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Introduction to Digital Currencies MOOC 2.0, Live Q&A Session #1 with @polemitis

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Good afternoon everyone, or good day, depending on where you are This is the first session of MOOC... Introduction to Digital Currency. This is the second version of the MOOC, and so this is the first session of the second version. Thank you everyone for joining. I see there's a large group in the chat room. And so I appreciate everyone for joining. So this is our first video session with this group, so I want to take 60 seconds and talk a little bit about format, a lot of folks gave us questions beforehand The team has tried to compile quite a few of them, so I will aim to answer some of them as I can in the session. George and Galio will be monitoring the chat box. and as other questions come up and as we have time in the session, which will run about an hour, I will try and answer additional questions. And what we will I'll ask of you, both in this session and in future sessions, to try as much as possible to keep the questions on topic. We're going to have 13 sessions, they'll cover different topics. we noticed sometimes in the last MOOC, we sometimes get ahead of ourselves, behind ourselves so we're going to let the teaching assistance help moderate the questions and try and keep us on topic. And we'll try to answer questions about today's session. And over the course of the next 13 we'll hopefully address all of the topical areas. as always, and I'll say this at the beginning, we- this is a complex topic, it is a new topic, In many areas the answers are not clear. Or there's in fact vigorous debate about what the right answer is, and so, all of the questions are welcome. I will give you my best sense of what I believe the answer is, or if I believe there's multiple answers, what multiple answers are. but I don't think this is one of those cut and dry topics like what year was J.F.K. elected, we can come to a definitive answer on that. In this course there will be some things that will remain unknown at the beginning of the course and maybe still unknown at the end of the course, forever. So, I view this as something where we are kicking around, as a group, a big a big, important, exciting, new leading edge topic and as group I hope we all learn both from the course but more importantly from each other, from people contributions in the forums, from people's contribution in the self-assessment exercises, from people's questions and these online sessions. And that's how I see this group working The overwhelming large percentage of folks on the first MOOC were on topic, great, friendly, polite I would like to keep it that way And the enforcers will be the T.A.'s in that regard. So, That's my intro, and I will get into some of the questions, we have a pretty broad set of them so I will like to get those over the next 20- 30-40 minutes and I might handle some questions as they come up Other ones we might aggregate from the chat room and do them as a... do them all at the end. First one I'd like to address, it was several several folks... brought this question up, and it's one of those that I'm probably not gonna get a fully satisfying answer to, which is "what's the difference between money and currency" And why are they used interchangeably in the presentation, why aren't they well defined in the presentation let me answer the presentation point, that's a very good point, we hadn't actually noticed it, so we will make sure we're more clear about what we think the interrelation is between the two, and how these topics might interact with each other the easier definition is money. So, money is the broader definition. it encompasses any manifestation of the units that are in medium of exchange a store of a value on unit of account and so on. So the question tends to be, this "currency versus money" question tends to be more of a question of how much narrower is the question of currency versus money. people have defined it different ways, some people define currency as physical currency, so the notes and coins that you carry around with you, And that's a valid definition, I don't think it's actually how it's used in practice though in 2014 I mean, people talk about the foreign currency markets every day of the year, in fact, there is something like 5 trillion dollars of transactions daily in the form: currency markets and none of those transaction or a infinitecimally small number of those transactions have anything to do with physical currency. They are transacting within the parts of money that are the broader definition of money, bank deposits and so on. So i don't people don't talk about the foreign money markets though, and theoretically one could. In the most extensive definition, one could say, well this is one could use it as synonymous My feeling about it is that it's close to synonymous in practice, but one could actually Consider narrower definitions from currency than money, but I don't, I don't view this as a huge distinction for the purposes of this presentation, I think you can substitute the word "money" all the way through he presentation and that would be acceptable. In terms of the physical manifestation, those are banknotes and coins, as the case may be in terms of modern systems and that is very clearly only relating to the physical piece as opposed to anything that might be in broader definitions of