Many of these APYs are being measured in the token staked, not in the "value" of that token as might be expressed in (say) dollars. The payment is then made via inflation, which devalues everyone's tokens to give the people who staled more token. (Yes: this means that the value of your money might go down even if you legitimately have 20% more of it; the market for the token at that point is a separate--yet related--issue.)
Ultrasound money cannot be money with a monetary policy on moving sands that can change because Vitalik and his buddies decided it was a fun experiment.
Ethereum has demonstrated that its monetary policy wasn't "sound" and that it could be changed way too easily with EIP-1559, and will change again.
This meme went so far that people now think it's more than just a stupid meme.
> All those changes took years to make happen and hundreds of people debated them.
Sure. But if you want a money system whose policy is based on, well, politics, we already have plenty of very good implementations of those.
> All of them have made Ethereum more secure, easier to use, and deflationary.
It's too young to say if it's actually deflationary or not. I'm betting on not, because once there is more value leaving the crypto ecosystem than entering it, no force on Earth can stop that from lowering crypto values.
It's deflationary not in a USD sense but that over time there is less and less ETH because it's being burnt. While almost every other token is printing more.
It's not politics, it's discussing technical and economic tradeoffs to make the most secure credible neutral decentralized ledger possible.
There are some Bitcoin maximalists that think Satoshi was a god who figured everything out perfectly from inception. To me their insistance on never changing seems more religious than technical.
Arguing that an inflationary money is actually a better store of value than a deflationary one is not possible from an economic standpoint so they have to switch to other arguments like "well yea the devs continually made the economics better... But what if they make them worse!" Which isn't based in reality, it's all FUD.
There are no further plans to change the economics beyond this point and attempting to change them requires convincing thousands of people that it's a good idea, and it's not a 50% quorum, it's 90%+ because there are many clients written by many different teams that would all have to implement the change.
> There are some Bitcoin maximalists that think Satoshi was a god who figured everything out perfectly from inception. To me their insistance on never changing seems more religious than technical
It's not about getting it perfect. It's about getting it good enough and stable.
Bitcoin had its forks that introduced change. People voted with their legs and chose the stability. What matters is that some developers attempted a change and ultimately people decided they prefer original set of rules.
Not sure what happened with ETH but I feel like it might work a bit differently there.
I can see merit to that, as it's trying to be a good money more than Ethereum, and nation states won't adopt a currency with technical risk.
I just think it ossified way too early and then to justify that they come up with religious arguments that "actually 21m coins on a diminishing curve is the perfect economic policy and any meddling is bad"
Sure, but it ossified at the behest of its community who could have chosen more progressive forks but decided not to. Given how well bitcoin is doing it wasn't a bad call. And if someone doesn't like what bitcoin is (not) doing there's plenty of other cryptos they can move to. So far no crypto seemes to be able to win the holy grail for mass business adoption and it's really hard to tell which one can manage that if any
> It's deflationary not in a USD sense but that over time there is less and less ETH because it's being burnt.
This isn't what the word deflation actually means though. Deflation is when the purchasing power of a currency increases, and inflation is the opposite.
The purchasing power of ETH hasn't been very stable over time at all. It certainly hasn't been consistently deflationary.
If enough people are not on board, the majority can always fork and have their own chain. The best implementation then wins in the long run. That is the beauty of blockchains, imho.
It happened once with ETH vs ETC. BTC has been subjected to numerous shit-forks. Real valuable chain has persisted in all the cases.
>Arguing that an inflationary money is actually a better store of value than a deflationary one is not possible from an economic standpoint
See Krugman’s legendary article about the problem with deflationary currencies, such as the one used by the Capitol Hill Babysitting Co-op.
Long story short, he claims that people will hoard their deflationary currency because they expect it to go up in value over time. But if a large percentage of economic actors are hoarding their currency, there will be less economic activity and less output, and paradoxically, the value of the currency will go down rather than up.
Inflationary money IS better than deflationary money though. Deflationary money encourages hoarding, and discourages investment in value-producing ventures. Inflationary money does the opposite.
