On the Practicalities of Counterfeit-Proof Physical Bitcoins

fsterman writes "What do you get when you cross physical one-way-functions, a distributed and secure datastore, with physical Bitcoins? A viable alternative currency for micro-nations and dictatorships with hyper-inflation." Whatever your thoughts on bitcoin, it's interesting to think about the infrastructure and production cost of the tokens we use as money more generally.

Comments

Why do dictactorships have hyperinflation?

[JoshuaZ]

A major reason why dictatorships (or for that matter sometimes non-functioning governments of other forms, e.g. the Weimar Republic) is because of economic pressures as well as undisciplined monetary policies where they try to solve problems by just printing more bills. Bitcoin makes that impossible, so the end result will be that those governments will either not use such a limited currency, or will use it up until the point they want to print more where they will then either abandon the cryptocurrency or declare that some other currency must have some exchange rate with the Bitcoins and print more of those. That's before we get to the issue that functioning governments have legitimate reasons to adjust the money supply. So the summary's claim that this would appeal to countries struggling with heavy inflation doesn't really make sense.

Re:Why do dictactorships have hyperinflation?

[CrimsonAvenger]

So the summary's claim that this would appeal to countries struggling with heavy inflation doesn't really make sense.

No, this isn't about "appealing to countries". It's about "appealing to PEOPLE".

Bitcoin is (possibly) a useful alternative to the individual citizens of countries that are trying to solve economic problems by printing money.

It is not, on the other hand, a useful alternative for the governments that are just printing money....

Re:Why do dictactorships have hyperinflation?

[Jane Q. Public]

Bitcoin makes that impossible, so the end result will be that those governments will either not use such a limited currency, or will use it up until the point they want to print more where they will then either abandon the cryptocurrency or declare that some other currency must have some exchange rate with the Bitcoins and print more of those.

This, except for that very last part. It isn't possible to tie a non-inflationary currency via a fixed exchange rate to another currency, then inflate that other currency. That is a contradiction. You can do one, or the other, but not both.

Most of the time, the governments in these hyper-inflationary states are printing more money in order to spend more money or to save their own asses, at the peoples' expense. (Just as, to a lesser degree, the U.S. government has.) So they would simply not allow the non-inflationary currency, or abandon it when they saw it didn't suit their purposes.

It's far past time we kicked these adherents of failed and discredited Keynesian theory out of government economics. Sadly, Janet Yellen, new Fed chief, is a staunch Keynesian and a fan of the "new" Phillips Curve, which was demonstrated pretty thoroughly to be wrong about 20 years ago.

We already have stagflation under Obama: high inflation (government inflation figures are just plain B.S.) and high unemployment. If Yellen has her way, we could have high inflation, high unemployment, AND high interest rates.

Be afraid. Be very afraid.

Re:Why do dictactorships have hyperinflation?

[Jane Q. Public]

"Even if we could stop inflationary policies, I'm not sure most of us would want to, since it would mean a protracted worldwide economic downturn."

If I may say: I think you've been listening to too many Keynesian economists. The idea that inflation is good is just so much snake oil. The people it benefits are government, banks, and Wall Street. It harms just about everyone else.

HEALTHY markets are zero or negative inflation. Take computer-related equipment: every year, you get more bang for the buck (even when you consider they're inflated bucks). That's called deflation.

For nearly 300 years, inflation was essentially zero in North America, and we had a healthy economy (arguably the healthiest in the world). That changed when the government started meddling. It is ridiculously easy to demonstrate this.

I don't share your stance, which seems overly pessimistic to me. We need to end the Fed, and re-instate a hard money standard. Just those two things would fix many of our ills.

(Re, the Fed: why should we pay interest on every dollar printed? That's just one of the ills it introduced.)

Re:Why do dictactorships have hyperinflation?

[PopeRatzo]

If I may say: I think you've been listening to too many Keynesian economists. The idea that inflation is good is just so much snake oil. The people it benefits are government, banks, and Wall Street. It harms just about everyone else.

Of course you're right, but if you think that Keynes says that "inflation is good" then you haven't read him very closely.

For nearly 300 years, inflation was essentially zero in North America, and we had a healthy economy

And then the Europeans came.

That changed when the government started meddling. It is ridiculously easy to demonstrate this.

Yes, that changed, and brought the greatest economic expansion and shared prosperity in all of human history.

You want to bring a continent to superpower status in 200 years? Then you better have these policies to goose the economy, because a "hard money standard" ain't gonna get you there.

The problem is not just the Fed, but who the Fed believes they serve (hint: it's not the people).

If you want a global economy (and I don't, by the way), then you need central banking. If you want a "lazy-fare" "free market" supply-side capitalist economy, then you need the post-Greenspan Fed.

I believe that the purpose of the Fed is the purpose of the US economy and of economic policy for the last 30 years: to redistribute wealth upward. And it's doing a great job toward that execrable goal.

Re:Why do dictactorships have hyperinflation?

[wolfemi1]

HEALTHY markets are zero or negative inflation. Take computer-related equipment: every year, you get more bang for the buck (even when you consider they're inflated bucks). That's called deflation.

