Can Bitcoin Survive a Hard Fork?

Xapo's Wences Casares on block size and bitcoin's future.

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Can Bitcoin Survive a Hard Fork?

"I think bitcoin is more robust because we cannot depend on Satoshi [Nakamoto, creator of bitcoin] to say, 'Hey, Satoshi, what do we do with the block size?'" says Wences Casares, founder of the bitcoin wallet Xapo. "I think that would be a weaker bitcoin."

Casares is an entrepreneur who brought the first internet service provider to his home country of Argentina and then launched the mega successful online brokerage firm Patagon. So people listen when he says that bitcoin "may change the world more than the Internet did."

Reason TV's Zach Weissmueller sat down with Casares in Xapo's San Francisco headquarters and discussed the state of bitcoin, why he believes that bitcoin's core technology needs modification to increase block size, and why such a modification doesn't threaten the future of the crypotcurrency as some critics fear. They also discussed how bitcoin can help people in developing countries to protect themselves against hyperinflation, why he believes that everyone should own a little (but not too much) bitcoin, and why Xapo stores its bitcoin private keys in vaults underneath the Swiss Alps.

Approximately 10 minutes. Shot by Paul Detrick. Produced by Zach Weissmueller. Music by Art East.

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Comments

[JFree]

Oh puhleeze. Greece is very good evidence that bitcoin isn't money and it probably can't ever be. So what if it makes libertarians shiver with antici - wait for it - pation. It is not a medium of exchange at all in the real world - and ultimately the digital world is always gonna be hostage to the state. Maybe its a store of value - but money itself always sucks as a store of value.

Get off the damn bitcoin hype train. Governments are already preparing to screw with REAL money - like talking about banning coins. Why are libertarians so fucking useless?

[VicRattlehead]

not with that attitude it wont be!

[JFree]

Attitude has nothing to do with it. No one can easily explain to the 99% of non-techies out there what bitcoins exchange value is based on. So why should any one of them exchange their hard-earned (and non-saveable) labor for 'bitcoin'? It is little more than a techie version of fiat - that can only exist in the digital world.

[LynchPin1477]

No one can easily explain to the 99% of non-techies out there what bitcoins exchange value is based on

Market forces. Though I agree 99% of people don't understand them.

So why should any one of them exchange their hard-earned (and non-saveable) labor for 'bitcoin'

Because there are low transaction costs. If the exchange rate remains highly volatile then the lower transaction costs won't matter, but if it stabilizes that can be a real win for people who don't have access to the financial infrastructure that is available in advanced economies.

It is little more than a techie version of fiat - that can only exist in the digital world

I hate to break it to you, but there is nothing magical about commodity-based currencies. All currencies derive their value from a sort of "fiat of the market", if you will. I'm using the term loosely, but the point is that gold doesn't have some sort of "inherent" value. Nothing does.

[Berserkerscientist]

Personally, I like gold better than bitcoin. But both have problems. They are difficult to conduct transaction with. They can be stolen with no recourse, because they are fungible.

But the advantages is they cannot be artificially inflated. They can only be inflated at the rate at which they can be mined, which is resource restrained.

The fact that gold and bitcoin are in demand is because countries around the world are debasing their currencies in an effort to boost exports.

[LynchPin1477]

I'm no evangelist for bitcoin, but I do see where it can have real advantages. You can conduct a bitcoin transaction with any connected device. Even in poorer countries, those devices are common. So the transaction costs are already low and will get lower.

Your bitcoins are only as secure as your private key - that is the weak point. Though you are correct that once they are gone, they are gone.

[JFree]

I'm gonna guess that the real weak link long-term is the 'connected device'. Those larger entities/corporations that provide all the 'connections' infrastructure are gonna be the first things that get taken over in war, fall apart in financial crisis, get torn up in natural catastrophe, coopted by governments offering cronyist deals in exchange for support, etc.

IOW - when everything is roses, it will work fine. When anything goes wrong, bitcoin will lose 100% of its value immediately - with no notice.

[Kandralla]

You don't need a "connected device"... You can back up to paper if you want.

You need connectivity to use bitcoin, but you don't need it to posess currency. Network has proven to be far more difficult to control, than say, hand-carried currency.

[Cytotoxic]

Some points:

1) BTC is actually accepted for goods far more than gold is.

2) BTC can be swapped for many other digital currencies very easily.

3) Gold is not as finite as BTC. Maybe there is a massive vein of gold in Chile that will start pouring out next year. Spain had a gold currency and a lot inflation during the 1700s or so because of all the gold they brought back from the New World.