If society ran on deflationary money, that would act as a massive brake on the economy, and financial institutions would become risk-averse to the point where loaning money would be nigh on impossible.
Deflationary money is only better from a hoarding perspective, and I'd argue that perspective is counter productive for society as a whole.
Inflationary currency benefits the wealthy though.
If you are rich, you can get loans easily, and it's better to invest your liquid cash and get cheap money on loan, while everybody else has a constantly deflating account. So you get even wealthier.
A loan can be seen as a short on the currency. When you take out a loan, you bet that the currency tomorrow will be worth less than today. Which is what happens in an inflationary world. It would not be a problem if everybody could get a loan, but usually loans are directly proportional to wealth.
tl;dr: inflationary = good for wealthy people, accumulates money in the hands of the few. Spending is encouraged.
Deflationary = good for regular people, companies are loath to invest. Saving is encouraged.
The current inflationary economy only works for the wealthy. I’d extend this to say it works for the upper middle class and anyone who owns a house, which is an increasingly shrinking class of people.
Inflation entrenches and widens the wealth gap. A deflationary currency works for everyone. People still need things like food, housing, and so on — so they will spend the currency to get those things. When a good investment opportunity arises, one that outpaces the deflation, it will still be worth investing. You just have to be wiser about investments.
Age implicitly has more buying power in a deflationary economy. This is fine, and true anyway because age tends to have more deflationary assets now anyway (houses, investments, etc.). The difference is with a deflationary currency, they have access to a liquid deflationary asset — they don’t need to have a house or investments in order to maintain buying power. This is a good thing. That means people who NEED a house can have one; if the deflationary currency makes more money than holding on to a house, houses as investments make no sense anymore. This means houses become houses again, for people. This makes a more vibrant community of people when people can actually afford to live in places.
I can go on, but the benefits of an inflationary economy seem to me to be illusionary. Big number go up, wealthy people wealthier, poor people poorer, human condition significantly worse. Deflationary economy seems to me to remedy most of this.
> When a good investment opportunity arises, one that outpaces the deflation, it will still be worth investing. You just have to be wiser about investments.
> if the deflationary currency makes more money than holding on to a house, houses as investments make no sense anymore.
These can't both hold at the same time. Either the currency deflates faster than investments, in which case investment funding dries up, or it deflates slower than housing, in which case it doesn't help the cost-of-housing problem.
(As bad as the housing market is, concluding that it would be a good idea to make access to money work the same way is pretty backwards IMO; rather the right conclusion is that we need to legalise building homes).
> Deflationary = good for regular people, companies are loath to invest. Saving is encouraged.
You've explained why inflationary is bad but not why deflationary is good.
The starting point has to be history, where deflation has been accompanied by a lack of economic growth and high unemployment.
During the Great Depression, the dollar became a deflationary currency and the slowdown in spending certainly didn't make the economy serve regular people any better.
That's the canonical example of deflation you have to explain away.
Historically, we have not had worldwide light speed communication available to all, and deflationary currency transmissible at lightspeed absent any central authorities. I think we can take history with a grain of salt here.
While I agree that the internet has a huge impact on the economy, I don't think there's reason to believe it changes it in the way you seem to imply. In the absence of any very convincing argument to the contrary, the historical view seems very likely to be correct.
Pray tell, how do you mean the internet would make deflation favour the poor? I fail to see any mechanic or theory that would support the notion.
Unfortunately, the history of an inflationary economy not backed by any scarce asset is extremely short. Given our technological level and the amount of poverty, I would say it has been an abject failure. Society moves forward in spite of it, not because of it.
I can only share my opinions with you. If you need more, I’d recommend taking a walk through the poorest neighborhoods of your nearest big city and report back on how well an inflationary economy is working for those people. In an age of lightspeed comms, automated industry, a machine economy, etc., it is an embarrassment and gross negligence that any poverty exists anywhere on Earth, let alone at the mass scale it currently exists. At this technology level it is very difficult to have the level of poverty we have, but our inflationary economy somehow manages to make it happen.