money. give me one second... Phillip Schneider asked : in slag 31 it is stated that deflation is a problem for currencies, because prices go down, and as example Greece is stated. Is the decreasing of pricing the real issue here? Or is it a problem because Greece is heavily indebted and has to pay interest for lenders and deflation increases the real not nominal amount of dept of Greece. Would deflation also be a problem for Greece if it wasn't indebted? for example The whole industrial revolution happened on a money system that was fixed, and not based truly on debt, regarding price stability before central Bank started to care about stability of prices, they seem to be a lot more stable. I'm going to separate the second part of this question and address that separately. Let's address the first part of that question of: "is deflation an issue only if you're heavily indebted? Is it in fact useful because it can reduce the real value of debts, unless you use this as a way to address nominal versus real values, because it's an important point, I assume most of you actually know this point but I think useful refresher. Real prices are prices adjusted for inflation. and inflation adjusted prices In a way it's a way to do more of a unit of account type calculation. so if I said, at a certain point "This coca-cola costs a dollar", and today it costs a dollar and 10 cents has it become more expensive in nominal terms? For sure. It was $1, now it's a $1.10 has it become more expensive in real terms? Nobody knows, you'd have to know the inflation rate during that period. If the inflation rate was 10% during that period, then it's actually stayed the same price relative to everything else in the economy It's the same price. If the inflation rate would've been 5% during that period, then it's gotten more expensive, it's grown faster than inflation. It's real cost has gone up. If the inflation rate has gone it's been 15% during that period, and it's price has grown slower than inflation, in fact, even though it is up in nominal terms, It is less expensive in real terms, and it is a, it's in real terms depreciating in price. So the... Phillip's question, which is absolutely correct, debt tends to be of a fixed amount. So if I borrow If I am the US government, and I borrow a trillion dollars and I have to pay interest in the trillion dollars and pay back the principal. Even if the value of the dollar drops dramatically, and I pay back, I should still have to pay back my trillion dollars in fixed terms, in nominal terms, so the value of that debt drops that's favorable for me, since I have to pay it back, it's bad for the person who lent it to me, because now it's less valuable with the exception of things like tips, which are a certain treasure to our inflation, protect it. But generally loans have a fixed payback amount. So it is certainly helpful for an economy that is heavily indebted to have some level of inflation, it reduces the value of the debt. Whereas a... have some level of inflation. Whereas if you do have deflation, it increases the value of the debt on an ongoing basis. Now you might say, well what's the difference? This is 6 of one, half-dozen of the other. It's good for creditors, it's bad for debtors. It's bad for debtors, it's good for creditors. And so on. And to some degree, that is true, it's a zero sum game to some level. And one's feeling about what inflation should be is largely influenced with whether you hold assets denominated in real terms, or whether you hold assets denominated in nominal terms. The reason most modern central banks prefer to have some level of inflation in the economy. As opposed to some level of deflation in the economy. Has to do with practical reasons, often related to the stickiness of prices and wages So, let's walk through a couple of examples. Let's assume for a second, Greece was not yet in the Euro-zone, and it still had the Drachma. And the drachma tended to be an inflationarry currency, domestically, it would tend to drop in value in before in exchange markets. And if Greece, which it clearly needed to do in 2008, 2009, had to drop prices. to be internationally competitive. Right, they were not, their general productivity and the price of their goods and services on the international market were out of light. Well, there's 2 ways to do it. Everyone in Greece could decide Let's go to work tomorrow and Reduce all of our costs by 10%. Now, what does that mean in practice? Well, you either lay 10% of the people off. So now you have 10% of the people hanging out, doing nothing. Or we can tell everyone: Let's take a 10% haircut in our salaries. Which, studies have found, is very, very... this would very, very unfavorably by almost every employee. And this is partly a psychological point. Nobody likes to see their salary, in nominal terms, go down, even if in real terms it's the same salary. But it's partialy because folk tend to have, all the way down the chain, a series of obligations, that are in nominal terms, not real terms. So for example: If I'm making 15.000 Euros/month in Greece, but I've taken on a mortgage, or I've taken on a rental, and I have a least or my apartment. Or I have car payments, or I'm paying my children's tuition. Most of those things won't automatically adjust downwards in the short term. So if I get a drop in nominal terms, and my mortgage doesn't also adjust, or my rental payments don't also adjust, suddenly, I'm in big trouble. And so you end up