the added costs of obscuring one’s identity or vetting one’s trading partner. Why risk being caught using a banned currency to buy milk and bread? Privacy is just not that important to most people in most situations. No doubt a government would find it difficult — perhaps even impossible — to eliminate all bitcoin transactions. But a committed government would have little trouble making bitcoin sufficiently unattractive for most users, significantly limiting bitcoin’s potential network size. In such a world, bitcoin would function as a niche currency — or, not at all.

There are exceptional cases, to be sure. If the government’s preferred currency is poorly managed (think: hyperinflation, not two-percent) or black market transactions are the norm, one might not hesitate to use a banned alternative. That seems to be the case in Venezuela at present. If one must operate outside the law just to buy lunch, she might not be too concerned about the risk of additional sanctions for using bitcoin. And, since everyone else is operating outside the law, she might be reasonably confident that others will accept bitcoin as well. But such cases are the exception. When bitcoin proponents maintain that governments cannot prevent bitcoin use, they do not usually limit the claim to such extreme scenarios.

Fortunately, very few countries have taken steps to ban cryptocurrencies to date. But the threat is legitimate. Governments might not be able to prevent all cryptocurrency transactions, but they can significantly discourage their use. With this in mind, we should continue to push for choice in currency. We should continue to explain the benefits of financial privacy and stateless monies. However, we should also support sensible regulation that would preserve most of the benefits from cryptocurrencies while eliminating the major justifications for outright bans. It is a second-best solution. In a world with powerful governments, it might be the best one can hope for.

  • Edward Ingram

    No there should be big restrictions on private currencies.

    Whoever creates a currency gets real value free. That is the function of governments who should distribute the procedes to their people.

    MANAGEMENT
    There is a need for governments, through their central banks, to manage the stock of spending money in circulation.

    The stock of such money has to be enough for people to use to buy the total output in the timeframe available.

    There will be undulations as people choose to put money on standby, to import more or import less, and to borrow more or repay more.

    All of these variations affect total spending in the home economy.

    In my book, I explain a number of key principles which have to be followed for an economy to work like a well oiled machine.

    No space here to go into that.

    Join my Group at LinkedIn – MACRO-ECONOMIC DESIGN

    or take the course:

    http://www.nustcce-com – Professional courses.

    Website – same name. – Macro–economic design.

    • Would you like to go back to horse and buggy as well? Central banks are well past their expiration date, kind of like you. Your gravely shallow knowledge of money and economics is only exceeded by your ignorance of this fact.

      Whoever creates a private currency in a fully competitive market does not get value for free, at least they would not be able to do it for long. In this situation, the value of money, or any good, is determined subjectively by the buyer of the currency/seller of goods. It is only when the State monopolizes money, or anything else, and backs it through force, that they can extract real gains in excess of the value they have created. And, no, they never have and never will pass those gains on to "the people", dummy.

      There is no need for central management of money, banking, or anything else. In fact, if the 20th century taught us anything, it is that the greater the central planning, the greater the human suffering. Before you dust off your government approved textbook from the 1960's to prove me wrong, don't bother. I'm not interested.

      I would recommend you wake up, or perhaps be resuscitated is more appropriate, but something tells me that's impossible.

      • Edward Ingram

        You are not correct in anything you have written.

        Sadly.

        • You are in way over your head with me Edward. Your advanced stage of acute State ideological fundamentalism renders your brain incapable of discerning correct versus incorrect. No worries though, you have plenty of company.

          • Edward Ingram

            Milton you are commenting on things you have obviously never read.

            Other readers can find out a great deal by Googling Edward C D Ingram

            You will find great peer reviews of my book here:

            https://macro-economic-design.blogspot.co.za/

          • Milton_Hayek

            Truth is not a matter of voting…or "great peer reviews"…

          • Edward Ingram

            It's a matter of reading and undersanding in this case.

            Like the others did. That is why they wrote the reviews.

            These are very highly qualified readers.

          • Elliott Gleaton

            Statists gonna state.

          • Edward Ingram

            I replied in a new main comment Elliott

          • Edward Ingram

            Did you read my new comment? It seems to have been deleted.

          • Milton_Hayek

            There is no truth in top-down authority, especially in the economic realm. No more reading (or life experience) than what I have done is needed for that conclusion. You might just as well be pimping a tome on phrenology…

          • Milton_Hayek

            Perhaps you need to read this:

            home.uchicago.edu/~vlima/courses/econ200/spring01/hayek.pdf

          • Edward Ingram

            The opening sentence gves it away.