No, no, no. You cannot parcel up "deflation" and "inflation" on a per-market basis, then use that to determine the strength or weakness of a currency.

A deflationary currency is a bad thing; you simply have to remember that an economy thrives on people buying things from each other, and breaks down when they stop doing so. It's a bit more complicated, obviously, but primarily you need to be concerned when people have an incentive not to do so.

Deflation causes a breakdown in this in that it becomes acceptable to get "returns" (i.e. increase in worth) for a currency by simple stuffing it in a mattress. This is very harmful, not least because it's a positive feedback loop; the more people stuffing currency in their mattresses, the smaller the money supply, and the faster the currency deflates. See the Great Depression for an example.

For nearly 300 years, inflation was essentially zero in North America, and we had a healthy economy (arguably the healthiest in the world).

If by "essentially zero" you mean "inflation and deflation of double-digits year over year", I suppose that's half-true. It doesn't make for a stable economy, though. And just for kicks, you should look for all of the "Panics" that happened in 19th century America, you might be surprised at the number and their severity.

We need to end the Fed, and re-instate a hard money standard. Just those two things would fix many of our ills.

This is very, very much not the case. Why do you think the "Great Moderation" happened? Why do you think that not a single nation in the world is using a "hard money" standard anymore?

Production cost

[NapalmV]

I don't get it why they keep saying that "if 1 penny costs 2 pennies to mint then we shouldn't make them anymore". Unless the government looks at "printing money" as a source of revenue. Which they shouldn't if you're looking at money as a transaction facilitator and nothing else. What happens is that it costs us 2 penny to mint 1 penny coin that will subsequently change hands via payments several million times before it gets too degraded (physically) and has to be retired. Thus the minting cost per transaction for that penny is actually very small. What you're really paying is the cost of the convenience of having pennies available for transactions, and judged per transaction it ain't looking that bad.

Re:Production cost

[justthinkit]

Good point. Let's dig a little deeper, shall we? The Fed *pays* for the minting of coins, whereas the Fed, a private corporation, gets to print their own paper money, that they promptly loan out. So one thing costs the Fed money, the other makes them untold trillions. Which one do you think they are trying to limit? More...

Re:Production cost

[NapalmV]

Production cost = material cost (metal) + manufacturing costs (power, tools, wages etc). As long as material cost 1 penny nobody will melt it. OTOH you can also make such melting a criminal offense, as to raise the costs of doing it with some 25 years in jail.

Re:Production cost

[QuasiSteve]

Thus the minting cost per transaction for that penny is actually very small. What you're really paying is the cost of the convenience of having pennies available for transactions, and judged per transaction it ain't looking that bad.

Good, good, thinking beyond just the material value vs face value issue - very good.

Now calculate the costs involved with issuing them, recycling them, transporting them, handling them, the cost per transaction in using them because cashiers have to dig them out of the drawers, the value of time wasted by people waiting in line as somebody in front of them who has received those pennies and goshdarnit will spend four them again to make exact change for that $9.99 item (convenience, you say...), cleanup from pennies wasting away into the environment, and material loss that could otherwise have been used for more appropriate purposes.
And then of course counter that with the reduced happiness in some people's lives as they can no longer fill entire jars with pennies and reduced income from places that run 'wishing wells' which tend to be another dumping ground for pennies.

Maybe then we can actually start looking at the cost of a penny in an all-encompassing manner. Or we can just accept that the penny in general is a dumb idea at this - time no matter how much any associated costs are stretched out over the lifetime of a single penny.

Re:Production cost

[pla]

I don't get it why they keep saying that "if 1 penny costs 2 pennies to mint then we shouldn't make them anymore".

In the case of pennies and nickels, this has nothing to do with the actual cost to make them so much as their inherent value in metal content.

Yes, melting down pennies to sell for scrap breaks the law. Now look at a random handful of pennies and see how many you can find that predate 1982 (when they went from pure copper to mostly zinc). If you don't think we have people scrapping them for copper, I have a bridge to sell you.

The same thing happened in 1964 when our dimes-and-up stopped containing any silver (nickels always used copper/nickel, except during WWII) . Although you'll occasionally (rarely!) get lucky and find one mixed in with your change, pre-1964 change has effectively ceased to exist in circulation.


That said, as far as I can tell the whole "costs more to make" arguments counts as just a rationalization. People hate pennies, and just want them gone. This has nothing to do with value or cost or the phase of the moon - Even in my youth, a few decades ago, a penny would only buy you a single piece of the crappiest candy. Today, even that crappy candy costs a quarter. So why the hell do we keep creating a coin that only has use in the aggregate? Ditch the worthless lump of zinc and stick with coins that have actual buying power.

People do two things with pennies - Kids thrown them in jars in the closet, and old ladies tie up the checkout line trying to make exact change. Factoid of the day: If you saw a parking lot covered in "free" pennies (say one per square foot), you would need to pick one up every five seconds just to make minimum wage. By comparison, doing crappy agricultural piecework like strawberry harvesting, if you could work at that same rate, you'd make 21x as much for the same type of effort.