[mad.casual]

3) Gold is not as finite as BTC.

Barring transmutation and/or relatively liberal space exploration, gold more finite with regard to regular transfers.

21 Million coins is the cap, but means little since the base unit can be fractionated pretty much to bring the transactable units up to something like 2.1 quadrillion units (at which point, the today's transaction fees will be pretty harsh) and, conceivably, further as necessary.

Moreover, the questions of "What happens if..." have about as clear and definitive an answer as the same questions about gold before Nixon declared it irrelevant. There's already the similar sort of crappy language about 'economic majority' and 'nominally prohibited from being bitcoin' written into the protocol/by laws. As if people wouldn't just walk around using bitcoin notes the same way Federal Reserve Notes used to represent gold.

*At the moment* governments don't control the mining/minting of coins directly (digital nor gold) and so it is *more free* than fiat.

[rocks]

Gold sometimes works as a sound money platform, but the Spanish conquest of the Americas and FDR's 1933 ban showed how sometimes its effectiveness breaks down.

Bitcoin will always function as a sound money platform. It will win just give it time

[JFree]

FDR's confiscation was in actuality a bank bailout. Closed all the banks. Issued a threat to all the non-Federal Reserve ones (ie submit or our FR banks won't honor interbank settlements with you to help with bank runs) and then reopened the banks that submitted. By legalizing the bank fraud that the BANKS had committed.

Yes, that particular bailout occurred because banks - as is 100% expected - committed fraud in misleading depositors into believing that gold deposited into a bank in exchange for a credit/note was the same as actual gold on deposit. And gold standard does tend to lead there because gold coins are near useless in everyday exchange. But a 'bitcoin standard' will lead to the exact same place. As will any 'backed' money that is backed by something that can't physically be easily used in everyday exchange. It will end up being deposited somewhere - and the 'backed' money then simply becomes an promissory IOU unit-of-account (which will ALWAYS fail whenever the depository company decides that fraud/theft is easier and more profitable than fiduciary responsibility).

[JFree]

Gold (or better silver) COINS do have intrinsic value. Technically all coins do in the amount of the face value minus the seigniorage. And the seigniorage is only a one-time charge rather than a transaction charge. With the upside that that intrinsic value will likely exceed the face value at some point in the future.

The reason precious metal coins do serve well as a medium of exchange is because the metal is geologically rare enough to embody a significant amount of unskilled labor, skilled labor, capital, resources, etc to extract/refine/mint. So someone who gets eg silver as their pay is exchanging a day's worth of their non-saveable unrecoverable labor for a permanent portable tangible 'basket' of a lot of other peoples surplus production. Which by the way also makes Say's Law work.

Even Federal Reserve banknote dollars at least have a fixed exchange value. You can always exchange them - dollar for dollar - to pay down mortgage/housing/car loans that you have from the bank - or to pay a tax bill to the govt.

Bitcoin can't ever do either of those - unless it tries to do the latter and loses its libertarian street cred. So what can it do instead?

[TheZeitgeist]

Bitcoin can't ever do either of those - unless it tries to do the latter and loses its libertarian street cred. So what can it do instead?

What can it do instead? The underlying technology enables all data for all transactions to be recorded, analyzed, stored. If one of the fiats used a similar underlying technology (incorporating the physical tokens as well), one would have data on what the economy so denominated is doing with unprecedented reality.

No more 'estimating' GDP, balance of payments, or inflation - all such values are precisely known good as the query at the blockchain can derive. All these periodic reports from government entities which capital markets turn on - payroll, PMI, whatever - would be running realtime statistics like any stock. One can derive the 'velocity' of money down to individual units of the scrip, and how fast those individual units transact - again in realtime.

From an accounting perspective alone, BTC is vastly superior to any money ever conceived. Dollars and gold vs. BTC that way is like comparing newspapers or cuneiform tablets to the internet.

[Paul.]

What can it do instead? The underlying technology enables all data for all transactions to be recorded, analyzed, stored.

This is probably a bug, more than a feature.

[LynchPin1477]

They don't have "intrinsic" value. Nothing does. Gold has value because, over centuries, a consensus has emerged to use gold as a medium of exchange. It's cultural.

Even something necessary for life doesn't have an intrinsic value. What's a glass of water worth? It depends. How thirsty are you, how easily can you get potable water from other sources, etc.

Once you realize this, you realize that bitcoin can do what any currency can do, IF (and it is a big if) a consensus emerges to use bitcoin as a medium of exchange. The only thing it probably won't be allowed to do is pay taxes.

[JFree]

Gold itself is rarely a medium of exchange. A minted coin (or assayed bar) made of gold is a medium of exchange.