            "What is the problem we wish to solve when we wish to create a rational economic order?"

            He writes about knowledge and who has it. As we all know no one has all of the knowledge needed to make completely rational plans. That is not news.

            He writes that plans only need to change when economic conditions change.

            He got that right.

            He says that central palnning is not the answer. We all know that.

            He highlights price action as a guide and rightly so.

            In fact he agrees with me – free market prices are all we really need.

            But what he does no know or say is that almost all prices and price actions in our economies are distorted by rules and regulations, by savings and lending contracts which are not appropropriate, and by market structures which do not result in free market prices.

            If governments ever lose control of the money creation process by virtue of private curencies taking over, everything will be much worse.

            Currently the above mentioned structural problems are costing world output growth around 1.5 – 2% p.a. losses over the longer term.

            Hayek just needs to read my stuff to get the detail – or you should since I think Hayek is deceased.

          • Milton_Hayek

            LOL, you were doing well until "If governments ever lose control…"

            You really need to educate yourself on monetary history, both US and European. The bane of our existence is government control.

            Oh and Hayek has been dead for some time…

          • Edward Ingram

            Let me repost my said script once more just for you.

            Take an economy of two people. They work for each other and they pay each other. They both have the same income.
            Then one starts to save or to import – then there is a recession because the other gets less income and so cannot spend as much.
            The same happens with larger groups where some of the group start to pay down their debts and save instead of borrowing.
            If the economy is well managed these undulations do not lead to a recession as others can step in to spend.
            For that to happen, there has to be enough spending money in circulation and it has to be created and distributed.
            In most of the world's economies it is left to the banks to create new money which they can do as long as people are happy to keep borrowing. If not, it is like pushing on a string.
            What I am saying is that:
            The state has to intervene in some way. Keynes said the same thing.
            It is better that the State manages the total stock of money in spending circulation as best they can, not by managing the rate of interest but by managing the stock of money.
            For either model to work there has to be some agreed mandate on when to create new money, how much, and to whom it is given to spend.
            The Central bank can create new money with a keystroke. They should auction that money to lenders who should add interest and lend it. This way we get a free market rate of interest.
            Free market rates optimise the use of resources.
            All prices have two parts:
            The 'Core' part which has to be free to adjust to offset the falling value of money
            The 'Real Economic' part which balances supply and demand.
            The inflation index combines both parts and is not a measure of the core rate.
            I looked at the lending systems in use and found that costs do not adjust to offset the falling value of money. Bond maturity values do not.
            In both cases human intervention, or contract writing, and regulations gets in the way. Too much statism.
            I created a new lending model and a new bond model to replace these contracts. It dampens the positive feedback generated by the current models – almost eliminating it.
            I looked at currency prices and found that one price is trying to balance two markets – trade and international capital. That cannot work. We should look at solving that.
            So if you look at the major units of the world's economies all prices and costs are being distorted.
            My thesis is that we need to make the financial framework stable and only then should we look at how to manage the economy.
            That simplifies everything.
            I am told that this is a new school of thought.

          • Edward Ingram

            By the way it is difficult to have a rational conversation on this site because the one piece which I wrote and which changed Milton Chirchill's mind has been deleted and its successors have been deleted many times.

            I kept adding them back.

          • Edward Ingram

            If you scroll own to earlier comments you will find this from Mr Churchill:

            Thank you, Edward. After reading more of your thoughts my initial assessment of your statist tendencies were misplaced. There is actually much we agree on. I was able to capture one particularly long comment you made that might have been deleted. In any event, I am working my way through it to more directly respond to your theory, versus what I initially perceived to be a matter of ideology. If you would prefer I respond outside this forum, please let me know.

            I offered my Skype address
            edwarding2

          • Edward Ingram

            Let me repost my said script once more just for you.