with this very complicated coordination problem. where you could theoretically just adjust all the prices down 10%, but how do you do that in a market economy? You'd either have to have contracts that are inflation linked, which is very complicated, or you'd really have to have price controls in a command economy, which is not what most people think is a good thing to do. And so, what in practice you'd see a Greece, or an Italy do, Is they'd let their currency depreciate. And so, all Greek values, whether they were salaries in Drachmas or loans in Drachmas, or apartments rentals in Drachmas, in real terms, are lower, even though in nominal terms they will stay the same. And the mechanics of that, most days of the week, are easier than trying to coordinate all the prices to drop simultaneously. What ends up happening in practice when you try to do it, you can't get all the prices to drop simultaneously, so you just lay people off. And that actually generates a real dead weight in the economy. When someone is laid off and could have otherwise been working, there is an actual loss in output. Every day that person sitting on their sofa, not going to a job and producing something, the economy is a little bit smaller in terms of goods and services produced, than it would have been otherwise. So that's why at a national level, you tend to have this dynamic, it is obviously worse to Phillip's question, in a society that is highly indebted. I think these issues exist even in almost any levels of debt or obligations. Now, people whete- you are not, technically speaking, in debt if you go rent an apartment, but you have a a long lived obligation that is not probably going to change in nominal terms. I've never seen- I've rented many apartments in my life and I've never seen one where it says the rent is going to go up and down based on the inflation rate over the course of the rental period. It tends to start with a rental and, you know, if it, longer term ones tend to go up over time to account for inflation. There is another dynamic relating to consumption, where a lot of central banks want to maintain a modest inflation rate which has to do with encouraging consumption. If you believe that every year prices are going to be 5% lower, you tend to deffer consumption, because you say, well I shouldn't- why should I buy this house this year next year it's going to be cheaper. And the problem is everyone thinks that so nobody moves to buy a house or a car or a refrigerator, demand drops, prices drop even more, people say: my god, prices are really dropping, why should I buy now? So demand drops further, prices drop further, and then you ultimately have this spiral where there is probably less economic activity than you would have generated otherwise. The example of the last 15 years in Japan, tends to pint in that direction. It's been very hard to get their economic engine going and they've been in a deflation environment and it's a milder version of course of the US, but it's still not viewed as a positive thing, so there there tends to be a belief among modern that it is easier to manage low levels of inflation than it is to manage low levels of deflation. Now of course this does not mean all inflation is just harmless, it is absolutely not, even low levels of inflation certainly hurt certain segments of the society, help other segments of the society again, if you're a debtor or a creditor. And high levels of inflation tend to also be quite destructive because they make the unit of account function of money less useful andvaluable and people try to spend a lot of time gaming the system or dealing with the inflationary aspects of the system, instead of just engaging economic activity and money is fading into the background as an issue. So, you generally see advanced modern central banks target 1% or 2% inflation as a general rule. Get nervous when they go towards deflationary prices, and also get nervous if inflation heats up too much more than that. Second part of Phillip's question: He says price stability before banks central banks warn you about price stability was better, he includes a chart which I don't think I can easily share with you. I'm going to color myself extremely extremely, extremely skeptical that that statement is actually true. If you look at pre-modern central banking There were significant inflationary, deflationary episodes. You had currencies exist, not exist die, live, all the time. And that's in the Anglo-Saxon countries where you even had some data about what was going on. In the vast majority of the world, I do not believe we had the type of data that is precise enough and granular enough to say what was inflation or deflation in Greece from 1400 to 1600. The reality is it's only in the last 50-60 years that we've been collecting very very, very detailed price data that we can pick up differences of half a percent over the course of a year. And even then, I mean this is a whole sub-argument of this, people argue voraciously about if the inflation statistics are even correct. Because if you want to track inflation, you have to define what it is that you're tracking. What is the ripe basket of goods and services, and that basket of goods and services also tends to change over time, so you know, 25 yeas ago there were no cell phones in that basket 15 years ago we had canal ray tube televisions. Is a flat screen TV the same thing? is it an improved thing? Do you match the prices against each