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View Diary: The Problem with Crypto-Currencies and Why SolarCoin is Different (124 comments)

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  •  This is an acceptable place to start nuketeacher. (0+ / 0-)
    As to the inflationary effect of these currencies, realize that they are used INSTEAD of regular currencies.
    If someone were willing to destroy an equivalent amount of existing then I'd been fine, if every one would agree.

    But, what would be anyone's motivation?

    Do you see the issue?

    To make the issue more clear, lets take your example and imagine the people at bit coin "were so kind" as to issue a dollar value of bit coins equal to the entire existing money supply of the United States.

    If and only if everyone in the United States agreed to turn in their existing currency for this bit coins on a dollar for dollar for dollar basis, and

    every one agreed to accept bit coins as equal payment to dollars,

    and, (and this is the critical part) the people at bit coin agreed to destroy every existing dollar and no one would accept dollars any more

    Then, and only if all three of these conditions were true would the system work.

    However, if the people who issued the bit coins went and spent them it would be no different than if the US had just doubled the money supply with no equivalent increase in the physical values of the goods and services sold so we would expect prices to double (100% nearly instant inflation in a static model)

    In a dynamic model it would be worse because of expections, delays, perceptions etc, prices would probably increase 500% of more and the whole system would collapse.

    The only difference would be who could exploit the transitionary dynamics. In one example, the government would be robbing value of people who had saved money, in the second example it would be the people who issued the bit coins.

    If they were really fast for example, when everyone turned in all their dollars for bit coins before people could spend them the bit coin people could go out and buy all the physical good and services of the economy and leave everyone else holding the bit coins.

    In the first example the government could do this.

    In the case of the solar coins, it is not quite as clear.

    Yes, there is a cap on the supply, so there has to be some savings.  

    In your example, you say the installation of the solar collector saved $90 a month.

    I'm having trouble knowing how to think about this. If you told me it was mining gold, and $90 of gold had been added to the value of goods in the economy, and so therefore you created $90 dollars of additional currency to match it. I'd say ok, I can follow that because if someone spends that $90 even on something else every thing will balance because there was $90 of extra value of goods produced so no one gets robbed.

    But then you mention this extra $20 bonus incentive. I love incentives for solar power but we should be honest an say we are taking that value from someone.  Robbing may be too harsh of a word.

    If someone proposed we give everyone in the country a special $1000 coupon for installing solar energy and we'd pay for it printing extra money which would create an extra 1% inflation for 10 years I say great, because of global warming we can and we should do this.

    But under oath I would feel obligated to admit this would be no different than a tax on everyone who had saved money, including those in there pension plans and a transfer of wealth to spenders who would by solar collectors.

    I would argue the effect of this tax would be mitigated by Keynesian multiplier effects but I'd have to admit I didn;t know for sure how much and they would be delayed.

    The thing about the $20 solar coins is we are proposing this wealth transfer be given just to the rich people who can afford $50,000 solar installastions on their $500.000 plus homes to be payed for out of inflation on school teachers pensions that make $20,000.

    "Seriously, Folks, WTH?" - ("What the Heck? "h/t Joan McCarter, Seriously, Florida. WTF?)

    by HoundDog on Sun Apr 13, 2014 at 06:46:37 PM PDT

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    •  I follow your argument. But what's wrong with (3+ / 0-)
      Recommended by:
      nuketeacher, HoundDog, linkage

      a nonprofit organization coming up with a creative way to implement what's essentially a voluntary opt-in economic incentive program for believers in solar power to help encourage more people and businesses to switch to solar power? That's basically what SolarCoin is, IMO.

      Nobody is forced to buy or use SolarCoins, but people who do are giving them value by their belief and support for the concept, and then that value gets transferred to the solar generators, whether large or small. Currently one SLR trades for half a cent. The more people decide to buy them and use them, the more the price will rise; hence the economic incentive to solar generators will increase. Such a program might create some marginal inflation in the economy if SLR attains a much higher price and market cap, because that's what increasing the money supply does, by definition, whatever the type of money. But SLR's current price and market cap are nowhere near the level where it would create any noticeable inflation in the economy. If it ever gets to that point where issuing SolarCoins can move the overall inflation rate in the economy, imagine how powerful the economic incentive for solar energy would be, since the value of the SLR grants would be worth so much compared to what it's worth now. That's a "problem" that I'd be happy to have. :)

      I would never claim that SLR is a panacea or a total solution to the world's economic and environmental problems, but I think it could be part of the solution, if enough people decide to get behind it.

      The most serious problem in American politics today is that people with wrong ideas are uncompromising, and people with good ideas are submissive and unwilling to fight. Change that, and we might have a real democracy again.

      by Eric Stetson on Sun Apr 13, 2014 at 06:57:47 PM PDT

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      •  I see your point here Eric. You are probably (2+ / 0-)
        Recommended by:
        nuketeacher, Eric Stetson

        correct about the amount of the SLR grants, which I've not heard of before being small enough relative to the rest of the economy that they will not cause inflation.