            Take an economy of two people. They work for each other and they pay each other. They both have the same income.
            Then one starts to save or to import – then there is a recession because the other gets less income and so cannot spend as much.
            The same happens with larger groups where some of the group start to pay down their debts and save instead of borrowing.
            If the economy is well managed these undulations do not lead to a recession as others can step in to spend.
            For that to happen, there has to be enough spending money in circulation and it has to be created and distributed.
            In most of the world's economies it is left to the banks to create new money which they can do as long as people are happy to keep borrowing. If not, it is like pushing on a string.
            What I am saying is that:
            The state has to intervene in some way. Keynes said the same thing.
            It is better that the State manages the total stock of money in spending circulation as best they can, not by managing the rate of interest but by managing the stock of money.
            For either model to work there has to be some agreed mandate on when to create new money, how much, and to whom it is given to spend.
            The Central bank can create new money with a keystroke. They should auction that money to lenders who should add interest and lend it. This way we get a free market rate of interest.
            Free market rates optimise the use of resources.
            All prices have two parts:
            The 'Core' part which has to be free to adjust to offset the falling value of money
            The 'Real Economic' part which balances supply and demand.
            The inflation index combines both parts and is not a measure of the core rate.
            I looked at the lending systems in use and found that costs do not adjust to offset the falling value of money. Bond maturity values do not.
            In both cases human intervention, or contract writing, and regulations gets in the way. Too much statism.
            I created a new lending model and a new bond model to replace these contracts. It dampens the positive feedback generated by the current models – almost eliminating it.
            I looked at currency prices and found that one price is trying to balance two markets – trade and international capital. That cannot work. We should look at solving that.
            So if you look at the major units of the world's economies all prices and costs are being distorted.
            My thesis is that we need to make the financial framework stable and only then should we look at how to manage the economy.
            That simplifies everything.
            I am told that this is a new school of thought.

          • The positive peer reviews you have received says more about the deep rooted psychological outcome inherent in a lack of self confidence and self worth, herd mentality, confirmation bias and delusion, culminating in the condition I previously eluded to, Acute State Ideological Fundamentalism (ASIF).

            In short, you and your adorning peers have permitted yourselves, in fact you have actively pursued such a state of being, to be brainwashed to the point that no amount of evidence, logical, empirical, or historical, is able to dislodge you from your belief system. You are part of a cult, and your cult worships the State. Membership, no it's more than that, discarding self for State, serves to fill the void left by perceived shortcomings we, as humans, all feel to one degree or another.

            In our times, where sufferers of ASIF differ from other cult members, is in the disproportionate gains, both financial and psychic, they enjoy at the expense of others. Most often, it is the cultists that suffer as outsiders are powerless to assist them. A parallel can be drawn between Church and State, during times when either has dominated our culture.

            To close, it is one thing to hold completely fallacious beliefs, as you clearly do, it is quite another when those beliefs are incorporated in to public policy and damage others. The otherwise harmless musings of a crank, in effect, are transformed in to the dangerous ideological absolutism of a madman.

          • Edward Ingram

            I am happy to end this discussion with you Sir. I have made my points. You have made no attempt to answer any.

          • me yo

            its a new age. i kind of feel bad for edward. but you know what. all of these older folks trying to say what "is" . just "isnt helping" . back to the . drawing . board . lols

          • EdwardCDIngram

            If you read on you will see that I won the discussion. Milton gave in.
            If you Google search my name you will find that I am becoming very influential.
            Edward C D Ingram.

          • George Selgin

            Stick to your guns, MC: it is Mr. Ingram who needs lessons on monetary theory and history, including the determinants of seigniorage, a monopoly rent, as you surmise.

          • me yo

            dude. you speak for so many younger generations. thank you, breath of fresh air.

          • john

            Milton, you think your so smart. Lol, at least that makes one person.

    • Milton_Hayek

      Statists need not apply…

    • EdwardCDIngram

      I am pleased to say that Milron eventually came around to my view – or closed the gap anyway.

      Also in ZIMBABWE where I live – and where my ideas may transform that economy faster than anyone thinks possible. I am being heard.

      You can read my book summary here:

      http://macro-economic-design.blogspot.com/p/book-summary.html

      and my opnion column is here:

      https://www.fin24.com/Opinion/a-solution-for-zimbabwe-that-will-help-it-overtake-south-africa-20171124

      The new one with more detail is due out ths week, Late reders search for my name on site.

      There is a very short video of my university presentation here:

      https://www.fin24.com/Opinion/sa-should-play-the-get-out-of-jail-card-20171117

  • M. Camp

    Will:

    Re this…
    "By declaring an item legal tender, for example, the government might
    create an especially salient focal point around which individuals can
    coordinate on a particular money."

    …what would a law making bitcoin legal tender do?

    First, isn't a bitcoin payment through Bitcoin already legal tender? I believe that if I owe you 1 bitcoin, and I tender 1 bitcoin to you using the Bitcoin payment system, you would be legally required to accept it and cancel my debt.