If you can’t see it with how obvious it is, not much I can say to you. I’d recommend psychedelics to get started on the path towards having basic eyesight.
I fail to see how a deflationary system favours the rich any less than a inflationary system. We seem to agree that a deflationary system favours those with money in their savings account.
You know who has lots of money in their savings accounts? Rich people!
If you want the rich to share their wealth, a deflationary currency won't help you: you need socialism, or at least some policies that leans towards it. But that's an entirely different discussion, and completely unrelated to the effects of inflation Vs deflation.
The key phrase is "As a store of value". I'm not debating if this is good or bad for the overall economy.
If you have the exact same fungible asset, and you have a choice to inflate or deflate the supply, deflating is always going to be better for its value because there is less of it.
Even if no change could ever be made again to Bitcoin: it is not an inflationary money in the long term.
Only during the current predictable and necessary bootstrapping phase where there still exists a block reward (until ~2140) is the total circulating supply gradually increasing.
After this point it is neither inflationary or deflationary for supply reasons (although as people lose coins it may be very slightly deflationary).
Ultra sound money cannot be money with a monetary policy on moving sands that can change because Jerome Powell and his buddies decided it was a fun experiment...
A meme is a unit of cultural information or a unit of imitation. When you call something more than a meme, as weird as it is, you're pretty much saying that it's not a cultural, but a hereditery piece of information (a gene). Calling Ethereum a meme is fine, it is something people do. But, calling it a gene is something else. I don't know that you know what you're saying. To be honest, some of us would prefer if you kept your low effort comments (posted through throw away accounts) to yourself.
Eip 1559 saved eth holders billions of dollars. It's not possible to perfectly design a system from the start, and in fact ethereum was explicitly started as a work in progress.
Bitcoin would need massive changes to even have a potential to become money. Currently it's the antithesis of money - not backed by anything, in fact the opposite - requires billions per just to function.
Could you summarize? I read the introduction there, but am not planning to buy the book. The intro there hints toward a theory with this:
> The book also made huge theoretical advances. Rothbard was the first to prove that the government, and only the government, can destroy money on a mass scale, and he showed exactly how they go about this dirty deed. But just as importantly, it is beautifully written. He tells a thrilling story because he loves the subject so much.
> The passion that Murray feels for the topic comes through in the prose and transfers to the reader. Readers become excited about the subject, and tell others. Students tell professors. Some, like the great Ron Paul of Texas, have even run for political office after having read it.
It seems obvious to me that only the government can destroy (and indeed create) money, but I'm not sure how someone could claim to be the first to have proven that. From that last line I can infer that the general thrust is libertarian?
But the rules can be dumb. The exponential decay of rewards is, in my opinion, wildly unethical and leads to great harm. It permanently creates a system of haves and have-nots. That a system that cannot be changed is not in any way evidence that the system is good.
We could imagine an alternative system that Satoshi programmed that, once per year, chose 5% of wallets at random and marked those coins as invalid, permanently destroying them. That would be an unchangeable system but it would also be idiotic. Just because there isn't a bureaucrat does not mean that there is no policy.
Right. Some people in crypto will be baffled that eternal inflation is a built-in feature of some cryptocurrencies since one of the motivators of Bitcoin was to stop inflation caused by the fed printing money at will.
Bitcoin, FWIW, currently (it will slow down and eventually supposedly stop) prints money every block to pay for mining. It does this to fund a public good, which is network security, under the assumption that people who store large amounts of money would be willing to pay more to protect that money than people who store small amounts of money, and in the early years (which we apparently are still a part of) it is considered that fees for transfers aren't where most of the payment could be derived. (Personally, it isn't clear to me that the network makes sense to be paid for entirely by fees. Ironically, AFAIK on Ethereum the percentage of the block reward paid for by fees is much higher than Bitcoin and their minted block reward will continue on forever.)