other? This is where the concept of Hedonic adjustment comes, well it's a little bit of a black art, let's say Well the price might have been the same or a little higher but this is a better product or should we weigh it differently and it's a very complicated question and a lot of people have strong opinions about whether the inflation calculation itself is being correctly done in a modern advanced, data-rich economy. So, the thought that we have anything resembling that type of detailed data for 150 years ago, 250 years ago, 200 years ago... I don't think is accurate, to be totally honest. I'm going to address two questions about bitcoin evaluation. One from Patrick Pouterra, who says: what can we use as evaluation model for bitcoin? And one from Roman Bischoff who says: Bitcoin is a store value, looking at slide 45 where there was a valuation model of sorts, for slide 45. And he asks: Can you show how such a calculation would look like with real figures and units of measurement, and get the result of $400 per bitcoin? If not, what is the purpose of such a simplistic valuation model? Let me first state, that I think for me personally, the day-to-day price of bitcoin is almost completely unimportant. I know there are others who find this to be very important, there's others who try and make a living trading bitcoin, for me it is borderline irrelevant at this time. Bitcoin is a very, very new system of money. It's a very, very new techology, it is very, very, small. It is very, very, immature. It has had a tremendous run over the last 5 years. 5 years on your own is a life paper. But, it's total money supply is less than 10 billion dollars. That is a rounding error of a rounding error. and, traditional sovereign currency terms. Total global money supplies while we 30 trillion dollars daily trading bitcoin might be 100 million dollars daily trading in foreign currency is as 5.3 trillion dollars. So, right now, valuation is going to be something that is very erratic, very unstable, and not to me, anything particularly important, about Bitcoin today. What I see as very important about Bitcoin and currency in general is that it allows for a decentralized trust transaction, record keeping model. Which is going to have a wide variety of implications in all types of fields from record keeping to economics, when you transfer and what have you. And in time, I suspect the valuation will stabilize. But that time is not yet today, and however, I'm pretty sure, every single piece ever written about what is the correct value for bitcoin and people's different valuation models and first I think it's important that I think there's any standard definition. It's not possible, I't's not where you say: In France you have at least an accepted theoretical framework of how you should value, let's say a company. you have to go project out the future of the cash flows, which, itself a highly speculative exercise. Because who really knows what Apple's cash flows are going to be in 10 years from now? Then you have to apply a discount rate to those cash flows to say how risky are those cash flows 10 years from now, so therefore, how much should I discount the future value to a present? That is an exercise that is itself closer to magic then to science. And then you put these into a complicated map-present value model and, well, apple shares are worth $323 today, and that is for a instrument where you know, if you buy that instrument you have a theoretical claim to those future cash flows. And then you can take to the brightest financial annalist in the world, who'll know every single piece of theory, every single piece of market data, they've been valuing companies for hundreds of years and they can come up with completely different answers. Bitcoin is like that, but actually, a lot worse. Because it's not even 100% clear What type of tangible claim you have when you own a bitcoin. The closest definition I can come up with, is: you have a seat on the "exchange" let's say that is going to allow all of these various applications to happen. And there's a limited number of seats and so, if people think up a lot of useful applications for bitcoin in the future, and people need bitcoins to make these applications happen They have to find other coin from someone who already has one (or they can mine one, that's a separate topic) and buy it from them so there will be some kind of market price. But how that translates to a valuation model, well, I think that's very, very speculative, at this point. I laid out in the presentation one highly conceptual way of thinking about it. And of course, I can plug in numbers in there, and make it 400. I can plug in equally reasonable numbers and make it 4. I can plug in equally reasonable numbers and make it 40.000. doesn't tell us anything. The reality is Bitcoin, to my eyes trades primarily today based on sentiment on what the future of Bitcoin is going to be. It trades closer to the shares of an early stage venture capital of act start of investment and in that world there's almost none of the traditional financial models are used. none of the traditional financial models apply. So, if, for example, shares of Twitter, in Twitter's early days trader 2/47/365 I think would see the exact same type of volatility that we see in Bitcoin. Something good happens on Twitter, we see a big spike. Something negative happens on Twitter, we'll see a big drop. People trying to arbitrage Twitter shares against each other