    Perhaps you mean a law declaring acceptance of Bitcoin system transactions (the only significant form of payment in bitcoin) mandatory for settlement of obligations in some DIFFERENT monetary unit? Say, USD?

    I've never heard of such a legal tender law, though they may exist. I have only heard of legal tender laws (like the one in the US Code today) which make acceptance of a particular FORM of a GIVEN MONETARY UNIT mandatory for satisfying an obligation in THAT monetary unit.

    Thus, the current legal tender law in the US makes acceptance of Federal Reserve Notes (which are a physical medium of payment denominated in the money called US Dollars) mandatory for the extinguishing of the denominated amount of obligation in US Dollars, at the face value of the Notes.

    I don't think that a legal tender law could logically require acceptance of a form of one money as settlement of an obligation in another.

    For example, "ripe, grade A bananas each weighing at least than 200 g" could be declared legal tender for the money "bananas, by weight". That would be a typical legal tender law.

    But what could it mean to declare a particular physical form of banana (or even bananas as a money) legal tender for settlement of obligations in US Dollars? How many bananas would you have to accept from me to settle a 100 USD loan?

    I suppose that if a legal tender law specified an exchange rate, or a means of establishing one at time of payment were specified, this kind of law that you mention could be possible. Is that what you meant?

    • Although legal tender laws do give explicit legal preference to legal tender, the author was clear that the mere labeling a tender as legal by a powerful authority contributes to the network effect, whether or not the legislation really does anything.

  • Milton_Hayek

    Sensible regulation is the justification for oppressing liberty…

  • Edward Ingram

    Some readers are suggesting that governments should not have full control over the stock of money using some kind of 'name calling' (statists).

    My hypothesis is shared by many other economists and if challenged then reasons must be put forward for the challenge.

    THE HYPOTHESIS
    That the stock of spendingmoney in circulation has to be centrally managed and not left to private enterprise or competing currencies all of which are treated as of equal, or good enough value, for transactions – payments.

    Take an economy of two people – you and me.

    We spend on each other's services and we are both fully employed. We have the same total annual income.

    Then one of us starts to save – and the other one's income falls. Therefore the other one cannot spend enough to keep the first one fully employed.

    We have a recession.

    THE OTHER SCENARIO
    Someone introduces a lot more new currency. This is what the banks are always doing when they go on a lending spree.

    What happens is that we get a boom and a bust.

    We get a boom in imports, asset prices, spending, and we get inflation.

    WHAT MY RESEARCHES HAVE SHOWN
    What I can show is that even if there is a boom and a bust, we can change the lending and savings system to minimise the damage.

    I have also shown that the rate at which money falls in value is not reflected in the inflation index.

    The reason is that prces, costs, and values, have two parts.

    There is the 'core' price part and the 'real economy' price part.

    In a free market economy, such as I outline, which includes free market rates of interest, not government controlled, all core prices adjust and the real economic price adjusts to balance supply with demand. Free market prices optimise the use of all resources, so we need to allow that to happen.

    Applying that to costs and values. it is easy to see that we do not have that. Fixed interest bonds do not adjust their core price – that is fixed. Mortgage repayment costs leap around. That is by contract.

    There are also problems with currency prices. That needs to be addressed.

    Whereas most economists are happy to allow governments to manage rates of interest, this is very damaging. What is needed is a mandate for money creation which must be followed to cover how much can be created, when, why, and to whom the money is given for spending. States have responsibilities and this one must be carried out with responsibility. – with guidelines.

    A money free for all would not stabilise the economy. What is the alternative? Any ideas?

    • bvee

      re: the two person economy. if i'm farming and you are doing hair and nails, your income is going to go to zero.

      • me yo

        lol. interesting

  • Mattyoung

    Gresham's law says that if crypto is cheaper than ink and paper then crypto wins. But crypto handling devices are inherently multi-currency. Government's best bet is to tax in whatever currency the taxed activity uses. Then hire researchers who can deal with a multi-currency world.

    Crypto, being much more efficient, will price another 30% of our activities that are currently unpriced, more taxes, not less.

    • No, Gresham's Law ssys that bad money drives out good money only when the price of said monies is fixed by the State. No such phenomenon, bad money driving out good money, would exist in a free market for money open to competition with market-based pricing.