        But, where does the guarantee of value come from? Is it essentially a volunteer donation by the owners of a business because they want to support solar energy?

        Or can you take them to a banks and convert them to dollars somewhere?

        Because unless it is the latter, is there not a danger than the people with the most generosity get stuck "holding the bag"  so to speak?

        Let's imagine a wonderful progressive pro-solar fellow who owns a special polarized sun glasses store on the board walk of a moderately wealthy community say on coast of California on Monteray, or someplace like that.

        He hears about it from some volunteers who come around and agree to participate in the program because he is a great kind of all around community fellow -- support the Little League, the Shrines burn center etc. So he put up the sticker in the window saying he accepts these solar coins.

        And, word get out around the community, so local homeowners who were going to install solar anyway, because it makes such good economy sense start bringing in their month $20 bonus solar coins and he accepts them for sun glasses.

        And, then he finds the dry cleaners guy at his monthly Kiwana club meeting decides to take them too. So he spends them there and the whole thing gets going well.

        20  to 50 local business are taking these things they look cool and the total number is building up.

        Can he pay his rent with them?

        Suppose he has accumulated a couple thousands dollars of them and realizes he's losing interest. Can he go to the bank and convert them to dollars so he can invest in the stock market or pay his inventory supplier in a crunch.

        Every currency known to man has had ups and downs. When the market price suddenly drops, and there is a run on the market like there was in bitcoins recently, who acts like the federal reserve did in the 2008 Stock market crash when it feel 500 points in one day.

        They tripped the circuit breakers shut the market absolutely flooded the banking system with liquidity, cash, bailed out the major stock market trading firms, which people around here are still grousing about. and the market came back.

        Otherwise it is fairly clear we would have had a global depression for probably 10 or more years a decline of global GDP of 20% or more and GNP much larger.

        When a currency does not have this kind of power, backing, and credibility, you get situations, like Bitcoin, Greece, Argtentina, post-war Germany.

        The only currency system in the world with this much power and credibility is the dollar back with the U.S. government, is it not?

        Which is why we crucify the right-wingers every time they diddle with it when the debt ceiling comes up. And, even though it nearly kills them to do so, even the damn grown ups in the GOP will come out and beat back their own Tea Baggers with a stick and tell them to chill out and not mess with the only stable global financial system the world has.

        The fact we can come as close as we have has scared the stew right out of a lot folks, including me.

        If the cryptocurrencies can offer us a way out of this mess, it will be great. But, as I said. I don't understand yet, how they can work as a whole system. Please be patient as I think about this some more.

        I like these tangible example you and nuketeacher offer, although, that name gives me the chills, he has been friendly so far. I have tremendous respect for you, and have known you for a long time so I have I haven't been disruptive. Please explain to your friends, that when I ask really  long questions it is a good thing as it means I find the conversation really interesting, and I know it can be annoying and apoligize. I've tried really hard but it seems to be incurable.

        If you think I'm annoying, my girl friend can take a five page comment i write an often rewrite the same thing better in three or four sentences, which impresses the heck out of me and makes up for a lot of other things that are barely tolerable.

        Cheers.

        I have to go for tonight, though I will look back here in the morning for any responses.

        Thanks for this fascinating discussion. I've been troubled by these cryptocurrencies for some times now. It doesn't surprise me that I don't understand them, as there are a lot of things that I understand less and less there more I study them. Like quantum mechanics for one.

        We even have a whole new kind of tetra quark now, and I hadn't even figured out how the old quarks worked yet.

        No, that's not what bothers me. Its that It don't read people asking or explaining these really basic issues, about how these cryptocurrencies are supposed to interact with the rest of the macro-economic system. Not even in top magazines like The Economist.

        Whatever.  Good night.

        "Seriously, Folks, WTH?" - ("What the Heck? "h/t Joan McCarter, Seriously, Florida. WTF?)

        by HoundDog on Sun Apr 13, 2014 at 08:11:56 PM PDT

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        •  exchanging cryptocurrencies for dollars (1+ / 0-)
          Recommended by:
          nuketeacher
          can you take them to a banks and convert them to dollars somewhere?
          As of right now, most cryptocurrencies including SolarCoin can only be exchanged for bitcoins (such as on the AllCrypt exchange or various other exchanges), but once you exchange them for bitcoins you can then exchange them for dollars on exchanges such as Coinbase.

          One of the goals of most cryptocurrencies is to become big and important enough to be traded directly into dollars, like bitcoin. Obviously one step is better than two steps to convert to and from dollars to SolarCoins or whatever else. If it catches on, then eventually it will be tradeable directly into dollars. It's not yet because it costs millions of dollars to launch a money exchange service, mostly legal and regulatory compliance costs. Coinbase is one of the few companies that has successfully done it, and they had to raise $6 million in venture capital from Silicon Valley VCs in order to do it.

          So, for now, you can trade SLR --> BTC --> US$. In the future, hopefully eliminate that middle step.