and a fairly illiquit market will send them up or down in various directions. So, I don't really spend any time worrying about the Bitcoin valuation I would recommend, for the overwhelming majority of people trying to trade Bitcoin based on a mathematical valuation model in 2014 is basically fooling yourself with math when there's no real underline way to validate the assumptions behind that math, which is why I didn't put in specific numbers. To me, it's a way, It was my first way of starting to think about how you could think about the value of the coin. And it's simplistic because it's conceptual but I don't believe anything more detailed would have any increased accuracy, even if there would be lot's of decimal point behind it. Martin Longero asks: Is coin tain- is coin tainting a threat on Bitcoin's fungibility? How do you see that addressed? That is an excellent question. I believe a lot of the proposals I've seen for coin tainting would be a threat to Bitcoin's fungibility. We do not, as a general rule, treat physical, sovereign currency that way If I go to the local pizzeria in New York and buy a slice of pizza, I don't know, I don't need to know, and I don't care if the guy before me, that works in the pizza shop and handed a dollar bill, was a drug dealer or an upstanding citizen, I take my change from the pizza shop, and walk away with it. If I had to know the whole history of that dollar and wanted to know if 8 days earlier and 12 people earlier it had been used to deal cocaine in Washington square park I think that would make commerce harder. I think it would make US dollars less useful. So my general belief, I remain open to be convinced otherwise, but my general belief is not supportive of coin tainting. We don't use that in practice with sovereign currencies, and I'm not sure it is a hurdle that ought to be applied to Bitcoin as well Galora Imega I- (is it Coray or Corav, Corav I think) asks: Money has three functions medium of exchange, unit of account "medium of exchange", I think you mean store value and the importance of these functions varies according to which class of society a user belongs, so somebody above the poverty line might not care about store value because they don't have much money that they store over a long period of time. According to my limited understanding money, for them, is 60% unit of account 30% medium of exchange, 10% store value. People from the highest class consider store value as the most important function, therefore the percentage will vary based on one's needs Bitcoin approximately, well how would you imagine these percentages work for the core function of Bitcoin? Fascinating question, I never thought to take the three functions and break them out in percentages charms. So I don't know that I'm going come back and give you numbers, but I believe, broadly, this point is true. If you are living hand to mouth on the poverty line the unit of account is important because you need to know how much your slice of pizza is gonna cost tomorrow, because then, how much you need to earn tomorrow. The medium of exchange is important as well cause you need to do that, and there's almost no value to be stored and that is probably not that important a function for you. I can agree that it's going to be different from someone from the wealthy classes, though I will note, I don't think one should think that, oh, if you're very wealthy you're ver- you're primarily concerned with the store of value aspects of money, because the very wealthy tend to have their investments not primarily in cash. So, cash does not turn to be a high- tend to be a high earning investment, so the very wealthy classes, the amount that is held in cash, is limited, it will be held in other assets, classes, both to earn returns, but also to have either gains or protections or hedges agaiinst changes in inflation, deflation, based on ones perspective on how those are going to go. So, I do believe it's different per individual circumstances. I don't want to put a number on it, cause I think it's a very complicated question. I would say... today, for Bitcoin, it's probably least useful function is as a unit of account. I know there are some folks on the very far edge of pro Bitcoin, who get mad at me when I say this, cause they say, well, it's just a mental model if you switch your unit of account to Bitcoin then... then it's just, then it's the dollar that's volatile, not Bitcoin. I don't think that's that's a practically correct answer. Today, almost all goods and services you're going to buy are denominated in one sovereign currency or another. And given Bitcoin's volatility, I doubt there is tremendous demand from regular individuals, to have their salary, or their rent or their grocery bill go up and down 20-30% based on if they went to the grocery store today or if they went to the grocery store tomorrow, or if their paycheck came today or if their paycheck came tomorrow. So, I don't think it's a particularly good unit of account at this stage. Will it be a good unit of account in the future? It remains to be seen. Unit of a- I don't judge it's valuation or it's volatility at this stage, cause it's very early. It's too early to have that discussion. Let's see what happens as it becomes more embedded in the world economy, as there's more applications for it, as there's more users for it as there are existing, developed institutional exchanges, where people can buy and sell against each other, the value