      The cost to produce any money, or any good for that matter, is unrelated to the price buyers are willing to pay for it. Though, without a State-granted monopoly, low or no cost of production leaves open the possibility of nearly unlimited competition that will ultimately drive the price, and any profits, down to a natural rate, or a rate of interest or profit currently prevailing in a given economy.

      State governments have been dealing in a multi-currency world for centuries. Their solution has been to monopolize, cartelize, control issue and back it up with the full force of their police and military powers. They are not interested in letting Bitcoin, or anything else, become a fully developed and operational monetary system to the point at which it can compete with the State currency, and then taxing it.

      Taxing is not where the real opportunity lies. Taxing is chump change compared to the benefit of inflating the money supply, only claims to real wealth, and using it to lay claims to real production and wealth.

      • Edward Ingram

        You got that right

        • Thank you, Edward. After reading more of your thoughts my initial assessment of your statist tendencies were misplaced. There is actually much we agree on. I was able to capture one particularly long comment you made that might have been deleted. In any event, I am working my way through it to more directly respond to your theory, versus what I initially perceived to be a matter of ideology. If you would prefer I respond outside this forum, please let me know.

          • Edward Ingram

            Milton I'm always happy to have readers and discussions.
            My Skype address is edwarding2.

            I love Skype – we can read scripts and edit them together.

            Regards,

            Edward

          • Edward Ingram

            I went to some trouble to write a comment for statists but for some reason it was deleted. No explanation given. And they did it again. My Skype address is edwarding2.
            Let me try again.
            Take an economy of two people. They work for each other and they pay each other. They both have the same income.
            Then one starts to save or to import – then there is a recession because the other gets less income and so cannot spend as much.
            The same happens with larger groups where some of the group start to pay down their debts and save instead of borrowing.
            If the economy is well managed these undulations do not lead to a recession as others can step in to spend.
            For that to happen, there has to be enough spending money in circulation and it has to be created and distributed.
            In most of the world's economies it is left to the banks to create new money which they can do as long as people are happy to keep borrowing. If not, it is like pushing on a string.
            What I am saying is that:
            The state has to intervene in some way. Keynes said the same thing.
            It is better that the State manages the total stock of money in spending circulation as best they can, not by managing the rate of interest but by managing the stock of money.
            For either model to work there has to be some agreed mandate on when to create new money, how much, and to whom it is given to spend.
            The Central bank can create new money with a keystroke. They should auction that money to lenders who should add interest and lend it. This way we get a free market rate of interest.
            Free market rates optimise the use of resources.
            All prices have two parts:
            The 'Core' part which has to be free to adjust to offset the falling value of money
            The 'Real Economic' part which balances supply and demand.
            The inflation index combines both parts and is not a measure of the core rate.
            I looked at the lending systems in use and found that costs do not adjust to offset the falling value of money. Bond maturity values do not.
            In both cases human intervention, or contract writing, and regulations gets in the way. Too much statism.
            I created a new lending model and a new bond model to replace these contracts. It dampens the positive feedback generated by the current models – almost eliminating it.
            I looked at currency prices and found that one price is trying to balance two markets – trade and international capital. That cannot work. We should look at solving that.
            So if you look at the major units of the world's economies all prices and costs are being distorted.
            My thesis is that we need to make the financial framwork stable and only then should we look at how to manage the economy.
            That simplifies everything.
            I am told that this is a new school of thought.

      • Edward Ingram

        I went to some trouble to write a comment for statists but for some reason it was deleted. No explanation given. And they did it again. My Skype address is edwarding2.
        Let me try again.
        Take an economy of two people. They work for each other and they pay each other. They both have the same income.
        Then one starts to save or to import – then there is a recession because the other gets less income and so cannot spend as much.
        The same happens with larger groups where some of the group start to pay down their debts and save instead of borrowing.
        If the economy is well managed these undulations do not lead to a recession as others can step in to spend.
        For that to happen, there has to be enough spending money in circulation and it has to be created and distributed.
        In most of the world's economies it is left to the banks to create new money which they can do as long as people are happy to keep borrowing. If not, it is like pushing on a string.
        What I am saying is that:
        The state has to intervene in some way. Keynes said the same thing.
        It is better that the State manages the total stock of money in spending circulation as best they can, not by managing the rate of interest but by managing the stock of money.
        For either model to work there has to be some agreed mandate on when to create new money, how much, and to whom it is given to spend.
        The Central bank can create new money with a keystroke. They should auction that money to lenders who should add interest and lend it. This way we get a free market rate of interest.
        Free market rates optimise the use of resources.
        All prices have two parts:
        The 'Core' part which has to be free to adjust to offset the falling value of money
        The 'Real Economic' part which balances supply and demand.
        The inflation index combines both parts and is not a measure of the core rate.
        I looked at the lending systems in use and found that costs do not adjust to offset the falling value of money. Bond maturity values do not.
        In both cases human intervention, or contract writing, and regulations gets in the way. Too much statism.
        I created a new lending model and a new bond model to replace these contracts. It dampens the positive feedback generated by the current models – almost eliminating it.
        I looked at currency prices and found that one price is trying to balance two markets – trade and international capital. That cannot work. We should look at solving that.
        So if you look at the major units of the world's economies all prices and costs are being distorted.
        My thesis is that we need to make the financial framwork stable and only then should we look at how to manage the economy.
        That simplifies everything.
        I am told that this is a new school of thought.