This, to me, seems definitely like "inflation", caused by an increase in the money supply by a shared governance structure. It certainly isn't "deflation". Bitcoin does describe it not as printing money but as unlocking money that was already set aside, but what matters today (as opposed to whenever the rewards stop in the future... I don't remember off-hand when that will be) is the circulating money supply, not the theoretically existing / allocated supply (which is why if you lose money forever it is the same as destroying it; and which can also be seen because, if the US Fed merely had pre-printed giant fat stacks of cash that they've been dipping into for all these years, you wouldn't know the difference between that and it printing bills).
> seems definitely like "inflation", caused by an increase in the money supply by a shared governance structure
It's a money-supply increase. Depending on whether one Bitcoin buys more or fewer goods, it's inflating or deflating. (Currently, deflating, since Bitcoin is going up relative to the dollar and goods are priced in dollars.)
What's really curious is that Bitcoin's advocates claim it's the ultimate inflation hedge, "sound money" that will hold its value while "fiat money" is debased.
Then at the exact moment "fiat money" has a spike of inflation at 8% to 10%, the value of the "sound money" inflation hedge plummets 70%.
Now, at the exact instant it appears "fiat money" inflation is moderating, suddenly the "sound money" jumps up 35% from its lows.
Why on Earth would an inflation hedge decline dramatically when inflation shows up, and then increase when the inflation rate declines?
>Then at the exact moment "fiat money" has a spike of inflation at 8% to 10%, the value of the "sound money" inflation hedge plummets 70%.
>Now, at the exact instant it appears "fiat money" inflation is moderating, suddenly the "sound money" jumps up 35% from its lows.
Because a devaluation of the dollar is not what's actually causing the price of BTC to appreciate as much as speculation about the future monetary policy that could come as a result of lower inflation numbers (i.e less hawkish Fed). Which is funny because the way the CPI is calculated has been very controversial and subject to change. One common narrative is that the Fed will be forced to pivot to avoid a major recession.
It's not just BTC but the stock market in general behaving this way.
> Why on Earth would an inflation hedge decline dramatically when inflation shows up, and then increase when the inflation rate declines?
You're not wrong, but this also is a reminder that BLS inflation statistics are not exactly 'inflation'. They actually are more reliable as a harbinger of Federal Reserve policy in coming months, and so have the opposite impact on current asset prices one might expect.
If not the statistic, what is 'inflation'? Well, it's way simpler than the BLS would have you think. When 1BTC goes from $500 to $50,000, that's inflation. Maybe the BLS didn't notice, but you did, it was pretty obvious. This lesson teaches that the issue actually is inflation rolling from one class of goods to another and in this case it's obvious-- where BTC inflated first, a leak of that value out to general goods will result in or reflect a decline in BTC prices, especially where this catches the BLS' attention and signals that the Federal Reserve will do something about it.
It might be the ultimate risk asset. Seriously. There are entire classes of financial models we discarded for involving magic variables which quantified the state of the market's animal spirits. Crypto my let us estimate those.
OK, you "win" (I think), though at that point I feel like the term isn't going to mean anything useful anymore as applied to a commodity... like, on a moment to moment basis we don't describe the US dollar as inflating and deflating despite it constantly having small adjustments with respect to its value: we track the large-scale movements specifically caused by economic policy that changes the circulating money supply (whether by the Fed or by individual banks or even by things like relative wages).
Yes. As (I tihnk it was you) said in a sibling comment, supply expansion/contraction has a very significant meaning for a commodity though and that's really what happens with crypto. It's a bit frustrating to me the way in which the crypto community reuses various "tradfi" concepts but with slightly incorrect terminology etc.
I was referring to something like ATOM. BTC has a limited supply so it won't inflate past a certain period, but ATOMs inflate each year and if you're not staking them, you are effectively becoming poorer year to year.
The double whammy is you also get taxed on that yield so for chains that are paying yield with inflation you're actually losing money by staking.
They really do need to be transparent about what the actual yields are (return - inflation). AFAIK Ethereum is the only chain that gives a positive return after taxes because it's deflationary.