will stabilize over time. Now, will it stabilize to the point where it becomes a good unit of account? That remains to be seen and it will only be seen in time, cause good unit of accounts are consistent over time. So you can't just predict now what's gonna happen you actually have to wait and see what is delivered. Synthia Keithon asks: I realize the number of Bitcoin can be mined and fixed mathematically when someone loses access to their bitcoins cause they lost their private key to the block chain or have died and their heir can't ind the private key. Doesn't that contract the virtual supply of Bitcoin? Obviously the actual supply is still on the block chain, but if it is no longer usable can it still be counted as part of the supply? Sythia you are 100% correct. Those Bitcoins, in practice, are gone forever. So, the number is already lower, the final number will be lower than 21 milli. Nobody knows how much lower because by definition these are the ones where someone lost a key or passed away or what have you, but, there are some estimates that a lot of the early Bitcoins, a significant number where actually had private keys lost because, back then they weren't particularly valuable and no one was paying attention. So, that is absolutely correct, there are some Bitcoins that will be stranded forever, and in fact won't be part of the mining supply. There were multiple folks who took objection to how we discussed Fiat in the presentation. This is a common objection like I'd had a lot last MOOC as well. And, usually that objection is phrased something like follows Fiat is a order, it's something you're legally compelled to use, and so on and so forth I do not believe that's actually correct. And it looks like it's correct cause it overlaps a lot, but this is where you have to look at the edge cases, and see if it's actually true with the edge cases. Now, before we do that, it's important to understand what does legal tender actually mean? Does it mean that if I want to buy a slice of pizza from George, I have to use US dollars to buy that slice of pizza. absolutely 100% not. I can agree with George that I will give him a euro instead of a dollar for his slice of pizza. I could agree with George that I will give him a back massage instead of a dollar for his slice of pizza. I can agree with George that I will give him my car instead of a dollar for the slice of pizza. Wouldn't be a great trade for me, but there's nothing stopping me from doing it. Legal tender describes past transactions, debts that you have outstanding and can your creditor prevent you from settling in the legal tender of that nation? No. So if I already took a pizza from George, and I owe George a dollar, and I come and give George a dollar, George can't say "woow, I don't have a dollar". Now he has to accept that dollar. But nothing prevents anyone at any point in time, in any modern economy from transacting with any medium of exchange they want So, in practice, why does everyone tend to use a sovereign currency? because it's convenient. but people use a sovereign currency even in situations where t's not legal tender. The example in the presentation of Scotland. There is no legal tender banknotes in Scotland. yet if you go to Scotland, as I've been, you have Banknotes in your pockets and you buy... well there you don't buy pizza, you buy deep fried snickers, and everyone accepts the banknotes without question. Another example that everyone uses day to day in practice. Credit cards. Credit cards are not a credit card is only accepted based someone being in a very complex large private network of merchants, issuers, credit card users. In practice you use credit cards, but no one has to accept credit cards. But most merchants do. So, I believe from my perspective, and I know this is a touchy issue for many people, the main distinction when you think about currencies is the first dividing distinction is: are they purely symbolic? Or do they represent an underline comodity with some value, independent of it's value as a medium of exchange. so the como- quote on quote comodity currencies are ones where the item being traded has it's own market value, whether it is cigarettes, whether it is gold coins whether it is cattle, all of those are less abstract currencies. Because you're just simply getting something specifically of value, oh ok, I don't have to worry Exactly what this currency is worth, cause, I had a cow, the cow is... I know how much a cow is worth to me. And what you've seen over time, is currencies have become more and more abstract So, within commodity currencies I make a distinction that addresses lines of questions that I've... The assets as well as gold, jewelry A commodity currency. I divide my mind commodity currencies between primitive money, that is not standardized, grain, wonto- Wampum beans and so on, and then you start at having coinage. Which was standardized commodity money. And from there we went to receipts, for coinage, which is that same topic, abstracted And then at some point someone had the bright idea, like, why do we need the coins in the fir- why do we need the underline commodity in the first place? And this now split's the whole world into folks that say, well yes that's the way you actually run a modern economy. And then folks that say, oh my god, money has been the base ever since, and there's nothing real and it's forced upon us and what have you. And that's a broader debate than what we're gonna