      • Mattyoung

        Gresham law still applies. The issue is digital vs paper, both state sponsored. The value of a digital charge is zero on the market. The price of paper is about a dime per bill. The free market for money comes about because the cost of digital is nearly zero allowing anyone to create "digital coins" though not guaranteed to become money.

        The issue is can government ban anything with a cost of nearly zero?

        • They can and will

          • GTR ARGH

            If i want to trade that TV with bananas how can the government stop me. If the other person wants those bananas. If the person wants those BTCs and no one ever need to have to trade it back to fiat. UNSTOPPABLE

    • George Selgin

      "isn't a bitcoin payment through Bitcoin already legal tender?" No. The concept of legal tender has a very specific meaning in the U.S. and elsewhere (the meanings themselves vary). There is no such thing as a legal tender that is not expressly made so by statute.

      • M. Camp

        OK. Let me rephrase it.

        If a person tenders bitcoin (by payment through the Bitcoin system) in settlement of a legal obligation in bitcoin, wouldn't the law today regard that as legally acceptable? (If not, the creditor could validly claim that the debtor had defaulted by not tendering payment in the form of bitcoin he desired when due).

        • Mattyoung

          Actually, this is a very good point. Contract law may apply. Contract law would agree with Camp, both parties agreed to the bitcoin protocol. Bitcoin contracts are currently recognized by courts, lawsuits happen all the time. Can the government ban grocery market coupons? Gold sales?

    • J Mo

      Crypto is factors LESS efficient than government issued money. 3tx per second, high fees, oh and bitcoin uses more electricity than Ireland.

      • GTR ARGH

        Look into IOTA now that is the future of money, 1000s tx per second the more users the faster it is , Quantum proof, Proper anonominity , NO FEES , NO BLOCKCHAIN, NO MINERS, DECENTRALISED. CAPABLE OF MACHINE TO MACHINE NANO PAYMENTS LIKE HALF A CENT…… No more rounding off to the nearest cent. ANDDD the big finally UNLIMITED SCALABILITY.

  • Edward Ingram

    I went to some trouble to write a comment for statists but for some reason it was deleted. No explanation given.

    Let me try again.

    Take an economy of two people. They work for each other and they pay each other. They both have the same income.

    Them one starts to save or to import – then there is a recession because the other gets less income and so cannot spend as much.

    The same happens with larger groups where some of the group start to pay down their debts and save instead of borrowing.

    If the economy is well managed these undulations do not lead to a recession as others can step in to spend.

    For that to happen, there has to be enough spending money in circulation and it has to be created and distributed.

    In most of the world's economies it is left to the banks to create new money which they can do as long as people are happy to keep borrowing. If not, it is like pushing on a string.

    What I am saying is that:

    The state has to intervene in some way. Keynes said the same thing.

    It is better that the State manages the total stock of money in spending circulation as best they can, not by managing the rate of interest but by managing the stock of money.

    For either model to work there has to be some agreed mandate on when to create new money, how much, and to whom it is given to spend.

    The Central bank can create new money with a keystroke. They should auction that money to lenders who should add interest and lend it. This way we get a free market rate of interest.
    Free market rates optimise the use of resources.

    All prices have two parts:
    The 'Core' part which has to be free to adjust to offset the falling value of money
    The 'Real Economic' part which balances supply and demand.

    The inflation index combines both parts and is not a measure of the core rate.

