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Mo' Money Mo' Problems: The Future of Finance?

Kayzee

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I think it's becoming increasingly clear to anyone who has actually been paying attention that almost everyone is pretty much screwed at this point when it comes to money. Or maybe that's just the impression I get from what I have read. The banking system has more or less rotten from the inside, the government is increasingly revealed as corrupt, more and more rich people are putting more and more money into offshore tax havens, the gap between the wealthy 1% and the rest of the population is getting larger and larger, and yet at the same time the money that the 1% has is becoming increasingly worthless.

 

The current banking system cannot hold, and fortunately an alternative seems to have presented it's self from nowhere to save all the world's money, at least theoretically. Cyrptocurrency. It's actually pretty amazing that an unknown hacker came in from nowhere and introduced this whole new idea of money and pretty much vanished. Right now a single Bitcoin for example is worth about $700 and more and more individuals and companies are trading it and using it. Even traditional banks are increasingly interested in the idea of using the 'blockchain' for their own distributed ledgers.

 

But I am not going to sit here and say their aren't problems that need to be fixed. Cyrptocurrency is still to volatile, there are concerns of new quantum computers ruining the encryption scheme it relies on, it often can be used to make tracing the flow of money difficult and possibly could make tax avoidance even worse, regulation could crack down on it, 'forking' and other community disagreements could split the base too much... And yet it seems this underground economy is becoming more and more mainstream and I have heard some people say it may take the place of traditional government controlled fiat currency someday.

 

Overblown hype? Maybe. Maybe not. The idea that cash would one day totally be replaced by credit sticks was a really common trope in sci-fi and futurist ponderings and that never really ended up being true. This isn't quite the same thing though. Cyrptocurrency isn't simply an account being managed by a bank or central service somewhere, it's a system of distributed encrypted ledgers where everyone is always double checking everyone else's copy. It's harder to trace and some of the new Cyrptocurrencies offer complete anonymity to make it nearly impossible. It's probably perfectly possible to even print out paper versions of bitcoins with unique keys that can serve the same function as cash.

 

Could this really replace old forms of money? Maybe. But if it does we will have to think about what that means and how that would change things. If we remove the government's control of currency, do we also remove their ability to collect taxes? If not, how will they be calculated and collected? If so, is there a better way to fund public projects then taxation? If banks are either gone or decentralized to the point of not mattering much anymore, how will lones such be done? Could 'smart contracts' help any of these problems?

 

If you hear

, then the world is going to be changing very so to something very different. The old institutions will fall and so on and so forth. I can't help but be more then a little skeptical. I think it's more likely that it will continue as a sort of small part of a larger economy which is more centralized. But I do want to see what happens next and if I had extra money I might try seeing if I can get into it.


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Well, the basic idea here is basically that banks can pretty much print as much money as they want for loans with the government's blessing and as soon as it looks like they are going to fail like in 2008, they get he government to bail them out. The people on top manipulate the government and run the banks so they don't have any real accountability. The way wall street works is related, since it's all tight into these huge financial institutions that can basically do whatever they want and get bailed out.

 

Cyrptocurrency isn't going to magically redistribute wealth or anything, but due to the way it's designed the idea is no one bank or goverment can just endlessly print money and inflate the market, thus banks are forced to lone responsibly. Well there is 'mining' but that's a very limited resource and requires tuns and tons of computing power the more it's done. Plus, unlike a real scarce commodity like gold or silver, if there is consensus about updating how the currency works it's entirely possible to adjust it's cap or other implementation details.

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So your solution to banks fabricating currency with little accountability is for random people to fabricate currency with zero accountability?

 

Thing is, Bitcoins are still tied to, and entirely dependent upon, the existing economy; like you say, bitcoins are worth x. They function much like a specific country's currency. Sure, you could theoretically trade independently with bitcoins but bitcoins are valueless independently so why would you? It would be a barter system where one side gets a determined something and the other gets something that is valueless to very many because it has no standard and consequently will be difficult to reuse later. Even some sort of dark ages bartering system is better than that because at least the first party gets some carrots for giving the second party their cabbage.

