Bitcoin's Rise May Reflect a Monumental Transfer of Trust From Human Institutions Backed By Gov't To Systems Reliant on Well-Tested Code, Says Tim Wu (nytimes.com)

Tim Wu, a law professor at Columbia, writing for the New York Times: Yet as Bitcoin continues to grow, there's reason to think something deeper and more important is going on. Bitcoin's rise may reflect, for better or worse, a monumental transfer of social trust: away from human institutions backed by government and to systems reliant on well-tested computer code. It is a trend that transcends finance: In our fear of human error, we are putting an increasingly deep faith in technology (Editor's note: the link may be paywalled). What gives the Bitcoin bubble significance is that, like '90s tech, it is part of something much larger than itself. More and more we are losing faith in humans and depending instead on machines. The transformation is more obvious outside of finance. We trust in computers to fly airplanes, help surgeons cut into our bodies and simplify daily tasks, like finding our way home. In this respect, finance is actually behind: Where we no longer feel we can trust people, we let computer code take over. Bitcoin is part of this trend. It was, after all, a carnival of human errors and misfeasance that inspired the invention of Bitcoin in 2009, namely, the financial crisis. Banks backed by economically powerful nations had been the symbol of financial trustworthiness, the gold standard in the post-gold era. But they revealed themselves as reckless, drunk on other people's money, holding extraordinarily complex assets premised on a web of promises that were often mutually incompatible. To a computer programmer, the financial system still looks a lot like untested code with weak debugging that puts way too much faith in the idea that humans will behave properly. As with any bad software, it can be expected to crash when conditions change.

Comments

Treasure to Tulip

[Anonymous Coward]

This has 1990s tech bubble written all over it.

In the 90s tech companies with no intrinsic value became extremely valuable. Bitcoin and its imitators seem to have exactly the same value as a tulip bulb, and at some point people will realize that paying $19,000 for a tulip is silly. That said, I wish I hadn't sat out Bitcoin's monumental rise. Would love to have some F.U. money right now...

Re:Oh please

[Opportunist]

You expect them to admit that the Capitalist model could have flaws? For real?

Producing doesn't make you rich, selling does. Without being able to sell your products, there is no revenue worse, producing makes you poor because you have to front the cost of parts and labour. And if an investor doesn't consider your business viable, i.e. if an investor doesn't think you could make those sales, he won't back you and front those costs for you.

If an MBA can refute this, I'd be really interested to hear his arguments.

Re:Correct

[ncc74656]

The desert car repair shop might take a $50 gold coin but it's worth might be somewhat uncertain and so the change offered the customer would be uncertain even if the car technician looked up the current price for gold.

It used to be you could buy a gallon of gasoline for about a quarter. Until 1964, quarters (and dimes, half-dollars, and dollar coins) were 90% silver.

Right now, the silver in one of those old quarters is worth $3.21. The last time I bought gas, I paid $2.39 per gallon. That silver quarter can still buy a gallon of gas, and then some. The cupronickel slugs in your pocket? Not so much.

The value of silver (and, most likely, of gold as well) doesn't change nearly as much as you might think, compared to the things you need that you might buy with it. It only appears to go up and down (mostly up) on account of our increasingly worthless "currency."

Re:Oh please

[Kiuas]

It's like they're printing money trying to stimulate demand in a consumer economy, but it gets snatched away by corporations before it ever gets to consumers.

This is largely the case bacause the rate of return on capital exceeds the rate of growth.

Piketty's Main Claims
1. The Return on Capital is Greater than Growth.
Piketty claims that r, the average annual rate of return on capital, is in the long-run greater than g, the growth of the economy (i.e., the annual increase in income or output).

r > g (1)

And, "If . . . the rate of return on capital [r] remains significantly above the growth rate [g] for an extended period of time . . . , then the risk of divergence in the distribution of wealth is very high."
[pg. 25]
2. Inherited Wealth Grows Faster than Income. If r > g, then inherited wealth grows faster than output and income. The reason?
"People with inherited wealth need save only a portion of their income from capital to see that capital grow more quickly than the economy as a whole." [pg. 26]

Piketty's Pessimistic Conclusion: patrimonial capitalism. If the above conditions hold, then capitalism will lead to a distribution of wealth that resembles an aristocracy. Such a distribution is incompatible with the values fundamental to modern democracy

"Under such conditions, it is almost inevitable that inherited wealth will dominate wealth amassed from a lifetimeâ(TM)s labor by a wide margin, and the concentration of capital will attain extremely high levels - levels potentially incompatible with the meritocratic values and principles of social justice fundamental to modern democratic societies." [pg. 26]

-Thomas Piketty, Capital in the 21st Century

I remind you as a non-American that while wealth inequality and its continued rise is an issue faced by all advanced economies, the US is at a level of its own in this regard because nowhere in the world is the inequality as massive as it is in the States. The top 1 % owns nearly half of all national wealth and the rest is held almost exclusively by the following 9 %, because the bottom 90 % doesn't own much besides their residences. The bottom 90 % also owns almost 75 % of all privately held debt. (source)

And the trend shows no sings of stopping, in fact the current republican 'tax reform' is a massive handout to the ultra-rich at the cost of the bottom 90 % in the long term.

With these stats in mind it is exceedingly hard not to call the USA in its current socio-economic state an oligarchy. And the system they have setup to protect themselves ideologically speaking is massively effective. You had 1 left of center candidate in the presidential primaries that took this issue with any seriousness, and Sanders was labelled a lunatic and a 'communist' for merely talking about introducing systems that are already in place in many western societies like universal health care and education.

This just goes to show how effective of a grip the ruling class has on the society overall. The 2 party system, the primaries and the electoral college all appear to me as an outsider to be things which do not serve the interest of the general public but rather the interests of the above mentioned oligarchs in that they allow for a great level of control over what options are given to the american people in national elections especially.