solve in this first session. but... And it's not really one that is the focus of this course as a whole. And we're not gonna repeat the whole history of macro-economics in this course, but I do believe the distinctions are closer to those that I have described, and I'm certain, absolutely certain, that it is I'm not going to buy myself a beer tonight because I have been amandated by, (in Cyprus by the way,) by the government of Cyprus, to only buy beers in euros. Hopefully, if I'm lucky, one of my friends will buy me a beer and I won't have to use a euro at all. David Ornbrun: The Euro is a super-national money system born as fiat, and a one way street for those who would opt it without any pre-agreed way to leave the . That's true. Is it by itself in a different category than previous national currencies? who is a European central bank accountable to? I don't know that it's different. The US Dollar, the modern US Dollar you know the US is a federal system. People forget that to a large degree. But it is a federal system, it's a more developed federal system than the EU is, it's more integrated, but there are significant state rights and the US Dollar was highly contested and the federal reserve was highly contested while it was created in much in the same way. So, It's true there have not been many things like the Euro, kind of in the same way that there have not been many things like the US dollar, to be honest. I don't know that it's completely unique, and I don't know that the European central bank is any less accountable to a democratic process, let's say, then the Federal Reserve. Now we can have a very detailed argument of, if the EU as a whole has as clear a democratic governments process for who it elects, who then make the appointments and what have you, but that's a lot of inside baseball on the EU. Let's say it's evolving. So, it is unusual, the euro, but most large modern currencies are unusual in historical terms. Steven (Dema...) I'm sorry, I think I just butchered his name says: in topic one, it appears the development of currency proceeded from barter to coinage and then to the receipts of coinage and then to the sovereign fiat currencies, whereas from my studies, it derived from formalized resupprication to barter to circulating receipts to coinage. I'm specifically impressed with the circulation of receipts, which represented shares of commodities and storage, which predated the creation of currencies, which performed the same purpose etc. etc. etc. Can circulating receipts be considered money? So, Steven is right at one level, there is money developed in many ways both backwards and forward in many parts of the world at different points in time. there are reports that Egypt had very early commodity backed receipts for grain, which predate the commodity backed paper receipts for precious metals. So, at some level the picture is not absolutely clear which the direction was, for me most parts of the world, I think it is accurate to say we went from barter to physical coinage to receipts of physical, of precious metals to fiat, but one's results may vary, by country, by location. I had the pleasure last summer of reading three 500 page classic books on currency, and across those 1500 pages they managed to overlap almost not at all and there's some level of simplification If you want to take 1500 pages of the development of currency and fit it into 12 slides you have to make some simplifications, so... But I will definitely consider circulating receipts as money, in the same way circulating for precious metals were some of the- or also form of money in western Europe. I'm gonna take a break from the existing questions because I know we're running towards the end of the session, I haven't even turned to look at the chat blocks, so let me do that now and see where we are, so I can decide how we spend the last few minutes. There's two questions from Ian Morgan, that I'll take a shot at. Does Bitcoin, and block chain validation in general have a social future without a tangible symbol such as physical coinage or to remind wider society of their trust in the medium? It's a very interesting question. I know the Bitcoin foundation is spending a lot of mental energy on trying to get Bitcoin accepted as an ISO currency code. Now, on one level, this sounds like a complete waste of time. Why would it matter if Bitcoin is everything it is believed to be? On the other level, I do believe they are correct and I'm glad that they're doing it, in that it would help it match in easier to a lot of existing systems and more importantly, I think it's a form of validation at some level, that will help with it's broader adoption. I believe, as a continuation of that question Is it helpful if people can have physical Bitcoins? Well, of course people can have physical Bitcoins, you can have some type of thing as a private key embedded in it that is accessible wirelessly, or what have you, Is that important in 2014? I don't know. One could argue we've become increasingly comfortable with dematerialized items in 2014. I used to have an encyclopedia botanica when I was a kid, that took up half my bedroom wall. And was something my parents were very proud of, and everyone, you know, tried to get one of these things and now, you know, Wikipedia has no physical representation, it's bigger and better and batter than that and... Now, I've never seen a physical representation of the paypal network, but it has been in pretty wide