[cryptography] (off-topic) Bitcoin is a repeated lesson in cryptography applications - was "endgame"

James A. Donald jamesd at echeque.com
Sat Feb 25 21:59:16 EST 2012

On 2012-02-26 1:18 AM, Benjamin Kreuter wrote:
> You left out, "...and that they can eventually exchange it for their
> nation's currency."  The demand for Bitcoin as a currency is driven by
> its properties as a digital cash system; people still need to get their
> nation's currency at some point (e.g. to pay their taxes, to repay
> debts, to satisfy requirements imposed by courts, etc.).

When hyperinflation hits, everything becomes money except money.  Nails 
are money, gold is money, moonshine liquor is money, antibiotics are money.

But when hyperinflation hits, paper is not money.

When that day comes, the problem will not be that bitcoin is cut off 
from fiat money, but that fiat money is cut off from bitcoin - and 
perhaps more importantly cut off from nails, from gold, and from 
moonshine liquor.

The day comes when you offer a trillion dollars for some nails, and no 
one will sell you the nails because they don't know, and don't much 
care, whether it is a British trillion or an American trillion, nor 
whether that makes any difference.

Paper money has been adopted several times over the last thousand years 
of recorded history.  What do you think happened each of the previous times?

Of course gold has a lot more history behind it than bitcoin, so chances 
are will go to a gold standard rather than a bitcoin standard.  Everyone 
knows that gold is money, even African peasants, while only a few geeks 
think that Bitcoin is money.  But the way the wind is blowing we are 
going to be off fiat money soon enough.

Supposedly we are wiser now, and can now make fiat money work.  But if 
you look at the Assignat hyperinflation, they knew how to make fiat 
money work back then - until they started executing people for 
suggesting that inflation was happening and that it was caused by the 
government printing too much money, whereupon everyone who was 
politically correct forgot how to make fiat money work.

Something similar happened in Weimar Germany.  In Weimar Germany, unlike 
Revolutionary France, they did not cut off your head for noticing that 
inflation was happening or explaining what was causing it, but it was 
extremely bad for your career to notice such things, so all the most 
learned economists were firmly of the opinion that there was no 
significant inflation, and that printing more money to provide more 
welfare was extremely good for the economy, indeed so vitally necessary 
that there needed to be a lot more of it.  To doubt the consensus was, 
as Paul Krugman frequently explains, to oppose economics and science.

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