          The most serious problem in American politics today is that people with wrong ideas are uncompromising, and people with good ideas are submissive and unwilling to fight. Change that, and we might have a real democracy again.

          by Eric Stetson on Mon Apr 14, 2014 at 09:32:29 AM PDT

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      •  I sorry it seems like I may have unintentionally (2+ / 0-)
        Recommended by:
        nuketeacher, Eric Stetson

        discouraged you Eric and you are one of my favorite people here. I hadn't read yet that you were volunteering for this non-profit institute. If you are involved with it I'm sure it is a good thing.

        As you might have guessed I was never chosen to be the head of any major diplomatic missions to any place important.

        As I get older I find things I don't understand sort of confront me with a bigger challenge. When I was younger this was like an exciting opportunity. Now I tend to grit my teeth and keep pounding away at them until I can find some entry way until my mind can grasp them and pull and push every aspect of it predicting correctly how the whole system should and will react, and then testing it against what other people think and data.

        The fact that I haven't been able to do that yet with these cryptocurrencies annoys me, and I see now that I have not been as skillful and diplomatic as I should have in separating the idea from the people. Sorry about this.  

        The scientific method requires us to attack ideas for robustness, hypothesis testing, refinement, extreme conditions testing etc. We should not do this with people, especially not our friends.

        Please accept my apologizes if I didn't see completely any overlap between the ideas being advanced here and the people advancing them. All my previous questions were in relation only to the hypothetical example advanced by nuketeacher which stimulated many useful questions and discussions.

        The insights generated by your lively comment threads by everyone here stimulated such a frothy brew of new issues and perspecives that I may have lost empathy and perspective for a moment and in a sea of abstractions in my own head that no longer contained any connection to the people's feelings who may have been advancing them.
        I hate it when this happens. Sorry once again.

        Your last comment is right on target, when you suggest the idea you are promoting for your local community is so small compared to he national economy that imbalances of he aggregate money supply as measured by M1, M2, M3 relative to total GDP are so completely irrelevant as to be absurd, and I'm sorry to have even brought it up.

        The only explanation I can give is that one on my friends from graduate school did his PhD thesis on a dynamic mathematical computer simulation model of an feedback  "anchor and adjustment representation of the Federal Reserves decision making process for setting the interest rates in response to perceived inflation, money supply and GDP under Franco Modigliani who received he Noble Prize for some of his work in this area (Modigliani not my friend, not yet anyway,) and we "talked" a lot about this for a couple years in a way that any one overhearing it might have thought was arguing but was really he best fun that could ever be had.  

        In this thought space nothing exists but pure pure conception. You guys had my thoughts flying back and forth like it was the good ole days but I wondered off in the wrong direction, and was reliving some of the old debates from the past. Maybe like a positive form of PTSD.

        What would you call it if it were Post Fun Re-Yearning Synddrome?

        My typing speeds up and I appear to be much more aggressive as I appear to be demanding answers to questions not even properly asked yet. Sorry. Thanks for taking me back to the good ole days.    

         

        "Seriously, Folks, WTH?" - ("What the Heck? "h/t Joan McCarter, Seriously, Florida. WTF?)

        by HoundDog on Sun Apr 13, 2014 at 08:50:55 PM PDT

        [ Parent ]

        •  No need to apologize. :) (1+ / 0-)
          Recommended by:
          nuketeacher

          It's good to ask questions and think critically about radical new ideas. As long as people keep an open mind and are willing to learn, then I have no problem engaging in extensive dialogue. It actually helps me to think more about things from different angles and figure out if there are issues where I need to study more and think more to have a better understanding. :)

          The most serious problem in American politics today is that people with wrong ideas are uncompromising, and people with good ideas are submissive and unwilling to fight. Change that, and we might have a real democracy again.

          by Eric Stetson on Mon Apr 14, 2014 at 09:35:23 AM PDT

          [ Parent ]

    •  Mining Gold (1+ / 0-)
      Recommended by:
      Eric Stetson

      You mention a lot of things HoundDog, all good.  I'll address one thing at a time and see how much of this I can get to.

      The Gold Standard has led to all kinds of problems.  Whole cultures have been destroyed because they had gold but not the means to defend it against robbers.  MOST gold is produced because it has been a universally recognized token of currency.  Mining for gold has left land unusable for anything else, waters polluted, people maimed, and other horrible things.  A small fraction of the gold that has been mined has been used for various technological purposes, but most gold that is produced simply adds to the pile of gold that is already held in vaults as a representation of value.

      By and large, gold, once it is taken out of the ground, does NOTHING.  If, instead of gold, we created an electronic token for each MW-hr of electricity that was generated by solar energy, there would be a real, useable thing in the world as a result.  A MW-hr of electricity can keep me warm, pump water out of the ground, help produce food, etc.  It has real value, where-as an ounce of gold only represents the value that someone else puts in it.

      If the oceans of the world were full of gold, we would consider it absurd to use it as currency.

      Ted Cruz: The second coming of Christ, but not Reagan (yet).

      by nuketeacher on Sun Apr 13, 2014 at 07:06:00 PM PDT

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