 

People doing this willy-nilly is, frankly, super dangerous. So much so that at one point the Nazis literally dropped counterfeit money instead of bombs to screw with the British economy. The whole point of money is that there is a defined standard so that everything is worth something. Banks devaluing that standard through printing more money is the issue, your solution exacerbates that.

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One of the whole points behind Bitcoins is that there IS accountability. Everyone in the system basically has to agree with everyone else in order to actually get anything done. You can't just fabricate a Cyrptocurrency out of nowhere, that's not how it works. You have to provide a 'proof-of-work' and there is a hard cap on the number of bitcoins that can even exist. It's all protected by layers of security to prevent anyone from getting away with pumping up the currency. It's not perfect of course (notably it has a problem with hackers stealing it from exchanges, but that may be more a problem with the exchanges), but it works.

 

And if you are worried about how it seems 'valueless', the thing is, nothing really has any 'value' anyway. It's all really arbitrary made up numbers that don't have any real world meaning. The idea of money in the modern world is entirely reliant on that idea, and I don't think that's going to go away. There are plenty of problems with, say, going back to the gold standard. There is nothing wrong with investing in gold and other precious metals though or keeping most of your wealth in that form. But gold is just as valueless as anything else.

 

Theoretically I rather the idea of 'money' not be needed at all, but I don't see a good way of doing that.

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No. Everything was valueless. Then we defined value. And now nearly everything has varying scales of value in varying contexts; the principle context being the global economy. You can choose not to value stuff, sure, but you won't get far without food, water, a roof, etc. Money exists as a means universality; Pre-currency, If you grew cabbages and wanted to trade with someone who didn't like cabbage, too bad... Boo money, which can be used to facilitate both sides of a trade.

 

And your argument for Bitcoin works fine within Bitcoin; not within the wider economy. Better known as 99.99% of the economy. In the wider economy Bitcoin adds to inflation because more money just appeared from nowhere. There is now more buying power but actual resources have remained the same.

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Valueless in the sense that it can't be meaningfully assigned to an abstract absolute value that everyone will always agree on I mean. I am not saying money isn't important, just that it's an arbitrary system that everyone sort of agreed was necessary. I am simply pointing out that any particular arbitrary system of value is pretty much equivalent to any other. Assigning value to gold is the same as doing so to printed bank notes or bits of data in a computer as far as any of them having 'real value'.

 

That's how Cyrptocurrency, or any currency really, works. It doesn't have value because it exists, it has value because people use it, trade it, exchange it. I mean you might as well say any new gold that is mined adds to inflation too. Or any time someone does anything that they sell. Heck what about all those people that sell virtual stuff they get in MMORPGs? Everything that people will pay money for technically could be seen as storing that value. Does all that "add to inflation" of the wider economy? Maybe in a way.

 

But you aren't just creating value out of nowhere. The exact system we use may be arbitrary, but the basic idea of being able to store some sort of virtual value in something that can be used to get that value out later is still useful enough that people have hung on to it. Right now people are trusting the banks and the government form giving us a currency we can trust to do that and hoarding gold is impractical for most people. This is why people are interested in cyrptocurrency. It may not work out, or it might change the world someday. I am not saying it will, I am just saying there are a bunch of people who are slowly having much more faith in it then traditional financial institutions and governments. We will see.

 

Also side note: From what I have seen there is lots of evidence that having a universal thing that can be used for barter is a lot less important in the development of money then having a easily tallied system of credit. The difference may be semantic, but if you look at most moneyless societies, they don't usually directly trade that much within there own group. It's much easier, for example, for people to ask for help on a farm in exchange for a promise to give them some food when it's grown then to have to give them the food they haven't grown yet. Or to get other people to help in exchange for other favors. Though this really doesn't fundamentally change the dynamics of exchange much, it point to some interesting conclusions about what money really means.

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