    I looked at the lending systems in use and found that costs do not adjust to offset the falling value of money. Bond maturity values do not.

    In both cases human intervention, or contract writing, and regulations gets in the way. Too much statism.

    I created a new lending model and a new bond model to replace these contracts. It dampens the positive feedback generated by the current models – almost eliminating it.

    I looked at currency prices and found that one price is trying to balance two markets – trade and international capital. That cannot work. We should look at solving that.

    So if you look at the major units of the world's economies all prices and costs are being distorted.

    My thesis is that we need to make the financial framwork stable and only then should we look at how to manage the economy.

    That simplifies everything.

    I am told that this is a new school of thought.

  • Complying with government regulators' rules may remove ostensible excuses from their rhetorical arsenal and that may help for a very precious time. But more important are mainstreaming cryptocurrency before regulators can shut it down (the Uber effect) and legally bribing politicians with Bitcoin with with proceeds from the cryptocurrency industry (wealthy cryptocurrency owners should fund key politicians' campaigns, preferably with Bitcoin).

    Keeping cryptocurrency legal really is a race against the clock at this point. Its growing popularity serves clashing forces by simultaneously spooking the regulators and mainstream it. The latter wins only to the extent the former can be restrained.

    • Edward Ingram

      As I said, it is the busiess of governments to manage the stock of spending oney in circulation.

      Currently they do it by managing interest rates and hoping that tht will work. It works very badly and when people stop borrowing it is like pushing on a string.

      A lack of money in circulation was blamed for the 1930s depression. See 100% money by Irving Fisher.

      We have too much variation in the stock of money so the idea that governments should not manage interest rates but should manage the stock of money in spending circulation as best they can is the coming way forward.

      • Not too much variation, but rather to much of the wrong variation at the wrong time.

        Yes, governments everywhere do a bad job of it, but not for lack of conscience and effort, rather more for lack of humility. They will never be up to the task of central planning.

        Better it is decentralized, but Bitcoin is a long way from anything like that. Bitcoin enthusiasts from the start dismiss both debt and trusted third parties, while both are a necessary ingredient to any workable money, centralized or decentralized.

        • Edward Ingram

          It is not possible to share all of the information needed for this discussion as the editors delete ir every time.

          My point is that they do not have the right instruments nor a stable financial framework.

          If you want to know what that means skype with me as edwarding2.

          or email at eingram@ingramsure.com

  • JayZ

    What about Services like TenX credit cards? You pay everywhere where visa is accepted. in this case the implemented software converts the amount into bitcoin and uses the funds on your TenX wallet.

    • me yo

      Loving this type of method. Kills credit card companies, shocks governments, closes and opens so many more options in life, financially. Bring it on. Social society needs a change of some kind. 21% to 99% fees on your debt through terrible "regular money" plastic credit cards has got to go.. Not to mention, I am starting to see why someone, anyone, would want to evade taxes. Taxes are deplorably managed in north america, have you witnessed or researched exactly what we spend our taxes on ?!.. ROFLMAO

  • John33

    I don’t think world governments are just going to “look the other way on this”. Correct me if I am wrong, but doesn’t anonymity mean that it is impossible to tax? Which is what governments are in business to do basically…or to say it another way, it’s how they function in capitalist societies. My guess is all central banks are assessing the pros and cons of “taking on bitcoin”. Nobody wants to be the country that is left out when the music stops. The bad actors in the world, whether it is organized crime, North Korea, and other pariah nations who have been subject to sanctions, will welcome it. But “the Empire Strikes Back”. But the phantom that is bitcoin might be hard to stop. Whoever came up with this has some very powerful enemies. It is fascinating to see how this one is going to shake out. It will be one for the history books.

  • DarthLord Nevin

    I like seeing my money

    • me yo

      I like doubling my money.. Different strokes for different folks. 🙂 happy new years!

  • Joel

    Thanks for this, good stuff. There is a lot of junk thinking around bitcoin and it's alleged immunity to government control. When it comes time to buy something significant, car, house, boat, whatever, bitcoin is no less visible and traceable than anything else. Governments are sovreign over trade within their borders.

  • rainman50

    Bitcoin is a joke. If you have money to throw away or gamble then I can see someone buying it. Just like you do the lotto or casinos. But not as normal everyday use.

    • GTR ARGH

      really? i see it like the property market theres ups and down hard to spend but overall direction UP its been 2010 now over 300,000% increase show me any other like that