Re:Production cost

[justthinkit]

The Fed pays for coins in that (1) they don't get free money handed to them and (2) they can't accrue interest on coins in circulation.

My point, that I recalled from memory slightly incorrectly, apparently, is that coinage is a tiny, incidental business. That all involved want to limit.

Paper money, on the other hand, is what national debt dreams are made of.

Not necessary

[haggus71]

There's already a currency available world-wide, used instead of local currencies of dictatorships. It's also the preferred currency of such nations as Saudi Arabia and other Arab states...as well as Iran. It's called the US dollar.

There are about as many dollars in circulation outside the us as there are here. It's why more nations invest in the US than in any other nation, with treasury bonds. The Euro stinks, and they can't trust the Chinese to not futz with their system.

Now, if we keep going with this default business...

Re:Practicality of Beta

[Transparent Ghost]

They're trying to replace the 3 million slashdotters with 30 million youtubers.

Dictatorships with hyper-inflation

[TheloniousToady]

Imagine a digital currency in the form of news articles posted on a website. This currency can be minted out at will by the benevolent dictator who runs the site. As in all healthy economies, currency has been supplied at a rate that matches demand in order to keep the economy stable. On the weekends, for example, demand typically has gone down. Thus, the weekend currency supply typically has been reduced to match.

Imagine, though, that the dictator enacts a new policy that makes The People mad. Grumbling and other political unrest ensue. Noticing this, the dictator tells himself, "The People are revolting." So, he dictator issues a soothing message. That works to some extent but ultimately isn't completely effective, primarily because he doesn't explicitly reverse the unwelcome policy; worse, if one reads his statement carefully, it actually states that the unwelcome policy will remain. Still, the dictator finds The People revolting.

So, in order to distract The People and make them feel richer, the benevolent dictator who runs the site suddenly begins minting out lots of new currency on the weekend. Notably, weekend demand has not increased but has actually decreased due to disruption of the economy caused by the new policy. Yet supply goes through the roof.

As in all such cases where supply of a currency greatly outpaces demand, hyperinflation results. The currency is inevitably devalued. Of course, The People notice this. Rather than feeling richer, hyperinflation makes them feel even poorer, and, ironically, actually contributes to the economic disruption that the benevolent dictator was hoping to ameliorate. The People begin to question the benevolence of their beloved dictator even further.

The dictator soon recognizes the hyperinflation he has created, and realizes that minting out currency is the cause of it. (As Milton Friedman said, "Inflation is always and everywhere a monetary phenomenon.") Yet he keeps minting out currency. Worse, he stubbornly sticks to the bad policy that caused his whole little economy to spiral out of control.

After all, what's the use of being a dictator if you aren't always right?

Bullshit...

[Junta]

Even if you think bitcoin is a reasonable path (I personally don't), this concept is pretty bonkers.

It goes on and on about how the there is no number that can be easily faked. Fiat currency counterfeiters with plain old serial numbers can copy a valid serial number and someone bothering to lookup the serial number could be fooled, not so with Bitcoin. Point taken, but the thing is before that has any value, the recipient of the currency must actually verify that data. There is no point in conveying that info in an expensive physical coin, because such infrastructure could just as easily be fed the data by electronic means or even a printed slip of paper. The physical coin aspect of it becomes the tail wagging the dog, an overpriced way of conveying the counterfeit resistant data. If the data is not actually envisioned to be verified at time of transaction, then it's as useless as the serial number on a dollar.

The only thing holding Bitcoin from exploding in many markets is a lack of a physical incarnation.

Incredibly wishful thinking there. Bitcoin has a lot more problems than lack of a physical incarnation. Being outlawed by major governments, at the mercy of speculators without any regulation, and downright vulnerable to an attack by a critical mass of mining resources working together.

rural farmers in 3rd world countries are not going to get a smartphone and a $100/month data plan just so they can accept Bitcoin.

Exactly! But just a few sentences above it says:

anyone with an NFC equipped cellphone can check if a coin is counterfeit.

You've come round full circle to the problem in the first place: You need functioning internet infrastructure (and a long time) to validate a transaction in the secure way. Without that, you could counterfeit any 'bitcoin' based currency just as easily as any other currency.

A viable alternative currency for micro-nations and dictatorships with hyper-inflation."

Another foolish statement. Again, people are incorrectly assuming there is a technological solution to a socioeconomic problem. The failure of such currencies are a symptom, not a root cause. If it were as simple as all that, the citizens could just as easily move around some stable foreign currency. You can't do a safe, 'sneaky' end run around the force that governs a citizenry. So long as they are empowered to prosecute, shut down internet infrastructure, or just send soldiers into the street, no currency trick is going to work in the face of the fundamental problem.

Re:Did Taco just throw us all under a bus?

[KingOfBLASH]

You're posting articles about beta in an unrelated thread which makes you just as much of a troll.

What's worse is Taco's comments aren't really that bad, but in typical slashdot reactionary fashion you probably didn't even read the article.

Meh

[mr100percent]

I don't see an incentive for them to use Bitcoin over US dollars or some other established currency.