use for the last 15-16 years, so, I suspect we will be able to get away without full blown Bitcoin coinage, but I believe it will exist, for some people in some contexts, possibly as a novelty item. But when I think about where a Bitcoin is most useful, it's going to be in electronic medium. In computer mediated transactions, in machine to machine transactions. And for those cases, the fact that it's natively electronic, I think that's pretty va-That's one of it's positives in defining characteristics. You also asked a different question: If the exchange value doesn't support continued mining, who takes on block creation proof of work validation? Good question, fortunately the question is the proof of work algorithm is self adapting. And so, if Let's say right now the price of a Bitcoin is, what was it just now, 3.16 and we have the input given the difficulty level of Bitcoin mining, it would cost more than that to mine it, miners will drop off The least economically efficient miners will drop off first. Eventually, mining power will leave the system, the difficulty will drop and then with the difficulty dropping you'll need less electricity, less . to generate the coin, and eventually those things will come into some balance again. So, it's not like the network will pick up and go home. What'll happen is, the difficulty level of the proof of work required will drop, until it's profitable again. For people. Let me take a look Very interesting discussion in the comments I'm now catching up on Ian says: oh thanks for the answer, paypal was a great example but doesn't serve all consumers. Could physical coinage operate similarly to bank( ) and currency for slower ( ) Sure, it's possible, it's absolutely possible I don't think it's going to be a main drive, cause it's my gut. Some people will use it that way, some other people are going to use Bitcoin without knowing they're using Bitcoin. So it's going to be embedded into a broader, into a broader product offering and whatever is going to be, will be accomplished, and Bitcoin might be used as part of the payment reels and whatever that thing is that's being accomplished, and the consumer might never know that Bitcoin is being used. I suspect, and this is now a very high level point, Bitcoin will see massive option once using Bitcoin doesn't require a 15 minute discussion about mining, proof of work etc. etc. etc. and I know that seems, now that I think about it, cause I try and think about how I can do it without discussing that, but it's difficult, but I am sure we are in the phase where, let's say, the internet has been invented and we're a bunch of computer geeks hanging out, and saying, oh TC PIP and HTML and routers and networks and that's true, and it's still true today but internet option didn't take off until AOL in the United States started sending CD's to everyone and say, "get America Online" and you put the CD in and the chat room came up and you read different content and you chatted with other interest groups and we're clearly still in the Bitcoin phase of: let's talk about the technical parts. And I suspect, for regular consumer option, it is going to have to be refined, refined, refined until the discussion is more about the utility to them, less about the technical, theoretical underpidings of how it works. I mean, the reality is, what percentage of people who use the banking system today, which is almost everyone uses a banking system. know about real time rose ( ) systems, know about febwire, know about how the stage actually works, almost nobody. Almost nobody. So, the... you know, in a few weeks we're gonna start class on open financial systems talking about what crypto-currency financial systems we'll look at and as part of that we're going to look at existing financial systems There is plumbing and plumbing and plumbing and plumbing and mechanisms pulling them all together and in practice, what does someone do? Oh I swiped my credit card. Oh I wrote a check. Oh, I did a wire transfer and they don't see any of that. And so, I think, if I generalize the question Ian asked, and said like will it need to be more simplified, will we need to talk more about it's utility and less about it's underline mechanics for general consumer option? The answer is definitely yes, I don't know if that means physical coinage, though. It just might be being embedded in different software services or products. We are at 8:05 here in Cyprus 12:05 the east coast of the US so i'm going to wrap this up. Thank you very much everyone for joining, it looks like a very good first session, it looks like a very good group we have in the MOOC I am enjoying looking at the back and forth in the comments, please continue these in the forums. Some of these things don't have completely clear answers some of these things macro economists have been arguing for 100 years about and will probably be arguing about it for another hundred years, and thank you all again for joining us for this group. Alright, everyone have a great weekend. If depending on where in the world are, have a nice evening. If you're still further west, have have a nice evening in a few hours.

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Duration: 1 hour, 2 minutes and 4 seconds
Country: United States
Language: English
Views: 49
Posted by: mscdigital on Nov 4, 2014

Introduction to Digital Currencies MOOC 2.0, Live Q&A Session #1 with @polemitis

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