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Bitcoin's Nightmare Scenario Has Come To Pass
HughPickens.com writes: Ben Popper writes at The Verge that bitcoin's nightmare scenario has come to pass as the bitcoin network reached its capacity, causing transactions around the world to be massively delayed, and in some cases to fail completely. The average time to confirm a transaction has ballooned from 10 minutes to 43 minutes. Users are left confused and shops that once accepted Bitcoin are dropping out. For those who want the Bitcoin system to continue to grow and thrive, this is troubling. Merchants can't rely on digital transactions that can take minutes or hours to validate. A number of prominent voices in the Bitcoin community have been warning over the past year that the system needed to make fundamental changes to its core software code to avoid being overwhelmed by the continued growth of Bitcoin transactions. A schism has developed between the team in charge of the original codebase for Bitcoin, known as Core, and a rival faction pushing its own version of that open source code with a block size increase added in, known as Classic. "Many in the US Bitcoin community had hoped that hitting this crisis point — a network maxed out, transactions faltering — would result in closure, with miners quickly moving to adopt whichever chain proved more valuable to their economic interests," says Popper. "But so far the debate is dragging on without one side claiming a clear victory, leaving tens of thousands of consumer transactions stranded in limbo."
Conversely, fiat currencies don't necessarily represent the actual amount of wealth in the economy - hence the economic crash. A currency you can literally just make up out of confidence (or false confidence) isn't representative of real wealth.
You're right in that gold doesn't scale as a currency backing - because the amount of effort required to get it is not a fair representation of economic output any more (it used to be - you needed men and basic equipment so it was a reasonable proxy representation of how much economic surplus you had).
Cryptocoin could be regarded as a currency backing that actually scales with economic output - because there are no physical limits beyond manufacturing the ASICs and generating the energy (until you hit physical limits for those...).
You did not learn anything from the past crisis, did you? The main problem with our fiat currencies (the dollar / euro, etc) is that they are poofed into existence for dept with the obligation of paying usury. Off course, that usury was never created, so the dept spiral can only grow until the whole scam blows up in our faces. Gold has the problem that its quantity does not follow the population, but apart from distribution problems that is not necessarily a bad thing. We would just use less gold for the same goods when the population grows. The ever growing dept spiral however forces an economy to grow on top of the population growth, just to remain "stable". Off course, exponential growth can never be stable.
Mind you, fiat currencies could work, but not if they are created and managed as they are now.
Nae king! Nae laird! Nae yurrupiean pressedent! We willna be fooled again!
My guns and ammo say that your gold is now my gold.
As an AC over on SoylentNews already asked - is there a significant amount of Bitcoin transactions due to ransom payments for crypto-locked data?
I seriously wonder, as there's apparently been quite a surge of corresponding infections lately, and it also seems that quite some victims actually pay up.
Currently we mine 1-1.5% of the existing supply of gold annually.
That means that unless your economy grows less than that, or mining rates go up significantly, you are basically having deflation: Your gold becomes worth more over time.
Deflation is generally seen as a really bad thing, as it makes people prefer saving over spending. Money being saved is not part of the available supply, causing more deflation, causing more people to save their money, etc.
The people hardest hurt are those that can't save any money, as they need to spend all they earn on things like food.
Deflation is really good for people who have a lot of money, as they can save most of it, becoming richer over time, without doing anything.
If they let other people borrow the gold at an interest, their pile of gold also grows, on top of it getting more valuable.
The end result becomes a situation where those few people who have enough gold that they spend less than they earn by lending, will end up with all the gold very quickly.
This has happened many times in the past, when gold was the main type of currency. It usually ended by some King using their power to steal the money from whatever bankers had the big gold piles. (Kings always have wars to spend money on, so they usually spend more than they can earn and then some).
RogerWilco the Adventurous Janitor
Like most things in life, currency policy is one of tradeoffs. You can have wild swings in value and deflation associated with hoarding, or you can have steady but stable inflation. The main downside to steady inflation is that hoarding cash becomes a money-losing endeavor. Of course, that's rather the point... Solution: buy something else instead of hoarding money. If you are comfortable with gold, hoard gold. If you like equities, get those. Or mix it up a little.
Another advantage of steady inflation is that salaries go down over time. Usually this is all but impossible, even though the laws of economics demand it for an efficient economy. The disadvantage is that, well, your real salary goes down over time. But in theory a rising tide lifts all boats. In practice there are winners and there are losers. This was the case during the gold standard as well.
W..w..W - Willy Waterloo washes Warren Wiggins who is washing Waldo Woo.
By your definition, a "fool" in the 1930s would be anyone with a loan or mortgage. That's what the gold standard did - people spent less, thus money became more valuable (deflation). But the loans didn't change - if you borrowed $5,000 to buy farmland in 1925, the bank still expected $5,000 (+ interest) to be paid back, regardless of the true value of that $5,000.
Today, if we had the risk of deflation, a "fool" would be anyone who borrowed to get a higher education, or a reliable vehicle, or a home.
The opposite of a "fool" would be someone who didn't invest their money but instead put it under the mattress.
So think carefully about your definition of a fool.
We're heading into the Bitcoin end game, where the goal will be for the miners to extract as much money as they can from BTC users via transaction fees until the whole thing collapses. The miners want the network to saturate, and they want people to pay ever-increasing fees to get their purchases on the blockchain. Once the mining reward halves later this year, the incentive to increase transaction fees will be that much greater.
Keeping the network saturated means keeping transaction volume high and the block size fixed, hence the dDOS attacks on nodes running Classic, the spamming of the network with tiny back-and-forth transactions, and the censoring of pro-Classic comments on discussion boards. It all fits with what Hearn has described.
I wouldn't be the least bit surprised to see BTC users paying 0.5% to 2% transaction fees a year from now. It is, after all, what the market will bear when compared to bank and credit card fees.