Any metal does have intrinsic value. Maybe it resists corrosion or is solid or has malleability or whatever but that is intrinsic. Coins are metal because metals have the intrinsic value thats needed to make useful coins/tokens. That is the entirety of their intrinsic value and all that is needed.

A $50 mandated face price (legal tender value) coin is useful as a medium of daily exchange. If that coin is zinc, most of that coins value is seigniorage. If that coin is gold, it is too small to be useful as a coin (expensive pocket lint). If that coin is silver, it is just right - as a coin with not much seigniorage and mostly intrinsic value. If all three are in circulation - the gold coin will be deposited somewhere 'safe' and few will care about the coin itself as long as the note is still a unit of account; the silver coin will be saved/hoarded if possible; and the zinc coin will be Gresham's hot potato that ends up in daily circulation.

There's a big difference between a money standard based on coinage and a money standard based on some single fixed price of something (gold/bitcoin/'commodity basket'/etc). The latter is always going to end up a centrally-planned bank-based money and the sovereign/banks/depositories will always be each others parasites. Coinage itself doesn't need anything beyond the coin itself and the market transaction.

[TheZeitgeist]

BTC's valuation is based on public perception - just like the fiats, or gold for that matter.

All three of those items have a common property: None of them are rationally valued.

[Berserkerscientist]

Gold (and Bitcoin) are not like fiat currency, because they cannot be counterfeited and have a relatively steady creation rate.

Why wouldn't they be rationally valued? Lack of information?

[TheZeitgeist]

Anything playing the part of money is never rationally valued. A pound of gold is pretty useless unless someone else wants it. Nobody ever 'needs' gold.

Value of a money is never about what an individual thinks it is worth, but about what everyone else thinks it is worth.

[LynchPin1477]

But that is true of everything. There is no such thing as inherent value.

[TheZeitgeist]

But that is true of everything. There is no such thing as inherent value.

If I am starving, a loaf of bread is worth a great deal to me, no matter what anyone else thinks the loaf of bread is worth - that is inherent value to me, even if I am last person on earth.

Money, however, is dependent on an external perception of its value completely independent of my situation. Money's magic is making inherent values of two different parties relative.

But if there is only one party, there can be no 'money.'

[LynchPin1477]

And if you are not starving it won't be worth as much.

Value is subjective, you are right about that. But saying something has "inherent" value implies that it has an objective value by its very nature. Your example demonstrates why that is not the case.

[JFree]

You're missing the point of a medium of exchange. The point of money is to EXCHANGE it - not to hoard it. If you want to hoard something - hoard bullets or water or diapers or canned food or something else that has the intrinsic UTILITY value that you may want. Money is merely the lubricant of exchange.

[LynchPin1477]

That is one purpose of money, but the other is as a store of value *in a form that can be exchanged later on*. I agree that is intimately tied to its use as a medium of exchange, but the point is that you may not want to exchange all your money right away.

Hoarding bullets and diapers and canned food might be a good idea if I was worried about societal collapse enough to regularly shit my pants, but what if I want to save for retirement? I guess the diapers might become useful at some point but unless the RV dealer** accepts payment in tactical bacon I'm going to be SOL. Having a currency that maintains its value over the long term (making it a good store of value) is a much better option.

** I would never actually buy an RV. When I go outdoors I like to get away from roads and large groups. But I hold no ill will to people who want the creature comforts. At least they are out seeing cool things.

[JFree]

Well I think the gold standard pretty much proved that money itself is not a good long-term store of value for something like retirement. All those folks who studiously deposited their gold coins and savings in banks for decades before 1929 got that retirement stolen from them. And by the time the banking system (which is supposed to be the link between savings and investment) broke down and the money was stolen, they were too old to work and couldn't find work anyway in a financially-created debt-deflation recession. Which is why the political pressure for Social Security came about. Anyone who studiously deposited money savings long-term in a hole in their backyard would risk the same theft.

For short-term savings, emergency cash fund, 'don't know what to do with excess money right now', etc - money can work as a store of value. Coinage itself can also protect against the sort of hyperinflation that destroys most other forms of money.

But long term - you cannot 'save' for retirement. If that is the extent of what you yourself are doing; then you are leaving the 'investment agency' decision to someone else and that agent will, VERY high probability, steal much of it. If retirement is the goal; then you can only get there by making the core investment decision yourself.

[Chipper Morning Wood]

Many libertarians would love a hard fork. Many libertarians haven't had a decent fork in a while, and have been sporking it for too long.

[Chip the Chipper]

Read that headline wrong.....

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