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September 22, 2011

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Rgcapital12

The current system is designed to extract value. Money derived from debt is the worst since it enslaves many while enriching a few. I watch from a far knowing the potential dollar crisis that awaits our world. The key here is education and innovation. Keep up the good fight and know that you r not alone. It will be our generation that will have to solve this puzzle.. RG

Biker1337

Here’s the problem with economics: few people understand it. Many terms have very specific meaning in economic theory that are often confused with the general meaning of the term.
Scarcity is a great example. In economic terms, it doesn’t mean rare. It means anything you are willing to trade for. Basically, everything is scarce except for the air you breathe (for now, anyway). Even water is scarce; how many bottles of water have you purchased?
Another misconception about economics is that many think of trade and finance as zero-sum games: my gain is your loss. This is simply not true. If you have a lot of apples but no oranges, and I have the opposite, we can trade some apples for some oranges. We both gain. How many apples an orange is worth, we will have to negotiate. This is called free trade (in the micro sense).

So, yes, economic theory is based on scarcity. Without it, we don’t trade. Scarcity is my lack of a thing that I want, and your possession of it. If I have everything I want, and you do too, we don’t trade; hence, no economics. Just because we live in a time of abundance doesn’t mean that things aren’t scarce.

The purpose of alternative currencies, as far as I can tell, is to make virtual cash. A currency that can be used online that is untraceable. Cash is convenient and I don’t have to pay a fee to a third party to use it. It is also anonymous. Maybe I don’t want my employer or the government to know that I collect comic books. This obscurity also makes it the means used for illegal activities. (What is illegal, and why is a completely different philosophical discussion. Society and government formation is a vast subject). So the government is concerned about alternative currencies because they lose control of the flow of information, making it more difficult to enforce the law.

Payment processors and banks fear alternative currencies because it is a disruptive technology. Entrenched businesses have a vested interest in protecting their business model, which doesn’t include bitcoin. They don’t understand it and they do not want to invest the resources necessary for them to make a profit from it. But they do see it as a threat, so they will try to keep it from emerging.
And they may be right in not embracing it. Alternative currencies have two major hurdles. The first is trust. Our currency and economy is based on trust. This green piece of paper in my hand is worth something; if I give one that has a 5 on it, you’ll give me a nice cup of coffee. It takes the willingness of a people plus the backing of large institutions to make this happen. What will prevent counterfeit bitcoins from flooding the market, making them essentially valueless? I don’t know, and I do not have sufficient need to use an alternative currency to take that risk. Bringing me to the second hurdle: need. Do enough people see a need for an alternative currency for it to take hold? And I doubt that they do. Alternative currencies exist, and will continue to do so, but they will never become dominant (at least, in my lifetime). People will always convert to their local currency (in my case, the dollar) because of its security and wide acceptability.

As to “making something from nothing,” this is called adding value in economic terms. We all do it, everyday. But using to discredit an idea is a distraction, and works because it sounds like conventional wisdom. We are in this mess because of greed and corruption. Not the underlying system.

heathervescent

Biker1337 - I like/agree with a lot of what you are saying. Thanks for your comments! I also agree we are not in this mess because of the underlying system.

But I disagree with your view that alt currencies are just to create virtual cash. There are a lot of (nuanced) reasons/values people want to create alternate currencies. I'm not going to limit myself to knowing all the reasons, because we're going to create even more as we continue exploring this topic.

Thanks for your thoughts. I'd love to chat more with you (and will be in the SF area next month.) :)

Biker1337

I’m certain that there are many reasons why people would want to create alternate currencies. The Euro is an excellent example of a government backed new currency. While it’s not exactly an alternate currency, it is worth discussing. It was created to foster free trade throughout the Euro zone. A single currency facilitates inter-state commerce. Of course, the Euro is in trouble right now. It would have been in a much stronger position had they let Greece default on its bonds (they are Greek bonds, not EU bonds). An accurate risk premium would then be assigned to the various sovereign bonds, and Greece could either get its act together or live in poverty. But that is another debate, with a large number of complex ideas to be discussed.

A much more common desire for an alternate currency (at least, by its creators) is increased profit. Laundry facility change machines that provide tokens instead of quarters are a good example. Once you get the token, you are committed to spending it in that Laundromat. If you don’t redeem it, the Laundromat owner is even happier.
The Linden dollar is similar in concept, except that you can convert it back into standard currency again. But Second Life still gets a cut when you take it back out again. And SL is starting to get noticed by various government agencies, so they likely will get regulated like conventional banks soon.

Several cities in Brazil have also created alternate currencies. Their purpose is to encourage local spending. Merchants are giving a discount if the local currency is used. The currency is generally created by the city through a “bank”, with the currency pegged to the Brazilin real (via a bank account held by the national bank – for every real in the local currency, the national bank has a real on deposit).

But, I still assert that an alternate currency has to overcome two large issues to become viable. Do people see a enough value in the new currency to change from the existing system? And, will people have faith that the new currency will not collapse?

And, I’d enjoy having a conversation with you when you get up to SF. Looking forward to it (check your Twitter PM).

--> Brian

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